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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, 2001
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)
1035 Suncast Lane, Suite 122
El Dorado Hills, California 95762
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(916) 941-7550
--------------------------------------------------
(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.
PART I
Item 1. BUSINESS
- ------ --------
Technology Funding Venture Capital Fund VI, LLC (the Fund or the
Registrant) 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.
In June 2001, the Independent Directors terminated the offering
because current market conditions and the small size of the Fund
would have made it unlikely that the Fund would ever achieve its
investment objectives and directed the Investment Mangers to
attempt to sell the Fund's assets to non-affiliates. On March 15,
2002, the Independent Directors recommended a proxy be sent to the
Fund's investors requesting immediate dissolution of the Fund.
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 original purpose of the Fund was 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 Independent
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 2001.
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, 2001, 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,
----------------------------
2001 2000 1999 1998
-------- -------- -------- --------
Investment income $ -- $ -- $ 1,313 $ 5,109
Net investment loss (211,514) (316,362) (250,014) (96,994)
Realized losses from impairment
write-downs -- (59,997) -- --
Increase (decrease) in unrealized
appreciation (depreciation) of
equity investments 45,722 (244,370) 67,209 --
Net decrease in members' equity
resulting from operations before
cumulative effect of change in
accounting principle (165,727) (620,729) (182,805) (96,994)
Cumulative effect of change in
accounting principle -- -- (40,000) --
Net decrease in members' equity
resulting from operations (165,727) (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 28,204 97,724 349,515 214,692
See Notes 2 and 5 to 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. In June 2001, the
Independent Directors terminated the offering because current
market conditions and the small size of the Fund would have made
it unlikely that the Fund would ever achieve its investment
objectives and directed the Investment Managers to attempt to sell
the Fund's assets to non-affiliates. On March 15, 2002, the
Independent Directors recommended a proxy be sent to the Fund's
investors requesting immediate dissolution of the Fund.
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 2 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, 2001, net cash used by operating
activities totaled $115,307. The Fund received advances from the
Investment Managers for operating expenses totaling $20,578 and
paid $54,643 in compensation to Independent Directors. Payments
to vendors for operating expenses totaled $81,242.
The Fund had no cash at December 31, 2001. The Investment
Managers have made loans to the Fund to finance its recurring
losses from on-going operations. The Fund has no 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
- ---------------------
2001 compared to 2000
- ---------------------
The net decrease in members' equity resulting from operations for
the years ended December 31, 2001 and 2000, was $165,727 and
$620,729, respectively. The decreased loss is primarily due to a
decrease in the net unrealized depreciation of equity investments,
decreased investment expenses and a decrease in realized losses
from impairment write-downs.
Unrealized depreciation on equity investments was $131,389 and
$177,161 at December 31, 2001 and 2000, respectively. During the
year ended December 31, 2001, the $45,772 decrease in unrealized
depreciation was primarily attributable to the sale of the Fund's
investment in Sanarus Medical, Inc. During the year ended
December 31, 2000, the $244,370 decrease in unrealized
appreciation of equity investments was primarily attributable to
decreases in the value of the Fund's marketable equity securities
and the fair value of the Fund's investments in restricted
securities.
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.
There were no impairment write-downs in 2001.
Investment expenses totaled $211,514 and $316,362 for the years
ended December 31, 2001 and 2000, respectively. The decrease is
primarily due to decreased administrative and investor services
and decreased professional fees.
Given the inherent risk associated with the business of the Fund,
the performance of portfolio company investments may significantly
impact future 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
decreases in the value of the Fund's marketable equity securities
and the fair value of the Fund's investments in restricted
securities. 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.
Investment expenses totaled $316,362 and $251,327 for the years
ended December 31, 2000 and 1999, respectively. The increase is
primarily due to increased professional fees.
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
Fund'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.
Item 8. FINANCIAL STATEMENTS
- ------ --------------------
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, 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 2001, the Fund incurred $10,314 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, 2001, $54,643 of such fees were incurred.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Not applicable. No investor beneficially holds more than 5
percent 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 years ended December 31, 2001 and 2000
Independent Auditors' Report
for the year ended December 31, 1999
Balance Sheets as of December 31, 2001 and 2000
Statements of Investments as of December 31, 2001
and 2000
Statements of Operations for the years
ended December 31, 2001, 2000 and 1999
Statements of Members' Equity for the years
ended December 31, 2001, 2000 and 1999
Statements of Cash Flow for the years
ended December 31, 2001, 2000 and 1999
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
No reports on Form 8-K were filed by the Registrant
during the year ended December 31, 2001.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ----------------------------------------
To the Members of
Technology Funding Venture Capital Fund VI, LLC:
We have audited the accompanying balance sheets of Technology Funding
Venture Capital Fund VI, LLC (a Delaware limited liability company)
(the Fund), including the statements of investments, as of December 31,
2001 and 2000, and the related statements of operations, members'
equity, and cash flows for the years 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 audits.
We conducted our audits 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, 2001 and
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 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, 2001 and 2000,
and the results of its operations, changes in members' equity and its
cash flows for the years 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
termination of the 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 15, 2002
INDEPENDENT AUDITORS' REPORT
----------------------------
The Members
Technology Funding Venture Capital Fund VI, LLC:
We have audited the accompanying statements of operations, members'
equity, and cash flows of Technology Funding Venture Capital Fund VI,
LLC (a Delaware limited liability company) for the year ended December
31, 1999. 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 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. 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 results of operations and cash
flows of Technology Funding Venture Capital Fund VI, LLC for the year
ended December 31, 1999, 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,
------------------
2001 2000
---- ----
ASSETS
Equity investments (cost basis of
$159,593 and $219,593 for 2001
and 2000, respectively) $ 28,204 $ 42,432
Cash and cash equivalents -- 55,292
------- -------
Total assets $ 28,204 $ 97,724
======= =======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses $ 20,771 $ 19,247
Due to related parties 655,035 559,352
Other liabilities -- 1,000
------- -------
Total liabilities 675,806 579,599
Commitments and contingencies
Members' equity
(5,157 shares outstanding) (647,602) (481,875)
------- -------
Total liabilities and
members' equity $ 28,204 $ 97,724
======= =======
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF INVESTMENTS
- -------------------------
Shares December 31, 2001 December 31, 2000
as of ------------------- -------------------
Industry Investment December 31, Cost Fair Cost Fair
Company Position Date 2001 Basis Value Basis Value
- --------- -------- ---------- ----------- ------- ------- ------- -------
Equity Investments
- ------------------
Communications
- --------------
iVillage Inc. Common 1999-
(c) shares 2000 3,061 $ 62,093 $ 5,816 $ 62,093 $ 2,044
Information Technology
- ----------------------
WorldRes, Inc. (a) (b) Preferred
shares 1999 11,157 67,500 13,388 67,500 13,388
Medical/Biotechnology
- ---------------------
Resolution Sciences Preferred
Corporation (a) (b) shares 2000 15,000 30,000 9,000 30,000 9,000
Sanarus Medical, Preferred
Inc. (a) (b) shares 1999 -- -- -- 60,000 18,000
------- ------ ------- ------
Total equity investments $159,593 $28,204 $219,593 $42,432
======= ====== ======= ======
Legend and footnotes:
- -- No investment held at end of period.
(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,
-------------------------------
2001 2000 1999
---- ---- ----
Investment income:
Interest income $ -- $ -- $ 1,313
------- ------- -------
Total investment income -- -- 1,313
Investment expenses:
Management fees 10,314 13,118 10,404
Independent Directors' compensation 54,643 47,358 37,526
Investment operations 4,124 33,449 24,969
Administrative and investor services 64,635 115,495 113,812
Professional fees 59,276 84,736 44,482
Computer services 18,522 22,206 20,134
------- ------- -------
Total investment expenses 211,514 316,362 251,327
------- ------- -------
Net investment loss (211,514) (316,362) (250,014)
------- ------- -------
Net realized gain from sale of
equity investment 15 -- --
Realized loss from impairment
write-downs -- (59,997) --
------- ------- -------
Net realized income (loss) 15 (59,997) --
------- ------- -------
Net increase (decrease) in unrealized
appreciation (depreciation)
of equity investments 45,772 (244,370) 67,209
------- ------- -------
Net decrease in members' equity
resulting from operations before
cumulative effect of change in
accounting principle (165,727) (620,729) (182,805)
Cumulative effect of change in
accounting principle (Note 3) -- -- (40,000)
------- ------- -------
Net decrease in members' equity
resulting from operations $(165,727)$(620,729)$(222,805)
======= ======= =======
STATEMENTS OF OPERATIONS (continued)
- -----------------------------------
For the Years Ended December 31,
-------------------------------
2001 2000 1999
---- ---- ----
Net decrease in members' equity
resulting from operations per Share
before cumulative effect of change
in accounting principle $ -- $ (39.31)$ (44.77)
Cumulative effect per Share of change
in accounting principle (Note 3) -- -- (9.79)
------- ------- -------
Net decrease in members' equity
resulting from operations per Share $ -- $ (39.31)$ (54.56)
======= ======= =======
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF MEMBERS' EQUITY
- ----------------------------
For the years ended December 31, 2001, 2000 and 1999:
Deferred
Investment Distribution
Investors Managers Costs Total
--------- ---------- ------------ -----
Members' equity, January 1, 1999 $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 decrease 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 -- (424,312) (57,563) (481,875)
Net investment loss -- (211,514) -- (211,514)
Net realized income -- 15 -- 15
Net decrease in unrealized
depreciation -- 45,772 -- 45,772
------- ------- ------- -------
Members' equity, December 31, 2001 $ -- $(590,039) $ (57,563) $(647,602)
======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
- ------------------------
For the years
ended December 31,
-----------------------------
2001 2000 1999
---- ---- ----
Net decrease in members'
equity resulting from operations $(165,727) $(620,729) $(222,805)
Adjustments to reconcile net decrease in
members' equity resulting from operations
to net cash used by operating activities:
Net realized gain from sale of equity
investment (15) -- --
Realized losses from impairment
write-downs -- 59,997 --
Net (decrease) increase in net
unrealized depreciation
of equity investments (45,772) 244,370 (67,209)
Cumulative effect of change in
accounting principle -- -- 40,000
Increase (decrease) in accounts payable
and accrued expenses 524 (6,487) (8,439)
Increase in due to related parties 95,683 289,647 225,461
------- ------- -------
Net cash used by operating activities (115,307) (33,202) (32,992)
------- ------- -------
Cash flows from investing activities:
Purchase of equity investments -- (31,613) (247,977)
Proceeds from sale of equity investments 60,015 -- --
------- ------- -------
Net cash provided (used) by
investing activities 60,015 (31,613) (247,977)
------- ------- -------
Cash flows from financing activities:
Proceeds from sale of investor shares -- 70,100 74,600
Investment Managers' capital contributions -- 65 80
Payments for organizational and
distribution costs -- (1,087) (1,074)
Payments from (to) restricted cash -- 23,500 (2,500)
Proceeds from Investment Manager for
investment purchases -- 16,700 67,000
------- ------- -------
Net cash provided by financing activities -- 109,278 138,106
------- ------- -------
STATEMENTS OF CASH FLOWS (continued)
- -----------------------------------
For the years
ended December 31,
-----------------------------
2001 2000 1999
---- ---- ----
Net (decrease) increase in cash and
cash equivalents (55,292) 44,463 (142,863)
Cash and cash equivalents at beginning
of year 55,292 10,829 153,692
------- ------- -------
Cash and cash equivalents at end of year $ -- $ 55,292 $ 10,829
======= ======= =======
Noncash financing activities:
(Decrease)increase in deferred distribution
costs due to Investment Managers $ -- $ (325,600) $ 74,600
======= ======= =======
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 or the
Registrant) is a Delaware limited liability company 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 original objectives were 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 Investment Managers, Technology Funding Ltd.
(TFL) and Technology Funding Inc. (TFI). The Investment Managers do not
own any shares.
In June 2001, the Independent Directors terminated the offering because
current market conditions and the small size of the Fund would have made
it unlikely that the Fund would ever achieve its investment objectives
and directed the Investment Mangers to attempt to sell the Fund's assets
to non-affiliates. On March 15, 2002, the Independent Directors
recommended a proxy be sent to the Fund's investors requesting immediate
dissolution of the Fund.
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.
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 percent to 50 percent
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.
At December 31, 2001 and December 31, 2000, the investment portfolio
included investments totaling $22,388 and $40,388, respectively, whose
fair values were established in good faith by the Management Committee in
the absence of readily ascertainable market values. There were no
restrictions on publicly traded securities held at December 31, 2001 or
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 reimbursed the Investment Managers and Distributors for
distribution costs. Distribution costs are limited to 10.5 percent of
the offering proceeds. Distribution costs were originally charged to the
Fund to the extent capital was raised; such costs charged by related
parties were $0 and $70,100 in the years ended December 31, 2001 and
2000, respectively, and $515,700 from inception of the Fund through the
suspension of the offering (see Note 1.) Distribution costs charged to
the Fund were reduced by $461,550 subsequent to the suspension of the
offering since the Directors did not expect additional proceeds to be
raised. With the termination of the offering in June 2001, no additional
distribution costs will be incurred by the Distributors nor will any
additional distribution costs be payable by the Fund. Distribution costs
are reflected as a reduction of Members' Equity.
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, 2001 and 2000, was $159,593 and $219,593, respectively. At December
31, 2001 and 2000, gross unrealized appreciation and depreciation on
investments based on cost for federal income tax purposes were as
follows:
December 31, December 31,
2001 2000
------------ ------------
Unrealized appreciation $ -- $ --
Unrealized depreciation (131,389) (177,161)
------- ------
Net unrealized depreciation $(131,389) $(177,161)
======= =======
Net Decrease in Members' Equity Resulting from
----------------------------------------------
Operations Per Share
--------------------
Net 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, 2001, 2000 and 1999, of
5,157, 5,065 and 4,043 shares, respectively, into total net decrease in
members' equity resulting from operations allocated to investors. The
Investment Managers contributed an amount equal to 0.1 percent 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,
--------------------------------
2001 2000 1999
------- ------- -------
Management fees $10,314 $13,118 $10,404
Independent Directors' compensation 54,643 47,358 37,526
Reimbursable operating expenses:
Investment operations 739 30,379 23,329
Administrative and investor services 45,530 71,364 69,903
Computer services 18,522 22,206 20,134
Management fees are equal to 2 percent of total investor capital
contributions for each of the years of Fund operation during the offering
period. In subsequent years, the management fees are 2 percent of
adjusted capital contributions. 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. Management fees due to the Investment Managers
were $41,256 and $30,942 at December 31, 2001 and 2000, respectively, and
were included in due to related parties.
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 $613,779 and $528,410 at December 31, 2001 and 2000,
respectively.
The Fund reimbursed the Investment Managers and Distributors for
distribution costs. Distribution costs are limited to 10.5 percent of
the offering proceeds. Distribution costs were originally charged to the
Fund to the extent capital was raised; such costs charged by related
parties were $0 and $70,100 in the years ended December 31, 2001 and
2000, respectively, and $515,700 from inception of the Fund through the
suspension of the offering (see Note 1.) Distribution costs charged to
the Fund were reduced by $461,550 subsequent to the suspension of the
offering since the Directors did not expect additional proceeds to be
raised. With the termination of the offering in June 2001, no additional
distribution costs will be incurred by the Distributors nor will any
additional distribution costs be payable by the Fund. Distribution costs
are reflected as a reduction of Members' Equity.
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, 2001, 2000 and 1999, such fees incurred by the Fund were
$54,643, $47,358 and $37,526, respectively.
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 percent to the investors in proportion to
capital account balances, and 20 percent 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 percent to the investors and 1 percent 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 percent 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, 2001 and 2000, restricted securities had aggregate market
values of $22,388 and $40,388, respectively, representing 3.5 percent and
8.4 percent, respectively, of the net liabilities of the Fund.
Significant events during 2001 are as follows:
iVillage Inc. (formerly Women.com Networks, Inc.)
- -------------------------------------------------
Effective June 18, 2001, iVillage Inc. acquired Women.com Networks, Inc.
In connection with this transaction, the Fund's Women.com shares were
exchanged for 3,061 iVillage common shares. The Fund realized a gain of
$15 on the sale of fractional shares.
Sanarus Medical, Inc.
- ---------------------
In accordance with the directive discussed in Note 1, the Investment
Managers sold the Fund's Sanarus shares to an unaffiliated co-investor
for their original cost of $60,000 in July 2001.
7. Net Increase (Decrease) in Unrealized Appreciation (Depreciation)
----------------------------------------------------------------
of Equity Investments
---------------------
In accordance with the accounting policy as stated in Note 2, 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 Years Ended December 31,
--------------------------------
2001 2000 1999
------ ------ ------
Unrealized depreciation from cost of
marketable equity securities $ (56,277) $ (60,049) $ --
Unrealized (depreciation) appreciation
from cost of non-marketable equity
securities (75,112) (117,112) 67,209
------- ------- ------
Unrealized (depreciation) appreciation
from cost at end of year (131,389) (177,161) 67,209
Unrealized (depreciation) appreciation
from cost at beginning of year (177,161) 67,209 --
------- ------- ------
Net increase (decrease) in unrealized
appreciation (depreciation) of
equity investments $ 45,772 $(244,370) $67,209
======= ======= ======
8. Cash and Cash Equivalents
-------------------------
There were no cash and cash equivalents at December 31, 2001. Cash and
cash equivalents at December 31, 2000 consisted of:
2000
------
Demand account $54,779
Money-market account 513
------
Total cash and cash equivalents $55,292
======
9. Commitments and Contingencies
-----------------------------
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.
10. Financial Highlights
--------------------
For The Years Ended December 31,
-----------------------------------
2001 2000 1999
------ ------ ------
(all amounts on a per Share basis)
Net asset value,
beginning of period $ -- $ 25.47 $ 68.01
Contributions -- 13.84 18.45
Loss from investment
operations:
Net investment loss -- (20.03) (71.02)
Net realized and unrealized
(loss) gain on investments -- (19.28) 16.46
--- ----- -----
Total from investment operations -- (39.31) (54.56)
--- ----- -----
Net asset value, end of period $ -- $ -- $ 31.90
=== ===== =====
Total Return -- (100.00)% (53.09)%
Ratios to average net assets:
Net investment loss -- (101.93)% (142.14)%
Expenses -- 317.79% 124.43%
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.
TECHNOLOGY FUNDING LTD.
Investment Managers
Date: March 20, 2002 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 Ltd.
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 20, 2002
- ------------------------ 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.