 | | |
| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
| | |
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
(Exact name of registrant as specified in its charter)
| | |
| California | 37-1656343 | |
| (State or other jurisdiction of Incorporation or organization) | (I. R. S. Employer Identification No.) |
(Address of principal executive offices)
Registrant’s telephone number, including area code(415) 989-8800
Securities registered pursuant to section 12(b) of the Act:None
Securities registered pursuant to section 12(g) of the Act:Limited Liability Company Units
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yesx Noo
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).Yesx Noo
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 “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.
| | | | |||
| Large accelerated filero | Accelerated filero | Non-accelerated filero | Smaller reporting companyx |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yeso Nox
The number of Limited Liability Company Units outstanding as of July 31, 2013 was 691,523 Units.
None.
| | |||
Part I. Financial Information | 3 | |||
Item 1. Financial Statements (Unaudited) | 3 | |||
| Balance Sheets, June 30, 2013 and December 31, 2012 | 3 | |||
| Statements of Operations for the three and six months ended June 30, 2013 | 4 | |||
| Statements of Changes in Member’s Capital for the year ended December 31, 2012 and for the six months ended June 30, 2013 | 5 | |||
| Statements of Cash Flows for the three and six months ended June 30, 2013 | 6 | |||
| Notes to the Financial Statements | 7 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | |||
Item 4. Controls and Procedures | 17 | |||
Part II. Other Information | 18 | |||
Item 1. Legal Proceedings | 18 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 | |||
Item 3. Defaults Upon Senior Securities | 19 | |||
Item 4. Mine Safety Disclosures | 19 | |||
Item 5. Other Information | 19 | |||
Item 6. Exhibits | 19 | |||
2
| | | ||||||
| June 30, 2013 | December 31, 2012 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 3,414,467 | $ | 254,739 | ||||
| Accounts receivable, net | 5,725 | 6,664 | ||||||
| Notes receivable, net | 1,904,597 | 1,313,139 | ||||||
| Fair value of warrants | 34,454 | 24,412 | ||||||
| Prepaid expenses and other assets | 5,097 | — | ||||||
| Total assets | $ | 5,364,340 | $ | 1,598,954 | ||||
| LIABILITIES AND MEMBERS’ CAPITAL | ||||||||
| Accounts payable and accrued liabilities: | ||||||||
| Managing Member | $ | 11,200 | $ | 3,315 | ||||
| Affiliates | 852,480 | 679,188 | ||||||
| Accrued distributions to Other Members | 100,830 | 20,868 | ||||||
| Other | 3 | 9 | ||||||
| Deposits due borrowers | 32,000 | 32,000 | ||||||
| Total liabilities | 996,513 | 735,380 | ||||||
| Commitments and contingencies | ||||||||
| Members’ capital: | ||||||||
| Managing Member | — | — | ||||||
| Other Members | 4,367,827 | 863,574 | ||||||
| Total Members’ capital | 4,367,827 | 863,574 | ||||||
| Total liabilities and Members’ capital | $ | 5,364,340 | $ | 1,598,954 | ||||
See accompanying notes.
3
| | | ||||||
| Three Months Ended June 30, 2013 | Six Months Ended June 30, 2013 | |||||||
| Revenues: | ||||||||
| Notes receivable interest income, including accretion of net note origination costs and discounts | $ | 51,677 | $ | 96,604 | ||||
| Unrealized gain on fair valuation of warrants | 297 | 2,157 | ||||||
| Other | 3,873 | 6,381 | ||||||
| Total revenues | 55,847 | 105,142 | ||||||
| Expenses: | ||||||||
| Acquisition expense | 122,255 | 147,077 | ||||||
| Cost reimbursements to affiliates | 13,269 | 25,333 | ||||||
| Asset management fees to Managing Member | 3,083 | 6,538 | ||||||
| Professional fees | 780 | 4,309 | ||||||
| Outside services | 7,869 | 8,668 | ||||||
| Taxes on income and franchise fees | 1,600 | 1,600 | ||||||
| Bank charges | 1,738 | 4,336 | ||||||
| Other | 5,629 | 7,164 | ||||||
| Total operating expenses | 156,223 | 205,025 | ||||||
| Net loss | $ | (100,376 | ) | $ | (99,883 | ) | ||
| Net income (loss): | ||||||||
| Managing Member | $ | 16,813 | $ | 25,954 | ||||
| Other Members | (117,189 | ) | (125,837 | ) | ||||
| $ | (100,376 | ) | $ | (99,883 | ) | |||
| Net loss per Limited Liability Company Unit (Other Members) | $ | (0.21 | ) | $ | (0.30 | ) | ||
| Weighted average number of Units outstanding | 552,066 | 423,807 | ||||||
See accompanying notes.
4
| | | | | ||||||||||||
| Amount | ||||||||||||||||
| Units | Other Members | Managing Member | Total | |||||||||||||
| Balance December 31, 2011 | 50 | $ | — | $ | 500 | $ | 500 | |||||||||
| Capital contributions | 187,276 | 1,872,760 | — | 1,872,760 | ||||||||||||
| Less selling commissions to affiliates | — | (168,503 | ) | — | (168,503 | ) | ||||||||||
| Syndication costs | — | (799,785 | ) | — | (799,785 | ) | ||||||||||
| Distributions to Other Members ($1.13 per Unit) | — | (23,550 | ) | — | (23,550 | ) | ||||||||||
| Distributions to Managing Member | — | — | (2,617 | ) | (2,617 | ) | ||||||||||
| Net (loss) income | — | (17,348 | ) | 2,117 | (15,231 | ) | ||||||||||
| Balance December 31, 2012 | 187,326 | 863,574 | — | 863,574 | ||||||||||||
| Capital contributions | 468,621 | 4,686,210 | — | 4,686,210 | ||||||||||||
| Rescissions of Units | (550 | ) | (4,935 | ) | — | (4,935 | ) | |||||||||
| Less selling commissions to affiliates | — | (421,264 | ) | — | (421,264 | ) | ||||||||||
| Syndication costs | — | (396,300 | ) | — | (396,300 | ) | ||||||||||
| Distributions to Other Members ($0.55 per Unit) | — | (233,621 | ) | — | (233,621 | ) | ||||||||||
| Distributions to Managing Member | — | — | (25,954 | ) | (25,954 | ) | ||||||||||
| Net (loss) income | — | (125,837 | ) | 25,954 | (99,883 | ) | ||||||||||
| Balance June 30, 2013 | 655,397 | $ | 4,367,827 | $ | — | $ | 4,367,827 | |||||||||
See accompanying notes.
5
| | | ||||||
| For the Three Months Ended June 30, 2013 | For the Six Months Ended June 30, 2013 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | (100,376 | ) | $ | (99,883 | ) | ||
| Adjustment to reconcile net loss to cash provided by operating activities: | ||||||||
| Accretion of note discount – warrants | (1,816 | ) | (3,589 | ) | ||||
| Amortization of net note origination costs | 1,727 | 3,463 | ||||||
| Unrealized gain on fair valuation of warrants | (297 | ) | (2,157 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (5,584 | ) | 939 | |||||
| Prepaid expenses and other assets | (2,868 | ) | (5,097 | ) | ||||
| Accounts payable, Managing Member | 1 | (996 | ) | |||||
| Accounts payable, other | (16,005 | ) | (6 | ) | ||||
| Accrued liabilities, affiliates | 127,880 | 77,068 | ||||||
| Unearned fee income related to notes receivable | 6,907 | 5,900 | �� | |||||
| Net cash provided by (used in) operating activities | 9,569 | (24,358 | ) | |||||
| Investing activities: | ||||||||
| Advance payments | 30,800 | (29,420 | ) | |||||
| Payments of note origination costs | (1,158 | ) | (10,934 | ) | ||||
| Note receivable advances | (648,070 | ) | (798,070 | ) | ||||
| Principal payments received on notes receivable | 108,032 | 233,307 | ||||||
| Net cash used in investing activities | (510,396 | ) | (605,117 | ) | ||||
| Financing activities: | ||||||||
| Selling commissions to affiliates | (200,777 | ) | (446,288 | ) | ||||
| Syndication costs paid to Managing Member | (129,722 | ) | (275,052 | ) | ||||
| Distributions to Other Members | (112,552 | ) | (153,659 | ) | ||||
| Distributions to Managing Member | (12,506 | ) | (17,073 | ) | ||||
| Capital contributions | 1,953,530 | 4,686,210 | ||||||
| Rescissions of capital contributions | (4,935 | ) | (4,935 | ) | ||||
| Net cash provided by financing activities | 1,493,038 | 3,789,203 | ||||||
| Net increase in cash and cash equivalents | 992,211 | 3,159,728 | ||||||
| Cash and cash equivalents at beginning of period | 2,422,256 | 254,739 | ||||||
| Cash and cash equivalents at end of period | $ | 3,414,467 | $ | 3,414,467 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for taxes | $ | 1,600 | $ | 1,600 | ||||
| Schedule of non-cash investing and financing transactions: | ||||||||
| Payables to Managing Member and affiliates at period-end (syndication costs) | $ | 811,577 | $ | 811,577 | ||||
| Distributions payable to Other Members at period-end | $ | 100,830 | $ | 100,830 | ||||
| Distributions payable to Managing Member at period-end | $ | 11,200 | $ | 11,200 | ||||
See accompanying notes.
6
ATEL Growth Capital Fund 8, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies. The Fund may continue until it is terminated in accordance with the ATEL Growth Capital Fund 8, LLC limited liability company operating agreement dated December 13, 2011 (the “Operating Agreement”). The Managing Member of the Company is AGC 8 Managing Member, LLC (the “Managing Member” or “Manager”), a Nevada limited liability corporation. Contributions in the amount of $500 were received as of December 31, 2011, which represented the initial Member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.
The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of August 20, 2012. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company units (Units) to the public reach $75,000,000. As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1,200,000), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal to not less than $3,750,000 in gross proceeds. Total contributions to the Fund exceeded $3,750,000 on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts.
As of June 30, 2013, cumulative contributions, net of rescissions, totaling $6,553,970 (inclusive of the $500 initial Member’s capital investment) have been received. As of such date, a total of 655,397 Units were issued and outstanding. The Fund is actively raising capital and, as of July 31, 2013, has received cumulative contributions, net of rescissions, in the amount of $6,915,230 (inclusive of the $500 initial Member’s capital investment).
The Fund, or Managing Member on behalf of the Fund, has and will continue to incur costs in connection with the organization, registration and issuance of the limited liability company units (Units). The amount of such costs to be borne by the Fund is limited by certain provisions of the Operating Agreement.
The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unit holders, with any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Company’s public offering of Units), (iii) provide additional distributions to Unit holders from any proceeds from sales of Equity interests and (iv) provide total cash distributions to Unit holders equal to a desirable rate of return on their investment capital. The Company is governed by the Operating Agreement.
These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim
7
financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2013 are not necessarily indicative of the results to be expected for the full year.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2013, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.
The preparation of the financial statements in conformity with GAAP 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 the estimates.
The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The Company’s principal decision makers are the Managing Member’s Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its financing business operates as one reportable segment because: a) the Company measures profit and loss at the portfolio assets level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment financing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment financing; and e) the Company has not chosen to organize its business around geographic areas.
The primary geographic region in which the Company seeks financing opportunities is North America. Currently, 100% of the Company’s operating revenues are from customers domiciled in North America.
From time to time, the Company may purchase securities of its borrowers or receive warrants and rights to purchase securities in connection with its lending arrangements.
Purchased securities (primarily preferred stocks) are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity.
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value on the balance sheet at the end of the period, as determined by the Managing Member. At June 30, 2013 and December 31, 2012, the Managing Member estimated the fair value of the warrants to be $34,454 and $24,412, respectively. See Note 9 for further discussion.
8
Net income (loss) per Unit is based upon the weighted average number of Other Members Units outstanding since commencement of its operations.
Recent accounting standards updates as issued by the Financial Accounting Standards Board (FASB) were evaluated and determined to be not applicable to the Company.
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. The terms of the notes receivable are from 36 to 42 months and bear interest at implicit or stated rates ranging from 11.29% to 14.30%. The notes are secured by the equipment financed. The notes mature from 2015 through 2016. There were neither impaired notes nor notes placed in non-accrual status as of June 30, 2013 and December 31, 2012.
As of June 30, 2013, the minimum future payments receivable are as follows:
| | |||
| Six months ending December 31, 2013 | $ | 399,497 | ||
| Year ending December 31, 2014 | 797,426 | |||
| 2015 | 770,296 | |||
| 2016 | 375,877 | |||
| 2,343,096 | ||||
| Less: portion representing unearned interest income, net | (407,699 | ) | ||
| Less: advance payments | (30,800 | ) | ||
| Notes receivable, net | $ | 1,904,597 | ||
The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by the Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and equipment financing documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments.
Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location.
9
During the three and six months ended June 30, 2013, the Managing Member and/or affiliates earned commissions, fees and reimbursements pursuant to the Operating Agreement as follows:
| | | ||||||
| For the Three Months Ended June 30, 2013 | For the Six Months Ended June 30, 2013 | |||||||
| Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members' capital | $ | 175,323 | $ | 421,264 | ||||
| Reimbursement of other syndication costs to Managing Member and/or affiliates, deducted from Other Members' capital | 205,414 | 396,300 | ||||||
| Administrative costs reimbursed to Managing Member and/or affiliates | 13,269 | 25,333 | ||||||
| Asset management fees to Managing Member | 3,083 | 6,538 | ||||||
| Acquisition costs and note origination fees paid to Managing Member | 123,412 | 158,010 | ||||||
| $ | 520,501 | $ | 1,007,445 | |||||
Syndication costs are reflected as a reduction to Members’ capital as such costs are netted against the capital raised. The amount shown is primarily comprised of selling commissions as well as fees pertaining to the organization of the Fund, document preparation, regulatory filing fees, and accounting and legal costs. Syndication costs totaled $1,785,852 for the period from December 8, 2011 (Date of Inception) through June 30, 2013.
The Operating Agreement places a limit for cost reimbursements to the Managing Member and/or affiliates. When added to selling commissions, such cost reimbursements may not exceed a total equal to 15% of all offering proceeds. As of June 30, 2013, the Company had recorded an approximate $803,000 of syndication costs in excess of the limitation. The limitation on the amount of syndication costs pursuant to the Operating Agreement is determined on the date of termination of the offering. At such time, the Manager guarantees repayment of any excess syndication costs (above the limitation) which it may have collected from the Company, which guarantee is without recourse or reimbursement by the Fund.
At June 30, 2013, there were commitments to fund investments in notes receivable totaling an approximate $902,000. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, based upon the Manager’s experience, there have not been any prior claims or losses pursuant to these types of contracts and the expectation of risk of loss is remote.
The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.
10
A total of 655,397 and 187,326 Units were issued and outstanding at June 30, 2013 and December 31, 2012, respectively. The Fund is authorized to issue up to 7,500,000 Units in addition to the Units issued to the initial Member (50 Units).
From the commencement of the Fund until the initial closing date, as defined in the Operating Agreement, the Company’s net income and net losses are allocated 100% to the Manager. Commencing with the initial closing date, net income and net losses are allocated 100% to the Members. An amount equal to 5% of all Distributions of Cash Available for Distribution and Net Disposition Proceeds will be allocated to the Manager as the carried interest. An amount equal to (i) an additional 5% of all Distributions from Cash Available for Distribution and 1% of all Distributions of Net Disposition Proceeds will be paid to the Manager as a promotional interest until investors have received total distributions in amounts equal to their Capital Contributions plus an amount equal to a priority return of 8% per annum as defined in the Operating Agreement; and (ii) then 15% of all subsequent distributions will be allocated to the Manager as a promotional interest. Distributions not allocated to the Manager as carried or promotional interests will be allocated and paid to the Unitholders.
Distributions to the Other Members for the three and six months ended June 30, 2013 are as follows:
| | | ||||||
| For the Three Months Ended June 30, 2013 | For the Six Months Ended June 30, 2013 | |||||||
| Distributions declared | $ | 151,354 | $ | 233,621 | ||||
| Weighted average number of Units outstanding | 552,066 | 423,807 | ||||||
| Weighted average distributions per Unit | $ | 0.27 | $ | 0.55 | ||||
Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability.
At June 30, 2013 and December 31, 2012, only the Company’s warrants were measured on a recurring basis. As of the same dates, the Company had no assets or liabilities that required measurement at fair value on a non-recurring basis.
The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes and third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for
11
determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
Such fair value adjustments utilized the following methodology:
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the volatility of respective similar publicly traded companies, a risk free interest rate for the term(s) of the warrant exercise(s), and the respective exercise prices and number of warrants. As of June 30, 2013 and December 31, 2012, the calculated fair value of the Fund’s warrant portfolio totaled $34,454 and $24,412, respectively. Such valuations are classified within Level 3 of the valuation hierarchy.
The following reconciles the beginning and ending balances of the Company’s Level 3 recurring assets:
| | |||
| Level 3 assets | ||||
| Balance at December 31, 2011 | $ | — | ||
| Fair value of new warrants, recorded during the year (included in net deferred loan fees or costs) | 24,412 | |||
| Balance at December 31, 2012 | 24,412 | |||
| Fair value of new warrants, recorded during the period (included in net deferred loan fees or costs) | 7,885 | |||
| Unrealized gain on warrants, net recorded during the period | 2,157 | |||
| Balance at June 30, 2013 | $ | 34,454 | ||
The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s investments categorized as Level 3 in the fair value hierarchy as of June 30, 2013:
| | | | | ||||||||||||
| Name | Valuation Frequency | Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
| Warrants | Recurring | Black-Scholes Model | Stock price | $0.05 – $25.76 | ||||||||||||
| Exercise price | $0.05 – $25.76 | |||||||||||||||
| Time to Maturity (in years) | 6.00 – 9.98 | |||||||||||||||
| Annual risk-free interest rate | 1.69% – 2.52% | |||||||||||||||
| Annualized volatility | 2.45% – 28.76% | |||||||||||||||
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.
The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
12
The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
The fair value of the Company’s notes receivable is estimated using either third party appraisals of collateral or discounted cash flow analyses based upon current market rates for similar types of lending arrangements, with adjustments for non-accrual loans as deemed necessary.
The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at June 30, 2013 and December 31, 2012:
| | | | | | |||||||||||||||
| June 30, 2013 | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 3,414,467 | $ | 3,414,467 | $ | — | $ | — | $ | 3,414,467 | ||||||||||
| Notes receivable, net | 1,904,597 | — | — | 1,904,597 | 1,904,597 | |||||||||||||||
| Warrants | 34,454 | — | — | 34,454 | 34,454 | |||||||||||||||
| | | | | | |||||||||||||||
| December 31, 2012 | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 254,739 | $ | 254,739 | $ | — | $ | — | $ | 254,739 | ||||||||||
| Notes receivable, net | 1,313,139 | — | — | 1,313,139 | 1,313,139 | |||||||||||||||
| Warrants | 24,412 | — | — | 24,412 | 24,412 | |||||||||||||||
13
Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, changes in general economic conditions, including significant rates of inflation and fluctuations in interest rates may result in reduced returns on invested capital. The Company’s performance is subject to risks relating to borrower defaults and the creditworthiness of its borrowers. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
The offering of ATEL Capital Growth Fund 8, LLC (the “Company” or the “Fund”) was granted effectiveness by the Securities and Exchange Commission as of August 20, 2012. The offering will continue until the earlier of a period of two years from that date or until sales of Units to the public reach $75,000,000.
As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1,200,000), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal to not less than $3,750,000 in gross proceeds. Total contributions to the Fund exceeded $3,750,000 on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts.
As of June 30, 2013, cumulative contributions, net of rescissions, totaling $6,553,970 (inclusive of the $500 initial Member’s capital investment) have been received. As of such date, a total of 655,397 Units were issued and outstanding. The Fund is actively raising capital and, as of July 31, 2013, has received cumulative contributions, net of rescissions, in the amount of $6,915,230 (inclusive of the $500 initial Member’s capital investment).
The Company reported net losses of $100,376 and $99,883 for the respective three and six months ended June 30, 2013.
The net loss for the three months ended June 30, 2013 was a result of total expenses of $156,223 offset, in part, by total revenues of $55,847. Total expenses were primarily comprised of $122,255 of acquisition expenses related to loan originations, $13,269 of costs reimbursed to affiliates and $7,869 of outside services expense related to printing services. Combined, such expenses represent approximately 92% of total expenses. Total revenues mostly consisted of $51,677 of interest income, including accretion of net note origination costs and discounts, derived from the Fund’s investments in notes receivable.
The net loss for the six months ended June 30, 2013 was comprised of total expenses amounting to $205,025 offset, in part, by total revenues of $105,142. Total expenses were primarily comprised of $147,077 of acquisition expenses related to loan originations, $25,333 of costs reimbursed to affiliates, $8,668 of outside services expense related to printing services and $7,164 of other expense related primarily to investor communications. Combined, such expenses represent approximately 92% of total expenses. Total revenues mostly consisted of $96,604 of interest income, including accretion of net note origination costs and discounts, derived from the Fund’s investments in notes receivable.
The liquidity of the Company will vary in the future, increasing to the extent cash flows from subscriptions and its portfolio investments exceed expenses and decreasing as portfolio investments are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from its portfolio investments.
14
The Fund will acquire its investments with cash. The Fund will not borrow to acquire its portfolio assets and does not intend or expect to incur any indebtedness. The Fund anticipates that it would incur indebtedness only in the event that it is required to borrow for temporary working capital purposes.
During the three and six months ended June 30, 2013, the Company’s primary source of liquidity was subscription proceeds from the public offering of Units. Capital contributions, net of rescissions, totaled $1,953,530 and $4,686,210 for the respective three and six months ended June 30, 2013. As of June 30, 2013, cumulative capital contributions, net of rescissions, totaling $6,553,970 (655,397 Units) have been received.
During the same periods, the primary uses of cash were to fund investments in notes receivable, to pay commissions and syndication costs associated with the offering, and to pay distributions. Investments in notes receivable funded during the respective three and six months ended June 30, 2013 totaled $648,070 and $798,070, while commissions and syndication costs paid totaled $330,499 and $721,340. In addition, distributions paid to the Managing Member and Other Members totaled $125,058 and $170,732 during the same respective periods.
The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of November 2012. Additional distributions have been made through June 30, 2013.
Cash distributions were paid by the Fund to Unitholders of record as of May 31, 2013, and paid through June 30, 2013. The distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the Prospectus under “Income, Losses and Distributions-Reinvestment.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.
The cash distributions were based on current and anticipated gross revenues from the loans funded and equity investments acquired. During the Fund's acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund's actual and anticipated gross revenues to be generated from the binding initial terms of the loans and investments funded.
15
The following table summarizes distribution activity for the Fund from inception through June 30, 2013:
| | | | | | | | | | |||||||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||||||||||||||
| Distribution Period(1) | Paid | Return of Capital | Distribution of Income | Total Distribution | Total Distribution per Unit(2) | Weighted Average Units Outstanding(3) | ||||||||||||||||||||||||||||||
| Monthly and quarterly distributions | ||||||||||||||||||||||||||||||||||||
| November 14, 2012 – November 30, 2012 | Dec 2012 | $ | 2,682 | $ | — | $ | 2,682 | $ | 0.43 | 6,306 | ||||||||||||||||||||||||||
| December 2012 – May 2013 | Jan – Jun 2013 | 153,659 | — | 153,659 | 0.44 | 349,770 | ||||||||||||||||||||||||||||||
| $ | 156,341 | $ | — | $ | 156,341 | $ | 0.87 | |||||||||||||||||||||||||||||
| Source of distributions | ||||||||||||||||||||||||||||||||||||
| Payments received on investment portfolio | $ | 156,341 | 100.00 | % | $ | — | 0.00 | % | $ | 156,341 | 100.00 | % | ||||||||||||||||||||||||
| Interest on funds held in reserve | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | |||||||||||||||||||||||||||
| $ | 156,341 | 100.00 | % | $ | — | 0.00 | % | $ | 156,341 | 100.00 | % | |||||||||||||||||||||||||
| (1) | Investors may elect to receive their distributions either monthly or quarterly (See “Timing and Method of Distributions” on Page 46 – 47 of the Prospectus). |
| (2) | Total distributions per Unit represents the per Unit distribution rate for those units which were outstanding for all of the applicable period. |
| (3) | Balances shown represent weighted average units for the period from November 14 (date the escrow requirement was met) to November 30, 2012, and from December 1, 2012 to May 31, 2013, respectively. |
At June 30, 2013, there were commitments to fund investments in notes receivable totaling an approximate $902,000. This amount represents contract awards which may be canceled by the prospective borrower or may not be accepted by the Company.
None.
Recent accounting standards updates as issued by the Financial Accounting Standards Board (FASB) were evaluated and determined to be not applicable to the Company.
The preparation of financial statements in accordance 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. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
The Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2012. There have been no material changes to the Company’s critical accounting policies since December 31, 2012.
16
The Company’s Managing Member’s Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78aet seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.
17
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Member’s financial position or results of operations.
Information provided pursuant to §229.701 (Item 701(f)) (formerly included in Form SR):
(1) Effective date of the offering: August 20, 2012; File Number: 333-178629
(2) Offering commenced: August 20, 2012
(3) The offering did not terminate before any securities were sold.
(4) The managing underwriter is ATEL Securities Corporation.
(5) The title of the registered class of securities is “Units of Limited Liability Company Interest.”
(6) Aggregate amount and offering price of securities registered and sold as of June 30, 2013:
| | | | | ||||||||||||
| Title of Security | Amount Registered | Aggregate price of offering amount registered | Units sold | Aggregate price of offering amount sold | ||||||||||||
| Units of Limited Company Interest | 7,500,000 | $ | 75,000,000 | 655,397 | $ | 6,553,970 | ||||||||||
(7) Costs incurred for the issuers’ account in connection with the issuance and distribution of the securities registered for each category listed below:
| | | | |||||||||
| Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer | Direct or indirect payments to others | Total | ||||||||||
| Underwriting discounts and commissions | $ | 131,059 | $ | 458,708 | $ | 589,767 | ||||||
| Other syndication costs | — | 384,508 | 384,508 | |||||||||
| Total expenses | $ | 131,059 | $ | 843,216 | $ | 974,275 | ||||||
(8) Net offering proceeds to the issuer after total expenses in item 7: $ 5,579,695
(9) The amount of net offering proceeds to the issuer used for each of the purposes listed below:
| | | | |||||||||
| Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer | Direct or indirect payments to others | Total | ||||||||||
| Investment in notes receivable | $ | 13,908 | $ | 2,248,070 | $ | 2,261,978 | ||||||
| Distributions paid | 17,371 | 156,341 | 173,712 | |||||||||
| Other expenses | 249,168 | — | 249,168 | |||||||||
| $ | 280,447 | $ | 2,404,411 | $ | 2,684,858 | |||||||
(10) Net offering proceeds to the issuer after total expenses in item 9: $ 2,894,837
18
None.
Not Applicable.
None.
| (a) | Documents filed as a part of this report |
| 1. | Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
| 2. | Other Exhibits |
| 31.1 | Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash |
| 31.2 | Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi |
| 32.1 | Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash |
| 32.2 | Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi |
| 101.INS | XBRL Instance Document |
| 101.SCH | XBRL Taxonomy Extension Schema Document |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
19
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 thereunto duly authorized.
Date: August 13, 2013
| By: | AGC 8 Managing Member, LLC Managing Member of Registrant |
| By: | /s/ Dean L. Cash Dean L. Cash Chairman of the Board, President and Chief Executive Officer of AGC 8 Managing Member, LLC (Managing Member) |
| By: | /s/ Paritosh K. Choksi Paritosh K. Choksi Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of AGC 8 Managing Member, LLC (Managing Member) |
| By: | /s/ Samuel Schussler Samuel Schussler Vice President and Chief Accounting Officer of AGC 8 Managing Member, LLC (Managing Member) |
