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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Year Ended December 31, 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Liability Company Investor shares.
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
No active market for the shares of the limited liability company
investor shares (Shares) exists, and therefore the market value of
such Shares cannot be determined.
Documents incorporated by reference: Portions of the Prospectus of
Technology Funding Venture Capital Fund VI, LLC, as revised June 4,
1998 (accession number 0000950133-98-002220), forming a part of the
December 5, 1997 Pre-effective Amendment No. 1 to the Form N-2
Registration Statement No. 333-23913 dated July 11, 1997, filed
pursuant to Rule 424(c) of the General Rules and Regulations under
the Securities Act of 1933 are incorporated by reference in Parts I
and III hereof.
Forward-Looking Statements
- --------------------------
The Private Securities Litigation Reform Act of 1995 (the Act)
provides a safe harbor for forward-looking statements made by or on
behalf of the Fund. The Fund and its representatives may from time
to time make written or oral statements that are "forward-looking",
including statements contained in this report and other filings with
the Securities and Exchange Commission, and reports to the Fund's
shareholders and news releases. All statements that express
expectations, estimates, forecasts and projections are forward-
looking statements within the meaning of the Act. In addition, other
written or oral statements which constitute forward-looking
statements may be made by or on behalf of the Fund. Words such as
"expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates", "projects", "forecasts", "may", "should", variations of
such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and
assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or
forecasted in or suggested by such forward-looking statements. The
Fund undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise.
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Venture Capital Fund VI, LLC (the Fund) is
a limited liability company organized under the laws of the
State of Delaware in February 1997. Through April 25, 2000,
the Fund was 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). The shares were 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. TFSC suspended the offering of shares of the Fund on
April 25, 2000 with a total of 5,157 shares sold. The Fund's
original contributed capital was $516,216, consisting of
$515,700 from investors and $516 from Investment Managers,
Technology Funding Ltd. (TFL) and Technology Funding Inc.
(TFI). The Investment Managers do not own any shares.
The small size of the Fund will make it more difficult than
originally anticipated to achieve the investment objectives
of the Fund. Therefore, the Directors are considering the
feasibility of offering all 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 financial statements do not
include any adjustments that might result from the outcome of
these uncertainties.
The purpose of the Fund is to make venture capital
investments in emerging growth companies and preserve
investor capital through risk management and active
involvement with such companies as described in the "Summary
of the Offering" and "Business of the Fund" sections of the
Prospectus dated June 4, 1998. The Fund has elected to be a
business development company under the Investment Company Act
of 1940, as amended (the Act), and operates as a non-
diversified investment company as that term is defined in the
Act. Additional characteristics of the Fund's business are
discussed in the "Risk Factors" and "Conflicts of Interest"
sections of the Prospectus, which sections are also
incorporated herein by reference. 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, or until dissolution prior thereto.
Item 2. PROPERTIES
- ------ ----------
The Registrant has no material physical properties.
Item 3. LEGAL PROCEEDINGS
- ------ -----------------
There are no material pending legal proceedings to which the
Registrant is party or of which any of its property is the
subject, other than routine litigation incidental to the
business of the Fund.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matter was submitted to a vote of the holders of Shares
of the Fund during 2000.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ------ -------------------------------------------------
STOCKHOLDER MATTERS
-------------------
(a) There is no established public trading market for the
Shares.
(b) At December 31, 2000, there were 153 shareholders of
record.
(c) The Registrant, does not pay dividends.
Distributions of cash and securities, however, may be
made to the investors in the Fund pursuant to the
Registrant's Operating Agreement.
Item 6. SELECTED FINANCIAL DATA
- ------ -----------------------
For the Years Ended and
as of December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Investment income $ -- 1,313 5,109
Net investment loss (316,362) (250,014) (96,994)
Realized losses from impairment
write-downs (59,997) -- --
(Decrease) increase in unrealized
appreciation (depreciation) of
equity investments (244,370) 67,209 --
Net decrease in members' equity
resulting from operations before
cumulative effect of change in
accounting principle (620,729) (182,805) (96,994)
Cumulative effect of change in
accounting principle -- (40,000) --
Net decrease in members' equity
resulting from operations (620,729) (222,805) (96,994)
Net decrease in members' equity
resulting from operations per Share
before cumulative effect of change
in accounting principle (39.31) (44.77) (38.70)
Cumulative effect per Share of
change in accounting principle -- (9.79) --
Net decrease in members' equity
resulting from operations
per Share (39.31) (54.56) (38.70)
Total assets 97,724 349,515 214,692
See Notes 2 and 5 of the financial statements for a description of the
method of calculation of net decrease in members' equity resulting
from operations per Share. See Note 3 for a description of the change
in accounting principle.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
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 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.
For the year ended December 31, 2000, net cash used by
operating activities totaled $33,202. The Fund received
advances from the Investment Managers for operating expenses
totaling $152,580 and paid $47,358 in compensation to
Independent Directors. Payments to vendors for operating
expenses totaled $138,424.
During 2000, the Fund purchased equity investments of $31,613
in companies in the communications and medical/biotechnology
industries. The Fund received proceeds of $70,100 from sales
of investor shares and $65 from Investment Managers' capital
contributions and paid $1,087 for organizational and
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.
Cash and cash equivalents at December 31, 2000, were $55,292.
The Investment Managers have made loans to the Fund to
finance its recurring losses from on-going operations. The
Fund has very limited cash resources and primarily illiquid
assets. The Investment Managers are under no obligation to
continue financing the Fund's operation and may elect to
discontinue such support at any time during the remaining
life of the Fund.
Results of Operations
- ---------------------
2000 compared to 1999
- ---------------------
The net decrease in members' equity resulting from operations
for the years ended December 31, 2000 and 1999, was $620,729
and $222,805, respectively. The increased loss is primarily
due to an increase in the net unrealized depreciation of
equity investments, an increase in realized losses from
impairment write-downs on investments and increased operating
expenses.
Unrealized depreciation on equity investments was $177,161 at
December 31, 2000, compared to unrealized appreciation on
equity investments of $67,209 at December 31, 1999. During
the year ended December 31, 2000, the $244,370 decrease in
unrealized appreciation of equity investments was primarily
attributable to a $170,721 decrease in fair value of equity
investments to reflect the revisions to the valuation
methodology discussed in Note 1 to the financial statements.
The remaining decrease is due to unfavorable events and
market conditions for portfolio companies in the
communications and information technology industries. During
1999, the $67,209 increase in unrealized appreciation of
equity investments was due to increases in portfolio
companies in the communications and information technology
industries.
During 2000, the Fund recorded realized losses from
impairment write-downs on investments of $59,997, which
represents the Fund's total investment in Biex, Inc. Biex,
Inc. suspended operations in November 2000 after it was
unable to obtain additional financing.
Operating expenses totaled $255,886 and $203,397 for the
years ended December 31, 2000 and 1999, respectively. The
increase is primarily due to increased professional fees.
Given the inherent risk associated with the business of the
Fund, the future sale of Fund shares and the performance of
portfolio company investments may significantly impact future
operations.
1999 compared to 1998
- ---------------------
The net decrease in members' equity resulting from operations
for the years ended December 31, 1999 and 1998, was $222,805
and $96,994, respectively. The increased loss is primarily
due to an increase in operating expenses and a charge for the
cumulative effect of a change in accounting for
organizational costs, partially offset by an increase in the
net unrealized appreciation of equity investments.
Operating expenses totaled $203,397 and $40,477 for the years
ended December 31, 1999 and 1998, respectively. The Fund
commenced investment operations in March 1999 and,
accordingly, began to incur related investment monitoring and
administrative costs. Professional fees and computer
services also increased commensurate with the Fund's
investing and operating activities.
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.
During 1999, the $67,209 increase in unrealized appreciation
of equity investments was due to portfolio companies in the
communications and information technology industries.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------- ----------------------------------------------------------
The Fund is subject to financial market risks, including
changes in interest rates with respect to its investments in
debt securities and interest bearing cash equivalents as well
as changes in marketable equity security prices. The Fund
does not use derivative financial instruments to mitigate any
of these risks. The return on the Fund's investments is
generally not affected by foreign currency fluctuations.
The Fund does not have a significant exposure to modest
public market price fluctuations as the Fund primarily
invests in private business enterprises. However, should
significant changes in market equity prices occur, there
could be a longer-term effect on valuations of private
companies, which could affect the carrying value and the
amount and timing of gains realized on these investments.
Since there is typically no public market for the Funds's
investments in private companies, the valuation of the
investments is subject to the estimate of the Fund's
Directors. In the absence of a readily ascertainable market
value, the estimated value of the Fund's investments in
private companies may differ significantly from the values
that would be placed on the portfolio if a ready market
existed. The Fund's portfolio also includes common stocks in
publicly traded companies. These investments are directly
exposed to equity price risk, in that a hypothetical ten
percent change in these equity prices would result in a
similar percentage change in the fair value of these
securities. The Fund's investments also include some debt
securities. Since the debt securities are generally priced
at a fixed rate, changes in interest rates do not directly
impact interest income. The Fund's debt securities are
generally held to maturity or converted into equity
securities of private companies.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------ -------------------------------------------
The financial statements of the Registrant are set forth in
Item 14.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------- --------------------------------------------------
The Directors are responsible for the management and
administration of the Fund. The Directors consist of three
Independent Directors and a representative from each of
Technology Funding Ltd., a California limited partnership
(TFL), and its wholly owned subsidiary, Technology Funding
Inc., a California corporation (TFI). TFL and TFI are the
Investment Managers. The Fund has no executive officers.
Information concerning the ownership of TFL and the business
experience of the key officers of TFI, the partners of TFL
and the Independent Directors is incorporated by reference
from the sections entitled "Management of the Fund-The
Investment Managers", "Management of the Fund-Key Personnel
of the Investment Managers" and "Management of the Fund-The
Fund Directors" on pages 23 to 25 of the Prospectus as
revised June 4, 1998 (accession number 0000950133-98-002220),
forming a part of the December 5, 1997 Pre-effective
Amendment No 1 to the Form N-2 Registration Statement No 333-
23913 dated July 11, 1997.
Item 11. EXECUTIVE COMPENSATION
- ------- ----------------------
The Registrant has no officers. The Fund pays the Investment
Managers a management fee for supervising the venture capital
operations of the Fund. In 2000, the Fund incurred $13,118
in management fees. As compensation for their services, the
Independent Directors each receive $10,000 annually beginning
on the Commencement Date as defined in the Partnership
Agreement, $1,000 and related expenses for each attended
meeting of the Directors and $1,000 and related expenses for
each attended committee meeting unless such committee meeting
is held on the same day as a meeting of the Directors. For
the year ended December 31, 2000, $47,358 of such fees were
incurred.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Not applicable. No investor beneficially holds more than 5%
of the aggregate number of shares offered for sale, and
neither the Investment Managers nor any of their officers,
directors or partners own any shares. None of the
Independent Directors own any shares.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ------- ----------------------------------------------
The Registrant, has engaged in no transactions with the
Investment Managers or their officers and partners other than
as described above, in the notes to the financial statements,
or in the Fund's Operating Agreement.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
- ------- -------------------------------------------------------
FORM 8-K
--------
(a) List of Documents filed as part of this Annual Report on
Form 10-K
(1) Financial Statements - the following financial
statements are filed as a part of this Report:
Report of Independent Public Accountants as of and
for the year ended December 31, 2000
Independent Auditors' Report as of December 31, 1999
and for the years ended December 31, 1999 and 1998
Balance Sheets as of December 31, 2000 and 1999
Statements of Investments as of December 31, 2000
and 1999
Statements of Operations for the years
ended December 31, 2000, 1999 and 1998
Statements of Members' Equity for the years
ended December 31, 2000, 1999 and 1998
Statements of Cash Flow for the years
ended December 31, 2000, 1999 and 1998
Notes to Financial Statements
(2) Financial Statement Schedules
All schedules have been omitted because they are
not applicable or the required information is
included in the financial statements or the notes
thereto.
(3) Exhibits
Registrant's Operating Agreement (incorporated by
reference to Exhibit A to Registrant's Prospectus
dated June 4, 1998 (accession number 0000950133-98-
002220), forming a part of the December 5, 1997
pre-effective Amendment No. 1 to the Form N-2
Registration Statement No. 333-23913 dated July 11,
1997 filed pursuant to Rule 424(b) of the General
Rules and Regulations under the Securities Act of
1933).
(b) Reports on Form 8-K
A report on Form 8-K was filed by the Registrant on
November 13, 2000 to report the appointment of Arthur
Andersen LLP as the Fund's independent public
accountants. No financial statements were filed.
(c) Financial Data Schedule for the year ended and as of
December 31, 2000 (Exhibit 27).
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Members of
Technology Funding Venture Capital Fund VI, LLC:
We have audited the accompanying balance sheet of Technology Funding
Venture Capital Fund VI, LLC (a Delaware limited liability company)
(the Fund), including the statement of investments, as of December 31,
2000, and the related statements of operations, members' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
physical inspection of securities owned as of December 31, 2000. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Technology
Funding Venture Capital Fund VI, LLC as of December 31, 2000, and the
results of its operations, changes in members' equity and its cash
flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that
the Fund will continue as a going concern. As discussed in Note 1 to
the financial statements, the small size of the Fund and the suspension
of further offering of shares raise substantial doubt about its ability
to continue as a going concern. The Director's plans in regard to
these matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the outcome of
this uncertainty.
Los Angeles, California /S/ARTHUR ANDERSEN LLP
March 16, 2001
INDEPENDENT AUDITORS' REPORT
----------------------------
The Members
Technology Funding Venture Capital Fund VI, LLC:
We have audited the accompanying balance sheet of Technology Funding
Venture Capital Fund VI, LLC (a Delaware limited liability company),
including the statement of investments, as of December 31, 1999, and
the related statements of operations, members' equity, and cash flows
for the years ended December 31, 1999 and 1998. These financial
statements are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. Our procedures
included confirmation of certain securities owned, by correspondence
with the individual investee companies, and a physical examination of
those securities held by a safeguarding agent as of December 31, 1999.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Technology
Funding Venture Capital Fund VI, LLC as of December 31, 1999, and the
results of its operations and its cash flows for the years ended
December 31, 1999 and 1998, in conformity with accounting principles
generally accepted in the United States of America.
Albuquerque, New Mexico /S/KPMG LLP
March 29, 2000
BALANCE SHEETS
- --------------
December 31,
------------------
2000 1999
---- ----
ASSETS
Equity investments (cost basis of
$219,593 and $247,977 for 2000
and 1999, respectively) $ 42,432 315,186
Cash and cash equivalents 55,292 10,829
Restricted cash -- 23,500
------- -------
Total assets $ 97,724 349,515
======= =======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses $ 19,247 26,734
Due to related parties 559,352 644,455
Other liabilities 1,000 --
------- -------
Total liabilities 579,599 671,189
Commitments and contingencies
Members' equity
(Shares outstanding of 5,157 and 4,456
in 2000 and 1999, respectively) (481,875) (321,674)
------- -------
Total liabilities and
members' equity $ 97,724 349,515
======= =======
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF INVESTMENTS
- -------------------------
Shares December 31, 2000 December 31, 1999
as of ------------------- -------------------
Industry Investment December 31, Cost Fair Cost Fair
Company Position Date 2000 Basis Value Basis Value
- --------- -------- ---------- ----------- ------- ------- ------- -------
Equity Investments
- ------------------
Communications
- --------------
Women.com Networks, Common 1999-
Inc. (c) shares 2000 9,345 $ 62,093 2,044 60,480 65,545
Information Technology
- ----------------------
WorldRes, Inc. (a) (b) Preferred
shares 1999 11,157 67,500 13,388 67,500 129,644
Medical/Biotechnology
- ---------------------
Biex, Inc. (a) (b) Preferred
shares 1999 -- -- -- 59,997 59,997
Resolution Sciences Preferred
Corporation (a) shares 2000 15,000 30,000 9,000 -- --
Sanarus Medical, Preferred
Inc. (a) (b) shares 1999 40,000 60,000 18,000 60,000 60,000
------- ------ ------- -------
Total equity investments $219,593 42,432 247,977 315,186
======= ====== ======= =======
Legend and footnotes:
(a) Equity security 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.
(1) The Fund has no income-producing securities.
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS
- ------------------------
For the Years Ended December 31,
-------------------------------
2000 1999 1998
---- ---- ----
Investment income:
Interest income $ -- 1,313 5,109
-------- ------- -------
Total investment income -- 1,313 5,109
Costs and expenses:
Management fees 13,118 10,404 7,420
Independent Directors' compensation 47,358 37,526 44,206
Amortization of organizational costs -- -- 10,000
Operating expenses:
Investment operations 33,449 24,969 --
Administrative and investor services 115,495 113,812 4,068
Professional fees 84,736 44,482 36,409
Computer services 22,206 20,134 --
-------- ------- -------
Total operating expenses 255,886 203,397 40,477
-------- ------- -------
Total costs and expenses 316,362 251,327 102,103
-------- ------- -------
Net investment loss (316,362) (250,014) (96,994)
-------- ------- -------
Realized loss from impairment
write-downs (59,997) -- --
-------- ------- -------
Net realized loss (59,997) -- --
-------- ------- -------
Net (decrease) increase in unrealized
appreciation (depreciation)
of equity investments (244,370) 67,209 --
-------- ------- -------
Net decrease in members' equity
resulting from operations before
cumulative effect of change in
accounting principle (620,729) (182,805) (96,994)
Cumulative effect of change in
accounting principle (Note 2) -- (40,000) --
-------- ------- -------
Net decrease in members' equity
resulting from operations $(620,729) (222,805) (96,994)
======== ======= =======
STATEMENTS OF OPERATIONS (continued)
- -----------------------------------
Net decrease in members' equity
resulting from operations per Share
before cumulative effect of change
in accounting principle $ (39.31) (44.77) (38.70)
Cumulative effect per Share of change
in accounting principle (Note 2) -- (9.79) --
-------- ------- -------
Net decrease in members' equity
resulting from operations per Share $ (39.31) (54.56) (38.70)
======== ======= =======
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF MEMBERS' EQUITY
- ----------------------------
For the years ended December 31, 2000, 1999 and 1998:
Deferred
Investment Distribution
Investors Managers Costs Total
--------- ---------- ------------ -----
Members' equity, January 1, 1998 $ 0 0 0 0
Sales of Fund shares 371,000 -- -- 371,000
Investment Managers'
capital contributions -- 371 -- 371
Deferred distribution costs -- -- (372,252) (372,252)
Net investment loss (96,024) (970) -- (96,994)
------- ------- ------- -------
Members' equity, December 31, 1998 274,976 (599) (372,252) (97,875)
Sales of Fund shares 74,600 -- -- 74,600
Investment Managers'
capital contributions -- 80 -- 80
Deferred distribution costs -- -- (75,674) (75,674)
Net investment loss (287,114) (2,900) -- (290,014)
Net increase in unrealized
appreciation 66,537 672 -- 67,209
------- ------- ------- -------
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 -- -- 390,363 390,363
Net investment loss (101,474) (214,888) -- (316,362)
Net realized loss (19,244) (40,753) -- (59,997)
Net decrease in unrealized
appreciation (78,381) (165,989) -- (244,370)
------- ------- ------- -------
Members' equity, December 31, 2000 $ 0 (424,312) (57,563) (481,875)
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For the years
ended December 31,
-----------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Interest received $ -- 1,313 5,109
Cash paid to vendors (138,424) (98,470) (5,304)
Cash paid to related parties -- -- (25,232)
Cash advances received from related
parties, net 105,222 64,165 --
-------- ------- -------
Net cash used by operating activities (33,202) (32,992) (25,427)
-------- ------- -------
Cash flows from investing activities:
Purchase of equity investments (31,613) (247,977) --
-------- ------- -------
Net cash used by investing activities (31,613) (247,977) --
-------- ------- -------
Cash flows from financing activities:
Proceeds from sale of investor shares 70,100 74,600 371,000
Investment Managers' capital contributions 65 80 371
Payments for organizational and
distribution costs (1,087) (1,074) (171,252)
Payments from (to) restricted cash 23,500 (2,500) (21,000)
Proceeds from Investment Manager for
investment purchases 16,700 67,000 --
-------- ------- -------
Net cash provided by financing activities 109,278 138,106 179,119
-------- ------- -------
Net increase (decrease) in cash and
cash equivalents 44,463 (142,863) 153,692
Cash and cash equivalents at beginning
of year 10,829 153,692 --
-------- ------- -------
Cash and cash equivalents at end of year $ 55,292 10,829 153,692
======== ======= =======
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
Reconciliation of net decrease in members'
equity resulting from operations to net
cash used by operating activities:
Net decrease in members'
equity resulting from operations $(620,729) (222,805) (96,994)
Adjustments to reconcile net decrease in
members' equity resulting from operations
to net cash used by operating activities:
Amortization of organizational costs -- -- 10,000
Cumulative effect of change in
accounting principle -- 40,000 --
Realized losses from impairment
write-downs 59,997 -- --
Net decrease (increase) in net
unrealized appreciation (depreciation)
of equity investments 244,370 (67,209) --
Changes in assets and liabilities net of
effects from noncash financing activities:
Accounts payable and accrued expenses (6,487) (8,439) 35,173
Due to related parties 289,647 225,461 26,394
-------- ------- -------
Net cash used by operating activities $ (33,202) (32,992) (25,427)
======== ======= =======
Noncash financing activities:
(Decrease)increase in deferred distribution
costs due to Investment Managers $(325,600) 74,600 251,000
======== ======= =======
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. 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 operates
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
offering commenced on January 22, 1998, (the Commencement Date). Through
April 25, 2000, the Fund was offering 1,000,000 shares in an aggregate
amount of up to $100,000,000. The shares were 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. TFSC suspended the offering of shares of the
Fund on April 25, 2000 with a total of 5,157 shares sold. The Fund's
original contributed capital was $516,216, consisting of $515,700 from
investors and $516 from Directors. The Directors do not own any shares.
The small size of the Fund will make it more difficult than originally
anticipated to achieve the investment objectives of the Fund. Therefore,
the Directors are considering the feasibility of offering all 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 financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
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, unless dissolved prior
thereto.
2. General Summary of Significant Accounting Policies
--------------------------------------------------
Preparation of Financial Statements
-----------------------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting. The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and the reported amounts of income and expenses during the reporting
period. Actual results could differ from those estimates. Estimates
include the estimate of fair value of investments, liabilities and
contingencies. Because of the inherent uncertainty of valuation, the
estimated fair value of investments may differ significantly from the
values that would have been used had a ready market for investments
existed, and the differences could be material.
Valuation of Investments
-------------------------
Investments are carried at fair value.
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 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 year ended December 31, 2000.
Unrestricted publicly traded securities are valued at the closing sales
price or bid price that is available on a national securities exchange or
over-the-counter market. Valuation discounts of 5% to 50% are applied to
public traded securities subject to resale restrictions resulting from
Rule 144 or contractual lock-ups, such as those commonly associated with
underwriting agreements or knowledge of material non-public information.
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 based on a current sale. 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 1, 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 December 31, 2000, of $42,432.
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 December 31, 2000 and December 31, 1999, the investment portfolio
included investments totaling $40,388 and $249,641, respectively, whose
fair values were established in good faith by the Management Committee in
the absence of readily ascertainable market values. Investments in
publicly traded securities which have been subjected to a discount for
legal or contractual restrictions as determined by the Management
Committee amounted to $65,545 at December 31, 1999; there were no
restrictions on publicly traded securities held at December 31, 2000.
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.
In the case of an other than temporary decline in value below cost basis,
an appropriate reduction in the cost basis is recognized as a realized
loss with the new cost basis being adjusted to equal the fair value of
the investment. Cost basis adjustments are reflected as "Realized losses
from impairment write-downs" on the Statements of Operations.
Sales of equity investments are recorded on the trade date. The basis on
which cost is determined in computing realized gains or losses is
specific identification.
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
---------------------------
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 $74,600 in the years ended December 31, 2000 and 1999,
respectively, and $515,700 since inception of the Fund. However, as
described in Note 1, 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 subsequent to the
suspension of the offering 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 9, additional distribution costs have been, and may
be, incurred by the Distributors, and would be payable by the Fund if
additional investor capital were raised. Distribution costs payable were
$0 and $325,600 at December 31, 2000 and 1999, respectively.
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 Fund
members are to report their respective shares of Fund income or loss on
their individual tax returns.
The accompanying financial statements are prepared using accounting
principles generally accepted in the United States which may not equate
to tax accounting. The cost of investments on a tax basis at December
31, 2000 and 1999, was $219,593 and $247,977, respectively. At December
31, 2000 and 1999, gross unrealized appreciation and depreciation on
investments based on cost for federal income tax purposes were as
follows:
December 31, December 31,
2000 1999
------------ ------------
Unrealized appreciation $ -- 67,209
Unrealized depreciation (177,161) --
------- ------
Net unrealized (depreciation)
appreciation $(177,161) 67,209
======= ======
Net Increase (Decrease) in Members' Equity Resulting from
----------------------------------------------------------
Operations Per Share
--------------------
Net increase (decrease) in members' equity resulting from operations per
share is calculated by dividing the weighted average number of investor
shares outstanding for the years ended December 31, 2000, 1999 and 1998,
of 5,065, 4,043 and 2,481 shares, respectively, into total net increase
(decrease) in members' equity resulting from operations allocated to
investors. The Investment Managers contributed an amount equal to 0.1%
of investors' capital contributions and did not receive any shares.
3. Change in Accounting Principle 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 year ended December 31,
1999 was to reduce the loss by $10,000, or $2.45 per Share. The effect
on net loss (including a non-cash charge of $40,000, or $9.79 per share,
for the cumulative effect as of January 1, 1999) was an increase of
$30,000, or $7.34 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 loss for the year ended December 31,
1999, of $182,805 and net loss per Share of $44.77.
4. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statement of Operations. Related party costs were as follows:
For the Years Ended
December 31,
-------------------------
2000 1999
-------- -------
Management fees $13,118 10,404
Independent Directors' compensation 47,358 37,526
Reimbursable operating expenses:
Investment operations 30,379 23,329
Administrative and investor services 71,364 69,903
Computer services 22,206 20,134
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. Management fees due to
the Investment Managers and were $30,942 and $17,824 and were included in
due to related parties at December 31, 2000 and 1999, respectively.
Pursuant to the Operating Agreement, the Fund shall reimburse the
Investment Managers for operational costs incurred by the Investment
Managers in conjunction with the business of the Fund. Amounts due to
related parties for operational costs and cash advances for investment
purchases were $528,410 and $301,031 at December 31, 2000 and 1999,
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 $74,600 in the years ended December 31, 2000 and 1999,
respectively, and $515,700 since inception of the Fund. However, as
described in Note 1, 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 subsequent to the
suspension of the offering 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 9, additional distribution costs have been, and may
be, incurred by the Distributors, and would be payable by the Fund if
additional investor capital were raised. Distribution costs payable were
$0 and $325,600 at December 31, 2000 and 1999, respectively.
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 periods ended
December 31, 2000 and 1999, such fees incurred by the Fund were $47,358
and $37,526, respectively.
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 December 31, 2000, the Investment
Managers contributed capital of $516.
Effective November 1, 1997, TFL assigned its California office lease to
Technology Funding Property Management LLC (TFPM), an entity that is
affiliated to the Investment Manager. Effective December 31, 1998, TFPM
was acquired by TFL. Under the terms of a rent agreement, TFL charges
the Fund for its share of office rent and related overhead costs on a
cost recovery basis. In 2000 and 1999 these costs totaled $10,607 and
$9,608, respectively, and are included in administrative and investor
service costs.
Under the terms of a computer service agreement, Technology
Administrative Management, a division of TFL, charges the Fund for its
share of computer support costs. These amounts are included in computer
services expenses.
5. Allocation of Profits and Losses
--------------------------------
Net 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
are 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.
6. Equity Investments
------------------
All investments are valued at fair value as determined in good faith by
the Investment Managers. See Note 2-Valuation of Investments.
Restricted Securities
- ---------------------
At December 31, 2000 and 1999, restricted securities had aggregate market
values of $40,388 and $249,641, respectively, representing 8.4% and
77.6%, respectively, of the net liabilities of the Fund.
Significant purchases and realized losses during 2000 are as follows:
Biex, Inc.
- ----------
The company was unable to complete a round of financing in November 2000
and, as a result, suspended operations and laid off all employees. As a
result, the Fund recorded a realized loss from impairment write-downs on
investments of $59,997, its entire investment in the company. As of
January 2001, an offer to purchase the company was being negotiated;
however, proceeds from the sale were expected to satisfy only a majority
of the company's creditors with nothing remaining for equity investors.
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.
Women.com Networks, Inc.
- ------------------------
In December 2000, the Fund purchased 3,297 Common shares for $1,613.
Other Equity Investments
- ------------------------
Other significant changes reflected above relate to market value
fluctuations for publicly traded portfolio companies or changes in the
fair value of private companies as determined in accordance with the
policy described in Note 2 to the financial statements.
7. Net Increase (Decrease) in Unrealized Appreciation (Depreciation)
----------------------------------------------------------------
of Equity Investments
---------------------
In accordance with the accounting policy as stated in Note 1, the
Statements of Operations includes a line item entitled "Net increase
(decrease) in unrealized appreciation (depreciation) of equity
investments." The table below discloses details of the changes:
For the Year Ended
December 31,
------------------
2000 1999
------ ------
S>
Unrealized depreciation from cost of
marketable equity securties $ (60,049) --
Unrealized (depreciation) appreciation
from cost of non-marketable
equity securities (117,112) 67,209
------- ------
Unrealized (depreciation) appreciation
from cost at end of year (177,161) 67,209
Unrealized appreciation from cost
at beginning of year 67,209 --
------- ------
Net (decrease) increase in unrealized
appreciation (depreciation) of
equity investments $(244,370) 67,209
======= ======
8. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 2000 and 1999 consisted of:
2000 1999
------ ------
Demand account $54,779 9,966
Money-market account 513 863
------ ------
Total cash and cash equivalents $55,292 10,829
====== ======
As of December 31, 2000, the Fund's monies were on deposit at a single
financial institution.
9. 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 December 31, 2000, the Distributors
had incurred distribution costs totaling $3,297,509, of which $54,148 has
been paid based upon the 10.5% limitation, with the remaining portion of
$3,243,361 payable to the Distributors in the unlikely event that
additional capital is raised (see Note 1.) Additional distribution costs
may be incurred and would be payable by the Fund if additional capital
were raised. The Fund reports the distribution costs as a deduction from
Members' equity.
The Fund is involved in various claims and legal actions incident to its
operations, which in the opinion of Investment Managers, based upon
advice of counsel, will not materially affect the financial position or
results of operations of the Fund.
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: March 30, 2001 By: /s/Charles R. Kokesh
--------------------------------
Charles R. Kokesh
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated:
Signature Capacity Date
--------- -------- ----
/s/Charles R. Kokesh President, Chief March 30, 2001
- ------------------------ Executive Officer,
Charles R. Kokesh Chief Financial
Officer and Chairman of
Technology Funding Inc.
and Managing General
Partner of Technology
Funding, Ltd.
The above represents a majority of the Board of Directors of Technology
Funding Inc. and the General Partners of Technology Funding Ltd.