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. |
| | |
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
(Exact name of registrant as specified in its charter)
| | |
| California | 90-1108275 | |
| (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 filero Accelerated filero Non-accelerated filero Smaller reporting companyx
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yeso Nox
The number of Limited Liability Company Units outstanding as of April 30, 2016 was 551,713.
None.
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Part I. Financial Information | 3 | |||
Item 1. Financial Statements (Unaudited) | 3 | |||
| Balance Sheet, March 31, 2016 | 3 | |||
| Statement of Operations for the three months ended March 31, 2016 | 4 | |||
| Statement of Changes in Members’ Capital for the three months ended March 31, 2016 | 5 | |||
| Statement of Cash Flows for the three months ended March 31, 2016 | 6 | |||
| Notes to the Financial Statements | 7 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | |||
Item 4. Controls and Procedures | 17 | |||
Part II. Other Information | 18 | |||
Item 1. Legal Proceedings | 18 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 | |||
Item 3. Defaults Upon Senior Securities | 19 | |||
Item 4. Mine Safety Disclosures | 19 | |||
Item 5. Other Information | 19 | |||
Item 6. Exhibits | 20 | |||
2
ATEL 17, LLC
BALANCE SHEET
MARCH 31, 2016
(Unaudited)
| | |||
| ASSETS | ||||
| Cash and cash equivalents | $ | 3,084,230 | ||
| Accounts receivable | 10,120 | |||
| Investments in equipment and leases, net of accumulated depreciation of $5,409 at March 31, 2016 | 652,236 | |||
| Prepaid expenses and other assets | 279,900 | |||
| Total assets | $ | 4,026,486 | ||
| LIABILITIES AND MEMBERS' CAPITAL | ||||
| Accounts payable and accrued liabilities: | ||||
| Managing Member | $ | 672 | ||
| Affiliates | 300,162 | |||
| Accrued distributions to Other Members | 32,865 | |||
| Other | 343,319 | |||
| Total liabilities | 677,018 | |||
| Commitments and contingencies | ||||
| Members’ capital: | ||||
| Managing Member | — | |||
| Other Members | 3,349,468 | |||
| Total Members’ capital | 3,349,468 | |||
| Total liabilities and Members’ capital | $ | 4,026,486 | ||
See accompanying notes.
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ATEL 17, LLC
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(Unaudited)
| | |||
| Revenues: | ||||
| Leasing and lending activities: | ||||
| Operating lease revenue | $ | 9,801 | ||
| Interest income | 21 | |||
| Total revenues | 9,822 | |||
| Expenses: | ||||
| Depreciation of operating lease assets | 5,409 | |||
| Asset management fees to Managing Member | 669 | |||
| Cost reimbursements to affiliates | 2,076 | |||
| Amortization of initial direct costs | 1,105 | |||
| Outside services | 1,137 | |||
| Taxes on income and franchise fees | 2,000 | |||
| Other | 108 | |||
| Total expenses | 12,504 | |||
| Net loss | $ | (2,682 | ) | |
| Net loss: | ||||
| Managing Member | — | |||
| Other Members | (2,682 | ) | ||
| $ | (2,682 | ) | ||
| Net loss per Limited Liability Company Unit (Other Members) | $ | (0.01 | ) | |
| Weighted average number of Units outstanding | 230,298 | |||
See accompanying notes.
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ATEL 17, LLC
STATEMENT OF CHANGES IN MEMBERS’ CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(Unaudited)
| | | | | ||||||||||||
| Amount | Total | |||||||||||||||
| Units | Other Members | Managing Member | ||||||||||||||
| Balance December 31, 2015 | 50 | $ | — | $ | 500 | $ | 500 | |||||||||
| Capital contributions | 372,637 | 3,719,300 | — | 3,719,300 | ||||||||||||
| Less selling commissions to affiliates | — | (334,782 | ) | — | (334,782 | ) | ||||||||||
| Distributions to Other Members ($0.14 per Unit) | — | (32,865 | ) | — | (32,865 | ) | ||||||||||
| Distributions to Managing Member | — | — | (3 | ) | (3 | ) | ||||||||||
| Net loss | — | (2,682 | ) | — | (2,682 | ) | ||||||||||
| Balance March 31, 2016 (Unaudited) | 372,687 | $ | 3,348,971 | $ | 497 | $ | 3,349,468 | |||||||||
See accompanying notes.
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ATEL 17, LLC
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2016
(Unaudited)
| | |||
| Operating activities: | ||||
| Net loss | $ | (2,682 | ) | |
| Adjustment to reconcile net loss to cash provided by operating activities: | ||||
| Depreciation of operating lease assets | 5,409 | |||
| Amortization of initial direct costs | 1,105 | |||
| Changes in operating assets and liabilities: | ||||
| Accounts receivable | (10,120 | ) | ||
| Prepaid expenses and other assets | (279,900 | ) | ||
| Accounts payable, Managing Member | 669 | |||
| Accounts payable, other | 343,319 | |||
| Accrued liabilities, affiliates | 300,162 | |||
| Net cash provided by operating activities | 357,962 | |||
| Investing activities: | ||||
| Purchases of equipment on operating leases | (641,734 | ) | ||
| Payments of initial direct costs | (17,016 | ) | ||
| Net cash used in investing activities | (658,750 | ) | ||
| Financing activities: | ||||
| Selling commissions to affiliates | (334,782 | ) | ||
| Capital contributions | 3,719,300 | |||
| Net cash provided by financing activities | 3,384,518 | |||
| Net increase in cash and cash equivalents | 3,083,730 | |||
| Cash at beginning of period | 500 | |||
| Cash at end of period | $ | 3,084,230 | ||
| Schedule of non-cash investing and financing transactions: | ||||
| Distributions payable to Other Members at period-end | $ | 32,865 | ||
| Distributions payable to Managing Member at period-end | $ | 3 | ||
See accompanying notes.
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ATEL 17, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 16, 2015 for the purpose of raising capital and originating equipment financing transactions and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or the “Manager”), a Nevada limited liability corporation. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group (“ACG” or “ATEL”). The Fund may continue until terminated as provided in the ATEL 17, LLC limited liability company operating agreement dated April 24, 2015 (the “Operating Agreement”). Contributions in the amount of $500 were received as of April 28, 2015, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.
The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of January 5, 2016. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company units (Units) to the public reach $150,000,000. As of February 2, 2016, subscriptions for the minimum number of Units (120,000, representing $1,200,000), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions are subject to a separate escrow and will be 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 not less than $7,500,000 in gross proceeds.
As of March 31, 2016, cumulative contributions totaling $3,719,800 have been received, inclusive of the $500 initial member’s capital investment. As of such date, a total of 372,687 Units were issued and outstanding. The Fund is actively raising capital and, as of April 30, 2016, has received cumulative contributions in the amount of $5,510,060, inclusive of the $500 initial member’s capital investment.
The Fund, or Managing Member on behalf of the Fund, has and will continue to incur costs in connection with the organization, registration and issuance of the Units. The amount of such costs to be borne by the Fund is limited by certain provisions of the Operating Agreement.
The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unit holders during the Offering Stage and Operating Stages of the Fund, any balance remaining after required minimum distributions, equal to not less than 8% nor more than 10% per annum on investors’ Original Invested Capital, to be used to purchase additional investments during the Operating Stage/Reinvestment Period (the first six years after the year the offering terminates); and (iii) provide additional cash distributions during the Liquidating Stage, commencing with the end of the Operating Stage/Reinvestment Period and continuing until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by the Operating Agreement.
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, 2016 are not necessarily indicative of the results to be expected for the full year.
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In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2016, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.
Cash is maintained in a non-interest bearing checking account.
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 residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating and direct financing lease receivables, 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 Funds’ 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 in various industries, related to equipment on operating leases.
Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with ASC 840-20-35-3, over the periods of the lease terms contained in each asset’s respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360-10-35-43).
The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.
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Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.
Operating leases 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 considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases 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 lease payments is probable. Until such time, revenues are recognized on a cash basis.
Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.
The Company capitalizes initial direct costs (“IDC”) associated with the origination of lease assets. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease basis based on actual contract term using a straight-line method for operating leases. Upon disposal of the underlying lease assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.
Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition of equipment which are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.
Recorded values of the Company’s leased asset portfolio are periodically reviewed for impairment. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the estimated
9
residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.
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.
The Company issues only one class of Units, none of which are considered dilutive. Net loss per Unit is based upon the weighted average number of Other Members Units outstanding from February 2, 2016 (Release Date of Escrow) through March 31, 2016.
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU-2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
In January 2016, FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, FASB clarified guidance related to the valuation allowance assessment when
10
recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements.
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 (“ASU-2014-15”). 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 does not expect the adoption of ASU 2014-15 to have a material impact on the Company’s financial statements or related disclosures.
In May 2014, the 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. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts from Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. 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 leases and loans, which comprise the majority of the Company’s revenues.
The Company’s investment in leases consists of the following:
| | | | | ||||||||||||
| Balance December 31, 2015 | Additions | Depreciation/ Amortization Expense | Balance March 31, 2016 | |||||||||||||
| Net investment in operating leases | $ | — | $ | 641,734 | $ | (5,409 | ) | $ | 636,325 | |||||||
| Initial direct costs, net of accumulated amortization of $1,105 at March 31, 2016 | — | 17,016 | (1,105 | ) | 15,911 | |||||||||||
| Total | $ | — | $ | 658,750 | $ | (6,514 | ) | $ | 652,236 | |||||||
Additions to net investment in operating lease assets are stated at cost. All of the Company’s leased property was acquired in March 2016.
Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place.
The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of
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the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. As a result of these reviews, management determined that no impairment losses existed during the three months ended March 31, 2016.
The Company utilizes a straight-line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Company’s equipment totaled $5,409 for the three months ended March 31, 2016. IDC amortization expense related to the Company’s operating leases totaled $1,105 for the same three-month period.
Property on operating leases consists of the following:
| | | | | ||||||||||||
| Balance December 31, 2015 | Additions | Reclassifications or Dispositions | Balance March 31, 2016 | |||||||||||||
| Materials handling | $ | — | $ | 270,821 | $ | — | $ | 270,821 | ||||||||
| Agriculture | — | 370,913 | — | 370,913 | ||||||||||||
| — | 641,734 | — | 641,734 | |||||||||||||
| Less accumulated depreciation | — | (5,409 | ) | — | (5,409 | ) | ||||||||||
| Total | $ | — | $ | 636,325 | $ | — | $ | 636,325 | ||||||||
The average estimated residual value for assets on operating leases was 26% of the assets’ original cost at March 31, 2016.
At March 31, 2016, the aggregate amounts of future minimum lease payments receivable are as follows:
| | |||
| Operating Leases | ||||
| Nine months ending December 31, 2016 | $ | 96,860 | ||
| Year ending December 31, 2017 | 129,147 | |||
| 2018 | 129,147 | |||
| 2019 | 129,147 | |||
| 2020 | 26,486 | |||
| $ | 510,787 | |||
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of March 31, 2016, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):
| | |||
| Equipment category | Useful Life | |||
| Agriculture | 7 – 10 | |||
| Materials handling | 7 – 10 | |||
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The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees, for equipment acquisition and asset management services and to receive reimbursements for payments made on behalf of the Fund for certain operating expenses, which are more fully described in Section 8 of the Operating Agreement.
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 managed 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.
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; and investor relations, communications services and general administrative services are performed by AFS.
During its offering period, the Fund will pay selling commissions of up to 9% of the selling price of the Units to ATEL Securities Corporation (“ASC”), an affiliate of the Managing Member acting as Dealer Manager for the group of selling broker-dealers. ASC will in turn pay to participating broker-dealers selling commissions of up to 7% of the price of the Units sold by them, retaining the balance of 2%.
During the three months ended March 31, 2016, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements pursuant to the Operating Agreement as follows:
| | |||
| Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members capital | $ | 334,782 | ||
| Administrative costs reimbursed to Managing Member and/or affiliates | 2,076 | |||
| Asset management fees to Managing Member | 669 | |||
| Acquisition and initial direct costs paid to Managing Member | 17,016 | |||
| $ | 354,543 | |||
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. As of March 31, 2016, syndication costs totaled $334,782. Such costs represents selling commissions and were all recorded during the three months ended March 31, 2016.
The Operating Agreement places a limit for cost reimbursements to the Managing Member and/or affiliates. When added to selling commissions, such cost reimbursements may not exceed a total equal to 15% of all offering proceeds. As of March 31, 2016, the Company had not recorded any syndication costs in excess of the limitation. The limitation on the amount of syndication costs pursuant to the Operating Agreement is determined on the date of termination of the offering. At such time, the Manager guarantees repayment of any excess syndication costs (above the limitation) which it may have collected from the Company, which guarantee is without recourse or reimbursement by the Fund.
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At March 31, 2016, there were commitments to purchase lease assets approximating $1,267,000. The amount represents contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
A total of 372,687 and 50 were issued and outstanding as of March 31, 2016 and December 31, 2015, respectively, including the 50 Units issued to the initial Member (Managing Member). The Fund is authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Member.
The Company has the right, exercisable in the Manager’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.
The Fund’s net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, net income and net loss shall be allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss shall be allocated 99.99% to the Other Members and 0.01% to the Managing Member.
Fund distributions are to be allocated 0.01% to the Managing Member and 99.99% to the Other Members.
Distributions to the Other Members for the three months ended March 31, 2016 were as follows:
| | |||
| Distributions | $ | 32,865 | ||
| Weighted average number of Units outstanding | 230,298 | |||
| Weighted average distributions per Unit | $ | 0.14 | ||
An approximate $341,000 of accrued liabilities at March 31, 2016 reflects subscription proceeds received pending finalization of required documentation. Such finalization occurred during April 2016, at which time the subscriptions were accepted and Units allocated.
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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, economic recession and changes in general economic conditions, including fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee and borrower defaults and the creditworthiness of its lessees and borrowers. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. 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.
ATEL 17, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 16, 2015 for the purpose of raising capital and originating equipment financing transactions and acquiring equipment to engage in equipment leasing and sales activities. The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of January 5, 2016.
The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company Units to the public reach $150,000,000. As of February 2, 2016, subscriptions for the minimum number of Units (120,000, representing $1,200,000), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions are subject to a separate escrow and will be 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 not less than $7,500,000 in gross proceeds. The Fund is actively raising capital and, as of April 30, 2016, has received cumulative contributions in the amount of $5,510,060, inclusive of the $500 initial member’s capital investment.
The Company had a net loss of $2,682 for the three months ended March 31, 2016, on revenues totaling $9,822 and operating expenses totaling $12,504.
The Company commenced operations on February 2, 2016. In March 2016, the Fund made its first investment in a long-term operating lease. Through March 31, 2016, the Company purchased two equipment for long term operating leases totaling 641,734. Such equipment under operating leases generated revenues of $9,801 for the three-month period ended March 31, 2016, which comprised the majority of revenues during the period.
Operating expenses for the three months ended March 31, 2016 were mostly comprised of depreciation, costs reimbursed to affiliates and taxes on income and franchise fees which totaled $5,409, $2,076 and $2,000, respectively. Combined, such expenses comprised approximately 76% of total expenses for the period. The remainder of the Company’s expenses for the period, which totaled $3,019 were largely related to outside services, amortization of initial direct costs and other operational expenses.
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The Company’s cash and cash equivalents totaled $3,084,230 at March 31, 2016. The liquidity of the Company will vary in the future, increasing to the extent cash flows from cash flows from subscriptions, leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.
During the three months ended March 2016, the Company’s primary source of liquidity was subscription proceeds from the public offering of Units. As of March 31, 2016, cumulative capital contributions totaling $3,719,800 (372,687 Units) have been received, of which $3,719,300 was received during the first quarter of 2016.
During the same period, cash was primarily used to acquire $641,734 of lease assets and pay $334,782 of commissions associated with the offering.
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 February 2016. As of March 31, 2016, distributions totaling $32,865 have been declared. Such distributions were paid in April 2016.
At March 31, 2016, there were commitments to purchase lease assets totaling an approximate $1,267,000. The amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
None.
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU-2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.
In January 2016, FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements.
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
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Continue as a Going Concern (“ASU-2014-15”). 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 does not expect the adoption of ASU 2014-15 to have a material impact on the Company’s financial statements or related disclosures.
In May 2014, the 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. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts from Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. 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 leases and loans, which comprise the majority of the Company’s revenues.
The Company’s Managing Member’s Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78aet seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2016 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.
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In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Member’s financial position or results of operations.
Information provided pursuant to §229.701 (Item 701(f)) (formerly included in Form SR):
| | |
(1) Effective date of the offering: January 5, 2016; File Number: 333-203841 | ||
(2) Offering commenced: January 5, 2016 | ||
(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, 2016: |
| | | | | ||||||||||||
| Title of Security | Amount Registered | Aggregate price of offering amount registered | Units sold | Aggregate price of offering amount sold | ||||||||||||
| Units of Limited Company Interest | 15,000,000 | $ | 150,000,000 | 372,637 | $ | 3,719,300 | ||||||||||
| | |
(7) Costs incurred for the issuers’ account in connection with the issuance and distribution of the securities registered for each category listed below: |
| | | | |||||||||
| Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer | Direct or indirect payments to others | Total | ||||||||||
| Underwriting discounts and commissions | $ | 74,396 | $ | 260,386 | $ | 334,782 | ||||||
| Total expenses | $ | 74,396 | $ | 260,386 | $ | 334,782 | ||||||
| | | | |||
(8) Net offering proceeds to the issuer after total expenses in item 7: | $ 3,384,518 | |||||
(9) The amount of net offering proceeds to the issuer used for each of the purposes listed below: | ||||||
| | | | |||||||||
| Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer | Direct or indirect payments to others | Total | ||||||||||
| Purchase and installation of machinery and equipment | $ | 17,016 | $ | 641,734 | $ | 658,750 | ||||||
| Distributions paid and accrued | 3 | 32,865 | 32,868 | |||||||||
| Other expenses | 5,989 | — | 5,989 | |||||||||
| $ | 23,008 | $ | 674,599 | $ | 697,607 | |||||||
| | | | |||
(10) Net offering proceeds to the issuer after total expenses in item 9: | $ 2,686,911 | |||||
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None.
Not Applicable.
Fund Valuation
The Financial Industry Regulatory Authority (“FINRA”), in conjunction with the Securities and Exchange Commission (“SEC”) updated rules for the presentation of account statement values relative to pricing of Direct Placement Program (“DPP”) shares. Under FINRA Notice 15-02 (the “Notice”) the SEC approved amendments to NASD Rule 2340, Customer Account Statements, and FINRA Rule 2310, which address a FINRA member firm’s participation in a public offering of a DPP. In summary, the amendments require a FINRA member firm to include in the account statements for customers holding DPP securities an estimated per share value for the DPP. The results of this valuation must be disclosed in the issuer’s reports filed under the Securities Exchange Act of 1934.
The effective date of the Notice was April 11, 2016.
Two valuation methodologies have been defined by FINRA, which by such designation are presumed to be reliable. The first is the “Net Investment Methodology” which may only be used to establish the estimated value per Unit for a period ending 150 days following the second anniversary of the issuer’s breaking escrow on achieving its minimum capitalization. Thereafter, issuers must use the “Appraised Value Methodology” prescribed in the Rules adopted as described in the Notice. As the Fund achieved its minimum capitalization and broke its minimum funding escrow February 2, 2016, the Fund has elected to use the “Net Investment Methodology” as described below.
The estimated per Unit valuation under this method is based on the “amount available for investment” percentage disclosed in the “Estimated Use of Proceeds” section of the Fund’s public offering prospectus. Consequently, such value is equal to the offering price less selling commissions, other offering and organization expenses, and capital reserves.
The per Unit valuation estimate forATEL 17, LLC has been conducted, and the results disclosed herein, in compliance with the mandates of the Notice.
TheATEL 17, LLC, estimated value per Unit does not represent a market value for the Units and may not accurately reflect the value of the Fund Units to the Unit holders if held over time to Fund maturity.
In connection with any estimate of per Unit value, Unit holders and all parties are reminded that no public market for their Units exists. Additionally, in order to preserve the Fund’s pass-through status for federal income tax purposes, the Fund will not permit a secondary market or the substantial equivalent of a secondary market for the Units. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.
The estimate of per Unit value does not take into account any potential future business activity of the Fund; rather the valuation represents a snapshot view of the Fund’s portfolio as of the valuation date. In addition, the Fund does not include any analysis of the distributions that have already been paid by the Fund, nor the anticipated returns to Unit holder over the full course of the Fund life cycle, which will be dependent on many factors.
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As noted above, the estimated value per Unit reported in this Form 10-Q has been calculated as of March 31, 2016 using the “Net Investment Methodology” described above under “Methodologies.”
ATEL 17, LLC, will satisfy the disclosure requirements for providing estimated per Unit values pursuant to the Notice as follows:
| 1. | For the customer statementsfirst provided after April 11, 2016, the disclosure is made in this quarterly report on Form 10-Q filed for the quarter ended March 31, 2016. |
| 2. | For the subsequent annual disclosures of estimated per Unit values as of December 31 of 2016 and each succeeding year through the termination of the Fund, these FINRA compliant estimated per Unit values will be calculated and included in the Fund’s annual Form 10-K filing for each year. |
The estimated value per Unit ofATEL 17, LLC at March 31, 2016 as determined, and derived under the guidelines of theNet Investment Methodology equals $8.70.
The foregoing Fund valuation has been performed solely for the purpose of providing an estimated value per Unit in accordance with a regulatory mandate, in order to provide the broker dealer and custodian community with a valuation on a reasonable basis for use in assigning an estimation of a Unit holder’s account value. Any statement of such valuation is to be accompanied by statements that the value so calculated does not represent an estimate of the amount a Unit holder would receive if the Unit holder were to seek to sell the Units, and that the Fund intends to liquidate its assets in the ordinary course of its business and over the Fund’s term. Further, each Fund Valuation is to be accompanied by a disclosure that there can be no assurance as to (1) when the Fund will be fully liquidated, (2) the amount the Fund may actually receive if and when the Fund seeks to liquidate its assets, (3) the amount of lease or loan payments the Fund will actually receive over the remaining term, (4) the amount of asset disposition proceeds the Fund will actually receive over the remaining term, and (5) the amounts that may actually be received in distributions by Unit holders over the course of the remaining term.
| (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 | Certification of Dean L. Cash | |
| 31.2 | 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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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 16, 2016
| By: | ATEL Managing Member, LLC Managing Member of Registrant |
| | |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
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