<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 March 31, 1999
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 SHEETS
- --------------
<TABLE>
<CAPTION>
(unaudited)
March 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Equity investments (cost basis of
$127,497) $127,497 --
Cash and cash equivalents 36,216 153,692
Restricted cash 8,500 21,000
Organizational costs (net of
accumulated amortization of $10,000
in 1998) -- 40,000
------- -------
Total assets $172,213 214,692
======= =======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued
expenses $ 26,521 35,173
Due to related parties 348,601 277,394
------- -------
Total liabilities 375,122 312,567
Commitments, contingencies and
subsequent event (Notes 5, 6 and 8)
Members' equity:
Investors (shares outstanding
of 3,826 and 3,710 in 1999 and
1998, respectively) 182,660 274,976
Investment Managers (1,637) (599)
Deferred distribution costs (383,932) (372,252)
------- -------
Total members' equity (202,909) (97,875)
------- -------
Total liabilities and
members' equity $172,213 214,692
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Three
Months Ended
March 31,
--------------------------
1999 1998
------ ------
<S> <C> <C>
Income:
Interest income $ 917 663
------- ------
Total income 917 663
Costs and expenses:
Management fees 232 2,890
Independent Directors' compensation 16,003 10,500
Amortization of organizational costs -- 2,500
Operating expenses:
Investment operations 10,151 --
Administrative and investor services 21,710 --
Professional fees 14,157 --
Computer services 3,630 --
------- ------
Total operating expenses 49,648 --
------- ------
Total expenses 65,883 15,890
------- ------
Net realized loss before cumulative
effect of change in accounting
principle (64,966) (15,227)
Cumulative effect of change in
accounting principle (Note 2) (40,000) --
------- ------
Net realized loss $(104,966) (15,227)
======= ======
Net realized loss per Share before
cumulative effect of change in
accounting principle $ (17.08) (11.75)
Cumulative effect of change in
accounting principle (Note 2) (10.52) --
------- ------
Net realized loss per Share $ (27.60) (11.75)
======= ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF MEMBERS' EQUITY (unaudited)
- -----------------------------------------
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
Deferred
Investment Distribution
Investors Managers Costs Total
--------- ---------- ------------ -----
<S> <C> <C> <C> <C>
Members' equity, December 31, 1998 $274,976 (599) (372,252) (97,875)
Sales of Fund shares 11,600 -- -- 11,600
Investment Managers'
capital contributions -- 12 -- 12
Deferred distribution costs -- -- (11,680) (11,680)
Net realized loss (103,916) (1,050) -- (104,966)
------- ----- ------- -------
Members' equity, March 31, 1999 $182,660 (1,637) (383,932) (202,909)
======= ===== ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
- ------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ 917 663
Cash paid to vendors (32,397) --
Cash advances received from related
parties 17,469 --
------- -------
Net cash (used) provided by operating
activities (14,011) 663
------- -------
Cash flows from investing activities:
Purchase of equity investments (127,497) --
------- -------
Net cash used by investing activities (127,497) --
Cash flows from financings:
Proceeds from sale of investor shares 11,600 144,500
Investment Managers' capital contributions 12 144
Payments for distribution costs (80) --
Payments from restricted cash 12,500 --
------- -------
Net cash provided by financing activities 24,032 144,644
------- -------
Net (decrease) increase in cash and
cash equivalents (117,476) 145,307
Cash and cash equivalents at beginning
of year 153,692 --
------- -------
Cash and cash equivalents at March 31 $ 36,216 145,307
======= =======
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)(continued)
- -----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
------------------------------------
<S> <C> <C>
Reconciliation of net realized loss to net
cash (used) provided by operating activities:
Net realized loss $(104,966) (15,227)
Adjustments to reconcile net realized loss
to net cash (used) provided by operating
activities:
Amortization of organizational costs -- 2,500
Cumulative effect of change in
accounting principle 40,000 --
Changes in assets and liabilities net of
effects from noncash financing activities:
Due to related parties 59,607 13,390
Accounts payable and accrued expenses (8,652) --
------- -------
Net cash (used) provided by operating
activities $ (14,011) 663
======= =======
Noncash financing activities:
Organizational and deferred distribution
costs due to Investment Managers $ 11,600 194,500
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
- ----------------------------------------
1. General
-------
In the opinion of the Investment Managers, the Balance Sheets as of March
31, 1999 and December 31, 1998 and the related Statements of Operations,
Statements of Member's Equity, and Statements of Cash Flows for the three
months ended March 31, 1999 and 1998, reflect all adjustments which are
necessary for a fair presentation of the financial position, results of
operations, and cash flows for such periods. These statements should be
read in conjunction with the Annual Report on Form 10-K for the year
ended December 31, 1998. The following notes to financial statements for
activity through March 31, 1999, supplement those included in the Annual
Report on Form 10-K. Allocation of income and loss to Investors is based
on cumulative income and loss. Adjustments, if any, are reflected in the
current quarter balances.
2. Change in Accounting Policy for Organizational Costs
----------------------------------------------------
Effective January 1, 1999, the Fund adopted the provisions of the
American Institute of Certified Public Accountants' Statement of Position
98-5, "Reporting on the Costs of Start-up Activities" ("SOP 98-5.") SOP
98-5 specifies that organizational costs should be expensed as incurred
rather than capitalized and subsequently amortized.
The effect of adopting SOP 98-5 on net realized loss before the
cumulative effect of the change in accounting principle for the three
months ended March 31, 1999 was to reduce the loss by $2,500, or $.66 per
share. The effect on net realized loss (including a non-cash charge of
$40,000, or $10.52 per share, for the cumulative effect as of January 1,
1999) was $37,500, or $9.86 per share. The cumulative effect of this
change on the Fund's balance sheet as of January 1, 1999 was to reduce
organizational costs by $40,000.
The pro forma effect of retroactive application of this accounting
principle would have resulted in net realized loss for the three months
ended March 31, 1999 and March 31, 1998 of $64,966 and $62,727,
respectively, and net realized loss per Share of $17.08 and $48.40,
respectively.
3. Financing of Fund Operations
----------------------------
The Investment Managers expect cash received from future investor share
sales, liquidation of fund investments, and investment income to provide
the necessary liquidity for Fund operations. The Fund may be dependent
upon the financial support of the Investment Managers to fund operations
if future proceeds are not received timely. The Investment Managers have
committed to support the Fund's working capital requirements through
short-term advances as necessary.
4. Net Realized Income (Loss) Per Share
------------------------------------
Net realized income (loss) per Share is calculated by dividing total net
realized income (loss) allocated to the Investors by the average number
of Shares outstanding for the three months ended March 31, 1999 and 1998
of 3,766 and 1,283, respectively.
5. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statement of Operations. Related party costs for the three months ended
March 31, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Management fees $ 232 2,890
Independent Directors' compensation 16,003 10,500
Reimbursable operating expenses 25,903 --
</TABLE>
At March 31, 1999 and December 31, 1998 management fees payable totaled
$7,652 and $7,420, respectively.
The Investment Managers began charging the Fund for operating expenses
upon commencement of investment activity in 1999. Prior to 1999, the
Fund's operating expenses were absorbed by the Investment Managers.
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Investment Managers and are adjusted to actual
costs periodically. At March 31, 1999 and December 31, 1998, due to
related parties for such expenses was $70,849 and $11,474, respectively
The Fund reimburses the Investment Managers and Distributors for
distribution costs. Distribution costs charged to the Fund by related
parties were $11,600 and $144,500 in the three months ended March 31,
1999 and 1998, respectively. As discussed in Note 8, 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.
Distribution costs payable were $262,600 and $251,000 at March 31, 1999
and December 31 1998, respectively.
At March 31, 1999 and December 31, 1998, fees payable to Independent
Directors were $7,500.
6. Equity Investments
------------------
<TABLE>
Activity from January 1 through March 31, 1999, consisted of:
<CAPTION>
January 1 through March 31, 1999
--------------------------------
Principal
Investment Amount or Cost Fair
Industry/Company Position Date Shares Basis Value
- ---------------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ -- --
Significant changes:
Information Technology
- ----------------------
WorldRes, Inc. Series D
Preferred
shares 03/99 11,157 67,500 67,500
Medical/Biotechnology
- ---------------------
Biex, Inc. Series F
Preferred
shares 03/99 23,076 59,997 59,997
------- -------
Total equity investments at March 31, 1999 $127,497 127,497
======= =======
</TABLE>
Biex, Inc.
- ----------
In March 1999, the Fund purchased 23,076 Series F Preferred shares for
$59,997.
Women.com Networks
- ------------------
Subsequent to March 31, 1999, the Fund purchased 6,048 Series E
Preferred shares for $60,480. This purchase was funded by cash
reserves, the sale of additional Fund shares, and cash advances from
the Investment Managers.
WorldRes, Inc.
- --------------
In March 1999, the Fund purchased 11,157 Series D Preferred shares for
$67,500.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at March 31, 1999 and December 31, 1998,
consisted of:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Demand accounts $ 9,500 1,500
Money-market accounts 26,716 152,192
------ -------
Total $36,216 153,692
====== =======
</TABLE>
As of March 31, 1999, the Fund's monies were on deposit at a single
financial institution.
8. Commitments and Contingencies
-----------------------------
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 March 31, 1999, the Distributors had incurred distribution costs
totaling $2,173,012, of which $120,000 has been paid and $262,600 has
been recorded as a liability of the Fund, with the remaining portion of
$1,790,412 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 clearing house (ACH) wire
transfers and credit card transactions are restricted for a maximum
period of 90 days. At March 31, 1999, such restricted funds totaled
$8,500.
Item 2. Management's Discussion and Analysis of Financial
Condition
Liquidity and Capital Resources
- -------------------------------
During the three months ended March 31, 1999, net cash used by
operating activities totaled $14,011. The Fund received advances from
the Investment Managers totaling $17,469 to fund its operations. Other
operating expenses of $32,397 were paid and interest income of $917 was
received.
During the three months ended March 31, 1999, the Fund purchased equity
investments of $127,497 in companies in the information technology and
medical industries. The Fund received proceeds of $11,600 from sales
of Investor shares and $12 from Investment Managers' capital
contributions and paid $80 in distribution costs. Funds released from
restricted cash totaled $12,500.
Cash and cash equivalents at March 31, 1999, were $36,216. Future
proceeds from the sale of Fund shares, sales of equity investments,
interest income earned on short-term investments and operating cash
reserves along with Investment Managers' support are expected to be
adequate to fund Partnership operations through the next twelve months.
Results of Operations
- ---------------------
Current quarter compared to corresponding quarter in the preceding year
- -----------------------------------------------------------------------
Net losses for the three months ended March 31, 1999 and March 31, 1998
were $104,966 and $15,227, respectively. The increased loss is
primarily due to a $49,648 increase in operating expenses and a $40,000
charge for the cumulative effect of a change in accounting for
organizational costs.
The Investment Managers began charging the Fund for operating expenses
upon commencement of investment activity in 1999. Prior to 1999, the
Fund's operating expenses were absorbed by the Investment Managers.
As explained in Note 2 to the financial statements, the Fund adopted
SOP 98-5 as of January 1, 1999. This adoption resulted in a $40,000
charge in the first quarter of 1999 to write off previously capitalized
organizational costs in accordance with SOP 98-5.
Given the inherent risk associated with the business of the Fund, the
sale of additional investor shares and future performance of the
portfolio company investments may significantly impact future
operations.
YEAR 2000
- ---------
Widespread use of computer programs that use two digits rather than
four to store, calculate, and display year values in dates may cause
computer systems to malfunction in the year 2000, resulting in
significant business delays and disruptions.
The Fund's State of Readiness
- -----------------------------
Computer services are provided to the Fund by its Investment Manager,
Technology Funding Inc. ("TFI".) For several years, TFI has sought to
use Year 2000 compliant storage formats and algorithms in its
internally-developed and maintained systems. TFI has also completed
initial evaluations of computer systems, software, and embedded
technologies. Those evaluations confirmed that certain components of
its network server hardware and operating systems, voice mail system,
e-mail system, and accounting software may have Year 2000 compliance
issues. These resources and several less-critical components of the
systems environment were all scheduled as part of normal maintenance
and replacement cycles to be replaced or upgraded as Year 2000
compatible components became available from vendors during 1998 and
1999. That program remains on schedule to provide Year 2000 capable
systems timely without significant expenditures or disruption of Fund
operations. However, the risk remains that TFI may not be able to
verify whether Year 2000 compatibility claims by vendors are accurate,
or whether changes undertaken to achieve Year 2000 compatibility will
create other undetected problems in associated systems. Therefore, TFI
anticipates that Year 2000 compliance testing and maintenance of these
systems will continue as needed into the first quarter of 2000.
As part of Year 2000 evaluation, TFI has also assembled a database
listing its significant suppliers to assess the extent to which it
needs to prepare for any of those parties' potential failure to
remediate their Year 2000 compliance issues. TFI is reviewing public
Year 2000 statements of those suppliers and preparing questionnaires to
be sent to mission-critical vendors whose public statements were not
adequate for assessment. TFI will continue to monitor its significant
suppliers as part of its Year 2000 evaluation. However, there can be
no guarantee that the systems of other companies on which TFI relies
will be timely converted, or that failure to convert will not have a
material adverse effect on the Fund and its operations. TFI is also
working with the Fund's potential portfolio companies to determine the
extent to which their operations are vulnerable to Year 2000 issues.
There can be no guarantee that the systems of portfolio companies in
which the Fund may invest will be timely converted, or that failure to
convert will not have a material adverse effect on the Fund.
The Cost to Address Year 2000 Issues
- ------------------------------------
Expenditures in 1999 to date related to Year 2000 issues were not
material to the Fund's financial statements. TFI expects that
additional expenditures for Year 2000 compliance will not be material
to the Fund.
The Risks Associated with Year 2000 Issues
- ------------------------------------------
Any failure by the portfolio companies in which the Fund may invest, or
by those portfolio companies' key suppliers or customers, to anticipate
and avoid Year 2000 related problems at reasonable cost could have a
material adverse effect on the value of and/or the timing of
realization of value from the Fund's investments. If Year 2000
compliance issues are not resolved by December 31, 1999, internal
system failures or miscalculations could cause a temporary inability to
process transactions, loss of ability to send or receive e-mail and
voice mail messages, or disruptions in other normal business
activities. Additionally, failure of third parties on whom TFI relies
to remediate their Year 2000 issues timely could result in disruptions
in the Fund's relationship with its financial institutions, temporary
disruptions in processing transactions, unanticipated costs, and
problems related to the Fund's daily operations. While TFI continues
to address its internal Year 2000 issues, until TFI receives and
evaluates responses from a significant number of its suppliers, the
overall risks associated with the Year 2000 issue remain difficult to
describe and quantify. There can be no guarantee that the Year 2000
issue will not have a material adverse effect on the Fund and its
operations.
TFI's Contingency Plan
- ----------------------
As part of its normal efforts to assure business continuation in the
event of natural disasters, systems failures, or other disruptions, TFI
has prepared contingency plans including an extensive Year 2000
contingency plan. Taken together with TFI's Year 2000 remediation
plan, it identifies potential points of failure, approaches to
correcting known Year 2000 problems, dates by which the preferred
corrections are anticipated to be made and tested, and alternative
approaches if the corrections are not completed timely or are later
found to be inadequate. Although backup systems and contingency
approaches have been identified for most mission-critical systems and
vendor dependencies, there remain some systems for which no good
alternative exists, and there may be some problems that prove more
intractable than currently anticipated.
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 March 31, 1999.
b) Financial Data Schedule for the period ended and as of March 31,
1999 (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: May 14, 1999 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 MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER>1
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<PERIOD-TYPE> 3-MOS
<INVESTMENTS-AT-COST> 127,497
<INVESTMENTS-AT-VALUE> 127,497
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 44,716
<TOTAL-ASSETS> 172,213
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 375,122
<TOTAL-LIABILITIES> 375,122
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 181,023
<SHARES-COMMON-STOCK> 3,826
<SHARES-COMMON-PRIOR> 3,710
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (383,932)
<NET-ASSETS> (202,909)
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 917
<EXPENSES-NET> (105,883)
<NET-INVESTMENT-INCOME> (104,966)
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> (104,966)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 116
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (105,034)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (105,883)
<AVERAGE-NET-ASSETS> (150,392)
<PER-SHARE-NAV-BEGIN> 74
<PER-SHARE-NII> (28)
<PER-SHARE-GAIN-APPREC> 0 <F1>
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 48
<EXPENSE-RATIO> 70.4
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>
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.
</FN>
</TABLE>
