Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2019
☐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 000‑55217
ATEL GROWTH CAPITAL FUND 8, LLC
(Exact name of registrant as specified in its charter)
|
|
|
California |
| 37‑1656343 |
(State or other jurisdiction of |
| (I. R. S. Employer |
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol |
| Name of each exchange on which registered: |
N/A |
| N/A |
| N/A |
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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b‑2 of the Exchange Act.
|
|
|
|
Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ |
Emerging growth company ☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒
The number of Limited Liability Company Units outstanding as of July 31, 2019 was 1,612,396.
DOCUMENTS INCORPORATED BY REFERENCE
None.
ATEL GROWTH CAPITAL FUND 8, LLC
2
Item 1. Financial Statements (Unaudited).
ATEL GROWTH CAPITAL FUND 8, LLC
JUNE 30, 2019 AND DECEMBER 31, 2018
(in thousands)
|
|
|
|
|
|
|
|
| June 30, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
|
| (Unaudited) |
|
| ||
ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 444 |
| $ | 214 |
Due from affiliates |
|
| 92 |
|
| 34 |
Notes receivable, net |
|
| 1,061 |
|
| 2,188 |
Investment in securities |
|
| 425 |
|
| 281 |
Warrants, fair value |
|
| 386 |
|
| 561 |
Prepaid expenses and other assets |
|
| 4 |
|
| 7 |
Total assets |
| $ | 2,412 |
| $ | 3,285 |
|
|
|
|
|
|
|
LIABILITIES AND MEMBERS’ CAPITAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities: |
|
|
|
|
|
|
Due to Managing Member and affiliates |
| $ | 63 |
| $ | 63 |
Accrued distributions to Other Members |
|
| 249 |
|
| 249 |
Other |
|
| 1 |
|
| — |
Total liabilities |
|
| 313 |
|
| 312 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
Members’ capital: |
|
|
|
|
|
|
Managing Member |
|
| — |
|
| — |
Other Members |
|
| 2,099 |
|
| 2,973 |
Total Members’ capital |
|
| 2,099 |
|
| 2,973 |
Total liabilities and Members’ capital |
| $ | 2,412 |
| $ | 3,285 |
See accompanying notes.
3
ATEL GROWTH CAPITAL FUND 8, LLC
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2019 AND 2018
(in thousands except units and per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable interest income, including accretion of net note origination costs and discounts |
| $ | 81 |
| $ | 132 |
| $ | 185 |
| $ | 254 |
|
Gain on early termination of notes receivable |
|
| 4 |
|
| — |
|
| 52 |
|
| — |
|
Gain on sales or dispositions of investment in securities |
|
| — |
|
| — |
|
| 161 |
|
| — |
|
Unrealized gain (loss) on fair value adjustment for investment in securities |
|
| 4 |
|
| (43) |
|
| 4 |
|
| 98 |
|
Unrealized gain (loss) on fair value adjustment for warrants |
|
| 67 |
|
| 9 |
|
| (35) |
|
| 19 |
|
Other |
|
| 1 |
|
| 7 |
|
| 2 |
|
| 10 |
|
Total revenues |
|
| 157 |
|
| 105 |
|
| 369 |
|
| 381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees to Managing Member |
|
| 9 |
|
| 12 |
|
| 18 |
|
| 25 |
|
Acquisition expense |
|
| — |
|
| 6 |
|
| — |
|
| 33 |
|
Cost reimbursements to affiliates |
|
| 38 |
|
| 32 |
|
| 74 |
|
| 76 |
|
Provision for (reversal of) credit losses |
|
| 14 |
|
| (9) |
|
| 27 |
|
| (33) |
|
Professional fees |
|
| 25 |
|
| 9 |
|
| 58 |
|
| 36 |
|
Outside services |
|
| 12 |
|
| 14 |
|
| 34 |
|
| 43 |
|
Taxes on income and franchise fees |
|
| — |
|
| 3 |
|
| 1 |
|
| 3 |
|
Bank charges |
|
| 3 |
|
| 5 |
|
| 8 |
|
| 10 |
|
Printing and photocopying |
|
| 1 |
|
| — |
|
| 4 |
|
| — |
|
Other |
|
| 5 |
|
| 7 |
|
| 11 |
|
| 12 |
|
Total expenses |
|
| 107 |
|
| 79 |
|
| 235 |
|
| 205 |
|
Net income |
| $ | 50 |
| $ | 26 |
| $ | 134 |
| $ | 176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Managing Member |
| $ | 60 |
| $ | 38 |
| $ | 120 |
| $ | 87 |
|
Other Members |
|
| (10) |
|
| (12) |
|
| 14 |
|
| 89 |
|
|
| $ | 50 |
| $ | 26 |
| $ | 134 |
| $ | 176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per Limited Liability Company Unit (Other Members) |
| $ | (0.01) |
| $ | (0.01) |
| $ | 0.01 |
| $ | 0.06 |
|
Weighted average number of Units outstanding |
|
| 1,612,396 |
|
| 1,612,396 |
|
| 1,612,396 |
|
| 1,612,396 |
|
See accompanying notes.
4
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2019 AND 2018
(in thousands except units and per unit data)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2019 |
| |||||||||
|
| Other Members |
| Managing |
|
|
|
| ||||
|
| Units |
| Amount |
| Member |
| Total |
| |||
Balance March 31, 2019 |
| 1,612,396 |
| $ | 2,553 |
| $ | — |
| $ | 2,553 |
|
Distributions to Other Members ($0.28 per Unit) |
| — |
|
| (444) |
|
| — |
|
| (444) |
|
Distributions to Managing Member |
| — |
|
| — |
|
| (60) |
|
| (60) | �� |
Net (loss) income |
| — |
|
| (10) |
|
| 60 |
|
| 50 |
|
Balance at end of June 30, 2019 |
| 1,612,396 |
| $ | 2,099 |
| $ | — |
| $ | 2,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2019 |
| |||||||||
|
| Other Members |
| Managing |
|
|
|
| ||||
|
| Units |
| Amount |
| Member |
| Total |
| |||
Balance December 31, 2018 |
| 1,612,396 |
| $ | 2,973 |
| $ | — |
| $ | 2,973 |
|
Distributions to Other Members ($0.55 per Unit) |
| — |
|
| (888) |
|
| — |
|
| (888) |
|
Distributions to Managing Member |
| — |
|
| — |
|
| (120) |
|
| (120) |
|
Net income |
| — |
|
| 14 |
|
| 120 |
|
| 134 |
|
Balance June 30, 2019 (Unaudited) |
| 1,612,396 |
| $ | 2,099 |
| $ | — |
| $ | 2,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, 2018 |
| |||||||||
|
| Other Members |
| Managing |
|
|
|
| ||||
|
| Units |
| Amount |
| Member |
| Total |
| |||
Balance March 31, 2018 |
| 1,612,396 |
|
| 4,530 |
| $ | — |
| $ | 4,530 |
|
Distributions to Other Members ($0.21 per Unit) |
| — |
|
| (346) |
|
| — |
|
| (346) |
|
Distributions to Managing Member |
| — |
|
| — |
|
| (38) |
|
| (38) |
|
Net (loss) income |
| — |
|
| (12) |
|
| 38 |
|
| 26 |
|
Balance at end of June 30, 2018 |
| 1,612,396 |
| $ | 4,172 |
| $ | — |
| $ | 4,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six Months Ended June 30, 2018 |
| |||||||||
|
| Other Members |
| Managing |
|
|
|
| ||||
|
| Units |
| Amount |
| Member |
| Total |
| |||
Balance December 31, 2017 |
| 1,612,396 |
| $ | 4,870 |
| $ | — |
| $ | 4,870 |
|
Distributions to Other Members ($0.49 per Unit) |
| — |
|
| (787) |
|
| — |
|
| (787) |
|
Distributions to Managing Member |
| — |
|
| — |
|
| (87) |
|
| (87) |
|
Net income |
| — |
|
| 89 |
|
| 87 |
|
| 176 |
|
Balance at end of June 30, 2018 |
| 1,612,396 |
| $ | 4,172 |
| $ | — |
| $ | 4,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2019 AND 2018
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 50 |
| $ | 26 |
| $ | 134 |
| $ | 176 |
Adjustment to reconcile net income to cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of note discount - warrants |
|
| (12) |
|
| (13) |
|
| (29) |
|
| (24) |
Amortization of net note origination costs |
|
| — |
|
| 8 |
|
| — |
|
| 17 |
Gain on early termination of notes receivable |
|
| (4) |
|
| — |
|
| (52) |
|
| — |
Gain on sales or dispositions of investment in securities |
|
| — |
|
| — |
|
| (161) |
|
| — |
Provision for (reversal of) credit losses |
|
| 14 |
|
| (9) |
|
| 27 |
|
| (33) |
Unrealized (gain) loss on fair value adjustment for warrants |
|
| (67) |
|
| (9) |
|
| 35 |
|
| (19) |
Unrealized (gain) loss on fair value adjustment for investment in securities |
|
| (4) |
|
| 43 |
|
| (4) |
|
| (98) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| — |
|
| — |
|
| — |
|
| 13 |
Due from affiliates |
|
| (23) |
|
| (37) |
|
| (58) |
|
| 72 |
Prepaid expenses and other assets |
|
| (2) |
|
| (8) |
|
| 3 |
|
| (6) |
Accounts payable, Managing Member and affiliates |
|
| (24) |
|
| (11) |
|
| (22) |
|
| (39) |
Accounts payable, other |
|
| 1 |
|
| 17 |
|
| 1 |
|
| 15 |
Unearned fee income related to notes receivable |
|
| (1) |
|
| (4) |
|
| (2) |
|
| (4) |
Net cash (used in) provided by operating activities |
|
| (72) |
|
| 3 |
|
| (128) |
|
| 70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Advance payments |
|
| — |
|
| — |
|
| — |
|
| (64) |
Proceeds from early termination of notes receivable |
|
| 147 |
|
| — |
|
| 473 |
|
| — |
Proceeds from sales or disposition of investment in securities |
|
| — |
|
| — |
|
| 161 |
|
| — |
Payments of note origination costs |
|
| — |
|
| — |
|
| — |
|
| (2) |
Notes receivable advances |
|
| (13) |
|
| (416) |
|
| (26) |
|
| (1,016) |
Principal payments received on notes receivable |
|
| 373 |
|
| 451 |
|
| 736 |
|
| 988 |
Net cash provided by (used in) investing activities |
|
| 507 |
|
| 35 |
|
| 1,344 |
|
| (94) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to Other Members |
|
| (444) |
|
| (346) |
|
| (888) |
|
| (787) |
Distributions to Managing Member |
|
| (59) |
|
| (38) |
|
| (98) |
|
| (87) |
Net cash used in financing activities |
|
| (503) |
|
| (384) |
|
| (986) |
|
| (874) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
| (68) |
|
| (346) |
|
| 230 |
|
| (898) |
Cash and cash equivalents at beginning of period |
|
| 512 |
|
| 703 |
|
| 214 |
|
| 1,255 |
Cash and cash equivalents at end of period |
| $ | 444 |
| $ | 357 |
| $ | 444 |
| $ | 357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule of non-cash investing and financing transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
Distributions payable to Other Members at period-end |
| $ | — |
| $ | — |
| $ | 249 |
| $ | 248 |
Distributions payable to Managing Member at period-end |
| $ | — |
| $ | — |
| $ | 27 |
| $ | 17 |
Conversion of warrants to equity securities |
| $ | — |
| $ | — |
| $ | 140 |
| $ | — |
See accompanying notes.
6
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 offering was terminated on August 20, 2014. Through June 30, 2019, 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 June 30, 2019, a total of 1,612,396 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.
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, 2018, filed with the Securities and Exchange Commission.
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 and six months ended June 30, 2019 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 June 30, 2019, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements or adjustments thereto.
7
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
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 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 the United States.
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.
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 probable 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.
8
Investment in securities:
From time to time, the Company may purchase equity securities of its borrowers or receive warrants in connection with its lending arrangements.
Purchased securities
The Company’s purchased securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations. The Company’s purchased securities not registered for public sale that do not have readily determinable fair values are measured at cost minus impairment, and adjusted for changes in observable prices. 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. As of June 30, 2019 and December 31, 2018, investments in equity securities totaled $425 thousand and $281 thousand, respectively. During the three months ended June 30, 2019 and 2018, the Company recorded $4 thousand of unrealized gains and $43 thousand of unrealized losses on investment in securities respectively. During the six months ended June 30, 2019 and 2018, the Company recorded unrealized gains of $4 thousand and $98 thousand of valued gains on investments in securities respectively. The Company also recorded $161 thousand of gains on sales or disposition of investment in securities during the six months ended June 30, 2019. There were no gains on sales or dispositions of investments in securities during the three and six months ended June 30, 2018.
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 June 30, 2019 and December 31, 2018, the Managing Member estimated the fair value of warrants to be $386 thousand and $561 thousand, respectively. During the three months ended June 30, 2019 and 2018, the Company recorded $67 thousand $9 thousand unrealized gains on warrants. During the six months ended June 30, 2019 and 2018, the Company recorded unrealized losses of $35 thousand and unrealized gains of $19 thousand, respectively, on the fair valuation of its warrants. During the first quarter of 2019, there was a net exercise of warrants in exchange for equity securities. No exercises of any kind occurred during the comparative prior year period.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, notes receivable and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250,000. The remainder of the Fund’s cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from various industries.
Per Unit data:
The Company issues only one class of Units, none of which are considered dilutive. Net income per Unit is based upon the weighted average number of Other Members Units outstanding during the period.
9
Fair value:
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.
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.
Recent accounting pronouncements:
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
10
In November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new current expected credit losses (CECL) impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326; however, it will be applicable to our note receivables and direct financing leases, if any. The effective date and transition requirements in this Update are the same as the effective dates and transition requirements in Update 2016-13, as amended by this Update, which is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.
In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. Management is currently evaluating the impact of this standard on the financial statements 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 June 30, 2019, the original terms of the notes receivable are from 24 to 84 months and bear interest at implicit or stated rates ranging from 11.37% to 18.06% per annum. The notes are secured by the equipment financed and have maturity dates ranging from 2019 through 2021.
At June 30, 2019 and December 31, 2018, the Company had no notes receivable on non-accrual status.
As of June 30, 2019, the future minimum payments receivable are as follows (in thousands):
|
|
|
|
Six months ending December 31, 2019 |
| $ | 669 |
Year ending December 31, 2020 |
|
| 421 |
2021 |
|
| 155 |
|
|
| 1,245 |
Less: portion representing unearned interest income, net |
|
| (141) |
|
|
| 1,104 |
Unamortized discount on warrants received |
|
| (48) |
Unamortized initial direct costs |
|
| 5 |
Notes receivable, net |
| $ | 1,061 |
11
4. Allowance for credit losses:
The Company’s allowance for credit losses are as follows (in thousands):
|
|
|
|
|
| Valuation Adjustments - | |
|
| Notes Receivable | |
Balance December 31, 2017 |
| $ | 33 |
Reversal of provision for credit losses |
|
| (33) |
Balance June 30, 2018 |
| $ | — |
|
|
|
|
|
| Valuation Adjustments - | |
|
| Notes Receivable | |
Balance December 31, 2018 |
| $ | 133 |
Provision for credit losses |
|
| 27 |
Write-off |
|
| (160) |
Balance June 30, 2019 |
| $ | — |
The Company’s allowance for credit losses and its recorded investment in notes receivable is as follows (in thousands):
|
|
|
|
|
| Notes | |
June 30, 2019 |
| Receivable | |
Allowance for credit losses: |
|
|
|
Ending balance |
| $ | — |
Ending balance: individually evaluated for impairment |
| $ | — |
Ending balance: collectively evaluated for impairment |
| $ | — |
|
|
|
|
Notes receivables: |
|
|
|
Ending balance |
| $ | 1,104 |
Ending balance: individually evaluated for impairment |
| $ | 1,104 |
Ending balance: collectively evaluated for impairment |
| $ | — |
|
|
|
|
|
| Notes | |
December 31, 2018 |
| Receivable | |
Allowance for credit losses: |
|
|
|
Ending balance |
| $ | 133 |
Ending balance: individually evaluated for impairment |
| $ | 133 |
Ending balance: collectively evaluated for impairment |
| $ | — |
|
|
|
|
Notes receivables: |
|
|
|
Ending balance |
| $ | 2,321 |
Ending balance: individually evaluated for impairment |
| $ | 2,321 |
Ending balance: collectively evaluated for impairment |
| $ | — |
12
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 as applicable.
At June 30, 2019 and December 31, 2018, the Company’s notes receivables by credit quality indicator and by class of notes receivables (excluding unamortized discount on warrant and unamortized initial direct costs) are as follows (in thousands):
|
|
|
|
|
|
|
|
| Notes Receivable | ||||
|
| June 30, 2019 |
| December 31, 2018 | ||
Pass |
| $ | 1,104 |
| $ | 2,188 |
Special mention |
|
| — |
|
| — |
Substandard |
|
| — |
|
| — |
Doubtful |
|
| — |
|
| 133 |
Total |
| $ | 1,104 |
| $ | 2,321 |
As of June 30, 2019, there is no impaired investment in notes receivable. As of December 31, 2018, impaired investments in notes receivable are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Impaired Investment in Notes Receivables | |||||||||||||
|
|
|
|
| Unpaid |
|
|
|
| Average |
| Interest | |||
|
| Recorded |
| Principal |
| Related |
| Recorded |
| Income | |||||
December 31, 2018 |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
With an allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable |
|
| 133 |
|
| 133 |
|
| 133 |
|
| 133 |
|
| — |
Total |
| $ | 133 |
| $ | 133 |
| $ | 133 |
| $ | 133 |
| $ | — |
13
As of June 30, 2019 and December 31, 2018, investment in notes receivables is aged as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded | |
|
|
|
|
|
|
|
| Greater |
|
|
|
|
|
|
| Total |
| Investment>90 | |||
|
| 31‑60 Days |
| 61‑90 Days |
| Than 90 |
| Total |
|
|
|
| Notes |
| Days and | ||||||
June 30, 2019 |
| Past Due |
| Past Due |
| Days |
| Past Due |
| Current |
| Receivables |
| Accruing | |||||||
Notes receivable |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 1,104 |
| $ | 1,104 |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Recorded | |
|
|
|
|
|
|
|
| Greater |
|
|
|
|
|
|
| Total |
| Investment>90 | |||
|
| 31‑60 Days |
| 61‑90 Days |
| Than 90 |
| Total |
|
|
|
| Notes |
| Days and | ||||||
December 31, 2018 |
| Past Due |
| Past Due |
| Days |
| Past Due |
| Current |
| Receivables |
| Accruing | |||||||
Notes receivable |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 2,321 |
| $ | 2,321 |
| $ | — |
As of June 30, 2019 and December 31, 2018 the Company had no notes receivable on non-accrual status.
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.
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 and six months ended June 30, 2019 and 2018, 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 |
| Six Months Ended |
| ||||||||
|
|
| June 30, |
| June 30, |
| |||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Administrative costs reimbursed to Managing Member and/or affiliates |
| $ | 38 |
| $ | 32 |
| $ | 74 |
| $ | 76 |
|
Asset management fees to Managing Member |
|
| 9 |
|
| 12 |
|
| 18 |
|
| 25 |
|
Acquisition costs and note origination fees paid to Managing Member |
|
| — |
|
| 6 |
|
| — |
|
| 33 |
|
|
| $ | 47 |
| $ | 50 |
| $ | 92 |
| $ | 134 |
|
6. Commitments:
At June 30, 2019, there were commitments to fund investments in notes receivable totaling $450 thousand. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
14
7. Members’ Capital:
A total of 1,612,396 Units were issued and outstanding as of June 30, 2019 and December 31, 2018. The Fund is authorized to issue up to 7,500,000 Units in addition to the Units issued to the initial Member (50 Units).
Distributions to the Other Members for the three and six months ended June 30, 2019 and 2018 are as follows (in thousands, except for Units and per Unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Distributions declared |
| $ | 444 |
| $ | 346 |
| $ | 888 |
| $ | 787 |
|
Weighted average number of Units outstanding |
|
| 1,612,396 |
|
| 1,612,396 |
|
| 1,612,396 |
|
| 1,612,396 |
|
Weighted average distributions per Unit |
| $ | 0.28 |
| $ | 0.21 |
| $ | 0.55 |
| $ | 0.49 |
|
8. Fair value measurements:
Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
At June 30, 2019 and December 31, 2018, the Company’s warrants and investment securities were measured on a recurring basis.
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, time to maturity, stock prices, exercise prices and number of warrants.
As of June 30, 2019 and December 31, 2018, the calculated fair value of the Fund’s warrant portfolio totaled $386 thousand and $561 thousand, respectively. Such valuation is classified within Level 3 of the valuation hierarchy.
The fair value of warrants that were accounted for on a recurring basis as of the three and six months ended June 30, 2019 and 2018 and classified as Level 3 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
| Six Months Ended |
| ||||||||
|
| June 30, |
| June 30, |
| ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| ||||
Fair value of warrants at beginning of period |
| $ | 319 |
| $ | 521 |
| $ | 561 |
| $ | 489 |
|
Fair value of new warrants, recorded during the period (included as a discount on notes receivable) |
|
| — |
|
| 12 |
|
| — |
|
| 34 |
|
Warrants converted to securities |
|
| — |
|
| — |
|
| (140) |
|
| — |
|
Unrealized gain (loss) on fair value adjustment for warrants |
|
| 67 |
|
| 9 |
|
| (35) |
|
| 19 |
|
Fair value of warrants at end of period |
| $ | 386 |
| $ | 542 |
| $ | 386 |
| $ | 542 |
|
15
Impaired notes receivable (non-recurring)
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 three and six months ended June 30, 2019, the Company recorded fair value adjustments totaling the $14 thousand and $27 thousand for the impaired notes.
The fair value adjustments recorded in both years 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 tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and non-recurring fair value calculation categorized as Level 3 in the fair value hierarchy at June 30, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
June 30, 2019 | ||||||||
|
| Valuation |
| Valuation |
| Unobservable |
| Range of |
Name |
| Frequency |
| Technique |
| Inputs |
| Input Values |
Warrants |
| Recurring |
| Black-Scholes formulation |
| Stock price |
| $0.24 - $14.50 |
|
|
|
|
|
| Exercise price |
| $0.02 - $38.64 |
|
|
|
|
|
| Time to maturity (in years) |
| 1.49 - 12.45 |
|
|
|
|
|
| Risk-free interest rate |
| 1.75% - 2.10% |
|
|
|
|
|
| Annualized volatility |
| 32.60% - 116.51% |
Warrant - Neutron Holdings |
| Recurring |
| Market Approach |
| Stock price |
| $0.10 |
|
|
|
|
|
|
|
|
|
December 31, 2018 | ||||||||
|
| Valuation |
| Valuation |
| Unobservable |
| Range of |
Name |
| Frequency |
| Technique |
| Inputs |
| Input Values |
Warrants |
| Recurring |
| Black-Scholes formulation |
| Stock price |
| $0.00 - $14.50 |
|
|
|
|
|
| Exercise price |
| $0.21 - $38.64 |
|
|
|
|
|
| Time to maturity (in years) |
| 1.99 - 13.88 |
|
|
|
|
|
| Risk-free interest rate |
| 2.48% - 2.76% |
|
|
|
|
|
| Annualized volatility |
| 23.58% - 292.35% |
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.
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.
16
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 securities (recurring)
The Company’s investment securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations.
The 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.
The fair value of investment securities that were accounted for on a recurring basis as of the three and six months ended June 30, 2019 and 2018 classified as Level 1 are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended |
|
| Six Months Ended | |||||||
|
| June 30, |
|
| June 30, | |||||||
|
| 2019 |
| 2018 |
|
| 2019 |
| 2018 | |||
Fair value of investment in securities at beginning of period |
| $ | 82 |
| $ | 218 |
| $ | 117 |
| $ | 92 |
Unrealized gain (loss) |
|
| 4 |
|
| (42) |
|
| (31) |
|
| 84 |
Fair value of investment in securities at end of period |
| $ | 86 |
| $ | 176 |
| $ | 86 |
| $ | 176 |
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, 2019 and December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2019 | |||||||||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 444 |
| $ | 444 |
| $ | — |
| $ | — |
| $ | 444 |
Notes receivable, net |
|
| 1,106 |
|
| — |
|
| — |
|
| 1,106 |
|
| 1,106 |
Investment in securities |
|
| 86 |
|
| 86 |
|
| — |
|
| — |
|
| 86 |
Warrants |
|
| 386 |
|
| — |
|
| — |
|
| 386 |
|
| 386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Amount |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 214 |
| $ | 214 |
| $ | — |
| $ | — |
| $ | 214 |
Notes receivable, net |
|
| 2,188 |
|
| — |
|
| — |
|
| 2,266 |
|
| 2,266 |
Investment in securities |
|
| 117 |
|
| 117 |
|
| — |
|
| — |
|
| 117 |
Warrants |
|
| 561 |
|
| — |
|
| — |
|
| 561 |
|
| 561 |
17
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.
Through June 30, 2019, 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 June 30, 2019, a total of 1,612,396 Units were issued and outstanding.
Results of Operations
The Fund had net income of $50 thousand and $134 thousand for the respective three- and six-month periods ended June 30, 2019.
Total net revenues were $157 thousand for the quarter and $369 thousand year to date. The main drivers of such revenues were interest income on notes receivable and net adjustments recorded to reflect fair values of warrants and investment securities. Interest income on notes receivable were $81 thousand and $185 thousand for the respective three and six month periods ended June 30, 2019. The fund is on the precipice of entering its liquidating stage where notes receivable are increasingly nearing maturity and new loans are not placed to generate future income. With respect to net adjustments recorded to reflect fair values of warrants, a net unrealized gain of $67 thousand and a net unrealized loss of $35 thousand of warrants were recorded for the current quarter and six months year to date period, respectively. The Company also recorded an unrealized gain of $4 thousand in investment securities for both three and six months ended June 30, 2019.
Total net operating expenses were $107 thousand for the quarter and $235 thousand year to date. The main drivers of such net operating expenses were provision for credit losses, professional fees and outside services. These were offset, in part, by the absence of acquisition expenses, which reflects a reduced focus on acquisitions as the fund nears its liquidation stage. Cost reimbursements to managing member and/or affiliates of $38 thousand and $74 thousand were recorded for the respective three and six month periods ended June 30, 2019, reflective of a diminishing baseline allocation of common costs among the Fund and its affiliates. Professional fees of $25 thousand and $58 thousand, and outside services of $12 thousand and $34 thousand for the respective periods represent direct ATEL Growth Capital Fund 8, LLC expenses– specific core costs of preparation, printing, filing and distribution of annual Form 1065 tax and shareholder reports on Form K-1. In addition, such costs also include costs attributable to the annual / quarterly tax preparation, valuation reports and mandated periodic regulatory filings with the SEC.
Cash balances decreased $68 thousand quarterly and increased $230 thousand year to date. This was mainly the result of the aforementioned items of net income. Distributions to the managing member and to other members totaling $503 thousand and $986 thousand during the respective quarter and year to date periods.
18
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 June 30, 2019.
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 ATEL Growth Capital Fund 8, LLC Prospectus dated August 20, 2012 (“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 June 30, 2019 (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Weighted | |
|
|
|
| Return of |
|
|
| Distribution |
|
|
| Total |
|
|
| Distribution |
| Average Units | ||||
Distribution Period (1) |
| Paid |
| Capital |
|
|
| of Income |
|
|
| Distribution |
|
|
| per Unit(2) |
| 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 - Nov 2015 |
| Jan - Dec 2015 |
|
| 1,779 |
|
|
|
| — |
|
|
|
| 1,779 |
|
|
|
| 1.10 |
| 1,618,296 |
Dec 2015 - Nov 2016 |
| Jan - Dec 2016 |
|
| 1,780 |
|
|
|
| — |
|
|
|
| 1,780 |
|
|
|
| 1.10 |
| 1,618,296 |
Dec 2016 - Nov 2017 |
| Jan - Dec 2017 |
|
| 1,776 |
|
|
|
| — |
|
|
|
| 1,776 |
|
|
|
| 1.10 |
| 1,615,306 |
Dec 2017 - Nov 2018 |
| Jan - Dec 2018 |
|
| 1,772 |
|
|
|
| — |
|
|
|
| 1,772 |
|
|
|
| 1.10 |
| 1,612,396 |
Dec 2018 - May 2019 |
| Jan - May 2019 |
|
| 888 |
|
|
|
| — |
|
|
|
| 888 |
|
|
|
| 0.28 |
| 1,612,396 |
|
|
|
| $ | 10,316 |
|
|
| $ | — |
|
|
| $ | 10,316 |
|
|
| $ | 7.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source of distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease and loan payments/payoffs |
|
|
| $ | 10,316 |
| 100.00 | % | $ | — |
| 0.00 | % | $ | 10,316 |
| 100.00 | % |
|
|
|
|
Interest income |
|
|
|
| — |
| 0.00 | % |
| — |
| 0.00 | % |
| — |
| 0.00 | % |
|
|
|
|
|
|
|
| $ | 10,316 |
| 100.00 | % | $ | — |
| 0.00 | % | $ | 10,316 |
| 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 escrow requirement was met) – November 30, 2012, December 1, 2012 – November 30, 2013, December 1, 2013 – November 30, 2014, December 1, 2014 – November 30, 2015, December 1, 2015 – November 30, 2016, December 1, 2016 – November 30, 2017, December 1, 2017 – November 30, 2018, and December 1, 2018 – May 31, 2019 respectively. |
19
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments and Contingencies
At June 30, 2019, there were commitments to fund investments in notes receivable totaling $450 thousand. 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.
Recent Accounting Pronouncements
For detailed information on recent accounting pronouncements, see Note 2, Summary of significant accounting policies.
Significant 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 significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to the Company’s significant accounting policies since December 31, 2018.
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. 78a et 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.
20
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 June 30, 2019 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.
21
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.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
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 | |
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.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
22
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, 2019
ATEL GROWTH CAPITAL FUND 8, LLC
(Registrant)
|
|
|
|
|
| By: | AGC 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 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 |
| |
| Senior Vice President and Chief Accounting Officer of AGC Managing Member, LLC (Managing Member) |
|
23