<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, 2000
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. 814-139
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)
September 30, December 31,
2000 1999
------------ -----------
<S> <C> <C>
ASSETS
Equity investments, at fair value
(cost basis of $277,977 and
$247,977 for 2000 and 1999,
respectively) $119,538 315,186
Cash and cash equivalents 62,527 10,829
Restricted cash -- 23,500
------- -------
Total assets $182,065 349,515
======= =======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued
expenses $ 18,437 26,734
Due to related parties 466,714 644,455
------- -------
Total liabilities 485,151 671,189
Commitments and contingencies
Members' equity
Investors (Shares outstanding of
5,157 and 4,456 in 2000 and
1999, respectively) -- 128,999
Investment Managers (245,523) (2,747)
Deferred distribution costs (57,563) (447,926)
------- -------
Total members' equity (303,086) (321,674)
------- -------
Total liabilities and
members' equity $182,065 349,515
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
----------------------------------
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Interest income $ -- 186 -- 1,267
------ ------ ------- -------
Total income -- 186 -- 1,267
Costs and expenses:
Management fees 2,578 2,429 10,539 7,021
Independent Directors' compensation 9,409 3,348 33,124 30,854
Operating expenses:
Investment operations 2,529 16,630 8,489 69,650
Administrative and investor services 23,328 23,989 90,572 67,850
Professional fees 34,655 6,273 55,975 34,423
Computer services 5,267 5,913 17,593 12,885
------ ------ ------- -------
Total operating expenses 65,779 52,805 172,629 184,808
------ ------ ------- -------
Total expenses 77,766 58,582 216,292 222,683
------ ------ ------- -------
Net realized loss (77,766) (58,396) (216,292) (221,416)
Change in net unrealized fair value of equity
investments (8,887) -- (225,648) --
------ ------ ------- -------
Net loss before cumulative effect of
change in accounting principle (86,653) (58,396) (441,940) (221,416)
Cumulative effect of change in accounting
principle (Note 3) -- -- -- (40,000)
------ ------ ------- -------
Net loss $(86,653) (58,396) (441,940) (261,416)
====== ====== ======= =======
Net loss per share before cumulative
effect of change in accounting principle $ (0.00) (14.07) (39.55) (55.49)
Cumulative effect of change in
accounting principle (Note 3) (0.00) (0.00) (0.00) (10.03)
------ ------ ------- ------
Net loss per share $ (0.00) (14.07) (39.55) (65.52)
====== ====== ======= ======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
------------------------------------
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ -- 1,267
Cash paid to vendors (101,130) (104,901)
Cash advances received from related
parties, net 73,550 82,683
------- -------
Net cash used by operating
activities (27,580) (20,951)
------- -------
Cash flows from investing activities:
Purchase of equity investments (30,000) (187,977)
------- -------
Net cash used by investing activities (30,000) (187,977)
------- -------
Cash flows from financings:
Proceeds from sale of investor shares 70,100 41,600
Investment Managers' capital contributions 65 42
Payments for distribution costs (1,087) (839)
Payments from restricted cash, net 23,500 4,000
Proceeds from Investment Manager for
investment purchases 16,700 35,000
------- -------
Net cash provided by financing activities 109,278 79,803
------- -------
Net increase (decrease) in cash and
cash equivalents 51,698 (129,125)
Cash and cash equivalents at beginning
of year 10,829 153,692
------- -------
Cash and cash equivalents at September 30 $ 62,527 24,567
======= =======
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)(continued)
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
---------------------------
2000 1999
------------ ------------
<S> <C> <C>
Reconciliation of net loss
to net cash used by operating
activities:
Net loss $(441,940) (261,416)
Adjustments to reconcile net realized
loss to net cash used by operating
activities:
Cumulative effect of change in
accounting principle -- 40,000
Change in net unrealized fair value of
equity investments 225,648 --
Changes in assets and liabilities net
of effects from non-cash financing
activities:
Due to related parties 197,009 190,512
Accounts payable and accrued expenses (8,297) 9,953
------- -------
Net cash used by operating
activities $ (27,580) (20,951)
======= =======
Non-cash financing activities:
Organizational and deferred distribution
costs due to Investment Managers $(391,450) 41,600
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (unaudited)
----------------------------------------
1. General
-------
Interim Financial Statements
----------------------------
In the opinion of the Investment Managers, the accompanying interim
financial statements reflect all adjustments necessary for the fair
presentation of the financial position, results of operations, members'
equity and cash flows for the interim periods presented. These
statements should be read in conjunction with the Annual Report on Form
10-K for the year ended December 31, 1999. Allocation of income and loss
to Investors is based on cumulative income and loss. Adjustments, if
any, are reflected in the current quarter balances.
Valuation of Investments
------------------------
Investments are valued at fair value as required by the Investment
Company Act of 1940.
Under the direction and control of the Board of Directors, the Management
Committee is delegated the authority to establish valuation procedures
and periodically apply such procedures to the Fund's venture capital
investment portfolio. In fulfilling this responsibility, the Management
Committee periodically updates and revises the valuation procedures used
to determine fair value in order to reflect new events, changing market
conditions, more experience with investee companies, or additional
information, any of which may require the revision of previous estimating
procedures. The valuation procedures were revised and updated by the
Management Committee in the quarter ended June 30, 2000. A change in
fair value of $170,721 was recognized during the quarter ended June 30,
2000 to reflect the revisions to the valuation methodology and is
reflected in "Change in the net unrealized fair value of equity
investments" in the "Statement of Operations."
The fair value of investments in publicly traded securities is considered
to be the amount which the Fund may reasonably expect to receive if the
investments were sold on the valuation date. Unrestricted securities are
valued at the five-day average closing sales price or bid/ask price that
is available on a national securities exchange or over-the-counter
market. Valuation discounts of 5% to 50% are applied to securities
subject to resale restrictions resulting from Rule 144, contractual lock-
ups such as those commonly associated with underwriting agreements, or
knowledge of material non-public information and also to unrestricted
securities when the number of shares held by the Fund and its affiliates
is substantial in relation to the average trading volume.
The fair value of all other investments is determined in good faith by
the Management Committee under the delegated authority of the Board of
Directors after consideration of available, relevant information. There
is no ready market for the Fund's investments in private companies or
unregistered securities of public companies. Fair value is generally
defined as the amount the Fund could reasonably expect to receive for an
investment in an orderly disposition on a current sale. Other significant
factors considered in the estimation of fair value include the inherent
illiquidity of and lack of marketability associated with venture capital
investments in private companies or unregistered securities, the investee
company's enterprise value established in the last round of venture
financing, changes in market conditions since the last round of venture
financing or since the last reporting period, the value of a minority
interest in the investee company, contractual restrictions on resale
typical of venture financing instruments, the investee company's
financial position and ability to obtain any necessary additional
financing, the investee company's performance as compared to its business
plan, and the investee company's progress towards initial public
offering. The values determined for the Fund's investments in these
securities are based upon available information at the time the good
faith valuations are made and do not necessarily represent the amount
which might ultimately be realized which could be higher or lower than
the reported fair value.
In connection with the proposed transaction described in Note 2, the
Management Committee engaged an independent third party to value the
Fund's investments as of September 1, 2000. The valuation report was
received on October 11, 2000 and the information therein was utilized by
the Management Committee in the determination of fair value. The
valuation report's estimated total fair value of investments at September
1, 2000 of $180,709 exceeds the fair value of investments determined in
good faith by the Management Committee at September 30, 2000 of $119,538.
The difference primarily results because of changes in market conditions
between the valuation dates and because the valuation report's estimates
for two portfolio companies were based in part upon proposed rounds of
financing at higher valuations. In accordance with the valuation
procedures established by the Board of Directors, financing rounds at
higher valuations must be finalized with evidence of new third party
participation before they can be reflected in fair value for financial
reporting purposes.
At September 30, 2000 and December 31, 1999, the investment portfolio
included investments totaling $110,317 and $249,641, respectively, whose
fair values were established in good faith by the Management Committee in
the absence of readily ascertainable market values. In addition,
investments in publicly traded securities which have been subjected to a
discount for legal, contractual or practical restrictions as determined
by the Management Committee amounted to $9,221 and $65,545 at September
30, 2000 and December 31, 1999, respectively. Because of the inherent
uncertainty in the valuation, the values may differ significantly from
the values that would have been used had a ready market for the
securities existed, and the differences could be material.
2. Suspension of Offering and the Uncertain Future of the Fund
-----------------------------------------------------------
Technology Funding Securities Corporation suspended the offering of
shares of the Fund on April 25, 2000. The small size of the Fund will
make it more difficult than originally anticipated to achieve the
investment objectives of the Fund. Therefore, the Fund Directors are
considering the feasibility of offering all Fund investors a refund of
the greater of their original capital contributions, plus interest, or
their proportionate share of the Fund's net asset value, and are
exploring all available options that would allow the Fund to accomplish
that goal. Certain options being explored may require the approval of the
Securities and Exchange Commission. There can be no assurance that the
Directors will be successful in this effort.
The uncertainties arising from these circumstances raise substantial
doubt about the Fund's ability to continue as a going concern. The
accompanying interim financial statements do not include any adjustments
that might result from the outcome of these uncertainties. The Fund has
been advised by its independent public accountants that should the
uncertainties surrounding the Fund's future operations remain unresolved
at year-end, their report on those financial statements will be modified
for that contingency.
3. 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 loss before the cumulative effect
of the change in accounting principle for the nine months ended September
30, 1999 was to reduce the loss by $7,500, or $1.88 per share. The
effect on net loss (including a non-cash charge of $40,000, or $10.03 per
share, for the cumulative effect as of January 1, 1999) was $32,500, or
$8.15 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 nine months
ended September 30, 1999 of $221,416, and net realized loss per share of
$55.49.
4. Net Loss Per Investor Share
---------------------------
Net loss per investor share is calculated by dividing total net loss
allocated to the Investors by the weighted average number of shares
outstanding for the three months ended September 30, 2000 and 1999 of
5,157 and 4,109, respectively, and the nine months ended September 30,
2000 and 1999 of 5,034 and 3,950, 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 nine months ended
September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Management fees $10,539 7,021
Independent Directors' compensation 33,124 30,854
Reimbursable operating expenses 79,796 78,454
</TABLE>
At September 30, 2000 and December 31, 1999 management fees payable
totaled $28,363 and $17,824, respectively. 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.
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Investment Managers and are adjusted to actual
costs periodically. At September 30, 2000 and December 31, 1999, due to
related parties for such expenses was $438,351 and $301,031,
respectively.
The Fund reimburses the Investment Managers and Distributors for
distribution costs. Distribution costs were charged to the Fund to the
extent capital was raised; such costs charged by related parties were
$70,100 and $41,600 in the nine months ended September 30, 2000 and 1999,
respectively, and $515,700 since inception of the Fund. However, as
described in Note 2, the Fund's offering has been suspended and the
Directors have no immediate plans to file a new registration statement.
Distribution costs payable to the Investment Managers and Distributors
are limited to 10.5% of the offering proceeds. Accordingly, distribution
costs charged to the Fund were reduced by $461,550 as of September 30,
2000 since the Directors do not currently expect additional proceeds to
be raised. Distribution costs paid by the Fund in excess of the
limitation totaling $65,852 have been repaid to the Fund. As discussed
in Note 8, additional distribution costs have been, and may be, incurred
by the Distributors, and would be payable by the Fund if additional
investor capital is raised. Distribution costs payable were $0 and
$325,600 at September 30, 2000 and December 31, 1999, respectively.
6. Equity Investments
------------------
<TABLE>
At September 30, 2000, equity investments consisted of:
<CAPTION>
September 30, 2000
Principal ---------------------
Amount or
Investment Shares as of Cost Fair
Industry/Company Position Date September 30, 2000 Basis Value
---------------- -------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Communications
-------------
Women.com Networks, Common
Inc. (c) shares 1999 6,048 $60,480 9,221
Information Technology
----------------------
WorldRes, Preferred
Inc. (a) (b) shares 1999 11,157 67,500 62,817
Medical/Biotechnology
---------------------
Biex, Inc. Preferred
(a) (b) shares 1999 23,076 59,997 11,500
Resolution Sciences Preferred
Corporation (a) shares 2000 15,000 30,000 12,000
Sanarus Medical, Preferred
Inc. (a) (b) shares 1999 40,000 60,000 24,000
------- -------
Total equity investments at September 30, 2000 $277,977 119,538
======= =======
Legend and footnotes:
(a) Equity securities acquired in a private placement transaction;
resale may be subject to certain selling restrictions.
(b) Portfolio company is an affiliate of the Fund; resale may be subject to certain
selling restrictions.
(c) Marketable equity security.
All investments are valued at fair value as determined in good faith by the
Directors of the Fund. See Note 1--Valuation of Investments. Significant
purchases and sales of investments during the nine months ended September
30, 2000 are as follows:
Resolution Sciences Corporation
-------------------------------
In February 2000, the Fund purchased 15,000 Series C Preferred shares for
$30,000. This purchase was funded, in part, by cash advances from the
Investment Managers.
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at September 30, 2000 and December 31, 1999,
consisted of:
</TABLE>
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Demand accounts $61,979 9,966
Money-market accounts 548 863
------ -------
Total $62,527 10,829
====== =======
</TABLE>
As of September 30, 2000, the Fund's monies were on deposit at a single
financial institution.
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 September 30, 2000, there were no such restricted funds.
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. The
Fund's distribution costs, however, are limited to 10.5% of the total
proceeds raised in this offering. At September 30, 2000, the Distributors
had incurred distribution costs totaling $3,283,103, of which $54,148 has
been paid based upon the 10.5% limitation, with the remaining portion of
$3,228,955 payable to the Distributors in the unlikely event that
additional capital is raised (see Notes 2 and 5.) Additional distribution
costs may be incurred and would be payable by the Fund if additional
capital is raised. As more fully discussed in Note 5, distribution costs
paid to the Distributors in excess of this limitation of $65,852 were
reimbursed to the Fund during the quarter ended September 30, 2000. The
Fund reports the distribution costs as a deduction from Members' equity.
Item 2. Management's Discussion and Analysis of Financial
Condition
Technology Funding Securities Corporation suspended the offering of shares
of the Fund on April 25, 2000. The small size of the Fund will make it
more difficult than originally anticipated to achieve the investment
objectives of the Fund. Therefore, the Fund Directors are considering the
feasibility of offering all Fund investors a refund of the greater of their
original capital contributions, plus interest, or their proportionate share
of the Fund's net asset value, and are exploring all available options that
would allow the Fund to accomplish that goal. Certain options being
explored may require the approval of the Securities and Exchange
Commission. There can be no assurance that the Directors will be
successful in this effort.
The uncertainties arising from these circumstances raise substantial doubt
about the Fund's ability to continue as a going concern. The accompanying
interim financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
The fund operates as a business development company under the Investment
Company Act of 1940 and makes venture capital investments in new and
developing companies. The Fund's financial condition is dependent upon the
success of the portfolio companies. There is no ready market for many of
the Fund's investments. It is possible that some of its venture capital
investments may be a complete loss or may be unprofitable and that others
will appear likely to become successful, but may never realize their
potential. The valuation of the Fund's investments in securities for which
there are no available market quotes is subject to the estimate of the
Directors of the Fund in accordance with the valuation guidance described
in Note 1 to the financial statements. In the absence of readily
obtainable market values, the estimated fair value of the Fund's
investments may differ significantly from the values that would have been
used had a ready market existed.
During the nine months ended September 30, 2000, net cash used by operating
activities totaled $27,580. The Fund received advances from the Investment
Managers totaling $134,254 to fund its operations and paid $33,124 in
compensation to Independent Directors and $101,130 in other operating
expenses.
During the nine months ended September 30, 2000, the Fund purchased equity
investments of $30,000 in a company in the medical industry. The Fund
received proceeds of $70,100 from sales of Investor shares and $65 from
Investment Managers' capital contributions and paid $1,087 in distribution
costs. Net funds released from restricted cash totaled $23,500. The Fund
received advances of $16,700 from the Investment Managers for investment
purchases.
Results of Operations
---------------------
Current quarter compared to corresponding quarter in the preceding year
-----------------------------------------------------------------------
Net loss for the quarters ended September 30, 2000 and September 30, 1999
was $86,653 and $58,396, respectively. The increased loss is primarily due
to a $12,974 increase in operating expenses.
Operating expenses totaled $65,779 and $52,805 for the three months ended
September 30, 2000 and 1999, respectively. The increase is due to
professional fees incurred for an independent valuation of the Fund's
investments, partially offset by decreased investment monitoring expenses.
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.
Current nine months compared to corresponding nine months in the
---------------------------------------------------------------
preceding year
--------------
Net loss for the nine months ended September 30, 2000 and 1999 was $441,940
and $261,416, respectively. The increased loss is primarily due to a
$225,648 decrease in the change in net unrealized fair value of equity
investments.
The $225,648 decrease in net unrealized fair value of equity investments is
primarily due to a $170,721 decrease in fair value as discussed in Note 1
to the financial statements and a decrease in the publicly traded market
price of Women.com Networks, Inc.
Operating expenses totaled $172,629 and $184,808 for the nine months ended
September 30, 2000 and 1999, respectively. The decrease in primarily due
to decreased investment monitoring expenses, partially offset by increased
administrative expenses and professional fees.
As explained in Note 3 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.
II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) A Form 8-K was filed by the Fund on September 12, 2000 to report the
resignation of KPMG LLP as the Fund's independent accountants. A
Form 8-K/A was filed by the Fund on September 25, 2000 with KPMG
LLP's letter in response to the Form 8-K.
A Form 8-K was filed on November 13, 2000 to report the appointment
of Arthur Andersen LLP as the Fund's new independent public
accountants.
b) Financial Data Schedule for the nine months ended and as of September
30, 2000 (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 14, 2000 By: /s/Charles R. Kokesh
-----------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
