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EX-31.2 - VLL6INC EX 31.2 093014 - Venture Lending & Leasing VI, Inc.vll609302014ex31210q.htm
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EX-32.2 - VLL6INC EX 32.2 093014 - Venture Lending & Leasing VI, Inc.vll609302014ex32210q.htm
EX-32.1 - VLL6INC EX 32.1 093014 - Venture Lending & Leasing VI, Inc.vll609302014ex32110q.htm


FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission file number 814-00799

Venture Lending & Leasing VI, Inc.
(Exact Name of Registrant as specified in its charter)
Maryland
27-1682622
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
104 La Mesa Drive, Suite 102
Portola Valley, CA 94028
(Address of principal executive offices)
(Zip Code)

(650) 234-4300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ]   No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer”, and "smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [x]
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]  No [x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
Class
 
Outstanding as of November 7, 2014
Common Stock, $.001 par value
 
100,000




VENTURE LENDING & LEASING VI, INC.
INDEX

PART I — FINANCIAL INFORMATION
 
 
Item 1.
Financial Statements
 
 
 
Condensed Statements of Assets and Liabilities (Unaudited)
 
As of September 30, 2014 and December 31, 2013
 
 
 
Condensed Statements of Operations (Unaudited)
 
For the three and nine months ended September 30, 2014 and 2013
 
 
 
Condensed Statements of Changes in Net Assets (Unaudited)
 
For the nine months ended September 30, 2014 and 2013
 
 
 
Condensed Statements of Cash Flows (Unaudited)
 
For the nine months ended September 30, 2014 and 2013
 
 
 
Notes to Condensed Financial Statements (Unaudited)
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.
Controls and Procedures
 
 
PART II — OTHER INFORMATION
 
 
Item 1.
Legal Proceedings
 
 
Item 1A.
Risk Factors
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.
Defaults Upon Senior Securities
 
 
Item 4.
Mine Safety Issues
 
 
Item 5.
Other Information
 
 
Item 6.
Exhibits
 
 
SIGNATURES




PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED)
AS OF SEPTEMBER 30, 2014 AND DECEMBER 31, 2013

 
September 30, 2014
 
December 31, 2013
ASSETS
 
 
 
Loans, at estimated fair value
 
 
 
   (Cost of $269,626,541 and $305,158,484)
$
256,599,010

 
$
293,800,885

Cash and cash equivalents
5,840,663

 
35,377,189

Other assets
4,094,417

 
4,458,893

 
 
 
 
Total assets
266,534,090

 
333,636,967

 
 
 
 
LIABILITIES
 
 
 
Borrowings under debt facility
113,850,000

 
134,200,000

Accrued management fees
1,665,838

 
2,085,231

Accounts payable and other accrued liabilities
938,434

 
2,985,879

 
 
 
 
Total liabilities
116,454,272

 
139,271,110

 
 
 
 
NET ASSETS
$
150,079,818

 
$
194,365,857

 
 
 
 
Analysis of Net Assets:
 
 
 
 
 
 
 
Capital paid in on shares of capital stock
$
241,525,000

 
$
241,525,000

Return of capital distributions
(75,489,395
)
 
(32,040,189
)
Accumulated deficit
(15,955,787
)
 
(15,118,954
)
Net assets (equivalent to $1,500.80 and $1,943.66 per share based on 100,000 shares of capital stock outstanding - See Note 5)
$
150,079,818

 
$
194,365,857




See notes to condensed financial statements.



3



VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 
For the Three Months Ended September 30, 2014
 
For the Three Months Ended September 30, 2013
 
For the Nine Months Ended September 30, 2014
 
For the Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
INVESTMENT INCOME:
 
 
 
 
 
 
 
Interest on loans
$
12,532,551

 
$
14,829,051

 
$
38,622,718

 
$
44,009,485

       Other interest and other income
9,515

 
537

 
367,770

 
98,748

Total investment income
12,542,066

 
14,829,588

 
38,990,488

 
44,108,233

 
 
 
 
 
 
 
 
EXPENSES:
 
 
 
 
 
 
 
Management fees
1,665,838

 
2,093,439

 
5,468,388

 
6,350,367

Interest expense
1,232,582

 
1,218,791

 
3,418,022

 
3,622,803

Banking and professional fees
152,787

 
121,586

 
308,164

 
462,863

Other operating expenses
58,373

 
30,732

 
130,157

 
83,791

Total expenses
3,109,580

 
3,464,548

 
9,324,731

 
10,519,824

Net investment income
9,432,486

 
11,365,040

 
29,665,757

 
33,588,409

 
 
 
 
 
 
 
 
Net realized loss from investments
(3,083
)
 
(686,859
)
 
(1,992,881
)
 
(2,461,281
)
Net change in unrealized gain (loss) from investments
(851,000
)
 
(1,899,563
)
 
(1,669,932
)
 
(6,490,138
)
Net realized and change in unrealized gain (loss) from hedging activities
185,180

 
(146,149
)
 
136,748

 
(159,410
)
Net realized and change in unrealized gain (loss) from investments and hedging activities
(668,903
)
 
(2,732,571
)
 
(3,526,065
)
 
(9,110,829
)
 
 
 
 
 
 
 
 
Net increase in net assets resulting from operations
$
8,763,583

 
$
8,632,469

 
$
26,139,692

 
$
24,477,580

Net increase in net assets resulting from operations per share
$
87.64

 
$
86.32

 
$
261.40

 
$
244.78

Weighted average shares outstanding
100,000

 
100,000

 
100,000

 
100,000


See notes to condensed financial statements.


4



VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 

        
 
For the Nine Months Ended September 30, 2014
 
For the Nine Months Ended September 30, 2013
Net increase in net assets resulting from operations:
 
 
 
Net investment income
$
29,665,757

 
$
33,588,409

Net realized loss from investments
(1,992,881
)
 
(2,461,281
)
Net change in unrealized loss from investments
(1,669,932
)
 
(6,490,138
)
Net realized and change in unrealized gain (loss) from hedging activities
136,748

 
(159,410
)
 
 
 
 
Net increase in net assets resulting from operations
26,139,692

 
24,477,580

 
 
 
 
Distributions of income to shareholder
(26,976,524
)
 
(30,300,439
)
Return of capital to shareholder
(43,449,207
)
 
(3,595,667
)
Capital contributions

 
8,000,000

  Decrease in capital transactions
(70,425,731
)
 
(25,896,106
)
 
 
 
 
Total decrease
(44,286,039
)
 
(1,418,526
)
 
 
 
 
Net assets
 
 
 
Beginning of period
194,365,857

 
195,928,871

 
 
 
 
End of period
$
150,079,818

 
$
194,510,345







See notes to condensed financial statements.


5



VENTURE LENDING & LEASING VI, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 
For the Nine Months Ended September 30, 2014
 
For the Nine Months Ended September 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net increase in net assets resulting from operations
$
26,139,692

 
$
24,477,580

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
 
 
 
Net realized loss from investments
1,992,881

 
2,461,281

Net change in unrealized loss from investments
1,669,932

 
6,490,138

Net change in unrealized gain from hedging activities
(833,099
)
 
(667,279
)
Receipt of equity securities as payment for waiver
(327,440
)
 
(587,537
)
Amortization of deferred costs related to debt facility
368,849

 
368,849

Net increase in other assets
255,627

 
18,673

Net increase (decrease) in accounts payable, other accrued liabilities, and accrued management fees
(1,613,739
)
 
691,161

Origination of loans
(95,500,000
)
 
(124,352,523
)
Principal payments on loans
128,017,643

 
117,849,983

Acquisition of equity securities
(6,276,872
)
 
(7,573,034
)
Net cash provided by operating activities
53,893,474

 
19,177,292

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Cash distribution to shareholder
(62,800,000
)
 
(24,600,000
)
Contribution from shareholder

 
8,000,000

Borrowings under debt facility

 
11,800,000

  Repayment of debt facility
(20,350,000
)
 
(10,900,000
)
  Payment of bank facility fees and costs
(280,000
)
 

 

 
 
Net cash used in financing activities
(83,430,000
)
 
(15,700,000
)
       Net increase (decrease) in cash and cash equivalents
(29,536,526
)
 
3,477,292

CASH AND CASH EQUIVALENTS:
 
 
 
Beginning of period
35,377,189

 
16,244,714

End of period
$
5,840,663

 
$
19,722,006

SUPPLEMENTAL DISCLOSURES:
 
 
 
CASH PAID DURING THE PERIOD:
   

 
 
Interest
$
3,826,653

 
$
3,231,845

Settlement under interest rate swap agreement
$
696,351

 
$
826,690

NON-CASH ACTIVITIES:
   

 
 
Distributions of equity securities to shareholder
$
7,625,731

 
$
9,296,106

Receipt of equity securities as repayment of loans
$
1,021,419

 
$
1,135,534


See notes to condensed financial statements.


6



VENTURE LENDING & LEASING VI, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1.
ORGANIZATION AND OPERATIONS OF THE FUND

Venture Lending & Leasing VI, Inc. (the “Fund”), was incorporated in Maryland on January 11, 2010 as a nondiversified closed-end management investment company electing status as a business development company (“BDC”) under the Investment Company Act of 1940, as amended ("1940 Act") and is managed by Westech Investment Advisors, LLC, formerly known as Westech Investment Advisors, Inc. (“Manager” or “Management”). The Fund will be dissolved on December 31, 2020 unless an election is made to dissolve earlier by the Board of Directors of the Fund (the “Board”). One hundred percent of the stock of the Fund is held by Venture Lending & Leasing VI, LLC (the “Company”).  Prior to commencing its operations on June 29, 2010, the Fund had no operations other than the sale to the Company of 100,000 shares of common stock, $0.001 par value for $25,000 in January 2010.  This issuance of stock was a requirement in order to apply for a finance lender's license from the California Commissioner of Corporations, which was obtained on April 13, 2010.

In the Manager's opinion, the accompanying financial statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of financial position and results of operations for interim periods. Certain information and note disclosures normally included in audited annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted; however, the Fund believes that the disclosures made are adequate to make the information presented not misleading. The interim results for the nine months ended September 30, 2014 are not necessarily indicative of what the results would be for a full year. It is suggested that these financial statements be read in conjunction with the financial statements and the notes included in the Fund's Annual Report on Form 10-K for the year ended December 31, 2013.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and money market mutual funds with maturities of 90 days or less. Money market mutual funds held as cash equivalents are valued at their most recently traded net asset value.

Interest Income

Interest income on loans is recognized using the effective interest method including amounts from the amortization of discounts attributable to equity securities received as part of the loan transaction.  Additionally, fees received as part of the transaction are added to the loan discount and amortized over the life of the loan.

Valuation Procedures

The Fund accounts for loans at fair value in accordance with the “Valuation Methods” below.  All valuations are determined under the direction of the Manager, in accordance with these methods.

The Fund's loans are valued in connection with the issuance of its periodic financial statements, the issuance or repurchase of the Fund's shares at a price equivalent to the current net asset value per share, and at such other times as

7



required by law.  On a quarterly basis, Management submits to the Board a “Valuation Report,” which details the rationale for the valuation of investments.

As of September 30, 2014 and December 31, 2013, the financial statements include nonmarketable investments of $256.6 million and $293.8 million, respectively (or approximately 96% and 88% of total assets, respectively), with fair values determined by the Manager in the absence of readily determinable market values.  Because of the illiquidity of the Fund's investments, a substantial portion of its assets are carried at fair value as determined in good faith by the Manager in accordance with the Fund's policy as approved by the Board. Because of the inherent uncertainty of these valuations, estimated fair values of such investments 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. Below is the information used by the Manager in making these estimates.

Loans

The Fund defines fair value as the price that would be received to sell an asset or paid to lower a liability in an orderly transaction between market participants at the measurement date. There is no secondary market for the loans made by the Fund to borrowers, hence Management determines fair value based on hypothetical markets. Venture loans are generally held to maturity and are recorded at estimated fair value. The determination of fair value is based on a number of factors including the amount for which an investment could be exchanged in a current sale, which assumes an orderly disposition over a reasonable period other than in a forced sale. Management considers the fact that no ready market exists for substantially all of the investments held by the Fund. Management determines whether to adjust the estimated fair value of a loan based on a number of factors including but not limited to the borrower's payment history, available cash and “burn rate,” revenues, net income or loss, the likelihood that the borrower will be able to secure additional financing in the future, as well as an evaluation of the general interest rate environment. The amount of any valuation adjustment considers liquidation analysis and is determined based upon a credit analysis of the borrower and an analysis of the expected recovery from the borrower, including consideration of factors such as the nature and quality of the Fund's security interests in collateral, the estimated value of the Fund's collateral, the size of the loan, and the estimated time that will elapse before the Fund achieves a recovery. Management has evaluated these factors and has concluded that the effect of deterioration in the quality of the underlying collateral, increase in the size of the loan and increase in the estimated time to recovery would have the effect of lowering the value of the current portfolio of loans.

Non-accrual Loans

The Fund's policy is to place a loan on non-accrual status when the loan stops performing and Management deems that it is unlikely that the loan will return to performing status.  When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed for the quarter in which the loan was placed on non-accrual status.  Any uncollected interest related to quarters prior to when the loan was placed on non-accrual status is added to the principal balance, and the aggregate balance of the principal and interest is evaluated in accordance with the policy for valuation of loans in determining Management's best estimate of fair value. Interest received by the Fund on non-accrual loans will be recorded on a cash basis.

If a borrower of a non-accrual loan resumes making regular payments and Management deems that the borrower has sufficient resources that it is unlikely the loan will return to non-accrual status, the loan is re-classified back to accrual or performing status.  Interest that would have been accrued during the non-accrual status will be added back to the remaining payment schedule, and thus changing the effective interest rate.

As of September 30, 2014, loans with a cost basis of $18.7 million and a fair value of $6.8 million, have been classified as non-accrual. As of December 31, 2013, loans with a cost basis of $21.0 million and a fair value of $9.9 million, have been classified as non-accrual.


8



Warrants and Stock

Warrants and stock that are received in connection with loan transactions generally will be assigned a fair value at the time of acquisition, unless a market price is available. These securities are then distributed by the Fund to the Company at the assigned value. Warrants are valued based on a modified Black-Scholes option pricing model which takes into account among other factors underlying stock value, expected term, volatility and the risk-free interest rate.  
Underlying asset value is estimated based on information available, including information regarding recent rounds of funding of the portfolio company, or the publicly-quoted stock price at the end of the financial reporting period for warrants for comparable publicly-quoted securities.
Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on an index of publicly traded companies grouped by industry and which are similar in nature to the underlying portfolio companies issuing the warrant (“Industry Index”). The volatility assumption for each Industry Index is based on the average volatility for individual public companies within the portfolio company's industry for a period of time approximating the expected life of the warrants. A hypothetical increase in the volatility calculated from the indexes used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The remaining expected lives of warrants are based on historical experience of the average life of the warrants, as warrants are often exercised in the event of acquisitions, mergers, or initial public offerings and terminated due to events such as bankruptcies, restructuring activities, or additional financings. These events cause the expected term to be less than the remaining contractual term of the warrants. The remaining expected lives of warrants may be adjusted from time to time to reflect new facts and circumstances. For the three and nine months ended September 30, 2014, the Fund assumed the average duration of a warrant is 3 years. A hypothetical increase in the estimated initial term of the warrants used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
The risk-free interest rate is derived from the constant maturity tables issued by the U.S. Treasury Department. The effect of a hypothetical increase in the estimated risk-free rate used in the modified Black-Scholes option pricing model would have the effect of increasing the value of the warrants.
On an annual basis, the Fund engages an independent valuation vendor to provide valuation assistance. This independent third party evaluates the Fund's valuation methodology and assumptions for reasonableness from the perspective of a market participant. The independent third party also calculates several of the inputs used such as volatility and risk free rate. Upon the receipt of such data, a sample test is performed to ensure the accuracy of the independent calculations and that the source of data is reliable and consistent with the way in which the calculations were made in prior periods. Such inputs are entered into the database with a second review to ensure the accuracy of the input information. All calculations of warrant values are performed by one employee and reviewed by a second party. The inputs of the modified Black-Scholes option pricing model are reevaluated every quarter.

Other Assets and Liabilities
Other assets include costs incurred in conjunction with borrowings under the Fund's debt facility and are stated at initial cost. The costs are amortized over the term of the facility.
As of September 30, 2014 and December 31, 2013, the fair values of Other assets and liabilities are estimated at their carrying values because of the short-term nature of these assets or liabilities.
As of September 30, 2014 and December 31, 2013, based on borrowing rates available to the Fund, which are Level 2 inputs, the estimated fair values of the borrowings under the debt facility were $113.9 million and $134.2 million, respectively.


9




Commitment Fees

Unearned income and commitment fees on loans are recognized using the effective interest method over the term of the loan. Commitment fees are carried as liabilities when received for commitments upon which no draws have been made. When the first draw is made, the fee is treated as unearned income and is recognized as described above.  If a draw is never made, the forfeited commitment fee less any applicable legal costs becomes recognized as other income after the commitment expires.

Interest Rate Swap Agreements

Interest rate swaps are primarily valued on the basis of quotes obtained from brokers and dealers and adjusted for counterparty risk. The valuation of the swap agreement also considers the future expected interest rates on the notional principal balance remaining which is comparable to what a prospective acquirer would pay on the measurement date. Valuation pricing models consider inputs such as forward rates, anticipated interest rate volatility relating to the reference rate, as well as time value and other factors underlying swap instruments. The contracts are recorded at fair value in either other assets or accounts payable and other accrued liabilities in the Condensed Statements of Assets and Liabilities, depending on whether the value of the contract is in favor of the Fund or the counter party. The changes in fair value are recorded in net realized and change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations.  The quarterly interest paid or received on the interest rate swap contracts is also recorded in net realized and change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations. The interest swap agreements terminated on September 23, 2014.

Interest Rate Cap Agreements

On September 30, 2014, the Fund entered into interest rate cap agreements which are primarily valued on the basis of the future expected interest rates on the notional principal balance remaining, which is comparable to what a prospective acquirer would pay on the measurement date. Valuation pricing models consider inputs such as forward rates, anticipated interest rate volatility relating to the reference rate, as well as time value and other factors underlying cap instruments. The contracts are recorded at fair value in either other assets or accounts payable and other accrued liabilities in the Condensed Statements of Assets and Liabilities, depending on whether the value of the contract is in favor of the Fund or the counter party. The changes in fair value are recorded in net change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations. The monthly interest received on the interest rate cap contracts is also recorded in net realized and change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations.

Deferred Bank Fees

The debt facility was extended on September 23, 2014 and then amended, restated and renewed through March 23, 2017 on September 30, 2014.

Through September 30, 2014, the deferred bank fees and costs associated with the September 30, 2014 extended expiration date previously had been amortized over the estimated life of the facility. The amortization of these costs was recorded as interest expense in the Condensed Statement of Operations (see Note 6).

Deferred bank fees and costs associated with the renewal of the debt facility will be amortized over the estimated life of the renewed facility through March 23, 2017.

Tax Status

The Fund has elected to be treated as a Regulated Investment Company ("RIC") under Subchapter M of the Internal Revenue Code (the "Code") and operates in a manner so as to qualify for the tax treatment applicable to RICs.


10



In order to qualify for favorable tax treatment as a RIC, the Fund is required to distribute annually to its shareholder at least 90% of its investment company taxable income, as defined by the Code. To avoid federal excise taxes, the Fund must distribute annually at least 98% of its ordinary income and 98.2% of net capital gains from the current year and any undistributed ordinary income and net capital gains from the preceding years. The Fund, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. If the Fund chooses to do so, all other things being equal, this would increase expenses and reduce the amount available to be distributed to shareholder. The Fund will accrue excise tax on estimated undistributed taxable income as required.

Dividends from net investment income and distributions from net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, they are charged or credited to paid-in-capital or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain loans and the tax characterization of income and non-deductible expenses. These differences are generally determined in conjunction with the preparation of the Fund's annual RIC tax return.

Book and tax basis differences relating to shareholder dividends and distributions and other permanent book and tax differences are reclassified among the Fund's capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP.

The Fund may pay distributions in excess of its taxable net investment income. This excess would be a tax-free return of capital in the period and reduce the shareholder's tax basis in its shares. The cumulative amount is disclosed on the Condensed Statements of Assets and Liabilities as return of capital distributions. Cumulative return of capital distributions were $75.5 million and $32.0 million as of September 30, 2014 and December 31, 2013, respectively. As of September 30, 2014, the Fund had no uncertain tax positions.

The Fund's tax years open to examination by major jurisdictions are 2011 and forward.

3.
SUMMARY OF INVESTMENTS

Loans generally are made to borrowers pursuant to commitments whereby the Fund agrees to finance assets and/or provide working or growth capital up to a specified amount for the term of the commitment, upon the terms and subject to the conditions specified by such commitment. As of September 30, 2014, the Fund's investments in loans were primarily to companies based within the United States and were diversified among borrowers in the industry segments shown below.  The percentage of net assets that each industry group represents is shown with the industry totals below  (the sum of the percentages does not equal 100 percent because the percentages are based on net assets as opposed to total loans).  All loans are senior to unsecured creditors except where indicated.

The Fund defines fair value as the price that would be received to sell an asset or paid to settle a liability in an orderly transaction between market participants at the measurement date; that is, an exit price. The exit price assumes the asset or liability was exchanged in an orderly transaction; it was not a forced liquidation or distressed sale.

Loan balances are summarized by borrower.  Typically a borrower's balance will be composed of several loans drawn under a commitment made by the Fund with the interest rate on each loan fixed at the time each loan is funded. Each loan drawn under a commitment may have a different maturity date and amount.  For the three and nine months ended September 30, 2014 , the weighted-average interest rate on the performing loans was 19.35% and 18.83%, respectively. For the three and nine months ended September 30, 2013, the weighted-average interest rate on the performing loans was 18.44% and 18.79%, respectively. These rates were inclusive of both cash and non-cash interest income. For the three and nine months ended September 30, 2014, the weighted-average interest rate on the cash portion of the interest income was 15.10% and 14.45%, respectively. For the three and nine months ended September 30, 2013, the weighted-average interest rate on the cash portion of the interest income was 14.11% and 14.25%, respectively. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate

11



based on many factors including early payoffs, volatility of values ascribed to warrants and new loans funded during the period.

The risk profile of a loan changes when events occur that impact the credit analysis of the borrower and loan as described in our loan accounting policy. Such changes result in the fair value being adjusted from par value of the individual loan. Where the risk profile is consistent with the original underwriting, which is primarily the case for this loan portfolio, the par value of the loan will approximate fair value.

All loans as of September 30, 2014 were to non-affiliates and consisted of the following:

 
Percentage of
Estimated Fair
Par Value
Final
 
Borrower
Net Assets
Value 9/30/14
Value 9/30/14
Maturity Date
 
Carrier Networking
 
 
 
 
 
Autonoma, Inc.
 
 $ 1,458,279

 $ 1,823,279

*
 
Subtotal:
1.0%
 $ 1,458,279

 $ 1,823,279

 
 
 
 
 
 
 
 
Computers & Storage
 
 
 
 
 
Clustrix, Inc.
 
 $ 2,263,171

 $ 2,263,171

5/1/2017
 
Connected Data, Inc.
 
2,035,531

2,035,531

5/1/2017
 
D-Wave Systems, Inc.
 
1,721,620

1,721,620

2/1/2017
 
Gridstore, Inc.
 
1,402,102

1,402,102

6/1/2017
 
Veloxum, Inc.
 
416,093

416,093

*
 
Vidcie
 
            516,010

             516,010

12/1/2015
 
Subtotal:
5.6%
 $ 8,354,527

 $ 8,354,527

 
 
 
 
 
 
 
 
Enterprise Networking
 
 
 
 
 
Apprion, Inc.
 
 $ 619,350

 $ 619,350

4/1/2016
 
Splashtop, Inc.
 
          1,297,527

          1,297,527

5/1/2016
 
Subtotal:
1.3%
 $ 1,916,877

 $ 1,916,877

 
 
 
 
 
 
 
 
Internet
 
 
 
 
 
Behalf, Inc.
 
 $ 1,620,682

 $ 1,620,682

5/1/2017
 
Better Doctor, Inc.
 
348,860

348,860

6/1/2016
 
Bot Home Automation, Inc.
 
195,961

195,961

10/1/2016
 
Change.org, Inc.
 
2,130,824

2,130,824

11/1/2016
 
CloudTalk, Inc.
 
5,000

124,008

*
 
CustomMade, Inc.
 
1,860,247

1,860,247

5/1/2017
 
DailyFeats, Inc.
 
250,387

250,387

1/1/2016
 
Desti, Inc.
 
38,983

43,283

*
 
Digital Caddies, Inc.
 
833,246

833,246

6/1/2017
 
FanBridge, Inc.
 
453,896

643,896

*
 
FanDuel, Inc.
 
1,571,839

1,571,839

9/1/2016
 
Fast Labs, Inc.
 
412,724

412,724

3/1/2017
 
Fingi, Inc.
 
350,887

350,887

6/1/2018
 
FlipTop, Inc.
 
483,327

483,327

6/1/2017
 
Francium Technologies Corporation
 
335,362

335,362

12/1/2014
 
Giddy Apps, Inc.
 
932,947

932,947

12/1/2017
 
Giga Omni Media, Inc.
 
2,954,544

2,954,544

2/1/2016
 

12



Giveforward, Inc.
 
466,877

466,877

7/1/2017
 
Good Eggs, Inc.
 
346,542

346,542

6/1/2016
 
Grovo Learning, Inc.
 
957,095

957,095

3/1/2017
 
HEXAGRAM 49, Inc.
 
517,558

517,558

1/1/2016
 
Inside Vault, Inc.
 
463,872

463,872

5/1/2017
 
isocket, Inc.
 
186,298

186,298

1/1/2015
 
Jun Group, LLC
 
970,965

970,965

2/1/2017
 
KargoCard, Co.
 
616,536

616,536

1/1/2016
 
Kitsy Lane, Inc.
 
236,730

236,730

12/1/2016
 
Kiwi Crate, Inc.
 
1,182,014

1,182,014

10/1/2016
 
Komli Media, Inc.
 
3,759,517

3,759,517

11/1/2015
 
Kulbyt, Inc.
 
150,011

150,011

8/1/2015
 
Lenddo International
 
1,276,842

1,276,842

12/1/2015
 
Lightside Games, Inc.
 
177,230

250,230

*
 
LocalResponse, Inc.
 
413,159

413,159

3/1/2016
 
MassDrop, Inc.
 
356,295

356,295

9/1/2017
 
MediaSpike, Inc.
 
215,958

215,958

12/1/2016
 
MeetMe, Inc.
 
1,534,574

1,534,574

4/1/2016
 
Moda Operandi, Inc.
 
153,625

153,625

12/1/2015
 
Modasuite, Inc.
 
1,457,886

1,457,886

7/1/2016
 
Monetate, Inc.
 
2,913,093

2,913,093

3/1/2018
 
Moveline Group, Inc.
 
945,137

945,137

6/1/2017
 
Navigating Cancer, Inc.
 
1,122,814

1,122,814

7/1/2016
 
Osix Corp.
 
356,925

356,925

10/1/2016
 
PerformLine, Inc.
 
110,559

110,559

5/1/2015
 
Piryx, Inc.
 
1,499,504

1,499,504

6/1/2017
 
Pixalate, Inc.
 
448,720

448,720

3/1/2017
 
Playstudios, Inc.
 
2,324,041

2,324,041

9/1/2017
 
Pleying, Inc.
 
201,794

201,794

12/1/2016
 
Quantcast Corp.
 
8,891,050

8,891,050

4/1/2017
 
Quri, Inc.
 
1,173,197

1,173,197

12/1/2017
 
Radius Intelligence, Inc.
 
1,592,395

1,592,395

10/1/2017
 
Relay Network, LLC
 
635,436

635,436

7/1/2015
 
Retail Innovation Group
 
1,831,704

1,831,704

7/1/2016
 
Rivet Games, Inc.
 
128,082

195,082

*
 
The SavvySource For Parents, Inc.
 
510,295

510,295

12/1/2016
 
Schooltube, Inc.
 
68,222

108,222

*
 
ServiceMarketplace, Inc.
 
210,395

210,395

7/1/2017
 
Session M, Inc.
 
1,709,252

1,709,252

2/1/2017
 
Smart Lunches, Inc.
 
176,095

176,095

6/1/2016
 
Sociable Labs, Inc.
 
359,290

359,290

7/1/2016
 
TangoCard, Inc.
 
101,212

101,212

3/1/2015
 
The Black Tux, Inc.
 
348,161

348,161

10/1/2017
 
The Lucky Group Inc. (Acquirer)
 
4,692,497

5,292,497

8/1/2018
 
True & Co., Inc.
 
1,249,209

1,249,209

10/1/2017
 
UserVoice, Inc.
 
414,052

414,052

11/1/2015
 

13



Waluzi, Inc.
 
89,851

89,851

8/1/2016
 
Weddington Way, Inc.
 
932,297

932,297

11/1/2016
 
WHI, Inc.
 
1,998,711

1,998,711

7/1/2017
 
YouDocs Beauty, Inc.
 
            951,533

          1,151,533

5/1/2018
 
Subtotal:
45.4%
 $ 68,204,823

 $ 69,498,131

 
 
 
 
 
 
 
 
Medical Devices
 
 
 
 
 
AxioMed, Inc.
 
$
511,270

 $ 2,257,270

*
 
Blockade Medical, LLC
 
459,699

459,699

9/1/2017
 
Cayenne Medical, Inc.
 
4,743,291

4,743,291

12/1/2017
 
Cervilenz, Inc.
 
2,201,052

2,201,052

4/1/2016
 
HourGlass Technologies, Inc.
 
243,351

869,351

*
 
MimOSA, Inc.
 
185,472

185,472

12/1/2015
 
NasoForm, Inc.
 
73,704

73,704

2/1/15
 
Redox Biomedical
 
900,000

3,600,000

*
 
Sonoma Orthopedic Products, Inc.
 
2,352,172

2,352,172

4/1/2016
 
Zipline Medical, Inc.
 
          1,209,545

          1,209,545

5/1/2016
 
Subtotal:
8.6%
$
12,879,556

$
17,951,556

 
 
 
 
 
 
 
 
Other Healthcare
 
 
 
 
 
Cogito Health, Inc.
 
 $ 553,155

 $ 553,155

4/1/2017
 
Health Guru Media, Inc.
 
246,649

246,649

12/1/2014
 
Health Integrated, Inc.
 
2,220,583

2,220,583

10/1/2017
 
HealthEquityLabs, Inc.
 
922,721

922,721

6/1/2018
 
Mulberry Health, Inc.
 
4,793,326

4,793,326

12/1/2017
 
Physician Software Systems, LLC
 
473,057

473,057

7/1/2017
 
Practice Fusion, Inc.
 
5,091,819

5,091,819

6/1/2016
 
Project Healthy Living, Inc.
 
959,829

959,829

10/1/2016
 
Therapydia, Inc.
 
560,441

560,441

7/1/2017
 
Urgent Care Centers of New England, Inc.
 
2,337,232

2,337,232

4/1/2018
 
ZocDoc, Inc.
 
          4,431,653

          4,431,653

6/1/2017
 
Subtotal:
15.1%
 $ 22,590,465

 $ 22,590,465

 
 
 
 
 
 
 
 
Other Technology
 
 
 
 
 
21e6, LLC
 
$
13,789,035

 $ 13,789,035

8/1/2017
 
Automatic Labs, Inc.
 
849,836

849,836

12/1/2016
 
Beeline Bikes, Inc.
 
133,510

133,510

6/1/2017
 
Daylight Solutions, Inc.
 
2,969,770

2,969,770

8/1/2017
 
Ecologic Brands, Inc.
 
693,630

693,630

6/1/2017
 
General Assembly, Inc.
 
2,165,357

2,165,357

12/1/2016
 
InsideTrack, Inc.
 
1,346,392

1,346,392

9/1/2017
 
LanzaTech New Zealand Ltd.
 
9,442,318

9,442,318

7/1/2016
 
Lumo BodyTech, Inc.
 
572,056

572,056

12/1/2017
 
Neuehouse LLC
 
4,117,385

4,117,385

7/1/2017
 
nWay, Inc.
 
695,174

695,174

3/1/2017
 
Pinnacle Engines, Inc.
 
1,404,965

1,404,965

7/1/2017
 
PLAE, Inc.
 
457,305

457,305

6/1/2017
 

14



Prana Holdings, Inc.
 
5,192,453

5,192,453

7/1/2016
 
Pure Energies Group, Inc.
 
1,865,474

1,865,474

8/1/2016
 
Scoot Networks, Inc.
 
443,609

443,609

3/1/2017
 
Skully Helmets, Inc.
 
222,595

222,595

7/1/2017
 
Solaria Corp.
 
241,491

1,021,491

*
 
Sproutling, Inc.
 
463,857

463,857

9/1/2017
 
Thoughtful Media Group, Inc.
 
504,860

684,860

*
 
Tribogenics, Inc.
 
1,348,196

1,348,196

9/1/2016
 
Wallaby Financial, Inc.
 
109,289

109,289

8/1/2016
 
YPX Cayman Holdings Co.
 
1,201,406

1,201,406

4/1/2016
 
ZeaChem, Inc.
 
            637,536

          4,339,536

*
 
Subtotal:
33.9%
$
50,867,499

 $ 55,529,499

 
 
 
 
 
 
 
 
Security
 
 
 
 
 
Agari Data, Inc.
 
 $ 1,161,728

 $ 1,161,728

9/1/2017
 
Guardian Analytics, Inc.
 
2,843,590

2,843,590

1/1/2018
 
Kinamik, Inc.
 
329,530

639,530

*
 
Pandesa Corp.
 
37,583

37,583

2/1/2015
 
Uplogix, Inc.
 
1,723,464

1,723,464

5/1/2017
 
Venafi, Inc.
 
3,669,343

3,669,343

6/1/2017
 
Voltage Security, Inc.
 
          2,355,130

          2,355,130

9/1/2017
 
Subtotal:
8.1%
 $ 12,120,368

 $ 12,430,368

 
 
 
 
 
 
 
 
Software
 
 
 
 
 
3Scale, Inc.
 
 $ 708,339

 $ 708,339

9/1/2017
 
AcousticEye, Ltd.
 
188,632

188,632

12/1/2015
 
Appconomy, Inc.
 
222,362

2,235,362

*
 
Apportable, Inc.
 
915,175

915,175

3/1/2017
 
Artificial Solutions ASH AB
 
297,002

297,002

2/1/2015
 
Atigeo, LLC
 
2,760,363

2,760,363

9/1/2017
 
Beanstock Media, Inc.
 
1,332,912

1,332,912

12/1/2018
 
BlazeMeter, Inc.
 
465,625

465,625

7/1/2017
 
Brightpearl, Inc.
 
523,438

523,438

6/1/2016
 
Ceros, Inc.
 
484,970

484,970

4/1/2016
 
ClearPath, Inc.
 
337,462

337,462

5/1/2016
 
Clypd, Inc.
 
636,237

636,237

11/1/2016
 
Corduro, Inc.
 
47,557

137,557

*
 
D Software, Inc.
 
215,411

215,411

6/1/2016
 
Dataium, LLC
 
160,129

352,129

7/1/2016
 
DropThought, Inc.
 
473,968

473,968

12/1/2016
 
eCommera, Ltd.
 
4,314,801

4,314,801

3/1/2017
 
Encoding.com, Inc.
 
590,515

590,515

11/1/2016
 
gloStream, Inc.
 
1,264,830

1,264,830

1/1/2017
 
Innerworkings Holdings, Ltd.
 
12,722

339,944

*
 
Intalio, Inc.
 
316,727

316,727

6/1/2015
 
MediaPlatform, Inc.
 
652,951

652,951

9/1/2016
 
Mintigo, Inc.
 
1,419,197

1,419,197

1/1/2018
 

15



Nectar, Inc.
 
919,789

919,789

7/1/2017
 
NewVoiceMedia, Ltd.
 
355,359

355,359

2/1/2015
 
OrderGroove, Inc.
 
987,065

987,065

12/1/2016
 
Palantir Technologies, Inc.
 
8,026,967

8,026,967

4/1/2016
 
Pursway, Inc.
 
1,378,097

1,378,097

3/1/2016
 
Quantisense, Inc.
 
483,349

483,349

6/1/2015
 
Riskonnect, Inc.
 
288,806

288,806

8/1/2015
 
SCVNGR, Inc.
 
2,035,350

2,035,350

10/1/2016
 
SnapLogic, Inc.
 
1,820,120

1,820,120

7/1/2016
 
SoundHound, Inc.
 
3,844,680

3,844,680

5/1/2017
 
STG-Impact Holdings Corp.
 
6,496,326

6,496,326

3/1/2016
 
StreetLight Data, Inc.
 
683,665

683,665

4/1/2017
 
Superfish, Inc.
 
534,914

534,914

10/1/2015
 
The Cloudscaling Group, Inc.
 
1,023,799

1,023,799

9/1/2015
 
Top Hat Monocle Corp.
 
728,107

728,107

7/1/2016
 
Vuemix, Inc.
 
75,946

75,946

8/1/2015
 
Workspot, Inc.
 
183,471

183,471

9/1/2016
 
Xceedium, Inc.
 
251,474

251,474

4/1/2015
 
ZeroTurnaround USA, Inc.
 
          1,422,550

          1,422,550

6/1/2018
 
Subtotal:
33.2%
 $ 49,881,159

 $ 52,503,381

 
 
 
 
 
 
 
 
Technology Services
 
 
 
 
 
Akademos, Inc.
 
 $ 874,041

 $ 874,041

6/1/2017
 
Amped, Inc
 
1,423,206

1,423,206

11/1/2017
 
BidPal, Inc.
 
636,789

636,789

4/1/2016
 
Blazent, Inc.
 
674,388

674,388

5/1/2016
 
Blue Technologies Limited
 
694,042

694,042

6/1/2017
 
BountyJobs, Inc.
 
927,632

927,632

5/1/2017
 
Callisto Media, Inc.
 
651,860

651,860

9/1/2016
 
FSA Store, Inc.
 
1,213,700

1,213,700

9/1/2017
 
Grassroots Unwired, Inc.
 
83,316

83,316

8/1/2016
 
Maxi Mobility, Inc.
 
175,158

175,158

7/1/2016
 
Rated People, Ltd.
 
2,296,244

2,296,244

12/1/2016
 
Stackstorm, Inc.
 
263,528

263,528

8/1/2017
 
The New Orleans Exchange, Inc.
 
3,370,162

3,370,162

1/1/2016
 
TiqIQ, Inc.
 
            240,475

             240,475

7/1/2017
 
Subtotal:
9.0%
 $ 13,524,541

 $ 13,524,541

 
 
 
 
 
 
 
 
Wireless
 
 
 
 
 
AppStack, Inc.
 
 $ 153,918

 $ 303,918

*
 
Azumio, Inc.
 
749,931

749,931

11/1/2015
 
Cellfire, Inc.
 
123,959

123,959

12/1/2014
 
Clementine, Inc.
 
233,098

233,098

3/1/2017
 
Corona Labs, Inc.
 
370,577

493,578

5/1/2016
 
Flint Mobile, Inc.
 
689,533

689,533

1/1/2016
 
GPShopper, LLC
 
727,415

727,415

7/1/2017
 
InfoReach, Inc.
 
468,709

468,709

3/1/2017
 

16



Meru Networks, Inc.
 
3,766,991

3,766,991

8/1/2015
 
Quixey, Inc.
 
2,416,716

2,416,716

6/1/2016
 
Receivd, Inc.
 
235,459

465,459

*
 
SpiderCloud Wireless, Inc.
 
4,771,596

4,771,596

7/1/2017
 
Zipit Wireless, Inc.
 
              93,014

              93,014

10/1/2014
 
Subtotal:
9.9%
 $ 14,800,916

 $ 15,303,917

 
 
 
 
 
 
 
 
Total (Cost of $269,626,541):
171.0%
$
256,599,010

$
271,426,541

 
 


*As of September 30, 2014, loans with a cost basis of $18.7 million and a fair value of $6.8 million were classified as non-accrual. These loans have been accelerated from their original maturity and are due in their entirety. During the period for which these loans have been on non-accrual status, no interest income has been recognized.

All loans as of December 31, 2013 were to non-affiliates and consisted of the following:
 
Percentage of
Estimated Fair
Par Value
Final
Borrower
Net Assets
Value 12/31/13
12/31/13
Maturity Date
Biotechnology
 
 
 
 
Stem CentRx, Inc.
 
 $ 18,433

 $ 18,433

1/1/2014
Subtotal:
0.0%
 $ 18,433

 $ 18,433

 
 
 
 
 
 
Carrier Networking
 
 
 
 
Autonoma, Inc.
 
 $ 2,023,248

 $ 2,023,248

6/1/2016
VocalNet, LLC
 
                    271,056

             376,056

10/1/2016
Subtotal:
1.2%
 $ 2,294,304

 $ 2,399,304

 
 
 
 
 
 
Computers & Storage
 
 
 
 
Connected Data, Inc.
 
 $ 1,399,414

 $ 1,399,414

11/1/2016
D-Wave Systems, Inc.
 
44,621

44,621

1/1/2014
Looxcie, Inc.
 
743,209

743,209

12/1/2015
Veloxum, Inc.
 
104,093

416,093

*
Vidyo, Inc.
 
                 9,455,897

          9,455,897

5/1/2016
Subtotal:
6.0%
 $ 11,747,234

 $ 12,059,234

 
 
 
 
 
 
Enterprise Networking
 
 
 
 
Apprion, Inc.
 
 $ 848,878

 $ 848,878

4/1/2016
BurstPoint Networks, Inc.
 
594,951

594,951

5/1/2016
Splashtop, Inc.
 
                 1,657,534

          1,657,534

5/1/2016
Subtotal:
1.6%
 $ 3,101,363

 $ 3,101,363

 
 
 
 
 
 
Internet
 
 
 
 
Beach Mint, Inc.
 
 $ 6,615,252

 $ 6,615,252

5/1/2016
Better Doctor, Inc.
 
472,914

472,914

6/1/2016
Blekko, Inc.
 
1,904,118

1,904,118

12/1/2016
Byliner, Inc.
 
925,175

925,175

5/1/2016
Carwoo!, Inc.
 
89,437

919,437

*
Central Desktop, Inc.
 
3,035,119

3,035,119

4/1/2016
Change.org, Inc.
 
2,375,933

2,375,933

11/1/2016

17



CloudTalk, Inc.
 
5,000

124,009

*
CustomMade, Inc.
 
1,880,757

1,880,757

5/1/2017
DailyFeats, Inc.
 
334,194

334,194

1/1/2016
Desti, Inc.
 
395,283

395,283

5/1/2016
Dezine, Inc.
 
0

142,590

*
Direct Media Technologies, Inc.
 
1,257,922

1,257,922

12/1/2014
EDO Interactive, Inc.
 
1,205,349

1,205,349

11/1/2014
EyeView, Inc.
 
1,029,314

1,029,314

3/1/2015
FanBridge, Inc.
 
453,896

643,896

*
FanDuel, Inc.
 
1,880,835

1,880,835

9/1/2016
Fast Labs, Inc.
 
229,448

229,448

1/1/2017
FlipTop, Inc.
 
549,660

549,660

6/1/2015
Giga Omni Media, Inc.
 
4,229,897

4,229,897

2/1/2016
Good Eggs, Inc.
 
452,593

452,593

5/1/2016
Grovo Learning, Inc.
 
701,522

701,522

3/1/2017
HEXAGRAM 49, Inc.
 
787,098

787,098

1/1/2016
Identified, Inc.
 
2,459,801

2,459,801

6/1/2016
isocket, Inc.
 
475,585

475,585

1/1/2015
Jarvis Labs, Inc.
 
234,471

234,471

10/1/2016
Jun Group, LLC
 
616,118

616,118

11/1/2014
Kanjoya, Inc.
 
149,260

149,260

4/1/2014
KargoCard, Co.
 
1,006,303

1,006,303

1/1/2016
Kitsy Lane, Inc.
 
304,957

304,957

12/1/2016
Kiwi Crate, Inc.
 
1,419,972

1,419,972

10/1/2016
Komli Media, Inc.
 
5,936,578

5,936,578

11/1/2015
Kulbyt, Inc.
 
263,601

263,601

8/1/2015
Lenddo International
 
1,917,916

1,917,916

12/1/2015
Lightside Games, Inc.
 
222,230

295,230

*
LocalResponse, Inc.
 
611,036

611,036

3/1/2016
LOLapps, Inc.
 
18,961

18,961

1/1/2014
MeetMe, Inc.
 
2,350,769

2,350,769

4/1/2016
Modasuite, Inc.
 
1,910,112

1,910,112

7/1/2016
ModeWalk, Inc.
 
191,118

239,118

1/1/2015
Mojo Motors, Inc.
 
45,392

45,392

6/1/2014
Monetate, Inc.
 
3,419,341

3,419,341

5/1/2015
Navigating Cancer, Inc.
 
1,625,647

1,625,647

7/1/2016
nPario, Inc.
 
99,940

397,940

*
Osix Corporation
 
498,178

498,178

10/1/2016
PerformLine, Inc.
 
217,734

217,734

5/1/2015
Piryx, Inc.
 
1,460,721

1,460,721

9/1/2016
Pixalate, Inc.
 
217,736

217,736

11/1/2016
Playstudios, Inc.
 
2,598,317

2,598,317

6/1/2017
Pleygo, Inc.
 
209,632

209,632

12/1/2016
Quantcast Corp.
 
12,639,322

12,639,322

4/1/2017
Radius Intelligence, Inc.
 
1,697,202

1,697,202

3/1/2016
Relay Network, LLC
 
1,194,015

1,194,015

7/1/2015

18



Retail Innovation Group
 
2,372,213

2,372,213

7/1/2016
Rivet Games, Inc.
 
226,278

293,278

*
Santa.com, Inc.
 
252,227

802,227

*
The SavvySource For Parents, Inc.
 
561,822

561,822

7/1/2015
Schooltube, Inc.
 
63,741

103,741

5/1/2016
Session M, Inc.
 
1,885,531

1,885,531

2/1/2017
Smart Lunches, Inc.
 
232,785

232,785

6/1/2016
Sociable Labs, Inc.
 
459,559

459,559

7/1/2016
SocialChorus, Inc.
 
485,720

485,720

9/1/2014
Spotlight Ticket Management, Inc.
 
340,677

340,677

9/1/2015
StitchFix, Inc.
 
940,043

940,043

8/1/2016
StumbleUpon, Inc.
 
1,073,615

1,073,615

12/1/2015
TalentBin, Inc.
 
228,709

228,709

7/1/2017
TangoCard, Inc.
 
250,039

250,039

3/1/2015
True & Co., Inc.
 
1,114,636

1,114,636

6/1/2016
UserVoice, Inc.
 
684,364

684,364

11/1/2015
Waluzi, Inc.
 
109,637

109,637

8/1/2016
We Heart It, Inc.
 
1,113,290

1,113,290

2/1/2017
Weddington Way, Inc.
 
1,209,857

1,209,857

11/1/2016
YouDocs Beauty, Inc.
 
1,192,798

1,192,798

6/1/2016
Zazma, Inc.
 
                 1,820,045

          1,820,045

5/1/2017
Subtotal:
48.2%
 $ 93,440,267

 $ 95,797,866

 
 
 
 
 
 
Medical Devices
 
 
 
 
Avedro, Inc.
 
 $ 3,605,194

 $ 3,605,194

10/1/2015
AxioMed, Inc.
 
2,683,106

2,683,106

11/1/2016
Cellscape Corp.
 
802,598

802,598

1/1/2016
Cervilenz, Inc.
 
3,243,102

3,243,102

4/1/2016
ConforMIS, Inc.
 
950,224

950,224

5/1/2014
HourGlass Technologies, Inc.
 
215,448

841,448

*
MimOSA, Inc.
 
243,152

243,152

2/1/2015
NasoForm, Inc.
 
194,522

194,522

2/1/2015
Redox Biomedical
 
1,800,000

3,600,000

*
Sonoma Orthopedic Products, Inc.
 
3,022,303

3,022,303

9/1/2015
Xlumena, Inc.
 
153,758

153,758

5/1/2014
Zipline Medical, Inc.
 
                 1,633,730

          1,633,730

5/1/2016
Subtotal:
9.5%
 $ 18,547,137

 $ 20,973,137

 
 
 
 
 
 
Other Healthcare
 
 
 
 
Caring.com, Inc.
 
 $ 3,758,873

 $ 3,758,873

6/1/2017
Cogito Health, Inc.
 
560,265

560,265

4/1/2017
Ekso Bionics, Inc.
 
2,029,493

2,254,493

*
Health Guru Media, Inc.
 
1,360,010

1,360,010

12/1/2014
Health Integrated
 
1,360,207

1,360,207

2/1/2017
Mulberry Health, Inc.
 
4,738,816

4,738,816

12/1/2017
Pathway Genomics Corp.
 
1,033,714

1,033,714

12/1/2014
Practice Fusion, Inc.
 
6,902,052

6,902,052

6/1/2016

19



Project Healthy Living
 
943,454

943,454

10/1/2016
Quantia Communications, Inc.
 
1,959,386

1,959,386

9/1/2014
Therapydia, Inc.
 
220,776

220,776

1/1/2017
Wellfount Corp.
 
                 1,409,607

          1,409,607

9/1/2015
Subtotal:
13.5%
 $ 26,276,653

 $ 26,501,653

 
 
 
 
 
 
Other Technology
 
 
 
 
Automatic Labs, Inc.
 
 $ 937,315

 $ 937,315

12/1/2016
Daylight Solutions, Inc.
 
2,235,618

2,235,618

7/1/2015
Ecologic Brands, Inc.
 
850,527

850,527

6/1/2017
General Assembly, Inc.
 
2,325,684

2,325,684

12/1/2016
LanzaTech New Zealand Ltd.
 
13,215,013

13,215,013

7/1/2016
nScaled, Inc.
 
702,029

702,029

1/1/2016
 
 
 
 
 
Pinnacle Engines, Inc.
 
1,572,801

1,572,801

3/1/2015
Prana Holdings, Inc.
 
7,019,273

7,019,273

7/1/2016
Pure Energies Group, Inc.
 
1,419,062

1,419,062

6/1/2016
Solaria Corp.
 
580,037

1,060,037

*
Thoughtful Media Group, Inc.
 
547,375

1,047,375

*
Tribogenics, Inc.
 
1,743,238

1,743,238

9/1/2016
Wallaby Financial, Inc.
 
134,111

134,111

8/1/2016
YPX Cayman Holdings Co.
 
1,741,790

1,741,790

4/1/2016
ZeaChem, Inc.
 
                 1,223,125

          4,925,125

*
Subtotal:
18.6%
 $ 36,246,998

 $ 40,928,998

 
 
 
 
 
 
Security
 
 
 
 
Agari Data, Inc.
 
 $ 453,674

 $ 453,674

5/1/2017
Kinamik, Inc.
 
312,631

622,631

*
Pandesa Corp.
 
191,958

191,958

2/1/2015
Uplogix, Inc.
 
                 1,618,761

          1,618,761

7/1/2015
Subtotal:
1.3%
 $ 2,577,024

 $ 2,887,024

 
 
 
 
 
 
Software
 
 
 
 
AcousticEye, Ltd.
 
 $ 287,569

 $ 287,569

12/1/2015
Appconomy, Inc.
 
670,362

2,683,362

*
Apportable, Inc.
 
209,718

209,718

12/1/2016
Artificial Solutions ASH AB
 
748,467

748,467

2/1/2015
Brightpearl, Inc.
 
706,581

706,581

6/1/2016
Ceros, Inc.
 
668,612

668,612

4/1/2016
ClearPath, Inc.
 
706,431

706,431

5/1/2016
Clypd, Inc.
 
712,353

712,353

11/1/2016
Corduro, Inc.
 
65,238

155,238

*
D Software, Inc.
 
340,204

340,204

6/1/2016
Dataium, LLC
 
474,082

474,082

3/1/2016
eCommera LTD.
 
5,151,682

5,151,682

3/1/2017
Encoding.com, Inc.
 
714,472

714,472

11/1/2016
gloStream, Inc.
 
1,256,866

1,256,866

6/1/2016

20



Image Vision Labs, Inc.
 
67,450

67,450

6/1/2014
Innerworkings Holdings, Ltd.
 
44,867

448,867

*
Innotas, Inc.
 
111,293

111,293

3/1/2014
Intalio, Inc.
 
582,873

582,873

6/1/2015
Lex Machina, Inc.
 
73,779

73,779

4/1/2014
Lulo Ventures, Inc.
 
1,401,588

1,401,588

11/1/2016
MediaPlatform, Inc.
 
641,446

641,446

3/1/2016
NewVoiceMedia, Ltd.
 
1,381,901

1,381,901

2/1/2015
OrderGroove, Inc.
 
1,184,088

1,184,088

12/1/2016
Palantir Technologies, Inc.
 
12,294,649

12,294,649

4/1/2016
PivotLink, Inc.
 
2,926,468

2,926,468

11/1/2015
Pursway, Inc.
 
1,760,989

1,760,989

3/1/2016
Quantisense, Inc.
 
893,773

893,773

6/1/2015
Riskonnect, Inc.
 
575,426

575,426

8/1/2015
SCVNGR, Inc.
 
2,352,638

2,352,638

10/1/2016
SnapLogic, Inc.
 
2,330,274

2,330,274

7/1/2016
SoundHound, Inc.
 
4,180,337

4,180,337

5/1/2017
STG-Impact Holdings Corp.
 
8,786,785

8,786,785

3/1/2016
StreetLight Data
 
228,182

228,182

12/1/2016
Superfish, Inc.
 
970,653

970,653

10/1/2015
Target Data, Inc.
 
624,919

624,919

9/1/2015
The Cloudscaling Group, Inc.
 
1,708,603

1,708,603

9/1/2015
Top Hat Monocle Corp.
 
944,150

944,150

7/1/2016
Vuemix, Inc.
 
164,852

164,852

8/1/2015
Workspot, Inc.
 
213,048

213,048

9/1/2016
Xceedium, Inc.
 
535,145

535,145

4/1/2015
XOS Technologies, Inc.
 
                    990,373

          1,100,373

*
Subtotal:
31.3%
 $ 60,683,186

 $ 63,300,186

 
 
 
 
 
 
Technology Services
 
 
 
 
Akademos, Inc.
 
 $ 827,130

 $ 827,130

6/1/2017
BidPal, Inc.
 
969,754

969,754

12/1/2015
Blazent, Inc.
 
927,116

927,116

5/1/2016
Boost Media, Inc.
 
893,456

893,456

11/1/2016
BountyJobs, Inc.
 
1,408,096

1,408,096

7/1/2015
Callisto Media, Inc.
 
831,240

831,240

9/1/2016
DigitalPath, Inc.
 
1,709,497

1,709,497

1/1/2016
FSA Store, Inc.
 
709,863

709,863

9/1/2017
Grassroots Unwired, Inc.
 
106,696

106,696

8/1/2016
Maxi Mobility, Inc.
 
222,904

222,904

7/1/2016
Perfect Market, Inc.
 
2,480,014

2,480,014

1/1/2016
Rated People, Ltd.
 
3,225,704

3,225,704

12/1/2016
The New Orleans Exchange, Inc.
 
                 4,926,946

          4,926,946

1/1/2016
Subtotal:
9.9%
 $ 19,238,416

 $ 19,238,416

 
 
 
 
 
 
Wireless
 
 
 
 
AppStack, Inc.
 
 $ 370,818

 $ 370,818

12/1/2015

21



Azumio, Inc.
 
980,427

980,427

8/1/2015
Cellfire, Inc.
 
421,120

421,120

12/1/2014
Corona Labs, Inc.
 
490,545

613,545

2/1/2016
Flint Mobile, Inc.
 
1,016,916

1,016,916

1/1/2016
GPShopper, LLC
 
862,562

862,562

7/1/2017
July Systems, Inc.
 
716,551

716,551

10/1/2014
Meru Networks, Inc.
 
6,479,069

6,479,069

8/1/2015
Physical Graph Corporation
 
1,901,737

1,901,737

4/1/2017
Quixey, Inc.
 
3,256,074

3,256,074

6/1/2016
Receivd, Inc.
 
223,346

223,346

11/1/2016
SpiderCloud Wireless Inc.
 
2,291,176

2,291,176

12/1/2016
StarMaker Interactive, Inc.
 
226,525

226,525

2/1/2015
Zipit Wireless, Inc.
 
                    393,004

             393,004

10/1/2014
Subtotal:
10.1%
 $ 19,629,870

 $ 19,752,870

 
 
 
 
 
 
Total (Cost of $305,158,484):
151.2%
 $ 293,800,885

 $ 306,958,484

 

*As of December 31, 2013, loans with a cost basis of $21.0 million and a fair value of $9.9 million were classified as non-accrual. These loans have been accelerated from their original maturity and are due in their entirety. During the period for which these loans have been on non-accrual status, no interest income has been recognized.

The Fund provides asset-based financing primarily to start-up and emerging growth venture-capital-backed companies.  These loans are generally secured by assets of the borrowers.  As a result, the Fund is subject to general credit risk associated with such companies.  As of September 30, 2014 and December 31, 2013, the Fund had unexpired unfunded commitments to borrowers of $44.1 million and $57.4 million, respectively.

Valuation Hierarchy
 
The Fund categorizes its fair value measurements according to a three-level hierarchy as required by GAAP. The hierarchy prioritizes the inputs used by the Fund's valuation techniques. A level is assigned to each fair value measurement based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy are defined as follows:

Level 1
 
Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date.
Level 2
 
Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities.
Level 3
 
Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

Transfer of investments between levels of the fair value hierarchy is recorded on the actual date of the event or
change in circumstances that caused the transfer. There were no transfers in and out of Level 1, 2, and 3 during the
period ended September 30, 2014.

The Fund's cash equivalents were valued at the traded net asset value of the money market mutual fund. As a result, these measurements are classified as Level 1. The Fund's investments in the interest rate swaps are based on quotes from the market makers and therefore, are classified as Level 2. The Fund uses estimated exit values when determining the value of its investments.  Because loan transactions are individually negotiated and unique, and there is no market in which these assets trade, the inputs for these assets, which are discussed in the Valuation Methods listed above, are classified as Level 3.

22




The following tables provide quantitative information about the Fund's Level 3 fair value measurements of its investments as of September 30, 2014 and December 31, 2013. In addition to the techniques and inputs noted in the tables below, the Fund may also use other valuation techniques and methodologies when determining its fair value measurements. The below tables are not intended to be all-inclusive, but rather to provide information on significant Level 3 inputs as they relate to the Fund's fair value measurements.
Investment Type
 
 
 
 
 
 
 
 
Level 3
 
Fair Value at
 
Valuation Techniques/
 
 
 
Weighted Average/
Debt Investments Industry
 
9/30/2014
 
Methodologies
 
Unobservable Input
 
Range
Carrier Networking
 
$1,458,279
 
Liquidation
 
Investment Collateral
 
$1,458,279
 
 
 
 
 
 
 
 
 
Computer & Storage
 
$8,354,527
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
19%
 
 
 
 
Liquidation
 
Investment Collateral
 
$416,093
 
 
 
 
 
 
 
 
 
Enterprise Networking
 
$1,916,877
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
17%
 
 
 
 
 
 
 
 
 
Internet
 
$68,204,823
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
17%
 
 
 
 
Liquidation
 
Investment Collateral
 
$5,000 - $453,896
 
 
 
 
 
 
 
 
 
Medical Devices
 
$12,879,556
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
15%
 
 
 
 
Liquidation
 
Investment Collateral
 
$243,351-$900,000
 
 
 
 
 
 
 
 
 
Other Healthcare
 
$22,590,465
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
15%
 
 
 
 
 
 
 
 
 
Other Technology
 
$50,867,499
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
15%
 
 
 
 
Liquidation
 
Investment Collateral
 
$241,491-$637,536
 
 
 
 
 
 
 
 
 
Security
 
$12,120,368
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
Liquidation
 
Investment Collateral
 
$329,530
 
 
 
 
 
 
 
 
 
Software
 
$49,881,159
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
15%
 
 
 
 
Liquidation
 
Investment Collateral
 
$12,722-$222,362
 
 
 
 
 
 
 
 
 
Technology Services
 
$13,524,541
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
 
 
 
 
 
Wireless
 
$14,800,916
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
Liquidation
 
Investment Collateral
 
$153,918-$235,459
 
 
 
 
 
 
 
 
 
 
 
$256,599,010
 
 
 
 
 
 



23



Investment Type
 
 
 
 
 
 
 
 
Level 3
 
Fair Value at
 
Valuation Techniques/
 
 
 
Weighted Average/
Debt Investments Industry
 
12/31/2013
 
Methodologies
 
Unobservable Input
 
Range
Computer & Storage
 
$11,747,234
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
17%
 
 
 
 
Liquidation
 
Investment Collateral
 
$104,093
 
 
 
 
 
 
 
 
 
Enterprise Networking
 
$3,101,363
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
17%
 
 
 
 
 
 
 
 
 
Internet
 
$93,440,267
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
17%
 
 
 
 
Liquidation
 
Investment Collateral
 
$0 - $453,896
 
 
 
 
 
 
 
 
 
Medical Devices
 
$18,547,137
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
Liquidation
 
Investment Collateral
 
$215,448-$1,800,000
 
 
 
 
 
 
 
 
 
Other Healthcare
 
$26,276,653
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
15%
 
 
 
 
Liquidation
 
Investment Collateral
 
$2,029,493
 
 
 
 
 
 
 
 
 
Other Technology
 
$36,246,998
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
15%
 
 
 
 
Liquidation
 
Investment Collateral
 
$547,375-$1,223,125
 
 
 
 
 
 
 
 
 
Security
 
$2,577,024
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
17%
 
 
 
 
Liquidation
 
Investment Collateral
 
$312,631
 
 
 
 
 
 
 
 
 
Software
 
$60,683,186
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
Liquidation
 
Investment Collateral
 
$44,866 - $990,373
 
 
 
 
 
 
 
 
 
Technology Services
 
$19,238,416
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
 
 
 
 
 
Wireless
 
$19,629,870
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
16%
 
 
 
 
 
 
 
 
 
Others (*)
 
$2,312,737
 
Hypothetical Market Analysis
 
Hypothetical Market Coupon Rate
 
24%
 
 
 
 
 
 
 
 
 
 
 
$293,800,885
 
 
 
 
 
 
* Other loans are comprised of companies in the Biotechnology and Carrier Networking industries.

The following table presents the balances of assets and liabilities as of September 30, 2014 and December 31, 2013 measured at fair value on a recurring basis:

As of September 30, 2014
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS:
 
 
 
 
 
 
 
Loans*
$

 
$

 
$
256,599,010

 
$
256,599,010

Interest rate cap

 
210,001

 

 
$
210,001

Cash equivalents
5,840,663

 

 

 
5,840,663

Total
$
5,840,663

 
$
210,001

 
$
256,599,010

 
$
262,649,674

 
 
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Interest rate swap agreements
$

 
$

 
$

 
$

Total
$

 
$

 
$

 
$


24



As of December 31, 2013
Level 1
 
Level 2
 
Level 3
 
Total
ASSETS:
 
 
 
 
 
 
 
Loans*
$

 
$

 
$
293,800,885

 
$
293,800,885

Cash equivalents
35,377,189

 

 

 
35,377,189

Total
$
35,377,189

 
$

 
$
293,800,885

 
$
329,178,074

 
 
 
 
 
 
 
 
LIABILITIES:
 
 
 
 
 
 
 
Interest rate swap agreement
$

 
$
853,099

 
$

 
$
853,099

Total
$

 
$
853,099

 
$

 
$
853,099


*For a detailed listing of borrowers comprising this amount please refer to Note 3, Summary of Investments.

The following table provides a summary of changes in Level 3 assets measured at fair value on a recurring basis:
 
For the Three Months Ended
September 30, 2014
 
For the Nine Months Ended
September 30, 2014
 
Loans
Warrants
Stock
Conv. Note
 
Loans
Warrants
Stock
Conv. Note
Beginning balance
$
270,933,126

$

$

$

 
$
293,800,885

$

$

$

Acquisitions and originations
33,435,000

1,412,428

72,831

178,357

 
95,500,000

7,077,893

307,557

240,281

Principal reductions
(46,915,033
)



 
(129,039,062
)



Distribution to shareholder

(1,412,428
)
(72,831
)
(178,357
)
 

(7,077,893
)
(307,557
)
(240,281
)
Net change in unrealized gain (loss) from investments
(851,000
)



 
(1,669,932
)



Net realized loss from investments
(3,083
)



 
(1,992,881
)



Ending balance
$
256,599,010

$

$

$

 
$
256,599,010

$

$

$

Net change in unrealized loss on investments relating to investments still held at September 30, 2014
$
(1,411,000
)
 
 
 
 
$
(3,930,522
)
 
 
 

 
For the Three Months Ended September 30, 2013
 
For the Nine Months Ended September 30, 2013
 
Loans
Warrants
 
Loans
 
Warrants
 
Stock
Beginning balance
$
320,102,329

$

 
$
313,848,702

 
$

 
$

Acquisitions and originations
31,566,364

2,604,343

 
124,352,523

 
9,033,854

 
262,252

Principal reductions
(38,817,982
)

 
(118,985,517
)
 

 

Distribution to shareholder

(2,604,343
)
 

 
(9,033,854
)
 
(262,252
)
Net change in unrealized loss from investments
(1,899,563
)

 
(6,490,138
)
 

 

Net realized loss from investments
(686,859
)

 
(2,461,281
)
 

 

Ending balance
$
310,264,289

$

 
$
310,264,289

 
$

 
$

Net change in unrealized loss on investments relating to investments still held at September 30, 2013
$
(1,899,563
)
 
 
$
(8,493,701
)
 
 
 
 



25



4.
EARNINGS PER SHARE

Basic earnings per share are computed by dividing net increase in net assets resulting from operations by the weighted average common shares outstanding.  Diluted earnings per share are computed by dividing net increase in net assets resulting from operations by the weighted average common shares outstanding, including the dilutive effects of potential common shares (e.g., stock options).  The Fund held no instruments that would be potential common shares; thus, reported basic and diluted earnings per share are the same.

5.
CAPITAL STOCK

As of September 30, 2014 and December 31, 2013, there were 10,000,000 shares of $0.001 par value common stock authorized, and 100,000 shares issued and outstanding.  Total committed capital of the Company, as of September 30, 2014, was $294.0 million.  Total contributed capital to the Company through September 30, 2014 and December 31, 2013 was $279.3 million, of which $241.5 million was contributed to the Fund.  

The chart below shows the distributions of the Fund for the nine months ended September 30, 2014 and 2013.
 
For the Nine Months Ended September 30, 2014
 
For the Nine Months Ended September 30, 2013
Cash distributions
$
62,800,000

 
$
24,600,000

Distributions of equity securities
7,625,731

 
9,296,106

 
 
 
 
Total distributions to shareholder
$
70,425,731

 
$
33,896,106


Final classification of the distributions as either a return of capital or a distribution of income is an annual determination made at the end of each year dependent upon the Fund's current year and cumulative earnings and profits.

6. DEBT FACILITY

The Fund established a secured revolving loan facility in an amount of up to $160 million with Union Bank, N.A., Wells Fargo Bank, N.A. and Bank Leumi USA on September 23, 2011 (the "Loan Agreement"). 

The Loan Agreement was extended on September 23, 2014 and then amended and restated in its entirely on September 30, 2014, reducing the size to $120 million, and securing an initial 12-month repayment plan and a subsequent 18-month amortized repayment plan. Amounts borrowed under the Loan Agreement may be, at the option of the Fund, either Reference Rate loans (as defined in the Loan Agreement) or LIBOR loans. As of September 30, 2014, $113.9 million was outstanding under the Loan Agreement. The Loan Agreement will terminate on March 23, 2017, but can be accelerated under an event of default such as failure by the Fund to make timely interest or principal payments.

Borrowings under the Loan Agreement are collateralized by receivables under loans advanced by the Fund with assignment to the financial institution, plus other assets of the Fund. The Fund pays a commitment fee of 0.325 percent (annual fee paid quarterly) based on the total unused portion of the facility.  The Fund pays interest on its borrowings . The facility revolves for 12 months, at which time the Loan Agreement size begins to reduce.

Bank fees of $280,000 were incurred in connection with the renewal of the facility on September 30, 2014. The bank fees and other costs incurred will be capitalized and amortized to interest expense on a straight line basis over the expected life of the facility. Fees and costs previously incurred under the facility have been fully amortized.

The facility contains various covenants including financial covenants related to: (i) debt to net worth ratio, (ii) minimum debt service coverage ratio, (iii) interest coverage ratio, (iv) asset coverage, (v) asset coverage under investment company act, (vi) maximum loan loss reserves, and (vii) unfunded commitment ratio. There are also various restrictive covenants, including limitations on (i) the incurrence of liens, (ii) consolidations, mergers and asset

26



sales, and (iii) capital expenditures. As of September 30, 2014, Management believes that the Fund was in compliance with these covenants.

The following is the summary of the outstanding facility draws as of September 30, 2014:
Roll-Over Date
Amount
Maturity Date (*)
Floating Interest Rate
September 23, 2014
$
103,850,000

10/23/2014
2.91%
September 23, 2014
$
10,000,000

10/23/2014
2.91%
TOTAL OUTSTANDING
$
113,850,000

 
 
(*) Loan was subsequently rolled for a 22-day LIBOR loan, maturing on November 14, 2014. Management intends to roll the outstanding amount for a 30-day LIBOR loan, maturing on December 14, 2014.

7. INTEREST RATE SWAP AGREEMENTS

On February 18, 2011 and June 26, 2012, the Fund entered into an interest rate swap transaction with Union Bank, N.A. and Wells Fargo Bank, N.A., respectively, to convert floating rate liabilities to fixed rates. The purpose of the interest rate swap agreement was to protect the Fund against rising interest rates, as the Fund originates loans with fixed interest rates. The Fund adjusted the notional principal amount as the outstanding balance under the debt facility changed. The interest rate swap agreements terminated on September 23, 2014.

As of September 30, 2014, change in unrealized gain from hedging activities of $0.8 million, and net realized loss from hedging activities of $0.7 million, for the nine months ended September 30, 2014, were included in net realized and change in unrealized gain (loss) from hedging activities in the Condensed Statements of Operations.

As of September 30, 2014 and December 31, 2013, the fair value of the Fund's derivative financial instruments were as follows:
 
 
Liability Derivatives
 
 
September 30, 2014
 
December 31, 2013
Derivatives Not Designated as
Hedging Instruments:
 
Balance Sheet Location
 
Fair Value

 
Balance Sheet Location
 
Fair Value

Interest rate swap agreements

 
Accounts payable and
other accrued liabilities

 
$

 
Accounts payable and
other accrued liabilities

 
$
853,099


For the three and nine months ended September 30, 2014 and 2013, the derivative financial instruments had the following effect on the Fund's Condensed Statements of Operations:

 
 
 
 
For the three months ended
 
For the nine months ended
Derivatives Not Designated as
Hedging Instruments:
 
Location of Gain (Loss) Recognized
 
September 30, 2014
 
September 30, 2013
 
September 30, 2014
 
September 30, 2013
Interest rate swap agreements
 
Net realized and unrealized gain (loss) from hedging activities
 
$165,182
 
$(146,149)
 
$116,750
 
$(159,410)




27



8. INTEREST RATE CAP AGREEMENT

As of September 30, 2014, the Fund has entered into interest rate cap transactions with MUFG Union Bank, N.A. and Wells Fargo Bank, N.A. with a notional principal amount of $42 million for each agreement, to cap floating interest rates at 0.7%. The purpose of the interest rate cap agreement is to protect the Fund against rising interest rates, as the Fund originates loans with fixed interest rates. The Fund continues to adjust the notional principal amount as the outstanding balance under the debt facility changes. The Fund paid upfront fees of $0.1 million which are amortized on a straight line basis over the life of the instrument and receives from the counterparty a payment of interest amounts above the 0.7% cap based on 30-day LIBOR. Payments, if necessary are made monthly and will terminate on March 23, 2017.

As of September 30, 2014 and December 31, 2013, the fair value of the Fund's derivative financial instruments was as follows:
 
 
Asset Derivatives
 
 
September 30, 2014
 
December 31, 2013
Derivatives Not Designated as Hedging Instruments:
 
Balance Sheet Location
 
Fair Value
 
Balance Sheet Location
 
Fair Value
Interest rate cap agreement
 
Other Assets
 
$
210,001

 
 
Other Assets
 
$

 

For the three and nine months ended September 30, 2014 , the derivative financial instruments had the following effect on the Condensed Statements of Operations:

Derivatives Not Designated as Hedging Instruments:
 
Location of Loss Recognized
 
For the Three Months Ended September 30, 2014
For the Nine Months Ended September 30, 2014
 
Interest rate cap agreement
 
Net change in unrealized gain (loss) from hedging activities
 
$
19,998

$
19,998

 


9.  FINANCIAL HIGHLIGHTS

GAAP requires disclosure of financial highlights of the Fund for the periods presented, the three and nine months ended September 30, 2014.  The total rate of return is defined as the return based on the change in value during the period of a theoretical investment made at the beginning of the period.  The total rate of return assumes a constant rate of return for the Fund during the period reported and weights each cash flow by the amount of time held in the Fund.  This required methodology differs from an internal rate of return.

The ratios of expenses and net investment income to average net assets, calculated below, are annualized and are computed based upon the aggregate weighted average net assets of the Fund for the periods presented.  Net investment income is inclusive of all investment income net of expenses, and excludes realized or unrealized gains and losses.

Beginning and ending net asset values per share are based on the beginning and ending number of shares outstanding.
Other per share information is calculated based upon the aggregate weighted average net assets of the Fund for the periods presented.

28



The following per share data and ratios have been derived from the information provided in the financial statements:

 
For the Three Months Ended September 30, 2014
 
For the Three Months Ended September 30, 2013
 
For the Nine Months Ended September 30, 2014
 
For the Nine Months Ended September 30, 2013
 
 
 
 
 
 
 
 
Total return **
5.54
%
 
4.49
%
 
16.04
%
 
13.30
%
 
 
 
 
 
 
 
 
Per share amounts:
 
 
 
 
 
 
 
   Net asset value, beginning of period
$
1,679.80

 
$
1,961.82

 
$
1,943.66

 
$
1,959.29

   Net investment income
94.32

 
113.65

 
296.66

 
335.88

   Net realized and change in unrealized
 
 
 
 
 
 
 
    gain (loss) from investments and
 
 
 
 
 
 
 
    hedging activities
(6.68
)
 
(27.33
)
 
(35.26
)
 
(91.11
)
   Net increase in net assets from operation
87.64

 
86.32

 
261.40

 
244.77

   Distributions of income to shareholder
(93.34
)
 
(103.90
)
 
(269.77
)
 
(303.00
)
   Return of capital to shareholder
(173.30
)
 
0.86

 
(434.49
)
 
(35.96
)
   Capital contribution

 

 

 
80.00

 
 
 
 
 
 
 
 
Net asset value, end of period
$
1,500.80

 
$
1,945.10

 
$
1,500.80

 
$
1,945.10

 
 
 
 
 
 
 
 
Net assets, end of period
$
150,079,818

 
$
194,510,345

 
$
150,079,818

 
$
194,510,345

 
 
 
 
 
 
 
 
Ratios to average net assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Expenses*
7.72
%
 
7.12
%
 
7.15
%
 
7.24
%
Net investment income*
23.41
%
 
23.37
%
 
22.74
%
 
23.10
%
* Annualized
 
 
 
 
 
 
 
** Total return amounts presented above are not annualized.

29



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In addition to the historical information contained herein, the information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws.  These forward-looking statements reflect the current view of Venture Lending & Leasing VI, Inc. (the “Fund”) with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Fund's control.  All statements, other than statements of historical facts included in this report, regarding the strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Fund are forward-looking statements.  When used in this report, the words “will”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.  All forward-looking statements speak only as of the date of this report.  The reader of this Quarterly Report should understand that all such forward-looking statements are subject to various uncertainties and risks that could affect their outcome.  The Fund's actual results could differ materially from those suggested by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, variances in the actual versus projected growth in assets, return on assets, loan losses, expenses, rates charged on loans and earned on securities investments and competition.  This entire Quarterly Report should be read to put such forward-looking statements in context and to gain a more complete understanding of the uncertainties and risks involved in the Fund's business. The Fund does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Overview

The Fund is 100% owned by Venture Lending & Leasing VI, LLC (the “Company”).  The Fund's shares of Common Stock, at $0.001 par value, were sold to its shareholder, the Company, under a stock purchase agreement.  The Fund has issued 100,000 of the Fund's 10,000,000 authorized shares.  The Company may make additional capital contributions to the Fund.

The Fund is a financial services company primarily providing financing and advisory services to a variety of carefully selected venture-backed companies primarily located throughout the United States with a focus on growth-oriented companies.  The Fund's portfolio is well diversified and consists of companies in the communications, information services, media, and technology, including software and technology-enabled business services, bio-technology, and medical devices industry sectors, among others.  The Fund's capital is generally used by our portfolio companies to finance acquisitions of fixed assets and/or for working capital.  On June 29, 2010, the Fund completed its first closing of capital contributions, made its first investments, and became a non-diversified, closed-end investment company that elected to be treated as a business development company under the Investment Company Act of 1940.  The Fund elected to be treated for federal income tax purposes as a Regulated Investment Company ("RIC") under the Internal Revenue Code with the filing of its federal corporate income tax return for 2010.  Pursuant to this election, the Fund generally will not have to pay corporate-level taxes on any income it distributes to the Company as dividends, allowing the Company to substantially reduce or eliminate its corporate-level tax liability.

The Fund will seek to meet the ongoing requirements, including the diversification requirements, to qualify as a RIC under the Internal Revenue Code.  If the Fund fails to meet these requirements, it would be taxed as an ordinary corporation on its taxable income for that year (even if that income were distributed to the Company) and all distributions out of its earnings and profits would be taxable to the Members of the Company as ordinary income; thus, such income would be subject to a double layer of tax.  There is no assurance that the Fund will meet the ongoing requirements to qualify as a RIC for tax purposes.

The Fund's investment objective is to achieve superior risk adjusted investment returns.  The Fund seeks to achieve its investment objective by providing debt financing to portfolio companies.  Since inception, the Fund's investing activities have focused primarily on private debt securities.  The Fund generally receives warrants to acquire equity securities in connection with its portfolio investments.  The Fund distributes these warrants to the

30



Company upon receipt.  The Fund also has guidelines for the percentages of total assets which will be invested in different types of assets.

The portfolio investments of the Fund primarily consist of debt financing to venture capital backed companies.  The borrower's ability to repay its loans may be adversely impacted by a number of factors, and as a result, the loan may not fully be repaid.  Furthermore, the Fund's security interest in any collateral over the borrower's assets may be insufficient to make up any shortfall in payments.

Transactions with Venture Lending & Leasing V, Inc. (“Fund V”)

The Manager also served as investment manager for Fund V, which was dissolved on August 6, 2014 and no longer funded any commitments. However, prior to the dissolution of Fund V, the Fund's Board of Directors determined that so long as Fund V has capital available to invest in loan transactions with final maturities earlier than December 31, 2015 (the date on which Fund V was planned to be dissolved), the Fund will invest in each portfolio company in which Fund V invests (“Investments”). Initially the amount of each Investment was allocated 50% to the Fund and 50% to Fund V so long as Fund V had capital available to invest. After February 2011, Fund V was no longer permitted to enter into new commitments to borrowers, after June 2014, the Fund was no longer permitted to enter into new commitments to borrowers; however, both the Fund and Fund V are permitted to fund existing commitments. While investing the Fund's capital in the same companies in which Fund V is also investing could provide the Fund with greater diversification and access to larger transactions, it could also result in a slower pace of investment than would be the case if the Fund were investing in companies by itself.

Transactions with Venture Lending & Leasing VII, Inc. (“Fund VII”)

The Manager also serves as investment manager for Fund VII. The Fund's Board of Directors determined that so long as the Fund has capital available to invest in loan transactions with final maturities earlier than December 31, 2020 (the date on which the Fund will be dissolved), the Fund had invested in each portfolio company in which Fund VII invested (“Investments”). Initially the amount of each Investment had been allocated 50% to the Fund and 50% to Fund VII so long as the Fund has capital available to invest. After June 2014, the Fund was no longer permitted to enter into new commitments to borrowers; however, the Fund will be permitted to fund existing commitments. While investing the Fund's capital in the same companies in which Fund VII is also investing could provide the Fund with greater diversification and access to larger transactions, it could also result in a slower pace of investment than would be the case if the Fund were investing in companies by itself.

Critical Accounting Policies

We identified and determined the most critical accounting principles upon which our financial statements depend by considering accounting policies that involve the most complex or subjective decisions or assessments. Such critical accounting policies relate to the valuation of loans and treatment of non-accrual loans.  

Loans are held at estimated fair value as determined by Management, in accordance with the valuation methods described in the valuation of loans section of Note 2 in the Fund's financial statements (Summary of Significant Accounting Policies).  Critical factors in determining the fair value of a loan include payment history, collateral position, financial strength of the borrower, prospects for the borrower raising future equity rounds, likelihood of sale or acquisition of the borrower, and length of expected holding period of the loan, as well as an evaluation of the general interest rate environment.  The actual value of the loans may differ from Management's estimates, which would affect net income as well as assets.

Results of Operations - For the Three and Nine Months Ended September 30, 2014 and 2013

Total investment income for the three months ended September 30, 2014 and 2013 was $12.5 million and $14.8 million, respectively, which primarily consisted of interest on the venture loans outstanding. Total investment income for the nine months ended September 30, 2014 and 2013 was $39.0 million and $44.1 million, respectively,

31



which primarily consisted of interest on the venture loans outstanding. The remaining income consisted of interest and dividends on the temporary investment of cash, forfeited commitment fees, and fees earned from waivers to loan agreements. The decrease in investment income is due to the decrease in the average loans outstanding from $308.9 million for the three months ended September 30, 2013 to $259.1 million for the three months ended September 30, 2014, and the decrease in the average loans outstanding from $305.6 million for the nine months ended September 30, 2013 to $270.5 million for the nine months ended September 30, 2014. This decrease is offset by a slight increase in average interest rates from 18.79% for the nine months ended September 30, 2013 to 18.83% for the nine months ended September 30, 2014, and from 18.44% for the three months ended September 30, 2013 to 19.35% for the three months ended September 30, 2014 due to a larger number of loan pay-offs in the three and nine months ended September 30, 2014 compared to three and nine months ended September 30, 2013. Interest is calculated using the effective interest method, and rates earned by the Fund will fluctuate based on many factors including volatility of values ascribed to warrants, and new loans funded during the year and early payoffs.

Management fees for the three months ended September 30, 2014 and 2013 were $1.7 million and $2.1 million, respectively. Management fees for the nine months ended September 30, 2014 and 2013 were $5.5 million and $6.4 million, respectively. Management fees are calculated as 2.5 percent of the Fund's total assets. Management fees decreased because assets under management as of September 30, 2014 were lower than assets as of September 30, 2013.

Total interest expense was $1.2 million for the three months ended September 30, 2014 and 2013. Total interest expense was $3.4 million and $3.6 million for the nine months ended September 30, 2014 and 2013, respectively. Interest expense slightly decreased primarily due to the decreased average borrowings, which decreased from $140.0 million for the three months ended September 30, 2013 to $117.9 million for the three months ended September 30, 2014, and from $138.8 million for the nine months ended September 30, 2013 to $123.2 million for the nine months ended September 30, 2014. These decreases in average borrowings were offset partially by the increased interest rate from 3.48% for the three and nine months ended September 30, 2013 to 4.18% and 3.7% for the three and nine months ended September 30, 2014, respectively.

Total banking and professional fees were $0.2 million and $0.1 million for the three months ended September 30, 2014 and 2013, respectively. Total banking and professional fees were $0.3 million and $0.5 million for the nine months ended September 30, 2014 and 2013, respectively. The banking and professional fees were comprised of legal, audit, banking and other professional fees. These fees decreased in 2014 primarily because of decreased legal fees.

Total other operating expenses were $0.1 million and less than $0.1 million for the three months ended September 30, 2014 and 2013, respectively. Total other operating expenses were $0.1 million for the nine months ended September 30, 2014 and 2013, respectively.

Net investment income for the three months ended September 30, 2014 and 2013, was $9.4 million and $11.4 million, respectively. Net investment income for the nine months ended September 30, 2014 and 2013, was $29.7 million and $33.6 million, respectively.

Net realized loss from investments was less than $0.1 million and $0.7 million for the three months ended September 30, 2014 and 2013, respectively. Net realized loss from investments was $2.0 million and $2.5 million for the nine months ended September 30, 2014 and 2013, respectively.

Net change in unrealized loss from investments was $0.9 million and $1.9 million for the three months ended September 30, 2014 and 2013, respectively. Net change in unrealized loss from investments was $1.7 million and $6.5 million for the nine months ended September 30, 2014 and 2013, respectively. The unrealized loss consists of fair market value adjustments to loans.  

Net realized and change in unrealized gain (loss) from hedging activities was $0.2 million and ($0.1 million) for the three months ended September 30, 2014 and 2013, respectively. Net realized and change in unrealized gain

32



(loss) from hedging activities was less than $0.1 million and ($0.2 million) for the nine months ended September 30, 2014 and 2013, respectively. The realized and unrealized gain (loss) consists of the unrealized losses from hedging activities and the net interest received or paid on the interest rate swap transaction. The Fund entered into interest rate swap transactions with Union Bank, N.A and Wells Fargo Bank, N.A. to convert floating rate liabilities to fixed rates, which terminated on September 23, 2014 (see Note 7 in the Fund's financial statements). On September 30, 2014, the Fund entered into interest rate cap transactions with Union Bank, N.A and Wells Fargo Bank, N.A. to cap the floating rate liabilities at a fixed rate (see Note 8 in the Fund's financial statements).

Net increase in net assets resulting from operations for the three months ended September 30, 2014 and 2013 was $8.8 million and $8.6 million, respectively. Net increase in net assets resulting from operations for the nine months ended September 30, 2014 and 2013 was $26.1 million and $24.5 million, respectively. On a per share basis, the net increase in net assets resulting from operations was $87.64 and $86.32 for the three months ended September 30, 2014 and 2013, respectively and $261.40 and $244.78 for the nine months ended September 30, 2014 and 2013, respectively.

Liquidity and Capital Resources – September 30, 2014 and December 31, 2013

Total capital contributed to the Fund was $241.5 million, prior to distribution of capital, as of September 30, 2014. Committed capital to the Company at September 30, 2014 was $294.0 million, of which $279.3 million had been called.  The remaining $14.7 million in committed capital as of September 30, 2014 is due to expire in June 2015 as the five year anniversary will have passed, at which time no further capital can be called.

The Fund established a secured revolving debt facility in an amount of up to $160 million with Union Bank, N.A., Wells Fargo Bank, N.A. and Bank Leumi USA. The facility was extended through March 23, 2017 and the amount available reduced to $120 million. The facility revolves for 12 months and then the size of the facility will begin to reduce. As of September 30, 2014 and December 31, 2013, the outstanding balance under the facility was $113.9 million and $134.2 million, respectively. The facility draws expired on October 23, 2014 and were rolled over to November 14, 2014. Management intends to roll the outstanding balance for a 30-day LIBOR loan, maturing on December 14, 2014.

As of September 30, 2014 and December 31, 2013, 2% and 11%, respectively, of the Fund's assets consisted of cash and cash equivalents.  The Fund invested its assets in venture loans during the nine months ended September 30, 2014. Amounts disbursed under the Fund's loan commitments totaled approximately $95.5 million million during the nine months ended September 30, 2014.  Net loan amounts outstanding after amortization and fair market adjustment decreased by approximately $37.2 million for the same period.  Unexpired, unfunded commitments totaled approximately $44.1 million as of September 30, 2014.
 
 
 
 
 
 
 
 
As of
Cumulative Amount
Disbursed
Principal
Reductions and Fair
Market Adjustments
Balance
Outstanding - Fair
Value
Unexpired
Unfunded
Commitments
 
 
September 30, 2014
$703.0 million
446.4 million
$256.6 million
$44.1 million
 
 
December 31, 2013
$607.5 million
$313.7 million
$293.8 million
$57.4 million
 
 
 
 
 
 
 
 

Because venture loans are privately negotiated transactions, investments in these assets are relatively illiquid.  It is the Fund's experience that not all unfunded commitments will be used by borrowers.

The Fund seeks to meet the requirements to qualify for the special pass-through status available to RICs under the Internal Revenue Code, and thus to be relieved of federal income tax on that part of its net investment income and realized capital gains that it distributes to the Company.  To qualify as a RIC, the Fund must distribute to the Company for each taxable year at least 90% of its investment company taxable income (consisting generally of net investment income and net short-term capital gain) (“Distribution Requirement”).  To the extent that the terms of the Fund's venture loans provide for the receipt by the Fund of additional interest at the end of the loan term or

33



provide for the receipt by the Fund of a purchase price for the asset at the end of the loan term (“residual income”), the Fund would be required to accrue such residual income over the life of the loan, and to include such accrued income in its gross income for each taxable year even if it receives no portion of such residual income in that year.  Thus, in order to meet the Distribution Requirement and avoid payment of income taxes or an excise tax on undistributed income, the Fund may be required in a particular year to distribute as a dividend an amount in excess of the total amount of income it actually receives.  Those distributions will be made from the Fund's cash assets, from amounts received through amortization of loans or from borrowed funds.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Fund's business activities contain elements of risk.  The Fund considers the principal types of market risk to be interest rate risk and credit risk.  The Fund considers the management of risk essential to conducting its business and to maintaining profitability.  Accordingly, the Fund's risk management procedures are designed to identify and analyze the Fund's risks, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.  

The Fund manages its market risk by maintaining a portfolio that is diverse by industry, size of investment, stage of development, and borrower. The Fund has limited exposure to public market price fluctuations as the Fund primarily invests in private business enterprises and the Fund distributes all equity investments upon receipt to the Company.

The Fund's investments are subject to market risk based on several factors, including, but not limited to, the
investment's credit history, available cash, support of the borrower's underlying investors, available liquidity, "burn
rate", revenue income, security interest, secondary markets for collateral, the size of the loan, and term of the loan.

The Fund's sensitivity to changes in interest rates is regularly monitored and analyzed by measuring the
characteristics of assets and liabilities. The Fund utilizes various methods to assess interest rate risk in terms of the
potential effect on interest income net of interest expense, the value of net assets and the value at risk in an effort to
ensure that the Fund is insulated from any significant adverse effects from changes in interest rates. At September 30, 2014, the outstanding debt balance was $113.9 million with interest based on an interest rate of 0.16%, for which the Fund had an interest rate cap in place at 0.70% on $84 million of outstanding debt, leaving the Fund's maximum exposure to interest rate sensitivity at 0.54% for the capped portion of the debt facility, which the Manager does not believe is material to the financial statements. A 1% change in interest rate on the uncapped portion of the debt facility would increase interest expense by $0.3 million for the year, which the Manager does not believe is material to the financial statements.

Although the Manager believes that this measure is indicative of the Fund's sensitivity to interest rate changes, it makes estimates to adjust for potential changes in credit quality, size and composition of the balance sheet and other business developments that could affect net income. Accordingly, no assurances can be given that actual results would not differ materially from the potential outcome simulated by these estimates.

Item 4.  Controls and Procedures:

Evaluation of Disclosure Controls and Procedures:

As of the end of the period covered by this quarterly report on Form 10-Q, the Fund's chief executive officer and chief financial officer conducted an evaluation of the Fund's disclosure controls and procedures (as defined in Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934).  Based upon this evaluation, the Fund's chief executive officer and chief financial officer concluded that the Fund's disclosure controls and procedures were effective in timely alerting them of any material information relating to the Fund that is required to be disclosed by the Fund in the reports it files or submits under the Securities Exchange Act of 1934.




34



Changes in Internal Controls:

There were no changes in the Fund's internal controls or in other factors that could materially affect these controls during the period covered by this quarterly report on Form 10-Q.

PART II OTHER INFORMATION

Item 1.  Legal Proceedings

The Fund may become party to certain lawsuits from time to time in the normal course of business.  While the outcome of any legal proceedings cannot at this time be predicted with certainty, the Fund does not expect any such proceedings will have a material effect upon the Fund's financial condition or results of operation. Management is not aware of any pending legal proceedings involving the Fund.  

Item 1A. Risk Factors

See item 1A - 'Risk Factors' in the Fund's 2013 Annual Report on Form 10-K for a detailed description of the risks attendant to the Fund and its business. There were no material changes to these factors during the nine months ended September 30, 2014.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

Prior to the Fund's commencement of operations on June 29, 2010, the Fund sold 100,000 shares to the Fund's sole shareholder, the Company, for $25,000 in January 2010.  No other shares of the Fund have been sold; however, the Fund received an additional $241.5 million of paid in capital during the period from June 29, 2010 through September 30, 2014 which is expected to be used to acquire venture loans and fund operations.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Issues

Not applicable.

Item 5.  Other Information

None.

Item 6.  Exhibits


35



Exhibit Number
Description
3(i)
Articles of Incorporation of the Fund as filed with the Maryland Secretary of State on January 11, 2010, incorporated by reference to the Fund's Form 10 filed with the Securities and Exchange Commission on February 9, 2010.
3(ii)
Bylaws of the Fund, incorporated by reference to the Fund's Form 10 filed with the Securities and Exchange Commission on February 9, 2010.
4.1
Form of Purchase Agreement between the Fund and the Company, incorporated by reference to the Fund's Registration Statement on Form 10 filed with the Securities and Exchange Commission on February 9, 2010.
31.1-32.2
Certifications pursuant to The Sarbanes-Oxley Act of 2002.


36



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized.

VENTURE LENDING & LEASING VI, INC.
(Registrant)

By:
/s/ Maurice C. Werdegar
By:
/s/ Martin D. Eng
Maurice C. Werdegar
Martin D. Eng
President and Chief Executive Officer
Chief Financial Officer
Date:
November 7, 2014
Date:
November 7, 2014


37



EXHIBIT INDEX

Exhibit Number
Description
31.1-32.2
Certifications pursuant to The Sarbanes-Oxley Act of 2002.


          









38