Attached files
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EX-31.1 - EXHIBIT 31.1 - ATEL Growth Capital Fund 8, LLC | v458721_exh31x1.htm |
EX-32.2 - EXHIBIT 32.2 - ATEL Growth Capital Fund 8, LLC | v458721_exh32x2.htm |
EX-32.1 - EXHIBIT 32.1 - ATEL Growth Capital Fund 8, LLC | v458721_exh32x1.htm |
EX-31.2 - EXHIBIT 31.2 - ATEL Growth Capital Fund 8, LLC | v458721_exh31x2.htm |
EX-14.1 - EXHIBIT 14.1 - ATEL Growth Capital Fund 8, LLC | v458721_exh14x1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
|
For the year ended December 31, 2016 | ||
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 333-178629
ATEL GROWTH CAPITAL FUND 8, LLC
(Exact name of registrant as specified in its charter)
California | 37-1656343 | |
(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)
Registrants 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 check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Act of 1934. Yes o No x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
State the aggregate market value of voting stock held by non-affiliates of the registrant: Not applicable
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) Not applicable
The number of Limited Liability Company Units outstanding as of February 28, 2017 was 1,618,296.
DOCUMENTS INCORPORATED BY REFERENCE
None.
PART I
Item 1. BUSINESS
General Development of Business
ATEL Growth Capital Fund 8, LLC (the Company or the Fund) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies. The Fund may continue until it is terminated in accordance with the ATEL Growth Capital Fund 8, LLC limited liability company operating agreement dated December 13, 2011 (the Operating Agreement). The Managing Member of the Company is AGC Managing Member, LLC (the Managing Member or Manager), the renamed AGC 8 Managing Member, LLC which was formed in December 2011 as a Nevada limited liability company. Such name change is the result of an amendment to the articles of incorporation filed with the State of Nevada effective March 18, 2014. Contributions in the amount of $500 were received as of December 31, 2011, which represented the initial Members 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 August 20, 2012. As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions were subject to a separate escrow and were 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 to not less than $3.75 million in gross proceeds. Total contributions to the Fund exceeded $3.75 million on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on August 20, 2014.
As of December 31, 2016, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Members capital investment) have been received. As of such date, a total of 1,618,296 Units were issued and outstanding.
Prior to the termination of its offering, the Fund, or Managing Member on behalf of the Fund, incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs borne by the Fund was limited by certain provisions of the Operating Agreement.
The Companys principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Companys invested capital; (ii) generate regular cash distributions to Unitholders, with any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Companys public offering of Units), (iii) provide additional distributions to Unitholders from any proceeds from sales of Equity interests and (iv) provide total cash distributions to Unitholders equal to a desirable rate of return on their investment capital. The Company is governed by the Operating Agreement.
Narrative Description of Business
The Company intends to provide acquisition financing for third parties primarily pursuant to secured loans with fixed periodic installment obligations for payment of interest and amortization of principal. The Company may also finance equipment and other capital assets for its customers through finance leases which are structured as leases, but which are treated as installment loans for tax purposes, as well as through net leases requiring fixed periodic lease payment installments. Generally, the Fund expects to finance newly-manufactured equipment. However, the Fund may also finance desirable used equipment and equipment subject to pre-existing financing transactions under appropriate circumstances and where consistent with the Funds overall investment objectives and limitations. In addition, some portion of the Funds portfolio may be general working capital loans secured by liens on some or all of the borrowers assets.
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The Funds objective is primarily to focus its lending to non-public venture capital financed companies as well as established privately held companies, and to obtain terms from its customers that may include, as consideration to the Fund for providing financing, the granting of warrants, options or other rights to purchase equity securities issued by the customer, or the opportunity to purchase such equity securities outright. Growing young companies often have more difficulty obtaining financing for equipment and other goods and services essential to the development and growth of their business, and as a result, must offer their financing sources substantial cash deposits, equity participations or other extraordinary consideration to obtain financing.
The Fund will generally seek transaction terms requiring full repayment of principal along with interest over 24 to 42 months, and target interest rates of 12% to 18% per annum. In many cases, the Fund expects to acquire equity interests, such as warrants and options to purchase securities, in consideration of its acquisition financing and without any other cash investment by the Fund at the time it acquires such rights (warrant coverage). In such cases, cash investment by the Fund would be made upon exercise of the rights, and the Fund expects to use operating cash flow to fund such exercises. With regard to warrant coverage, the Fund will generally seek to obtain rights to acquire equity in dollar amounts equal to from 4% to 6% of the principal amount of the financing. In other cases, the Fund may obtain the right to make a direct cash investment in the customers securities at the time the financing is provided. The aggregate cost of equity interests acquired directly by the Fund for cash will not exceed 10% of the aggregate cost to the Fund of its portfolio of financing transaction investments as of the final investment of net offering proceeds.
The asset based acquisition financing industry is highly competitive. In obtaining customers, the Fund will compete with commercial banks and lenders, other acquisition financing firms, venture capital investors and with established leasing and finance companies. In addition, there are numerous other potential entities, including entities organized and managed similarly to the Fund, seeking to finance equipment, many of which have greater financial resources and growth capital acquisition financing experience than the Funds management. Emerging growth capital investment declined from 2008 through 2009, and has since increased surpassing such levels. Future trends are difficult to predict. Nevertheless, the Fund expects significant competition for quality investments through its acquisition and reinvestment stages.
The Managing Member will use its best efforts to acquire a portfolio of growth capital loans and financing transactions that are diversified both by the type of businesses and industries of its borrowers and by their stages of financing. Earlier stage companies may offer higher potential returns, but typically involve higher levels of risk of loss. The financing of companies from start-up to public offering is generally described in the venture capital markets as involving four stages in descending order of relative risk (i) the seed stage, (ii) the early stage, (iii) the expansion or mezzanine stage, and (iv) the late or later stage. The Fund will seek to diversify its growth capital financing investments among the latter three stages of the venture financing process, by providing asset based financing to companies in the early, expansion and later stages of their business development and capital financing.
The primary geographic region in which the Company seeks financing opportunities is North America.
The business of the Company is not seasonal. The Company has no full time employees. Employees of the Managing Member and affiliates provide the services the Company requires to effectively operate. The cost of these services is reimbursed by the Company to the Managing Member and affiliates per the Operating Agreement.
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Note Receivable Activities
The Company seeks to finance assets in diverse industries. The following tables set forth the types of assets financed by the Company through December 31, 2016 and the industries to which the assets have been financed (dollars in thousands):
Asset Types | Amount Financed Excluding Acquisition Fees |
Percentage of Total Fundings |
||||||
Research & development | $ | 4,649 | 28.97 | % | ||||
Computers | 4,391 | 27.37 | % | |||||
Manufacturing | 1,700 | 10.60 | % | |||||
Office equipment | 1,299 | 8.10 | % | |||||
Recycling | 400 | 2.49 | % | |||||
Food processing | 200 | 1.25 | % | |||||
Other | 3,406 | 21.22 | % | |||||
$ | 16,045 | 100.00 | % |
Industry of Borrower | Amount Financed Excluding Acquisition Fees |
Percentage of Total Fundings |
||||||
Hardware & peripheral devices | $ | 5,757 | 35.88 | % | ||||
Health services | 3,236 | 20.17 | % | |||||
Computer engines | 2,594 | 16.17 | % | |||||
Business services | 1,454 | 9.06 | % | |||||
Clean technology | 1,050 | 6.54 | % | |||||
Manufacturing | 800 | 4.99 | % | |||||
Construction | 492 | 3.07 | % | |||||
Other | 662 | 4.12 | % | |||||
$ | 16,045 | 100.00 | % |
From inception to December 31, 2016, assets financed by the Company that were associated with terminated loans are as follows (in thousands):
Asset Types | Amount Financed Excluding Acquisition Fees |
Disposition Proceeds |
Total Payments Received |
|||||||||
Computers | $ | 1,160 | $ | 520 | $ | 885 | ||||||
Research & Development | 1,030 | 46 | 1,211 | |||||||||
Office Equipment | 969 | | 1,102 | |||||||||
Manufacturing | 899 | | 1,094 | |||||||||
Recycling | 400 | 342 | 137 | |||||||||
Other | 900 | 546 | 557 | |||||||||
$ | 5,358 | $ | 1,454 | $ | 4,986 |
For further information regarding the Companys notes receivable as of December 31, 2016, see Note 4 to the financial statements, Notes receivable, net, as set forth in Part II, Item 8, Financial Statements and Supplementary Data.
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Item 2. PROPERTIES
The Company does not own or lease any real property, plant or material physical properties.
Item 3. LEGAL PROCEEDINGS
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Companys financial position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
Item 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the Operating Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.
Holders
As of December 31, 2016, a total of 413 investors were Unitholders of record in the Company.
Fund Valuation
Background to Fund Valuation
The Financial Industry Regulatory Authority (FINRA), in conjunction with the Securities and Exchange Commission (SEC) updated rules for the presentation of account statement values relative to pricing of Direct Placement Program (DPP) shares. Under FINRA Notice 15-02 (the Notice) the SEC approved amendments to National Association of Securities Dealers (NASD) Rule 2340, Customer Account Statements, and FINRA rule 2310, which address a FINRA member firms participation in a public offering of a DPP. In summary, the amendments require a FINRA member firm to include in the account statements for customers holding DPP securities a per share value for the DPP. This per share value must be prepared by, or with the material assistance or confirmation of, a third-party valuation expert or service. The results of this valuation must be disclosed in the issuers reports filed under the Securities Exchange Act of 1934. A valuation in compliance with the Notice must be undertaken and published on at least an annual basis.
The effective date of the Notice was April 11, 2016.
Methodologies
Broker dealers are required to provide a per share estimated value on the customer account statements for each non-listed DPP security held by their customers. Such estimated value must have been developed in a manner reasonably designed to provide a reliable value. Two valuation methodologies have been defined by FINRA, which by such designation are presumed to be reliable.
Net Investment Methodology
The amendments to NASD Rule 2340(c)(1)(A) require net investment to be based on the amount available for investment percentage disclosed in the Estimated Use of Proceeds section of the issuers offering prospectus. In essence, such value is equal to the offering price less selling commissions, other offering and organization expenses, and capital reserves. This method may be used for up to 150 days following the second anniversary of a Fund breaking escrow.
Appraised Value Methodology
As amended, Rule NASD 2340(c)(1)(B) requires that the per share estimated value disclosed in an issuers most recent periodic or current report be based upon an appraisal of the assets and liabilities of the program by, or with the material assistance or confirmation of, a third-party valuation expert or service, in conformity with standard industry valuation practice as it relates to both the aforementioned assets and liabilities. No later than 150 days following the second anniversary of the issuers break of escrow for its minimum offering, this methodology must be used to establish the required estimated values.
Unit Valuation
The per Unit valuation estimate for ATEL GROWTH CAPITAL FUND 8, LLC has been conducted, and the results disclosed herein, in compliance with the mandates of the Notice.
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For ATEL GROWTH CAPITAL FUND 8, LLC, its estimated value per Unit reflects the Managers estimate of current portfolio valuation of all assets and liabilities of the Fund, calculated on a per Unit basis, and as such, does not represent a market value for the Units and may not accurately reflect the value of the Fund Units to the Unit holders if held over time to Fund maturity.
In connection with any estimate of per Unit value, Unit holders and all parties are reminded that no public market for the Units exists. Additionally, in order to preserve the Funds pass-through status for federal income tax purposes, the Fund will not permit a secondary market or the substantial equivalent of a secondary market for the Units. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.
The estimate of per Unit value does not take into account any extraordinary potential future business activity of the Fund; rather the valuation represents a snapshot view of the Funds portfolio as of the valuation date. In addition, the Fund does not include any analysis of the distributions that have already been paid by the Fund, nor the anticipated returns to Unit holder over the full course of the Fund life cycle, which will be dependent on many factors.
Disclosure
The estimated value per Unit reported in this Form 10-K has been calculated using the Appraised Value Methodology described above under Methodologies above, as of December 31, 2016.
ATEL GROWTH CAPITAL FUND 8, LLC, will satisfy the disclosure requirements for providing estimated per Unit values pursuant to the Notice as follows:
For these disclosures, subsequent to the Funds initial compliance with FINRA 15-02, annual disclosures of estimated per Unit values, through the termination of the Fund, will be accomplished and included on an annual basis in a document filed with the Securities and Exchange Commission available to the public.
Specifics Underlying Valuation Methodology:
Notes and Explanation of Valuation Components and Calculation
A. | Fund Assets and Liabilities (other than as specifically identified below): The estimated values for non-interest bearing items such as current assets and liabilities are assumed to equal their reported GAAP balances as an appropriate approximation of their fair values. Debt (interest bearing) is assumed to equal the fair values of the debt as disclosed in the footnotes of the 10-K. |
B. | Investments in Notes Receivable: The estimated values for Investments in Notes Receivable are assumed to approximate the reported GAAP balances. |
C. | Investments in Marketable Securities: The estimated values for Marketable Securities have been based on the estimated net book value as of the valuation date (with impairment adjustments), plus any unrealized gain on equity. The unrealized gain on equity is based on either: a) the most recent round of financing, b) the most recent 409A valuation provided by the underlying companies of the warrants, or c) the Managers estimate of the company valuations based on all available information, including company financials, company valuation reports, public press releases, and other sources. |
D. | Warrants Outstanding: The estimated values for Warrants Outstanding considers the reported GAAP balances to be an appropriate approximation of their fair values. |
E. | Syndication Costs: Syndication costs for the Fund have been estimated based on 15% of gross equity raised, and are assumed to be amortized over the expected 12-year life of the Fund. The remaining unamortized portion has been added to the Funds balance sheet as an asset. |
F. | Accrued distributions: Accrued distributions which are payable to the Unit holders have been removed from the Funds balance sheet liability section because they are not a liability to a third party. |
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ATEL GROWTH CAPITAL FUND 8, LLC Unit Valuation
The Managers estimated per Unit value of ATEL GROWTH CAPITAL FUND 8, LLC at December 31, 2016 as determined, and derived under the guidelines of the Appraised Value Methodology, and pursuant to the above specific enumerated component valuation methodologies and calculations, equals $5.74. An independent national public accounting firm with valuation expertise was retained to examine, attest and confirm ATEL GROWTH CAPITAL FUND 8, LLCs per Unit valuation and its component methodologies and calculation as it relates to compliance with the regulatory mandate defined in the Notice. In this regard, they examined the components of the valuation methodologies and determined them to be reasonable and within industry standards. Other component attributes, including the bases and related key assumptions of the calculation were tested for their completeness, underlying documentation support and mathematical accuracy. Upon completion of their efforts, their attestation report confirmed that the per unit valuation of ATEL GROWTH CAPITAL FUND 8, LLC, and the related notes, in all material respects, was based upon industry practice as described in the Managers valuation approach.
Disclaimer
The foregoing Fund per Unit valuation has been performed solely for the purpose of providing an estimated value per Unit in accordance with a regulatory mandate, in order to provide the broker dealer and custodian community with a valuation on a reasonable and attested basis for use in assigning an estimation of a Unit holders account value. Any report or disclosure of such estimated per Unit valuation is to be accompanied by statements that the value does not represent an estimate of the amount a Unit holder would receive if the Unit holder were to seek to sell the Units, and that the Fund intends to liquidate its assets in the ordinary course of its business and over the Funds term. Further, each statement of the Funds estimated per Unit valuation is to be accompanied by a disclosure that there can be no assurance as to (1) when the Fund will be fully liquidated, (2) the amount the Fund may actually receive if and when the Fund seeks to liquidate its assets, (3) the amount of lease or loan payments the Fund will actually receive over the remaining term, (4) the amount of asset disposition proceeds the Fund will actually receive over the remaining term, and (5) the amounts that may actually be received in distributions by Unit holders over the course of the remaining term.
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 November 2012. Additional distributions have been made consistently through December 2016. The rate for monthly distributions from 2016 operations was $0.092 per Unit for the period from January through December 2016. Likewise, the rate for monthly distributions from 2015 operations was $0.092 per Unit for the period from January through December 2015. The rate for each of the quarterly distributions paid in 2016 and 2015 was $0.275 per Unit.
Cash distributions were paid by the Fund to Unitholders of record as of November 30, 2016, and paid through December 31, 2016. 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 Funds Prospectus dated August 20, 2012 under Income, Losses and Distributions Reinvestment. 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 Funds 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 Funds actual and anticipated gross revenues to be generated from the binding initial terms of the loans and investments funded.
7
The following table summarizes distribution activity for the Fund from inception through December 31, 2016 (in thousands, except as to 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 |
||||||||||||||||||||||||||||||||||||
Oct 2012 Mar 2013 (Distribution of all escrow interest) | July 2013 | $ | | $ | | $ | | n/a | n/a | |||||||||||||||||||||||||||
Nov 14, 2012 Nov 30, 2012 | Dec 2012 | 3 | | 3 | $ | 0.43 | 6,306 | |||||||||||||||||||||||||||||
Dec 2012 Nov 2013 | Jan Dec 2013 |
866 | | 866 | 1.57 | 551,608 | ||||||||||||||||||||||||||||||
Dec 2013 Nov 2014 | Jan Dec 2014 |
1,452 | | 1,452 | 1.08 | 1,349,575 | ||||||||||||||||||||||||||||||
Dec 2014 Nov 2015 | Jan Dec 2015 |
1,779 | | 1,779 | 1.10 | 1,618,296 | ||||||||||||||||||||||||||||||
Dec 2015 Nov 2016 | Jan Dec 2016 |
1,780 | | 1,780 | 1.10 | 1,618,296 | ||||||||||||||||||||||||||||||
$ | 5,880 | $ | | $ | 5,880 | $ | 5.28 | |||||||||||||||||||||||||||||
Source of distributions |
||||||||||||||||||||||||||||||||||||
Lease and loan payments/payoffs | $ | 5,880 | 100.00 | % | $ | | 0.00 | % | $ | 5,880 | 100.00 | % | ||||||||||||||||||||||||
Interest income | | 0.00 | % | | 0.00 | % | | 0.00 | % | |||||||||||||||||||||||||||
$ | 5,880 | 100.00 | % | $ | | 0.00 | % | $ | 5,880 | 100.00 | % |
(1) | Investors may elect to receive their distributions either monthly or quarterly. See Timing and Method of Distributions on Page 46 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) | Balance shown represent weighted average units for the period from November 14 (date escrow requirement was met) November 30, 2012, December 1, 2012 November 30, 2013, December 1, 2013 November 30, 2014, December 1, 2014 November 30, 2015, and December 1, 2015 November 30, 2016, respectively. |
Item 6. SELECTED FINANCIAL DATA
A smaller reporting company is not required to present selected financial data in accordance with item 301(c) of Regulation S-K.
Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Statements contained in this Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and elsewhere in this Form 10-K, 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, changes in general economic conditions, including significant rates of inflation and fluctuations in interest rates may result in reduced returns on invested capital. The Companys performance is subject to risks relating to borrower defaults and the creditworthiness of its borrowers. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-K. 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-K or to reflect the occurrence of unanticipated events, other than as required by law.
Overview
ATEL Growth Capital Fund 8, LLC (the Company or the Fund) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies. The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of August 20, 2012.
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As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1,200,000), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions were subject to a separate escrow and were 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 to not less than $3,750,000 in gross proceeds. Total contributions to the Fund exceeded $3,750,000 on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on August 20, 2014.
As of December 31, 2016, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Members capital investment) have been received. As of such date, a total of 1,618,296 Units were issued and outstanding.
Results of Operations
Cost reimbursements to the Managing Member 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 total assets, number of investors or contributed capital based upon the type of cost incurred.
2016 versus 2015
The Company had a net loss of $767 thousand, and net income of $403 thousand, for the years ended December 31, 2016 and 2015, respectively. The net results for 2016 reflected a decrease in total revenues and an increase in total operating expenses when compared to prior year.
Revenues
Total revenues for 2016 decreased by a net $621 thousand or 52%, as compared to prior year. Such decrease was largely due to a $423 thousand, or 347%, downturn in fair valuation of the Companys warrant holdings which resulted in the recording of an unrealized loss, and a $222 thousand, or 28%, reduction in interest income from notes receivable; partially offset by a $64 thousand, or 42%, gain on sales or dispositions of investments in securities.
Expenses
Total expenses for 2016 increased by a net $549 thousand, or 70%, as compared to prior year. The increase in total expenses was mostly the result of a $523 thousand, increase in the provision for credit losses, was to reflect a reduced expectation of collections pursuant to certain outstanding notes receivable; and an increase of $57 thousand, or 31%, in cost reimbursements to the Manager and/or affiliates, was directly attributable to a greater allocation of costs to support operations of the Company.
Capital Resources and Liquidity
The Companys cash and cash equivalents totaled $1.9 million and $3.0 million at December 31, 2016 and 2015, respectively. The liquidity of the Company varies, increasing to the extent cash flows from subscriptions and its portfolio investments exceed expenses and decreasing as portfolio investments are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from its portfolio investments.
The Fund acquires its investments with cash. The Fund will not borrow to acquire its portfolio assets and does not intend or expect to incur any indebtedness. The Fund anticipates that it would incur indebtedness only in the event that it is required to borrow for temporary working capital purposes.
Cash Flows
The following table sets forth summary cash flow data (in thousands):
2016 | 2015 | |||||||
Net cash (used in) provided by: |
||||||||
Operating activities | $ | (6 | ) | $ | (11 | ) | ||
Investing activities | 826 | 82 | ||||||
Financing activities | (1,978 | ) | (1,977 | ) | ||||
Net decrease in cash and cash equivalents | $ | (1,158 | ) | $ | (1,906 | ) |
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2016 versus 2015
During 2016 and 2015, the Companys primary source of liquidity was cash flow from its investments in notes receivable totaling $3.1 million and $3.2 million, respectively. In addition, the Fund realized $630 thousand and $602 thousand of proceeds from the early termination of notes receivable and proceeds from sales on disposition of investment in securities during 2016 and 2015, respectively.
During the same comparative years, the primary uses of cash were to fund investments in notes receivable and to pay distributions. Investments in notes receivable funded during 2016 and 2015 totaled $2.7 million and $3.7 million, respectively; while distributions paid to both Other Members and the Managing Member totaled $2.0 million during both 2016 and 2015. In addition, cash was used to pay invoices related to management fees and expenses, and other payables in 2016 and 2015.
Commitments and Contingencies and Off-Balance Sheet Transactions
Commitments
At December 31, 2016, there were commitments to fund investments in notes receivable approximating $1.8 million. This amount represents contract awards which may be canceled by the prospective borrower or may not be accepted by the Company.
Off-Balance Sheet Transactions
None.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 11 through 30.
10
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Members
ATEL Growth Capital Fund 8, LLC
We have audited the accompanying balance sheets of ATEL Growth Capital Fund 8, LLC, (the Company) as of December 31, 2016 and 2015, and the related statements of income, changes in members capital, and cash flows for the years then ended. These financial statements are the responsibility of the Management of the Companys Managing Member. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ATEL Growth Capital Fund 8, LLC as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ Moss Adams LLP
San Francisco, California
March 17, 2017
11
ATEL GROWTH CAPITAL FUND 8, LLC
BALANCE SHEETS
DECEMBER 31, 2016 AND 2015
(In Thousands)
2016 | 2015 | |||||||
ASSETS |
||||||||
Cash and cash equivalents | $ | 1,860 | $ | 3,018 | ||||
Accounts receivable | 7 | 3 | ||||||
Notes receivable, net | 4,430 | 5,722 | ||||||
Investment in securities | 521 | 433 | ||||||
Warrants, fair value | 481 | 722 | ||||||
Due from affiliates | | 134 | ||||||
Prepaid expenses and other assets | 4 | 4 | ||||||
Total assets | $ | 7,303 | $ | 10,036 | ||||
LIABILITIES AND MEMBERS CAPITAL |
||||||||
Accounts payable and accrued liabilities: |
||||||||
Managing Member | $ | 39 | $ | 28 | ||||
Accrued distributions to Other Members | 250 | 250 | ||||||
Other | 3 | 2 | ||||||
Total liabilities | 292 | 280 | ||||||
Commitments and contingencies |
||||||||
Members capital: |
||||||||
Managing Member | | | ||||||
Other Members | 7,011 | 9,756 | ||||||
Total Members capital | 7,011 | 9,756 | ||||||
Total liabilities and Members capital | $ | 7,303 | $ | 10,036 |
See accompanying notes.
12
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands Except for Units and Per Unit Data)
2016 | 2015 | |||||||
Revenues: |
||||||||
Notes receivable interest income, including accretion of net note origination costs and discounts | $ | 569 | $ | 791 | ||||
Gain on early termination of notes receivable | 50 | 76 | ||||||
Gain on sales or dispositions of investment in securities | 217 | 153 | ||||||
Unrealized (loss) gain on fair value adjustment for warrants | (301 | ) | 122 | |||||
Other | 30 | 44 | ||||||
Total revenues | 565 | 1,186 | ||||||
Expenses: |
||||||||
Acquisition expense | 217 | 231 | ||||||
Cost reimbursements to affiliates | 240 | 183 | ||||||
Provision for credit losses | 620 | 97 | ||||||
Asset management fees to Managing Member | 73 | 79 | ||||||
Professional fees | 96 | 87 | ||||||
Outside services | 37 | 30 | ||||||
Taxes on income and franchise fees | 3 | 7 | ||||||
Bank charges | 19 | 12 | ||||||
Printing and photocopying | 8 | 14 | ||||||
Other | 19 | 43 | ||||||
Total expenses | 1,332 | 783 | ||||||
Net (loss) income | $ | (767 | ) | $ | 403 | |||
Net income (loss): |
||||||||
Managing Member | $ | 198 | $ | 198 | ||||
Other Members | (965 | ) | 205 | |||||
$ | (767 | ) | $ | 403 | ||||
Net (loss) income per Limited Liability Company Unit (Other Members) | $ | (0.60 | ) | $ | 0.13 | |||
Weighted average number of Units outstanding | 1,618,296 | 1,618,296 |
See accompanying notes.
13
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands Except for Units and Per Unit Data)
Amount | ||||||||||||||||
Units | Other Members | Managing Member |
Total | |||||||||||||
Balance December 31, 2014 | 1,618,296 | $ | 11,330 | $ | | $ | 11,330 | |||||||||
Distributions to Other Members ($1.10 per Unit) | | (1,779 | ) | | (1,779 | ) | ||||||||||
Distributions to Managing Member | | | (198 | ) | (198 | ) | ||||||||||
Net income | | 205 | 198 | 403 | ||||||||||||
Balance December 31, 2015 | 1,618,296 | 9,756 | | 9,756 | ||||||||||||
Distributions to Other Members ($1.10 per Unit) | | (1,780 | ) | | (1,780 | ) | ||||||||||
Distributions to Managing Member | | | (198 | ) | (198 | ) | ||||||||||
Net (loss) income | | (965 | ) | 198 | (767 | ) | ||||||||||
Balance December 31, 2016 | 1,618,296 | $ | 7,011 | $ | | $ | 7,011 |
See accompanying notes.
14
ATEL GROWTH CAPITAL FUND 8, LLC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
(In Thousands)
2016 | 2015 | |||||||
Operating activities: |
||||||||
Net (loss) income | $ | (767 | ) | $ | 403 | |||
Adjustment to reconcile net loss to cash used in operating activities: |
||||||||
Accretion of note discount warrants | (49 | ) | (77 | ) | ||||
Amortization of net note origination costs | 17 | 22 | ||||||
Gain on early termination of notes receivable | (50 | ) | (76 | ) | ||||
Gain on sales or dispositions of investment in securities | (217 | ) | (153 | ) | ||||
Provision for credit losses | 620 | 97 | ||||||
Unrealized loss (gain) on fair value adjustment for warrants | 301 | (122 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Accounts receivable | (4 | ) | (3 | ) | ||||
Due from affiliates | 134 | (99 | ) | |||||
Prepaid expenses and other assets | | 5 | ||||||
Accounts payable, Managing Member | 11 | | ||||||
Accounts payable, other | 1 | 2 | ||||||
Unearned fee income related to notes receivable | (3 | ) | (10 | ) | ||||
Net cash used in operating activities | (6 | ) | (11 | ) | ||||
Investing activities: |
||||||||
Advance payments | 37 | 18 | ||||||
Purchase of securities | (225 | ) | (60 | ) | ||||
Proceeds from early termination of notes receivable | 260 | 593 | ||||||
Proceeds from sales or dispositions of investment in securities | 370 | 9 | ||||||
Payments of note origination costs | (16 | ) | (19 | ) | ||||
Note receivable and warrants advances | (2,731 | ) | (3,699 | ) | ||||
Principal payments received on notes receivable | 3,131 | 3,240 | ||||||
Net cash provided by investing activities | 826 | 82 | ||||||
Financing activities: |
||||||||
Distributions to Other Members | (1,780 | ) | (1,779 | ) | ||||
Distributions to Managing Member | (198 | ) | (198 | ) | ||||
Net cash used in financing activities | (1,978 | ) | (1,977 | ) | ||||
Net decrease in cash and cash equivalents | (1,158 | ) | (1,906 | ) | ||||
Cash and cash equivalents at beginning of year | 3,018 | 4,924 | ||||||
Cash and cash equivalents at end of year | $ | 1,860 | $ | 3,018 | ||||
Supplemental disclosures of cash flow information: |
||||||||
Cash paid during the year for taxes | $ | 3 | $ | 5 | ||||
Schedule of non-cash investing and financing transactions: |
||||||||
Distributions payable to Other Members at year-end | $ | 250 | $ | 250 | ||||
Distributions payable to Managing Member at year-end | $ | 39 | $ | 28 | ||||
Securities acquired through net exercise of warrants | $ | | $ | 144 |
See accompanying notes.
15
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
1. Organization and Limited Liability Company matters:
ATEL Growth Capital Fund 8, LLC (the Company or the Fund) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies. The Fund may continue until it is terminated in accordance with the ATEL Growth Capital Fund 8, LLC limited liability company operating agreement dated December 13, 2011 (the Operating Agreement). The Managing Member of the Company is AGC Managing Member, LLC (the Managing Member or Manager), the renamed AGC 8 Managing Member, LLC which was formed in December 2011 as a Nevada limited liability company. Such name change is the result of an amendment to the articles of incorporation filed with the State of Nevada effective March 18, 2014. Contributions in the amount of $500 were received as of December 31, 2011, which represented the initial Members 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 August 20, 2012. As of November 14, 2012, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations. Pennsylvania subscriptions were subject to a separate escrow and were 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 to not less than $3.75 million in gross proceeds. Total contributions to the Fund exceeded $3.75 million on March 13, 2013, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on August 20, 2014.
As of December 31, 2016, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Members capital investment) have been received. As of such date, a total of 1,618,296 Units were issued and outstanding.
The Companys principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Companys invested capital; (ii) generate regular cash distributions to Unitholders, with any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Companys public offering of Units), (iii) provide additional distributions to Unitholders from any proceeds from sales of Equity interests and (iv) provide total cash distributions to Unitholders equal to a desirable rate of return on their investment capital. The Company is governed by the ATEL Growth Capital Fund 8, LLC 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 (Note 6). 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 the Managing Member.
2. Summary of significant accounting policies:
Basis of presentation:
The accompanying balance sheets as of December 31, 2016 and 2015, and the related statements of income, changes in members capital and cash flows for the years then ended have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after December 31, 2016, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.
16
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of significant accounting policies: - (continued)
Cash and cash equivalents:
Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.
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 credit losses on notes receivable and the fair valuation of equity securities and warrants.
Accounts receivable:
Accounts receivable represent the amounts billed under notes receivable which are currently due to the Company. Allowances for credit losses are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.
Credit risk:
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, notes receivable and accounts receivable. The Company places the majority of its cash deposits in noninterest-bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Funds cash is temporarily invested in U.S. Treasury instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts and notes receivable represent amounts due from borrowers in various industries related to equipment financed through notes receivable.
Notes receivable, unearned interest income and related revenue recognition:
The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports the net investment in the notes on the balance sheet. Such net investment is comprised of the amount advanced on the loans, adjusting for net deferred loan fees or costs incurred at origination, amounts allocated to warrants received upon origination, and any payments received in advance. The unearned interest is recognized over the term of the notes and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Net deferred loan fees or costs, together with discounts recognized in connection with warrants acquired at origination, are accreted as an adjustment to yield over the term of the loan.
Allowances for losses on notes receivable are typically established based on historical charge off and collection experience and the collectability of specifically identified borrowers and billed and unbilled receivables. Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary.
This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
17
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of significant accounting policies: - (continued)
Notes receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon managements judgment, the related notes may be placed on non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, all payments received are applied only against outstanding principal balances.
Note origination costs:
The Company capitalizes note origination costs and deferred loan fees associated with the origination and funding of investments in notes receivable. Costs incurred include both internal costs (e.g., the costs of employees activities in connection with successful loan originations) and any external broker fees incurred with such originations. These costs are amortized on a note by note basis over the actual contract term using the effective interest rate method. Upon termination of the underlying notes receivable, any of the remaining net note origination fees or costs are relieved. Likewise, the accumulated amortization related to the deferred costs is relieved. Costs related to notes receivable that are not consummated are not eligible for capitalization as note origination costs and are expensed as acquisition expense in the period of expenditure.
Acquisition expense:
Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition or financing of equipment and equity investment transactions which were not consummated. Such costs are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as note origination costs, such amounts are expensed as incurred.
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.
The Companys principal decision makers are the Managing Members Chief Executive Officer and its Chief Financial Officer and Chief Operating Officer. The Company believes that its financing business operates as one reportable segment because: a) the Company measures profit and loss at the portfolio assets level as a whole; b) the principal decision makers do not review information based on any operating segment other than the equipment financing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not chosen to organize its business around different products and services other than equipment financing; and e) the Company has not chosen to organize its business around geographic areas.
The primary geographic region in which the Company seeks financing opportunities is North America. Currently, 100% of the Companys operating revenues are from customers domiciled in the United States.
Investment in securities:
From time to time, the Company may purchase securities of its borrowers or receive warrants and rights to purchase securities in connection with its lending arrangements.
Purchased securities
Purchased securities (primarily preferred stocks) 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 issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. Management has concluded that there are no identified events or changes in circumstances that may have a significant adverse
18
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of significant accounting policies: - (continued)
effect on the fair value of the instruments and that it is not practicable to estimate the fair value of the investment because of its illiquidity. The Company made its initial investment in equity securities during the first quarter of 2014. As of December 31, 2016 and 2015, investments in equity securities totaled $521 thousand and $433 thousand, respectively. There was a disposal of $137 thousand worth of securities during 2016, such disposal produced $355 thousand in cash proceeds and $218 thousand in gain on sales of securities. In comparison, there were no sales or dispositions of securities during 2015.
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. At December 31, 2016 and 2015, the Managing Member estimated the fair value of warrants to be $481 thousand and $722 thousand, respectively. During 2016, the Company recorded unrealized losses of $301 thousand on fair valuation of its warrants. By comparison, during 2015, the Company recorded unrealized gains of $122 thousand relative to the fair valuation of its warrants. The Company also realized a loss of $1 thousand and a gain of $153 thousand on the net exercise of warrants during 2016 and 2015, respectively. See Note 10 for further discussion.
Advance payments:
Note payments received prior to their due date are recorded as advance payments. The payments are applied against the note receivable when they become due.
Income Taxes:
The Company is treated as a partnership for federal income tax purposes. Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly, the Company has provided current franchise income taxes for only those states which levy income taxes on partnerships. For the years ended December 31, 2016 and 2015, the related provision for state income taxes was approximately $3 thousand and $7 thousand, respectively. The Company does not have any entity level uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions and is generally subject to examination by U.S. federal (or state and local) income tax authorities for three years from the filing of a tax return.
The tax bases of the Companys net assets and liabilities vary from the amounts presented in these financial statements at December 31, 2016 and 2015 as follows (in thousands):
2016 | 2015 | |||||||
Financial statement basis of net assets | $ | 7,011 | $ | 9,756 | ||||
Tax basis of net assets (unaudited) | 10,247 | 11,985 | ||||||
Difference | $ | (3,236 | ) | $ | (2,229 | ) |
The primary difference between the tax bases of net assets and the amounts recorded in the financial statements is the result of the difference in accounting for syndication costs used in the financial statements and the Companys tax returns.
19
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of significant accounting policies: - (continued)
The following reconciles the net income reported in these financial statements to the income reported on the Companys federal tax return (unaudited) for the years ended December 31, 2016 and 2015 (in thousands):
2016 | 2015 | |||||||
Net (loss) income per financial statements | $ | (767 | ) | $ | 403 | |||
Tax adjustments (unaudited): |
||||||||
Adjustments to gain on sales of assets | 52 | | ||||||
Other | 890 | (302 | ) | |||||
Income per federal tax return (unaudited) | $ | 175 | $ | 101 |
Per Unit data:
Net income (loss) per Unit is based upon the weighted average number of Other Members Units outstanding during the year.
Recent accounting pronouncements:
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments Credit Losses (Topic 326) (ASU 2016-13). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and its operational and related disclosure requirements.
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (ASU 2016-02). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU-2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Management will adopt the standard and is currently evaluating the standard and its operational and related disclosure requirements.
In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized
20
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
2. Summary of significant accounting policies: - (continued)
losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15,2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements.
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 Entitys Ability to Continue as a Going Concern (ASU-2014-15). The new standard provides guidance relative to managements responsibility to evaluate whether there is substantial doubt about an entitys 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 does not expect the adoption of ASU 2014-15 to have a material impact on the Companys financial statements or related disclosures.
In May 2014, the FASB issued Accounting Standards Update 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 and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. 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.
3. Concentration of credit risk and major customers:
The Company provides debt financing to borrowers in diversified industries. Notes receivable are subject to the Managing Members credit committee review. The notes receivable provide for the return of the equipment or other underlying collateral to the Company upon default.
During 2016 and 2015, certain financial borrowers generated significant portions (defined as greater than or equal to 10%) of the Companys total lending revenues, excluding gains or losses on disposition of assets, as follows:
Percentage of Total Lending Revenues | ||||||||||||
Borrower | Type of Equipment | 2016 | 2015 | |||||||||
Luxtera, Inc. | Research | 18 | % | * | ||||||||
Kinestral Technologies, Inc. | Research | 14 | % | 11 | % | |||||||
Emulate, Inc. | Office Equipment | 12 | % | * | ||||||||
Tegile Systems, Inc. | Computers | 12 | % | 15 | % | |||||||
Digital Ocean, Inc. | Computers | 11 | % | 17 | % | |||||||
Avogy, Inc. | Research | * | 14 | % |
* | Less than 10% |
These percentages are not expected to be comparable in future periods due to anticipated changes in the mix of investments and/or notes receivable as a result of normal business activities.
4. Notes receivable, net:
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. The terms of the notes receivable are from 30 to 48 months and bear interest at implicit or stated rates ranging from 11.25% to 18.06% per annum. The notes are secured by the equipment financed and have maturity dates ranging from 2017 through 2020.
21
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
4. Notes receivable, net: - (continued)
As of December 31, 2016 and 2015, seven (Notes A, B and C) and three (Note A) of the Companys notes receivable were on non-accrual status, respectively. Details are as follows, in thousands, except for the number of notes receivable and the annual interest rate:
Notes receivable A | ||||||||
Non-accrual | ||||||||
December 31, 2016 | December 31, 2015 | |||||||
Number of notes | 3 | 3 | ||||||
Net investment value | $ | 133 | $ | 151 | ||||
Annual interest rate | 18.00 | % | 18.00 | % | ||||
Fair value adjustments | $ | 106 | $ | 97 | ||||
Fair value amount | $ | 27 | $ | 55 | ||||
Interest income not recorded relative to original terms | $ | 16 | $ | 15 |
Date | Note A modification | |
December 1, 2014 | Notes were placed on non-accrual status. | |
January 1, 2015 | Defer payment of principal, interest-only payments at their original rates through June 30, 2015. Payments will be adjusted so ultimate amounts paid will reflect interest earned at 18% per annum related to the entire term from the original funding date. | |
1st quarter 2015 | Impairment totaling $51 thousand was recorded. | |
3rd quarter 2015 | Impairment totaling $46 thousand was recorded. | |
4th quarter 2015 | Extended interest only payments through June 30, 2016. | |
Entire balance on the notes due on July 1, 2016. | ||
1st quarter 2016 | Impairment totaling $9 thousand was recorded. | |
3rd quarter 2016 | Extended interest only payments through January 1, 2017. | |
1st quarter 2017 | Extended payment schedule through January 1, 2020. Term loan matures on January 1, 2020. |
Notes receivable B | ||||
Non-accrual | ||||
December 31, 2016 |
||||
Number of notes | 3 | |||
Net investment value | $ | 668 | ||
Annual interest rate | 14.40 | % | ||
Fair value adjustments | $ | 611 | ||
Fair value amount | $ | 57 | ||
Interest income not recorded relative to original terms | $ | 96 |
Date | Note B modification | |
February 1, 2016 | Defer payment of principal, interest-only payments at their original rates. | |
2nd quarter 2016 | Impairment totaling $611 thousand was recorded. | |
3rd quarter 2016 | Defer payment of principal, interest-only payments at their original rates with through January 1, 2017 with an increase to the final balloon payment original maturity dates ranging from April to June 2018 remained. | |
January 1, 2017 | Payments were reverted back to their original rates. | |
February 22, 2017 | Proceeds from the disposal of underlying collateral totaling $130 thousand were received. |
22
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
4. Notes receivable, net: - (continued)
Notes receivable C | ||||
Non-accrual | ||||
December 31, 2016 |
||||
Number of notes | 1 | |||
Net investment value | $ | 53 | ||
Annual interest rate | 15.88 | % | ||
Fair value adjustments | $ | | ||
Fair value amount | $ | 53 | ||
Interest income not recorded relative to original terms | $ | 2 |
Date | Note C modification | |
November 1, 2016 | Notes were placed on non-accrual status. |
As of December 31, 2016, the minimum future payments receivable were as follows (in thousands):
Year ending December 31, 2017 | $ | 3,260 | ||
2018 | 2,078 | |||
2019 | 927 | |||
2020 | 57 | |||
6,322 | ||||
Less: portion representing unearned interest income, net | (1,119 | ) | ||
Less: advance payments | (56 | ) | ||
Less: allowance for credit losses | (717 | ) | ||
Notes receivable, net | $ | 4,430 |
5. Allowance for credit losses:
The Companys allowance for credit losses were as follows (in thousands):
Valuation Adjustments Notes Receivable |
||||
Balance December 31, 2014 | $ | | ||
Provision for credit losses | 97 | |||
Balance December 31, 2015 | 97 | |||
Provision for credit losses | 620 | |||
Balance December 31, 2016 | $ | 717 |
Allowance for Doubtful Accounts
Accounts receivable represent the amounts billed under notes receivable which are currently due to the Company.
Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.
Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon managements judgment, such notes may be placed in non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. All payments received on amounts billed under notes receivable are applied only against outstanding principal balances.
23
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
5. Allowance for credit losses: - (continued)
Valuation Adjustments
In addition to the allowance established for delinquent accounts receivable, the total allowance also includes anticipated impairment charges on notes receivable.
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
The Companys allowance for credit losses and its recorded investment in notes receivable as of December 31, 2016 and 2015 were as follows (in thousands):
December 31, 2016 | Notes Receivable |
|||
Allowance for credit losses: |
||||
Ending balance | $ | 717 | ||
Ending balance: individually evaluated for impairment | $ | 717 | ||
Ending balance: collectively evaluated for impairment | $ | | ||
Financing receivables: |
||||
Ending balance | $ | 5,147 | ||
Ending balance: individually evaluated for impairment | $ | 5,147 | ||
Ending balance: collectively evaluated for impairment | $ | |
December 31, 2015 | Notes Receivable |
|||
Allowance for credit losses: |
||||
Ending balance | $ | 97 | ||
Ending balance: individually evaluated for impairment | $ | 97 | ||
Ending balance: collectively evaluated for impairment | $ | | ||
Financing receivables: |
||||
Ending balance | $ | 5,819 | ||
Ending balance: individually evaluated for impairment | $ | 5,819 | ||
Ending balance: collectively evaluated for impairment | $ | |
The Company evaluates the credit quality of its notes receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass Any account whose debtor, co-debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moodys or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
24
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
5. Allowance for credit losses: - (continued)
Special Mention Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve managements close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Funds receivable at some future date.
Substandard Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Managers Credit Watch List.
Doubtful Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Managers Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.
At December 31, 2016 and 2015, the Companys notes receivables by credit quality indicator and by class of financing receivables were as follows (excludes initial direct costs) (in thousands):
Notes Receivable | ||||||||
2016 | 2015 | |||||||
Pass | $ | 4,293 | $ | 4,657 | ||||
Special mention | 53 | 1,011 | ||||||
Substandard | 133 | 151 | ||||||
Doubtful | 668 | | ||||||
Total | $ | 5,147 | $ | 5,819 |
As of December 31, 2016 and 2015, the Companys impaired loans were as follows (in thousands):
Impaired Loans | ||||||||||||||||||||
December 31, 2016 | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | | ||||||||||
With an allowance recorded |
||||||||||||||||||||
Notes receivable | 801 | 809 | 717 | 833 | | |||||||||||||||
Total | $ | 801 | $ | 809 | $ | 717 | $ | 833 | $ | |
Impaired Loans | ||||||||||||||||||||
December 31, 2015 | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | | ||||||||||
With an allowance recorded |
||||||||||||||||||||
Notes receivable | 151 | 152 | 97 | 160 | | |||||||||||||||
Total | $ | 151 | $ | 152 | $ | 97 | $ | 160 | $ | |
25
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
5. Allowance for credit losses: - (continued)
At December 31, 2016 and 2015, investment in financing receivables is aged as follows (in thousands):
December 31, 2016 | 31 60 Days Past Due |
61 90 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment >90 Days and Accruing |
|||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | 5,147 | $ | 5,147 | $ | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | 5,147 | $ | 5,147 | $ | |
December 31, 2015 | 31 60 Days Past Due |
61 90 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment >90 Days and Accruing |
|||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | 5,819 | $ | 5,819 | $ | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | 5,819 | $ | 5,819 | $ | |
As of December 31, 2016 and 2015, the Company had seven and three notes receivable which were on non-accrual status, respectively. (See Note 4 for details).
6. 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 management and resale, and for management of the Company.
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 total 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.
During the years ended December 31, 2016 and 2015, the Managing Member and/or affiliates earned commissions, fees and reimbursements pursuant to the Operating Agreement were as follows (in thousands):
2016 | 2015 | |||||||
Administrative costs reimbursed to Managing Member and/or affiliates | $ | 240 | $ | 183 | ||||
Asset management fees to Managing Member | 73 | 79 | ||||||
Acquisition costs and note origination fees paid to Managing Member | 233 | 250 | ||||||
$ | 546 | $ | 512 |
7. Commitments:
At December 31, 2016, there were commitments to fund investments in notes receivable approximating $1.8 million. This amount represents contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
26
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
8. Guarantees:
The Company enters into contracts that contain a variety of indemnifications. The Companys maximum exposure under these arrangements is unknown. However, based upon the Managers 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 Companys 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 Companys 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.
9. Members Capital:
A total of 1,618,296 Units were issued and outstanding at both December 31, 2016 and 2015. The Fund is authorized to issue up to 7,500,000 additional Units in addition to the Units issued to the initial Member (50 Units).
From the commencement of the Fund until the initial closing date, as defined in the Operating Agreement, the Companys net income and net losses are allocated 100% to the Manager. Commencing with the initial closing date, net income and net losses are allocated 100% to the Members. An amount equal to 5% of all Distributions of Cash Available for Distribution and Net Disposition Proceeds will be allocated to the Manager as the carried interest. An amount equal to (i) an additional 5% of all Distributions from Cash Available for Distribution and 1% of all Distributions of Net Disposition Proceeds will be paid to the Manager as a promotional interest until investors have received total distributions in amounts equal to their Capital Contributions plus an amount equal to a priority return of 8% per annum as defined in the Operating Agreement; and (ii) then 15% of all subsequent distributions will be allocated to the Manager as a promotional interest. Distributions not allocated to the Manager as carried or promotional interests will be allocated and paid to the Unitholders.
Distributions to the Other Members for 2016 and 2015 were as follows (in thousands, except as to Units and per Unit data):
2016 | 2015 | |||||||
Distributions declared | $ | 1,780 | $ | 1,779 | ||||
Weighted average number of Units outstanding | 1,618,296 | 1,618,296 | ||||||
Weighted average distributions per Unit | $ | 1.10 | $ | 1.10 |
10. 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 Companys own estimates of assumptions that market participants would use in pricing the asset or liability. |
At December 31, 2016 and 2015, only the Companys warrants were measured on a recurring basis. During 2016 and 2015, the Company also recorded non-recurring adjustments to reflect the fair values of certain impaired notes receivable.
27
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
10. Fair value measurements: - (continued)
The Companys 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 and third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Companys 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 Companys investments in 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.
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 volatility of respective similar publicly traded companies, a risk free interest rate for the term(s) of the warrant exercise(s), and the respective exercise prices and number of warrants. As of December 31, 2016 and 2015, the calculated fair value of the Funds warrant portfolio totaled $481 thousand and $722 thousand, respectively. Such valuation is classified within Level 3 of the valuation hierarchy.
The following table reconciles the beginning and ending balances of the Companys Level 3 recurring assets (in thousands):
2016 | 2015 | |||||||
Fair value of warrants at beginning of year | $ | 722 | $ | 566 | ||||
Fair value of new warrants, recorded during the year (included as a discount on notes receivable) | 76 | 34 | ||||||
Disposition of warrants | (16 | ) | | |||||
Unrealized (loss) gain on fair value adjustment for warrants | (301 | ) | 122 | |||||
Fair value of warrants at end of year | $ | 481 | $ | 722 |
Impaired notes receivable (non-recurring)
The fair value of the Companys notes receivable, when impairment adjustments are required, is estimated using either third party appraisals or estimations of the value of collateral (for collateral dependent loans) or discounted cash flow analyses (by discounting estimated future cash flows) using the effective interest rate contained in the terms of the original loan.
During 2016 and 2015, the Company had recorded fair value adjustments totaling $620 thousand and $97 thousand relative to seven and three impaired notes, respectively.
The fair value adjustments recorded in 2016 and 2015 were non-recurring and were based upon an estimated valuation of underlying collateral. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable is classified within Level 3 of the valuation hierarchy. The valuation utilizes a market approach technique and uses inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral.
28
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
10. Fair value measurements: - (continued)
The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2016 and 2015 (in thousands):
December 31, 2016 |
Level 1 Estimated Fair Value |
Level 2 Estimated Fair Value |
Level 3 Estimated Fair Value |
|||||||||||||
Impaired notes receivable | $ | 84 | $ | | $ | | $ | 84 |
December 31, 2015 | Level 1 Estimated Fair Value |
Level 2 Estimated Fair Value |
Level 3 Estimated Fair Value |
|||||||||||||
Impaired notes receivable | $ | 55 | $ | | $ | | $ | 55 |
The following tables summarize the valuation techniques and significant unobservable inputs used for the Companys recurring and non-recurring fair value calculation categorized as Level 3 in the fair value hierarchy at December 31, 2016 and 2015:
December 31, 2016 | ||||||||||||||||
Name | Valuation Frequency |
Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants | Recurring | Black-Scholes formulation | Stock price | $0.00 $14.75 | ||||||||||||
Exercise price | $0.19 $25.76 | |||||||||||||||
Time to maturity (in years) | 3.99 14.95 | |||||||||||||||
Risk-free interest rate | 1.70% 2.62% | |||||||||||||||
Annualized volatility | 34.86% 108.99% | |||||||||||||||
Impaired Notes Receivable | Non-recurring | Market Approach | Third Party Agents' estimate of the value of collateral | $0 $121,376 | ||||||||||||
Condition of collateral (equipment) | Poor to Average |
December 31, 2015 | ||||||||||||||||
Name | Valuation Frequency |
Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants | Recurring | Black-Scholes formulation | Stock price | $0.19 $25.76 | ||||||||||||
Exercise price | $0.19 $25.76 | |||||||||||||||
Time to maturity (in years) | 4.99 9.76 | |||||||||||||||
Risk-free interest rate | 1.76% 2.26% | |||||||||||||||
Annualized volatility | 100.00% | |||||||||||||||
Impaired Notes Receivable | Non-recurring | Market Approach | Third Party Agents' estimate of the value of collateral | $0 $25,522 | ||||||||||||
Condition of collateral (equipment) | Poor to Average |
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 Companys financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Companys financial statements and related notes.
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.
29
ATEL GROWTH CAPITAL FUND 8, LLC
NOTES TO FINANCIAL STATEMENTS
10. Fair value measurements: - (continued)
Cash and cash equivalents
The recorded amounts of the Companys 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 Companys 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.
Investment in securities
The Companys investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.
The following tables present estimated fair values of the Companys financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at December 31, 2016 and 2015 (in thousands):
December 31, 2016 | ||||||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 1,860 | $ | 1,860 | $ | | $ | | $ | 1,860 | ||||||||||
Notes receivable, net | 4,430 | | | 4,416 | 4,416 | |||||||||||||||
Investment in securities | 521 | | | 521 | 521 | |||||||||||||||
Warrants | 481 | | | 481 | 481 |
December 31, 2015 | ||||||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 3,018 | $ | 3,018 | $ | | $ | | $ | 3,018 | ||||||||||
Notes receivable, net | 5,722 | | | 5,699 | 5,699 | |||||||||||||||
Investment in securities | 433 | | | 433 | 433 | |||||||||||||||
Warrants | 722 | | | 722 | 722 |
Commitments and Contingencies
The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.
30
Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
Item 9A. | CONTROLS AND PROCEDURES |
Evaluation of disclosure controls and procedures
The Companys Managing Members Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (Management), evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Companys 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 Members 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 Commissions 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 issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Managements Annual Report on Internal Control over Financial Reporting
The Management of the Managing Member is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f) for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2016. The internal control process of the Managing Member, as it is applicable to the Company, was designed to provide reasonable assurance to Management regarding the preparation and fair presentation of published financial statements, and includes those policies and procedures that:
(1) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States, and that the Companys receipts and expenditures are being made only in accordance with authorization of the Management of the Managing Member; and |
(2) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements. |
All internal control processes, no matter how well designed, have inherent limitations. Therefore, even those processes determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Further, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Managing Member assessed the effectiveness of its internal control over financial reporting, as it is applicable to the Company, as of December 31, 2016. In making this assessment, it used the criteria set forth in Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, Management of the Managing Member concluded that the Managing Members internal control over financial reporting, as it is applicable to the Company, was effective as of December 31, 2016.
31
This annual report does not include an audit report of the Companys independent registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to audit by the Companys independent registered public accounting firm pursuant to Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which exempts non-accelerated filers from Section 404(b) of the Sarbanes-Oxley Act of 2002.
Changes in internal control
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the year ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, the Managing Members internal control over financial reporting, as it is applicable to the Company.
32
PART III
Item 10. | DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT |
The registrant is a Limited Liability Company and has no officers or directors.
AGC Managing Member, LLC (the Managing Member or Manager) is the Companys Managing Member. The Managing Member is controlled by ATEL Financial Services, LLC (AFS), a wholly-owned subsidiary of ATEL Capital Group (ACG or ATEL). The outstanding voting capital stock of ATEL is owned 100% by Dean L. Cash.
Each of AFS and ATEL Leasing Corporation (ALC) is a wholly-owned subsidiary of ACG and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations and communications services, and general administrative services are performed by AFS. ATEL Securities Corporation (ASC), a wholly-owned subsidiary of AFS, performs distribution services in connection with the Companys public offering of its Units.
The officers and directors of ACG and its affiliates are as follows:
Dean L. Cash | Chairman of the Board, President and Chief Executive Officer of AGC Managing Member, LLC (Managing Member) | |
Paritosh K. Choksi | Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of AGC Managing Member, LLC (Managing Member) | |
Vasco H. Morais | Executive Vice President, Secretary and General Counsel of AGC Managing Member, LLC (Managing Member) |
Dean L. Cash, age 66, became chairman, president and chief executive officer of ATEL in April 2001. Mr. Cash joined ATEL as director of marketing in 1980 and served as a vice president since 1981, executive vice president since 1983 and a director since 1984. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from 1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association and is qualified as a registered principal with the Financial Industry Regulatory Authority.
Paritosh K. Choksi, age 63, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and CFO/COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink Communications, Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenixs capital market needs. He also served on the credit committee overseeing all corporate investments, including its venture lease portfolio. Mr. Choksi was a part of the executive management team which caused Phoenixs portfolio to increase from $50 million in assets to over $2 billion. Mr. Choksi is a member of the board of directors of Syntel, Inc. Mr. Choksi received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the University of California, Berkeley.
Vasco H. Morais, age 58, joined ATEL in 1989 as general counsel. Mr. Morais manages ATELs legal department, which provides legal and contractual support in the negotiating, documenting, drafting, reviewing and funding of lease transactions. In addition, Mr. Morais advises on general corporate law matters, and assists on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of Americas equipment leasing subsidiaries, providing in-house legal support on the documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in the Corporate and Securities Legal Department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley, a J.D. degree in 1986 from
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Golden Gate University Law School; and an M.B.A. (Finance) degree from Golden Gate University in 1997. Mr. Morais, an active member of the State Bar of California since 1986, served as co-chair of the Uniform Business Law Section of the State Bar of California and was inducted as a fellow of the American College of Commercial Finance Lawyers in 2010.
Audit Committee
The board of directors of the Managing Member acts as the audit committee of the Company. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of the Managing Member and are deemed to be financial experts. They are not independent of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on a review of Forms 3, 4, and 5, the Company is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2016.
Code of Ethics
A Code of Ethics that is applicable to the Company, including the Chief Executive Officer and Chief Financial Officer and Chief Operating Officer of its Manager, AGC Managing Member, LLC, or persons acting in such capacity on behalf of the Company, is included as Exhibit 14.1 to this report.
Item 11. | EXECUTIVE COMPENSATION |
The registrant has no officers or directors.
Set forth hereinafter is a description of the nature of remuneration paid and to be paid to the Manager and its affiliates. The amount of such remuneration paid for the years ended December 31, 2016 and 2015 is set forth in Item 8 of this report under the caption Financial Statements and Supplementary Data Notes to Financial Statements Related party transactions, at Note 5 thereof, which information is hereby incorporated by reference.
Selling Commissions
The Company paid selling commissions in the amount of 9% of Gross Proceeds, as defined, to ATEL Securities Corporation, an affiliate of the Manager. Of such commissions, 7% is generally re-allowed to other broker/dealers in cash commissions except in such instances where the re-allowed amount is reinvested and distributed in the form of Fund Units to the originating broker/dealers client investor.
Through December 31, 2016, $1.5 million of commissions, excluding payments for Pennsylvania commissions, has been paid to ASC. Of such amount, $1.1 million has been re-allowed to other broker/dealers.
Asset Management Fee, Carried Interest and Promotional Interest
The Company pays the Manager an annual Asset Management Fee in an amount equal to 2% of Gross Financing Revenues. The Asset Management Fee is paid on a monthly basis. The amount of the Asset Management Fee payable in any year is reduced for that year to the extent it would otherwise exceed the Asset Management Fee Limit, as described below. The Asset Management Fee is paid for services rendered by the Manager and its affiliates in determining portfolio and investment strategies and generally managing or supervising the management of the investment portfolio.
The Manager supervises performance of all management activities, including, among other activities: the acquisition and financing of the investment portfolio, collection of financing revenues, monitoring compliance by customers with their contract terms, assuring that collateral and investment assets are being used in accordance with all operative contractual arrangements, paying operating expenses and arranging for necessary maintenance and repair of equipment and property in the event a customer fails to do so, monitoring property, sales and use tax compliance and preparation of operating financial data. The Manager intends to delegate all or a portion of its duties and the Asset Management Fee to one or more of its affiliates who are in the business of providing such services.
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In addition to the Asset Management Fee, the Manager receives, as its Carried Interest, an amount equal to 5% of all Distributions of Cash Available for Distribution and Net Disposition Proceeds. The Manager also receives a Promotional Interest equal to (i) 5% of all Distributions from Cash Available for Distribution and 1% of all Distributions of Net Disposition Proceeds until investors have received distributions in amounts equal to a return of their Capital Contributions plus an amount equal to their respective Priority Returns; and (ii) then 15% of all subsequent Distributions.
Limitations on Fees
The total of all Front End Fees, the Carried Interest, the Asset Management Fee and the Promotional Interest will be subject to the Management Fee Limit in order to assure state securities administrators that the Fund will not bear greater fees than permitted under the state merit review guidelines. The North American Securities Administrators Association, Inc. (NASAA) is an organization of state securities administrators, those state government agencies responsible for qualifying securities offerings in their respective states. NASAA has established standards for the qualification of a number of different types of securities offerings and investment products, including its Statement of Policy on Equipment Programs as in effect as of the initial effective date of the Funds Registration Statement on Form S-1 for the initial public offering of its Units (the NASAA Guidelines). For purposes of the application of the NASAA Guidelines, all Portfolio Assets will be deemed Equipment as defined in the NASAA Guidelines. Article IV, Sections C through G and Article V, Section F of the NASAA Equipment Leasing Guidelines establish the standards for payment to program sponsors of reasonable carried interests, promotional interests and fees for equipment acquisition, management, resale and releasing services, and sets the maximum compensation payable to the sponsor and its affiliates from an equipment leasing program such as the Fund. The Management Fee Limit will equal the maximum compensation payable under Article IV, Sections C through G, and Article V, Section F, of the NASAA Equipment Leasing Guidelines (the NASAA Fee Limitation). Under the Management Fee Limit, the Fund will calculate the maximum fees payable under the NASAA Fee Limitation and guarantee that the total of the amount of Front End Fees, the Carried Interest, the Asset Management Fee and the Promotional Interest it will pay the Manager and its Affiliates, when added to it will never exceed the maximum compensation payable to a sponsor and its affiliates under the NASAA Fee Limitation.
Management Fee Limit. The Management Fee Limit will be calculated each year during the Funds term by calculating the total fees that would be paid to the Manager if the Manager were to be compensated on the basis of the maximum compensation payable under the NASAA Fee Limitation through the end of such year, as described below. To the extent that the amount paid as Front End Fees, the Asset Management Fee, the Promotional Interest and the Carried Interest for any year would, when added to amounts paid in all prior years, cause the total fees through the end of such year to exceed the aggregate amount of fees calculated under the NASAA Fee Limitation for the same period, the amount of the Promotional Interest and/or Carried Interest payable to the Manager and its Affiliates for that year will be reduced so that the total of all such compensation paid through the end of the period will not exceed the maximum aggregate fees under the NASAA Fee Limitation. To the extent any amounts otherwise payable to the Manager as the Promotional Interest and/or Carried Interest are reduced, the amount of such reduction will be accrued and deferred, and such accrued and deferred compensation would be paid to the Manager in a subsequent period, but only to the extent that the deferred compensation would be within the Management Fee Limit as calculated through that later period. Any deferred fees that cannot be paid under the applicable limitations through the date of liquidation would be forfeited by the Manager at liquidation.
Under the NASAA Equipment Leasing Guidelines, the Fund is required to commit a minimum percentage of the Gross Proceeds to Investment in Equipment, calculated as the greater of: (i) 80% of the Gross Proceeds reduced by 0.0625% for each 1% of indebtedness encumbering the Funds Portfolio Assets; or (ii) 75% of such Gross Proceeds. The Fund expects to commit 87.5% of the Gross Proceeds to Investment in Equipment. The Fund will not incur any debt to acquire its portfolio of financing investments. Accordingly, the Minimum Investment in Equipment will be 80% and the Funds expected Investment in Equipment would therefore exceed the NASAA Fee Limitation minimum by 7.5%.
The Fund will pay the Manager a maximum Carried Interest equal to 5% of all Distributions, but the amount of the Carried Interest permitted the Manager under the NASAA Fee Limitation will be dependent on the amount by which the percentage of Gross Proceeds the Fund ultimately commits to Investment in Equipment exceeds the minimum Investment in Equipment under the NASAA Fee Limitation. The NASAA Fee Limitation permits the Manager and its Affiliates to receive compensation in the form of a carried interest in Fund Distributions equal to 1% for the first 2.5% of excess Investment in Equipment over the NASAA Guidelines minimum, 1% for the next 2% of such excess, and 1% for each additional 1% of excess Investment in Equipment.
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With an Investment in Equipment of 87.5% and zero portfolio leverage, the Manager and its Affiliates may receive a Carried Interest of 5% of Distributions under the foregoing formula (2.5% + 2% + 3% = 7.5% over the minimum [80%]; so, 1% + 1% + 3% = 5% Carried Interest).
As described above, the total amount of Front End Fees paid by the Fund will determine whether the Carried Interest permitted under the NASAA Fee Limitation and the Management Fee Limit imposed by the Operating Agreement is 5% or a lesser percentage. The maximum amounts to be paid under the terms of the Operating Agreement are subject to the application of the Management Fee Limit provided in Section 8.3 of the Agreement, which limits the annual amount payable to the Manager and its Affiliates as the Asset Management Fee, Promotional Interest and the Carried Interest to an aggregate not to exceed the total amount of fees that would be payable to the Manager and its Affiliates under the NASAA Fee Limitation.
Upon completion of the offering of Units, final commitment of offering proceeds to acquisition of Portfolio Assets, the Manager will calculate the maximum Carried Interest, Asset Management Fee and Promotional Interest payable to the Manager and its Affiliates under the NASAA Fee Limitation. If and to the extent that the Asset Management Fee, Promotional Interest and Carried Interest would exceed the fees calculated under the NASAA Fee Limitation, the fees payable to the Manager and its Affiliates will be reduced by an amount sufficient to cause the total of such compensation to comply with the NASAA Fee Limitation. A comparison of the total compensation actually paid to the Manager and Affiliates by the Fund and the NASAA Fee Limitation maximum will be repeated, and any required adjustments will be made, annually thereafter.
See Note 5 to the financial statements as set forth in Part II, Item 8, Financial Statements and Supplementary Data, for amounts paid.
Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Security Ownership of Certain Beneficial Owners
At December 31, 2016, no investor is known to hold beneficially more than 5% of the issued and outstanding Units.
Security Ownership of Management
The parent of AGC Managing Member, LLC is the beneficial owner of Limited Liability Company Units as follows:
(1) Title of Class |
(2) Name and Address of Beneficial Owner |
(3) Amount and Nature of Beneficial Ownership |
(4) Percent of Class |
|||
Limited Liability Company Units | ATEL Management Services, LLC The Transamerica Pyramid 600 Montgomery Street, 9th Floor San Francisco, CA 94111 |
Initial Limited Liability Company Units 50 Units ($500) |
0.0031% |
Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
See Item 8 of this report under the caption Financial Statements and Supplementary Data Notes to Financial Statements Related party transactions at Note 5 thereof.
Item 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
During the years ended December 31, 2016 and 2015, the Company incurred audit fees with its principal auditors totaling $88 thousand and $80 thousand, respectively.
Audit fees consist of the aggregate fees and expenses billed in connection with the audit of the Companys annual financial statements and the review of the financial statements included in the Companys quarterly reports on Form 10-Q.
The board of directors of the Managing Member acts as the audit committee of the registrant. Engagements for audit services, audit related services and tax services are approved in advance by the Chief Financial Officer of the Managing Member acting on behalf of the board of directors of the Managing Member in its role as the audit committee of the Company.
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PART IV
Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | Financial Statements and Schedules |
1. | Financial Statements |
2. | Financial Statement Schedules |
All 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.
(b) | Exhibits |
(3) and (4) Amended and Restated Limited Liability Company Operating Agreement, included as exhibit B to the Prospectus effective August 20, 2012 as filed on August 22, 2012 (File Number 333-178629) is hereby incorporated herein by reference
(14.1) | Code of Ethics | |
(31.1) | Certification of Dean L. Cash pursuant to Rules 13a-14(a)/15d-14(a) | |
(31.2) | Certification of Paritosh K. Choksi pursuant to Rules 13a-14(a)/15d-14(a) | |
(32.1) | Certification of Dean L. Cash pursuant to 18 U.S.C. section 1350 | |
(32.2) | Certification of Paritosh K. Choksi pursuant to 18 U.S.C. section 1350 | |
(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 Section 13 or 15(d) 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: March 17, 2017
ATEL GROWTH CAPITAL FUND 8, LLC
(Registrant)
By: AGC Managing Member, LLC |
By: /s/ Dean L. Cash | ||
By: /s/ Paritosh K. Choksi | ||
By: /s/ Samuel Schussler |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the persons in the capacities and on the dates indicated.
SIGNATURE | CAPACITIES | DATE | ||
/s/ Dean L. Cash Dean L. Cash |
Chairman of the Board, President and Chief Executive Officer of AGC Managing Member, LLC, (Managing Member) |
March 17, 2017 | ||
/s/ Paritosh K. Choksi Paritosh K. Choksi |
Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of AGC Managing Member, LLC (Managing Member) |
March 17, 2017 | ||
/s/ Samuel Schussler Samuel Schussler |
Senior Vice President and Chief Accounting Officer of AGC Managing Member, LLC (Managing Member) |
March 17, 2017 |
No proxy materials have been or will be sent to security holders. An annual report will be furnished to security holders subsequent to the filing of this report on Form 10-K, and copies thereof will be furnished supplementally to the Commission when forwarded to the security holders.
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