Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarterly period ended September 30, 2003
|_| Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from _______ to _______
Commission File Number 333-47196
ATEL Capital Equipment Fund IX, LLC
(Exact name of registrant as specified in its charter)
California 94-3375584
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 989-8800
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|
The number of Limited Liability Company Units outstanding as of September 30,
2003 was 12,065,016.
DOCUMENTS INCORPORATED BY REFERENCE
None
1
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
2
ATEL CAPITAL EQUIPMENT FUND IX, LLC
BALANCE SHEETS
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(Unaudited)
ASSETS
September 30, December 31,
2003 2002
(Unaudited)
Cash and cash equivalents $31,875,814 $39,722,496
Accounts receivable, net of allowance for
doubtful accounts of $250,000 in 2003 and
none in 2002 856,750 1,197,760
Notes receivable 353,045 1,131,793
Other assets 420,158 465,157
Investments in leases 56,359,732 46,902,018
---------------- ----------------
Total assets $89,865,499 $89,419,224
================ ================
LIABILITIES AND MEMBERS' CAPITAL
Accounts payable:
Managing Member $ 126,211 $ 434,516
Other 71,463 90,667
Unearned operating lease income 241,514 77,044
---------------- ----------------
Total liabilities 439,188 602,227
Members' capital 89,426,311 88,816,997
---------------- ----------------
Total liabilities and members' capital $89,865,499 $89,419,224
================ ================
See accompanying notes.
3
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF OPERATIONS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2003 AND 2002
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Revenues:
Leasing activities:
Operating leases $ 7,105,252 $ 4,270,817 $ 2,575,002 $ 2,083,130
Direct financing leases 148,133 84,945 90,342 31,549
Gain on sales of assets 106,694 107,353 2,321 -
Interest 608,645 412,256 97,580 140,755
Other 82,821 609 36,642 290
------------------ ----------------- ------------------ ------------------
8,051,545 4,875,980 2,801,887 2,255,724
Expenses:
Depreciation and amortization 6,012,351 3,613,275 2,211,792 1,806,628
Cost reimbursements to Managing Member 454,199 216,783 142,141 98,197
Asset management fees to Managing Member 401,404 197,910 144,633 104,217
Interest expense 289,519 167,237 122,716 147,974
Provision for doubtful accounts 250,000 - 250,000 -
Insurance 97,780 - 97,780 -
Impairment losses 76,634 - - -
Professional fees 70,749 68,364 14,103 35,507
Other 222,264 224,638 72,387 91,075
------------------ ----------------- ------------------ ------------------
7,874,900 4,488,207 3,055,552 2,283,598
------------------ ----------------- ------------------ ------------------
Net income (loss) $ 176,645 $ 387,773 $ (253,665) $ (27,874)
================== ================= ================== ==================
Net income (loss):
Managing Member $ 642,048 $ 330,673 $ 220,095 $ 133,332
Other Members (465,403) 57,100 (473,760) (161,206)
------------------ ----------------- ------------------ ------------------
$ 176,645 $ 387,773 $ (253,665) $ (27,874)
================== ================= ================== ==================
Net (loss) income per Limited Liability Company
Unit $ (0.04) $ 0.01 $ (0.04) $ (0.02)
Weighted average number of Units outstanding 12,021,795 6,435,633 12,065,016 7,831,367
See accompanying notes.
4
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 2002
AND FOR THE
NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2003
(Unaudited)
Other Members Managing
Units Amount Member Total
Balance December 31, 2001 4,363,409 $36,550,603 $ - $36,550,603
Capital contributions 6,673,732 66,737,320 - 66,737,320
Less selling commissions to affiliates (6,340,045) - (6,340,045)
Other syndication costs to affiliates (2,230,650) - (2,230,650)
Distributions to Other Members (6,015,627) - (6,015,627)
Distributions to Managing Member - (487,754) (487,754)
Net income 115,396 487,754 603,150
----------------- ------------------ ------------------ ------------------
Balance December 31, 2002 11,037,141 88,816,997 - 88,816,997
Capital contributions 1,028,125 10,281,250 - 10,281,250
Less selling commissions to affiliates - (976,719) - (976,719)
Other syndication costs to affiliates - (309,377) - (309,377)
Limited liability company units repurchased (250) (1,923) (1,923)
Distributions to Other Members (7,918,514) - (7,918,514)
Distributions to Managing Member - - (642,048) (642,048)
Net income - (465,403) 642,048 176,645
------------------ ----------------- ------------------ ------------------
Balance September 30, 2003 12,065,016 $178,243,308 $ - $89,426,311
================== ================= ================== ==================
See accompanying notes.
5
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2003 AND 2002
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Operating activities:
Net income (loss) $ 176,645 $ 387,773 $ (253,665) $ (27,874)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Gain on sales of assets (106,694) (107,353) (2,321) -
Depreciation and amortization 6,012,351 3,613,275 2,211,792 1,806,628
Provision for doubtful accounts 250,000 - 250,000 -
Impairment losses 76,634 - - -
Changes in operating assets and liabilities:
Other assets 44,999 (295,000) 15,000 (295,000)
Accounts receivable 394,071 386,109 279,223 548,065
Accounts payable, Managing Member (308,305) 199,639 (429,736) 175,798
Accounts payable, other (19,204) 17,848 (17,872) 16,451
Unearned operating lease income 164,470 (57,657) 103,732 (33,350)
------------------ ------------------ ----------------- ------------------
Net cash provided by operations 6,684,967 4,144,634 2,156,153 2,190,718
------------------ ------------------ ----------------- ------------------
Investing activities:
Purchases of equipment on operating leases (10,731,246) (26,004,995) (1,952,175) (7,991,032)
Purchases of equipment on direct financing leases (4,693,865) (995,270) (4,077,916) (14,700)
Payments of initial direct costs to Managing
Member (1,462,748) (724,535) (402,250) (371,726)
Proceeds from sales of assets 1,107,143 753,263 19,480 3,855
Payments received on notes receivable 445,249 619,574 163,873 200,195
Reduction of net investment in direct financing
leases 417,345 157,390 278,920 62,744
Note receivable advances (46,196) (1,031,605) (46,196) -
Investment in residuals - - - 66,995
------------------ ------------------ ----------------- ------------------
Net cash used in investing activities (14,964,318) (27,226,178) (6,016,264) (8,043,669)
------------------ ------------------ ----------------- ------------------
ATEL CAPITAL EQUIPMENT FUND IX, LLC
STATEMENTS OF CASH FLOWS
(Continued)
NINE AND THREE MONTH PERIODS ENDED
SEPTEMBER 30, 2003
(Unaudited)
Nine Months Three Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Financing activities:
Capital contributions received 10,281,250 43,503,050 - 16,939,970
Payment of syndication costs to Managing Member (1,286,096) (5,581,913) 42,934 (2,215,225)
Repurchase of limited liability company units (1,923) - - -
Distributions to Members (8,560,562) (4,371,530) (2,934,517) (1,740,321)
------------------ ------------------ ----------------- ------------------
Net cash provided by (used in) financing
activities 432,669 33,549,607 (2,891,583) 12,984,424
------------------ ------------------ ----------------- ------------------
Net (decrease) increase in cash and cash
equivalents (7,846,682) 10,468,063 (6,751,694) 7,131,473
Cash and cash equivalents at beginning of
period 39,722,496 13,568,058 38,627,508 16,904,648
------------------ ------------------ ----------------- ------------------
Cash and cash equivalents at end of period $31,875,814 $24,036,121 $31,875,814 $24,036,121
================== ================== ================= ==================
Supplemental disclosures of cash flow
information:
Cash paid during the period for interest $ 289,519 $ 167,237 $ 122,716 $ 147,974
================== ================== ================= ==================
Supplemental schedule of non-cash
transactions:
Notes receivable exchanged for marketable
securities $ - $ 190,158 $ - $ 190,158
================== ================== ================= ==================
Notes receivable reclassified to accounts
receivable upon default $ 303,061 $ - $ 303,061 $ -
================== ================== ================= ==================
See accompanying notes.
6
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(Unaudited)
1. Summary of significant accounting policies:
Interim financial statements:
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 instructions to Form 10-Q and Article 10
of Regulation S-X. The unaudited interim financial statements reflect all
adjustments which are, in the opinion of the Managing Member, necessary to a
fair statement of financial position and results of operations for the interim
periods presented. All such adjustments are of a normal recurring nature. The
preparation of financial statements in accordance with GAAP requires management
to make estimates and assumptions that effect reported amounts in the financial
statements and accompanying notes. Therefore, actual results could differ from
those estimates. Operating results for the three and nine months ended September
30, 2003 are not necessarily indicative of the results for the year ending
December 31, 2003.
These unaudited interim financial statements should be read in conjunction with
the financial statements and notes thereto contained in the report on Form 10-K
for the year ended December 31, 2002, filed with the Securities and Exchange
Commission.
Reclassifications:
Certain prior period amounts have been reclassified to conform to current period
presentation.
2. Organization and Company matters:
ATEL Capital Equipment Fund IX, LLC (the Company) was formed under the laws of
the state of California on September 27, 2000 for the purpose of acquiring
equipment to engage in equipment leasing and sales activities. The Company may
continue until December 31, 2019. The Company's offering was terminated as of
January 15, 2003.
Upon the sale of the minimum amount of Units of Limited Liability Company
interest (Units) of $1,200,000 and the receipt of the proceeds thereof on
February 21, 2001, the Company commenced operations.
The Company does not make a provision for income taxes since all income and
losses will be allocated to the Members for inclusion in their individual tax
returns.
ATEL Financial Services, LLC, an affiliated entity, acts as the Managing Member
of the Company.
7
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(Unaudited)
3. Investment in leases:
The Company's investment in leases consists of the following:
Depreciation /
Amortization
Expense or
Balance Amortization of Reclassi- Balance
December 31, Direct Financing fications or September 30,
2002 Additions Leases Dispositions 2003
Net investment in operating leases $44,149,781 $10,731,246 $ (5,671,619) $ (983,291) $48,226,117
Net investment in direct financing
leases 1,525,473 4,693,865 (417,345) (17,158) 5,784,835
Initial direct costs 1,226,764 1,462,748 (340,732) - 2,348,780
------------------ ------------------ ------------------ ----------------- ------------------
$46,902,018 $16,887,859 $ (6,429,696) $ (1,000,449) $56,359,732
================== ================== ================== ================= ==================
Operating leases:
Property on operating leases consists of the following:
Depreciation
Balance Expense and Reclassi- Balance
December 31, Impairment fications or September 30,
2002 Additions Losses Dispositions 2003
Mining $ 20,903,212 $ 4,618,772 $ - $ - $ 25,521,984
Manufacturing 15,051,966 1,708,142 - (997,875) 15,762,233
Marine vessels 11,200,000 - - - 11,200,000
Materials handling 2,419,402 1,473,420 - - 3,892,822
Communications 269,153 2,756,244 - - 3,025,397
Office furniture 562,248 174,668 - - 736,916
Natural gas compressors 696,451 - - (74,943) 621,508
------------------ ------------------ ------------------ ----------------- ------------------
51,102,432 10,731,246 - (1,072,818) 60,760,860
Less accumulated depreciation (6,952,651) - (5,671,619) 89,527 (12,534,743)
------------------ ------------------ ------------------ ----------------- ------------------
$ 44,149,781 $ 10,731,246 $ (5,671,619) $ (983,291) $ 48,226,117
================== ================== ================== ================= ==================
8
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(Unaudited)
3. Investment in leases (continued):
Direct financing leases:
As of September 30, 2003, investment in direct financing leases consists of
materials handling, communications, research and office automation equipment and
office furniture. The following lists the components of the Company's investment
in direct financing leases:
September 30, December 31,
2003 2002
Total minimum lease payments receivable $ 6,150,317 $ 1,621,790
Estimated residual values of leased equipment (unguaranteed) 573,279 211,527
----------------- ------------------
Investment in direct financing leases 6,723,596 1,833,317
Less unearned income (938,761) (307,844)
----------------- ------------------
Net investment in direct financing leases $ 5,784,835 $ 1,525,473
================= ==================
All of the property on leases was acquired in 2001, 2002 and 2003.
At September 30, 2003, the aggregate amounts of future minimum lease payments
are as follows:
Direct
Operating Financing
Leases Leases Total
Three months ending December 31, 2003 $ 2,183,754 $ 554,289 $ 2,738,043
Year ending December 31, 2004 10,380,986 2,108,432 12,489,418
2005 10,252,008 1,376,254 11,628,262
2006 8,634,270 1,032,878 9,667,148
2007 4,065,388 661,144 4,726,532
2008 2,240,268 305,154 2,545,422
Thereafter 1,362,923 112,166 1,475,089
------------------ ------------------ ------------------
$39,119,597 $ 6,150,317 $45,269,914
================== ================== ==================
9
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(Unaudited)
4. Notes receivable:
The Company has various notes receivable from parties who have financed the
purchase of equipment through the Company. The terms of the notes receivable are
24 to 49 months and bear interest at rates from 15.53% to 21.46%. The notes are
secured by the equipment financed. The minimum payments receivable are as
follows:
Three months ending December 31, 2003 $ 69,944
Year ending December 31, 2004 158,880
2005 124,828
2006 76,716
------------------
430,368
Less: Portion representing interest (77,323)
------------------
$ 353,045
==================
5. Related party transactions:
The terms of the Limited Company Operating Agreement provide that the Managing
Member and/or affiliates are entitled to receive certain fees for equipment
acquisition, management and resale and for management of the Company.
The Limited Liability Company Operating Agreement allows for the reimbursement
of costs incurred by the Managing Member in providing services to the Company.
Services provided include Company accounting, investor relations, legal counsel
and lease and equipment documentation. The Managing Member is not reimbursed for
services where it is entitled to receive a separate fee as compensation for such
services, such as acquisition and management of equipment. Reimbursable costs
incurred by the Managing Member are allocated to the Company based upon actual
time incurred by employees working on Company business and an allocation of rent
and other costs based on utilization studies.
Substantially all employees of the Managing Member record time incurred in
performing services on behalf of all of the Companies serviced by the Managing
Member. 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 and are reimbursable in
accordance with the Limited Liability Company Operating Agreement.
10
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(Unaudited)
5. Related party transactions (continued):
The Managing Member and/or affiliates earned fees, commissions and
reimbursements, pursuant to the Limited Liability Company Agreement as follows:
Nine Months Three Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Selling commissions (equal to 9.5% of the selling
price of the Limited Liability Company Units,
deducted from Other Members' capital) $ 976,719 $ 4,132,790 $ - $ 1,609,297
Reimbursement (refund) of other syndication
costs to Managing Member, deducted from Other
Members' Capital 309,377 1,449,123 (42,934) 605,928
Cost reimbursements to Managing Member 454,199 216,783 142,141 98,197
Asset management fees to Managing Member 401,404 197,910 144,633 104,217
------------------ ------------------ ----------------- ------------------
$ 2,141,699 $ 5,996,606 $ 243,840 $ 2,417,639
================== ================== ================= ==================
6. Member's capital:
As of September 30, 2003, 12,065,016 Units ($120,650,160) were issued and
outstanding. The Company is authorized to issue up to 15,000,050 Units,
including the 50 Units issued to the initial members.
The Company's Net Income, Net Losses, and Distributions (as defined in the
Limited Liability Company Operating Agreement) are to be allocated 92.5% to the
Other Members and 7.5% to the Managing Member.
Distributions to the Other Members were as follows in 2003 and 2002:
Nine Months Three Months
Ended September 30, Ended September 30,
2003 2002 2003 2002
Distributions $ 7,918,514 $ 4,040,857 $ 2,714,422 $ 1,606,989
Weighted average number of Units outstanding 12,021,795 6,435,633 12,065,016 7,831,367
Weighted average distributions per Unit $0.66 $0.63 $0.22 $0.21
11
ATEL CAPITAL EQUIPMENT FUND IX, LLC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(Unaudited)
7. Line of credit:
The Company participates with the Managing Member and certain of its affiliates
in a $56,282,201 revolving line of credit (comprised of an acquisition facility
and a warehouse facility) with a financial institution that includes certain
financial covenants. The line of credit expires on June 28, 2004. As of
September 30, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 24,300,000
----------------
Total borrowings under the acquisition facility 24,300,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
----------------
Total outstanding balance $ 24,300,000
================
Total available under the line of credit $ 57,282,201
Total outstanding balance (24,300,000)
----------------
Remaining availability $ 32,982,201
================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and the Managing
Member.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of September 30,
2003.
8. Commitments:
As of September 30, 2003, the Company had outstanding commitments to purchase
lease equipment totaling approximately $27,678,000.
12
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," 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. 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.
Capital Resources and Liquidity
During the first nine months of 2003, our primary activity has been engaging in
various equipment leasing activities. During the first nine months of 2002, our
primary activities were raising funds through our offering of Limited Liability
Company Units (Units) and engaging in equipment leasing activities.
During the fund raising period, our primary source of liquidity is subscription
proceeds from the public offering of Units. Our liquidity will vary in the
future, increasing to the extent cash flows from leases 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.
As another source of liquidity, we have contractual obligations with a
diversified group of lessees for fixed lease terms at fixed rental amounts. As
the initial lease terms expire we will re-lease or sell the equipment. Our
future liquidity beyond the contractual minimum rentals will depend on the our
success in re-leasing or selling the equipment as it comes off lease.
The Company participates with the Managing Member and certain of its affiliates
in a $56,282,201 revolving line of credit (comprised of an acquisition facility
and a warehouse facility) with a financial institution that includes certain
financial covenants. The line of credit expires on June 28, 2004. As of
September 30, 2003, borrowings under the facility were as follows:
Amount borrowed by the Company under the acquisition facility $ -
Amounts borrowed by affiliated partnerships and limited
liability companies under the acquisition facility 24,300,000
----------------
Total borrowings under the acquisition facility 24,300,000
Amounts borrowed by the Managing Member and its sister
corporation under the warehouse facility -
----------------
Total outstanding balance $ 24,300,000
================
Total available under the line of credit $ 57,282,201
Total outstanding balance (24,300,000)
----------------
Remaining availability $ 32,982,201
================
Draws on the acquisition facility by any individual borrower are secured only by
that borrower's assets, including equipment and related leases. Borrowings on
the warehouse facility are recourse jointly to certain of the affiliated
partnerships and limited liability companies, the Company and the Managing
Member.
The credit agreement includes certain financial covenants applicable to each
borrower. The Company was in compliance with its covenants as of September 30,
2003.
We anticipate reinvesting a portion of lease payments from assets owned in new
leasing transactions. These reinvestments will occur only after the payment of
all obligations, including debt service (both principal and interest), the
payment of management fees to the Managing Member and providing for cash
distributions to the Other Members.
We currently have available adequate reserves to meet contingencies, but in the
event that those reserves were found to be inadequate, we would likely be in a
position to borrow against our current portfolio to meet such requirements. We
envision no such requirements for operating purposes.
We do not expect to make commitments of capital, nor have we made any
commitments of capital, except for the acquisition of additional equipment. As
of September 30, 2003, we had made commitments totaling approximately
$27,678,000.
If inflation in the general economy becomes significant, it may affect us in
that the residual (resale) values and rates on re-leases of our leased assets
may increase as the costs of similar assets increase. However, our revenues from
existing leases would not increase, as these rates are generally fixed for the
terms of the leases without adjustment for inflation.
13
If interest rates increase significantly, the lease rates that we can obtain on
future leases will be expected to increase as the cost of capital is a
significant factor in the pricing of lease financing. Our leases already in
place, for the most part, would not be affected by changes in interest rates.
Cash Flows
During the first three quarters of 2003 and 2002, our primary source of
liquidity was the proceeds of our offering of Units.
In 2003 and 2002, operating lease rents were our primary source of cash from
operations.
In 2003, proceeds from sales of lease assets was our largest source of cash from
investing activities. In both 2003 and 2002, rents from direct financing leases
and payments received on notes receivable were also primary sources of cash from
investing activities. We used cash in investing activities to purchase operating
and direct financing lease assets, to pay of initial direct costs associated
with the lease asset purchases and to make advances on notes receivable.
Our primary source of cash from financing activities was the proceeds of our
public offering of Units of Limited Liability Company interest. We used cash in
financing activities to pay syndication costs associated with the offering and
to make distributions to our Members.
Results of operations
On February 21, 2001, we commenced operations. In 2002, our operations resulted
in net income of $387,773 for the nine month period and in a net loss of $27,874
for the three month period. In 2003, our operations resulted in net income of
$176,645 for the nine month period and a net loss of $253,665 for the three
month period. Our primary source of revenues is rents from operating leases.
Depreciation is related to operating lease assets and thus, to operating lease
revenues. We expect these to increase in future periods as we continue to
acquire lease assets.
Asset management fees are based on our gross lease rents plus proceeds from the
sales of lease assets. They are limited to certain percentages of lease rents,
distributions to members and certain other items. As we have acquired lease
assets, lease rents are collected and distributions made to the members have
increased. This has led to increases in management fees.
Interest expense in 2003 and 2002 relates primarily to a credit facility which
has been established to provide long-term financing for lease asset
acquisitions. To date, we have not borrowed under this credit facility. Charges
were incurred in order to maintain the availability of the credit facility and
were included in interest expense.
The results of our operations are expected to vary considerably in future
periods from those of the first nine months of 2003 and 2002 as we continue to
acquire significant amounts of lease assets.
Item 3. Quantitative and Qualitative Disclosures of Market Risk.
The Company, like most other companies, is exposed to certain market risks,
including primarily changes in interest rates. The Company believes its exposure
to other market risks, including foreign currency exchange rate risk, commodity
risk and equity price risk, are insignificant to both its financial position and
results of operations.
In general, the Company expects to manage its exposure to interest rate risk by
obtaining fixed rate debt. The fixed rate debt is structured so as to match the
cash flows required to service the debt to the payment streams under fixed rate
lease receivables. The payments under the leases are assigned to the lenders in
satisfaction of the debt. Furthermore, the Managing Member has historically been
able to maintain a stable spread between its cost of funds and lease yields in
both periods of rising and falling interest rates. Nevertheless, the Company
expects to frequently fund leases with its floating interest rate line of credit
and will, therefore, be exposed to interest rate risk until fixed rate financing
is arranged, or the floating interest rate line of credit is repaid. As of
September 30, 2003, there was no outstanding balance on the floating interest
rate line of credit.
The Company entered into a receivables funding facility in 2002. Since interest
on the outstanding balances under the facility will vary, the Company will be
exposed to market risks associated with changing interest rates. To hedge its
interest rate risk, the Company expects to enter into interest rate swaps, which
will effectively convert the underlying interest characteristic on the facility
from floating to fixed. Under the swap agreements, the Company expects to make
or receive variable interest payments to or from the counterparty based on a
notional principal amount. The net differential paid or received by the Company
is recognized as an adjustment to interest expense related to the facility
balances. The amount paid or received will represent the difference between the
payments required under the variable interest rate facility and the amounts due
under the facility at the fixed (hedged) interest rate. There were no borrowings
under this facility as of September 30, 2003.
14
In general, it is anticipated that these swap agreements will eliminate the
Company's interest rate risk associated with variable rate borrowings. However,
the Company would be exposed to and would manage credit risk associated with the
counterparty by dealing only with institutions it considers financially sound.
Item 4. Controls and procedures.
Internal Controls
As of September 30, 2003, an evaluation was performed under the supervision and
with the participation of the Company's management, including the CEO and CFO of
the Managing Member, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the CEO and CFO of the Managing Member,
concluded that the Company's disclosure controls and procedures were effective
as of September 30, 2003. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
internal controls subsequent to September 30, 2003.
Changes in internal controls
There have been no significant changes in our internal controls or in other
factors that could significantly affect our disclosure controls and procedures
subsequent to the evaluation date, nor were there any significant deficiencies
or material weaknesses in our internal controls.
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including
the CEO and CFO, an evaluation of the effectiveness of the design and operation
of the Company's disclosure controls and procedures, as defined in Rules
240.13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 was
performed as of a date within ninety days before the filing date of this
quarterly report. Based upon this evaluation, the CEO and CFO of the Managing
Member concluded that, as of the evaluation date, our disclosure controls and
procedures were effective for the purposes of recording, processing, summarizing
and timely reporting information required to be disclosed by us in the reports
that we file under the Securities Exchange Act of 1934 and that such information
is accumulated and communicated to our management in order to allow timely
decisions regarding required disclosure.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
No material legal proceedings are currently pending against the Company or
against any of its assets. The following is a discussion of legal matters
involving the Company but which do not represent claims against the Company or
its assets.
Silicon Access Networks, Inc.:
Silicon Access Networks, Inc., ("SAN") advised the Company on July 8, 2002,
that, due to a further decline in expectations of future demand for SAN's
products by potential customers in its target markets, SAN's Board of Directors
had directed management to cease operations, which occurred in July 2002. As SAN
was current on its note payable payment obligation to the Company, the Company
declared a technical default in early July on the basis of the termination of
operations. As of September 30, 2002, SAN's account was current, except for late
charges. The Company filed suit, on the basis of the technical default, and
moved for a Writ of Attachment, which was denied. The Company's motions were
denied, due in large part to the fact that SAN's account was still current.
On advice of counsel, the Company withdrew the initial suit, as it became
apparent that the court will continue to deny any Writ of Attachment until and
unless SAN actually defaults on its payment obligation. SAN defaulted in
September 2003 for failure to make the payments due September 1, 2003. The
Company declared default and refiled a lawsuit and also filed for a Writ of
Attachment. As SAN was very low on cash and had no new equity or debt funding
arranged, the court granted the Company a Writ of Attachment for the majority of
SAN's assets. The Company levied SAN's bank accounts and found they had less
than $5,000 in them.
The Company has filed its Attachment lien against SAN's intellectual property,
including several patents on file with the federal government. The Company has
also notified a former officer of SAN who owes SAN several hundred thousand
dollars (and that SAN holds a promissory note secured by a second deed of trust
against the maker's home for repayment of such amounts), that all proceeds due
under that note are to be paid to the Company.
SAN has ceased operations and has retained a consulting firm to attempt to
liquidate its assets outside of the bankruptcy court. As the Company has a
pre-judgment lien against virtually all significant assets of SAN, the Company
has first right to any asset liquidation proceeds. Other creditors of SAN are
objecting to the Company's having this superior position and may force SAN into
bankruptcy if SAN does not file bankruptcy on its own. If SAN ends up in
bankruptcy within 90 days of the Company having been granted the Writ of
Attachment, then the Company's Writ of Attachment will be voided and the
Company's claims against SAN will be pari passu with the other creditors.
15
The Company has recovered the equipment it financed that was located at SAN's
location in California and it will be sold at a public auction on October 30,
2003. The Company is making arrangements to recover other equipment the Company
financed that was located at SAN's offices in Canada which the Company will then
remarket. The amount that the Company will ultimately recover from this account
is highly uncertain at present.
All amounts due under the notes receivable from SAN were reclassified to
accounts receivable upon default and have been properly reserved to reflect the
estimated recoverable amounts still outstanding, approximately $53,000.
Photuris, Inc.:
Photuris, a debtor of the Company, was on the verge of ceasing operations, as it
was unable to secure new equity under favorable terms. The Company commenced
negotiations with Photuris to restructure its note terms. As of this date, no
legal action has been initiated against Photuris; however, the account has been
restructured. In concert with several other lessors and lenders the Company
concluded negotiations and executed a Settlement Agreement with Photuris. Under
the terms of the Settlement Agreement, the Company received an initial payment
of $200,000 in July 2002.
The Company is carrying a promissory note for $300,000 that is payable interest
only at prime plus 1.25% from August 1, 2002, to October 2003, at which time
payments will convert to equal principal plus interest basis, spread over 36
months. The Company has been granted $200,000 worth of new equity shares in
Photuris as the final part of the settlement. The Company still retains its
perfected first priority lien on the equipment financed by the Company.
As of early October 2002, the Company became aware that Photuris had not yet
closed on receiving some additional equity and was in danger of running out of
operating capital in early November 2002. The Company confirmed with the lead
investor in Photuris' latest equity round that the investors had agreed to
provide additional equity to allow Photuris to continue to operate; however,
this commitment, for up to $15 million, is being provided in stages on a
quarterly basis if certain milestones are met. The Company confirmed that
Photuris received the first stage of this new equity in November 2002. Follow on
rounds, which have allowed Photuris to continue operations for a few more months
at a time, have closed in February and May 2003. The final round of equity was
to have been funded by August 15, 2003.
Photuris received a term sheet from a large, publicly traded telecommunications
firm to purchase Photuris. While negotiations were underway over the price and
other terms, the investors requested, and the Company granted, a thirty day
extension on putting in their equity. Negotiations have stalled and the
investors have requested permission to inject their final commitment as debt
subordinated to the amounts due to the Company, instead of as equity, and to put
in their money in three more tranches beginning the end of September 2003, so
that Photuris may continue operating and negotiating a sale with the original
offeror as well as with new ones that have emerged in recent weeks.
The Company has agreed to this, with the condition that, at the first of those
final fundings, the Company be paid the first three installments of principal
payment that are due to commence October 2003, all in one payment. Photuris
refused to do this and went ahead with its subordinated debt versus equity
transaction and received its first round of debt in late September 2003. As the
Company did not grant its permission for this change, Photuris is technically in
default for failure to close on the last tranche of equity. The account is
current as of October 24, 2003. Photuris will need to have arranged a sale of
the company or for further equity or debt by calendar year end in order to
continue in business beyond January 31, 2004.
Item 2. Changes In Securities.
Inapplicable.
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 4. Submission Of Matters To A Vote Of Security Holders.
Inapplicable.
Item 5. Other Information.
Inapplicable.
16
Item 6. Exhibits And Reports On Form 8-K.
(a) Documents filed as a part of this report
1. Financial Statements
Included in Part I of this report:
Balance Sheets, September 30, 2003 and December 31, 2002.
Statements of operations for the nine and three month periods
ended September 30, 2003 and 2002.
Statements of changes in members' capital for the year ended
December 31, 2002 and for the nine month period ended September
30, 2003.
Statements of cash flows for the nine and three month periods
ended September 30, 2003 and 2002.
Notes to the Financial Statements
2. 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.
3. Other Exhibits
99.1 Certification of Paritosh K. Choksi
99.2 Certification of Dean L. Cash
99.3 Certification Pursuant to 18 U.S.C. section 1350 of Dean L.
Cash
99.4 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh
K. Choksi
(b) Report on Form 8-K
None
17
SIGNATURES
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 12, 2003
ATEL CAPITAL EQUIPMENT FUND IX, LLC
(Registrant)
By: ATEL Financial Services, LLC
Managing Member of Registrant
By: /s/ DEAN L. CASH
------------------------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
By: /s/ PARITOSH K. CHOKSI
-------------------------------------
Paritosh K. Choksi
Executive Vice President of
Managing Member, Principal
financial officer of registrant
By: /s/ DONALD E. CARPENTER
-------------------------------------
Donald E. Carpenter
Principal accounting
officer of registrant
18
Exhibit 99.1
CERTIFICATIONS
I, Paritosh K. Choksi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment
Fund IX, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 12, 2003
/s/ PARITOSH K. CHOKSI
- ---------------------------
Paritosh K. Choksi
Principal financial officer of registrant, Executive Vice President of
Managing Member
19
Exhibit 99.2
CERTIFICATIONS
I, Dean L. Cash, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ATEL Capital Equipment
Fund IX, LLC;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: November 12, 2003
/s/ DEAN L. CASH
- ---------------------------
Dean L. Cash
President and Chief Executive Officer of
Managing Member
20
Exhibit 99.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10Q of ATEL Capital Equipment
Fund IX, LLC, (the "Company") for the period ended September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL
Financial Services, LLC, managing member of the Company, hereby certify that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 12, 2003
/s/ DEAN L. CASH
- ---------------------------
Dean L. Cash
President and Chief Executive
Officer of Managing Member
November 12, 2003
21
Exhibit 99.4
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report on Form 10Q of ATEL Capital Equipment
Fund IX, LLC, (the "Company") for the period ended September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the
Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of
ATEL Financial Services, LLC, managing member of the Company, hereby certify
that:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
Date: November 12, 2003
/s/ PARITOSH K. CHOKSI
- ---------------------------
Paritosh K. Choksi
Executive Vice President of Managing
Member, Principal financial officer of registrant
22