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EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON ECI Fund Sixteenex-31.1.htm
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EX-31.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON ECI Fund Sixteenex-31.3.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - ICON ECI Fund Sixteenex-31.2.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON ECI Fund Sixteenex-32.1.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON ECI Fund Sixteenex-32.2.htm
EX-32.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - ICON ECI Fund Sixteenex-32.3.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[x]        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

For the quarterly period ended

                                                 September 30, 2015

or

[  ]        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:

                                      333-185144

 

ICON ECI Fund Sixteen

(Exact name of registrant as specified in its charter)

Delaware

 

80-0860084

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

3 Park Avenue, 36th Floor

 

 

New York, New York

 

10016

(Address of principal executive offices)

 

(Zip Code)

 

         (212) 418-4700

 

(Registrant’s telephone number, including area code)

  

Indicate by 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     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     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 the definitions of “large accelerated filer,” “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 (Do not check if a smaller reporting company)

   Smaller reporting company 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o    No

Number of outstanding Class A and Class I shares of the registrant on November 4, 2015 is 17,189 and 410, respectively.

                       

  

 


 

ICON ECI Fund Sixteen

Table of Contents

PART I - FINANCIAL INFORMATION

Page

Item 1. Consolidated Financial Statements

1

Consolidated Balance Sheets           

Consolidated Statements of Operations

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

1

2

3

4

5

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

12

Item 3. Quantitative and Qualitative Disclosures About Market Risk

20

Item 4. Controls and Procedures

20

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

21

Item 1A. Risk Factors

21

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

21

Item 3. Defaults Upon Senior Securities

21

Item 4. Mine Safety Disclosures

21

Item 5. Other Information  

21

Item 6. Exhibits

22

Signatures

23

 

 

 

  

 


PART I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

ICON ECI Fund Sixteen

(A Delaware Statutory Trust)

Consolidated Balance Sheets

 

 

September 30,

 

December 31,

 

2015

 

2014

 

(unaudited)

 

 

 

Assets

 

Cash

$

3,772,211

 

$

4,249,074

 

Net investment in note receivable

 

2,624,772

 

 

2,643,487

 

Net investment in finance lease

 

7,757,380

 

 

9,594,485

 

Investment in joint ventures

 

3,721,141

 

 

4,094,120

 

Other assets

 

165,969

 

 

15,515

Total assets

$

18,041,473

 

$

20,596,681

Liabilities and Equity

Liabilities:

 

 

 

 

 

 

Due to Investment Manager and affiliates

$

116,160

 

$

945,186

 

Accrued expenses and other liabilities

 

575,855

 

 

580,337

 

 

Total liabilities

 

692,015

 

 

1,525,523

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

Shareholders' capital

 

 

 

 

 

 

 

Class A

 

13,311,769

 

 

14,143,865

 

 

Class I

 

319,188

 

 

338,623

 

 

 

Total shareholders' capital

 

13,630,957

 

 

14,482,488

 

Noncontrolling interests

 

3,718,501

 

 

4,588,670

 

 

Total equity

 

17,349,458

 

 

19,071,158

Total liabilities and equity

$

18,041,473

 

$

20,596,681

 

See accompanying notes to consolidated financial statements.

1


ICON ECI Fund Sixteen

(A Delaware Statutory Trust)

Consolidated Statements of Operations

(unaudited)

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2015

 

2014

 

2015

 

2014

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

Finance income

$

259,780

 

$

93,093

 

$

836,906

 

$

93,093

 

Income from investment in joint ventures

 

144,268

 

 

166,547

 

 

414,160

 

 

365,552

 

Other income

 

-

 

 

11

 

 

-

 

 

11

 

 

Total revenue

 

404,048

 

 

259,651

 

 

1,251,066

 

 

458,656

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Management fees

 

42,891

 

 

27,702

 

 

125,016

 

 

62,075

 

Administrative expense reimbursements

 

99,234

 

 

132,432

 

 

336,069

 

 

459,505

 

General and administrative

 

56,261

 

 

51,197

 

 

252,084

 

 

205,699

 

Interest

 

6,394

 

 

7,236

 

 

20,857

 

 

17,166

 

Organization costs

 

-

 

 

1,047

 

 

-

 

 

6,622

 

 

Total expenses

 

204,780

 

 

219,614

 

 

734,026

 

 

751,067

Net income (loss)

 

199,268

 

 

40,037

 

 

517,040

 

 

(292,411)

 

Less: net income attributable to noncontrolling interests

 

94,838

 

 

43,768

 

 

305,056

 

 

43,768

Net income (loss) attributable to Fund Sixteen

$

104,430

 

$

(3,731)

 

$

211,984

 

$

(336,179)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to Fund Sixteen allocable to:

 

 

 

 

 

 

 

 

 

 

 

 

Additional Class A and Class I shareholders

$

103,386

 

$

(3,694)

 

$

209,864

 

$

(332,817)

 

Managing Owner

 

1,044

 

 

(37)

 

 

2,120

 

 

(3,362)

 

 

 

$

104,430

 

$

(3,731)

 

$

211,984

 

$

(336,179)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Class A shares:

 

Net income (loss) attributable to Fund Sixteen allocable to

 

 

 

 

 

 

 

 

 

 

 

 

 

additional Class A shareholders

$

100,881

 

$

(3,687)

 

$

204,681

 

$

(328,189)

 

Weighted average number of additional Class A shares outstanding

 

17,189

 

 

14,502

 

 

17,189

 

 

10,101

 

Net income (loss) attributable to Fund Sixteen per weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

average additional Class A share

$

5.87

 

$

(0.25)

 

$

11.91

 

$

(32.49)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional Class I shares:

 

Net income (loss) attributable to Fund Sixteen allocable to

 

 

 

 

 

 

 

 

 

 

 

 

 

additional Class I shareholders

$

2,505

 

$

(7)

 

$

5,183

 

$

(4,628)

 

Weighted average number of additional Class I shares outstanding

 

410

 

 

328

 

 

410

 

 

190

 

Net income (loss) attributable to Fund Sixteen per weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

average additional Class I share

$

6.11

 

$

(0.02)

 

$

12.64

 

$

(24.36)

 

See accompanying notes to consolidated financial statements.   

2


ICON ECI Fund Sixteen

(A Delaware Statutory Trust)

Consolidated Statements of Changes in Equity

 

 

Class A

 

Class I

 

 

 

 

 

 

 

 

Managing Owner

 

Additional Shareholders

 

Total Class A

 

Additional Shareholders

 

 

 

Total

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Noncontrolling Interests

 

Shares

 

Amount

Balance, December 31, 2014

0.001

 

$

(12,729)

 

17,189

 

$

14,156,594

 

17,189

 

$

14,143,865

 

410

 

$

338,623

 

$

4,588,670

 

17,599

 

$

19,071,158

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

-

 

 

239

 

-

 

 

23,019

 

-

 

 

23,258

 

-

 

 

649

 

 

104,557

 

-

 

 

128,464

 

Distributions

-

 

 

(3,466)

 

-

 

 

(335,044)

 

-

 

 

(338,510)

 

-

 

 

(8,086)

 

 

(444,000)

 

-

 

 

(790,596)

Balance, March 31, 2015

0.001

 

 

(15,956)

 

17,189

 

 

13,844,569

 

17,189

 

 

13,828,613

 

410

 

 

331,186

 

 

4,249,227

 

17,599

 

 

18,409,026

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

-

 

 

837

 

-

 

 

80,781

 

-

 

 

81,618

 

-

 

 

2,029

 

 

105,661

 

-

 

 

189,308

 

Investment by noncontrolling

-

 

 

-

 

-

 

 

-

 

-

 

 

-

 

-

 

 

-

 

 

17,163

 

-

 

 

17,163

 

 interests 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions

-

 

 

(3,585)

 

-

 

 

(346,608)

 

-

 

 

(350,193)

 

-

 

 

(8,266)

 

 

(453,657)

 

-

 

 

(812,116)

Balance, June 30, 2015       

0.001

 

 

(18,704)

 

17,189

 

 

13,578,742

 

17,189

 

 

13,560,038

 

410

 

 

324,949

 

 

3,918,394

 

17,599

 

 

17,803,381

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

-

 

 

1,044

 

-

 

 

100,881

 

-

 

 

101,925

 

-

 

 

2,505

 

 

94,838

 

-

 

 

199,268

 

Distributions

-

 

 

(3,585)

 

-

 

 

(346,609)

 

-

 

 

(350,194)

 

-

 

 

(8,266)

 

 

(294,731)

 

-

 

 

(653,191)

Balance, September 30, 2015

0.001

 

$

(21,245)

 

17,189

 

$

13,333,014

 

17,189

 

$

13,311,769

 

410

 

$

319,188

 

$

3,718,501

 

17,599

 

$

17,349,458

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

3


ICON ECI Fund Sixteen

(A Delaware Statutory Trust)

Consolidated Statements of Cash Flows

(unaudited)

 

 

Nine Months Ended September 30,

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

 

Net income (loss)

$

517,040

 

$

(292,411)

 

Adjustments to reconcile net income (loss) to net cash (used in) provided by

 

 

 

 

 

 

 

operating activities:

 

 

 

 

 

 

 

Finance income

 

60,978

 

 

5,467

 

 

Income from investment in joint ventures

 

(414,160)

 

 

(365,552)

 

 

Interest expense from amortization of debt financing costs

 

8,105

 

 

7,025

 

 

Interest expense, other

 

12,752

 

 

5,973

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Other assets

 

(158,559)

 

 

-

 

 

Due to Investment Manager and affiliates, net

 

(827,500)

 

 

427,891

 

 

Accrued expenses and other liabilities

 

(17,234)

 

 

40,532

 

 

Distributions from joint ventures

 

414,160

 

 

345,936

Net cash (used in) provided by operating activities

 

(404,418)

 

 

174,861

Cash flows from investing activities:

 

 

 

 

 

 

Purchase of equipment

 

-

 

 

(10,798,469)

 

Investment in note receivable

 

-

 

 

(2,626,471)

 

Principal received on finance lease

 

1,794,842

 

 

522,739

 

Investment in joint ventures

 

(1,014,355)

 

 

(4,904,295)

 

Distributions received from joint ventures in excess of profit

 

1,387,334

 

 

1,319,675

Net cash provided by (used in) investing activities

 

2,167,821

 

 

(16,486,821)

Cash flows from financing activities:

 

 

 

 

 

 

Sale of Class A and Class I shares

 

-

 

 

13,917,075

 

Sales and offering expenses paid

 

(1,526)

 

 

(880,347)

 

Investment by noncontrolling interests

 

17,163

 

 

5,214,390

 

Distributions to noncontrolling interests

 

(1,192,388)

 

 

(347,473)

 

Distributions to shareholders

 

(1,063,515)

 

 

(571,138)

Net cash (used in) provided by financing activities

 

(2,240,266)

 

 

17,332,507

Net (decrease) increase in cash

 

(476,863)

 

 

1,020,547

Cash, beginning of period

 

4,249,074

 

 

1,027,327

Cash, end of period

$

3,772,211

 

$

2,047,874

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

Offering expenses payable to Investment Manager charged to equity

$

-

 

$

128,540

 

Distribution fees payable to dealer-manager

$

-

 

$

11,135

 

Sales commission trail payable to third parties

$

-

 

$

343,836

 

Acquisition fee payable to Investment Manager

$

-

 

$

125,328

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

4


Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

(1)   Organization

 

ICON ECI Fund Sixteen (the “Fund”) was formed on October 11, 2012 as a Delaware statutory trust. When used in these notes to consolidated financial statements, the terms “we,” “us,” “our” or similar terms refer to the Fund and its consolidated subsidiaries.

 

We are a direct financing fund that primarily makes investments in or that are collateralized by equipment and other corporate infrastructure (collectively, “Capital Assets”). The investments are in companies that utilize Capital Assets to operate their businesses. These investments are primarily structured as debt and debt-like financings such as loans, leases and other structured financing transactions in or that are collateralized by Capital Assets that ICON MT 16, LLC, a Delaware limited liability company and our managing owner (the “Managing Owner”), believes will provide us with a satisfactory, risk-adjusted rate of return. Our Managing Owner makes investment decisions on our behalf and manages our business.

 

Our investment objectives are to preserve investors’ capital, provide distributions and provide a favorable total return. To meet our investment objectives, we have used the net proceeds from our offering and will use the cash generated from our investments to originate or acquire a diverse pool of investments described above, as well as other strategic investments collateralized by Capital Assets. ICON Capital, LLC, a Delaware limited liability company and our affiliate, is our investment manager (the “Investment Manager”). Our Investment Manager originates and services our investments. Wilmington Trust, National Association (the “Trustee”) serves as our sole trustee pursuant to our Third Amended and Restated Trust Agreement (the “Trust Agreement”). The Trustee delegated to our Managing Owner all of the power and authority to manage our business and affairs and has only nominal duties and liabilities to us.

 

Our offering period commenced on July 1, 2013 and ended on December 31, 2014. Our Managing Owner determined to cease our offering period earlier than originally anticipated as a result of lower than expected offering proceeds being raised. Our operating period commenced on January 1, 2015. We offered to sell to the public any combination of two classes of shares, Class A shares and Class I shares (collectively, the “Shares”), on a “best efforts” basis with the intention of raising up to $250,000,000 of capital, of which $9,000,000 had been reserved for issuance pursuant to our distribution reinvestment plan (the “DRIP”). Other than differing allocable fees and expenses, Class A shares and Class I shares have identical rights and privileges, such as identical voting and distribution rights. We reserved the right to reallocate the offering amount between the primary offering and the DRIP.

 

As of November 12, 2013 (the “Initial Closing Date”), we raised a minimum of $1,200,000 from the sale of our Shares, at which time shareholders were admitted and we commenced operations. As of June 13, 2014, we raised the $12,500,000 minimum offering amount for the Commonwealth of Pennsylvania. Subsequent to the Initial Closing Date, we returned the initial capital contribution of $1,000 to ICON Investment Group, LLC (the “Initial Shareholder”). From the commencement of our offering on July 1, 2013 through December 31, 2014, we sold 17,189 Class A shares to 351 Class A shareholders and 410 Class I shares to six Class I shareholders,  of which 404 Class A shares and 12 Class I shares were issued pursuant to the DRIP, representing an aggregate of $17,469,610 of capital contributions.  From the Initial Closing Date through December 31, 2014, we incurred sales commissions to third parties of $1,198,531 and dealer-manager and distribution fees of $347,547 to CĪON Securities, LLC, formerly known as ICON Securities, LLC, the dealer-manager of our offering and an affiliate of our Investment Manager (“CĪON Securities”). In addition, organization costs of $8,418 and offering expenses of $161,422 were incurred by us during such period. Organization costs were expensed when incurred and offering expenses were recorded as a reduction of shareholders’ equity.

 

(2)   Summary of Significant Accounting Policies

 

Basis of Presentation and Consolidation

 

Our accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for Quarterly Reports on Form 10-Q. In the opinion of our Managing Owner, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation have been included.  These consolidated financial statements should be read together with the consolidated financial statements and notes

5


Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

included in our Annual Report on Form 10-K for the year ended December 31, 2014. The results for the interim period are not necessarily indicative of the results for the full year.

 

Credit Quality of Notes Receivable and Finance Leases and Credit Loss Reserve

 

Our Investment Manager monitors the ongoing credit quality of our financing receivables by (i) reviewing and analyzing a borrower’s financial performance on a regular basis, including review of financial statements received on a monthly, quarterly or annual basis as prescribed in the loan or lease agreement, (ii) tracking the relevant credit metrics of each financing receivable and a borrower’s compliance with financial and non-financial covenants, (iii) monitoring a borrower’s payment history and public credit rating, if available, and (iv) assessing our exposure based on the current investment mix. As part of the monitoring process, our Investment Manager may physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such borrower’s financial performance and its future plans on an as-needed basis. 

 

As our financing receivables, generally notes receivable and finance leases, are limited in number, our Investment Manager is able to estimate the credit loss reserve based on a detailed analysis of each financing receivable as opposed to using portfolio-based metrics. Our Investment Manager does not use a system of assigning internal risk ratings to each of our financing receivables. Rather, each financing receivable is analyzed quarterly and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying scheduled payments and compliance with financial covenants. A financing receivable is usually categorized as non-performing only when a borrower experiences financial difficulties and has failed to make scheduled payments. Our Investment Manager then analyzes whether the financing receivable should be placed on a non-accrual status, a credit loss reserve should be established or the financing receivable should be restructured. As part of the assessment, updated collateral value is usually considered and such collateral value can be based on a third party industry expert appraisal or, depending on the type of collateral and accessibility to relevant published guides or market sales data, internally derived fair value. Material events would be specifically disclosed in the discussion of each financing receivable held. 

 

Financing receivables are generally placed in a non-accrual status when payments are more than 90 days past due. Additionally, our Investment Manager periodically reviews the creditworthiness of companies with payments outstanding less than 90 days and based upon our Investment Manager’s judgment, these accounts may be placed in a non-accrual status.

 

In accordance with the cost recovery method, payments received on non-accrual financing receivables are applied to principal if there is doubt regarding the ultimate collectability of principal. If collection of the principal of non-accrual financing receivables is not in doubt, interest income is recognized on a cash basis. Financing receivables in non-accrual status may not be restored to accrual status until all delinquent payments have been received, and we believe recovery of the remaining unpaid receivable is probable.

 

When our Investment Manager deems it is probable that we will not be able to collect all contractual principal and interest on a non-performing financing receivable, we perform an analysis to determine if a credit loss reserve is necessary. This analysis considers the estimated cash flows from the financing receivable, and/or the collateral value of the asset underlying the financing receivable when financing receivable repayment is collateral dependent. If it is determined that the impaired value of the non-performing financing receivable is less than the net carrying value, we will recognize a credit loss reserve or adjust the existing credit loss reserve with a corresponding charge to earnings. We then charge off a financing receivable in the period that it is deemed uncollectible by reducing the credit loss reserve and the balance of the financing receivable.

 

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. This 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. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date (“ASU 2015-14”), which defers implementation of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is

6


Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

permitted, but not before our original effective date of January 1, 2017. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which provides guidance about 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 adoption of ASU 2014-15 becomes effective for us on our fiscal year ending December 31, 2016, and all subsequent annual and interim periods. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.

 

In January 2015, FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (“ASU 2015-01”), which simplifies income statement presentation by eliminating the concept of extraordinary items. The adoption of ASU 2015-01 becomes effective for us on January 1, 2016, including interim periods within that reporting period. Early adoption is permitted. The adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements.

 

In February 2015, FASB issued ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis (“ASU 2015-02”), which modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis by reducing the frequency of application of related party guidance and excluding certain fees in the primary beneficiary determination. The adoption of ASU 2015-02 becomes effective for us on January 1, 2016, including interim periods within that reporting period. Early adoption is permitted. The adoption of ASU 2015-02 is not expected to have a material effect on our consolidated financial statements.

 

In April 2015, FASB issued ASU No. 2015-03, Interest – Imputation of Interest (“ASU 2015-03”), which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of such debt liability, consistent with debt discounts. In August 2015, FASB issued ASU No. 2015-15, Interest – Imputation of Interest (“ASU 2015-15”), which further specifies the SEC Staff’s view on the presentation and subsequent measurement of debt issuance costs associated with line of credit arrangements. ASU 2015-03 and ASU 2015-15 will be applied on a retrospective basis. The adoption of ASU 2015-03 and ASU 2015-15 becomes effective for us on January 1, 2016, including interim periods within that reporting period. Early adoption is permitted. The adoption of ASU 2015-03 and ASU 2015-15 is not expected to have a material effect on our consolidated financial statements. Upon adoption of both accounting standards updates, debt issuance costs associated with non-recourse long-term debt will be reclassified in our consolidated balance sheets from other assets to non-recourse long-term debt, while debt issuance costs associated with line of credit arrangements will continue to be presented in other assets on our consolidated balance sheets.  

 

(3)   Net Investment in Note Receivable

 

As of September 30, 2015 and December 31, 2014, we had no net investment in note receivable on non-accrual status and no net investment in note receivable that was past due 90 days or more and still accruing.

 

Net investment in note receivable consisted of the following:

 

September 30, 2015

 

December 31, 2014

 

Principal outstanding

$

2,500,000

 

$

2,500,000

 

Initial direct costs

 

166,286

 

 

191,229

 

Deferred fees

 

(41,514)

 

 

(47,742)

 

     Net investment in note receivable

$

2,624,772

 

$

2,643,487

 

 

 

 

 

 

 

Assets for which Fair Value is Disclosed

 

Certain of our financial assets, which include a fixed-rate note receivable, for which fair value is required to be disclosed,

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Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

were valued using inputs that are generally unobservable and are supported by little or no market data and are therefore classified within Level 3. Under U.S. GAAP, we use projected cash flows for fair value measurements of this financial asset. Fair value information with respect to certain of our other assets is not separately provided since (i) U.S. GAAP does not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets and liabilities, other than lease-related investments, approximates fair value due to their short-term maturities.

 

The estimated fair value of our fixed-rate note receivable was based on the discounted value of future cash flows related to the loan at inception, adjusted for changes in certain variables, including, but not limited to, credit quality, industry, financial markets and other recent comparables. As of September 30, 2015, the fair value of the principal outstanding on the fixed-rate note receivable was estimated to be $2,550,000 and was derived using a discount rate of 10.68% per year.

 

(4)   Net Investment in Finance Lease

 

As of September 30, 2015 and December 31, 2014, we had no investment in finance lease on non-accrual status and no net investment in finance lease that was past due 90 days or more and still accruing.

 

Net investment in finance lease consisted of the following:

 

September 30, 2015

 

December 31, 2014

 

Minimum rents receivable

$

7,061,247

 

$

9,558,326

 

Estimated unguaranteed residual value

 

1,593,483

 

 

1,600,345

 

Initial direct costs

 

111,469

 

 

189,202

 

Unearned income

 

(1,008,819)

 

 

(1,753,388)

 

     Net investment in finance lease

$

7,757,380

 

$

9,594,485

 

 

 

 

(5)   Investment in Joint Ventures

 

On September 12, 2013, ICON Murray VI, LLC (“ICON Murray VI”), a joint venture owned 19.8% by us, 67% by ICON Leasing Fund Eleven, LLC (“Fund Eleven”) and 13.2% by ICON Leasing Fund Twelve, LLC (“Fund Twelve”), each an entity also managed by our Investment Manager, purchased mining equipment that was simultaneously leased to Murray Energy Corporation and certain of its affiliates (collectively, “Murray”) for 24 months. The lease was scheduled to expire on September 30, 2015, but was extended for one month with an additional lease payment of $635,512. On October 29, 2015, Murray repurchased the equipment from the joint venture pursuant to the terms of the lease for $2,991,400. Pursuant to a remarketing agreement with a third party, the joint venture is required to pay an aggregate remarketing fee of $766,466. No gain or loss was recognized as a result of the sale.

 

Information as to the results of operations of ICON Murray VI is summarized as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

1,906,537

 

$

1,906,537

 

$

5,719,612

 

$

5,719,612

 

Net income

 

$

254,338

 

$

330,567

 

$

764,617

 

$

842,761

 

Our share of net income

 

$

43,326

 

$

58,419

 

$

130,294

 

$

132,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information as to the results of operations of ICON Blackhawk, LLC is summarized as follows:

8


Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

486,138

 

$

727,311

 

$

1,871,007

 

$

1,638,798

 

Net income

 

$

328,642

 

$

555,156

 

$

1,284,170

 

$

1,303,866

 

Our share of net income

 

$

33,414

 

$

56,119

 

$

130,113

 

$

131,793

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information as to the results of operations of ICON 1845, LLC is summarized as follows:

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenue

 

$

348,738

 

$

413,524

 

$

1,126,627

 

$

803,778

 

Net income

 

$

333,801

 

$

413,524

 

$

1,018,320

 

$

802,139

 

Our share of net income

 

$

42,043

 

$

52,009

 

$

128,267

 

$

100,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On July 10, 2015, a joint venture owned 10% by us, 50% by ICON ECI Fund Fifteen, L.P. (“Fund Fifteen”) and 40% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”), each an entity also managed by our Investment Manager, purchased auxiliary support equipment and robots used in the production of certain automobiles for $9,934,118, which were simultaneously leased to Challenge Mfg. Company, LLC and certain of its affiliates (collectively, “Challenge”) for 60 months. Our contribution to the joint venture was $998,379.

  

(6)   Revolving Line of Credit, Recourse

 

On March 31, 2015, we extended our revolving line of credit of up to $5,000,000 (the “Facility”) with California Bank & Trust (“CB&T”) through May 30, 2017. As part of such extension, we paid debt financing costs of $19,000. The Facility is secured by all of our assets not subject to a first priority lien. Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, by the present value of the future receivables under certain loans and lease agreements in which we have a beneficial interest.

 

The interest rate for general advances under the Facility is CB&T’s prime rate. We may elect to designate up to five advances on the outstanding principal balance of the Facility to bear interest at the London Interbank Offered Rate (“LIBOR”) plus 2.5% per year. In all instances, borrowings under the Facility are subject to an interest rate floor of 4.0% per year. In addition, we are obligated to pay an annualized 0.5% fee on unused commitments under the Facility. At September 30, 2015, there were no obligations outstanding under the Facility and we were in compliance with all covenants related to the Facility.

 

At September 30, 2015, we had $2,052,341 available under the Facility pursuant to the borrowing base.  

 

(7)   Transactions with Related Parties

 

We have entered into certain agreements with our Investment Manager and CĪON Securities whereby we paid or pay certain fees and reimbursements to these parties. We paid or pay CĪON Securities (i) a dealer-manager fee for Class A shares sold in the offering equal to 2% of gross offering proceeds from sales of such Class A shares for managing the offering and to reimburse the dealer-manager for wholesaling fees and expenses and (ii) a distribution fee equal to 0.55% of gross offering proceeds from Class I shares sold in the offering for managing the distribution of the Class I shares. We will continue to pay the distribution fee with respect to the Class I shares sold in the offering until the earlier to occur of: (i) total distribution fees paid with respect to the Class I shares following the completion of the offering equaling 10% of the gross proceeds received with respect to the issuance of such shares from the primary portion of the offering or (ii) our entry into our wind down period. The distribution fee is paid monthly in arrears. During the three and nine months ended September 30, 2015, we paid distribution fees of $1,526 previously accrued in due to Investment Manager and affiliates on our consolidated balance sheets. No dealer-manager or distribution fees were or will be paid on any Shares sold pursuant to the DRIP.

 

Our Managing Owner also has a 1% interest in our profits, losses, distributions and liquidation proceeds, subject to increase based on our investors achieving a preferred return. In addition, our Investment Manager and its affiliates were reimbursed for a portion of the organization and offering expenses incurred in connection with our organization and offering of

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Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

Shares and will be reimbursed for administrative expenses incurred in connection with our operations. The reimbursement of organization and offering expenses was capped at the lesser of 1.44% of the maximum primary offering amount of $241,000,000 and the actual costs and expenses incurred by our Investment Manager and its affiliates. Through the end of our offering period, our Investment Manager and its affiliates incurred, on our behalf, organization and offering expenses of $1,759,237, of which our Investment Manager and its affiliates determined only to seek reimbursement of $239,758. As of September 30, 2015 and December 31, 2014, $0 and $52,144, respectively, of such amount was included in due to Investment Manager and affiliates on our consolidated balance sheets.

 

We pay our Investment Manager (i) a management fee of 3.50% of the gross periodic payments due and paid from our investments and (ii) acquisition fees of 2.50% of the total purchase price (including indebtedness incurred or assumed therewith) of, or the value of the Capital Assets secured by or subject to, each of our investments.

 

Administrative expense reimbursements are costs incurred by our Investment Manager or its affiliates that are necessary to our operations. These costs include our Investment Manager’s and its affiliates’ legal, accounting, investor relations and operations personnel, as well as professional fees and other costs that are charged to us. Excluded are salaries and related costs, office rent, travel expenses and other administrative costs incurred by individuals with a controlling interest in our Investment Manager.

 

We paid distributions to our Managing Owner of $3,585 and $10,636 for the three and nine months ended September 30, 2015, respectively. We paid distributions to our Managing Owner of $2,848 and $5,307 for the three and nine months ended September 30, 2014, respectively.  Additionally, our Managing Owner’s interest in the net income attributable to us was $1,044 and $2,120 for the three and nine months ended September 30, 2015, respectively. Our Managing Owner’s interest in the net loss attributable to us was $37 and $3,362 for the three and nine months ended September 30, 2014, respectively. 

 

Fees and other expenses incurred by us to our Investment Manager or its affiliates were as follows:

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

 

 

 

 

 

September 30,

 

September 30,

 

Entity

 

Capacity

 

Description

 

2015

 

2014

 

2015

 

2014

 

ICON Capital, LLC

 

Investment Manager

 

Offering expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reimbursements (1)

 

$

-

 

$

22,619

 

$

-

 

$

128,540

 

ICON Capital, LLC

 

Investment Manager

 

Organization cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reimbursements (2)

 

 

-

 

 

1,047

 

 

-

 

 

6,622

 

ICON Capital, LLC

 

Investment Manager

 

General and administrative

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reimbursements (2)

 

 

-

 

 

1,745

 

 

-

 

 

43,389

 

ICON Capital, LLC

 

Investment Manager

 

Management fees (2)

 

 

42,891

 

 

27,702

 

 

125,016

 

 

62,075

 

CĪON Securities, LLC

 

Dealer-manager

 

Dealer-manager and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

distribution fees (1)

 

 

-

 

 

47,457

 

 

-

 

 

277,664

 

ICON Capital, LLC

 

Investment Manager

 

Administrative expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reimbursements (2)

 

 

99,234

 

 

132,432

 

 

336,069

 

 

459,505

 

ICON Capital, LLC

 

Investment Manager

 

Acquisition fees (3)

 

 

24,835

 

 

339,075

 

 

24,835

 

 

440,599

 

 

 

 

 

 

 

 

$

166,960

 

$

572,077

 

$

485,920

 

$

1,418,394

 

(1)  Amount charged directly to shareholders' equity. 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2)  Amount charged directly to operations. 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3)  Amount capitalized and amortized to operations.

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2015, we had a net payable of $116,160 due to our Investment Manager and affiliates that primarily consisted of administrative expense reimbursements of $99,234. At December 31, 2014, we had a net payable of $945,186 due to our Investment Manager and affiliates that primarily consisted of administrative expense reimbursements of $649,191, management fees of $104,690 and acquisition fees of $101,524.

 

(8)   Commitments and Contingencies

10


Table of contents 

ICON ECI Fund Sixteen

  (A Delaware Statutory Trust) 

Notes to Consolidated Financial Statements 

September 30, 2015

(unaudited)

 

 

At the time we acquire or divest of our interest in Capital Assets, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities.  Our Managing Owner believes that any liability of ours that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition or results of operations taken as a whole.  

 

(9)   Subsequent Event

 

On October 27, 2015, a joint venture owned 10% by us amended the lease with Blackhawk Mining, LLC (“Blackhawk”) to waive Blackhawk’s breach of a financial covenant during the nine months ended September 30, 2015 and to obtain a partial prepayment of $3,502,514, which included an amendment fee of $75,000.  In addition, corresponding amendments were made to certain payment and repurchase provisions of the lease to account for the partial prepayment.

  

 

11


Item 2. Managing Owner's Discussion and Analysis of Financial Condition and Results of Operations

 

The following is a discussion of our current financial position and results of operations. This discussion should be read together with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014. This discussion should also be read in conjunction with the disclosures below regarding “Forward-Looking Statements.”

 

As used in this Quarterly Report on Form 10-Q, references to “we,” “us,” “our” or similar terms include ICON ECI Fund Sixteen and its consolidated subsidiaries.

 

Forward-Looking Statements

 

Certain statements within this Quarterly Report on Form 10-Q may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). These statements are being made pursuant to the PSLRA, with the intention of obtaining the benefits of the “safe harbor” provisions of the PSLRA, and, other than as required by law, we assume no obligation to update or supplement such statements. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. You can identify these statements by the use of words such as “may,” “would,” “could,” “anticipate,” “believe,” “estimate,” “expect,” “continue,” “further,” “plan,” “seek,” “intend,” “predict” or “project” and variations of these words or comparable words or phrases of similar meaning. These forward-looking statements reflect our current beliefs and expectations with respect to future events. They are based on assumptions and are subject to risks and uncertainties and other factors outside of our control that may cause actual results to differ materially from those projected. We undertake no obligation to update publicly or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

Overview

 

We are a direct financing fund that primarily makes investments in domestic and international businesses, which investments are primarily structured as debt and debt-like financings (such as loans, leases and other structured financing transactions) in or that are collateralized by Capital Assets utilized by such companies to operate their businesses, as well as other strategic investments in or collateralized by Capital Assets that our Managing Owner believes will provide us with a satisfactory, risk-adjusted rate of return. We were formed as a Delaware statutory trust and are treated as a partnership for federal income tax purposes.

 

Our offering period commenced on July 1, 2013 and ended on December 31, 2014. Our Managing Owner determined to cease our offering period earlier than originally anticipated as a result of lower than expected offering proceeds being raised. Our operating period commenced on January 1, 2015. As of the Initial Closing Date, we raised a minimum of $1,200,000 from the sale of our Shares, at which time shareholders were admitted and we commenced operations. As of June 13, 2014, we raised the $12,500,000 minimum offering amount for the Commonwealth of Pennsylvania. Subsequent to the Initial Closing Date, we returned the initial capital contribution of $1,000 to the Initial Shareholder. From the commencement of our offering on July 1, 2013 through December 31, 2014, we sold 17,189 Class A shares to 351 Class A shareholders and 410 Class I shares to six Class I shareholders, of which 404 Class A shares and 12 Class I shares were issued pursuant to the DRIP, representing an aggregate of $17,469,610 of capital contributions. From Initial Closing Date through December 31, 2014, we incurred sales commissions to third parties of $1,198,531 and dealer-manager and distribution fees to CĪON Securities of $347,547. In addition, organization costs of $8,418 and offering expenses of $161,422 were incurred by us during such period.

 

After the net offering proceeds were invested, additional investments have been and will continue to be made with the cash generated from our initial investments to the extent that cash is not used for our expenses, reserves and distributions to our shareholders. The investment in additional Capital Assets in this manner is called “reinvestment.” We anticipate investing and reinvesting in Capital Assets from time to time during our five year operating period, which may be extended at our Managing Owner’s discretion for up to an additional three years. After the operating period, we will then sell our assets and/or let our investments mature in the ordinary course of business, during a time frame called the “wind down period.”

 

Our Trustee serves as our sole trustee pursuant to the Trust Agreement and has delegated to our Managing Owner all of the power and authority to manage our business and affairs, including, but not limited to, our investments in Capital Assets.  Pursuant to the terms of our investment management agreement, our Managing Owner has engaged our Investment Manager to, among other things, originate and service our investments.

12


 

Recent Significant Transactions

 

We engaged in the following significant transactions since December 31, 2014:

 

Auto Manufacturing Equipment

 

On July 10, 2015, a joint venture owned 10% by us, 50% by Fund Fifteen and 40% by Fund Fourteen purchased auxiliary support equipment and robots used in the production of certain automobiles for $9,934,118, which were simultaneously leased to Challenge for 60 months. Our contribution to the joint venture was $998,379.

 

Mining Equipment

 

On September 12, 2013, ICON Murray VI purchased mining equipment that was simultaneously leased to Murray for 24 months. The lease was scheduled to expire on September 30, 2015, but was extended for one month with an additional lease payment of $635,512. On October 29, 2015, Murray repurchased the equipment from the joint venture pursuant to the terms of the lease for $2,991,400. Pursuant to a remarketing agreement with a third party, the joint venture is required to pay an aggregate remarketing fee of $766,466. No gain or loss was recognized as a result of the sale.

 

The following table includes information on the significant transactions that we engaged in from the Initial Closing Date through September 30, 2015:

 

Portfolio Company

 

Structure

 

Equity Invested

 

Interest Rate

 

Expiration Date

 

Collateral/ Priority

 

Net Carrying Value

 

Credit Loss Reserve

 

Current Status

 

Murray Energy Corporation (1)

 

Lease

 

$2,659,195

 

N/A

 

9/30/2015 (5)

 

Ownership of mining equipment

 

$418,592  (2) 

 

None

 

Performing

 

Blackhawk Mining, LLC (1)

 

Lease

 

$1,795,597

 

N/A

 

2/28/2018

 

Ownership of mining equipment

 

$1,471,240  (2) 

 

None

 

Performing

 

D&T Holdings, LLC (1)

 

Lease

 

$1,484,705

 

N/A

 

12/31/2018

 

Ownership of trucks, trailers and equipment

 

$861,087  (2) 

 

None

 

Performing

 

Geokinetics, Inc.

 

Lease

 

$5,690,851

 

N/A

 

8/31/2017

 

Ownership of seismic testing equipment

 

$4,048,855  (3) 

 

None

 

Performing

 

Premier Trailer Leasing, Inc.

 

Loan

 

$2,626,471

 

LIBOR, subject to 1% floor, plus 9%

 

9/24/2020

 

Second priority in all assets and equity interests

 

$2,624,772  (4) 

 

None

 

Performing

 

Challenge Mfg. Company, LLC (1)

 

Lease

 

$998,379

 

N/A

 

7/9/2020

 

Ownership of auxiliary support equipment and robots

 

$970,222  (2) 

 

None

 

Performing

 

(1) Our investment in this portfolio company is through a joint venture and is included in our consolidated balance sheets as investment in joint ventures.

 

(2) Net carrying value of our investment in joint ventures is calculated as follows: investment at cost plus/less our share of the cumulative net income/loss of the joint venture and less distributions received since the date of our initial investment.

 

(3) This investment is through a joint venture that we consolidated and presented on our consolidated balance sheets as net investment in finance lease. Net investment in finance lease is the sum of the remaining minimum lease payments receivable, the estimated residual value of the asset and the unamortized initial direct costs, less unearned income. Net carrying value includes the recognition of an investment by noncontrolling interests for the share of such investment held by the joint venture’s noncontrolling interest holders.

 

(4) Net carrying value of our investment in note receivable is the sum of the remaining principal outstanding and the unamortized initial direct costs, less deferred fees.

 

(5) Please refer to the disclosure under the subheading "Mining Equipment" above for developments related to the lease with Murray subsequent to September 30, 2015.

 

Acquisition Fees

13


 

We incurred acquisition fees to our Investment Manager of $24,835 during the three and nine months ended September 30, 2015, which is included in due to Investment Manager and affiliates on our consolidated balance sheets as of September 30, 2015.

 

Subsequent Event

 

On October 27, 2015, a joint venture owned 10% by us amended the lease with Blackhawk to waive Blackhawk’s breach of a financial covenant during the nine months ended September 30, 2015 and to obtain a partial prepayment of $3,502,514, which included an amendment fee of $75,000.  In addition, corresponding amendments were made to certain payment and repurchase provisions of the lease to account for the partial prepayment.

 

Recent Accounting Pronouncements

 

In May 2014 and August 2015, FASB issued ASU 2014-09, Revenue from Contracts with Customers, and ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, respectively, which will become effective for us on January 1, 2018. Early adoption is permitted, but not before our original effective date of January 1, 2017. We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

 

In August 2014, FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which will become effective for us on our fiscal year ending December 31, 2016. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.

 

In January 2015, FASB issued ASU 2015-01, Income Statement – Extraordinary and Unusual Items, which will become effective for us on January 1, 2016. The adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements.

 

In February 2015, FASB issued ASU 2015-02, Consolidation – Amendments to the Consolidation Analysis, which will become effective for us on January 1, 2016. The adoption of ASU 2015-02 is not expected to have a material effect on our consolidated financial statements.

 

In April 2015 and August 2015, FASB issued ASU 2015-03 Interest – Imputation of Interest, and ASU 2015-15, Interest – Imputation of Interest, respectively, which will become effective for us on January 1, 2016. The adoption of ASU 2015-03 and ASU 2015-15 is not expected to have a material effect on our consolidated financial statements. Upon adoption of both accounting standards updates, debt issuance costs associated with non-recourse long-term debt will be reclassified in our consolidated balance sheets from other assets to non-recourse long-term debt, while debt issuance costs associated with line of credit arrangements will continue to be presented in other assets on our consolidated balance sheets.

 

We do not believe any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our consolidated financial statements.

 

Results of Operations for the Three Months Ended September 30, 2015 (the “2015 Quarter”) and 2014 (the “2014 Quarter”)

 

The following percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or finance income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.

 

Financing Transactions

 

As of September 30, 2015 and December 31, 2014, the net investment in finance lease amount presented on our consolidated balance sheets is secured by our ownership of seismic testing equipment. As of September 30, 2015 and December 31, 2014, the net investment in note receivable amount presented on our consolidated balance sheets is secured by a second priority security interest in all of the borrower’s assets, including trailers and equity interests.

 

During the 2015 Quarter and the 2014 Quarter, certain customers generated significant portions (defined as 10% or more)

14


of our total finance income as follows:

 

 

 

 

 

 

Percentage of Total Finance Income

 

Customer

 

Asset Type

 

2015 Quarter

 

2014 Quarter

 

Geokinetics, Inc.

 

Seismic testing equipment

 

78%

 

96%

 

Premier Trailer Leasing, Inc.

 

Trailers

 

22%

 

4%

 

 

 

 

 

 

100%

 

100%

 

 

 

 

 

 

 

 

 

Interest income from our net investment in note receivable and finance income from our net investment in finance lease are included in finance income in our consolidated statements of operations.

 

Revenue for the 2015 Quarter and the 2014 Quarter is summarized as follows:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

2015

 

 

2014

 

Change

 

Finance income

$

259,780

 

$

93,093

 

$

166,687

 

Income from investment in joint ventures

 

144,268

 

 

166,547

 

 

(22,279)

 

Other income

 

-

 

 

11

 

 

(11)

 

 

Total revenue

$

404,048

 

$

259,651

 

$

144,397

 

 

 

 

 

 

 

 

 

 

 

Total revenue for the 2015 Quarter increased $144,397, or 55.6%, as compared to the 2014 Quarter.  The increase was due to an increase in finance income in the 2015 Quarter generated by our investment in a finance lease and a note receivable entered into during September 2014.

 

Expenses for the 2015 Quarter and the 2014 Quarter are summarized as follows:

 

 

 

Three Months Ended September 30,

 

 

 

 

 

2015

 

 

2014

 

Change

 

Management fees

$

42,891

 

$

27,702

 

$

15,189

 

Administrative expense reimbursements

 

99,234

 

 

132,432

 

 

(33,198)

 

General and administrative

 

56,261

 

 

51,197

 

 

5,064

 

Interest

 

6,394

 

 

7,236

 

 

(842)

 

Organization costs

 

-

 

 

1,047

 

 

(1,047)

 

 

Total expenses

$

204,780

 

$

219,614

 

$

(14,834)

 

 

 

 

 

 

 

 

 

 

 

Total expenses for the 2015 Quarter decreased $14,834, or 6.8%, as compared to the 2014 Quarter. The decrease primarily related to a decrease in administrative expense reimbursements due to lower costs incurred on our behalf by our Investment Manager during the 2015 Quarter as compared to the 2014 Quarter. The decrease was partially offset by an increase in management fees and tax professional fees incurred during the 2015 Quarter as a result of the increase in size of our investment portfolio.

 

Net Income Attributable to Noncontrolling Interests

 

Net income attributable to noncontrolling interests increased $51,070, from $43,768 in the 2014 Quarter to $94,838 in the 2015 Quarter. The increase was a result of our investment in a new finance lease during September 2014 in which Fund Fourteen and ICON ECI Partners L.P. (“ECI Partners”), an entity also managed by our Investment Manager, have a noncontrolling interest.

 

Net Income (Loss) Attributable to Fund Sixteen

 

As a result of the foregoing factors, net income (loss) attributable to us for the 2015 Quarter and the 2014 Quarter was $104,430 and $(3,731), respectively. Net income attributable to us per weighted average additional Class A share and Class I share outstanding for the 2015 Quarter was $5.87 and $6.11, respectively. Net loss attributable to us per weighted average additional Class A share and Class I share outstanding for the 2014 Quarter was $0.25 and $0.02, respectively.

 

15


Results of Operations for the Nine Months Ended September 30, 2015 (the “2015 Period”) and 2014 (the “2014 Period”)

The following percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of finance income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.

 

Financing Transactions

During the 2015 Period and the 2014 Period, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:  

 

 

 

 

 

 

Percentage of Total Finance Income

 

Customer

 

Asset Type

 

2015 Period

 

2014 Period

 

Geokinetics, Inc.

 

Seismic testing equipment

 

80%

 

96%

 

Premier Trailer Leasing, Inc.

 

Trailers

 

20%

 

4%

 

 

 

 

 

 

100%

 

100%

 

Interest income from our net investment in note receivable and finance income from our net investment in finance lease are included in finance income in our consolidated statements of operations.  

 

Revenue for the 2015 Period and the 2014 Period is summarized as follows:

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

2015

 

2014

 

Change

 

Finance income

$

836,906

 

$

93,093

 

$

743,813

 

Income from investment in joint ventures

 

414,160

 

 

365,552

 

 

48,608

 

Other income

 

-

 

 

11

 

 

(11)

 

 

Total revenue

$

1,251,066

 

$

458,656

 

$

792,410

 

Total revenue for the 2015 Period increased $792,410, or 172.8%, as compared to the 2014 Period.  The increase was primarily due to an increase in finance income in the 2015 Period generated by our investment in a finance lease and a note receivable entered into during September 2014.

 

Expenses for the 2015 Period and the 2014 Period are summarized as follows:

 

 

 

 

Nine Months Ended September 30,

 

 

 

 

 

 

2015

 

2014

 

Change

 

Management fees

$

125,016

 

$

62,075

 

$

62,941

 

Administrative expense reimbursements

 

336,069

 

 

459,505

 

 

(123,436)

 

General and administrative

 

252,084

 

 

205,699

 

 

46,385

 

Interest

 

20,857

 

 

17,166

 

 

3,691

 

Organization costs

 

-

 

 

6,622

 

 

(6,622)

 

 

Total expenses

$

734,026

 

$

751,067

 

$

(17,041)

 

 

 

 

 

 

 

 

 

 

 

 

Total expenses for the 2015 Period decreased $17,041, or 2.3%, as compared to the 2014 Period. The decrease primarily related to a decrease in administrative expense reimbursements due to lower costs incurred on our behalf by our Investment Manager during the 2015 Period as compared to the 2014 Period. The decrease was partially offset by an increase in management fees and tax and audit-related professional fees incurred during the 2015 Period as a result of the increase in size of our investment portfolio.

 

16


Net Income Attributable to Noncontrolling Interests

 

Net income attributable to noncontrolling interests increased $261,288, from $43,768 in the 2014 Period to $305,056 in the 2015 Period. The increase was a result of our investment in a new finance lease during September 2014 in which Fund Fourteen and ECI Partners have a noncontrolling interest.

 

Net Income (Loss) Attributable to Fund Sixteen

 

As a result of the foregoing factors, net income (loss) attributable to us for the 2015 Period and the 2014 Period was $211,984 and $(336,179), respectively. Net income attributable to us per weighted average additional Class A share and Class I share outstanding for the 2015 Period was $11.91 and $12.64, respectively. Net loss attributable to us per weighted average additional Class A share and Class I share outstanding for the 2014 Period was $32.49 and $24.36, respectively.

 

Financial Condition

 

This section discusses the major balance sheet variances at September 30, 2015 compared to December 31, 2014.

 

Total Assets 

Total assets decreased $2,555,208, from $20,596,681 at December 31, 2014 to $18,041,473 at September 30, 2015.  The decrease was primarily due to the use of existing cash and cash generated from our investments to pay distributions to our shareholders and noncontrolling interests and to pay down our related party payable due to our Investment Manager during the 2015 Period.

 

Total Liabilities 

Total liabilities decreased $833,508, from $1,525,523 at December 31, 2014 to $692,015 at September 30, 2015.  The decrease was primarily due to the paydown of our related party payable due to our Investment Manager during the 2015 Period.

 

Equity 

Equity decreased $1,721,700, from $19,071,158 at December 31, 2014 to $17,349,458 at September 30, 2015.  The decrease was primarily due to distributions to our shareholders and noncontrolling interests, partially offset by our net income in the 2015 Period.

 

Liquidity and Capital Resources

 

Summary

 

At September 30, 2015 and December 31, 2014, we had cash of $3,772,211 and $4,249,074, respectively. Pursuant to the terms of our offering, we have established a cash reserve in the amount of 0.50% of the gross offering proceeds from the sale of our Shares. As of September 30, 2015, the cash reserve was $87,348. During our offering period, which ended on December 31, 2014, our main source of cash was from financing activities and our main use of cash was in investing activities. During our operating period, which commenced on January 1, 2015, our main source of cash is typically from operating activities and our main use of cash is in investing activities. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we make new investments, pay distributions to our shareholders and to the extent that expenses exceed cash flows from operations and proceeds from the sale of our investments.

 

We believe that cash generated from the expected results of our operations will be sufficient to finance our liquidity requirements for the foreseeable future, including distributions to our shareholders, general and administrative expenses, new investment opportunities, management fees and administrative expense reimbursements.

  

Our ability to generate cash in the future is subject to general economic, financial, competitive, regulatory and other factors that affect us and our borrowers’ and lessees’ businesses that are beyond our control.

 

We have used the net proceeds of our offering and will use the cash generated from our investments to invest in Capital Assets located in North America and other developed markets, including those in Asia and elsewhere.  We have sought and continue to seek to acquire a portfolio of Capital Assets that is comprised of transactions that generate (a) current cash flow

17


from payments of principal and/or interest (in the case of secured loans and other financing transactions) and rental payments (in the case of leases), (b) deferred cash flow by realizing the value of Capital Assets or interests therein at the maturity of the investment, or (c) a combination of both from other structured investments.

 

Unanticipated or greater than anticipated operating costs or losses (including a borrower’s inability to make timely loan payments or a lessee’s inability to make timely lease payments) would adversely affect our liquidity. To the extent that working capital may be insufficient to satisfy our cash requirements, we anticipate that we would fund our operations from cash flow generated by investing and financing activities. At September 30, 2015, we had $2,052,341 available under a revolving line of credit pursuant to the borrowing base to fund our short-term liquidity needs. For additional information, see “Financings and Borrowings – Revolving Line of Credit, Recourse” below and Note 6 to our consolidated financial statements. Our Managing Owner does not intend to fund any cash flow deficit of ours or provide other financial assistance to us.

 

From the commencement of our offering on July 1, 2013 through the completion of our offering on December 31, 2014, we sold 17,189 Class A shares to 351 Class A shareholders and 410 Class I shares to six Class I shareholders, of which 404 Class A shares and 12 Class I shares were issued pursuant to the DRIP, representing an aggregate of $17,469,610 of capital contributions.  From the Initial Closing Date through December 31, 2014, we incurred sales commissions to third parties of $1,198,531 and dealer-manager and distribution fees to CĪON Securities of $347,547. In addition, organization costs of $8,418 and offering expenses of $161,422 were incurred by us during such period. Organization costs were expensed when incurred and offering expenses were recorded as a reduction of shareholders’ equity.

 

Cash Flows

 

Operating Activities

 

Cash flows from operating activities decreased $579,279, from a source of cash of $174,861 in the 2014 Period to a use of cash of $404,418 in the 2015 Period. The decrease was primarily due to the paydown of our related party payable due to our Investment Manager during the 2015 Period, partially offset by increased cash receipts generated from our investment in a finance lease and a note receivable entered into during September 2014.

 

Investing Activities    

 

Cash flows from investing activities increased $18,654,642, from a use of cash of $16,486,821 in the 2014 Period to a source of cash of $2,167,821 in the 2015 Period. The increase was due to fewer investments made in the 2015 Period and an increase in principal received in the 2015 Period on our finance lease that we entered into during September 2014.

 

Financing Activities

 

Cash flows from financing activities decreased $19,572,773, from a source of cash of $17,332,507 in the 2014 Period to a use of cash of $2,240,266 in the 2015 Period. The decrease was primarily due to (i) our offering period ending on December 31, 2014 resulting in no cash generated from the sale of Shares in the 2015 Period, (ii) a decrease in contributions from our noncontrolling interests and (iii) an increase in distributions to our noncontrolling interests and shareholders.

 

Financings and Borrowings

 

Revolving Line of Credit, Recourse

 

On March 31, 2015, we extended our Facility through May 30, 2017. As part of such extension, we paid debt financing costs of $19,000. The Facility is secured by all of our assets not subject to a first priority lien.  Amounts available under the Facility are subject to a borrowing base that is determined, subject to certain limitations, by the present value of the future receivables under certain loans and lease agreements in which we have a beneficial interest. 

 

The interest rate for general advances under the Facility is CB&T’s prime rate. We may elect to designate up to five advances on the outstanding principal balance of the Facility to bear interest at LIBOR plus 2.5% per year. In all instances, borrowings under the Facility are subject to an interest rate floor of 4.0% per year. In addition, we are obligated to pay an annualized 0.5% fee on unused commitments under the Facility. At September 30, 2015, there were no obligations outstanding under the Facility and we were in compliance with all covenants related to the Facility. 

 

At September 30, 2015, we had $2,052,341 available under the Facility pursuant to the borrowing base.

18


 

Distributions

 

We, at our Managing Owner’s discretion, pay monthly distributions to our shareholders beginning with the first month after each such shareholder’s admission and expect to continue to pay such distributions until the termination of our operating period.  During the 2015 Period, we paid distributions to our Managing Owner, Class A additional shareholders and Class I shareholders of $10,636, $1,028,261 and $24,618, respectively. We also paid distributions to our noncontrolling interests of $1,192,388 in the 2015 Period.

 

Commitments and Contingencies and Off-Balance Sheet Transactions

 

Commitments and Contingencies

 

At the time we acquire or divest of our interest in Capital Assets, we may, under very limited circumstances, agree to indemnify the seller or buyer for specific contingent liabilities.  Our Managing Owner believes that any liability of ours that may arise as a result of any such indemnification obligations will not have a material adverse effect on our consolidated financial condition or results of operations taken as a whole. We are a party to the Facility, as discussed in “Financings and Borrowings – Revolving Line of Credit, Recourse” above. We had no borrowings under the Facility at September 30, 2015.

 

Off-Balance Sheet Transactions

 

None.

19


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 4. Controls and Procedures

 

Evaluation of disclosure controls and procedures

 

In connection with the preparation of this Quarterly Report on Form 10-Q for the three months ended September 30, 2015, our Managing Owner carried out an evaluation, under the supervision and with the participation of the management of our Managing Owner, including its Co-Chief Executive Officers and the Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our Managing Owner’s disclosure controls and procedures as of the end of the period covered by this report pursuant to the Securities Exchange Act of 1934, as amended.  Based on the foregoing evaluation, the Co-Chief Executive Officers and the Principal Financial and Accounting Officer concluded that our Managing Owner’s disclosure controls and procedures were effective.

 

In designing and evaluating our Managing Owner’s disclosure controls and procedures, our Managing Owner recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.  Our Managing Owner’s disclosure controls and procedures have been designed to meet reasonable assurance standards. Disclosure controls and procedures cannot detect or prevent all error and fraud. Some inherent limitations in disclosure controls and procedures include costs of implementation, faulty decision-making, simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all anticipated and unanticipated future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with established policies or procedures.

 

Evaluation of internal control over financial reporting

 

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

20


PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings  

 

In the ordinary course of conducting our business, we may be subject to certain claims, suits, and complaints filed against us.  In our Managing Owner’s opinion, the outcome of such matters, if any, will not have a material impact on our consolidated financial position or results of operations.  We are not aware of any material legal proceedings that are currently pending against us or against any of our assets.  

 

Item 1A. Risk Factors

 

Smaller reporting companies are not required to provide the information required by this item.

 

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

 

We did not sell or repurchase any Shares during the three months ended September 30, 2015.

 

Item 3.  Defaults Upon Senior Securities

 

Not applicable.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

Item 5.  Other Information

 

Not applicable.

21


Item 6. Exhibits

 

3.1

Certificate of Trust of Registrant (Incorporated by reference to Exhibit 3.1 to Registrant’s Registration Statement on Form S-1 filed with the SEC on November 26, 2012 (File No. 333-185144)).

 

  

   

4.1

Form of Third Amended and Restated Trust Agreement of Registrant (Incorporated by reference to Exhibit A to Registrant’s Prospectus Supplement No. 4 filed with the SEC on April 2, 2014 (File No. 333-185144)).

 

  

10.1

Form of Investment Management Agreement, by and between ICON ECI Fund Sixteen and ICON Capital, LLC (Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-1 filed with the SEC on February 1, 2013 (File No. 333-185144)).

 

10.2  

 

Commercial Loan Agreement, by and between California Bank & Trust and ICON ECI Fund Sixteen, dated as of December 26, 2013 (Incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013, filed March 28, 2014).

 

10.3

 

Loan Modification Agreement, by and between California Bank & Trust and ICON ECI Fund Sixteen, dated as of March 31, 2015 (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015, filed on May 8, 2015).

31.1

Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.

 

  

31.2

Rule 13a-14(a)/15d-14(a) Certification of Co-Chief Executive Officer.

 

  

31.3

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial and Accounting Officer.

 

  

32.1

Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  

32.2

Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  

32.3

Certification of Principal Financial and Accounting Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

  

101.INS

XBRL Instance Document.

 

  

101.SCH

XBRL Taxonomy Extension Schema Document.

 

  

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

 

  

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

 

  

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document.

 

  

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

  

22


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.

 

ICON ECI Fund Sixteen

(Registrant)

 

By: ICON MT 16, LLC

      (Managing Owner of the Registrant)

 

November 5, 2015

 

By: /s/ Michael A. Reisner

Michael A. Reisner

Co-Chief Executive Officer and Co-President

(Co-Principal Executive Officer)

  

By: /s/ Mark Gatto

Mark Gatto

Co-Chief Executive Officer and Co-President

(Co-Principal Executive Officer)

         

By: /s/ Christine H. Yap

Christine H. Yap

Managing Director

(Principal Financial and Accounting Officer)

 

23