Form 10-Q
UNITED STATES
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 March 31, 2015
o | 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 333-178629
ATEL GROWTH CAPITAL FUND 8, LLC
(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.) |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(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 filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
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 April 30, 2015 was 1,618,296 Units.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL GROWTH CAPITAL FUND 8, LLC
Index
Part I. Financial Information | 3 | |||
Item 1. Financial Statements (Unaudited) | 3 | |||
Balance Sheets, March 31, 2015 and December 31, 2014 | 3 | |||
Statements of Operations for the three months ended March 31, 2015 and 2014 | 4 | |||
Statements of Changes in Members’ Capital for the year ended December 31, 2014 and for the three months ended March 31, 2015 | 5 | |||
Statements of Cash Flows for the three months ended March 31, 2015 and 2014 | 6 | |||
Notes to the Financial Statements | 7 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |||
Item 4. Controls and Procedures | 22 | |||
Part II. Other Information | 24 | |||
Item 1. Legal Proceedings | 24 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 24 | |||
Item 3. Defaults Upon Senior Securities | 25 | |||
Item 4. Mine Safety Disclosures | 25 | |||
Item 5. Other Information | 25 | |||
Item 6. Exhibits | 25 |
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
ATEL GROWTH CAPITAL FUND 8, LLC
BALANCE SHEETS
MARCH 31, 2015 AND DECEMBER 31, 2014
(in thousands)
March 31, 2015 | December 31, 2014 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 4,539 | $ | 4,924 | ||||
Accounts receivable | 8 | — | ||||||
Notes receivable, net | 5,637 | 5,845 | ||||||
Investment in securities | 229 | 229 | ||||||
Fair value of warrants | 578 | 566 | ||||||
Due from Affiliates | 29 | 35 | ||||||
Prepaid expenses and other assets | 26 | 9 | ||||||
Total assets | $ | 11,046 | $ | 11,608 | ||||
LIABILITIES AND MEMBERS’ CAPITAL | ||||||||
Accounts payable and accrued liabilities: | ||||||||
Managing Member | $ | 28 | $ | 28 | ||||
Accrued distributions to Other Members | 250 | 250 | ||||||
Other | 2 | — | ||||||
Total liabilities | 280 | 278 | ||||||
Commitments and contingencies | ||||||||
Members’ capital: | ||||||||
Managing Member | — | — | ||||||
Other Members | 10,766 | 11,330 | ||||||
Total Members’ capital | 10,766 | 11,330 | ||||||
Total liabilities and Members’ capital | $ | 11,046 | $ | 11,608 |
See accompanying notes.
3
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(in thousands except units and per unit data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Revenues: | ||||||||
Notes receivable interest income, including accretion of net note origination costs and discounts | $ | 200 | $ | 157 | ||||
Unrealized loss on fair valuation of warrants | — | (134 | ) | |||||
Other | 11 | 9 | ||||||
Total revenues | 211 | 32 | ||||||
Expenses: | ||||||||
Acquisition expense | 96 | 112 | ||||||
Cost reimbursements to affiliates | 51 | 32 | ||||||
Provision for credit losses | 51 | — | ||||||
Asset management fees to Managing Member | 17 | 11 | ||||||
Professional fees | 34 | 33 | ||||||
Outside services | 12 | 13 | ||||||
Taxes on income and franchise fees | 2 | 2 | ||||||
Bank charges | 3 | 3 | ||||||
Printing and photocopying | 2 | 2 | ||||||
Other | 13 | 5 | ||||||
Total expenses | 281 | 213 | ||||||
Net loss | $ | (70 | ) | $ | (181 | ) | ||
Net income (loss): | ||||||||
Managing Member | $ | 49 | $ | 34 | ||||
Other Members | (119 | ) | (215 | ) | ||||
$ | (70 | ) | $ | (181 | ) | |||
Net loss per Limited Liability Company Unit (Other Members) | $ | (0.07 | ) | $ | (0.19 | ) | ||
Weighted average number of Units outstanding | 1,618,296 | 1,114,445 |
See accompanying notes.
4
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2014 AND FOR THE
THREE MONTHS ENDED MARCH 31, 2015
(in thousands except units and per unit data)
Amount | ||||||||||||||||
Units | Other Members | Managing Member | Total | |||||||||||||
Balance December 31, 2013 | 1,021,531 | $ | 7,032 | $ | — | $ | 7,032 | |||||||||
Capital contributions | 596,765 | 5,967 | — | 5,967 | ||||||||||||
Less selling commissions to affiliates | — | (537 | ) | — | (537 | ) | ||||||||||
Syndication costs | — | 527 | — | 527 | ||||||||||||
Distributions to Other Members ($1.10 per Unit) | — | (1,542 | ) | — | (1,542 | ) | ||||||||||
Distributions to Managing Member | — | — | (171 | ) | (171 | ) | ||||||||||
Net (loss) income | — | (117 | ) | 171 | 54 | |||||||||||
Balance December 31, 2014 | 1,618,296 | 11,330 | — | 11,330 | ||||||||||||
Distributions to Other Members ($0.27 per Unit) | — | (445 | ) | — | (445 | ) | ||||||||||
Distributions to Managing Member | — | — | (49 | ) | (49 | ) | ||||||||||
Net (loss) income | — | (119 | ) | 49 | (70 | ) | ||||||||||
Balance March 31, 2015 (Unaudited) | 1,618,296 | $ | 10,766 | $ | — | $ | 10,766 |
See accompanying notes.
5
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2015 AND 2014
(in thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Operating activities: | ||||||||
Net loss | $ | (70 | ) | $ | (181 | ) | ||
Adjustment to reconcile net loss to cash used in operating activities: | ||||||||
Accretion of note discount – warrants | (21 | ) | (13 | ) | ||||
Amortization of net note origination costs | 6 | 5 | ||||||
Provision for credit losses | 51 | — | ||||||
Unrealized loss on fair valuation of warrants | — | 134 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (8 | ) | 5 | |||||
Prepaid expenses and other assets | (17 | ) | (9 | ) | ||||
Accounts payable, Managing Member | — | 1 | ||||||
Accounts payable, other | 2 | 3 | ||||||
Accrued liabilities, affiliates | 6 | 28 | ||||||
Unearned fee income related to notes receivable | (3 | ) | 1 | |||||
Net cash used in operating activities | (54 | ) | (26 | ) | ||||
Investing activities: | ||||||||
Advance payments | 10 | (87 | ) | |||||
Purchase of securities | — | (25 | ) | |||||
Payments of note origination costs | — | (17 | ) | |||||
Note receivable and warrants advances | (529 | ) | (753 | ) | ||||
Principal payments received on notes receivable | 682 | 419 | ||||||
Net cash provided by (used in) investing activities | 163 | (463 | ) | |||||
Financing activities: | ||||||||
Selling commissions to affiliates | — | (174 | ) | |||||
Syndication costs paid to Managing Member | — | (108 | ) | |||||
Distributions to Other Members | (445 | ) | (275 | ) | ||||
Distributions to Managing Member | (49 | ) | (31 | ) | ||||
Capital contributions | — | 1,933 | ||||||
Net cash (used in) provided by financing activities | (494 | ) | 1,345 | |||||
Net (decrease) increase in cash and cash equivalents | (385 | ) | 856 | |||||
Cash and cash equivalents at beginning of period | 4,924 | 3,107 | ||||||
Cash and cash equivalents at end of period | $ | 4,539 | $ | 3,963 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid during the period for taxes | $ | — | $ | 3 | ||||
Schedule of non-cash investing and financing transactions: | ||||||||
Distributions payable to Other Members at period-end | $ | 250 | $ | 191 | ||||
Distributions payable to Managing Member at period-end | $ | 28 | $ | 21 | ||||
Payables to Managing Member and affiliates at period-end (syndication costs) | $ | — | $ | 777 |
See accompanying notes.
6
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Limited Liability Company matters:
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 Managing Member, LLC (the “Managing Member” or “Manager”), the renamed AGC 8 Managing Member, LLC which was formed in December 2011 as a Nevada limited liability company. Such name change is the result of an amendment to the articles of incorporation filed with the State of Nevada effective March 18, 2014. 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 Company conducted a public offering of 7,500,000 Limited Liability Company Units (“Units”), at a price of $10 per unit. As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1.2 million), 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 $3.75 million in gross proceeds. Total contributions to the Fund exceeded $3.75 million on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on August 20, 2014.
As of March 31, 2015, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Member’s capital investment) have been received. As of such date, a total of 1,618,296 Units were issued and outstanding.
Prior to the termination of its offering, the Fund, or Managing Member on behalf of the Fund, incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs borne by the Fund was 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 Unitholders, 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 Unitholders from any proceeds from sales of Equity interests and (iv) provide total cash distributions to Unitholders 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, 2014, filed with the Securities and Exchange Commission.
7
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Summary of Significant Accounting Policies:
Basis of presentation:
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 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 months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2015, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements.
Use of estimates:
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. Such estimates primarily relate to the determination of credit losses on notes receivable and the fair valuation of equity securities and warrants.
Segment reporting:
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.
Investment in securities:
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
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
8
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
2. Summary of Significant Accounting Policies: - (continued)
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. The Company made its initial investment in equity securities during the first quarter of 2014. Investments in equity securities totaled $229 thousand at both March 31, 2015 and December 31, 2014.
Warrants
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. At March 31, 2015, and December 31, 2014, the Managing Member estimated the fair value of warrants to be $578 thousand and $566 thousand, respectively. During the three months ended March 31, 2015, the Company did not record any unrealized gains or losses on the fair valuation of its warrants. By comparison, during the prior year period, the Company recorded unrealized losses of $134 thousand on fair valuation of its warrants. There were no net exercise of warrants during the three months ended March 31, 2015 and 2014. See Note 10 for further discussion.
Per Unit data:
Net loss per Unit is based upon the weighted average number of Other Members Units outstanding during the period.
Recent accounting pronouncements:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from loans, which comprise the majority of the Company’s revenues.
In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
3. Notes receivable, net:
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. As of March 31, 2015, the terms of the notes receivable are from 24 to 42 months and bear interest at implicit or stated rates ranging from 11.26% to 18.00% per annum. The notes are secured by the equipment financed and have maturity dates ranging from 2015 through 2018.
The Company had three notes receivable which were on non-accrual status as of March 31, 2015 and December 31, 2014. The notes were originally placed on non-accrual status effective December 1, 2014. As of
9
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
3. Notes receivable, net: - (continued)
December 31, 2014, the notes had net recorded investment of $40 thousand, $79 thousand, and $53 thousand, respectively, and rates ranging from 11.54% to 11.73% were placed on non-accrual status. As of March 31, 2015, management continued to deem the notes impaired and recorded fair value adjustments totaling of $12 thousand, $23 thousand, and $16 thousand respectively, to reflect the fair values of such notes at $28 thousand, $56 thousand and $37 thousand, respectively, before accretion of net note origination costs and discounts. There were no such fair value adjustments at December 31, 2014.
Effective January 1, 2015, the notes were modified to defer the repayment of principal while maintaining interest-only payments at their original rates. As of July 1, 2015, the entire balance outstanding on these notes will be due. The payments will be adjusted such that the ultimate amounts paid will reflect interest earned at a composite rate of 18.00% per annum as related to the entire term of the indebtedness from the original funding date. Payments received on these nonaccrual notes have been fully applied against principal pursuant to the Company’s policy on non-accrual notes. Interest not recorded relative to the original terms of the non-accrual notes approximated $2 thousand from December 2014 to March 2015.
As of March 31, 2015, the minimum future payments receivable are as follows (in thousands):
Nine months ending December 31, 2015 | $ | 2,861 | ||
Year ending December 31, 2016 | 2,807 | |||
2017 | 868 | |||
2018 | 81 | |||
6,617 | ||||
Less: portion representing unearned interest income, net | (919 | ) | ||
Less: advance payments | (10 | ) | ||
Less: allowance for credit losses | (51 | ) | ||
Notes receivable, net | $ | 5,637 |
4. Allowance for credit losses:
The Company’s allowance for credit losses are as follows (in thousands):
Allowance for Doubtful Accounts – Notes Receivable | Valuation Adjustments – Notes Receivable | Total Allowance for Credit Losses | ||||||||||
Balance December 31, 2013 | $ | — | $ | — | $ | — | ||||||
Provision for credit losses | — | — | — | |||||||||
Balance December 31, 2014 | — | — | — | |||||||||
Provision for credit losses | — | (51 | ) | (51 | ) | |||||||
Balance March 31, 2015 | $ | — | $ | (51 | ) | $ | (51 | ) |
Allowance for Doubtful Accounts
Accounts receivable represent the amounts billed under notes receivable which are currently due to the Company.
Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.
10
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Allowance for credit losses: - (continued)
Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon management’s judgment, such notes may be placed in non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. All payments received on amounts billed under notes receivable are applied only against outstanding principal balances.
Valuation Adjustments
In addition to the allowance established for delinquent accounts receivable, the total allowance also includes anticipated impairment charges on notes receivable.
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
The Company’s allowance for credit losses and its recorded investment in notes receivable as of March 31, 2015 and December 31, 2014 were as follows (in thousands):
March 31, 2015 | Notes Receivable | Total | ||||||
Allowance for credit losses: | ||||||||
Ending balance | $ | 51 | $ | 51 | ||||
Ending balance: individually evaluated for impairment | $ | 51 | $ | 51 | ||||
Ending balance: collectively evaluated for impairment | $ | — | $ | — | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | — | $ | — | ||||
Financing receivables: | ||||||||
Ending balance | $ | 5,688 | $ | 5,688 | ||||
Ending balance: individually evaluated for impairment | $ | 5,688 | $ | 5,688 | ||||
Ending balance: collectively evaluated for impairment | $ | — | $ | — | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | — | $ | — |
11
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Allowance for credit losses: - (continued)
December 31, 2014 | Notes Receivable | Total | ||||||
Allowance for credit losses: | ||||||||
Ending balance | $ | — | $ | — | ||||
Ending balance: individually evaluated for impairment | $ | — | $ | — | ||||
Ending balance: collectively evaluated for impairment | $ | — | $ | — | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | — | $ | — | ||||
Financing receivables: | ||||||||
Ending balance | $ | 5,845 | $ | 5,845 | ||||
Ending balance: individually evaluated for impairment | $ | 5,845 | $ | 5,845 | ||||
Ending balance: collectively evaluated for impairment | $ | — | $ | — | ||||
Ending balance: loans acquired with deteriorated credit quality | $ | — | $ | — |
The Company evaluates the credit quality of its notes receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass – Any account whose debtor, co-debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.
Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List.
Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.
12
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
4. Allowance for credit losses: - (continued)
At March 31, 2015 and December 31, 2014, the Company’s notes receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):
Notes Receivable | ||||||||
March 31, 2015 | December 31, 2014 | |||||||
Pass | $ | 4,404 | $ | 4,134 | ||||
Special mention | 1,116 | 1,711 | ||||||
Substandard | 168 | — | ||||||
Doubtful | — | — | ||||||
Total | $ | 5,688 | $ | 5,845 |
As of March 31, 2015, the Company’s impaired loans were as follows (in thousands):
Impaired Loans | ||||||||||||||||||||
Recorded Investment | Unpaid Principal Balance | Related Allowance | Average Recorded Investment | Interest Income Recognized | ||||||||||||||||
With no related allowance recorded Notes receivable | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
With an allowance recorded Notes receivable | 168 | 171 | 51 | 168 | 4 | |||||||||||||||
Total | $ | 168 | $ | 171 | $ | 51 | $ | 168 | $ | 4 |
At March 31, 2015 and December 31, 2014, investment in financing receivables is aged as follows (in thousands):
March 31, 2015 | 31-60 Days Past Due | 61-90 Days Past Due | Greater Than 90 Days | Total Past Due | Current | Total Financing Receivables | Recorded Investment > 90 Days and Accruing | |||||||||||||||||||||
Notes receivable | $ | — | $ | — | $ | — | $ | — | $ | 5,688 | $ | 5,688 | $ | — | ||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | 5,688 | $ | 5,688 | $ | — |
December 31, 2014 | 31-60 Days Past Due | 61-90 Days Past Due | Greater Than 90 Days | Total Past Due | Current | Total Financing Receivables | Recorded Investment > 90 Days and Accruing | |||||||||||||||||||||
Notes receivable | $ | — | $ | — | $ | — | $ | — | $ | 5,845 | $ | 5,845 | $ | — | ||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | 5,845 | $ | 5,845 | $ | — |
As of March 31, 2015 and December 31, 2014, the Company had three notes receivable which were on non-accrual status (See Note 3 for details).
5. Related party transactions:
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.
13
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
5. Related party transactions: - (continued)
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.
During the three months ended March 31, 2015 and 2014, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members' capital | $ | — | $ | 174 | ||||
Administrative costs reimbursed to Managing Member and/or affiliates | 51 | 32 | ||||||
Asset management fees to Managing Member | 17 | 11 | ||||||
Acquisition costs and note origination fees paid to Managing Member | 96 | 129 | ||||||
$ | 164 | $ | 346 |
6. Syndication costs:
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. There were no syndication costs during the current year period as such efforts and related costs ceased upon the termination of the Fund’s offering on August 20, 2014. By comparison, syndication costs totaled $174 thousand for the three months ended March 31, 2014.
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. Through August 20, 2014, the Managing Member incurred $527 thousand of syndications costs in excess of those allocable for reimbursement under the Fund’s Operating Agreement. Whereas such costs were accrued by the Fund, they were effectively reversed during the third quarter of 2014 when the offering was terminated.
7. Commitments:
At March 31, 2015, there were commitments to fund investments in notes receivable totaling $3.3 million. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
8. Guarantees:
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.
14
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
8. Guarantees: - (continued)
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.
9. Members’ Capital:
A total of 1,618,296 Units were issued and outstanding as of March 31, 2015 and December 31, 2014. 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 months ended March 31, 2015 and 2014 are as follows (in thousands, except as to Units and per Unit data):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Distributions declared | $ | 445 | $ | 306 | ||||
Weighted average number of Units outstanding | 1,618,296 | 1,114,445 | ||||||
Weighted average distributions per Unit | $ | 0.27 | $ | 0.27 |
10. Fair value measurements:
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.
15
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. Fair value measurements: - (continued)
At March 31, 2015 and December 31, 2014, only the Company’s warrants were measured on a recurring basis. During the first quarter of 2015, the Company recorded non-recurring adjustments to reflect the fair values of certain impaired notes receivable. The Company had not recorded any nonrecurring fair value adjustments prior to the first quarter of 2015.
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 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.
The measurement methodology is as follows:
Warrants (recurring)
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 March 31, 2015 and December 31, 2014, the calculated fair value of the Fund’s warrant portfolio totaled $578 thousand and $566 thousand, respectively. Such valuation is classified within Level 3 of the valuation hierarchy.
The following reconciles the beginning and ending balances of the Company’s Level 3 recurring assets (in thousands):
Level 3 Assets | ||||
Balance at December 31, 2013 | $ | 607 | ||
Fair value of new warrants, recorded during the period (included as a discount on notes receivable) | 93 | |||
Net exercise of warrants | (5 | ) | ||
Unrealized loss on warrants, net recorded during the year | (129 | ) | ||
Balance at December 31, 2014 | 566 | |||
Fair value of new warrants, recorded during the period (included as a discount on notes receivable) | 12 | |||
Balance at March 31, 2015 | $ | 578 |
Impaired notes receivable
The fair value of the Company’s notes receivable, when impairment adjustments are required, is estimated using either third party appraisals or estimations of the value of collateral (for collateral dependent loans) or discounted cash flow analyses (by discounting estimated future cash flows) using the effective interest rate contained in the terms of the original loan. During the first quarter of 2015, the Company had recorded fair value adjustments totaling $51 thousand relative to three impaired notes. The Company had no fair value adjustments relative to impaired notes receivable prior to the current year period.
16
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. Fair value measurements: - (continued)
The fair value adjustments recorded in 2015 were non-recurring and were based upon an estimated valuation of underlying collateral. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable is classified within Level 3 of the valuation hierarchy. The valuation utilizes a market approach technique and uses inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral.
The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at March 31, 2015 (in thousands):
March 31, 2015 | Level 1 Estimated Fair Value | Level 2 Estimated Fair Value | Level 3 Estimated Fair Value | |||||||||||||
Impaired notes receivable | $ | 117 | $ | — | $ | — | $ | 117 |
The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and nonrecurring fair value calculation categorized as Level 3 in the fair value hierarchy at March 31, 2015 and December 31, 2014:
March 31, 2015 | ||||||||||||||||
Name | Valuation Frequency | Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants | Recurring | Black-Scholes formulation | Stock price | $0.05 – $25.76 | ||||||||||||
Exercise price | $0.05 – $25.76 | |||||||||||||||
Time to maturity (in years) | 5.02 | |||||||||||||||
Risk-free interest rate | 1.37% | |||||||||||||||
Annualized volatility | 100% | |||||||||||||||
Notes Receivable | Non-recurring | Market Approach | Third Party Agents’ estimate of the value of collateral | $13,700 – $53,600 | ||||||||||||
Condition of collateral (equipment) | Poor to Average |
December 31, 2014 | ||||||||||||||||
Name | Valuation Frequency | Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants | Recurring | Black-Scholes formulation | Stock price | $0.05 – $25.76 | ||||||||||||
Exercise price | $0.05 – $25.76 | |||||||||||||||
Time to maturity (in years) | 5.20 | |||||||||||||||
Risk-free interest rate | 1.68% | |||||||||||||||
Annualized volatility | 100% |
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.
17
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
10. Fair value measurements: - (continued)
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.
Cash and cash equivalents
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.
Notes receivable
The fair value of the Company’s notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.
Investment in securities
The Company’s investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.
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 March 31, 2015 and December 31, 2014 (in thousands):
March 31, 2015 | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 4,539 | $ | 4,539 | $ | — | $ | — | $ | 4,539 | ||||||||||
Notes receivable, net | 5,637 | — | — | 5,629 | 5,629 | |||||||||||||||
Investment in securities | 229 | — | — | 229 | 229 | |||||||||||||||
Warrants | 578 | — | — | 578 | 578 |
December 31, 2014 | ||||||||||||||||||||
Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 4,924 | $ | 4,924 | $ | — | $ | — | $ | 4,924 | ||||||||||
Notes receivable, net | 5,845 | — | — | 5,828 | 5,828 | |||||||||||||||
Investment in securities | 229 | — | — | 229 | 229 | |||||||||||||||
Warrants | 566 | — | — | 566 | 566 |
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
Overview
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 Company conducted a public offering of 7,500,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1.2 million), 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 $3.75 million in gross proceeds. Total contributions to the Fund exceeded $3.75 million on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on August 20, 2014.
As of March 31, 2015, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Member’s capital investment) have been received. As of such date, a total of 1,618,296 Units were issued and outstanding.
Results of Operations
The three months ended March 31, 2015 versus the three months ended March 31, 2014
The Company reported net losses of $70 thousand and $181 thousand for the three months ended March 31, 2015 and 2014, respectively. Results for the first quarter of 2015 reflect increases in both total revenues and total expenses when compared to the prior year period.
Revenues
Total revenues for the first quarter of 2015 increased by $179 thousand as compared to the prior year period. The growth in total revenues was largely due to the absence of unrealized losses on fair valuation of warrants during the current year period coupled with an increase in interest income on notes receivable.
The absence of unrealized losses during the current year period increased total revenues by $134 thousand when compared to the prior year period. Such amount was recorded as unrealized losses during the prior year period relative to the revaluation of certain warrant positions in the Fund’s portfolio. Interest income on notes receivables, including accretion of net note origination costs and discounts, increased as a result of operating revenues derived from an approximate $3.8 million of notes receivable funded since March 31, 2014.
19
Expenses
Total expenses for the first quarter of 2015 increased by $68 thousand as compared to the prior year period. Such increase was largely due to a loss provision recorded during the current year period and an increase in costs reimbursed to affiliates. Such increases in expenses were partially offset by a reduction in acquisition expense.
During the first quarter of 2015, the Company recorded fair value adjustments totaling $51 thousand relative to three impaired notes receivable. There were no such fair value adjustments prior to the current year quarter. Cost reimbursed to affiliates increased by $19 thousand primarily due to higher allocated costs consistent with the Fund’s expanded operations.
Partially offsetting the aforementioned increases in expenses was a $16 thousand decrease in acquisition expense. The decrease in acquisition expense was largely due to the reassignment of such costs to certain affiliate funding activities.
Capital Resources and Liquidity
The Company’s cash and cash equivalents totaled $4.5 million and $4.9 million at March 31, 2015 and December 31, 2014, respectively. The liquidity of the Company varies, 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. 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.
Cash Flows
The following table sets forth summary cash flow data (in thousands):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Net cash (used in) provided by: | ||||||||
Operating activities | $ | (54 | ) | $ | (26 | ) | ||
Investing activities | 163 | (463 | ) | |||||
Financing activities | (494 | ) | 1,345 | |||||
Net (decrease) increase in cash and cash equivalents | $ | (385 | ) | $ | 856 |
The three months ended March 31, 2015 versus the three months ended March 31, 2014
During the first quarter of 2015, the Company’s primary source of liquidity was cash flow from its investments in notes receivable. By comparison, during the prior year period, the Company’s primary source of liquidity had been subscription proceeds from the public offering of Units coupled with cash flow from the notes receivable. Capital contributions received during the first quarter of 2014 totaled $1.9 million. The Fund’s offering was terminated as of August 20, 2014.
During the first quarters of 2015 and 2014, the primary uses of cash were to fund investments in notes receivable and to pay distributions. Investments in notes receivable funded during the respective first quarters of 2015 and 2014 totaled $529 thousand and $753 thousand; while distributions paid totaled $494 thousand and $306 thousand. In addition, during the prior year period, cash totaling $282 thousand was used to pay commissions and syndication costs associated with the offering.
Distributions
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 March 31, 2015.
20
Cash distributions were paid by the Fund to Unitholders of record as of February 28, 2015, and paid through March 31, 2015. 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.
The following table summarizes distribution activity for the Fund from inception through March 31, 2015 (in thousands):
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 | ||||||||||||||||||||||||||||||||||||
Oct 2012 – Mar 2013 (Distribution of all escrow interest) | July 2013 | $ | — | $ | — | $ | — | n/a | n/a | |||||||||||||||||||||||||||
Nov 14, 2012 – Nov 30, 2012 | Dec 2012 | 3 | — | 3 | $ | 0.43 | 6,306 | |||||||||||||||||||||||||||||
Dec 2012 – Nov 2013 | Jan – Dec 2013 | 866 | — | 866 | 1.57 | 551,608 | ||||||||||||||||||||||||||||||
Dec 2013 – Nov 2014 | Jan – Dec 2014 | 1,452 | — | 1,452 | 1.08 | 1,349,575 | ||||||||||||||||||||||||||||||
Dec 2014 – Feb 2015 | Jan – Mar 2015 | 445 | — | 445 | 0.27 | 1,618,296 | ||||||||||||||||||||||||||||||
$ | 2,766 | $ | — | $ | 2,766 | $ | 3.35 | |||||||||||||||||||||||||||||
Source of distributions | ||||||||||||||||||||||||||||||||||||
Lease and loan payments/payoffs | $ | 2,766 | 100.00 | % | $ | — | 0.00 | % | $ | 2,766 | 100.00 | % | ||||||||||||||||||||||||
Interest income | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | |||||||||||||||||||||||||||
$ | 2,766 | 100.00 | % | $ | — | 0.00 | % | $ | 2,766 | 100.00 | % |
(1) | Investors may elect to receive their distributions either monthly or quarterly (See “Timing and Method of Distributions” on Page 46 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, December 1, 2012 to November 30, 2013, December 1, 2013 to November 30, 2014, and December 1, 2014 to February 28, 2015, respectively |
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At March 31, 2015, there were commitments to fund investments in notes receivable totaling $3.3 million. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
Off-Balance Sheet Transactions
None.
21
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from loans, which comprise the majority of the Company’s revenues.
In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
Critical Accounting Policies and Estimates
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, 2014. There have been no material changes to the Company’s critical accounting policies since December 31, 2014.
Item 4. Controls and Procedures.
Evaluation of disclosure controls and procedures
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) and 15d-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
22
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.
Changes in internal control
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 March 31, 2015 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.
23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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 March 31, 2015 (dollars in thousands): |
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 | 1,618,246 | $ | 16,182 |
(7) | Costs incurred for the issuers’ account in connection with the issuance and distribution of the securities registered for each category listed below (in thousands): |
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 | $ | 324 | $ | 1,132 | $ | 1,456 | ||||||
Other syndication costs | — | 971 | 971 | |||||||||
Total expenses | $ | 324 | $ | 2,103 | $ | 2,427 |
(8) Net offering proceeds to the issuer after total expenses in item 7 (in thousands): $ 13,755
(9) | The amount of net offering proceeds to the issuer used for each of the purposes listed below (in thousands): |
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 | $ | 62 | $ | 10,144 | $ | 10,206 | ||||||
Distributions paid | 261 | 2,321 | 2,582 | |||||||||
Other expenses | 967 | — | 967 | |||||||||
$ | 1,290 | $ | 12,465 | $ | 13,755 |
(10) Net offering proceeds to the issuer after total expenses in item 9: $ —
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
(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 |
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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 thereunto duly authorized.
Date: May 14, 2015
ATEL GROWTH CAPITAL FUND 8, LLC
(Registrant)
By: AGC Managing Member, LLC |
By: | /s/ Dean L. Cash Dean L. Cash Chairman of the Board, President and Chief Executive Officer of AGC 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 Managing Member, LLC (Managing Member) |
By: | /s/ Samuel Schussler Samuel Schussler Vice President and Chief Accounting Officer of AGC Managing Member, LLC (Managing Member) |
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