Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, 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.
Overview
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 million. As of February 2, 2016, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions are subject to a separate escrow and 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 $7.5 million in gross proceeds. Such use of gross proceeds was eclipsed on July 6, 2016. The offering was terminated on January 5, 2018.
Results of Operations
The three months ended June 30, 2018 versus the three months ended June 30, 2017
The Company had net losses of $37 thousand and $115 thousand for the respective three months ended June 30, 2018 and 2017. Results for the second quarter of 2018 reflect increases in both total revenues and total expenses when compared to the prior year period.
Revenues
Total revenues for the three months ended June 30, 2018 increased by $192 thousand, or 55%, as compared to the prior year period. Such increase was largely due to a $125 thousand, or 42%, increase in operating lease revenue, mainly the result of new operating lease equipment acquisitions; and a $110 thousand, or more than 2 times, increase in interest income on notes receivable related to new investments in notes receivable; offset, in part, by a $46 thousand, or almost 5 times, unfavorable change in unrealized gains/losses on fair value adjustment for the warrant holdings.
Expenses
Total expenses for the three months ended June 30, 2018 increased by $114 thousand, or 24%, as compared to the prior year period. The increase in total expenses was due to a $90 thousand, or 42%, increase in depreciation expense, the result of approximately $1.7 million of lease assets purchased in the past twelve months; a $44 thousand, or 191%, increase in asset management fees paid to the Manager, due to an increase in managed assets; a $40 thousand, or 56%, increase in cost reimbursements to Manager Member, a result of