<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A
--- ---
Commission File No. 814-124
TECHNOLOGY FUNDING VENTURE CAPITAL FUND VI, LLC.
------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 94-3266666
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 Alameda de las Pulgas, Suite 250
San Mateo, California 94403
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(650) 345-2200
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
No active market for the shares of the limited liability company exists,
and therefore the market value of such shares cannot be determined.
<PAGE>
I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEET
- -------------
<TABLE>
<CAPTION>
(unaudited)
September 30,
1998
------------
<S> <C>
ASSETS
Cash and cash equivalents $208,064
Restricted cash 22,000
Organizational costs (net of
accumulated amortization of $7,500) 42,500
-------
Total assets $272,564
=======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses $ 10,885
Due to related parties 322,663
-------
Total liabilities 333,548
Commitments and contingencies (Notes 2 and 5)
Members' equity:
Investors (shares outstanding
of 3,490) 289,074
Investment Managers (256)
Deferred distribution costs (349,802)
-------
Total members' equity (60,984)
-------
Total liabilities and
members' equity $272,564
=======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- ----------------------------------
<TABLE>
<CAPTION>
For the Three For the Period
Months Ended From January 22 to
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Income:
Interest income $ 1,758 3,648
------ ------
Total income 1,758 3,648
Costs and expenses:
Management fees 2,290 6,980
Independent Directors'
compensation 11,234 32,684
Amortization of organizational
costs 2,500 7,500
Operating expenses:
Administrative and investor services 162 3,397
Professional fees 2,310 13,618
------ ------
Total operating expenses 2,472 17,015
------ ------
Total costs and expenses 18,496 64,179
------ ------
Net realized loss $(16,738) (60,531)
====== ======
Net realized loss per share $ (5) (29)
====== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF MEMBERS' EQUITY (unaudited)
- ----------------------------------------
<TABLE>
<CAPTION>
Deferred
Investment Distribution
Investors Managers Costs Total
--------- ---------- ------------ -----
<S> <C> <C> <C> <C>
Sales of Fund shares $349,000 -- -- 349,000
Investment Managers'
capital contributions -- 349 -- 349
Deferred distribution costs -- -- (349,802) (349,802)
Net realized loss (59,926) (605) -- (60,531)
------- --- ------- -------
Members' equity, September 30, 1998 $289,074 (256) (349,802) (60,984)
======= === ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CASH FLOWS (unaudited)
- ----------------------------------
<TABLE>
<CAPTION>
For the Period from
January 22 to September 30, 1998
--------------------------------
<S> <C>
Cash flows from operating activities:
Interest received $ 3,648
Cash paid to vendors (6,130)
Cash paid to related parties (16,001)
-------
Net cash used by operating activities (18,483)
-------
Cash flows from financing activities:
Proceeds from sale of investor shares 349,000
Investment Managers' capital contributions 349
Payments for organizational and
distribution costs (100,802)
-------
Net cash provided by financing activities 248,547
-------
Net increase in cash and restricted cash 230,064
-------
Cash and restricted cash at September 30 $ 230,064
=======
Reconciliation of net realized loss to net
cash provided by operating activities:
Net realized loss $ (60,531)
Adjustments to reconcile net realized loss to
net cash used by operating activities:
Amortization of organizational costs 7,500
Changes in assets and liabilities net of
effects from noncash financing activities:
Accounts payable and accrued expenses 10,885
Due to related parties 23,663
-------
Net cash used by operating activities $ (18,483)
=======
Noncash financing activities:
Deferred distribution costs due
to Investment Managers $ 299,000
=======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. Summary of Significant Accounting Policies
------------------------------------------
General
-------
Technology Funding Venture Capital Fund VI, LLC (the Fund) is a
Delaware limited liability company (LLC) organized in February, 1997.
The Fund has elected to be regulated as a business development company
under the Investment Company Act of 1940, as amended (the Act). The
Fund will operate as a nondiversified investment company as defined in
the Act.
The Fund's investment objectives are long-term capital appreciation
from venture capital investments in emerging growth companies and
preservation of investor capital through risk management and active
involvement with such companies.
The Fund's Investment Managers are Technology Funding Ltd. (TFL) and
Technology Funding Inc. (TFI), a wholly owned subsidiary of TFL. Three
Independent Directors and two persons affiliated with the Investment
Managers (Affiliated Directors) serve as Directors of the Fund. The
Investment Managers are responsible for the Fund's investments, subject
to the supervision of the Directors.
From February 1997 through January 22, 1998, the Fund was inactive.
The Fund is offering 1,000,000 shares in an aggregate amount of up to
$100,000,000. The offering commenced on January 22, 1998, (the
Commencement Date). There is no minimum offering amount. The shares
are being offered and sold through Technology Funding Securities
Corporation (TFSC), a wholly-owned subsidiary of TFI, and a registered
member of the National Association of Securities Dealers, Inc. The
offering will terminate at the discretion of the Investment Managers,
but no later than January 22, 2000.
The Fund's fiscal year-end is December 31. The Fund will continue until
December 31, 2007, subject to the right of the Directors to extend the
term for up to two additional two-year periods.
In the opinion of the Investment Managers, the accompanying interim
financial statements, reflect all adjustments necessary for a fair
presentation of the financial position, results of operations, members'
equity, and cash flows for the interim periods presented.
Preparation of Financial Statements
-----------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Cash and Cash Equivalents
-------------------------
Cash and cash equivalents are principally comprised of cash invested in
demand accounts and money market instruments, and are stated at cost
plus accrued interest. The Fund considers all money market and short-
term investments with an original maturity of three months or less to
be cash equivalents.
Deferred Distribution Costs
---------------------------
Distribution costs consist of offering costs incurred pursuant to a
Distribution Agreement with TFSC and TFI (the Distributors). The Fund
will reimburse the Distributors for such costs. The Fund reports
deferred distribution costs to the extent that investor capital has
been raised as a liability and as a deduction from Members' Equity.
Deferred Distribution Costs will be allocated to investors' capital
accounts on a straight-line basis over the offering period, beginning
in the period in which Fund investment activity commences.
Organizational Costs
--------------------
Organizational costs of $50,000 are amortized over sixty months using
the straight-line method.
Effective in the first quarter of 1999, the unamortized portion of
these costs will be expensed in full in accordance with Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities.
Provision for Income Taxes
--------------------------
No provision for income taxes has been made by the Fund as the Fund has
elected to be treated as a partnership for income tax purposes, and,
therefore, the Fund is not directly subject to taxation. The LLC
members are to report their respective shares of LLC income or loss on
their individual tax returns.
Net Realized Loss Per Investor Share
------------------------------------
Net realized loss per investor share is calculated by dividing the
weighted average number of investor shares outstanding for the periods
from January 22, 1998 to September 30, 1998 and July 1, 1998 to
September 30, 1998 of 2,099 and 3,112 shares, respectively, into total
net realized loss allocated to investors. The Investment Managers
contributed an amount equal to 0.1% of investors capital contributions
and did not receive any shares.
2. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statement of Operations. Related party costs for the period from
January 22, 1998 to September 30, 1998, were as follows:
<TABLE>
<CAPTION>
1998
-------
<S> <C>
Management fees $ 6,980
Independent Directors' compensation 32,684
Amortization of organizational costs 7,500
</TABLE>
Management fees are equal to 2% of total investor capital contributions
for each of the years of Fund operation during the offering period. In
subsequent years, the management fee will be 2% of the cost basis of
Fund assets. Management fees compensate the Investment Managers solely
for investment manager overhead (as defined in the Operating Agreement)
incurred in supervising the investment operations of the Fund.
Pursuant to the Operating Agreement, a full first year fee is paid to
the Investment Managers as each additional investor is admitted to the
Fund, regardless of the date the investor is admitted. At September
30, 1998, management fees payable totaled $6,980.
The Fund reimburses the Investment Managers and Distributors for
organizational and distribution costs. Distribution costs payable at
September 30, 1998, were $299,000. As discussed in Note 5, additional
distribution costs have been, and will be, incurred by the
Distributors, and will be payable by the Fund as additional investor
capital is raised.
As compensation for their services, the Independent Directors each
receive $10,000 annually beginning on the Commencement Date plus $1,000
for each of the Directors meetings attended. For the period ended
September 30, 1998, $32,684 of such fees were incurred by the Fund. At
September 30, 1998, such fees payable totaled $7,500.
The Investment Managers have paid certain operating expenses of the
Fund on the Fund's behalf. At September 30, 1998, due to related
parties for such expenses was $9,183.
The Investment Managers contribute capital equal to 0.1% of total
capital contributions made by the investors, payable as capital
contributions are made by such investors. Through September 30, 1998,
the Investment Managers contributed capital of $349.
3. Allocation of Profits and Losses
--------------------------------
Net realized profits and losses of the Fund are allocated as follows:
(a) Profits
i) First, to those investors and Investment Managers with
deficit capital account balances until the deficits have
been eliminated; then,
ii) Second, to those investors and Investment Managers as
necessary to offset net loss previously allocated under
(b)(ii) below; then,
iii) Third, 80% to the investors in proportion to capital
account balances, and 20% to the Investment Managers.
(b) Losses
i) First, to the investors and Investment Managers as
necessary to offset net profit previously allocated to
the investors under (a)(iii) above; then,
ii) Second, 99% to the investors and 1% to the Investment
Managers.
Losses allocable to investors in excess of their capital account
balances will be allocated to investors that have positive balances in
their capital accounts in proportion to the respective amounts of such
positive balances until all such balances have been reduced to zero,
and thereafter solely to the Investment Managers. Net profit
thereafter otherwise allocable to the investors will be allocated to
the Investment Managers to the extent of such allocated losses. In no
event shall the Investment Managers be allocated less than 1% of the
net profit of the Fund, plus their pro rata share based on capital
contributed.
4. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 1998 consisted of:
<TABLE>
<CAPTION>
1998
------
<S> <C>
Demand account $ 1,500
Money-market account 206,564
-------
Total $208,064
=======
</TABLE>
As of September 30, 1998, the Fund's monies were on deposit at a single
financial institution.
5. Commitments and Contingencies
-----------------------------
As discussed in Note 2, the Fund reimburses the Distributors for
distribution costs incurred in connection with the offering of its
shares. The Distributors expect the Fund to reimburse these costs to
the extent capital has been raised. At September 30, 1998, the
Distributors had incurred distribution costs totaling $2,075,725, of
which $50,000 has been paid and $299,000 has been recorded as a
liability of the Fund, with the remaining portion of $1,726,725 payable
to the Distributors as additional capital is raised. Additional
distribution costs are expected to be incurred throughout the offering
period and will be payable by the Fund as additional capital is raised.
Under terms of an agreement with the Fund's bank, the use of the funds
arising from sales of shares via automatic wire transfer (ACH) and
credit card transactions, are restricted for a maximum period of ninety
days. At September 30, 1998, such restricted funds totaled $22,000.
Item 2. Management's Discussion and Analysis of Financial
Condition
Liquidity and Capital Resources
- -------------------------------
For the period from January 22 to September 30, 1998, net cash used by
operating activities totaled $18,483. The Fund received proceeds of
$349,000 from sales of investor shares and $349 from Investment
Managers' capital contributions. Organizational and distribution costs
of $100,802 were paid.
Cash and cash equivalents at September 30, 1998, were $208,064. Future
proceeds from the sales of shares, interest income earned on short-term
investments and operating cash reserves along with Investment Managers'
support are expected to be adequate to fund operations through the next
twelve months.
The Year 2000
- -------------
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may
cause computer systems to malfunction in the year 2000 and lead to
significant business delays and disruptions.
The Investment Managers have completed a preliminary assessment of the
internal financial, information and operating systems which it provides
to the Fund. Implementation and testing of necessary system
modifications is in progress and will be completed well before December
31, 1999. The Investment Managers are also monitoring the progress of
software vendors and third-party processors on which it relies, as well
as the progress of portfolio companies in which it has made significant
investments.
The Investment Managers do not expect the cost of the internal system
modifications to be material to the Fund's financial statements.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) No reports on Form 8-K were filed by the Fund during the quarter
ended September 30, 1998.
b) Financial Data Schedule for the period ended and as of September
30, 1998 (Exhibit 27).
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TECHNOLOGY FUNDING VENTURE CAPITAL FUND VI,LLC
By: TECHNOLOGY FUNDING INC.
Investment Manager
Date: November 12, 1998 By: /s/Michael R. Brenner
-----------------------------------
Michael R. Brenner
Controller
<TABLE> <S> <C>
<ARTICLE>6
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q AS OF SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-22-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-MOS
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 42,500
<OTHER-ITEMS-ASSETS> 230,064
<TOTAL-ASSETS> 272,564
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 333,548
<TOTAL-LIABILITIES> 333,548
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 288,818
<SHARES-COMMON-STOCK> 3,490
<SHARES-COMMON-PRIOR> 3,490
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (349,802)
<NET-ASSETS> (60,984)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 3,648
<EXPENSES-NET> 64,179
<NET-INVESTMENT-INCOME> (60,531)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (60,531)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,490
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (60,531)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,980
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 64,179
<AVERAGE-NET-ASSETS> (30,492)
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> (29)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 83
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
A zero value is used since the change in net unrealized fair value is
not allocated to Investment Managers and Investors as it is not
taxable. Only taxable gains or losses are allocated in accordance with
the Operating Agreement.
</FN>
</TABLE>
