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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, 2002
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)
1107 Investment Boulevard, Suite 180
El Dorado Hills, California 95762
- --------------------------------------- --------
(Address of principal executive offices) (Zip Code)
(916) 941-1400
--------------------------------------------------
(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 the 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
Managers to attempt to sell the Fund's assets to non-
affiliates.
On March 14, 2003, at a special meeting of the Fund, the
Fund's Investors voted to terminate the Fund as of that date.
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.
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 2002.
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, 2002, 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,
-------------------------------------------------
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Investment income $ -- $ -- $ -- $ 1,313 $ 5,109
Net investment loss (208,714) (211,514) (316,362) (250,014) (96,994)
Realized losses from investment
write-offs -- -- (59,997) -- --
(Increase) decrease in unrealized
depreciation of equity
investments (21,980) 45,722 (244,370) 67,209 --
Net decrease in members' equity
resulting from operations before
cumulative effect of change in
accounting principle (230,694) (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 (230,694) (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 13,545 28,204 97,724 349,515 214,692
See Notes 2 and 4 to the financial statements for a description of the method of calculation of net
decrease in members' equity resulting from operations per Share.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------ -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
- -----------------------------------
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.
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.
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. In December 2002, the Investment Managers adopted
a plan of liquidation and at December 31, 2002, the Investment
Managers determined that the fair value of the Fund's
investments in portfolio companies totaled $6,224. On March
14, 2003, at a special meeting of the fund, the Fund's
Investors voted to terminate the Fund as of that date.
The accompanying financial statements have been prepared on a
liquidation basis, in which the carrying values of the
remaining assets are presented at estimated realizable values
and all liabilities are presented at known and estimated
amounts required to liquidate the fund. It is anticipated that
the proceeds from the sale of the assets will be used to settle
accounts payable and amounts due to related party. However, as
a result of liquidation, such realization of assets and
liquidation of liabilities are subject to significant
uncertainty. Further, a plan of liquidation could materially
change the amounts and classifications reported in the
financial statements. Upon settlement of the liabilities of the
Partnership, it is anticipated that there will be no funds
remaining for distribution to the Investors.
For the year ended December 31, 2002, net cash provided by
operating activities totaled $7,321. The Fund received
advances from the Investment Managers for operating expenses
totaling $134,056 and paid $41,000 in compensation to
Independent Directors. The Fund paid operating expenses of
$14,822 to related parties as part of an employee retention
program. Payments to vendors for operating expenses totaled
$70,913.
Results of Operations
- ---------------------
2002 compared to 2001
- ---------------------
The net decrease in members' equity resulting from operations
for the years ended December 31, 2002 and 2001, was $230,694
and $169,727, respectively.
Investment expenses totaled $208,714 and $211,514 for the years
ended December 31, 2002 and 2001, respectively. In 2002,the
Managing General Partners billed the Partnership $9,693 and
$1,927 for operating expenses incurred during 2001 and prior
years, respectively. Had these expenses been billed in the
prior years the investment expenses for 2002 and 2001 would
have been $197,094 and $221,207, respectively. The decrease is
primarily due to decreased professional fees partially offset
by expenses resulting from liquidation.
Unrealized depreciation on equity investments was $153,369 and
$131,389 at December 31, 2002 and 2001, respectively. During
the year ended December 31, 2002, the $21,980 decrease in
unrealized depreciation was primarily attributable to the
decrease in fair market value of private portfolio companies in
the medical and information technology industries. During the
year ended December 31, 2001, the $45,772 decrease in
unrealized depreciation of equity investments was primarily
attributable to the sale of the Fund's investment in Sanarus
Medical, Inc.
Given the inherent risk associated with the business of the
Fund, the performance of portfolio company investments may
significantly impact future 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.
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 increase in
unrealized depreciation 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 a realized loss from investment
write-offs 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 investment write-offs 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.
New Accounting Pronouncement
- ----------------------------
In July 2002, the FASB issued SFAS No. 146, Accounting for
Costs Associated with Exit or Disposal Activities ("SFAS No.
146"). SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal
activities, such as restructurings, involuntarily terminating
employees, and consolidating facilities initiated after
December 31, 2002. The implementation of SFAS No. 146 will not
require the restatement of previously issued financial
statements. The Partnership has implemented early adoption of
SFAS No. 146 to all applicable costs associated with exit or
disposal activities incurred during 2002. See Note 2 to the
financial statements.
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
10 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 15.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------ ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
A Form 8-K was filed by the Partnership on July 1, 2002, to
report the appointment of Grant Thornton LLP as the
Partnership's independent public accountants.
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 2002, the Fund incurred $8,514 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, and $1,000 for each attended meeting of the
Directors. For the year ended December 31, 2002, $41,000 of
such fees were incurred. The Independent Directors are
reimbursed for all out-of-pocket expenses relating to
attendance of the meetings, committees or otherwise of the
Directors.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
- ----------
Two investors each own beneficially 9.7% of the outstanding
shares. No other investor beneficially holds more than 5
percent of the aggregate number of shares offered for sale.
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. PROCEDURES AND CONTROLS
- ------- -----------------------
The undersigned officer is responsible for establishing and
maintaining disclosure controls and procedures for Technology
Funding Venture Capital Fund IV, LLC. Such officer has
concluded (based upon his evaluation of these controls and
procedures as of a date within 90 days of the filing of this
report) that Technology Funding Venture Capital Fund VI, LLC's
disclosure controls and procedures are effective to ensure that
information required to be disclosed by Technology Funding
Venture Capital Fund VI, LLC in this report is accumulated and
communicated to Technology Funding Venture Capital Fund VI,
LLC's management, including its principal executive officers as
appropriate, to allow timely decisions regarding required
disclosure.
The certifying officer also has indicated that there were no
significant changes in Technology Funding Venture Capital Fund
VI, LLC's internal controls or other factors that could
significantly affect such controls subsequent to the date of
their evaluation, and there were no corrective actions with
regard to significant deficiencies and material weaknesses.
PART IV
Item 15. 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 Certified Public Accountants as
of and for the year ended December 31, 2002
Report of Independent Public Accountants as of and
for the years ended December 31, 2001 and 2000
Statement of Net Assets in Liquidation as of
December 31, 2002
Statement of Net Assets as of December 31, 2001
Statement of Investments in Liquidation as of
December 31, 2002
Statement of Investments as of December 31, 2001
Statements of Changes in Net Assets in Liquidation
for the year ended December 31, 2002
Statements of Changes in Net Assets for the years
ended December 31, 2001 and 2000
Statements of Partners' Capital for the years
ended December 31, 2002, 2001 and 2000
Statements of Changes in Cash Flows for the years
ended December 31, 2002, 2001 and 2000
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
None
(b) Reports on Form 8-K
(1) On July 1, 2002, the Partnership reported on Form
8-K the appointment of Grant Thornton LLP as the
Partnership's independent public accountants.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------
To the Members of
Technology Funding Venture Capital Fund VI, LLC:
We have audited the accompanying statement of net assets in liquidation
of Technology Funding Venture Capital Fund VI, LLC (a Delaware limited
liability company) (the Fund), including the statement of investments
in liquidation, as of December 31, 2002, and the related statements of
changes in net assets in liquidation, members' equity, and changes in
cash flows for the year ended December 31, 2002. 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. The financial statements of Technology Funding
Venture Capital Fund VI, LLC as of December 31, 2001 and for the years
ended December 31, 2001 and 2000, were audited by other auditors who
have ceased operations. Those auditors expressed an unqualified opinion
on those financial statements in their report dated March 15, 2002.
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. Our procedures
included physical inspection of securities owned as of December 31,
2002. 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.
As described in Note 1 to the financial statements, in December of
2002, the Independent Directors of the Fund adopted a plan of
liquidation and commenced liquidation of the Fund on December 31, 2002.
As a result, as of December 31, 2002, the Fund changed its basis of
accounting from the accrual basis to the liquidation basis.
Accordingly, the carrying values of the remaining assets as of December
31, 2002, are presented at estimated realizable values and all
liabilities are presented at estimated settlement amounts.
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, 2002, and the
results of its operations, changes in members' equity and its cash
flows for the year ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of
America applied on the basis described in the preceding paragraph.
Albuquerque, New Mexico /S/GRANT THORNTON LLP
March 17, 2003
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
THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN
LLP IN CONNECTION WITH TECHNOLOGY FUNDING VENTURE CAPITAL FUND VI, LLC
FILING ON FORM 10-K FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000.
THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN
CONNECTION WITH THIS FILING ON FORM 10-K.
STATEMENTS OF NET ASSETS IN LIQUIDATION
- ---------------------------------------
December 31,
------------------
2002 2001
---- ----
ASSETS
Equity investments (cost basis of
$159,593 for 2002 and 2001) $ 6,224 $ 28,204
Cash and cash equivalents 7,321 --
------- -------
Total assets $ 13,545 $ 28,204
======= =======
LIABILITIES AND MEMBERS' EQUITY
Accounts payable and accrued expenses $ 10,548 $ 20,771
Due to related parties, not revalued
in liquidation 881,293 655,035
------- -------
Total liabilities 891,841 675,806
Commitments and contingencies
(See Note 8)
Members' equity
(5,157 shares outstanding) (878,296) (647,602)
------- -------
Total liabilities and
members' equity $ 13,545 $ 28,204
======= =======
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF INVESTMENTS IN LIQUIDATION
- ----------------------------------------
Shares December 31, 2002 December 31, 2001
as of ------------------ ------------------
Industry Investment December 31, Cost Fair Cost Fair
Company Position Date 2002 Basis Value Basis Value
- --------- -------- ---------- ------------ ----- ----- ----- -----
Equity Investments
- ------------------
Communications
- --------------
iVillage Inc. Common 1999-
(c) shares 2000 3,061 $ 62,093 $ 2,877 $ 62,093 $ 5,816
Information Technology
- ----------------------
WorldRes.com,
Inc. (a) (b) Preferred
shares 1999 11,157 67,500 3,347 67,500 13,388
Medical/Biotechnology
- ---------------------
Resolution Sciences Preferred
Corporation (a) (b) shares 2000 15,000 30,000 -0- 30,000 9,000
------- ------ ------- ------
Total equity investments $159,593 $ 6,224 $159,593 $28,204
======= ====== ======= ======
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 CHANGES IN NET ASSETS IN LIQUIDATION
- --------------------------------------------------
For the Years Ended December 31,
-------------------------------
2002 2001 2000
---- ---- ----
Investment income:
Interest income $ -- $ -- $ --
------- ------- -------
Total investment income -- -- --
Investment expenses:
Management fees 8,514 10,314 13,118
Independent Directors' compensation 41,000 54,643 47,358
Investment operations 4,632 4,124 33,449
Administrative and investor services 97,129 64,635 115,495
Professional fees 19,083 59,276 84,736
Computer services 12,356 18,522 22,206
Liquidation expenses 26,000 -- --
------- ------- -------
Total investment expenses 208,714 211,514 316,362
------- ------- -------
Net investment loss (208,714) (211,514) (316,362)
------- ------- -------
Net realized gain from sale of
equity investment -- 15 --
Realized loss from investment
write-offs -- -- (59,997)
------- ------- -------
Net realized income (loss) -- 15 (59,997)
------- ------- -------
Net (increase) decrease in unrealized
depreciation of equity investments (21,980) 45,772 (244,370)
------- ------- -------
Net decrease in members' equity
resulting from operations $(230,694)$(165,727)$(620,729)
======= ======= =======
Net decrease in members' equity
resulting from operations per Share $ -- $ -- $ (39.31)
======= ======= =======
The accompanying notes are an integral part of these financial
statements.
STATEMENTS OF MEMBERS' EQUITY
- -----------------------------
For the years ended December 31, 2002, 2001 and 2000:
Deferred
Investment Distribution
Investors Managers Costs Total
--------- ---------- ------------ -----
Members' equity, January 31, 2000 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 increase in unrealized
depreciation (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)
Net investment loss -- (208,714) -- (208,714)
Net increase in unrealized
depreciation -- (21,980) -- (21,980)
------- ------- ------- -------
Members' equity, December 31, 2002 $ -- $(820,733) $ (57,563) $(878,296)
======= ======= ====== =======
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN CASH FLOWS
- -----------------------------------
For the years
ended December 31,
-----------------------------
2002 2001 2000
---- ---- ----
Net decrease in members'
equity resulting from operations $(230,694) $(165,727) $(620,729)
Adjustments to reconcile net decrease in
members' equity resulting from operations
to net cash provided (used) by operating
activities:
Net realized gain from sale of equity
investment -- (15) --
Realized loss from investment write offs -- -- 59,997
Net increase (decrease) in net
unrealized depreciation
of equity investments 21,980 (45,772) 244,370
(Decrease) increase in accounts payable
and accrued expenses (10,223) 524 (6,487)
Increase in due to related parties 226,258 95,683 289,647
------- ------- -------
Net cash provided (used) by operating
activities 7,321 (115,307) (33,202)
------- ------- -------
Cash flows from investing activities:
Purchase of equity investments -- -- (31,613)
Proceeds from sale of equity investments -- 60,015 --
------- ------- -------
Net cash provided (used) by
investing activities -- 60,015 (31,613)
------- ------- -------
Cash flows from financing activities:
Proceeds from sale of investor shares -- -- 70,100
Investment Managers' capital contributions -- -- 65
Payments for organizational and
distribution costs -- -- (1,087)
Payments from restricted cash -- -- 23,500
Proceeds from Investment Manager for
investment purchases -- -- 16,700
------- ------- -------
Net cash provided by financing activities -- -- 109,278
------- ------- -------
STATEMENTS OF CHANGES IN CASH FLOWS (continued)
- ----------------------------------------------
For the years
ended December 31,
-----------------------------
2002 2001 2000
---- ---- ----
Net increase (decrease)in cash and
cash equivalents 7,321 (55,292) 44,463
Cash and cash equivalents at beginning
of year -- 55,292 10,829
------- ------- -------
Cash and cash equivalents at end of year $ 7,321 -- $ 55,292
======= ======= =======
Noncash financing activities:
Decrease in deferred distribution
costs due to Investment Managers $ -- $ -- $ (315,689)
======= ======= =======
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. General
-------
Organization
- ------------
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 the Investment Managers, TFL and TFI. The
Investment Managers do not own any shares.
Dissolution of Fund
- -------------------
In December 2002, the Investment Managers adopted a plan of liquidation.
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 14, 2003, at a special meeting of the fund,
the Fund's Investors voted to terminate the Fund as of that date. At
December 31, 2002, the Investment Managers determined that the fair value
of the Fund's investments in portfolio companies totaled $6,224.
It is anticipated that the Investment Managers will incur costs of
$26,000 to wind up the affairs of the Partnership. In accordance with
the liquidation basis of accounting, these amounts have been accrued as
of December 31, 2002.
As of December 31, 2002, the gross amount of the Fund's liabilities
exceeds the anticipated proceeds from the liquidation of assets by
$878,296. The accompanying financial statements have been prepared on a
liquidation basis, in which the carrying values of the remaining assets
are presented at estimated realizable values and all liabilities are
presented at known and estimated amounts required to liquidate the fund.
It is anticipated that the proceeds from the sale of the assets will be
used to settle accounts payable and amounts due to related party.
However, as a result of liquidation, such realization of assets and
liquidation of liabilities are subject to significant uncertainty.
Further, a plan of liquidation could materially change the amounts and
classifications reported in the financial statements. Upon settlement of
the liabilities of the Partnership, it is anticipated that there will be
no funds remaining for distribution to the Investors.
2. General Summary of Significant Accounting Policies
--------------------------------------------------
Preparation of Financial Statements
-----------------------------------
The accompanying financial statements have been prepared on the
liquidation basis of accounting which requires that assets be presented
at their realizable values and liabilities at their settlement amounts.
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 publicly 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, 2002, and December 31, 2001, the investment portfolio
included investments totaling $3,347 and $22,388, 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, 2002 or
2001. 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 loss
from investment write-offs" on the Statements of Changes in Net Assets in
Liquidation.
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 in the years ended December 31, 2002 and 2001, 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, 2002 and 2001, was $159,593. At December 31, 2002 and 2001, gross
unrealized depreciation on investments based on cost for federal income
tax purposes was $153,369 and $131,389, respectively.
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, 2002, 2001 and 2000, of
5,157, 5,157 and 5,065 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.
New Accounting Pronouncement
- ----------------------------
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities ("SFAS No. 146"). SFAS No.
146 addresses financial accounting and reporting for costs associated
with exit or disposal activities, such as restructurings, involuntarily
terminating employees, and consolidating facilities initiated after
December 31, 2002. The implementation of SFAS No. 146 will not require
the restatement of previously issued financial statements. The
Partnership has implemented early adoption of SFAS No. 146 to all
applicable costs associated with exit or disposal activities incurred
during 2002.
3. Related Party Transactions
--------------------------
Related party costs are included in costs and expenses shown on the
Statements of Changes in Net Assets in Liquidation. Related party costs
were as follows:
For the Years Ended December 31,
--------------------------------
2002 2001 2000
------- ------- -------
Management fees $ 8,514 $10,314 $13,118
Independent Directors' compensation 41,000 54,643 47,358
Reimbursable operating expenses:
Investment operations 1,522 739 30,379
Administrative and investor services 58,632 45,530 71,364
Computer services 12,356 18,522 22,206
Liquidation expenses 26,000 -- --
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 $49,770 and $41,256 at December 31, 2002 and 2001, 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 $831,523 and $613,779 at December 31, 2002 and 2001,
respectively.
In 2002 the Managing General Partners billed the Partnership $9,693,
$1,101 and $826 for previously unbilled operating expenses incurred
during 2001, 2000 and prior years, respectively. Had the additional
expenses been billed in the years in which they were incurred, the
investment expenses for 2002, 2001 and 2000 would have been $197,094,
$221,207 and $317,463, 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; there were no such costs charged
by related parties in the years ended December 31, 2002 and 2001,
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 as defined in
the Partnership Agreement and $1,000 for each attended meeting of the
Directors. For the period ended December 31, 2002,such fees incurred by
the Fund were $41,000. The Independent Directors are reimbursed for all
out-of-pocket expenses relating to attendance of the meetings, committees
or otherwise of the Directors.
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.
Retention bonuses were offered to and accepted by key employees of the
Investment Managers in late 2002. The expense for these bonuses, which
were approved by the Independent Directors during the September 2002
Directors meeting, was $14,822 and was paid in 2002. The bonuses,
incremented by annual salary increases, will be paid to those individuals
who are still full-time employees of the Investment Managers in April
2007. Upon the resignation of personnel no adjustment to the retention
bonus amount previously paid by the Partnership to the Managing General
Partners shall occur until a replacement person is hired.
4. 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.
5. 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, 2002 and 2001, restricted securities had aggregate market
values of $3,347 and $22,388, respectively, representing 0.4 percent and
3.5 percent, respectively, of the net liabilities of the Fund.
6. Net (Increase) Decrease in Unrealized Depreciation of Equity
------------------------------------------------------------
Investments
-----------
In accordance with the accounting policy as stated in Note 2, the
Statements of Changes in Net Assets in Liquidation includes a line item
entitled "Net (increase) decrease in unrealized depreciation of equity
investments." The table below discloses details of the changes:
For the Years Ended December 31,
--------------------------------
2002 2001 2000
------ ------ ------
Unrealized depreciation from cost of
marketable equity securities $(59,216) $ (56,277) $ (60,049)
Unrealized depreciation
from cost of non-marketable equity
securities (94,153) (75,112) (117,112)
------- ------- -------
Unrealized depreciation from cost
at end of year (153,369) (131,389) (177,161)
Unrealized (depreciation) appreciation
from cost at beginning of year (131,389) (177,161) 67,209
------- ------- -------
Net (increase) decrease in unrealized
depreciation of equity investments $(21,980) $ 45,772 $(244,370)
======= ======= =======
7. Cash and Cash Equivalents
-------------------------
Cash and cash equivalents at December 31, 2002, were $7,321. There were
no cash and cash equivalents at December 31, 2001.
8. Commitments and Contingencies
-----------------------------
From time to time, the Partnership is subject to routine litigation
incidental to the business of the Partnership. Although there can be no
assurances as to the ultimate disposition of these matters, it is the
opinion of the Investment Managers, based upon the information available
at this time, that the expected outcome of these matters, individually or
in the aggregate, will not have a material adverse effect on the results
of operations and financial condition of the Partnership.
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 24, 2003 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 24, 2003
- ------------------------ 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.
CERTIFICATION
-------------
I, Charles R. Kokesh, President, Chief Executive Officer, Chief Financial
Officer and Chairman of Technology Funding Inc. and Managing General
Partner of Technology Funding Limited, certify that:
1. I have reviewed this annual report on Form 10-K of Technology Funding
Venture Capital Fund VI, LLC.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant is made known to me by others within
the entity, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and
c) presented in this annual report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003 By: /s/Charles R. Kokesh
--------------------------------
Charles R. Kokesh
President, Chief Executive
Officer, Chief Financial
Officer and Chairman of
Technology Funding Inc. and
Managing General Partner of
Technology Funding Limited
Technology Funding Venture Capital Fund VI, LLC 3/24/2003 2:34 PM
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