UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K
Annual Report Pursuant to Regulation A of the Securities Act of 1933
For the fiscal year ended December 31, 2019
Automation Finance Reperformance Fund IV LLC
228 Park Avenue South #67157
New York, NY 10003
(332) 209-4902
www.automationfinance.com
PART II
Forward-Looking Statements
The term “forward-looking statements” means any statements, including financial projections, that relate to events or conditions in the future. Often, forward-looking statements include words like “we anticipate,” “we believe,” “we expect,” “we intend,” “we plan to,” “this might,” or “we will.” The statement “We believe demographic shifts will favor apartment communities” is an example of a forward-looking statement.
Forward-looking statements are, by their nature, subject to uncertainties and assumptions. The statement “We believe demographic shifts will favor apartment communities” is not like the statement “We believe the sun will rise in the East tomorrow.” It is impossible for us to know exactly what is going to happen in the future, or even to anticipate all the things that could happen. Our business could be subject to many unanticipated events. Consequently, the actual result of investing in the Company could (and almost certainly will) differ from those anticipated or implied in any forward-looking statement, and the differences could be both material and adverse. We do not undertake any obligation to revise, or publicly release the results of any revision to, any forward-looking statements, except as required by applicable law.
GIVEN THE RISKS AND UNCERTAINTIES, PLEASE DO NOT PLACE UNDUE RELIANCE ON ANY FORWARD-LOOKING STATEMENTS.
Preliminary statement regarding late filing of annual report.We are filing this annual report on Form 1-K late in reliance on the temporary relief from ongoing reporting requirements provided in paragraph (f) of 17 CFR §230.257. Like most businesses, our operations have been impacted by the coronavirus infection in the community and steps taken to avoid it. We have closed our central offices and most of our administrative employees have been working from home or have been furloughed. Accordingly, our ability to close and reconcile monthly, quarterly and annual financial records has been seriously impaired. In addition, similar circumstances have occurred at the offices of our independent accountants and auditors. Between these two systematic impairments, we have found it impossible to provide properly reviewed financial statements quickly enough to file our SEC reports timely.
Item 1. Business
Automation Finance Reperformance Fund IV LLC, is a limited liability company organized under the laws of Delaware, which we refer to as the “Company.” (In March 2019, the Company changed its name. Previously, its name was AF 2019 NPL A LLC). The Company is seeking to raise up to $50,000,000 of capital in the Offering.
The Company expects to deploy most of the capital raised in the Offering by purchasing loans, as described in the “Use of Proceeds” section of our Offering Circular.
The Company was formed to invest in (buy) primarily non-performing mortgages, meaning mortgages that are secured by a mortgage on a private residence (i.e., somebody’s home) for which payments on the mortgage are not being made by the borrower (the mortgagor). We refer to these as “Mortgages”. The Mortgages we intend to buy were often originated or previously owned by financial institutions that are now defunct or in financial difficulty. The Company does not currently have any unfunded capital commitments. Should we need more capital for any reason, we intend to either sell more Class A Investor Shares or sell other classes of securities. In selling Class A Investor Shares or other securities, we might be constrained by the securities laws. For example, we are not allowed to sell more than $50,000,000 of securities using Regulation A during any period of 12 months. The price of the Series A Preferred Stock is $10.00 per share.
As of June 15, 2020, the date of this annual report, the Company had not acquired any Mortgages or otherwise conducted any business.
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Investment Strategy
The Investment Manager believes the Company can buy distressed residential mortgages at significant discounts to their unpaid principal balances and, more importantly, to the value of the underlying houses. Many depository institutions and other holders of sub performing or non-performing mortgages in the United States continue to be under financial duress and may be motivated to sell these mortgages at attractive prices. In addition, government-related agencies acting as receivers, such as the Federal Deposit Insurance Corporation, have acquired and are expected to continue to acquire significant portfolios of troubled mortgages from failed depository institutions. Many sellers look to sell the smallest, most distressed mortgages in their portfolios to companies like ours, that are willing to take on the work required to reach a resolution with the borrower.
The size of the non-performing and sub-performing residential mortgage market has grown considerably in the last few years, and the Investment Manager believes that it will continue to grow. Based upon research concerning those markets, including the public statements and/or reports issued by leading lenders, servicers, and data aggregators and analysts, the Investment Manager believes that close to $100 billion of residential mortgage mortgages are troubled or at significant risk of default.
The principals of our Investment Manager have significant experience with lower-dollar-value distressed mortgages, generally on residential properties worth less than $100,000. Our Investment Manager’s principals believe they are one of only a few national, institutional-quality buyers for these lower-dollar-value assets. Consequently, we seek to acquire assets that are too small and too distressed to be a high priority for larger banks, hedge funds, or other large buyers.
The Company intends to invest primarily in U.S. single-family residential mortgages, secured by one-to-four-family assets. On occasion, if the Investment Manager believes it would be a good idea based on market conditions, the Company might also acquire (i) direct interests in real estate, (ii) mortgages secured by more than four family assets, and/or (iii) and commercial mortgages. Despite these occasional purchases, the Company expects that mortgage mortgages secured by one-to-four-family assets will comprise no less than 95% of its total portfolio, although the
Investment Manager is not bound by that figure.
Competition
Many companies and individuals compete to invest in the same kinds of mortgages the Company seeks to buy. Our competitors may have a lower cost of capital, better access to leverage, or other advantages compared to the Company. The more competition there is, the more the Company may be required to pay for mortgages and the more risk the Company may be required to assume to obtain a given return (yield) on its investments.
Risks of Investing
We face risks and uncertainties that could affect us and our business. These risks are outlined under the heading “Risks of investing” contained in our most recent Form 1-A Regulation A offering statement effective September 19, 2019, which may be accessed here, as the same may be updated from time to time by our future filings under Regulation A. In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. These risks could result in a decrease in the value of our Class A shares.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information discussed in this item should be read together with the Company’s audited financial statements and related notes appearing under Item 7 of this Annual Report.
Offering Results
As of December 31, 2018, the Company had no investors. During the period January 1, 2019 to December 31, 2019, the company accepted 14 subscribers for 6,583.687 shares totaling $65,837, and approximately 49,934,163 of our Class A shares remained available for sale to the public under our Offering.
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The per share purchase price of our Class A shares has been $10.00 per share from inception through December 31, 2019.
Results of Operations
As of December 31, 2019, we haven’t commenced our operations.
Revenue
Non-Investment Income
For the twelve month periods ended December 31, 2019 and 2018, we had no income/(loss).
Expenses
General and Administrative
For the years ended December 31, 2019 and 2018, we incurred general and administrative expenses of approximately $0 and $2,000, respectively.
Offering and Organizational Expense
For the year ended December 31, 2019 we had no Offering and Organizational expenses.
Capital Resources
Apart from our efforts to raise money via the sale of Class A shares in the Offering, we are not aware of any material trends, favorable or unfavorable, in our capital resources, or any expected material changes in the mix and relative cost of such resources.
Asset Management Fees
For the twelve months ended December 31, 2019 and 2018 we did not charge any asset management fees.
Our Investments
As of December 31, 2019, the Company had not acquired any mortgage loans or otherwise conducted any business.
Liquidity and Capital Resources
To provide more “liquidity” – meaning cash – we might borrow money from banks or other lenders, secured by the Mortgages and other property owned by the Company. Typically, we are able to borrow approximately 75.0% of the purchase price of Mortgages, although our Investment Manager does not intend to typically exceed 50.0% of the price of the Mortgages.
The Company does not currently have any capital commitments. We expect to deploy most of the capital we raise in the Offering in buying mortgages. Should we need more capital for any reason, we could either sell more Series A Preferred Stock or sell other classes of securities. In selling Series A Preferred Stock or other securities, we might be constrained by the securities laws. For example, we are not allowed to sell more than $50,000,000.00 of securities using Regulation A during any period of 12 months.
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Off-Balance Sheet Arrangements
As of December 31, 2019, and 2018, we had no off-balance sheet arrangements.
Item 3. Directors and Officers
Principals of our Managing Member and Investment Manager
The Principals of the Managing Member and their positions and offices are as follows:
| Name | Position | Age | Term of Office | Approximate hours per week if not full time | ||||
| Executive Officers | ||||||||
| Paul Birkett | Managing Member | 50 | Mr.Birkett will remain in office until he resigns or is removed | Full Time | ||||
| Kwang Lim | Partner | 43 | Mr. Lim will remain in office until he resigns or is removed. | Full Time |
The Company itself has no employees. The positions and hours described in this chart relate to employees of the Managing Member.
Ownership of Related Entities
Mr. Birkett owns 90% and Mr. Lim owns 10% of Automation Holdings, LLC, our Managing Member, which in turn owns all of the limited liability company interests of Automation Capital Management LLC, our Investment Advisor. Mr. Birkett and Mr. Lim thereby control all aspects of the business of the Company.
Automation Holdings, LLC is also the Managing Member of Long Term Capital Partnership V, LLC, and Long Term Capital Partnership VI LLC.
BUSINESS EXPERIENCE
Mr. Birkett
Raised in Dublin Ireland, Paul founded, built and sold one of Ireland’s first mobile phone retail chains while still at college. After college, he moves to the UK and joined Procter & Gamble’s graduate trainee program. In 1996, he joined PepsiCo and spent 18 years in a variety of marketing, sales and general management positions across Europe, Asia and North America – rising to Vice President for PepsiCo’s $3Bn hydration and non-carbonated beverage portfolios. In this role he managed the national marketing of the global Aquafina, SoBe, Propel, Sierra Mist, and Mug Root Beer trademarks before assuming the role of Vice President and General Manager for PepsiCo’s New York market unit.
Disappointed by the low returns on his retirement investments, Paul began to accumulate a portfolio of single-family rental-assets. The purchase of a distressed rental property in 2013 ultimately became a mortgage purchase and provided his first insight into the non-performing mortgage business.
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He liquidated his portfolio of 40 rental properties and launched Automation Finance (the trade name of our Managing Member, Automation Holdings, LLC) to provide investors with a way to automate their retirement plans
Since launching Automation Finance in 2015, the company and its affiliates have purchased and liquidated approximately 1500 mortgages with a par value of approximately $100 million.
Mr. Lim
Kwang joined the Company in 2019 from Goldman Sachs, bringing 20 years of banking experience across institutional and consumer products and services, from M&A investment banking, corporate debt, RMBS securitization, through to mortgages, credit cards, personal loans, and cash deposits.
Kwang began his career as a software entrepreneur and M&A advisor before transitioning to senior banking roles at Goldman Sachs, JP Morgan, American Express, and S&P. Passionate about disruptive technology and investment management, as Partner, Kwang will drive fund strategy and capital deployment. Kwang holds a Master’s in Financial Engineering from UC Berkeley.
Compensation of our Manager
For information regarding the compensation of our Manager, please see “Compensation of Management” in the most recent Post-Qualification Amendment to our Offering Statement and amendments thereto. During 2019, the Manager was paid no compensation.
Item 4. Security Ownership of Management and Certain Security Holders
The Managing Member will own 100% of the Company’s Common Stock. As the owner of the Common Stock the Managing Member will have the right to receive 100% of the profits of the Company after Investors receive their annual return and a return of all of their capital. The amount of the profits the Managing Member will receive from owning Common Stock therefore depends on a number of factors, including:
| ● | The investment returns the Company is able to achieve. |
| ● | When those returns are achieved (the Company might not achieve the same return every year); |
| ● | When the Company distributes money to Investors; and |
| ● | The amount of expenses the Company incurs. |
OWNERSHIP OF SECURITIES
Under the Operating Agreement, the Managing Member has full control over all aspects of the business of the Company. Investors will not be entitled to vote on any matter involving the Company.
The following table sets forth the beneficial ownership of the Company and its voting securities:
| Individual | Amount and Nature of Current Beneficial Ownership | Additional Beneficial Ownership that May be Acquired | Voting Rights | |||
Paul Birkett 228 Park Avenue South #67157 New York, NY 10003 | Owns 90% of the equity of Managing Member. | Might acquire Shares of Series A Preferred Stock, along with other Investors. | Managing Member of both the Managing Member and the Investment Advisor. | |||
Kwang Lim 228 Park Avenue South #67157 New York, NY 10003 | Owns 10% of the equity of Managing Member. | Might acquire Shares of Series A Preferred Stock, along with other Investors. | Managing Member of both the Managing Member and the Investment Advisor. |
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Messrs. Birkett and Lim own all of the limited liability company interests of Automation Holdings, LLC, our Managing Member, which in turn owns all of the limited liability company interests of Automation Capital Management, LLC, our Investment Manager.
Item 5. Interest of Management and Others in Certain Transactions
The Managing Member of the Company (Automation Holdings, LLC) will be compensated for services. The Managing Member of the Manager has advanced certain organizational expenses on behalf of the Company and will be reimbursed at a later time. For further details, please see Note 5, “Related Party” in Item 7 “Financial Statements”.
Item 6. Other Information
None.
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Item 7. Financial Statements
Automation Finance Reperformance Fund IV LLC
(Formerly AF 2019 NPL A LLC)
FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Together with
Independent Auditor’s Report
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Automation Finance Reperformance Fund IV LLC
(Formerly AF 2019 NPL A LLC)
Index to Financial Statements
F-1
To the Managing Member of
Automation Finance Reperformance Fund IV LLC
New York, NY
Report on the Financial Statements
We have audited the accompanying financial statements of Automation Finance Reperformance Fund IV LLC (formerly AF 2019 NPL A LLC) (the “Company”), which comprise the statements of financial condition as of December 31, 2019 and 2018, and the related statements of operations, changes in member’s equity/(deficit), and cash flows for the year ended December 31, 2019 and for the period from July 13, 2018 (inception) to December 31, 2018, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
info@ArtesianCPA.com|www.ArtesianCPA.com
F-2
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Automation Finance Reperformance Fund IV LLC as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the year ended December 31, 2019 and for period from July 13, 2018 (inception) to December 31, 2018, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the financial statements, the Company has not yet commenced planned principal operations and has not generated revenues or profits since inception. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
/s/ Artesian CPA, LLC
Denver, Colorado
May 29, 2020
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
info@ArtesianCPA.com | www.ArtesianCPA.com
F-3
Automation Finance Reperformance Fund IV LLC
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2019 AND 2018
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Funds held in escrow account | $ | 85,672 | $ | - | ||||
| Other receivables | 387 | - | ||||||
| Deferred offering cost | 32,046 | 32,046 | ||||||
| Total assets | $ | 118,105 | $ | 32,046 | ||||
| LIABILITIES AND MEMBERS’ EQUITY/(DEFICIT) | ||||||||
| Current Liabilities: | ||||||||
| Due to related party | $ | 54,046 | $ | 34,046 | ||||
| Subscription received in advance | 20 | - | ||||||
| Total liabilities | 54,066 | 34,046 | ||||||
| Members’ Equity/(Deficit): | 64,039 | (2,000 | ) | |||||
| Total liabilities and members’ equity/(deficit) | $ | 118,105 | $ | 32,046 | ||||
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
F-4
Automation Finance Reperformance Fund IV LLC
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2019 and for the period
from july 13, 2018 (inception) to december 31, 2018
| PARTICULARS | 2019 | 2018 | ||||||
| INCOME | ||||||||
| Other income | $ | - | $ | - | ||||
| Total income | - | - | ||||||
| EXPENSES | ||||||||
| General & administrative expenses | - | 2,000 | ||||||
| Total expenses | - | (2,000 | ) | |||||
| NET INCOME/(LOSS) | $ | - | $ | (2,000 | ) | |||
| Weighted average common shares outstanding – basic and diluted | 1,000,000 | 1,000,000 | ||||||
| Earnings/(loss) per common share – basic and diluted | - | - | ||||||
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
F-5
Automation Finance Reperformance Fund IV LLC
STATEMENTS OF CHANGES IN MEMBERS’ EQUITY/(DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 2019 and for the period
from july 13, 2018 (inception) to december 31, 2018
| Total | ||||||||||||||||||||
| Series A Preferred Stock | Common Stock | Members' Equity/(Deficit) | ||||||||||||||||||
| Shares | Amounts | Shares | Amounts | Amounts | ||||||||||||||||
| Balance, July 13, 2018 (inception) | - | $ | - | 1,000,000 | $ | - | $ | - | ||||||||||||
| Net income/(loss) | - | - | - | (2,000 | ) | - | ||||||||||||||
| Balance, December 31, 2018 | - | - | 1,000,000 | (2,000 | ) | (2,000 | ) | |||||||||||||
| Contributions | 6,584 | 65,837 | - | 546 | 66,383 | |||||||||||||||
| Distributions | - | (344 | ) | - | - | (344 | ) | |||||||||||||
| Net income/(loss) | - | - | - | - | - | |||||||||||||||
| Balance, December 31, 2019 | 6,584 | $ | 65,493 | 1,000,000 | $ | (1,454 | ) | $ | 64,039 | |||||||||||
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
F-6
Automation Finance Reperformance Fund IV LLC
STATEMENTs OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2019 and for the period
from july 13, 2018 (inception) to december 31, 2018
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income/(loss) | $ | - | $ | (2,000 | ) | |||
| Adjustments to reconcile net income/(loss) to net cash used in operating activities: | ||||||||
| Net increase in other receivables | (387 | ) | - | |||||
| Net increase (decrease) in funds held in escrow account | (85,672 | ) | - | |||||
| Net increase in subscription received in advance | 20 | - | ||||||
| Net cash used in operating activities | (86,039 | ) | (2,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Advances from related party | 20,000 | 34,046 | ||||||
| Capital contributions | 66,383 | - | ||||||
| Offering Cost | - | (32,046 | ) | |||||
| Distributions paid | (344 | ) | - | |||||
| Net cash provided by financing activities | 86,039 | 2,000 | ||||||
| Net Increase (decrease) in cash and cash equivalents | - | - | ||||||
| Cash and cash equivalents, at beginning of period | - | - | ||||||
| Cash and cash equivalents, end of period | $ | - | $ | - | ||||
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
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Automation Finance Reperformance Fund IV LLC
(Formerly AF 2019 NPL A LLC)
notes to Financial Statements
NOTE 1: NATURE OF OPERATIONS
Automation Finance Reperformance Fund IV LLC (the “Company”) is a limited liability company organized on July 13, 2018 under the laws of Delaware. The Company was formed to invest in (buy) primarily non- performing mortgage loans, meaning loans that are secured by a mortgage on real estate (typically a single-family residential property) and delinquent in payment, and work with homeowners to resolve the non-performing loans in a socially conscious manner. The Company was originally organized under the name AF 2018 NPL A, LLC; the name of the Company was formally changed on March 27, 2019 to AF 2019 NPL A, LLC. The name of the Company was again changed on August 14, 2019 to its current name, Automation Finance Reperformance Fund IV LLC.
The Company is managed by Automation Holdings, LLC (the “Managing Member”), a Nevada limited liability company as of December 31, 2019. Automation Capital Management, LLC (a related party) has exclusive control over all aspects of the Company’s business in its role as Investment Manager.
As of December 31, 2019, the Company has not commenced planned principal operations. The Company’s activities since inception have consisted of formation activities and preparations for capital raising. Once the Company commences its planned principal operations, it will incur significant additional expenses. The Company is dependent upon additional capital resources for the commencement of its planned principal operations and is subject to significant risks and uncertainties; including failing to profitably operate the business.
NOTE 2: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not yet commenced planned principal operations and has not generated revenues or profits since inception. The Company’s ability to continue as a going concern for the next twelve months following the date the financial statements were available to be issued is dependent upon its ability to obtain additional capital financing. No assurance can be given that the Company will be successful in these efforts.
These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (GAAP). The Company adopted the calendar year as its basis of reporting. In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946”), the Company has determined that it is an investment company and has applied the guidance in accordance with ASC 946.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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 those estimates
F-8
Cash Equivalents and Concentration of Cash Balance
The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. As of December 31, 2019, the Company had not established a deposit account with a financial institution and all of its expenditures were paid by the manager. As of December 31, 2019, the Company has $85,672 held with a third-party administrative company and therefore is subject to significant credit risks related to the ability of this third party company to repay the funds held on the Company’s behalf.
Cash is subject to credit risk to the extent that the balance exceeds applicable Federal Deposit Insurance Corporation or Securities Investor Protection Corporation limitations. The Company is subject to credit risk to the extent any financial institution with which it conducts business is unable to fulfil contractual obligations on its behalf.
Deferred Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (SAB) Topic 5A- “Expenses of Offering”. Deferred offering costs consist principally of legal fees incurred in connection with an offering the Company commenced in 2019 under Regulation A. Prior to the completion of the offering, these costs are capitalized as deferred offering costs on the statements of financial position. The deferred offering costs will be charged to member’s equity/(deficit) upon the completion of the offering or to expense if the offering is not completed. Deferred offering costs of $32,046 are capitalized to the statements of financial position as of December 31, 2019 and 2018.
Fair Value of Financial Instruments
Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the statements of financial position approximate their value.
Revenue Recognition
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 (“Topic 606”). Topic 606 requires new disclosures effective January 1, 2019, including descriptions of performance obligations. The Company adopted the provisions of this guidance on January 1, 2019 using the modified retrospective approach. The Company has performed an assessment of its revenue contracts and has not identified any material changes to the timing or amount of its revenue recognition under Topic 606. The Company’s accounting policies did not materially change as a result of applying the principles of revenue recognition from Topic 606 and are materially consistent with the existing guidance and current practices applied by the Company. There was no impact to members’ equity as of January 1, 2019, or to revenue for the twelve months ended December 31, 2019 after adopting Topic 606 as revenue recognition and timing of revenue did not change as a result of implementing Topic 606.
No revenue has been earned or recognized as of December 31, 2019 or 2018.
F-9
Organizational Costs
In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 720, organizational costs, including accounting fees, legal fees, and costs of incorporation, are expensed as incurred.
Net Earnings or Loss per Share
Net earnings or loss per share is computed by dividing net income or loss by the weighted-average number of common shares outstanding during the period, excluding shares subject to redemption or forfeiture. The Company presents basic and diluted net earnings or loss per share. Basic and diluted net earnings or loss per share reflect the actual weighted average of common shares issued and outstanding during the period. There are no dilutive or potentially dilutive instruments outstanding as of December 31, 2019 or 2018.
Income Taxes
The Company is a Delaware limited liability company and is treated as a disregarded entity for federal income tax purposes. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its sole member. Therefore, no provision for income tax has been recorded in the accompanying financial statements. Income from the Company is reported and taxed to the member on its individual tax return.
The Company complies with FASB ASC 740 for accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
The Company may in the future become subject to federal, state and local income taxation though it has not been since its inception. The Company is not presently subject to any income tax audit in any taxing jurisdiction.
NOTE 4: MEMBERS’ EQUITY (DEFICIT)
The Company authorized 1,000,000 shares of common stock (no par value) and 5,000,000 shares of Series A Preferred Stock (no par value). Common stockholders have 1 vote per share while preferred stockholders do not have voting rights. Distributions of the Company’s capital are to be made first on the Series A Preferred Stock’s preferred returns (8% compounded annual return on the unreturned balance of their investment), then in returning capital contributions on the Series A Preferred Stock, and finally to common stockholders. Holders of Series A Preferred Stock can request redemption subject to the Company’s approval, which reduces the preferred return rates to 6% or 7% dependent upon the holding period prior to redemption. In the event of a liquidation of the Company, holders of Series A Preferred Stock receive a priority distribution of any available unpaid preferred returns and/or unreturned capital. However, holders of Series A Preferred Stock are guaranteed neither a preferred return nor a return of any capital contribution.
The Company is managed by a managing member, Automation Holdings, LLC, and the Company’s investment manager is Automation Capital Management, LLC, both related parties. Fees payable to managing member and investment manager are described in Note 5.
During the period ended December 31, 2018, the Company issued 1,000,000 shares of common stock (no par value) to the Company’s managing member, Automation Holdings, LLC.
During 2019, the Company issued 6,584 shares of Series A Preferred Stock for gross proceeds of $65,837.
As of December 31, 2019 and 2018, 1,000,000 shares of common stock are issued and outstanding. As of December 31, 2019 and 2018, 6,584 and 0 shares of Series A Preferred Stock are issued and outstanding, respectively.
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The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the Company, and no member of the Company is obligated personally for any such debt, obligation, or liability.
NOTE 5: RELATED PARTY
The managing member will charge the Company a management fee equal to 0.1667% per month of the total capital accounts of all of the Company’s stockholders as of the last day of each calendar month, or approximately 2% of the capital accounts per year. In addition, the managing member will assess a fee of $60.00 monthly per mortgage. The investment manager will be compensated $10,000, which will be paid by the managing member. As of December 31, 2019, and 2018, no management and compensation fees were charged to the Company.
Expenses from inception to December 31, 2019 were paid by the Managing Member of the Company, Automation Holdings, LLC, on the Company’s behalf. Per the LLC Agreement, the Company will reimburse the Managing Member and its affiliates, without interest, for expenses they incur in connection with the formation of the Company. As of December 31, 2019, and 2018, $54,046 and $34,046, respectively, remained due to the Managing Member of the Company.
NOTE 6: ADMINISTRATIVE SERVICES
Sudrania Fund Services Corp. serves as the Company’s administrator and performs certain administrative and accounting services on behalf of the Fund.
NOTE 7: RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605—Revenue Recognition and most industry-specific guidance throughout the ASC. The core principle within this ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services.
In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers”, which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017, while providing the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented, or (ii) retrospective application with a cumulative effect adjustment at the date of initial application. The Company adopted this new standard effective January 1, 2019.
In February 2016, the FASB issued ASU 2016-02, “Leases” (Topic 842). The ASU is effective for annual and interim periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures.
Management does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statements. As new accounting pronouncements are issued, the Company will adopt those that are applicable under the circumstances.
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NOTE 8: FINANCIAL HIGHLIGHTS
Financial highlights presented are for the year ended December 31, 2019:
| Series A Preferred Stock | ||||
| Net Return | 0.00 | % | ||
| Ratios to average members' equity: | ||||
| Total Expenses | 0.00 | % | ||
| Net investment income | 0.00 | % | ||
Total return and the ratios to average net asset value are calculated for Series A Preferred Stock taken as a whole. An individual member’s total return and ratios may vary from the above returns and ratios due to the timing of their contributions and withdrawals and differing fee structures.
NOTE 9: SUBSEQUENT EVENTS
From January 1, 2020, through May 29, 2020, the Company had capital contributions of $1,388,973 and capital withdrawals of $3,318.
In March 2020, The World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which continues to spread throughout United States and the world. As of the date the financial statements were available to be issued, there was considerable uncertainty around the expected duration of the pandemic. The Company may be significantly impacted by the pandemic, which could result in material future changes to the Company’s financial position and results of operations. The ultimate impact of COVID-19 on the financial performance of the Company’s investments cannot be reasonably estimated at this time.
Management’s Evaluation
These financial statements were approved by management and available for issuance on May 29, 2020. Subsequent events have been evaluated through this date.
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Item 8.
INDEX OF EXHIBITS
Exhibits
*All Exhibits are incorporated by reference to those previously filed.
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Signatures
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Automation Finance Reperformance Fund IV LLC | ||
| By: | Automation Holdings, LLC | |
| As Managing Member | ||
| By | /s/ Paul Birkett | |
| Paul Birkett, Managing Member | ||
This statement has been signed by the following persons in the capacities and on the dates indicated.
| /s/ Paul Birkett | |
| Paul Birkett | |
| Managing Member of Automation Holdings LLC | |
| June 12, 2020 |
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