Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - ATEL 16, LLCv413184_exh32x1.htm
EX-31.1 - EXHIBIT 31.1 - ATEL 16, LLCv413184_exh31x1.htm
EX-31.2 - EXHIBIT 31.2 - ATEL 16, LLCv413184_exh31x2.htm
EX-32.2 - EXHIBIT 32.2 - ATEL 16, LLCv413184_exh32x2.htm

  

  

 

  

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
x   Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2015

 
o   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 333-174418

ATEL 16, LLC

(Exact name of registrant as specified in its charter)

 
California   90-0920813
(State or other jurisdiction of
Incorporation or organization)
  (I. R. S. Employer
Identification No.)

The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)

Registrant’s telephone number, including area code (415) 989-8800

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer o     Non-accelerated filer o     Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).Yes o No x

The number of Limited Liability Company Units outstanding as of July 31, 2015 was 3,380,652.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL 16, LLC
 
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, June 30, 2015 and December 31, 2014     3  
Statements of Operations for the three and six months ended June 30, 2015 and 2014     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2014 and for the six months ended June 30, 2015     5  
Statements of Cash Flows for the three and six months ended June 30, 2015 and 2014     6  
Notes to the Financial Statements     7  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    19  

Item 4.

Controls and Procedures

    25  

Part II.

Other Information

    26  

Item 1.

Legal Proceedings

    26  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    26  

Item 3.

Defaults Upon Senior Securities

    27  

Item 4.

Mine Safety Disclosures

    27  

Item 5.

Other Information

    27  

Item 6.

Exhibits

    27  

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 16, LLC
 
BALANCE SHEETS
 
JUNE 30, 2015 AND DECEMBER 31, 2014

(In Thousands)

   
  June 30,
2015
  December 31,
2014
     (Unaudited)
ASSETS
                 
Cash and cash equivalents   $     9,205     $     9,262  
Accounts receivable, net of allowance for doubtful accounts of $2 at June 30, 2015 and $0 at December 31, 2014     115       10  
Notes receivable, net of unearned interest income of $38 at June 30, 2015 and $63 at December 31, 2014     299       374  
Fair value of warrants     14       11  
Investments in equipment and leases, net of accumulated depreciation of $1,696 at June 30, 2015 and $680 at December 31, 2014     16,703       7,485  
Prepaid expenses and other assets     31       19  
Total assets   $ 26,367     $ 17,161  
LIABILITIES AND MEMBERS' CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 4     $ 1  
Affiliates     18       266  
Accrued distributions to Other Members     220       122  
Other     59       138  
Unearned operating lease income     151       116  
Total liabilities     452       643  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     25,915       16,518  
Total Members’ capital     25,915       16,518  
Total liabilities and Members’ capital   $ 26,367     $ 17,161  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 16, LLC
 

STATEMENTS OF OPERATIONS
 

FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2015 AND 2014
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2015   2014   2015   2014
Revenues:
                                   
Leasing and lending activities:
                                   
Operating lease revenue   $       821     $       74     $      1,373     $        92  
Notes receivable interest income     11       11       24       11  
Loss on sales of lease assets and early termination of notes receivable     (3 )            (3 )       
Unrealized gain on fair valuation of
warrants
    3             3        
Other           6             6  
Total revenues     832       91       1,397       109  
Expenses:
                                   
Depreciation of operating lease assets     619       65       1,016       87  
Asset management fees to Managing Member     55       13       91       14  
Acquisition expense     42       56       39       72  
Administrative costs reimbursed to Managing Member and/or affiliates     107       2       173       3  
Provision for credit losses                 2        
Amortization of initial direct costs     23       3       43       4  
Interest expense           1             1  
Professional fees     16       4       50       6  
Outside services     (16 )      11       3       52  
Taxes on income and franchise fees     10             17       2  
Bank charges     26       5       48       7  
Other     14       3       26       2  
Total expenses     896       163       1,508       250  
Net loss   $ (64 )    $ (72 )    $ (111 )    $ (141 ) 
Net loss:
                                   
Managing Member   $     $     $     $  
Other Members     (64 )      (72 )      (111 )      (141 ) 
     $ (64 )    $ (72 )    $ (111 )    $ (141 ) 
Net loss per Limited Liability Company Unit (Other Members)   $ (0.02 )    $ (0.13 )    $ (0.04 )    $ (0.45 ) 
Weighted average number of Units outstanding     2,986,563       541,972       2,658,045       312,643  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 16, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
 
FOR THE YEAR ENDED
DECEMBER 31, 2014
AND FOR THE SIX MONTHS ENDED
JUNE 30, 2015
(In Thousands Except for Units and Per Unit Data)

       
  Units   Amount   Total
  Other
Members
  Managing
Member
Balance December 31, 2013     50     $       —     $        1     $        1  
Capital contributions     2,053,365       20,534             20,534  
Less selling commissions to affiliates           (1,846 )            (1,846 ) 
Syndication costs           (1,232 )            (1,232 ) 
Distributions to Other Members ($0.57 per Unit)           (575 )            (575 ) 
Net loss           (363 )      (1 )      (364 ) 
Balance December 31, 2014     2,053,415       16,518             16,518  
Capital contributions     1,230,191       12,302             12,302  
Rescissions of Units     (2,000 )      (20 )            (20 ) 
Less selling commissions to affiliates           (1,107 )            (1,107 ) 
Syndication costs           (738 )            (738 ) 
Distributions to Other Members ($0.35 per Unit)           (929 )            (929 ) 
Net loss           (111 )            (111 ) 
Balance June 30, 2015 (Unaudited)     3,281,606     $ 25,915     $     $ 25,915  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 16, LLC
 
STATEMENTS OF CASH FLOWS
 
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2015 AND 2014
(In Thousands)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2015   2014   2015   2014
Operating activities:
                                   
Net loss   $      (64 )    $     (72 )    $    (111 )    $     (141 ) 
Adjustment to reconcile net loss to cash provided by operating activities:
                                   
Depreciation of operating lease assets     619       65       1,016       87  
Loss on sales of lease assets and early termination of notes receivable     3             3        
Amortization of initial direct costs     23       3       43       4  
Provision for credit losses                 2        
Unrealized gain on fair valuation of warrants     (3 )            (3 )       
Changes in operating assets and liabilities:
                                   
Accounts receivable     13       (20 )      (107 )      (20 ) 
Prepaid expenses and other assets     2       (12 )      (12 )      (53 ) 
Accounts payable, Managing Member     (5 )      4       3       4  
Accounts payable, other     22       (6 )      23       8  
Accrued liabilities, affiliates     (97 )      1,104       (248 )      1,116  
Unearned operating lease income     (242 )      (3 )      35       9  
Net cash provided by operating activities     271       1,063       644       1,014  
Investing activities:
                                   
Purchases of equipment on operating leases     (2,471 )      (6,612 )      (10,219 )      (6,612 ) 
Proceeds from sales of lease assets     12             12        
Payments of initial direct costs     (82 )      (32 )      (174 )      (59 ) 
Note receivable advances           (480 )            (480 ) 
Principal payments received on notes receivable     37       38       74       38  
Net cash used in investing activities     (2,504 )      (7,086 )      (10,307 )      (7,113 ) 
Financing activities:
                                   
Selling commissions to affiliates     (537 )      (442 )      (1,107 )      (717 ) 
Syndication costs paid to Managing Member and affiliates     (358 )      (319 )      (738 )      (478 ) 
Distributions to Other Members     (475 )      (63 )      (831 )      (63 ) 
Capital contributions     5,998       4,928       12,302       7,992  
Rescissions of Units                 (20 )       
Net cash provided by financing activities     4,628       4,104       9,606       6,734  
Net increase (decrease) in cash and cash equivalents     2,395       (1,919 )      (57 )      635  
Cash and cash equivalents at beginning of period     6,810       2,555       9,262       1  
Cash and cash equivalents at end of period   $ 9,205     $ 636     $ 9,205     $ 636  
Supplemental disclosures of cash flow information:
                                   
Cash paid during the period for interest   $     $ 1     $     $ 1  
Cash paid during the period for taxes   $ 7     $     $ 7     $ 2  
Schedule of non-cash investing and financing transactions:
                                   
Distributions payable to Other Members at period-end   $ 220     $ 45     $ 220     $ 45  
Syndication and organizational costs payable to affiliated
company
  $     $ 4     $     $ 4  
Purchases of equipment on operating leases, included in accounts payable, other   $     $ 140     $     $ 140  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 for the purpose of raising capital and originating equipment financing transactions and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or the “Manager”), a Nevada limited liability company. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group (“ACG” or “ATEL”). The Fund may continue until terminated as provided in the ATEL 16, LLC limited liability company operating agreement dated November 1, 2013 (the “Operating Agreement”). Contributions in the amount of $500 were received as of December 31, 2012, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.

The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of November 5, 2013. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company units (Units) to the public reach $150 million. As of March 6, 2014, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2014. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal not less than $7.5 million in gross proceeds. Total contributions to the Fund exceeded $7.5 million on June 19, 2014.

As of June 30, 2015, cumulative contributions totaling $32.8 million have been received, inclusive of the $500 initial member’s capital investment. As of such date, a total of 3,281,606 Units were issued and outstanding. The Fund is actively raising capital and, as of July 31, 2015, has received cumulative contributions in the amount of $33.8 million, inclusive of the $500 initial member’s capital investment.

The Fund, or Managing Member on behalf of the Fund, has and will continue to incur costs in connection with the organization, registration and issuance of the Units. The amount of such costs to be borne by the Fund is limited by certain provisions of the Operating Agreement.

The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unitholders during the Offering Stage and Operating Stages of the Fund, any balance remaining after required minimum distributions, equal to not less than 7% nor more than 9% per annum on investors’ Original Invested Capital, during the Operating Stage, to be used to purchase additional investments during the Reinvestment Period (the first six years after the year the offering terminates); and (iii) provide additional cash distributions during the Liquidating Stage, commencing with the end of the Operating Stage/Reinvestment Period and continuing until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by the Operating Agreement.

Pursuant to the terms of the Operating Agreement, the Managing Member and/or its affiliates receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 5). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

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, 2014, filed with the Securities and Exchange Commission.

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TABLE OF CONTENTS

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2015, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements.

Use of Estimates:

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.

Investment in securities:

From time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements.

Purchased securities

Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. The Company received its first warrants during the second quarter of 2014 and recorded unrealized gains totaling $11 thousand during 2014, none of which was recorded during the three- and six-month periods ended June 30, 2014. By comparison, the company recorded unrealized gains of $3 thousand for both the three- and six-month periods ended June 30, 2015. There have been no exercises of warrants, net or otherwise, through June 30, 2015.

Segment reporting:

The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.

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TABLE OF CONTENTS

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

The primary geographic region in which the Company seeks financing opportunities is North America. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the six months ended June 30, 2015 and 2014 and long-lived tangible assets as of June 30, 2015 and December 31, 2014 (dollars in thousands):

       
  For the six months ended June 30,
     2015   % of Total   2014   % of Total
Revenue
                                   
United States   $ 1,084       78 %    $ 109       100 % 
Costa Rica     313       22 %            0 % 
Total International     313       22 %            0 % 
Total   $    1,397         100 %    $     109         100 % 

       
  As of June 30,   As of December 31,
     2015   % of Total   2014   % of Total
Long-lived assets
                                   
United States   $ 11,132       67 %    $ 7,485       100 % 
Costa Rica     5,571       33 %            0 % 
Total International     5,571       33 %            0 % 
Total   $   16,703         100 %    $   7,485       100 % 

Per Unit data:

Net loss and distributions per Unit for the three and six months ended June 30, 2015 is based upon the weighted average number of Other Members Units outstanding during the respective periods. Net loss and distributions per Unit for the three and six months ended June 30, 2014 is based upon the weighted average number of Other Members Units outstanding during the period and from March 6, 2014 (Release Date of Escrow) through June 30, 2014, respectively.

Recent accounting pronouncements:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The board will also allow companies to adopt the standard as of the original effective date, which is January 2017, if they are inclined to do so. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

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TABLE OF CONTENTS

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net:

The Company has various notes receivables from borrowers who have financed the purchase of equipment through the Company. The terms of the notes receivable are from 30 to 36 months and bear interest at rates ranging from 11.26% to 17.31% per annum. The notes are secured by the equipment financed. The notes mature from 2016 through 2017. There were neither impaired notes nor notes placed in non-accrual status as of June 30, 2015 and December 31, 2014.

As of June 30, 2015, the minimum future payments receivable are as follows (in thousands):

 
Six months ending December 31, 2015   $       98  
Year ending December 31, 2016     186  
2017     53  
       337  
Less: portion representing unearned interest income     (38 ) 
       299  
Unamortized initial direct costs      
Notes receivable, net   $ 299  

Initial direct costs (“IDC”) amortization expense related to notes receivable was nominal during the three and six months ended June 30, 2015. The notes receivable IDC unamortized balance was also nominal in amount as of June 30, 2015.

4. Investment in equipment and leases, net:

The Company’s investment in leases consists of the following (in thousands):

       
  Balance
December 31,
2014
  Additions/
Dispositions
  Depreciation/
Amortization
Expense
  Balance
June 30,
2015
Net investment in operating leases   $      7,305     $     10,103     $     (1,016 )    $      16,392  
Initial direct costs, net of accumulated amortization of $67 at June 30, 2015 and $25 at December 31, 2014     180       173       (42 )      311  
Total   $ 7,485     $ 10,276     $ (1,058 )    $ 16,703  

Additions to net investment in operating lease assets are stated at cost.

Impairment of investments in leases:

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Investment in equipment and leases, net: - (continued)

discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.

As a result of these reviews, management determined that no impairment losses existed during the respective three and six months ended June 30, 2015 and 2014.

The Company utilizes a straight-line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. Depreciation expense on the Company’s equipment totaled $619 thousand and $65 thousand for the respective three months ended June 30, 2015 and 2014, and $1.0 million and $87 thousand for the respective six months ended June 30, 2015 and 2014. IDC amortization expense related to the Company’s operating leases totaled $22 thousand and $3 thousand for the respective three months ended June 30, 2015 and 2014, and $42 thousand and $4 thousand for the respective six months ended June 30, 2015 and 2014.

All of the Company’s leased property was acquired beginning in March 2014 through June 2015.

Operating leases:

Property on operating leases consists of the following (in thousands):

       
  Balance December 31, 2014   Additions   Dispositions   Balance
June 30,
2015
Containers   $        —     $      5,806     $      (16 )    $      5,790  
Coal terminal     5,000                   5,000  
Materials handling     2,023       598             2,621  
Aviation     181       2,134             2,315  
Transportation     524       988             1,512  
Construction           275             275  
Agriculture     257                   257  
Cleaning & Maintenance           159             159  
Research           159             159  
       7,985       10,119       (16 )      18,088  
Less accumulated depreciation     (680 )      (1,016 )            (1,696 ) 
Total   $ 7,305     $ 9,103     $ (16 )    $ 16,392  

The average estimated residual value for assets on operating leases was 50% and 59% of the assets’ original cost at June 30, 2015 and December 31, 2014, respectively. There were no operating leases in non-accrual status at June 30, 2015 and December 31, 2014.

At June 30, 2015, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

 
  Operating
Leases
Six months ending December 31, 2015   $      1,725  
Year ending December 31, 2016     2,365  
2017     2,030  
2018     1,798  
2019     1,099  
2020     196  
Thereafter     308  
     $ 9,521  

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Investment in equipment and leases, net: - (continued)

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2015, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

 
Equipment category   Useful Life
Coal terminal     50 – 60  
Containers     15 – 20  
Aviation     15 – 20  
Agriculture     7 – 10  
Cleaning & Maintenance     7 – 10  
Construction     7 – 10  
Materials handling     7 – 10  
Transportation     7 – 10  
Research     5 – 7  

5. Related Party Transactions:

The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees, for equipment acquisition and asset management services and to receive reimbursements for payments made on behalf of the Fund for certain operating expenses, which are more fully described in Section 8 of the Operating Agreement.

The Operating Agreement allows for the reimbursement of costs incurred by the Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and equipment financing documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments.

Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location.

Each of ATEL Leasing Corporation (“ALC”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; and investor relations, communications services and general administrative services are performed by AFS.

During its offering period, the Fund will pay selling commissions of up to 9% of the selling price of the Units to ATEL Securities Corporation (“ASC”), an affiliate of the Managing Member acting as Dealer Manager for the group of selling broker-dealers. ASC will in turn pay to participating broker-dealers selling commissions of up to 7% of the price of the Units sold by them, retaining the balance of 2%.

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Related Party Transactions: - (continued)

During the three and six months ended June 30, 2015 and 2014, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements pursuant to the Operating Agreement as follows (in thousands):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2015   2014   2015   2014
Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members capital   $      539     $     444     $    1,107     $       719  
Reimbursement of other syndication costs to Managing Member and/or affiliates, deducted from Other Members capital     360       296       738       479  
Administrative costs reimbursed to Managing Member and/or affiliates     107       2       173       3  
Asset management fees to Managing Member     55       13       91       14  
Acquisition and initial direct costs paid to Managing Member     112       88       201       131  
     $ 1,173     $ 843     $ 2,310     $ 1,346  

6. Syndication Costs:

Syndication costs are reflected as a reduction to Members’ capital as such costs are netted against the capital raised. The amount shown is primarily comprised of selling commissions as well as fees pertaining to the organization of the Fund, document preparation, regulatory filing fees, and accounting and legal costs. Syndication costs totaled $899 thousand and $740 thousand for the respective three months ended June 30, 2015 and 2014, and $1.8 million and $1.2 million for the respective six months ended June 30, 2015 and 2014.

The Operating Agreement places a limit for syndication cost reimbursements to the Managing Member and/or affiliates. When added to selling commissions, such cost reimbursements may not exceed a total equal to 15% of all offering proceeds. As of June 30, 2015 and December 31, 2014, the Company did not record syndication costs in excess of the limitation. The limitation on the amount of syndication costs pursuant to the Operating Agreement is determined on the date of termination of the offering. At such time, the Manager guarantees repayment of any excess syndication costs (above the limitation) which it may have collected from the Company, which guarantee is without recourse or reimbursement by the Fund.

7. Borrowing facilities:

Effective January 7, 2014, the Company has been added as a participant with AFS and certain of its affiliates in a revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions. The Credit Facility is comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate. The line was set at $75 million with an expiration date of June 2015. During April 2015, the line was reduced to $56 million and an affiliated company, ATEL 12, LLC, was removed effective December 30, 2014. At June 30, 2015, the line was further reduced to $41.1 million coincidental with a restructure of the lending group; and, the expiration extended to September 2015. The lending syndicate providing the Credit Facility will have a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Borrowing facilities: - (continued)

As of June 30, 2015 and December 31, 2014, borrowings under the Credit Facility were as follows (in thousands):

   
  June 30,
2015
  December 31,
2014
Total available under the financing arrangement   $       41,067     $       75,000  
Amount borrowed by the Company under the acquisition
facility
           
Amounts borrowed by affiliated partnerships and Limited Liability Companies under the working capital, acquisition and warehouse facilities     (1,120 )      (1,150 ) 
Total remaining available under the working capital, acquisition and warehouse facilities   $ 39,947     $ 73,850  

The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of June 30, 2015, the aggregate amount of the Credit Facility is potentially available to the Company, subject to certain sub-facility and borrowing-base limitations. However, as amounts are drawn on the Credit Facility by each of the Company and the affiliates who are borrowers under the Credit Facility, the amount remaining available to all borrowers to draw under Credit Facility is reduced. As the Warehousing Facility is a short term bridge facility, any amounts borrowed under the Warehousing Facility, and then repaid by the affiliated borrowers (including the Company) upon allocation of an acquisition to a specific purchaser, become available under the Warehouse Facility for further short term borrowing.

As of June 30, 2015, the Company’s Tangible Net Worth requirement under the Credit Facility was $10.0 million, the permitted maximum leverage ratio was not to exceed 1.50 to 1, and the required minimum interest coverage ratio was not to be less than 2 to 1. As of June 30, 2015, the Company was in compliance with all material financial covenants, and with all other material conditions of the Credit Facility. The Company does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing.

Fee and interest terms

The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility. There were no borrowings outstanding at June 30, 2015 and December 31, 2014.

Warehouse facility

To hold the assets under the Warehousing Facility prior to allocation to specific investor programs, a Warehousing Trust has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The Warehousing Trust is used by the Warehouse Facility borrowers to acquire and hold, on a short-term basis, certain lease transactions that meet the investment objectives of each of such entities. Each of the leasing programs sponsored by AFS and ALC is a pro rata participant in the Warehousing Trust, as described below. When a program no longer has a need for short-term financing provided by the Warehousing Facility, it is removed from participation, and as new leasing investment entities are formed by AFS and ALC and commence their acquisition stages, these new entities are added.

As of June 30, 2015, the investment program participants were ATEL 14, LLC, ATEL 15, LLC and the Company. Effective December 30, 2014, ATEL 12, LLC was formally removed as a participant of the Credit Facility. Pursuant to the Warehousing Trust, the benefit of the lease transaction assets, and the corresponding

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Borrowing facilities: - (continued)

liabilities under the Warehouse Facility, inure to each of such entities based upon each entity’s pro-rata share in the Warehousing Trust estate. The “pro-rata share” is calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the Warehousing Trust estate, excepting that the trustees, AFS and ALC, are both jointly and severally liable for the pro-rata portion of the obligations of each of the affiliated limited liability companies participating under the Warehouse Facility. Transactions are financed through this Warehouse Facility only until the transactions are allocated to a specific program for purchase or are otherwise disposed by AFS and ALC. When a determination is made to allocate the transaction to a specific program for purchase by the program, the purchaser repays the debt associated with the asset, either with cash or by means of proceeds of a draw under the Acquisition Facility, and the asset is removed from the Warehouse Facility collateral, and ownership of the asset and any debt obligation associated with the asset are assumed solely by the purchasing entity.

There were no borrowings under the Warehouse Facility as of June 30, 2015 and December 31, 2014.

8. Commitments:

At June 30, 2015, there were commitments to purchase lease assets and fund investments in notes receivable totaling approximately $8.3 million and $1.2 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/lessee or may not be accepted by the Company.

9. Guarantees:

The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, based upon the Manager’s experience, there have not been any prior claims or losses pursuant to these types of contracts and the expectation of risk of loss is remote.

The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.

10. Members’ Capital:

A total of 3,281,606 and 2,053,415 Units were issued and outstanding as of June 30, 2015 and December 31, 2014, respectively, including the 50 Units issued to the initial Member (Managing Member). The Fund is authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Member.

The Company has the right, exercisable in the Manager’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

10. Members’ Capital: - (continued)

The Fund’s net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, net income and net loss shall be allocated 99% to the Managing Member and 1% to the initial other members. Commencing with the initial closing date, net income and net loss shall be allocated 99.99% to the Other Members and 0.01% to the Managing Member.

Fund distributions are to be allocated 0.01% to the Managing Member and 99.99% to the Other Members. The Company commenced periodic distributions, based on cash flows from operations, during the second quarter of 2014.

Distributions to the Other Members for the three and six months ended June 30, 2015 and 2014 were as follows (in thousands except Units and per Unit data):

       
  Three Months Ended
June 30
  Six Months Ended
June 30
     2015   2014   2015   2014
Distributions   $ 522     $ 107     $ 929     $ 107  
Weighted average number of Units outstanding     2,986,563       541,972       2,658,045       312,643  
Weighted average distributions per Unit   $      0.17     $      0.20     $      0.35     $      0.34  

11. Fair value measurements:

Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

Level 3 — Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability.

At June 30, 2015 and December 31, 2014, only the Company’s warrants were measured on a recurring basis. As of the same dates, the Company had no assets or liabilities that required measurement at fair value on a non-recurring basis.

The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. Fair value measurements: - (continued)

The measurement methodology is as follows:

Warrants (recurring)

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, and a risk free interest rate for the term(s) of the warrant exercise(s). The calculated fair value of the Fund’s warrant portfolio was $14 thousand at June 30, 2015 and $11 thousand at December 31, 2014. Such valuation is classified within Level 3 of the valuation hierarchy.

The following table reconciles the beginning and ending balances of the Company’s Level 3 recurring assets (in thousands):

 
  Level 3
Assets
Balance at December 31, 2014   $         11  
Unrealized gain on warrants, net recorded during the period     3  
Balance at June 30, 2015   $ 14  

The following table summarizes the valuation techniques and significant unobservable inputs used for the Company’s recurring fair value calculation categorized as Level 3 in the fair value hierarchy at June 30, 2015 and December 31, 2014:

       
                                                                                              June 30, 2015
Name   Valuation
Frequency
  Valuation Technique   Unobservable Inputs   Range of Input Values
Warrants
    Recurring       Black-Scholes formulation       Stock price       $1.00 – $3.70  
                         Exercise price       $1.00 – $2.31  
                         Time to maturity (in years)       8.82 – 8.85  
                         Risk-free interest rate       2.24%  
                         Annualized volatility       100.00%  

       
                                                                                              December 31, 2014
Name   Valuation Frequency   Valuation Technique   Unobservable Inputs   Range of Input Values
Warrants
    Recurring       Black-Scholes formulation       Stock price       $1.00 – $2.31  
                         Exercise price       $1.00 – $2.31  
                         Time to maturity (in years)       9.32 – 9.35  
                         Risk-free interest rate       2.13%  
                         Annualized volatility       100.00%  

The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.

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ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. Fair value measurements: - (continued)

The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and cash equivalents

The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.

Notes receivable

The fair value of the Company’s notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.

The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at June 30, 2015 and December 31, 2014 (in thousands):

         
  June 30, 2015
     Carrying
Amount
  Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $      9,205     $       9,205     $         —     $         —     $        9,205  
Notes receivable, net     299                   299       299  
Fair value of warrants     14                   14       14  

         
  December 31, 2014
     Carrying Amount   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $      9,262     $       9,262     $         —     $         —     $        9,262  
Notes receivable, net     374                   374       374  
Fair value of warrants     11                   11       11  

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee and borrower defaults and the creditworthiness of its lessees and borrowers. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.

Overview

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 for the purpose of raising capital and originating equipment financing transactions and acquiring equipment to engage in equipment leasing and sales activities. The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of November 5, 2013.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company Units to the public reach $150 million. As of March 6, 2014, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2014. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal not less than $7.5 million in gross proceeds. Total contributions to the Fund exceeded $7.5 million on June 19, 2014. The Fund is actively raising capital and, as of July 31, 2015, has received cumulative contributions in the amount of $33.8 million, inclusive of the $500 initial member’s capital investment.

Results of Operations

The three months ended June 30, 2015 versus the three months ended June 30, 2014

The Company had net losses of $64 thousand and $72 thousand for the three months ended June 30, 2015 and 2014, respectively. Results for the second quarter of 2015 reflect increases in both total revenues and total expenses when compared to the prior year period.

Revenues

Total revenues for the second quarter of 2015 increased by $741 thousand as compared to the prior year period. The growth in revenues was primarily due to a $747 thousand increase in operating lease revenues as the Fund had acquired equipment for long term operating leases totaling $11.4 million since June 30, 2014. Such increase in acquisition of lease assets was primarily reflective of the increase in capital raised.

Expenses

Total expenses for the second quarter of 2015 increased by $733 thousand as compared to the prior year period. The increase in expenses was primarily attributable to increases in depreciation expense, cost reimbursements to affiliates and asset management fees to the Manager.

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The increase in depreciation expense totaled $554 thousand and was largely due to the addition of approximately $11.4 million of net equipment purchases for operating leases during the past twelve months. Cost reimbursements to affiliates increased by $105 thousand as a result of an increase in allocated costs consistent with the Fund’s expanded asset base and operations; and, asset management fees paid to the Manager increased by $42 thousand primarily due to the increase in managed assets.

The six months ended June 30, 2015 versus the six months ended June 30, 2014

The Company had net losses of $111 thousand and $141 thousand for the six months ended June 30, 2015 and 2014, respectively. Results for the first half of 2015 reflect increases in both total revenues and total expenses when compared to the prior year period.

Revenues

Total revenues for the first half of 2015 increased by $1.3 million as compared to the prior year period. The growth in revenues was primarily attributable to a $1.3 million increase in operating lease revenues as the Fund had acquired equipment for long term operating leases totaling $11.4 million since June 30, 2014. Such increase in acquisition of lease assets was primarily reflective of the increase in capital raised.

Expenses

Total expenses for the first half of 2015 increased by $1.3 million as compared to the prior year period. The increase in expenses was primarily attributable to increases in depreciation expense, cost reimbursements to affiliates, asset management fees to the Manager, professional fees, bank charges and amortization of initial direct costs offset, in part, by decreases in outside services and acquisition expense.

The increase in depreciation expense totaled $929 thousand and was largely due to the addition of approximately $11.4 million of net equipment purchases for operating leases during the past twelve months. Cost reimbursements to affiliates increased by $170 thousand as a result of an increase in allocated costs consistent with the Fund’s expanded asset base and operations; and, asset management fees paid to the Manager increased by $77 thousand primarily due to the increase in managed assets. Moreover, professional fees was higher by $44 thousand as a result of increased audit-related fees; and, bank changes increased by $41 thousand due to fees paid relative to the Fund’s inclusion in a line of credit facility during the first quarter of 2014. Finally, the increase in amortization of initial direct costs totaled $39 thousand and was a result of increased capitalized initial direct costs associated with equipment purchases and leases commenced since June 30, 2014.

Partially offsetting the aforementioned increases in expenses were decreases in outside services and acquisition expenses totaling $49 thousand and $33 thousand, respectively. The decrease in outside services was mainly due to lower business development costs incurred during the current year period; while the reduction in acquisition expense was largely due to the reassignment of such costs to certain affiliate leasing activities.

Capital Resources and Liquidity

The Company’s cash and cash equivalents totaled $9.2 million and $9.3 million at June 30, 2015 and December 31, 2014, respectively. The liquidity of the Company will vary in the future, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

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Cash Flows

The following table sets forth summary cash flow data (in thousands):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2015   2014   2015   2014
Net cash provided by (used in):
                                   
Operating activities   $ 271     $ 1,063     $      644     $      1,014  
Investing activities     (2,504 )      (7,086 )      (10,307 )      (7,113 ) 
Financing activities     4,628       4,104       9,606       6,734  
Net increase (decrease) in cash and cash equivalents   $     2,395     $    (1,919 )    $ (57 )    $ 635  

The three months ended June 30, 2015 versus the three months ended June 30, 2014

During the three months ended June 30, 2015 and 2014, the Company’s primary source of liquidity was subscription proceeds from the public offering of Units. Capital contributions totaled $6.0 million and $4.9 million for the respective three months ended June 30, 2015 and 2014. In addition, during the current year period, the Company began to realize cash flow from its portfolio of operating lease contracts.

During the same respective three-month periods, cash was primarily used for equipment purchases totaling $2.5 million and $6.6 million, payment of commissions and syndication costs associated with the offering totaling $895 thousand and $761 thousand, and payment of distributions to Members totaling $475 thousand and $63 thousand. In addition, during the prior year period, the Company funded investments in notes receivable totaling $480 thousand.

The six months ended June 30, 2015 versus the six months ended June 30, 2014

During the six months ended June 30, 2015 and 2014, the Company’s primary source of liquidity was subscription proceeds from the public offering of Units. Capital contributions totaled $12.3 million and $8.0 million for the respective six months ended June 30, 2015 and 2014. In addition, during the current year period, the Company began to realize cash flow from its portfolio of operating lease contracts.

During the same respective six-month periods, cash was primarily used for equipment purchases totaling $10.2 million and $6.6 million, payment of commissions and syndication costs associated with the offering totaling $1.8 million and $1.2 million, and payment of distributions to Members totaling $831 thousand and $63 thousand. In addition, during the prior year period, the Company funded investments in notes receivable totaling $480 thousand.

Revolving credit facility

Effective January 7, 2014, the Company has been added as a participant with AFS and certain of its affiliates in a revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions. The Credit Facility is comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate. The line was set at $75 million with an expiration date of June 2015. During April 2015, the line was reduced to $56 million and an affiliated company, ATEL 12, LLC, was removed effective December 30, 2014. At June 30, 2015, the line was further reduced to $41.1 million coincidental with a restructure of the lending group; and, the expiration extended to September 2015. The lending syndicate providing the Credit Facility will have a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

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Compliance with covenants

The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was in compliance with all applicable covenants under the Credit Facility as of June 30, 2015. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.

Material financial covenants

Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies.

As of June 30, 2015, the material financial covenants are summarized as follows:

Minimum Tangible Net Worth:  $10.0 million

Leverage Ratio (leverage to Tangible Net Worth):  Not to exceed 1.50 to 1

Collateral Value:  Collateral value under the Warehouse Facility must be no less than the outstanding borrowings under that facility

EBITDA to Interest Ratio:  Not to be less than 2 to 1 for the four fiscal quarters just ended

“EBITDA” is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. “Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under accounting principles generally accepted in the United States of America (“GAAP”), and after certain other adjustments permitted under the agreements.

The financial covenants referred to above are applicable to the Company whether or not there are any borrowings outstanding under the Credit Facility. As of June 30, 2015, the Company was in compliance with all such material financial covenants.

Reconciliation to GAAP of EBITDA

For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.

The following is a reconciliation of net loss to EBITDA, as defined in the loan agreement, for the twelve months ended June 30, 2015 (in thousands):

 
Net loss – GAAP basis   $ (334 ) 
Interest expense     4  
Depreciation and amortization     1,609  
Amortization of initial direct costs     64  
Provision for doubtful accounts     2  
Unrealized gain on fair valuation of warrants     (14 ) 
Principal payments received on notes receivable     143  
EBITDA (for Credit Facility financial covenant calculation only)   $    1,474  

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Events of default, cross-defaults, recourse and security

The terms of the Credit Facility include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the Credit Facility should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders also retain the discretion to waive a violation of any covenant at the Company’s request.

The Company is currently in compliance with its obligations under the Credit Facility. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations.

The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility.

The Acquisition Facility is generally recourse solely to the Company, and is not cross-defaulted to any other obligations of affiliated companies under the Credit Facility, except as described in this paragraph. The Credit Facility is cross-defaulted to a default in the payment of any debt (other than non-recourse debt) or any other agreement or condition beyond the period of grace (not exceeding 30 days), the effect of which would entitle the lender under such agreement to accelerate the obligations prior to their stated maturity in an individual or aggregate principal amount in excess of 15% of the Company’s consolidated Tangible Net Worth. Also, a bankruptcy of AFS will trigger a default for the Company under the Credit Facility.

Distributions

The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of April 2014. Additional distributions have been made through June 30, 2015.

Cash distributions were paid by the Fund to Unitholders of record as of May 31, 2015, and paid through June 30, 2015. The distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the Prospectus under “Income, Losses and Distributions.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.

The cash distributions were based on current and anticipated gross revenues from the loans funded and equity investments acquired. During the Fund's acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund's actual and anticipated gross revenues to be generated from the binding initial terms of the loans and investments funded.

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The following table summarizes distribution activity for the Fund from inception through June 30, 2015 (in thousands except for Units and Per Unit Data):

                 
                 
Distribution Period(1)   Paid   Return of
Capital
    Distribution
of Income
    Total
Distribution
    Total
Distribution
per Unit(2)
  Weighted
Average Units
Outstanding(3)
Monthly and quarterly distributions
                                                                           
 
Nov 2013 – Mar 2014
(Distribution of all escrow interest)
    Jun 2014     $              $              $                n/a       n/a  
Mar 2014 – Nov 2014     Apr 2014 – 
Dec 2014
      453                               453                0.51       896,524  
Dec 2014 – May 2015     Jan 2015 – 
Jun 2015
      831                         831             0.34         2,441,400  
           $   1,284           $      —           $    1,284           $     0.85        
Source of distributions
                                                                                
Lease and loan payments and sales proceeds received            $ 1,284       100.00 %    $       0.00 %    $ 1,284       100.00 %                   
Interest Income                    0.00 %            0.00 %            0.00 %                   
Debt against non-cancellable firm term payments on leases and loans                 0.00 %            0.00 %            0.00 %             
           $ 1,284       100.00 %    $       0.00 %    $ 1,284       100.00 %             

(1) Investors may elect to receive their distributions either monthly or quarterly. See “Timing and Method of Distributions” on Page 67 of the Prospectus.
(2) Total distributions per Unit represents the per Unit distributions rate for those units which were outstanding for all of the applicable period.
(3) Balances shown represent weighted average units for the period from March 6 — November 30, 2014 and December 1, 2014 — May 31, 2015, respectively.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At June 30, 2015, there were commitments to purchase lease assets and fund investments in notes receivable totaling approximately $8.3 million and $1.2 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/lessee or may not be accepted by the Company.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year. As a result, ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The board will also allow companies to adopt the standard as of the original effective date, which is January 2017, if they are inclined to do so. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues.

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In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

Item 4. Controls and procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Member’s financial position or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Information provided pursuant to §229.701 (Item 701(f)) (formerly included in Form SR):

 

(1)

Effective date of the offering: November 5, 2013; File Number: 333-188924

    

(2)

Offering commenced: November 5, 2013

    

(3)

The offering did not terminate before any securities were sold.

    

(4)

The managing underwriter is ATEL Securities Corporation.

    

(5)

The title of the registered class of securities is “Units of Limited Liability Company Interest.”

    

(6)

Aggregate amount and offering price of securities registered and sold as of June 30, 2015 (dollars in thousands):

    

       
Title of Security   Amount
Registered
  Aggregate price of
offering amount
registered
  Units sold   Aggregate price
of offering
amount sold
Units of Limited Company Interest     15,000,000     $      150,000       3,281,606     $        32,816  

 

(7)

Costs incurred for the issuers’ account in connection with the issuance and distribution of the securities registered for each category listed below (in thousands):

     
  Direct or indirect payments to
directors, officers, Managing
Members of the issuer or their
associates, to persons owning
ten percent or more of any class of
equity securities of the issuer; and
to affiliates of the issuer
  Direct or
indirect
payments to
others
  Total
Underwriting discounts and
commissions
  $             656     $   2,297     $     2,953  
Other syndication costs           1,970       1,970  
Total expenses   $ 656     $ 4,267     $ 4,923  

     

(8)

Net offering proceeds to the issuer after total expenses in item 7 (in thousands):

    $     27,893

(9)

The amount of net offering proceeds to the issuer used for each of the purposes listed below (in thousands):

     
  Direct or indirect payments to
directors, officers, Managing
Members of the issuer or their
associates, to persons owning
ten percent or more of any class of
equity securities of the issuer; and to affiliates of the issuer
  Direct or
indirect
payments to
others
  Total
Purchase and installation of machinery and equipment   $             378     $   18,103     $     18,481  
Investment in notes receivable     2       480       482  
Distributions paid and accrued           1,504       1,504  
Other expenses           1,015       1,015  
     $ 380     $ 21,102     $ 21,482  

     

(10)

Net offering proceeds to the issuer after total expenses in item 9 (in thousands):

   $       6,411

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Documents filed as a part of this report
1. Financial Statement Schedules

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

2. Other Exhibits

 
31.1   Certification of Dean L. Cash
31.2   Certification of Paritosh K. Choksi
32.1   Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2   Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

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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: August 13, 2015

ATEL 16, LLC
(Registrant)

By: ATEL Managing Member, LLC
Managing Member of Registrant

 
 

By:

/s/ Dean L. Cash

Dean L. Cash
Chairman of the Board, President and
Chief Executive Officer of ATEL Managing Member,
LLC (Managing Member)

    

By:

/s/ Paritosh K. Choksi

Paritosh K. Choksi
Director, Executive Vice President and Chief Financial
Officer and Chief Operating Officer of ATEL Managing
Member, LLC (Managing Member)

    

By:

/s/ Samuel Schussler

Samuel Schussler
Vice President and Chief Accounting Officer of ATEL Managing Member, LLC (Managing Member)

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