<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 June 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. 814-124
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)
June 30, December 31,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Equity investments (cost basis of
$277,977 and $247,977 for 2000 and
1999, respectively) $128,425 315,186
Cash and cash equivalents 69,132 10,829
Restricted cash 1,000 23,500
------- -------
Total assets $198,557 349,515
======= =======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued
expenses $ 18,809 26,734
Due to related parties 857,731 644,455
------- -------
Total liabilities 876,540 671,189
Commitments and contingencies
(Notes 2, 5 and 8)
Members' equity
Investors (Shares outstanding of
5,157 and 4,456 in 2000 and
1999, respectively) 0 128,999
Investment Managers (158,870) (2,747)
Deferred distribution costs (519,113) (447,926)
------- -------
Total members' equity (677,983) (321,674)
------- -------
Total liabilities and
members' equity $198,557 349,515
======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF OPERATIONS (unaudited)
------------------------------------
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Interest income $ -- 164 -- 1,081
------- ------ ------- ------
Total income -- 164 -- 1,081
Costs and expenses:
Management fees 3,029 4,360 7,961 4,592
Independent Directors' compensation 16,099 11,503 23,715 27,506
Operating expenses:
Investment operations 2,551 42,869 5,960 53,020
Administrative and investor services 33,651 22,151 67,244 43,861
Professional fees 7,062 13,993 21,320 28,150
Computer services 6,017 3,342 12,326 6,972
------- ------ ------- -------
Total operating expenses 49,281 82,355 106,850 132,003
------- ------ ------- -------
Total expenses 68,409 98,218 138,526 164,101
------- ------ ------- -------
Net realized loss (68,409) (98,054) (138,526) (163,020)
Change in net unrealized fair value of equity
investments (201,772) -- (216,761) --
------- ------ ------- -------
Net loss before cumulative effect of
change in accounting principle (270,181) (98,054) (355,287) (163,020)
Cumulative effect of change in accounting
principle (Note 2) -- -- -- (40,000)
------- ------ ------- -------
Net loss $(270,181) (98,054) (355,287) (203,020)
======= ====== ======= =======
Net loss per Share before cumulative
effect of change in accounting principle $ (22.28) (24.41) (40.04) (41.69)
Cumulative effect of change in
accounting principle (Note 2) -- -- -- (10.23)
------- ------ ------- -------
Net loss per share $ (22.28) (24.41) (40.04) (51.92)
======= ====== ======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF MEMBERS' EQUITY (unaudited)
-----------------------------------------
<TABLE>
<CAPTION>
For the six months ended June 30, 2000
Deferred
Investment Distribution
Investors Managers Costs Total
--------- ---------- ------------ -----
<S> <C> <C> <C> <C>
Members' equity, December 31, 1999 $ 128,999 (2,747) (447,926) (321,674)
Sales of Fund shares 70,100 -- -- 70,100
Investment Managers'
capital contributions -- 65 -- 65
Deferred distribution costs -- -- (71,187) (71,187)
Net loss (199,099) (156,188) -- (355,287)
------- ------- ------- -------
Members' equity, June 30, 2000 $ 0 (158,870) (519,113) (677,983)
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)
------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Interest received $ -- 1,081
Cash paid to vendors (54,535) (89,302)
Cash advances received from related
parties, net 34,560 69,097
------- -------
Net cash used by operating
activities (19,975) (19,124)
------- -------
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 29,600
Investment Managers' capital contributions 65 30
Payments for distribution costs (1,087) (518)
Payments from restricted cash, net 22,500 6,000
Proceeds from Investment Manager for
investment purchases 16,700 35,000
------- -------
Net cash provided by financing activities 108,278 70,112
------- -------
Net increase (decrease) in cash and
cash equivalents 58,303 (136,989)
Cash and cash equivalents at beginning
of year 10,829 153,692
------- -------
Cash and cash equivalents at June 30 $ 69,132 16,703
======= =======
<PAGE>
STATEMENTS OF CASH FLOWS (unaudited)(continued)
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30,
---------------------------------
2000 1999
------------ ------------
<S> <C> <C>
Reconciliation of net loss to net
cash used by operating
activities:
Net loss $(355,287) (203,020)
Adjustments to reconcile net loss to net
cash used by operating activities:
Cumulative effect of change in
accounting principle -- 40,000
Change in net unrealized value of equity
investments 216,761 --
Changes in assets and liabilities net
of effects from non-cash financing
activities:
Due to related parties 126,476 151,785
Accounts payable and accrued expenses (7,925) (7,889)
------- -------
Net cash used by operating
activities $ (19,975) (19,124)
======= =======
Non-cash financing activities:
Organizational and deferred distribution
costs due to Investment Managers $ 70,100 29,600
======= =======
</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 a 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. Any change in
fair value which results from the revision in estimating procedures is
reported as a change in accounting estimate. The valuation procedures have
been revised and updated by the Management Committee, and have been
reflected in the June 30, 2000 financial statements. A change in
accounting estimate of $170,721 was recognized during the quarter ended
June 30, 2000 to reflect the revisions to the valuation procedures 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 company may reasonably expect to receive if 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. Inherent in the
good faith determination of fair value of these investments is the
selection of a reasonable period for orderly disposition. 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.
At June 30, 2000 and December 31, 1999, the investment portfolio included
investments totaling $112,822 and $249,642, 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 $15,604 and $65,545 at June 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
----------------------
Technology Funding Securities Corporation suspended the offering of shares
of the Fund on April 25, 2000 because the Fund's registration statement
under the Securities Act of 1933 was no longer current. The Fund may be
obligated to offer investors who purchased shares after the date when the
registration was no longer current the right to rescind their purchases.
In view of the uncertainties and contingent liabilities arising from these
circumstances, and because the small size of the Fund will make it more
difficult than originally anticipated to achieve the investment objectives
of the Fund, 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. There can be no assurance that the
Directors will be successful in this effort. In any event, no further
sales of Fund shares will be made unless and until a new and updated
registration statement for the shares is filed with the Securities and
Exchange Commission and declared effective.
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 six months ended June 30, 1999
was to reduce the loss by $5,000, or $1.28 per share. The effect on net
loss (including a non-cash charge of $40,000, or $10.23 per share, for the
cumulative effect as of January 1, 1999) was $35,000, or $8.95 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 six months ended
June 30, 1999 of $163,020, and net realized loss per Share of $41.69.
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 June 30, 2000 and 1999 of 5,157 and
3,976, respectively, and the six months ended June 30, 2000 and 1999 of
4,973 and 3,871, 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 six months ended June
30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Management fees $ 7,961 4,592
Independent Directors' compensation 23,715 27,506
Reimbursable operating expenses 60,240 50,590
</TABLE>
At June 30, 2000 and December 31, 1999 management fees payable totaled
$25,785 and $17,824, respectively.
Certain reimbursable expenses have been accrued based upon interim
estimates prepared by the Investment Managers and are adjusted to actual
costs periodically. At June 30, 2000 and December 31, 1999, due to related
parties for such expenses was $436,246 and $301,031, respectively.
The Fund reimburses the Investment Managers and Distributors for
distribution costs. Distribution costs charged to the Fund by related
parties were $70,100 and $29,600 in the six months ended June 30, 2000 and
1999, respectively. As discussed in Note 8, additional distribution costs
have been, and may be, incurred by the Distributors, and will be payable by
the Fund as additional investor capital is raised. Distribution costs
payable were $395,700 and $325,600 at June 30, 2000 and December 31, 1999,
respectively.
6. Equity Investments
------------------
<TABLE>
At June 30, 2000, equity investments consisted of:
<CAPTION>
June 30, 2000
Principal ---------------------
Amount or
Investment Shares as of Cost Fair
Industry/Company Position Date June 30, 2000 Basis Value
---------------- -------- ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Communications
-------------
Women.com Networks, Common
Inc. (c) shares 1999 6,048 60,480 15,604
Information Technology
----------------------
WorldRes, Preferred
Inc. (a) (b) shares 1999 11,157 67,500 64,822
Medical/Biotechnology
---------------------
Biex, Inc. Preferred
(a) (b) shares 1999 23,076 59,997 11,999
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 June 30, 2000 $277,977 128,425
======= =======
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.
</TABLE>
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 six months ended June 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 June 30, 2000 and December 31, 1999, consisted
of:
<TABLE>
<CAPTION>
2000 1999
------ ------
<S> <C> <C>
Demand accounts $68,478 9,966
Money-market accounts 654 863
------ -------
Total $69,132 10,829
====== =======
</TABLE>
As of June 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 June 30, 2000, such restricted funds totaled $1,000.
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
June 30, 2000, the Distributors had incurred distribution costs totaling
$3,204,591, of which $120,000 has been paid and $395,700 has been recorded
as a liability of the Fund, with the remaining portion of $2,688,891
payable to the Distributors as additional capital is raised (see Note 2.)
Additional distribution costs may be incurred throughout the offering
period and will be payable by the Fund as additional capital is raised.
The Fund's distribution costs, however, are limited to 10.5% of the total
proceeds raised in this offering. Any distribution costs paid to the
Distributors in excess of this limitation will be reimbursed to the Fund
prior to the termination of the offering. If the Fund did not sell any
additional shares subsequent to June 30, 2000, distribution costs would be
limited to $54,148. Distribution costs charged to the Fund through June
30, 2000 in excess of the limitation would have totaled $464,965 and would
have been borne by the Distributors. Cash payments made by the Fund
through June 30, 2000 for such excess costs totaled $65,852 and would have
been reimbursable to the Fund by the Distributors. The Fund reports these
deferred distribution costs, to the extent that investor capital has been
raised, as a liability and 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 because the Fund's registration statement
under the Securities Act of 1933 was no longer current. The Fund may be
obligated to offer investors who purchased shares after the date when the
registration was no longer current the right to rescind their purchases.
In view of the uncertainties and contingent liabilities arising from these
circumstances, and because the small size of the Fund will make it more
difficult than originally anticipated to achieve the investment objectives
of the Fund, 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. There can be no assurance that the
Directors will be successful in this effort. In any event, no further
sales of Fund shares will be made unless and until a new and updated
registration statement for the shares is filed with the Securities and
Exchange Commission and declared effective.
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 six months ended June 30, 2000, net cash used by operating
activities totaled $19,975. The Fund received advances from the Investment
Managers totaling $58,275 to fund its operations and paid $23,715 in
compensation to Independent Directors and $54,535 in other operating
expenses.
During the six months ended June 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 $22,500. 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 June 30, 2000 and June 30, 1999 was
$270,181 and $98,054, respectively. The increased loss is primarily due to
a $201,772 decrease in the change in net unrealized fair value of equity
investments.
The $201,772 decrease in net unrealized fair value of equity investments in
the quarter ended June 30, 2000 is primarily due to a $170,721 decrease in
fair value for the change in accounting estimate discussed in Note 1 to the
financial statements and a decrease in the publicly traded share price of
Women.com Networks, Inc.
Operating expenses totaled $49,281 and $82,355 for the three months ended
June 30, 2000 and 1999, respectively. The decrease is primarily due to
decreased investment monitoring and the related administrative 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 six months compared to corresponding six months in the
---------------------------------------------------------------
preceding year
--------------
Net loss for the six months ended June 30, 2000 and 1999 was $355,287 and
$203,020, respectively. The increased loss is primarily due to a $216,761
decrease in the change in net unrealized fair value of equity investments.
The $216,761 decrease in net unrealized fair value of equity investments in
the six months ended June 30, 2000 is due to a $170,721 decrease in fair
value for the change in accounting estimate discussed in Note 1 to the
financial statements and a decrease in the publicly traded share price of
Women.com Networks, Inc.
Operating expenses totaled $106,850 and $132,003 for the six months ended
June 30, 2000 and 1999, respectively. The decrease is primarily related to
decreased investment monitoring and the related administrative expenses.
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) No reports on Form 8-K were filed by the Fund during the quarter
ended June 30, 2000.
b) Financial Data Schedule for the six months ended and as of June 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: August 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
