UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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| x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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| 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 October 31, 2016 was 1,277,864.
None.
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Part I. Financial Information | 3 | |||
Item 1. Financial Statements (Unaudited) | 3 | |||
| Balance Sheets, September 30, 2016 and December 31, 2015 | 3 | |||
| Statements of Operations for the three and nine months ended September 30, 2016 and 2015 | 4 | |||
| Statements of Changes in Members’ Capital for the period from April 16, 2015 (Date of Inception) through December 31, 2015 and for the nine months ended September 30, 2016 | 5 | |||
| Statements of Cash Flows for the three and nine months ended September 30, 2016 and 2015 | 6 | |||
| Notes to the Financial Statements | 7 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | |||
Item 4. Controls and Procedures | 21 | |||
Part II. Other Information | 23 | |||
Item 1. Legal Proceedings | 23 | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 23 | |||
Item 3. Defaults Upon Senior Securities | 24 | |||
Item 4. Mine Safety Disclosures | 24 | |||
Item 5. Other Information | 24 | |||
Item 6. Exhibits | 24 | |||
2
ATEL 17, LLC
BALANCE SHEETS
SEPTEMBER 30, 2016 AND DECEMBER 31, 2015
| | | ||||||
| September 30, 2016 | December 31, 2015 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 4,832,485 | $ | 500 | ||||
| Accounts receivable | 19,711 | — | ||||||
| Notes receivable, net | 501,315 | — | ||||||
| Warrants, fair value | 19,176 | — | ||||||
| Investments in equipment and leases, net | 4,362,150 | — | ||||||
| Prepaid expenses and other assets | 14,461 | — | ||||||
| Total assets | $ | 9,749,298 | $ | 500 | ||||
| LIABILITIES AND MEMBERS’ CAPITAL | ||||||||
| Accounts payable and accrued liabilities: | ||||||||
| Managing Member | $ | 1,300 | $ | — | ||||
| Affiliates | 72,354 | — | ||||||
| Accrued distributions to Other Members | 83,864 | — | ||||||
| Other | 11,576 | — | ||||||
| Unearned operating lease income | 43,239 | — | ||||||
| Total liabilities | 212,333 | — | ||||||
| Commitments and contingencies | ||||||||
| Members’ capital: | ||||||||
| Managing Member | 448 | 500 | ||||||
| Other Members | 9,536,517 | — | ||||||
| Total Members’ capital | 9,536,965 | 500 | ||||||
| Total liabilities and Members’ capital | $ | 9,749,298 | $ | 500 | ||||
See accompanying notes.
3
| | | ||||||
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
| Revenues: | ||||||||
| Leasing and lending activities: | ||||||||
| Operating lease revenue | $ | 142,399 | $ | 246,277 | ||||
| Notes receivable interest income | 7,391 | 7,391 | ||||||
| Unrealized gain on fair valuation of warrants | 19,176 | 19,176 | ||||||
| Other | 5,306 | 5,756 | ||||||
| Total revenues | 174,272 | 278,600 | ||||||
| Expenses: | ||||||||
| Depreciation of operating lease assets | 100,299 | 178,663 | ||||||
| Asset management fees to Managing Member | 14,095 | 21,902 | ||||||
| Acquisition expense | 149,839 | 149,839 | ||||||
| Cost reimbursements to affiliates | 28,099 | 39,754 | ||||||
| Amortization of initial direct costs | 8,063 | 18,099 | ||||||
| Professional fees | 13,727 | 22,379 | ||||||
| Outside services | 1,140 | 14,222 | ||||||
| Taxes on income and franchise fees | 2,000 | 6,000 | ||||||
| Other | 4,563 | 7,303 | ||||||
| Total expenses | 321,825 | 458,161 | ||||||
| Net loss | $ | (147,553 | ) | $ | (179,561 | ) | ||
| Net loss: | ||||||||
| Managing Member | $ | (15 | ) | $ | (18 | ) | ||
| Other Members | (147,538 | ) | (179,543 | ) | ||||
| $ | (147,553 | ) | $ | (179,561 | ) | |||
| Net loss per Limited Liability Company Unit (Other Members) | $ | (0.15 | ) | $ | (0.32 | ) | ||
| Weighted average number of Units outstanding | 955,719 | 569,033 | ||||||
See accompanying notes.
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| | | | | ||||||||||||
| Units | Amount | Total | ||||||||||||||
| Other Members | Managing Member | |||||||||||||||
| Member’s capital as of April 16, 2015 (Date of inception) | — | $ | — | $ | — | $ | — | |||||||||
| Capital contributions | 50 | — | 500 | 500 | ||||||||||||
| Balance December 31, 2015 | 50 | — | 500 | 500 | ||||||||||||
| Capital contributions | 1,184,217 | 11,835,100 | — | 11,835,100 | ||||||||||||
| Less selling commissions to affiliates | — | (1,065,204 | ) | — | (1,065,204 | ) | ||||||||||
| Syndication costs | — | (710,136 | ) | — | (710,136 | ) | ||||||||||
| Distributions to Other Members ($0.53 per Unit) | — | (343,700 | ) | — | (343,700 | ) | ||||||||||
| Distributions to Managing Member | — | — | (34 | ) | (34 | ) | ||||||||||
| Net loss | — | (179,543 | ) | (18 | ) | (179,561 | ) | |||||||||
| Balance September 30, 2016 (Unaudited) | 1,184,267 | $ | 9,536,517 | $ | 448 | $ | 9,536,965 | |||||||||
See accompanying notes.
5
| | | | | ||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2016 | 2015 | 2016 | 2015 | |||||||||||||
| Operating activities: | ||||||||||||||||
| Net loss | $ | (147,553 | ) | $ | — | $ | (179,561 | ) | $ | — | ||||||
| Adjustment to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||||||||||
| Depreciation of operating lease assets | 100,299 | — | 178,663 | — | ||||||||||||
| Amortization of initial direct costs | 8,063 | — | 18,099 | — | ||||||||||||
| Unrealized gain on fair valuation of warrants | (19,176 | ) | — | (19,176 | ) | — | ||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Accounts receivable | 34,868 | — | (19,711 | ) | — | |||||||||||
| Prepaid expenses and other assets | 121,730 | — | (14,461 | ) | — | |||||||||||
| Accounts payable, Managing Member | (2,545 | ) | — | 1,292 | — | |||||||||||
| Accounts payable, other | (50,863 | ) | — | 11,576 | — | |||||||||||
| Accrued liabilities, affiliates | (107,465 | ) | — | 72,354 | — | |||||||||||
| Unearned operating lease income | 15,878 | — | 43,239 | — | ||||||||||||
| Net cash (used in) provided by operating activities | (46,764 | ) | — | 92,314 | — | |||||||||||
| Investing activities: | ||||||||||||||||
| Purchases of equipment on operating leases | (740,285 | ) | — | (4,423,811 | ) | — | ||||||||||
| Payments of initial direct costs | (39,023 | ) | — | (136,692 | ) | — | ||||||||||
| Note receivable advances | (500,000 | ) | — | (500,000 | ) | — | ||||||||||
| Principal payments received on notes receivable | 276 | — | 276 | — | ||||||||||||
| Net cash used in investing activities | (1,279,032 | ) | — | (5,060,227 | ) | — | ||||||||||
| Financing activities: | ||||||||||||||||
| Selling commissions to affiliates | (395,795 | ) | — | (1,065,204 | ) | — | ||||||||||
| Syndication costs paid to Managing Member and affiliates | (263,863 | ) | — | (710,136 | ) | — | ||||||||||
| Distributions to Other Members | (169,352 | ) | — | (259,836 | ) | — | ||||||||||
| Distributions to Managing Member | (17 | ) | — | (26 | ) | — | ||||||||||
| Capital contributions | 4,397,720 | — | 11,835,100 | 500 | ||||||||||||
| Net cash provided by financing activities | 3,568,693 | — | 9,799,898 | 500 | ||||||||||||
| Net increase in cash and cash equivalents | 2,242,897 | — | 4,831,985 | 500 | ||||||||||||
| Cash at beginning of period | 2,589,588 | 500 | 500 | — | ||||||||||||
| Cash at end of period | $ | 4,832,485 | $ | 500 | $ | 4,832,485 | $ | 500 | ||||||||
| Supplemental disclosures of cash flow information: | ||||||||||||||||
| Cash paid during the period for taxes | $ | — | $ | 1,600 | ||||||||||||
| Schedule of non-cash investing and financing transactions: | ||||||||||||||||
| Distributions payable to Other Members at period-end | $ | 83,864 | $ | 83,864 | ||||||||||||
| Distributions payable to Managing Member at period-end | $ | 8 | $ | 8 | ||||||||||||
See accompanying notes.
6
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 are released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal not less than $7,500,000 in gross proceeds. Such level of gross proceeds was eclipsed on July 6, 2016.
As of September 30, 2016, cumulative contributions totaling $11,835,600 have been received, inclusive of the $500 initial member’s capital investment. As of such date, a total of 1,184,267 Units were issued and outstanding. The Fund is actively raising capital and, as of October 31, 2016, has received cumulative contributions in the amount of $12,771,570, inclusive of the $500 initial member’s capital investment. The offering will terminate on a date not later than two years from January 5, 2016.
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 nine months ended September 30, 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 September 30, 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 non-interest bearing checking accounts and a savings 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.
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.
Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and 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 lessees and 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 lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or 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. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases and notes receivable are applied only against outstanding principal balances.
8
In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated 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.
From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements.
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. During the three and nine months ended September 30, 2016, the Company recorded unrealized gains of $19,176 on fair valuation of its warrants for both respective periods. As of September 30, 2016, the estimated fair value of the Fund’s portfolio of warrants amounted to $19,176. There have been no exercises of warrants, net or otherwise, during the three and nine months ended September 30, 2016.
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.
9
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.
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.
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.
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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.
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, information from third party remarketing agents, 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 equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
The Company issues only one class of Units, none of which are considered dilutive. Net loss and distributions per Unit are based upon the weighted average number of Other Members Units outstanding since commencement of its operations.
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-15 — Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting.
11
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 its operational and related disclosure requirements.
In February 2016, the 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, the 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 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 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
12
the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with 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 has one note receivable from a borrower who has financed the purchase of equipment through the Company. The term of the note receivable is 36 months and bears an interest rate of 11.45% per annum. The note is secured by the equipment financed matures in 2019. There was neither an impaired note nor a note placed in non-accrual status as of September 30, 2016.
As of September 30, 2016, the minimum future payments receivable are as follows (in thousands):
| | |||
| Three months ending December 31, 2016 | $ | 15,000 | ||
| Year ending December 31, 2017 | 207,942 | |||
| 2018 | 207,942 | |||
| 2019 | 163,628 | |||
| 594,512 | ||||
| Less: portion representing unearned interest income | (94,787 | ) | ||
| 499,725 | ||||
| Unamortized initial direct costs | 1,590 | |||
| Notes receivable, net | $ | 501,315 | ||
IDC (Initial Direct Cost) amortization expense related to notes receivable and the Company’s operating and direct financing leases for the three and nine months ended September 30, 2016 are as follows:
| | | ||||||
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
| IDC amortization – notes receivable | $ | 79 | $ | 79 | ||||
| IDC amortization – lease assets | 7,984 | 18,020 | ||||||
| Total | $ | 8,063 | $ | 18,099 | ||||
The Company’s investment in leases consists of the following:
| | | | | ||||||||||||
| Balance December 31, 2015 | Additions | Depreciation/ Amortization Expense | Balance September 30, 2016 | |||||||||||||
| Net investment in operating leases | $ | — | $ | 4,423,811 | $ | (178,663 | ) | $ | 4,245,148 | |||||||
| Initial direct costs, net of accumulated amortization of $18,020 at September 30, 2016 | — | 135,022 | (18,020 | ) | 117,002 | |||||||||||
| Total | $ | — | $ | 4,558,833 | $ | (196,683 | ) | $ | 4,362,150 | |||||||
13
Additions to net investment in operating lease assets are stated at cost. All of the Company’s leased property was acquired beginning in March 2016 through September 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 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 and nine months ended September 30, 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 $100,299 and $178,663 for the three and nine months ended September 30, 2016, respectively. IDC amortization expense related to the Company’s operating leases totaled $7,984 and $18,020 for the same three and nine months ended September 30, 2016, respectively.
Property on operating leases consists of the following:
| | | | | ||||||||||||
| Balance December 31, 2015 | Additions | Reclassifications or Dispositions | Balance September 30, 2016 | |||||||||||||
| Marine Vessels | $ | — | $ | 1,041,158 | $ | — | $ | 1,041,158 | ||||||||
| Containers | — | 859,560 | — | 859,560 | ||||||||||||
| Agriculture | — | 741,827 | — | 741,827 | ||||||||||||
| Aviation | — | 461,950 | — | 461,950 | ||||||||||||
| Materials Handling | — | 270,821 | — | 270,821 | ||||||||||||
| Paper Processing | — | 951,796 | — | 951,796 | ||||||||||||
| Trucks/Trailers | — | 96,699 | — | 96,699 | ||||||||||||
| — | 4,423,811 | — | 4,423,811 | |||||||||||||
| Less accumulated depreciation | — | (178,663 | ) | — | (178,663 | ) | ||||||||||
| Total | $ | — | $ | 4,245,148 | $ | — | $ | 4,245,148 | ||||||||
14
The average estimated residual value for assets on operating leases was 57% of the assets’ original cost at September 30, 2016.
At September 30, 2016, the aggregate amounts of future minimum lease payments receivable are as follows:
| | |||
| Operating Leases | ||||
| Three months ending December 31, 2016 | $ | 145,829 | ||
| Year ending December 31, 2017 | 583,317 | |||
| 2018 | 583,317 | |||
| 2019 | 563,006 | |||
| 2020 | 381,750 | |||
| 2021 | 104,771 | |||
| 2022 and thereafter | 145,514 | |||
| $ | 2,507,504 | |||
The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of September 30, 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 | |||
| Marine vessel | 20 – 30 | |||
| Containers | 15 – 20 | |||
| Aviation | 15 – 20 | |||
| Paper processing | 10 – 15 | |||
| Agriculture | 7 – 10 | |||
| Materials handling | 7 – 10 | |||
| Transportation | 7 – 10 | |||
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.
15
Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and perform 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 and nine months ended September 30, 2016, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements pursuant to the Operating Agreement as follows:
| | | ||||||
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
| Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members capital | $ | 395,795 | $ | 1,065,204 | ||||
| Reimbursement of other syndication costs to Managing Member and/or affiliates, deducted from Other Members capital | 263,863 | 710,136 | ||||||
| Administrative costs reimbursed to Managing Member and/or affiliates | 28,099 | 39,754 | ||||||
| Asset management fees to Managing Member | 14,095 | 21,902 | ||||||
| Acquisition and initial direct costs paid to Managing Member | 188,861 | 286,530 | ||||||
| $ | 890,713 | $ | 2,123,526 | |||||
Syndication costs are reflected as a reduction to Members’ capital as such costs are netted against the capital raised. The amount shown is primarily comprised of selling commissions as well as fees pertaining to the organization of the Fund, document preparation, regulatory filing fees, and accounting and legal costs. Syndication costs totaled $659,658 and $1,775,340 for the respective three and nine months ended September 30, 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 September 30, 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.
At September 30, 2016, there were commitments to purchase lease assets totaling $3,306,750. The amount represents contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
16
Totals of 1,184,267 and 50 units were issued and outstanding as of September 30, 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.
Distributions to the Other Members for the three months ended September 30, 2016 and for the period from February 2, 2016 (Date of Escrow) through September 30, 2016 were as follows:
| | | ||||||
| Three Months ended September 30, 2016 | For the period from February 2, 2016 (Date of Escrow) through September 30, 2016 | |||||||
| Distributions | $ | 191,372 | $ | 343,700 | ||||
| Weighted average number of Units outstanding | 955,719 | 644,277 | ||||||
| Weighted average distributions per Unit | $ | 0.20 | $ | 0.53 | ||||
At September 30, 2016 and December 31, 2015, only the Company’s warrants were measured on a recurring basis. As of the same dates, the Company had no assets or liabilities that required measurement at fair value on a non-recurring basis.
The measurement methodology is as follows:
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 stock price(s), the exercise price(s), the volatility of comparable venture companies, and a risk free interest rate for the term(s) of the warrant exercise(s). The calculated fair value of the Fund’s warrant portfolio was $19,176 at September 30, 2016. Such valuation is classified within Level 3 of the valuation hierarchy.
The following table reconciles the beginning and ending balances of the Company’s Level 3 recurring assets:
| | | ||||||
| Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2016 | |||||||
| Fair value of warrants at beginning of period | $ | — | $ | — | ||||
| Unrealized gain on fair valuation of warrants | 19,176 | 19,176 | ||||||
| Fair value of warrants at end of period | $ | 19,176 | $ | 19,176 | ||||
The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring fair value calculation categorized as Level 3 in the fair value hierarchy at September 30, 2016:
| | | | | ||||||||||||
| September 30, 2016 | ||||||||||||||||
| Name | Valuation Frequency | Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
| Warrants | Recurring | Black-Scholes formulation | Stock price | $2.54 | ||||||||||||
| Exercise price | $2.54 | |||||||||||||||
| Time to maturity (in years) | 9.88 | |||||||||||||||
| Risk-free interest rate | 1.60% | |||||||||||||||
| Annualized volatility | 100.00% | |||||||||||||||
17
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.
The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
The fair value of the Company’s notes receivable is 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.
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 September 30, 2016 and December 31, 2015:
| | | | | | |||||||||||||||
| September 30, 2016 | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 4,832,485 | $ | 4,832,485 | $ | — | $ | — | $ | 4,832,485 | ||||||||||
| Notes receivable, net | 501,315 | — | — | 501,315 | 501,315 | |||||||||||||||
| Fair value of warrants | 19,176 | — | — | 19,176 | 19,176 | |||||||||||||||
| | | | | | |||||||||||||||
| December 31, 2015 | ||||||||||||||||||||
| Carrying Amount | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 500 | $ | 500 | $ | — | $ | — | $ | 500 | ||||||||||
18
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. Such used of gross proceeds was eclipsed on July 6, 2016. The Fund is actively raising capital and, as of October 31, 2016, has received cumulative contributions in the amount of $12,771,570, inclusive of the $500 initial member’s capital investment.
The Company had a net loss of $147,553 and $179,561 for the respective three and nine months ended September 30, 2016.
The net loss for the three months ended September 30, 2016 was a result of total revenues of $174,272 that was lower than total expenses of $321,825. Total revenues mostly consisted of $142,399 of operating lease revenues. The net loss is mainly a result of depreciation and amortization expense of $100,299 recognized on assets placed in service during the quarter. Acquisition expense of $149,839 was related to lease asset acquision and loan funding activities. Cost reimbursements to affiliates of $28,099 was related to cost allocations with the Fund’s expanded asset base and operations. Additional expenses of $29,493 were related to accounting and audit fees, insurance expenses, printing and postage expenses related to cash distributions and regulatory filings of Form 10-Q for the second quarter of 2016.
The net loss for the nine months ended September 30, 2016 was a result of total revenues of $278,600 that were lower than total expenses of $458,161. Total revenues mostly consisted of $246,277 of operating lease revenues. The net loss is mainly a result of depreciation and amortization expense of $178,663 recognized on assets placed in service during the period. Acquisition expense of $149,839 was related to lease asset acquision and loan funding activities. Cost reimbursements to affiliates of $39,754 was related to cost allocations with the Fund’s expanded asset base and operations. Additional expenses were $68,003 related to accounting and audit fees, insurance expenses, printing and postage expenses related to cash distributions and regulatory filings of Form 10-Q for the first and second quarters of 2016.
19
The Company’s cash and cash equivalents totaled $4,832,485 and $500 at September 30, 2016 and December 31, 2015, respectively. 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.
The following table sets forth the summary cash flow data:
| | | ||||||
| For the Three Months Ended September 30, 2016 | For the Nine Months Ended September 30, 2016 | |||||||
| Net cash (used in) provided by: | ||||||||
| Operating activities | $ | (46,764 | ) | $ | 92,314 | |||
| Investing activities | (1,279,032 | ) | (5,060,227 | ) | ||||
| Financing activities | 3,568,693 | 9,799,898 | ||||||
| Net increase in cash and cash equivalents | $ | 2,242,897 | $ | 4,831,985 | ||||
During the three and nine months ended September 30, 2016, the Company’s primary source of liquidity was subscription proceeds from the public offering of Units. Capital contributions totaled $4,397,720 and $11,835,100 for the respective three and nine months ended September 30, 2016. In addition, during the current year period, the Company began to realize cash flow from its portfolio of operating lease contracts.
During the respective three and nine months ended September 30, 2016, cash was primarily used for equipment purchases totaling $740,285 and $4,423,811, payment of selling commissions associated with the offering totaling $395,795 and $1,065,204, payment of syndication costs associated with the offering total $263,863 and $710,136, and payment of distribution to Members totaling $169,369 and $259,862 for the respective three and nine months ended September 30, 2016.
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. Additional distributions have been made through September 30, 2016.
Cash distributions were paid by the Fund to Unitholders of record as of August 31, 2016, and paid through September 30, 2016. The distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the Prospectus under “Income, Losses and Distributions.” 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.
20
The following table summarizes distribution activity for the Fund from inception through September 30, 2016:
| | | | | | | | | | |||||||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||||||||||||||
| Distribution Period(1) | Paid | Return of Capital | Distribution of Income | Total Distribution | Total Distribution per Unit(2) | Weighted Average Units Outstanding(3) | ||||||||||||||||||||||||||||||
| Monthly and quarterly distributions | ||||||||||||||||||||||||||||||||||||
| Jan 2016 – Feb 2016 (Distribution of all escrow interest) | Apr 2016 | $ | — | $ | 21 | $ | 21 | n/a | n/a | |||||||||||||||||||||||||||
| Feb 2016 – Aug 2016 | Apr 2016 – Sep 2016 | 259,815 | — | 259,815 | 0.45 | 580,101 | ||||||||||||||||||||||||||||||
| $ | 259,815 | $ | 21 | $ | 259,836 | $ | 0.45 | |||||||||||||||||||||||||||||
| Source of distributions | ||||||||||||||||||||||||||||||||||||
| Lease and loan payments and sales proceeds received | $ | 259,815 | 100.00 | % | $ | — | 0.00 | % | $ | 259,815 | 99.99 | % | ||||||||||||||||||||||||
| Interest Income | — | 0.00 | % | 21 | 100.00 | % | 21 | 0.01 | % | |||||||||||||||||||||||||||
| Debt against non-cancellable firm term payments on leases and loans | — | 0.00 | % | — | 0.00 | % | — | 0.00 | % | |||||||||||||||||||||||||||
| $ | 259,815 | 100.00 | % | $ | 21 | 100.00 | % | $ | 259,836 | 100.00 | % | |||||||||||||||||||||||||
| (1) | Investors may elect to receive their distributions either monthly or quarterly. See “Timing and Method of Distributions” on Page 67 of the Prospectus. |
| (2) | Total distributions per Unit represents the per Unit distributions rate for those units which were outstanding for all of the applicable period. |
| (3) | Balances shown represent weighted average units for the period from February 2 – August 31, 2016. |
At September 30, 2016, there were commitments to purchase lease assets totaling an approximate $3,306,750. The amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
None.
For information on recent accounting pronouncements, see note 2 summary of significant accounting policies.
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
21
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 September 30, 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.
22
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 September 30, 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 | 1,184,267 | $ | 11,835,600 | ||||||||||
| (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 | $ | 236,712 | $ | 828,492 | $ | 1,065,204 | ||||||
| Other syndication costs | — | $ | 710,136 | $ | 710,136 | |||||||
| Total expenses | $ | 236,712 | $ | 1,538,628 | $ | 1,775,340 | ||||||
| | | | |||
(8) Net offering proceeds to the issuer after total expenses in item 7: | $ 10,060,260 | |||||
(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 | $ | 135,022 | $ | 4,423,811 | $ | 4,558,833 | ||||||
| Investment in notes receivable | 1,670 | 500,000 | 501,670 | |||||||||
| Distributions paid and accrued | 34 | 343,700 | 343,734 | |||||||||
| Other expenses | — | 458,160 | 458,160 | |||||||||
| $ | 136,726 | $ | 5,725,671 | $ | 5,862,397 | |||||||
| | | | |||
(10) Net offering proceeds to the issuer after total expenses in item 9: | $ 4,197,863 | |||||
23
None.
Not Applicable.
None.
(a) Documents filed as a part of this report
| 1. | Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
| 2. | Other Exhibits |
| 31.1 | 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: November 10, 2016
| By: | ATEL Managing Member, LLC Managing Member of Registrant |
| | |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
25
