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EX-32.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO 18 U.S.C - ICON ECI Fund Sixteenicojexhibit32312312017.htm
EX-32.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, - ICON ECI Fund Sixteenicojexhibit32212312017.htm
EX-32.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, - ICON ECI Fund Sixteenicojexhibit32112312017.htm
EX-31.3 - CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER PURSUANT TO SECTION - ICON ECI Fund Sixteenicojexhibit31312312017.htm
EX-31.2 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBA - ICON ECI Fund Sixteenicojexhibit31212312017.htm
EX-31.1 - CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBA - ICON ECI Fund Sixteenicojexhibit31112312017.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 fiscal year ended
December 31, 2017
 
 
or
 
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 
 
Commission File Number:
333-185144
 
ICON ECI Fund Sixteen
(Exact name of registrant as specified in its charter)
Delaware
 
80-0860084
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
3 Park Avenue, 36th Floor
 
 
New York, New York
 
10016
(Address of principal executive offices)
 
(Zip Code)
(212) 418-4700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 þ 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o    No þ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ 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 þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's 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.
þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
o
 
Accelerated filer  
o
 
Non-accelerated filer 
o  (Do not check if a smaller reporting company)
 
Smaller reporting company 
þ
 
 
 
 
Emerging growth company 
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes o No þ
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 last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: Not applicable.  There is no established market for the Class A and Class I shares of the registrant.

Number of outstanding Class A and Class I shares of the registrant on March 16, 2018 is 17,189 and 410, respectively.

DOCUMENTS INCORPORATED BY REFERENCE
None.



ICON ECI Fund Sixteen
Table of Contents

Page
 

 




 

 
 




PART I

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

Item 1. Business

Our History

ICON ECI Fund Sixteen (the “Fund”) was formed on October 11, 2012 as a Delaware statutory trust. When used in this Annual Report on Form 10-K, the terms “we,” “us,” “our” or similar terms refer to the Fund and its consolidated subsidiaries. We have elected to be treated as a partnership for federal income tax purposes.

Our managing owner is ICON MT 16, LLC, a Delaware limited liability company (the “Managing Owner”), and our investment manager is ICON Capital, LLC, a Delaware limited liability company (the “Investment Manager”). Wilmington Trust, National Association (the “Trustee”) serves as our sole trustee pursuant to our Fourth Amended and Restated Trust Agreement (the “Trust Agreement”). The Trustee delegated to our Managing Owner all of the power and authority to manage our business and affairs, including, but not limited to, our investments in or that are collateralized by equipment and other corporate infrastructure (collectively, “Capital Assets”). Pursuant to the terms of our investment management agreement, our Managing Owner has engaged our Investment Manager to, among other things, originate and service our investments.  Additionally, our Managing Owner has a 1% interest in our profits, losses, distributions and liquidation proceeds.

Our initial capitalization was $1,001. Our offering period commenced on July 1, 2013 and ended on December 31, 2014. Our Managing Owner determined to cease our offering period earlier than originally anticipated as a result of lower than expected offering proceeds being raised. We offered to sell to the public any combination of two classes of shares, Class A shares and Class I shares (collectively, the “Shares”), on a “best efforts” basis with the intention of raising up to $250,000,000 of capital, of which $9,000,000 had been reserved for issuance pursuant to our distribution reinvestment plan (the “DRIP”). Other than differing allocable fees and expenses, the Class A shares and Class I shares have identical rights and privileges, such as identical voting and distribution rights. We reserved the right to reallocate the offering amount between the primary offering and the DRIP.

As of November 12, 2013 (the “Initial Closing Date”), we raised a minimum of $1,200,000 from the sale of our Shares, at which time shareholders were admitted and we commenced operations. As of June 13, 2014, we raised the $12,500,000 minimum offering amount for the Commonwealth of Pennsylvania. Subsequent to the Initial Closing Date, we returned the initial capital contribution of $1,000 to CION Investment Group, LLC (formerly, ICON Investment Group, LLC) (the “Initial Shareholder”). From the commencement of our offering on July 1, 2013 through December 31, 2014, we sold 17,189 Class A shares to 351 Class A shareholders and 410 Class I shares to six Class I shareholders, of which 404 Class A shares and 12 Class I shares were issued pursuant to the DRIP, representing an aggregate of $17,469,610 of capital contributions. Pursuant to the terms of our offering, we established a cash reserve in the amount of 0.50% of the gross offering proceeds from the sale of our Shares. As of December 31, 2017, the reserve was $87,348. From the Initial Closing Date through December 31, 2014, we incurred sales commissions to third parties of $1,198,531 and dealer-manager and distribution fees of $347,547 to CION Securities, LLC, the dealer-manager of our offering and an affiliate of our Investment Manager (“CION Securities”). In addition, organization costs of $8,418 and offering expenses of $161,422 were incurred by us during such period. Organization costs were expensed when incurred and offering expenses were recorded as a reduction of shareholders’ equity.  

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Our operating period commenced on January 1, 2015. After the net offering proceeds were invested, we reinvested the cash generated from our initial investments to the extent that cash was not used for our expenses, reserves and distributions to our shareholders. On April 24, 2017, we commenced a consent solicitation of our shareholders to further amend and restate our Trust Agreement in order to amend the definition of “operating period” to provide for the ability of our Managing Owner to shorten our operating period in its sole and absolute discretion. The consent solicitation was completed on May 24, 2017 with the requisite consents received from our shareholders. As a result, our Managing Owner ended our operating period on May 31, 2017 and commenced our wind down period on June 1, 2017. During our wind down period, we have sold and will continue to sell our assets and/or let our investments mature in the ordinary course of business.

On May 30, 2017, our Investment Manager retained ABN AMRO Securities (USA) LLC (“ABN AMRO Securities”) as its financial advisor to assist our Investment Manager and us in identifying, evaluating and executing a potential sale of certain shipping and offshore energy assets currently included within our investment portfolio. We, however, cannot assure that the identification or evaluation to be performed will result in any specific sale transaction or series of transactions. 

Our Business

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

In the case of secured loans and other financing transactions, the principal and interest payments due under the loan are expected to provide a return of and a return on the amount we loaned to borrowers. In the case of leases where there is significant current cash flow generated during the primary term of the lease and the value of the Capital Assets at the end of the term will be minimal or was not considered a primary reason for making the investment, the rental payments due under the lease are expected to be, in the aggregate, sufficient to provide a return of and a return on the purchase price of the leased Capital Assets. In the case of investments in leased Capital Assets that decline in value at a slow rate due to the long economic life of such Capital Assets, we expect that we will generate sufficient net proceeds at the end of the investment from the sale or re-lease of such Capital Assets to provide a return of and a return on our investment. In the case of operating leases, we expect most, if not all, of the return of and the return on such investments to be realized upon the sale or re-lease of the Capital Assets.  For leveraged leases, we expect the rental income we receive to be less than the purchase price of the Capital Assets because we structured these transactions to utilize some or all of the lease rental payments to reduce the amount of non-recourse indebtedness used to acquire such assets.

We divide the life of the Fund into three distinct phases:

(1)
Offering Period: The period during which we offered and sold Shares to investors. We invested most of the net proceeds from the sale of Shares in Capital Assets.

(2)
Operating Period: After the close of the offering period, we reinvested the cash generated from our initial investments to the extent that cash was not needed for our expenses, reserves and distributions to shareholders. Our operating period ended on May 31, 2017.

(3)
Wind Down Period: Our wind down period commenced on June 1, 2017, during which we have sold and will continue to sell our assets and/or let our investments mature in the ordinary course of business.

At December 31, 2017 and 2016, we had total assets of $9,594,815 and $14,832,970, respectively. For the year ended December 31, 2017, we had one lessee and one borrower that accounted for 92.7% of our finance income. Our income from investment in joint ventures was primarily derived from our investment in two joint ventures. Net loss attributable to us for the year ended December 31, 2017 was $525,117. For the year ended December 31, 2016, we had one lessee and one borrower that accounted for 99.3% of our finance income. Our income from investment in joint ventures was primarily derived from our investment in five joint ventures. Net income attributable to us for the year ended December 31, 2016 was $8,182.

At December 31, 2017, our portfolio, which we hold either directly or through joint ventures, consisted of the following investments:

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Geotechnical Drilling Vessels

A 10% ownership interest in two geotechnical drilling vessels, the Fugro Scout and the Fugro Voyager (collectively, the “Fugro Vessels”), which are subject to 12-year bareboat charters with affiliates of Fugro N.V. (“Fugro”), which expire in December 2027.

Notes Receivable

A term loan to CFL Momentum Beheer B.V. and C.V. CFL Momentum (collectively, “CFL”), secured by, among other things, a first priority security interest in and earnings from a motor cargo vessel, which matures in December 2020.

A term loan to Lubricating Specialties Company (“LSC”), secured by a second priority security interest in LSC's accounts receivable and inventory and a first priority security interest in all of LSC’s other assets, which matures in December 2020.

For a discussion of the significant transactions that we engaged in during the years ended December 31, 2017 and 2016, please refer to “Item 7. Managing Owner’s Discussion and Analysis of Financial Condition and Results of Operations.”

Segment Information

We engaged in one business segment, the business of investing in Capital Assets, including, but not limited to, Capital Assets that were already subject to lease, Capital Assets that we purchased and leased to domestic and international businesses, loans secured by Capital Assets and ownership rights to leased Capital Assets at lease expiration.

Competition

The commercial leasing and finance industry is highly competitive and is characterized by competitive factors that vary based upon product and geographic region. When we made our investments we competed, and as we seek to liquidate our portfolio we compete, with a variety of competitors including other equipment leasing and finance funds, hedge funds, private equity funds, captive and independent finance companies, commercial and industrial banks, manufacturers and vendors.

Other equipment finance companies and equipment manufacturers or their affiliated financing companies may have been and/or may be in a position to offer equipment to prospective customers on financial terms that were or are more favorable than those that we could have offered or that we can currently offer in liquidating our portfolio. In addition, increased competition in the equipment financing business caused us to encounter significant challenges. Specifically, we suffered from increasing competition over the last few years from larger alternative lenders that had not historically competed with us for investment opportunities. Please refer to “Item 7. Managing Owner’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the effect of such increased competition on our results of operations.

We competed primarily on the basis of pricing, terms and structure, particularly on structuring flexible, responsive, and customized financing solutions for our customers. Our investments were often made directly rather than through competition in the open market. Nevertheless, to the extent that our competitors competed aggressively on any combination of the foregoing factors, we could fail to achieve our investment objectives.

Employees

We have no direct employees.  Our Managing Owner and our Investment Manager supervise and control our business affairs and originated and service our investments.


3


Available Information

Our Annual Report on Form 10-K, our most recent Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our Investment Manager’s internet website at http://www.iconinvestments.com as soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). The information contained on our Investment Manager’s website is not deemed part of this Annual Report on Form 10-K. Our reports are also available on the SEC’s website at http://www.sec.gov.

Financial Information Regarding Geographic Areas
  
Certain of our investments may generate revenue in geographic areas outside of the United States. For additional information, see Note 11 to our consolidated financial statements.



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Item 1A. Risk Factors
Smaller reporting companies are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
We neither own nor lease office space or any other real property in our business at the present time.
Item 3. Legal Proceedings
In the ordinary course of conducting our business, we may be subject to certain claims, suits, and complaints filed against us.  In our Managing Owner's opinion, the outcome of such matters, if any, will not have a material impact on our consolidated financial position or results of operations.  We are not aware of any material legal proceedings that are currently pending against us or against any of our assets.

Item 4. Mine Safety Disclosures
Not applicable.  

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PART II 

Item 5. Market for Registrant's Securities, Related Security Holder Matters and Issuer Purchases of Equity Securities

Overview
As of March 16, 2018
 
 
Class A
 
Class I
Number of shareholders
 
350
 
6
Number of Shares
 
17,189
 
410

We, at our Managing Owner's discretion, paid monthly distributions to each of our shareholders beginning the first month after each such shareholder was admitted through December 31, 2016. During our wind down period, which commenced on June 1, 2017, we have paid and will continue to pay distributions in accordance with the terms of our Trust Agreement. We expect that distributions paid during our wind down period will vary, depending on the timing of the sale of our assets and/or the maturity of our investments, and our receipt of finance and other income from our investments. For the year ended December 31, 2017, we paid distributions to our Managing Owner, Class A additional shareholders and Class I shareholders of $25,854, $2,500,000 and $59,624, respectively. For the year ended December 31, 2016, we paid distributions to our Managing Owner, Class A additional shareholders and Class I shareholders of $10,669, $1,031,649 and $24,605, respectively.

Our Shares are not publicly traded and there is no established public trading market for our Shares. Given that it is unlikely that any such market will develop, our Shares are generally considered illiquid. Even if a shareholder is able to sell our Shares, the price received may be less than our estimated value (“Estimated Value”) per Share indicated below.

Our Estimated Value per Share as of December 31, 2017 (the “Valuation Date”) has been determined to be $560.57 per Class A Share and $560.57 per Class I Share. The Estimated Value per Class A Share and the Estimated Value per Class I Share are based upon the estimated fair value of our assets less the estimated fair value of our liabilities as of the Valuation Date, divided by the total number of our Class A Shares and Class I Shares outstanding as of the Valuation Date. To the extent an investment is owned by a joint venture, we only include our share of assets and liabilities based on our ownership percentage in such joint venture.* The information used to generate the Estimated Value per Share, including, but not limited to, market information, investment and asset-level data and other information provided by third parties, was the most recent information practically available as of the Valuation Date. This Estimated Value per Share is provided to assist (i) plan fiduciaries in fulfilling their annual valuation obligations as required by The Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and (ii) broker-dealers that participated in our offering of Shares in meeting their customer account statement reporting obligations as required by the Financial Industry Regulatory Authority, Inc. (“FINRA”).

 The Estimated Value per Class A Share and the Estimated Value per Class I Share were calculated by our Investment Manager primarily based on the fair values provided by Duff & Phelps, LLC (“Duff & Phelps”), a third-party independent valuation and consulting firm engaged by our Investment Manager to provide material assistance related to the valuation of certain of our assets and liabilities, as further described below. The engagement of Duff & Phelps was approved by our Investment Manager. Duff & Phelps is a global valuation and corporate finance advisor with expertise in complex valuation.

Process and Methodology

Our Investment Manager established the Estimated Value per Share as of the Valuation Date primarily based on the fair values of certain of our assets and liabilities provided by Duff & Phelps. In arriving at its fair value, Duff & Phelps utilized valuation methodologies that both our Investment Manager and Duff & Phelps believe are standard and acceptable in the Capital Asset financing industry for the types of assets and liabilities held by us. The valuation was performed in accordance with standard industry practice and the provisions of NASD Rule 2340 and FINRA Rule 2310. The basis of fair values provided by Duff & Phelps are in accordance with the definition of fair value in Accounting Standards Codification 820. 


* An investment or a long-term debt obligation described in this Item 5 may not be consolidated and presented on our consolidated balance sheet as of December 31, 2017, but rather included as part of investment in joint ventures on our consolidated balance sheet as of December 31, 2017.

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A summary of the methodology used by Duff & Phelps, as well as the assumptions and limitations of their work for us and of our determination of Estimated Value, are presented below.

Discounted Cash Flow

The discounted cash flow (“DCF”) method was used to estimate value using the concept of the time value of money. All projected future cash flows accruing to an asset or liability were estimated and discounted to give their present values. The sum of all projected future cash flows, both incoming and outgoing, comprises the net present value, which was recognized as the value or price of the cash flows.

Valuation of Notes Receivable

The estimated fair value of our notes receivable at the Valuation Date was derived by using the DCF method. Under the DCF method, discount rate reflects the risks associated with the borrower and the time value of money and was applied to the projected cash flows associated with the note receivable. The discounted projected cash flows included all unpaid principal, interest, and fee payments for the scheduled term period of the note receivable. An analysis of the borrower was conducted to determine viability of payment and total debt coverage, as well as to ascertain each borrower's risk level, with such considerations reflected in the implied discount rate used in discounting the cash flows.

The discount rates used ranged from 9.0% to 17.2%.

Valuation of Operating Leases

The estimated fair value of our operating leases at the Valuation Date was derived by applying the DCF method to projected cash flows that included all lease payments, fees and residual value assumptions for purchase at the end of the lease term. Under the DCF method, the projected cash flows were discounted at the Valuation Date using a discount rate reflecting the risks associated with the asset and the time value of money.

The discount rates used ranged from 10.5% to 11.5%.

Valuation of Long-term Obligations

The estimated fair value at the Valuation Date of our long-term obligations was derived by applying the DCF method to the projected cash flows accruing to each obligation, using a discount rate reflecting the risks associated with each such obligation and the time value of money. The discounted projected cash flows included all unpaid principal, interest, and fee payments for the scheduled term period of the obligation. An analysis of the borrower was conducted to determine viability of payment, total debt coverage as well as to ascertain the borrower's risk level, with such considerations reflected in the implied discount rate used in discounting the cash flows.

The discount rates used ranged from 4.0% to 5.0%.

Cash, Other Assets and Other Liabilities

Cash, other assets and other liabilities (collectively, “Other Net Assets”) include our share of items of tangible or monetary value as of the Valuation Date. The fair values of Other Net Assets as of the Valuation Date were estimated by our Investment Manager to approximate their carrying values because of their nature or short-term maturities. Excluded from Other Net Assets is our share of deferred financing costs and deferred revenue, which our Investment Manager estimated as having a minimal fair value as of the Valuation Date.

Assumptions and Limitations

As with any valuation methodology, the methodologies used to determine our Estimated Value per Share are based upon a number of estimates and assumptions that may prove later to be inaccurate or incomplete. Further, different market participants using different estimates and assumptions could derive different estimated values. Our Estimated Value per Share may also not represent the price that our Shares would trade at on a national securities exchange, the amount realized in a sale, merger or liquidation, or the amount a shareholder would realize in a private sale of our Shares.


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The Estimated Value per Share calculated by our Investment Manager is based on economic, market and other conditions and the information available to us and Duff & Phelps as of the Valuation Date. The Estimated Value per Share is expected to fluctuate over time in response to future events, including, but not limited to, changes in market interest rates, changes in economic, market and regulatory conditions, the prospects of the asset sectors in general or in particular, or the special purpose vehicles in which the assets may be held, rental and growth rates, returns on competing investments, changes in administrative expenses and other costs, and the amount of distributions paid on our Shares. The Estimated Value per Share may also change as a result of changes in the circumstances of the risks associated with each investment.

There is no assurance that the methodologies used to calculate the Estimated Value per Share would be acceptable to FINRA or in compliance with guidelines promulgated under ERISA with respect to their respective reporting requirements.

Our Investment Manager is ultimately and solely responsible for the establishment of our Estimated Value per Share. In arriving at its determination of the Estimated Value per Share, our Investment Manager considered all information provided in light of its own familiarity with our assets and liabilities and the estimated fair values recommended by Duff & Phelps.

We currently expect that our next Estimated Value per Share will be based upon our assets and liabilities as of December 31, 2018 and such value will be included in our Annual Report on Form 10-K for the year ending December 31, 2018. We intend to publish an updated Estimated Value per Class A Share and per Class I Share annually in our subsequent Annual Reports on Form 10-K.

Item 6. Selected Financial Data

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


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Item 7. Managing Owner's Discussion and Analysis of Financial Condition and Results of Operations

Our Managing Owner’s Discussion and Analysis of Financial Condition and Results of Operations relates to our consolidated financial statements and should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Annual Report on Form 10-K. Statements made in this section may be considered forward-looking. These statements are not guarantees of future performance and are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of these risks and assumptions, including, among other things, factors discussed in “Part I. Forward-Looking Statements” located elsewhere in this Annual Report on Form 10-K.

Overview
 
We are a direct financing fund that primarily made investments in domestic and international businesses, which investments were primarily structured as debt and debt-like financings (such as loans, leases and other structured financing transactions) in or that are collateralized by Capital Assets utilized by such companies to operate their businesses, as well as other strategic investments in or collateralized by Capital Assets that our Managing Owner believes will provide us with a satisfactory, risk-adjusted rate of return. We were formed as a Delaware statutory trust and are treated as a partnership for federal income tax purposes.
 
Our offering period commenced on July 1, 2013 and ended on December 31, 2014. Our Managing Owner determined to cease our offering period earlier than originally anticipated as a result of lower than expected offering proceeds being raised. As of the Initial Closing Date, we raised a minimum of $1,200,000 from the sale of our Shares, at which time shareholders were admitted and we commenced operations. As of June 13, 2014, we raised the $12,500,000 minimum offering amount for the Commonwealth of Pennsylvania. Subsequent to the Initial Closing Date, we returned the initial capital contribution of $1,000 to the Initial Shareholder. From the commencement of our offering on July 1, 2013 through December 31, 2014, we sold 17,189 Class A shares to 351 Class A shareholders and 410 Class I shares to six Class I shareholders, of which 404 Class A shares and 12 Class I shares were issued pursuant to the DRIP, representing an aggregate of $17,469,610 of capital contributions. From the Initial Closing Date through December 31, 2014, we incurred sales commissions to third parties of $1,198,531 and dealer-manager and distribution fees to CION Securities of $347,547. In addition, organization costs of $8,418 and offering expenses of $161,422 were incurred by us during such period.
 
Our operating period commenced on January 1, 2015. After the net offering proceeds were invested, we reinvested the cash generated from our initial investments to the extent that cash was not used for our expenses, reserves and distributions to our shareholders. On April 24, 2017, we commenced a consent solicitation of our shareholders to further amend and restate our Trust Agreement in order to amend the definition of “operating period” to provide for the ability of our Managing Owner to shorten our operating period in its sole and absolute discretion. The consent solicitation was completed on May 24, 2017 with the requisite consents received from our shareholders. As a result, our Managing Owner ended our operating period on May 31, 2017 and commenced our wind down period on June 1, 2017. During our wind down period, we have sold and will continue to sell our assets and/or let our investments mature in the ordinary course of business.

On May 30, 2017, our Investment Manager retained ABN AMRO Securities as its financial advisor to assist our Investment Manager and us in identifying, evaluating and executing a potential sale of certain shipping and offshore energy assets currently included within our investment portfolio. We, however, cannot assure that the identification or evaluation to be performed will result in any specific sale transaction or series of transactions.
 
Our Trustee serves as our sole trustee pursuant to the Trust Agreement and has delegated to our Managing Owner all of the power and authority to manage our business and affairs, including, but not limited to, our investments in Capital Assets. Pursuant to the terms of our investment management agreement, our Managing Owner has engaged our Investment Manager to, among other things, originate and service our investments.

Current Business Environment

Recent trends indicate that domestic and global equipment financing volume is correlated to overall business investments in equipment, which are typically impacted by general economic conditions. As the economy slows or builds momentum, the demand for productive equipment generally slows or builds and equipment financing volume generally decreases or increases, depending on a number of factors. These factors include the availability of liquidity to provide equipment financing and/or provide it on terms satisfactory to borrowers, lessees, and other counterparties, as well as the desire to upgrade equipment and/or expand operations during times of growth, but also in times of recession in order to,

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among other things, seize the opportunity to obtain competitive advantage over distressed competitors and/or increase business as the economy recovers.

Our Investment Manager believes that the overall economic outlook for 2018 and 2019 appears moderately favorable, supported by increasing consumer spending and strong fundamentals. The recent business tax cuts could further encourage capital spending by businesses. While commodity prices have continued to grow throughout 2017, our Investment Manager is cautious about sustained increases. The Federal Reserve’s strategy with monetary policy to reach its inflation target, as well as geopolitical instability, among other things, will have an effect on the long-term economic outlook.

Recent Significant Transactions

We engaged in the following significant transactions during the years ended December 31, 2017 and 2016:

Mining Equipment

On March 4, 2014, a joint venture owned 10% by us, 60% by ICON Leasing Fund Twelve Liquidating Trust (formerly, ICON Leasing Fund Twelve, LLC) (“Fund Twelve”), 15% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”) and 15% by ICON ECI Fund Fifteen, L.P. (“Fund Fifteen”), each an entity also managed by our Investment Manager, purchased mining equipment from an affiliate of Blackhawk Mining, LLC (“Blackhawk”). Simultaneously, the mining equipment was leased to Blackhawk and its affiliates for four years. The aggregate purchase price for the mining equipment of $25,359,446 was funded by $17,859,446 in cash and $7,500,000 of non-recourse long-term debt. Our contribution to the joint venture was $1,795,597. On December 7, 2016, the joint venture amended the lease with Blackhawk to, among other things, add, revise and/or waive Blackhawk’s breach of certain financial covenants and received an amendment fee of $150,000. On July 21, 2017, Blackhawk satisfied its remaining lease obligations by making a prepayment of $7,753,666. As a result, the joint venture recognized finance income of $353,373, of which our share was $35,337.

Trucks and Trailers

On March 28, 2014, a joint venture owned 12.5% by us, 60% by Fund Twelve and 27.5% by Fund Fifteen purchased trucks, trailers and other equipment from subsidiaries of D&T Holdings, LLC (“D&T”) for $12,200,000. Simultaneously, the trucks, trailers and other equipment were leased to D&T and its subsidiaries for 57 months. Our contribution to the joint venture was $1,484,705. On September 15, 2014, the lease agreement with D&T was amended to allow D&T to increase its capital expenditure limit. In consideration for agreeing to such increase, lease payments of $1,480,000 that were scheduled to be paid in 2018 were paid by October 31, 2014. In addition, the joint venture received an amendment fee of $100,000. On January 14, 2016, D&T satisfied its remaining lease obligations by making a prepayment of $8,000,000. In addition, D&T exercised its option to repurchase all assets under the lease for $1, upon which title was transferred. As a result of the prepayment, the joint venture recognized finance income of approximately $1,400,000, of which our share was approximately $175,000.

Seismic Testing Equipment
 
On September 4, 2014, a joint venture owned 52% by us, 33.5% by Fund Fourteen and 14.5% by ICON ECI Partners L.P. (“ECI Partners”), an entity also managed by our Investment Manager, purchased certain land-based seismic testing equipment for $10,677,018. Simultaneously, the seismic testing equipment was leased to Geokinetics Inc., Geokinetics USA, Inc. and Geokinetics Acquisition Company (collectively, “Geokinetics”) for three years. During 2016, due to damage to certain of the assets on lease, we received $48,076 based on the stipulated loss values of such assets pursuant to the lease agreement. As a result, future minimum rents receivable and residual values were reduced and we recognized additional finance income of $4,760 during 2016. On February 15, 2017, we purchased all of ECI Partners’ limited liability company interests in the joint venture for a purchase price of $501,794. As a result, the joint venture is owned 66.5% by us and 33.5% by Fund Fourteen.

Upon lease expiration, Geokinetics was obligated to purchase all of the seismic testing equipment from the joint venture at an agreed-upon purchase price. The lease expired on August 31, 2017 without Geokinetics satisfying its purchase obligations under the lease. On September 21, 2017, the joint venture entered into a forbearance agreement with Geokinetics pursuant to which Geokinetics was obligated to (i) satisfy in full its remaining lease and purchase obligations of $1,546,790; and (ii) pay a penalty and forbearance fee totaling $137,340, all in nine installments, with the final installment paid on November 15, 2017. All payments were made by Geokinetics in accordance with the forbearance agreement and title to the equipment was transferred to Geokinetics accordingly. The penalty and forbearance fee was recognized as additional finance income.


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Auto Manufacturing Equipment

On July 10, 2015, a joint venture owned 10% by us, 50% by Fund Fifteen and 40% by Fund Fourteen purchased auxiliary support equipment and robots used in the production of certain automobiles for $9,934,118, which were simultaneously leased to Challenge Mfg. Company, LLC and certain of its affiliates (collectively, “Challenge”) for 60 months. Our contribution to the joint venture was $998,379. On June 8, 2016, an unaffiliated third party purchased 100% of the limited liability company interests of the joint venture for net sales proceeds of $9,004,214. No significant gain or loss was recorded by us as a result of the sale. 

On December 29, 2015, a joint venture owned 25% by us and 75% by Fund Fifteen purchased stamping presses and miscellaneous support equipment used in the production of certain automobiles for $11,978,455, which were simultaneously leased to Challenge for 60 months. Our contribution to the joint venture was $3,009,587. On June 8, 2016, an unaffiliated third party purchased 100% of the limited liability company interests of the joint venture for net sales proceeds of $11,551,806. As a result, we recorded a gain on sale of investment in joint venture of $17,681.

Geotechnical Drilling Vessels 

On December 23, 2015, a joint venture owned 10% by us, 75% by Fund Fifteen and 15% by Fund Fourteen, through two indirect subsidiaries, entered into memoranda of agreement to purchase the Fugro Vessels from affiliates of Fugro for an aggregate purchase price of $130,000,000. The Fugro Scout and the Fugro Voyager were delivered on December 24, 2015 and January 8, 2016, respectively. The Fugro Vessels were bareboat chartered to affiliates of Fugro for a period of 12 years upon the delivery of each respective vessel, although such charters can be terminated by the indirect subsidiaries after year five. On December 24, 2015, the Fugro Scout was acquired for (i) $8,250,000 in cash, (ii) $45,500,000 of financing through a senior secured loan from ABN AMRO Bank N.V. (“ABN AMRO”), Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“Rabobank”) and NIBC Bank N.V. (“NIBC”) and (iii) a seller's credit of $11,250,000. On January 8, 2016, the Fugro Voyager was also acquired for $8,250,000 in cash, $45,500,000 of financing through a senior secured loan from ABN AMRO, Rabobank and NIBC and a seller's credit of $11,250,000. The senior secured loans bore interest at the London Interbank Offered Rate (“LIBOR”) plus 2.95% per year and mature on December 31, 2020. On February 8, 2016, the two indirect subsidiaries entered into interest rate swap agreements to effectively fix the interest rate of the senior secured loans from a variable rate of LIBOR plus 2.95% per year to a fixed rate of 4.117% per year. Our contribution to the joint venture totaling $2,377,250 was made in December 2015.

As a result of Fugro obtaining additional third-party financing, effective December 31, 2016, the indirect subsidiaries and the affiliates of Fugro amended the bareboat charters to, among other things, increase the daily charter rate and provide for additional security deposits. Also, effective December 31, 2016, the indirect subsidiaries amended the facility agreement with ABN AMRO, Rabobank and NIBC to, among other things, increase the interest rate on the senior secured loans to share the economic benefits of the amended bareboat charters.

As part of our Investment Manager’s and ABN AMRO Securities’ efforts to identify and execute the sale of certain of our shipping and offshore energy assets, a price indicator from a potential purchaser triggered an impairment assessment on our investment in this joint venture. As a result of such assessment, our Investment Manager believed that the loss in value of this investment was other than a temporary decline and as a result, determined to record an impairment loss of $595,000 on our investment in joint venture related to Fugro during the year ended December 31, 2017.

Notes Receivable

On September 24, 2014, we, Fund Twelve, Fund Fourteen and Fund Fifteen entered into a secured term loan credit facility agreement with Premier Trailer Leasing, Inc. (“Premier Trailer”) to provide a credit facility of up to $20,000,000, of which our commitment of $2,500,000 was funded on such date. The loan bore interest at LIBOR, subject to a 1% floor, plus 9% per year, and was scheduled to mature on September 24, 2020. The loan was secured by a second priority security interest in all of Premier Trailer’s assets, including, without limitation, its fleet of trailers, and the equity interests of Premier Trailer. On August 9, 2016, Premier Trailer satisfied its obligations in connection with the loan by making a prepayment of $2,581,944, comprised of all outstanding principal, accrued interest and a prepayment fee of $50,000. The prepayment fee was recognized as additional finance income.

On December 20, 2016, we, Fund Fourteen and Fund Fifteen entered into a secured term loan credit facility agreement with CFL to provide a credit facility of up to $7,400,000, of which our commitment of $592,000 was funded on December 21, 2016. The loan bears interest at 8% per year and we are entitled to an equity participation fee based partly on the fair

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market value of the vessel upon repayment of the loan. The loan is for a period of four years, maturing on December 21, 2020. The loan is secured by, among other things, a first priority security interest in and earnings from a motor cargo vessel.

On December 30, 2016, we, Fund Fourteen and Fund Fifteen entered into a secured term loan agreement with LSC to provide a loan in the aggregate amount of $32,500,000, of which our commitment of $2,600,000 was funded on such date. The loan bears interest at LIBOR, subject to a 1% floor, plus 11.0% per year, and is for a period of four years maturing on December 30, 2020. The loan is secured by a second priority security interest in LSC's accounts receivable and inventory and a first priority security interest in all of LSC’s other assets. On December 8, 2017, we, Fund Fourteen and Fund Fifteen amended the secured term loan agreement with LSC to, among other things, add, revise and/or waive LSC's breach of certain financial covenants during the three months ended December 31, 2017 and to amend certain other terms. In connection with the amendment, we received our proportionate share of an amendment fee of $6,435.


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The following table includes additional information on the significant transactions that we engaged in from the Initial Closing Date through December 31, 2017:
Portfolio Company
 
Structure
 
Equity Invested
 
Interest Rate
 
Expiration/      Maturity Date
 
Collateral/Priority
 
Net Carrying Value
 
Credit Loss Reserve
 
Current Status
Lubricating Specialties Company
 
Loan
 
$2,418,000
 
LIBOR, subject to 1% floor, plus 11%
 
12/30/2020
 
Second priority in accounts receivable and inventory and first priority in all other assets

 
$2,421,407 (2)
 
None
 
Performing
CFL Momentum Beheer B.V. and C.V. CFL Momentum

 
Loan
 
$580,160
 
8%
 
12/21/2020
 
First priority in and earnings from a motor cargo vessel
 
$546,164 (2)
 
None
 
Performing
Fugro N.V.(1)
 
Lease
 
$2,377,250
 
N/A
 
12/24/2027
 
Ownership of geotechnical drilling vessels
 
$2,131,112 (3)
 
None
 
Impaired (5)
Geokinetics, Inc.
 
Lease
 
$6,192,645
 
N/A
 
8/31/2017
 
Ownership of seismic testing equipment
 
$978 (4)
 
None
 
Expired (6)
Blackhawk Mining, LLC (1)
 
Lease
 
$1,795,597
 
N/A
 
2/28/2018
 
Ownership of mining equipment
 
$3,979 (4)
 
None
 
Prepaid (7)
Murray Energy Corporation(1)
 
Lease
 
$2,659,195
 
N/A
 
10/29/2015
 
Ownership of mining equipment
 
 
None
 
Expired
D&T Holdings, LLC (1)
 
Lease
 
$1,484,705
 
N/A
 
12/31/2018
 
Ownership of trucks, trailers and equipment
 
 
None
 
Prepaid (8)
Challenge Mfg. Company, LLC (1)
 
Lease
 
$998,379
 
N/A
 
7/9/2020
 
Ownership of auxiliary support equipment and robots
 
 
None
 
Sold (9)
Challenge Mfg. Company, LLC (1)
 
Lease
 
$3,009,587
 
N/A
 
1/9/2021
 
Ownership of stamping presses and support equipment
 
 
None
 
Sold (9)
Premier Trailer Leasing, Inc.
 
Loan
 
$2,626,471
 
LIBOR, subject to 1% floor, plus 9%
 
9/24/2020

 
Second priority in all assets and equity interests
 
 
None
 
Prepaid (10)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Our investment in this portfolio company is or was through a joint venture and is or was included in our consolidated balance sheets as investment in joint ventures.
(2) Net carrying value of our investment in notes receivable is the sum of the remaining principal outstanding and the unamortized initial direct costs, less deferred fees.
(3) Net carrying value of our investment in joint ventures is calculated as follows: investment at cost plus/less our share of the cumulative net income/loss of the joint venture and less distributions received since the date of our initial investment and less impairment loss recorded on our investment in the joint venture.
(4) Represents our proportionate share of the remaining cash balance less any liabilities owned by the joint venture.
(5) See Recent Significant Transactions above for information on the impairment loss recorded during the year ended December 31, 2017.
(6) See Recent Significant Transactions above for additional information related to the expired lease with Geokinetics.
(7) See Recent Significant Transactions above for additional information related to the prepayment of the lease by Blackhawk.
(8) See Recent Significant Transactions above for additional information related to the prepayment of the lease by D&T.
(9) See Recent Significant Transactions above for additional information related to the sale of interests in the joint ventures that owned the equipment subject to the lease.
(10) See Recent Significant Transactions above for additional information related to the prepayment of the secured term loan by Premier Trailer.

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Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-07, Investments – Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”), which eliminates the retroactive adjustments to an investment upon it qualifying for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment qualifies for equity method accounting. We adopted ASU 2016-07 on January 1, 2017, which did not have an effect on our consolidated financial statements.

In October 2016, FASB issued ASU No. 2016-17, Consolidation (“ASU 2016-17”), which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in such entity held by related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. Under ASU 2016-17, a single decision maker is not required to consider indirect interests held by related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. We adopted ASU 2016-17 on January 1, 2017, which did not have an effect on our consolidated financial statements.

Other Recent Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. This new revenue standard may be applied retrospectively to each prior period presented, or retrospectively with the cumulative effect recognized as of the date of adoption. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date (“ASU 2015-14”), which defers implementation of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including interim periods within that reporting period. We have completed our evaluation of the impact of ASU 2014-09 on our consolidated financial statements. Since a substantial portion of our revenue is recognized from our leasing and lending contracts, which are not subject to ASU 2014-09, the adoption of ASU 2014-09 will not have a material effect on our consolidated financial statements.

In January 2016, FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which provides guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The adoption of ASU 2016-01 becomes effective for us on January 1, 2018, including interim periods within that reporting period. We have completed our evaluation of the impact of ASU 2016-01 on our consolidated financial statements. Although certain disclosures related to methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost are no longer required, the adoption of ASU 2016-01 will not have a material effect on our consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for leases with lease terms greater than twelve months on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 implements changes to lessor accounting focused on conforming with certain changes made to lessee accounting and the recently released revenue recognition guidance. The adoption of ASU 2016-02 becomes effective for us on January 1, 2019. Early adoption is permitted. Based on our preliminary assessment, all of our leases are subject to lessor accounting and the accounting applied by a lessor is largely unchanged from that applied under current U.S. GAAP. In addition, since we are in our wind down period and not expecting to enter into any new leases in the future and it is expected that we will apply the practical expedients as provided by the guidance, the adoption of ASU 2016-02 may not have a material effect on our consolidated financial statements. We continue to evaluate the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which modifies the measurement of credit losses by eliminating the probable initial recognition threshold set forth in current guidance, and instead reflects an entity’s current estimate of all expected credit losses. The measurement of expected credit

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losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity will apply the amendments within ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The adoption of ASU 2016-13 becomes effective for us on January 1, 2020, including interim periods within that reporting period. Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. The adoption of ASU 2016-15 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted. An entity will apply the amendments within ASU 2016-15 using a retrospective transition method to each period presented. We have completed our evaluation of the impact of ASU 2016-15 on our consolidated financial statements. As a result, the adoption of ASU 2016-15 will not have a material effect on our consolidated financial statements.

In November 2016, FASB issued ASU No. 2016-18, Statement of Cash Flows (“ASU 2016-18”), which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The adoption of ASU 2016-18 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted. An entity will apply the amendments within ASU 2016-18 using a retrospective transition method to each period presented. As a result of the adoption of ASU 2016-18, beginning January 1, 2018, we will include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on our consolidated statements of cash flows.

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business. ASU 2017-01 sets forth requirements to be met for a set to be deemed a business and establishes a practical way to determine when a set is not a business. To be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create an output, and removes the evaluation of whether a market participant could replace missing elements. In addition, ASU 2017-01 narrows the definition of outputs and aligns such definition with how outputs are described within the revenue guidance. The adoption of ASU 2017-01 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted for transactions that occur before the issuance date or effective date of ASU 2017-01 to the extent that such transactions have not been reported in financial statements that have been issued or made available for issuance. We have completed our evaluation of the impact of ASU 2017-01 on our consolidated financial statements. As a result, the adoption of ASU 2017-01 will not have a material effect on our consolidated financial statements.

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

Critical Accounting Policies

An understanding of our critical accounting policies is necessary to understand our financial results. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires our Managing Owner to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates primarily include the determination of credit loss reserves, impairment losses and residual values. Actual results could differ from those estimates. We applied our critical accounting policies and estimation methods consistently in all periods presented. We consider the following accounting policies to be critical to our business:

·   Lease classification and revenue recognition;
·   Asset impairments;
·   Notes receivable and revenue recognition; and
·   Credit quality of notes receivable and finance leases and credit loss reserve.


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Lease Classification and Revenue Recognition

Each equipment lease we enter into is classified as either a finance lease or an operating lease, based upon the terms of each lease. The estimated residual value is a critical component of and can directly influence the determination as to whether a lease is classified as an operating or a finance lease.

Our Investment Manager has an investment committee that approves each new equipment lease and other financing transaction. As part of its process, the investment committee determines the estimated residual value, if any, to be used once the investment has been approved. The factors considered in determining the estimated residual value include, but are not limited to, the creditworthiness of the potential lessee, the type of equipment considered, how the equipment is integrated into the potential lessee’s business, the length of the lease and the industry in which the potential lessee operates. Residual values are reviewed for impairment in accordance with our impairment review policy.

The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. The residual value is calculated using information from various external sources, such as trade publications, auction data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical asset and other economic indicators.

For finance leases, we capitalize, at lease inception, the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination and the initial direct costs related to the lease, less unearned income. Unearned income represents the difference between the sum of the minimum lease payments receivable, plus the estimated unguaranteed residual value, minus the cost of the leased equipment. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method.

For operating leases, rental income is recognized on a straight-line basis over the lease term. Billed operating lease receivables are included in accounts receivable until collected or written off. We record a reserve if we deem any receivable not collectible. The difference between the timing of the cash received and the income recognized on a straight-line basis is recognized as either deferred revenue or other assets, as appropriate. Initial direct costs are capitalized as a component of the cost of the equipment and depreciated over the lease term.

Asset Impairments

The significant assets in our portfolio are periodically reviewed, no less frequently than annually or when indicators of impairment exist, to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair market value. If there is an indication of impairment, we will estimate the future cash flows (undiscounted and without interest charges) expected from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If an impairment is determined to exist, the impairment loss will be measured as the amount by which the carrying value of a long-lived asset exceeds its fair value and recorded in our consolidated statements of operations in the period the determination is made.

The events or changes in circumstances that generally indicate that an asset may be impaired are (i) the estimated fair value of the underlying asset is less than its carrying value or (ii) the lessee is experiencing financial difficulties and it does not appear likely that the estimated proceeds from the disposition of the asset will be sufficient to satisfy the residual position in the asset. The preparation of the undiscounted cash flows requires the use of assumptions and estimates, including the level of future rents, the residual value expected to be realized upon disposition of the asset, estimated downtime between re-leasing events and the amount of re-leasing costs. Our Investment Manager’s review for impairment includes a consideration of the existence of impairment indicators including third-party appraisals, published values for similar assets, recent transactions for similar assets, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset.

Notes Receivable and Revenue Recognition

Notes receivable are reported in our consolidated balance sheets at the outstanding principal balance, plus costs incurred to originate the loans, net of any unamortized premiums or discounts on purchased loans. We use the effective interest rate method to recognize finance income, which produces a constant periodic rate of return on the investment. Unearned income, discounts and premiums are amortized to finance income in our consolidated statements of operations using the effective

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interest rate method. Interest receivable related to the unpaid principal is recorded separately from the outstanding balance in our consolidated balance sheets. Upon the prepayment of a note receivable, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of finance income in our consolidated statements of operations. Our notes receivable may contain a paid-in-kind (“PIK”) interest provision. Any PIK interest, if deemed collectible, will be added to the principal balance of the note receivable and is recorded as income.

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

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

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

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

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

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

Results of Operations for the Years Ended December 31, 2017 (“2017”) and 2016 (“2016”)
 
The following percentages are only as of a stated period and are not expected to be comparable in future periods. Further, these percentages are only representative of the percentage of the carrying value of such assets or finance income as of each stated period, and as such are not indicative of the concentration of any asset type or customer by the amount of equity invested or our investment portfolio as a whole.
 

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Financing Transactions
 
The following tables set forth the types of assets securing the financing transactions in our portfolio:

 
 
December 31,
 
 
2017
 
2016
Asset Type
 
Net Carrying Value
 
Percentage of Total Net Carrying Value
 
Net Carrying Value
 
Percentage of Total Net Carrying Value
Lubricant manufacturing and blending equipment
 
$
2,421,407

 
82%
 
$
2,418,267

 
37%
Vessel - motor cargo
 
546,164

 
18%
 
581,069

 
9%
Seismic testing equipment
 

 
 
3,463,004

 
54%
 
 
$
2,967,571

 
100%
 
$
6,462,340

 
100%

The net carrying value of our financing transactions includes the balance of our net investment in notes receivable and our net investment in finance lease as of each reporting date.

During 2017 and 2016, certain customers generated significant portions (defined as 10% or more) of our total finance income as follows:
 
 
 
 
Percentage of Total Finance Income
Customer
 
Asset Type
 
2017
 
2016
Lubricating Specialties Company

 
Lubricant manufacturing and blending equipment

 
50%
 
1%
Geokinetics, Inc.
 
Seismic testing equipment

 
42%
 
85%
Premier Trailer Leasing, Inc.
 
Trailers
 
 
14%
 
 
 
 
92%
 
100%

Interest income and prepayment fees from our net investment in notes receivable and finance income from our net investment in finance lease are included in finance income in our consolidated statements of operations.
 
Revenue and other income for 2017 and 2016 is summarized as follows:
 
 
Years Ended December 31,
 
 
 
 
2017
 
2016
 
Change
Finance income
 
$
727,698

 
$
620,224

 
$
107,474

Income from investment in joint ventures
 
353,010

 
862,801

 
(509,791
)
Gain on sale of investment in joint ventures
 

 
19,566

 
(19,566
)
Other income
 
22,366

 
6,581

 
15,785

   Total revenue and other income
 
$
1,103,074

 
$
1,509,172

 
$
(406,098
)

 Total revenue and other income for 2017 decreased $406,098, or 26.9%, as compared to 2016. The decrease was primarily due to a decrease in income from investment in joint ventures primarily as a result of (i) the prepayment by D&T and the sale of our interests in two joint ventures that leased equipment to Challenge, each during 2016, and (ii) less favorable movements in our interest rate swaps during 2017 as compared to 2016. In addition, we recognized a gain on sale of investment in joint ventures during 2016 as a result of the sale of our interests in two joint ventures that leased equipment to Challenge, with no such sales occurring during 2017. The decrease in total revenue and other income was partially offset by an increase in finance income due to new secured term loans that we entered into in December 2016, partially offset by finance income no longer being recognized due to the expiration of our lease with Geokinetics and the prepayment of the secured term loan by Premier Trailer. The increase in other income was primarily due to the reversal of a fee related to our revolving line of credit, which expired in May 2017.


18


Expenses for 2017 and 2016 are summarized as follows:
 
 
Years Ended December 31,
 
 
 
 
2017
 
2016
 
Change
Management fees
 
$
58,793

 
$
198,086

 
$
(139,293
)
Administrative expense reimbursements
 
523,972

 
492,784

 
31,188

General and administrative
 
336,073

 
527,744

 
(191,671
)
Interest
 
8,828

 
31,650

 
(22,822
)
Impairment loss
 
595,000

 

 
595,000

   Total expenses
 
$
1,522,666

 
$
1,250,264

 
$
272,402


Total expenses for 2017 increased $272,402, or 21.8%, as compared to 2016. The increase was primarily due to the impairment loss recorded during 2017 on our investment in joint venture related to Fugro. The increase was partially offset by decreases in (i) general and administrative expenses due to lower audit, legal and bank fees incurred during 2017 and (ii) management fees primarily due to prepayments by Premier Trailer and D&T during 2016 and our Investment Manager reducing its management fee by 50%, effective July 1, 2016. Subsequently, our Investment Manager waived all future management fees, effective December 1, 2017.
 
Net Income Attributable to Noncontrolling Interests
 
Net income attributable to noncontrolling interests decreased $145,201, from $250,726 in 2016 to $105,525 in 2017. The decrease was a result of a decrease in net income generated by our finance lease related to Geokinetics, which expired during 2017.
 
Net (Loss) Income Attributable to Fund Sixteen
 
As a result of the foregoing factors, net (loss) income attributable to us for 2017 and 2016 was $(525,117) and $8,182, respectively. Net loss attributable to us per weighted average additional Class A share and Class I share outstanding for 2017 was $29.55 and $29.24, respectively. Net income attributable to us per weighted average additional Class A share and Class I share outstanding for 2016 was $0.44 and $1.24, respectively.

Financial Condition 

This section discusses the major balance sheet variances at December 31, 2017 compared to December 31, 2016.

Total Assets

Total assets decreased $5,238,155, from $14,832,970 at December 31, 2016 to $9,594,815 at December 31, 2017.The decrease was primarily due to cash generated by and returned from our investments being partially used to (i) acquire ECI Partners' noncontrolling interests in the joint venture related to Geokinetics, (ii) pay distributions to our noncontrolling interests and shareholders and (iii) repay certain of our previously accrued liabilities and operating expenses, each during 2017. In addition, we recorded an impairment loss on our investment in joint venture related to Fugro during 2017.

Total Liabilities

Total liabilities decreased $582,555, from $735,703 at December 31, 2016 to $153,148 at December 31, 2017. The decrease was primarily due to the reversal of the sales commission trail and distribution fee payables previously accrued during our offering period. We are no longer required to pay such fees and commissions upon commencement of our wind down period pursuant to our Trust Agreement. The decrease was also due to the payment of certain of our previously accrued liabilities during 2017.

Equity

Equity decreased $4,655,600, from $14,097,267 at December 31, 2016 to $9,441,667 at December 31, 2017. The decrease was primarily due to (i) our net loss, (ii) distributions to our noncontrolling interests and shareholders and (iii) the acquisition of ECI Partners' noncontrolling interests in the joint venture related to Geokinetics, all during 2017. The decrease was partially offset by the reversal of the sales commission trail and distribution fee payables previously accrued during our offering period, which we are no longer required to pay upon commencement of our wind down period.

19



Liquidity and Capital Resources

Summary

At December 31, 2017 and 2016, we had cash of $4,436,615 and $4,925,909, respectively. Pursuant to the terms of our offering, we have established a cash reserve in the amount of 0.50% of the gross offering proceeds from the sale of our Shares. As of December 31, 2017, the cash reserve was $87,348. During our operating period, which commenced on January 1, 2015, our main source of cash was typically from operating activities and our main use of cash was in investing and financing activities. Our operating period ended on May 31, 2017 and our wind down period commenced on June 1, 2017. Our liquidity will vary in the future, increasing to the extent cash flows from investments and proceeds from the sale of our investments exceed expenses and decreasing as we pay distributions to our shareholders and noncontrolling interests and to the extent that expenses exceed cash flows from operations and proceeds from the sale of our investments.

Our equipment financing business encountered significant challenges over the past several years. Specifically, we suffered from (i) a lack of significant capital raised in order to execute on our investment objectives; and (ii) increasing competition over the last few years from larger alternative lenders that had not historically competed with us for investment opportunities. These challenges, along with the increasing costs associated with managing a public equipment fund, made it increasingly difficult for us to operate in the same manner that we operated under since inception. Accordingly, our Investment Manager commenced our wind down period on June 1, 2017, during which we have sold and will continue to sell our assets and/or let our investments mature in the ordinary course of business.

We believe that cash on hand, as well as cash generated from the expected results of our operations, will be sufficient to finance our liquidity requirements for the foreseeable future.

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

We have used the net proceeds of our offering and the cash generated from our investments to invest in Capital Assets located in North America and other developed markets, including those in Asia and elsewhere. We have sought to acquire a portfolio of Capital Assets that is comprised of transactions that generate (a) current cash flow from payments of principal and/or interest (in the case of secured loans and other financing transactions) and rental payments (in the case of leases), (b) deferred cash flow by realizing the value of Capital Assets or interests therein at the maturity of the investment, or (c) a combination of both from other structured investments.

Unanticipated or greater than anticipated operating costs or losses (including a borrower’s inability to make timely loan payments or a lessee’s inability to make timely lease payments) would adversely affect our liquidity. Our Managing Owner does not intend to fund any cash flow deficit of ours or provide other financial assistance to us.

Cash Flows

The following table sets forth summary cash flow data:
 
Years Ended December 31,
 
2017
 
2016
Net cash (used in) provided by:
 
 
 
  Operating activities
$
(232,770
)
 
$
(19,204
)
  Investing activities
3,809,307

 
7,533,233

  Financing activities
(4,065,831
)
 
(4,260,988
)
Net (decrease) increase in cash
$
(489,294
)
 
$
3,253,041


Note: See the Consolidated Statements of Cash Flows included in “Item 8. Consolidated Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information.


20


Operating Activities

Cash used in operating activities increased $213,566, from $19,204 in 2016 to $232,770 in 2017. The increase was primarily due to (i) a decrease in cash receipts due to lower operating income as we continued to sell our assets and/or let our investments mature during our wind down period and (ii) the timing of the payment of certain liabilities and the collection of certain receivables.

Investing Activities

Cash provided by investing activities decreased $3,723,926, from $7,533,233 in 2016 to $3,809,307 in 2017. The decrease was primarily due to (i) proceeds received from the sale of our investment in joint ventures during 2016 with no comparable proceeds received during 2017, (ii) higher principal received on notes receivable in 2016 due to the prepayment by Premier Trailer and (iii) the acquisition of ECI Partners' noncontrolling interests in the joint venture related to Geokinetics during 2017. The decrease was partially offset by no new investments made in 2017 as compared to 2016.

Financing Activities

Cash used in financing activities decreased $195,157, from $4,260,988 in 2016 to $4,065,831 in 2017. The decrease was primarily due to the repayment of $1,500,000 on our revolving line of credit during 2016, partially offset by an increase in total distributions paid to our shareholders and noncontrolling interests during 2017 as compared to 2016.

Financings and Borrowings

Revolving Line of Credit, Recourse

We had an agreement with California Bank & Trust (“CB&T”) for a revolving line of credit through May 30, 2017 of up to $5,000,000 (the “Facility”), which was secured by all of our assets not subject to a first priority lien. Amounts available under the Facility were subject to a borrowing base that was determined, subject to certain limitations, by the present value of the future receivables under certain loans and lease agreements in which we had a beneficial interest.  

The interest rate for general advances under the Facility was CB&T’s prime rate. We could have elected to designate up to five advances on the outstanding principal balance of the Facility to bear interest at LIBOR plus 2.5% per year. In all instances, borrowings under the Facility were subject to an interest rate floor of 4.0% per year. In addition, we were obligated to pay an annualized 0.5% fee on unused commitments under the Facility. The Facility expired in accordance with its terms on May 30, 2017. There were no obligations outstanding under the Facility on the expiration date.

Distributions

We paid monthly distributions to our shareholders beginning with the first month after each such shareholder’s admission through December 31, 2016. We expect that distributions paid during our wind down period will vary, depending on the timing of the sale of our assets and/or the maturity of our investments, and our receipt of finance and other income from our investments. During 2017, we paid distributions to our Managing Owner, Class A additional shareholders and Class I shareholders of $25,854, $2,500,000 and $59,624, respectively. During 2016, we paid distributions to our Managing Owner, Class A additional shareholders and Class I shareholders of $10,669, $1,031,649 and $24,605, respectively. We also paid distributions to our noncontrolling interests of $1,403,563 and $1,591,417 in 2017 and 2016, respectively.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

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

Off-Balance Sheet Transactions

None.

21



Inflation and Interest Rates

The potential effects of inflation on us are difficult to predict. If the general economy experiences significant rates of inflation, however, it could affect us in a number of ways. We do not currently have rent escalation clauses tied to inflation in our leases and one of our two notes receivable is subject to LIBOR fluctuations with a LIBOR floor of 1%. The anticipated residual values to be realized upon the sale or re-lease of equipment upon lease termination (and thus the overall cash flow from our leases) may increase with inflation as the cost of similar new and used equipment increases.

If interest rates increase or decrease significantly, our leases and notes receivable already in place would generally not be negatively affected.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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


22


Item 8. Consolidated Financial Statements and Supplementary Data



23



Report of Independent Registered Public Accounting Firm


To The Shareholders of ICON ECI Fund Sixteen

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of ICON ECI Fund Sixteen and subsidiaries (the “Fund”) as of December 31, 2017, the related consolidated statements of operations, changes in equity and cash flows, for the year then ended, and the related notes (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion
These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on the Fund's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
 
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
 
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Fund's auditor since 2017.

New York, New York
March 20, 2018


24


Report of Independent Registered Public Accounting Firm



The Shareholders
ICON ECI Fund Sixteen

We have audited the accompanying consolidated balance sheet of ICON ECI Fund Sixteen (the “Fund”) as of December 31, 2016, and the related consolidated statements of operations, changes in equity and cash flows for the period ended December 31, 2016. These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audit 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 Fund’s 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, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of ICON ECI Fund Sixteen at December 31, 2016, and the consolidated results of its operations and its cash flows for the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

New York, New York
March 28, 2017


25



ICON ECI Fund Sixteen
(A Delaware Statutory Trust)
Consolidated Balance Sheets
 
December 31,
 
2017
 
2016
 
 
 
 
Assets
Cash
$
4,436,615

 
$
4,925,909

Net investment in notes receivable
2,967,571

 
2,999,336

Net investment in finance lease

 
3,463,004

Investment in joint ventures
2,135,091

 
3,341,725

Other assets
55,538

 
102,996

Total assets
$
9,594,815

 
$
14,832,970

Liabilities and Equity 
Liabilities:
 
 
 
Due to Investment Manager and affiliates, net
$
64,397

 
$
169,137

Accrued expenses and other liabilities
88,751

 
566,566

Total liabilities
153,148

 
735,703

 
 
 
 
Commitments and contingencies (Note 12)

 

 
 
 
 
Equity:
 
 
 
Shareholders' capital
 
 
 
Class A
9,216,243

 
12,004,381

Class I
224,505

 
288,747

Total shareholders' capital
9,440,748

 
12,293,128

Noncontrolling interests
919

 
1,804,139

Total equity
9,441,667

 
14,097,267

Total liabilities and equity
$
9,594,815

 
$
14,832,970


See accompanying notes to consolidated financial statements.


26


ICON ECI Fund Sixteen
(A Delaware Statutory Trust)
Consolidated Statements of Operations

 
 
Years Ended December 31,
 
 
2017
 
2016
Revenue and other income:
 
 
 
 
Finance income
 
$
727,698

 
$
620,224

Income from investment in joint ventures
 
353,010

 
862,801

Gain on sale of investment in joint ventures
 

 
19,566

Other income
 
22,366

 
6,581

Total revenue and other income
 
1,103,074

 
1,509,172

 
 
 
 
 
Expenses:
 
 
 
 
Management fees
 
58,793

 
198,086

Administrative expense reimbursements
 
523,972

 
492,784

General and administrative
 
336,073

 
527,744

Interest
 
8,828

 
31,650

Impairment loss
 
595,000

 

Total expenses
 
1,522,666

 
1,250,264

Net (loss) income
 
(419,592
)
 
258,908

Less: net income attributable to noncontrolling interests
 
105,525

 
250,726

Net (loss) income attributable to Fund Sixteen
 
$
(525,117
)
 
$
8,182

 
 
 
 
 
 
 
 
 
 
Net (loss) income attributable to Fund Sixteen allocable to:
 
 
 
 
Additional Class A shareholders and Class I shareholders
 
$
(519,866
)
 
$
8,100

Managing Owner
 
(5,251
)
 
82

 
 
$
(525,117
)
 
$
8,182

 
 
 
 
 
Additional Class A shares:
 
 
 
 
Net (loss) income attributable to Fund Sixteen allocable to additional Class A shareholders
 
$
(507,878
)
 
$
7,593

Weighted average number of additional Class A shares outstanding
 
17,189

 
17,189

Net (loss) income attributable to Fund Sixteen per weighted average additional Class A share
 
$
(29.55
)
 
$
0.44

 
 
 
 
 
Class I shares:
 
 
 
 
Net (loss) income attributable to Fund Sixteen allocable to Class I shareholders
 
$
(11,988
)
 
$
507

Weighted average number of Class I shares outstanding
 
410

 
410

Net (loss) income attributable to Fund Sixteen per weighted average Class I share
 
$
(29.24
)
 
$
1.24


See accompanying notes to consolidated financial statements.   


27


ICON ECI Fund Sixteen
(A Delaware Statutory Trust)
Consolidated Statements of Changes in Equity
 
Class A
 
Class I
 
 
 
 
 
 
 
Managing Owner
 
Additional Shareholders
 
Total Class A
 
Shareholders
 
 
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
Noncontrolling Interests
 
Shares
 
Amount
Balance, December 31, 2015
0.001

 
$
(24,036
)
 
17,189

 
$
13,063,060

 
17,189

 
$
13,039,024

 
410

 
$
312,845

 
$
3,144,830

 
17,599

 
$
16,496,699

Net income

 
82

 

 
7,593

 

 
7,675

 

 
507

 
250,726

 

 
258,908

Distributions

 
(10,669
)
 

 
(1,031,649
)
 

 
(1,042,318
)
 

 
(24,605
)
 
(1,591,417
)
 

 
(2,658,340
)
Balance, December 31, 2016
0.001

 
(34,623
)
 
17,189

 
12,039,004

 
17,189

 
12,004,381

 
410

 
288,747

 
1,804,139

 
17,599

 
14,097,267

Net (loss) income

 
(5,251
)
 

 
(507,878
)
 

 
(513,129
)
 

 
(11,988
)
 
105,525

 

 
(419,592
)
Reversal of sales and offering expenses

 

 

 
247,535

 

 
247,535

 

 
7,292

 

 

 
254,827

Distributions

 
(25,854
)
 

 
(2,500,000
)
 

 
(2,525,854
)
 

 
(59,624
)
 
(1,403,563
)
 

 
(3,989,041
)
Purchase of interests from noncontrolling interests

 
34

 

 
3,276

 

 
3,310

 

 
78

 
(505,182
)
 

 
(501,794
)
Balance, December 31, 2017
0.001

 
$
(65,694
)
 
17,189

 
$
9,281,937

 
17,189

 
$
9,216,243

 
410

 
$
224,505

 
$
919

 
17,599

 
$
9,441,667

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See accompanying notes to consolidated financial statements.


28


ICON ECI Fund Sixteen
(A Delaware Statutory Trust)
Consolidated Statements of Cash Flows

 
Years Ended December 31,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(419,592
)
 
$
258,908

Adjustments to reconcile net (loss) income to net cash used in operating activities:
 
 
 
Finance income
(30,010
)
 
196,037

Income from investment in joint ventures
(353,010
)
 
(860,966
)
Gain on sale of investment in joint ventures

 
(19,566
)
Impairment loss
595,000

 

Interest expense from amortization of debt financing costs
3,603

 
8,792

Interest expense, other
5,225

 
13,476

Changes in operating assets and liabilities:
 
 
 
Other assets
43,855

 
(11,626
)
Due to Investment Manager and affiliates, net
(103,722
)
 
(381,849
)
Accrued expenses and other liabilities
(152,407
)
 
81,234

Distributions from joint ventures
178,288

 
696,356

Net cash used in operating activities
(232,770
)
 
(19,204
)
Cash flows from investing activities:
 
 
 
Principal received on finance lease
3,441,265

 
3,024,793

Principal received on notes receivable
83,514

 
2,500,000

Investment in joint ventures
(4,018
)
 

Investment in notes receivable

 
(2,998,960
)
Purchase of interests from noncontrolling interests
(501,794
)
 

Distributions received from joint ventures in excess of profits
790,340

 
1,219,027

Proceeds from sale of investment in joint ventures


 
3,788,373

Net cash provided by investing activities
3,809,307

 
7,533,233

Cash flows from financing activities:
 
 
 
Sales and offering expenses paid
(76,790
)
 
(102,648
)
Distributions to noncontrolling interests
(1,403,563
)
 
(1,591,417
)
Distributions to shareholders
(2,585,478
)
 
(1,066,923
)
Repayment of revolving line of credit, recourse

 
(1,500,000
)
Net cash used in financing activities
(4,065,831
)
 
(4,260,988
)
Net (decrease) increase in cash
(489,294
)
 
3,253,041

Cash, beginning of year
4,925,909

 
1,672,868

Cash, end of year
$
4,436,615

 
$
4,925,909

 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Additional paid in capital from purchase of interests from noncontrolling interests
$
3,388

 
$

Reversal of sales and offering expenses
$
254,827

 
$


See accompanying notes to consolidated financial statements.


29

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017


(1)   Organization
 
ICON ECI Fund Sixteen (the “Fund”) was formed on October 11, 2012 as a Delaware statutory trust. When used in these notes to consolidated financial statements, the terms “we,” “us,” “our” or similar terms refer to the Fund and its consolidated subsidiaries.
 
We are a direct financing fund that primarily made investments in or that are collateralized by equipment and other corporate infrastructure (collectively, “Capital Assets”). The investments were in companies that utilize Capital Assets to operate their businesses. These investments were primarily structured as debt and debt-like financings such as loans, leases and other structured financing transactions in or that are collateralized by Capital Assets that ICON MT 16, LLC, a Delaware limited liability company and our managing owner (the “Managing Owner”), believes will provide us with a satisfactory, risk-adjusted rate of return. Our Managing Owner makes investment decisions on our behalf and manages our business.
 
Our investment objectives are to preserve investors’ capital, provide distributions and provide a favorable total return. To meet our investment objectives, we used the net proceeds from our offering and the cash generated from our investments to originate or acquire a diverse pool of investments described above, as well as other strategic investments collateralized by Capital Assets. ICON Capital, LLC, a Delaware limited liability company and our affiliate, is our investment manager (the “Investment Manager”). Our Investment Manager originated and services our investments. Wilmington Trust, National Association (the “Trustee”) serves as our sole trustee pursuant to our Fourth Amended and Restated Trust Agreement (the “Trust Agreement”). The Trustee delegated to our Managing Owner all of the power and authority to manage our business and affairs and has only nominal duties and liabilities to us.
 
Our offering period commenced on July 1, 2013 and ended on December 31, 2014. Our Managing Owner determined to cease our offering period earlier than originally anticipated as a result of lower than expected offering proceeds being raised. We offered to sell to the public any combination of two classes of shares, Class A shares and Class I shares (collectively, the “Shares”), on a “best efforts” basis with the intention of raising up to $250,000,000 of capital, of which $9,000,000 had been reserved for issuance pursuant to our distribution reinvestment plan (the “DRIP”). Other than differing allocable fees and expenses, Class A shares and Class I shares have identical rights and privileges, such as identical voting and distribution rights.
 
As of November 12, 2013 (the “Initial Closing Date”), we raised a minimum of $1,200,000 from the sale of our Shares, at which time shareholders were admitted and we commenced operations. As of June 13, 2014, we raised the $12,500,000 minimum offering amount for the Commonwealth of Pennsylvania. Subsequent to the Initial Closing Date, we returned the initial capital contribution of $1,000 to CION Investment Group, LLC (formerly, ICON Investment Group, LLC) (the “Initial Shareholder”). From the commencement of our offering on July 1, 2013 through December 31, 2014, we sold 17,189 Class A shares to 351 Class A shareholders and 410 Class I shares to six Class I shareholders, of which 404 Class A shares and 12 Class I shares were issued pursuant to the DRIP, representing an aggregate of $17,469,610 of capital contributions. From the Initial Closing Date through December 31, 2014, we incurred sales commissions to third parties of $1,198,531 and dealer-manager and distribution fees of $347,547 to CION Securities, LLC, the dealer-manager of our offering and an affiliate of our Investment Manager (“CION Securities”). In addition, organization costs of $8,418 and offering expenses of $161,422 were incurred by us during such period. Organization costs were expensed when incurred and offering expenses were recorded as a reduction of shareholders’ equity.

Our operating period commenced on January 1, 2015. On April 24, 2017, we commenced a consent solicitation of our shareholders to further amend and restate our Trust Agreement in order to amend the definition of “operating period” to provide for the ability of our Managing Owner to shorten our operating period in its sole and absolute discretion. The consent solicitation was completed on May 24, 2017 with the requisite consents received from our shareholders. As a result, our Managing Owner ended our operating period on May 31, 2017 and commenced our wind down period on June 1, 2017. During our wind down period, we have sold and will continue to sell our assets and/or let our investments mature in the ordinary course of business.

On May 30, 2017, our Investment Manager retained ABN AMRO Securities (USA) LLC (“ABN AMRO Securities”) as its financial advisor to assist our Investment Manager and us in identifying, evaluating and executing a potential sale of

30

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

certain shipping and offshore energy assets currently included within our investment portfolio. We, however, cannot assure that the identification or evaluation to be performed will result in any specific sale transaction or series of transactions.

(2)   Summary of Significant Accounting Policies
 
Basis of Presentation and Consolidation
 
Our accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). In the opinion of our Managing Owner, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation have been included. 

The consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries and other controlled entities. All intercompany accounts and transactions have been eliminated in consolidation.  In joint ventures where we have a controlling financial interest, the financial condition and results of operations of the joint venture are consolidated. Noncontrolling interest represents the minority owner’s proportionate share of its equity in the joint venture. The noncontrolling interest is adjusted for the minority owner’s share of the earnings, losses, investments and distributions of the joint venture. 

We account for our noncontrolling interests in joint ventures where we have influence over financial and operational matters, generally 50% or less ownership interest, under the equity method of accounting. In such cases, our original investments are recorded at cost and adjusted for our share of earnings, losses and distributions. We account for investments in joint ventures where we have virtually no influence over financial and operational matters using the cost method of accounting. In such cases, our original investments are recorded at cost and any distributions received are recorded as revenue. All of our investments in joint ventures are subject to our impairment review policy. 

We report noncontrolling interests as a separate component of consolidated equity and net income attributable to the noncontrolling interests is included in consolidated net income. The attribution of net income between controlling and noncontrolling interests is disclosed on our accompanying consolidated statements of operations. 

Net (loss) income attributable to us per weighted average additional Class A share and Class I share outstanding is based upon the weighted average number of additional Class A shares and Class I shares outstanding during the year.

Cash and Cash Equivalents 

Cash and cash equivalents include cash in banks and highly liquid investments with original maturity dates of three months or less.  

Our cash and cash equivalents are held at one financial institution and at times may exceed insured limits.  We have placed these funds in a high quality institution in order to minimize risk relating to exceeding insured limits. 

Organization Costs 

Organization costs included, among other things, the cost of organizing us as a Delaware statutory trust, including the cost of legal services and other fees pertaining to our organization. All organization costs were funded by our Investment Manager and its affiliates and there was no liability for organization costs to us until we met the minimum offering requirement on November 12, 2013. Organization costs were expensed when incurred, subject to the terms of the Trust Agreement. 

Offering Costs 

Offering costs included, among other things, legal fees and other costs pertaining to the preparation of our registration statement in connection with the public offering of our Shares. All offering costs were funded by our Investment Manager and its affiliates and there was no liability for offering costs to us until we met the minimum offering requirement on November 12, 2013. Offering costs were charged directly to shareholders’ equity as offering proceeds were raised, subject to the terms of the Trust Agreement. 

31

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017


Upfront Sales Commissions and Sales Commission Trail

We paid upfront sales commissions on Class A shares sold in the offering of up to 5.0% of gross offering proceeds from the sale of such Class A shares. We also paid an annual sales commission trail of 0.75% of offering proceeds from the sale of our Class A shares (net of dealer-manager fees and upfront sales commissions), which was paid quarterly commencing on the 13th month following acceptance of the subscription for such Class A shares. We were obligated to pay the sales commission trail with respect to Class A shares until the earlier to occur of: (i) total sales commissions and dealer-manager fees paid with respect to the Class A shares following the completion of the offering equaling 10% of the gross proceeds received with respect to the issuance of such shares from the primary portion of the offering, (ii) such shares are repurchased or transferred or (iii) our entry into our wind down period. The upfront sales commissions and the sales commission trail were charged directly to shareholders’ equity upon acceptance of the subscription. As the sales commission trail was expected to be paid over a period of approximately four years, we recorded the sales commission trail at its then present value upon acceptance of the subscription with a corresponding commission payable included in accrued expenses and other liabilities on our consolidated balance sheets. Interest expense accreted with respect to the commission payable was allocated only to Class A shares. We commenced our wind down period on June 1, 2017, at which time we were no longer obligated to pay the sales commission trail and the remaining accrued commission payable was reversed against equity.

Net (Loss) Income Per Share

Our capital structure consists of only common shares outstanding. As a result, net (loss) income per share, as presented, represents both basic and fully diluted for the period presented in the consolidated financial statements. We calculate net (loss) income per share using the two-class method to reflect the different classes of our Shares. Net (loss) income per additional Class A share and Class I share is calculated by dividing the net (loss) income attributable to additional Class A shareholders and Class I shareholders by the respective weighted-average number of shares issued and outstanding during the presented periods. The net (loss) income allocation for the Class I shares excludes interest expense of $5,225 and $13,476 related to the sales commission trail during 2017 and 2016, respectively, which was only applicable to the Class A shareholders.

Distribution Fee

We paid an annual distribution fee equal to 0.55% of gross offering proceeds from Class I shares sold in the offering. We were obligated to pay the distribution fee with respect to Class I shares until the earlier to occur of: (i) total distribution fees paid with respect to the Class I shares following the completion of the offering equaling 10% of gross proceeds received with respect to the issuance of such shares from the primary portion of the offering or (ii) our entry into our wind down period. The distribution fee was paid monthly. As we estimated the distribution fee was to be paid over a period of approximately seven years before we commenced our wind down period, we recorded the distribution fee upon acceptance of the subscription with a corresponding distribution fee payable included in accrued expenses and other liabilities on our consolidated balance sheets. We commenced our wind down period on June 1, 2017, at which time we are no longer obligated to pay the distribution fee and the remaining distribution fee payable previously accrued was reversed against equity.

Debt Financing Costs   

Debt financing costs associated with a line of credit arrangement were capitalized and included as other assets. Such costs were amortized to interest expense over the term of the debt instrument using the effective interest rate method.

Asset Impairments

The significant assets in our portfolio are periodically reviewed, no less frequently than annually or when indicators of impairment exist, to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair market value. If there is an indication of impairment, we will estimate the future cash flows (undiscounted and without interest charges) expected from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future outflows expected to be necessary to obtain those inflows. If an impairment is determined to exist, the impairment loss will be measured as the amount by which

32

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

the carrying value of a long-lived asset exceeds its fair value and recorded in our consolidated statements of operations in the period the determination is made. 

The events or changes in circumstances that generally indicate that an asset may be impaired are (i) the estimated fair value of the underlying asset is less than its carrying value or (ii) the lessee is experiencing financial difficulties and it does not appear likely that the estimated proceeds from the disposition of the asset will be sufficient to satisfy the residual position in the asset. The preparation of the undiscounted cash flows requires the use of assumptions and estimates, including the level of future rents, the residual value expected to be realized upon disposition of the asset, estimated downtime between re-leasing events and the amount of re-leasing costs. Our Investment Manager’s review for impairment includes a consideration of the existence of impairment indicators including third-party appraisals, published values for similar assets, recent transactions for similar assets, adverse changes in market conditions for specific asset types and the occurrence of significant adverse changes in general industry and market conditions that could affect the fair value of the asset.

Lease Classification and Revenue Recognition

Each equipment lease we enter into is classified as either a finance lease or an operating lease, based upon the terms of each lease. The estimated residual value is a critical component of and can directly influence the determination as to whether a lease is classified as an operating lease or a finance lease. 

Our Investment Manager has an investment committee that approves each new equipment lease and other financing transaction. As part of its process, the investment committee determines the estimated residual value, if any, to be used once the investment has been approved.  The factors considered in determining the estimated residual value include, but are not limited to, the creditworthiness of the potential lessee, the type of equipment considered, how the equipment is integrated into the potential lessee’s business, the length of the lease and the industry in which the potential lessee operates. Residual values are reviewed for impairment in accordance with our impairment review policy.

The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. The residual value is calculated using information from various external sources, such as trade publications, auction data, equipment dealers, wholesalers and industry experts, as well as inspection of the physical asset and other economic indicators.

For finance leases, we capitalize, at lease inception, the total minimum lease payments receivable from the lessee, the estimated unguaranteed residual value of the equipment at lease termination and the initial direct costs related to the lease, less unearned income. Unearned income represents the difference between the sum of the minimum lease payments receivable, plus the estimated unguaranteed residual value, minus the cost of the leased equipment. Unearned income is recognized as finance income over the term of the lease using the effective interest rate method. 

For operating leases, rental income is recognized on a straight-line basis over the lease term.  Billed operating lease receivables are included in accounts receivable until collected or written off. We record a reserve if we deem any receivable not collectible. The difference between the timing of the cash received and the income recognized on a straight-line basis is recognized as either deferred revenue or other assets, as appropriate. Initial direct costs are capitalized as a component of the cost of the equipment and depreciated over the lease term. 

Notes Receivable and Revenue Recognition

Notes receivable are reported in our consolidated balance sheets at the outstanding principal balance, plus costs incurred to originate the loans, net of any unamortized premiums or discounts on purchased loans. We use the effective interest rate method to recognize finance income, which produces a constant periodic rate of return on the investment. Unearned income, discounts and premiums are amortized to finance income in our consolidated statements of operations using the effective interest rate method. Interest receivable related to the unpaid principal is recorded separately from the outstanding balance in our consolidated balance sheets. Upon the prepayment of a note receivable, any prepayment penalties and unamortized loan origination, closing and commitment fees are recorded as part of finance income in our consolidated statements of operations. Our notes receivable may contain a paid-in-kind (“PIK”) interest provision. Any PIK interest, if deemed collectible, will be added to the principal balance of the note receivable and is recorded as income.

33

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017


Credit Quality of Notes Receivable and Finance Leases and Credit Loss Reserve
 
Our Investment Manager monitors the ongoing credit quality of our financing receivables by (i) reviewing and analyzing a borrower’s financial performance on a regular basis, including review of financial statements received on a monthly, quarterly or annual basis as prescribed in the loan or lease agreement, (ii) tracking the relevant credit metrics of each financing receivable and a borrower’s compliance with financial and non-financial covenants, (iii) monitoring a borrower’s payment history and public credit rating, if available, and (iv) assessing our exposure based on the current investment mix. As part of the monitoring process, our Investment Manager may physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such borrower’s financial performance and its future plans on an as-needed basis. 
 
As our financing receivables, generally notes receivable and finance leases, are limited in number, our Investment Manager is able to estimate the credit loss reserve based on a detailed analysis of each financing receivable as opposed to using portfolio-based metrics. Our Investment Manager does not use a system of assigning internal risk ratings to each of our financing receivables. Rather, each financing receivable is analyzed quarterly and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying scheduled payments and compliance with financial covenants. A financing receivable is usually categorized as non-performing only when a borrower experiences financial difficulties and has failed to make scheduled payments. Our Investment Manager then analyzes whether the financing receivable should be placed on a non-accrual status, a credit loss reserve should be established or the financing receivable should be restructured. As part of the assessment, updated collateral value is usually considered and such collateral value can be based on a third party industry expert appraisal or, depending on the type of collateral and accessibility to relevant published guides or market sales data, internally derived fair value. Material events would be specifically disclosed in the discussion of each financing receivable held. 
 
Financing receivables are generally placed on a non-accrual status when payments are more than 90 days past due. Additionally, our Investment Manager periodically reviews the creditworthiness of companies with payments outstanding less than 90 days and based upon our Investment Manager’s judgment, these accounts may be placed on a non-accrual status.
 
In accordance with the cost recovery method, payments received on non-accrual financing receivables are applied to principal if there is doubt regarding the ultimate collectability of principal. If collection of the principal of non-accrual financing receivables is not in doubt, interest income is recognized on a cash basis. Financing receivables on non-accrual status may not be restored to accrual status until all delinquent payments have been received, and we believe recovery of the remaining unpaid receivable is probable.
 
When our Investment Manager deems it is probable that we will not be able to collect all contractual principal and interest on a non-performing financing receivable, we perform an analysis to determine if a credit loss reserve is necessary. This analysis considers the estimated cash flows from the financing receivable, and/or the collateral value of the asset underlying the financing receivable when financing receivable repayment is collateral dependent. If it is determined that the impaired value of the non-performing financing receivable is less than the net carrying value, we will recognize a credit loss reserve or adjust the existing credit loss reserve with a corresponding charge to earnings.  We then charge off a financing receivable in the period that it is deemed uncollectible by reducing the credit loss reserve and the balance of the financing receivable.
  
Initial Direct Costs

We capitalize initial direct costs, including acquisition fees, associated with the origination and funding of leased assets and other financing transactions. We paid acquisition fees through the end of our operating period to our Investment Manager of up to 2.5% of the purchase price of the investment made in Capital Assets by or on our behalf, including, but not limited to, the cash paid, indebtedness incurred or assumed, and the excess of the collateral value of the Capital Assets over the amount of the investment, if any. The costs of each transaction are amortized over the transaction term using the straight-line method for operating leases and the effective interest rate method for finance leases and notes receivable in our consolidated statements of operations. Costs related to leases or other financing transactions that were not consummated are expensed in our consolidated statements of operations.

34

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017


Income Taxes

We are taxed as a partnership for federal and state income tax purposes. Therefore, no provision for federal and state income taxes has been recorded since the liability for such taxes is the responsibility of each of the individual shareholders rather than our business as a whole. We are potentially subject to New York City unincorporated business tax (“UBT”), which is imposed on unincorporated trade or business operating in New York City. The UBT is imposed for each taxable year at a rate of 4% of taxable income allocated to New York City. We use the asset and liability method of accounting for the UBT. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax assets will not be realized.

Our federal, state and local income tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the applicable taxing authorities. All penalties and interest, if any, associated with income taxes are included in general and administrative expense in our consolidated statements of operations. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. We did not have any material liabilities recorded related to uncertain tax positions nor did we have any unrecognized tax benefits as of the periods presented herein. 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires our Managing Owner to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates primarily include the determination of credit loss reserves, impairment losses and residual values. Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-07, Investments – Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting (“ASU 2016-07”), which eliminates the retroactive adjustments to an investment upon it qualifying for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence by the investor. ASU 2016-07 requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment qualifies for equity method accounting. We adopted ASU 2016-07 on January 1, 2017, which did not have an effect on our consolidated financial statements.

In October 2016, FASB issued ASU No. 2016-17, Consolidation (“ASU 2016-17”), which amends the consolidation guidance on how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in such entity held by related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. Under ASU 2016-17, a single decision maker is not required to consider indirect interests held by related parties that are under common control with the single decision maker to be the equivalent of direct interests in their entirety. We adopted ASU 2016-17 on January 1, 2017, which did not have an effect on our consolidated financial statements.

Other Recent Accounting Pronouncements

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. This new revenue standard may be applied retrospectively to each prior period presented, or retrospectively with the cumulative effect recognized as of the date of adoption. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date (“ASU 2015-14”), which defers implementation of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including

35

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

interim periods within that reporting period. We have completed our evaluation of the impact of ASU 2014-09 on our consolidated financial statements. Since a substantial portion of our revenue is recognized from our leasing and lending contracts, which are not subject to ASU 2014-09, the adoption of ASU 2014-09 will not have a material effect on our consolidated financial statements.

In January 2016, FASB issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which provides guidance related to accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The adoption of ASU 2016-01 becomes effective for us on January 1, 2018, including interim periods within that reporting period. We have completed our evaluation of the impact of ASU 2016-01 on our consolidated financial statements. Although certain disclosures related to methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost are no longer required, the adoption of ASU 2016-01 will not have a material effect on our consolidated financial statements.

In February 2016, FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which requires lessees to recognize assets and liabilities for leases with lease terms greater than twelve months on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 implements changes to lessor accounting focused on conforming with certain changes made to lessee accounting and the recently released revenue recognition guidance. The adoption of ASU 2016-02 becomes effective for us on January 1, 2019. Early adoption is permitted. Based on our preliminary assessment, all of our leases are subject to lessor accounting and the accounting applied by a lessor is largely unchanged from that applied under current U.S. GAAP. In addition, since we are in our wind down period and not expecting to enter into any new leases in the future and it is expected that we will apply the practical expedients as provided by the guidance, the adoption of ASU 2016-02 may not have a material effect on our consolidated financial statements. We continue to evaluate the impact of the adoption of ASU 2016-02 on our consolidated financial statements.

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (“ASU 2016-13”), which modifies the measurement of credit losses by eliminating the probable initial recognition threshold set forth in current guidance, and instead reflects an entity’s current estimate of all expected credit losses. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity will apply the amendments within ASU 2016-13 through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. The adoption of ASU 2016-13 becomes effective for us on January 1, 2020, including interim periods within that reporting period. Early adoption is permitted. We are currently in the process of evaluating the impact of the adoption of ASU 2016-13 on our consolidated financial statements.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. The adoption of ASU 2016-15 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted. An entity will apply the amendments within ASU 2016-15 using a retrospective transition method to each period presented. We have completed our evaluation of the impact of ASU 2016-15 on our consolidated financial statements. As a result, the adoption of ASU 2016-15 will not have a material effect on our consolidated financial statements.

In November 2016, FASB issued ASU No. 2016-18, Statement of Cash Flows (“ASU 2016-18”), which provides guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows. The adoption of ASU 2016-18 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted. An entity will apply the amendments within ASU 2016-18 using a retrospective transition method to each period presented. As a result of the adoption of ASU 2016-18, beginning January 1, 2018, we will include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on our consolidated statements of cash flows.

In January 2017, FASB issued ASU No. 2017-01, Business Combinations (“ASU 2017-01”), which clarifies the definition of a business. ASU 2017-01 sets forth requirements to be met for a set to be deemed a business and establishes a practical way to determine when a set is not a business. To be considered a business, a set must include, at a minimum,

36

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

an input and a substantive process that together significantly contribute to the ability to create an output, and removes the evaluation of whether a market participant could replace missing elements. In addition, ASU 2017-01 narrows the definition of outputs and aligns such definition with how outputs are described within the revenue guidance. The adoption of ASU 2017-01 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted for transactions that occur before the issuance date or effective date of ASU 2017-01 to the extent that such transactions have not been reported in financial statements that have been issued or made available for issuance. We have completed our evaluation of the impact of ASU 2017-01 on our consolidated financial statements. As a result, the adoption of ASU 2017-01 will not have a material effect on our consolidated financial statements.

(3)   Net Investment in Notes Receivable
 
As of December 31, 2017 and 2016, we had no net investment in notes receivable on non-accrual status and no net investment in notes receivable that was past due 90 days or more and still accruing.
 
Net investment in notes receivable consisted of the following:
 
December 31,
 
2017
 
2016
Principal outstanding
$
3,114,921

 
$
3,192,000

Deferred fees
(147,350
)
 
(192,664
)
Net investment in notes receivable
$
2,967,571

 
$
2,999,336


On September 24, 2014, we, ICON Leasing Fund Twelve Liquidating Trust (formerly, ICON Leasing Fund Twelve, LLC) (“Fund Twelve”), ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”) and ICON ECI Fund Fifteen, L.P. (“Fund Fifteen”), each an entity also managed by our Investment Manager, entered into a secured term loan credit facility agreement with Premier Trailer Leasing, Inc. (“Premier Trailer”) to provide a credit facility of up to $20,000,000, of which our commitment of $2,500,000 was funded on such date. The loan bore interest at the London Interbank Offered Rate (“LIBOR”), subject to a 1% floor, plus 9% per year, and was scheduled to mature on September 24, 2020. The loan was secured by a second priority security interest in all of Premier Trailer’s assets, including, without limitation, its fleet of trailers, and the equity interests of Premier Trailer. On August 9, 2016, Premier Trailer satisfied its obligations in connection with the loan by making a prepayment of $2,581,944, comprised of all outstanding principal, accrued interest and a prepayment fee of $50,000. The prepayment fee was recognized as additional finance income.

On December 20, 2016, we, Fund Fourteen and Fund Fifteen entered into a secured term loan credit facility agreement with CFL Momentum Beheer B.V. and C.V. CFL Momentum (collectively, “CFL”) to provide a credit facility of up to $7,400,000, of which our commitment of $592,000 was funded on December 21, 2016. The loan bears interest at 8% per year and we are entitled to an equity participation fee based partly on the fair market value of the vessel upon repayment of the loan. The loan is for a period of four years, maturing on December 21, 2020. The loan is secured by, among other things, a first priority security interest in and earnings from a motor cargo vessel.

On December 30, 2016, we, Fund Fourteen and Fund Fifteen entered into a secured term loan agreement with Lubricating Specialties Company (“LSC”) to provide a loan in the aggregate amount of $32,500,000, of which our commitment of $2,600,000 was funded on such date. The loan bears interest at LIBOR, subject to a 1% floor, plus 11.0% per year, and is for a period of four years maturing on December 30, 2020. The loan is secured by a second priority security interest in LSC's accounts receivable and inventory and a first priority security interest in all of LSC’s other assets. On December 8, 2017, we, Fund Fourteen and Fund Fifteen amended the secured term loan agreement with LSC to, among other things, add, revise and/or waive LSC's breach of certain financial covenants during the three months ended December 31, 2017 and to amend certain other terms. In connection with the amendment, we received our proportionate share of an amendment fee of $6,435.


37

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

(4)   Net Investment in Finance Lease
 
As of December 31, 2017 and 2016, we had no net investment in finance lease on non-accrual status and no net investment in finance lease that was past due 90 days or more and still accruing.
 
Net investment in finance lease consisted of the following:
 
December 31,
 
2017
 
2016
Minimum rents receivable
$

 
$
3,632,897

Initial direct costs

 
22,114

Unearned income

 
(192,007
)
Net investment in finance lease
$

 
$
3,463,004


On September 4, 2014, a joint venture owned 52% by us, 33.5% by Fund Fourteen and 14.5% by ICON ECI Partners L.P. (“ECI Partners”), an entity also managed by our Investment Manager, purchased certain land-based seismic testing equipment for $10,677,018. Simultaneously, the seismic testing equipment was leased to Geokinetics Inc., Geokinetics USA, Inc. and Geokinetics Acquisition Company (collectively, “Geokinetics”) for three years. During the year ended December 31, 2016, due to damage to certain of the assets on lease, we received $48,076 based on the stipulated loss values of such assets pursuant to the lease agreement. As a result, future minimum rents receivable and residual values were reduced and we recognized additional finance income of $4,760 during the year ended December 31, 2016. On February 15, 2017, we purchased all of ECI Partners’ limited liability company interests in the joint venture for a purchase price of $501,794. As a result, the joint venture is owned 66.5% by us and 33.5% by Fund Fourteen.

Upon lease expiration, Geokinetics was obligated to purchase all of the seismic testing equipment from the joint venture at an agreed-upon purchase price. The lease expired on August 31, 2017 without Geokinetics satisfying its purchase obligations under the lease. On September 21, 2017, the joint venture entered into a forbearance agreement with Geokinetics pursuant to which Geokinetics was obligated to (i) satisfy in full its remaining lease and purchase obligations of $1,546,790; and (ii) pay a penalty and forbearance fee totaling $137,340, all in nine installments, with the final installment paid on November 15, 2017. All payments were made by Geokinetics in accordance with the forbearance agreement and title to the equipment was transferred to Geokinetics accordingly. The penalty and forbearance fee was recognized as additional finance income.

(5)   Investment in Joint Ventures

 On March 4, 2014, a joint venture owned 10% by us, 60% by Fund Twelve, 15% by Fund Fourteen and 15% by Fund Fifteen purchased mining equipment from an affiliate of Blackhawk Mining, LLC (“Blackhawk”). Simultaneously, the mining equipment was leased to Blackhawk and its affiliates for four years. The aggregate purchase price for the mining equipment of $25,359,446 was funded by $17,859,446 in cash and $7,500,000 of non-recourse long-term debt. Our contribution to the joint venture was $1,795,597. On December 7, 2016, the joint venture amended the lease with Blackhawk to, among other things, add, revise and/or waive Blackhawk’s breach of certain financial covenants and received an amendment fee of $150,000. On July 21, 2017, Blackhawk satisfied its remaining lease obligations by making a prepayment of $7,753,666. As a result, the joint venture recognized finance income of $353,373, of which our share was $35,337.

Information as to the results of operations of this joint venture is summarized as follows:

38

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

 
Years Ended December 31,
 
2017
 
2016
Revenue
$
1,161,698

 
$
1,904,372

Net income
$
985,304

 
$
1,431,731

Our share of net income
$
99,949

 
$
145,131


On March 28, 2014, a joint venture owned 12.5% by us, 60% by Fund Twelve and 27.5% by Fund Fifteen purchased trucks, trailers and other equipment from subsidiaries of D&T Holdings, LLC (“D&T”) for $12,200,000. Simultaneously, the trucks, trailers and other equipment were leased to D&T and its subsidiaries for 57 months. Our contribution to the joint venture was $1,484,705. On September 15, 2014, the lease agreement with D&T was amended to allow D&T to increase its capital expenditure limit. In consideration for agreeing to such increase, lease payments of $1,480,000 that were scheduled to be paid in 2018 were paid by October 31, 2014. In addition, the joint venture received an amendment fee of $100,000. On January 14, 2016, D&T satisfied its remaining lease obligations by making a prepayment of $8,000,000. In addition, D&T exercised its option to repurchase all assets under the lease for $1, upon which title was transferred. As a result of the prepayment, the joint venture recognized finance income of approximately $1,400,000, of which our share was approximately $175,000.

Information as to the results of operations of this joint venture is summarized as follows:
 
Years Ended December 31,

 
2017
 
2016
Revenue
$

 
$
1,491,704

Net income
$

 
$
1,420,911

Our share of net income
$

 
$
183,304


On July 10, 2015, a joint venture owned 10% by us, 50% by Fund Fifteen and 40% by Fund Fourteen purchased auxiliary support equipment and robots used in the production of certain automobiles for $9,934,118, which were simultaneously leased to Challenge Mfg. Company, LLC and certain of its affiliates (collectively, “Challenge”) for 60 months. Our contribution to the joint venture was $998,379. On June 8, 2016, an unaffiliated third party purchased 100% of the limited liability company interests of the joint venture for net sales proceeds of $9,004,214. No significant gain or loss was recorded by us as a result of the sale.

Information as to the results of operations of this joint venture is summarized as follows:
 
Years Ended December 31,
 
2017
 
2016
Revenue
$

 
$
463,524

Net income
$

 
$
482,159

Our share of net income
$

 
$
48,216


On December 29, 2015, a joint venture owned 25% by us and 75% by Fund Fifteen purchased stamping presses and miscellaneous support equipment used in the production of certain automobiles for $11,978,455, which were simultaneously leased to Challenge for 60 months. Our contribution to the joint venture was $3,009,587. On June 8, 2016, an unaffiliated third party purchased 100% of the limited liability company interests of the joint venture for net sales proceeds of $11,551,806. As a result, we recorded a gain on sale of investment in joint venture of $17,681

Information as to the results of operations of this joint venture is summarized as follows:

39

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

 
Years Ended December 31,

 
2017
 
2016
Revenue
$

 
$
599,122

Net income
$

 
$
598,822

Our share of net income
$

 
$
149,705


On December 23, 2015, a joint venture owned 10% by us, 75% by Fund Fifteen and 15% by Fund Fourteen, through two indirect subsidiaries, entered into memoranda of agreement to purchase two geotechnical drilling vessels, the Fugro Scout and the Fugro Voyager (collectively, the “Fugro Vessels”), from affiliates of Fugro N.V. (“Fugro”) for an aggregate purchase price of $130,000,000. The Fugro Scout and the Fugro Voyager were delivered on December 24, 2015 and January 8, 2016, respectively. The Fugro Vessels were bareboat chartered to affiliates of Fugro for a period of 12 years upon the delivery of each respective vessel, although such charters can be terminated by the indirect subsidiaries after year five. On December 24, 2015, the Fugro Scout was acquired for (i) $8,250,000 in cash, (ii) $45,500,000 of financing through a senior secured loan from ABN AMRO Bank N.V. (“ABN AMRO”), Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A. (“Rabobank”) and NIBC Bank N.V. (“NIBC”) and (iii) a seller's credit of $11,250,000. On January 8, 2016, the Fugro Voyager was also acquired for $8,250,000 in cash, $45,500,000 of financing through a senior secured loan from ABN AMRO, Rabobank and NIBC and a seller's credit of $11,250,000. The senior secured loans bore interest at LIBOR plus 2.95% per year and mature on December 31, 2020. On February 8, 2016, the two indirect subsidiaries entered into interest rate swap agreements to effectively fix the interest rate of the senior secured loans from a variable rate of LIBOR plus 2.95% per year to a fixed rate of 4.117% per year. Our contribution to the joint venture totaling $2,377,250 was made in December 2015.

As a result of Fugro obtaining additional third-party financing, effective December 31, 2016, the indirect subsidiaries and the affiliates of Fugro amended the bareboat charters to, among other things, increase the daily charter rate and provide for additional security deposits. Also, effective December 31, 2016, the indirect subsidiaries amended the facility agreement with ABN AMRO, Rabobank and NIBC to, among other things, increase the interest rate on the senior secured loans to share the economic benefits of the amended bareboat charters.

As part of our Investment Manager’s and ABN AMRO Securities’ efforts to identify and execute the sale of certain of our shipping and offshore energy assets, a price indicator from a potential purchaser triggered an impairment assessment on our investment in this joint venture. As a result of such assessment, our Investment Manager believed that the loss in value of this investment was other than a temporary decline and as a result, determined to record an impairment loss of $595,000 on our investment in joint venture related to Fugro during the year ended December 31, 2017.

Information as to the results of operations of this joint venture is summarized as follows:
 
Years Ended December 31,
 
2017
 
2016
Revenue
$
13,994,174

 
$
13,050,830

Net income
$
2,561,757

 
$
3,368,433

Our share of net income
$
256,176

 
$
336,843


(6)   Revolving Line of Credit, Recourse
 
We had an agreement with California Bank & Trust ("CB&T") for a revolving line of credit through May 30, 2017 of up to $5,000,000 (the “Facility”), which was secured by all of our assets not subject to a first priority lien. Amounts available under the Facility were subject to a borrowing base that was determined, subject to certain limitations, by the present value of the future receivables under certain loans and lease agreements in which we had a beneficial interest.
 
The interest rate for general advances under the Facility was CB&T’s prime rate. We could have elected to designate up to five advances on the outstanding principal balance of the Facility to bear interest at LIBOR plus 2.5% per year. In all instances, borrowings under the Facility were subject to an interest rate floor of 4.0% per year. In addition, we were obligated

40

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

to pay an annualized 0.5% fee on unused commitments under the Facility. The Facility expired in accordance with its terms on May 30, 2017. There were no obligations outstanding under the Facility on the expiration date.

As of December 31, 2016, we had capitalized net debt financing costs of $3,603, which were included in other assets on our consolidated balance sheets. The debt financing costs were fully amortized upon expiration of the Facility on May 30, 2017. For the years ended December 31, 2017 and 2016, we recognized interest expense of $3,603 and $8,792, respectively, related to the amortization of debt financing costs.  

(7)   Transactions with Related Parties
 
We have entered into certain agreements with our Investment Manager and CION Securities whereby we paid or pay certain fees and reimbursements to these parties. We paid CION Securities (i) a dealer-manager fee for Class A shares sold in the offering equal to 2% of gross offering proceeds from sales of such Class A shares for managing the offering and to reimburse the dealer-manager for wholesaling fees and expenses and (ii) a distribution fee equal to 0.55% of gross offering proceeds from Class I shares sold in the offering for managing the distribution of the Class I shares. We were obligated to pay the distribution fee with respect to the Class I shares sold in the offering until the earlier to occur of: (i) total distribution fees paid with respect to the Class I shares following the completion of the offering equaling 10% of the gross proceeds received with respect to the issuance of such shares from the primary portion of the offering or (ii) our entry into our wind down period. We commenced our wind down period on June 1, 2017. As a result, we are no longer obligated to pay distribution fees to CION Securities as of such date. No dealer-manager or distribution fees were paid on any Shares sold pursuant to the DRIP. During the years ended December 31, 2017 and 2016, we paid previously accrued distribution fees of $1,018 and $2,035, respectively.

Our Managing Owner also has a 1% interest in our profits, losses, distributions and liquidation proceeds, subject to increase based on our investors achieving a preferred return. In addition, our Investment Manager and its affiliates were reimbursed for a portion of the organization and offering expenses incurred in connection with our organization and offering of Shares and will be reimbursed for administrative expenses incurred in connection with our operations. The reimbursement of organization and offering expenses was capped at the lesser of 1.44% of the maximum primary offering amount of $241,000,000 and the actual costs and expenses incurred by our Investment Manager and its affiliates. Through the end of our offering period, our Investment Manager and its affiliates incurred organization and offering expenses of $1,759,237 on our behalf, of which our Investment Manager and its affiliates determined only to seek reimbursement of $239,758.

 We paid our Investment Manager (i) a management fee of up to 3.50% of the gross periodic payments due and paid from our investments and (ii) acquisition fees of up to 2.50% of the total purchase price (including indebtedness incurred or assumed therewith) of, or the value of the Capital Assets secured by or subject to, each of our investments. Effective July 1, 2016, our Investment Manager reduced its management fee by 50% (up to 1.75% of the gross periodic payments due and paid from our investments). Subsequently, our Investment Manager waived all future management fees, effective December 1, 2017.
 
Administrative expense reimbursements are costs incurred by our Investment Manager or its affiliates that are necessary to our operations. These costs include our Investment Manager’s and its affiliates’ legal, accounting, investor relations and operations personnel, as well as professional fees and other costs that are charged to us. Excluded are salaries and related costs, office rent, travel expenses and other administrative costs incurred by individuals with a controlling interest in our Investment Manager.
 
We paid distributions to our Managing Owner of $25,854 and $10,669 for the years ended December 31, 2017 and 2016, respectively. Additionally, our Managing Owner’s interest in the net (loss) income attributable to us was $(5,251) and $82 for the years ended December 31, 2017 and 2016, respectively.


41

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

Fees and other expenses incurred by us to our Investment Manager or its affiliates were as follows:  
 
 
Years Ended December 31,
Entity
 
Capacity
 
Description
 
2017
 
2016
ICON Capital, LLC
 
Investment Manager
 
Management fees (1)
 
$
58,793

 
$
198,086

ICON Capital, LLC
 
Investment Manager
 
Administrative expense
reimbursements (1)
 
523,972

 
492,784

 
 
 
 
 
 
$
582,765

 
$
690,870

(1)  Amount charged directly to operations. 
 
 
 
 

At December 31, 2017, we had a net payable of $64,397 due to our Investment Manager and affiliates that primarily consisted of administrative expenses reimbursements of $65,906. At December 31, 2016, we had a net payable of $169,137 due to our Investment Manager and affiliates that primarily consisted of administrative expense reimbursements of $170,138.

In June 2016, we sold our interests in certain of our joint ventures to unaffiliated third parties. In connection with the sales, the third parties required that an affiliate of our Investment Manager provide bookkeeping and administrative services related to such assets for a fee. 

(8)   Fair Value Measurements
 
Assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
 
Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
Level 3: Pricing inputs that are generally unobservable and are supported by little or no market data.

Assets for which Fair Value is Disclosed
 
Our fixed-rate note receivable, for which fair value is required to be disclosed, was valued using inputs that are generally unobservable and are supported by little or no market data and are therefore classified within Level 3. Under U.S. GAAP, we use projected cash flows for fair value measurements of these financial assets. Fair value information with respect to certain of our other assets and liabilities is not separately provided since (i) U.S. GAAP does not require fair value disclosures of lease arrangements and (ii) the carrying value of financial assets and liabilities, other than lease-related investments, approximates fair value due to their short-term maturities and/or variable interest rates.

The estimated fair value of our fixed-rate note receivable was based on the discounted value of future cash flows related to the loan at inception, adjusted for changes in certain variables, including, but not limited to, credit quality, industry, financial markets and other recent comparables. The fair value of the principal outstanding on our fixed-rate note receivable was derived using discount rates ranging between 9.0% and 11.0% as of December 31, 2017.

 
December 31, 2017
 
Carrying Value
 
Fair Value (Level 3)
Principal outstanding on fixed-rate note receivable
$
553,922

 
$
543,010



42

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

(9)   Concentrations of Risks

In the normal course of business, we are exposed to two significant types of economic risk: credit and market.  Credit risk is the risk of a borrower, lessee or other counterparty’s inability or unwillingness to make contractually required payments. Concentrations of credit risk with respect to borrowers, lessees or other counterparties are dispersed across different industry segments within the United States and throughout the world.

Market risk reflects the change in the value of debt instruments, derivatives and credit facilities due to changes in interest rate spreads or other market factors. We believe that the carrying value of our investments is reasonable, taking into consideration these risks, along with estimated collateral values, payment history and other relevant information.

At times, our cash may exceed insured limits. We have placed these funds in a high-quality institution in order to minimize the risk of loss relating to exceeding insured limits.

For the year ended December 31, 2017, we had one lessee and one borrower that accounted for 92.7% of our finance income. Our income from investment in joint ventures was primarily derived from our investment in two joint ventures.

For the year ended December 31, 2016, we had one lessee and one borrower that accounted for 99.3% of our finance income. Our income from investment in joint ventures was primarily derived from our investment in five joint ventures.

As of December 31, 2017, we had two borrowers that accounted for 30.9% of total assets.  Additionally, we had one lessee through our joint venture investments that accounted for 22.2% of total assets.

As of December 31, 2016, we had one lessee and one borrower that accounted for 39.6% of total assets.  Additionally, we had one lessee through our joint venture investments that accounted for 17.2% of total assets. 

(10) Income Taxes
 
We are taxed as a partnership for federal and state income tax purposes. Therefore, no provision for federal and state income taxes has been recorded since the liability for such taxes is the responsibility of each of the individual shareholders rather than our business as a whole. We are potentially subject to UBT, which is imposed on unincorporated trade or business operating in New York City. The UBT is imposed for each taxable year at a rate of 4% of taxable income allocated to New York City. We use the asset and liability method of accounting for the UBT. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when it is determined that it is more likely than not that the deferred tax assets will not be realized.

Deferred tax assets are comprised of the following:

 
 
December 31,
 
 
2017
 
2016
Deferred tax assets:
 
 
 
 
Net operating loss carryforwards
 
$
44,490

 
$
36,715

Valuation allowance
 
(44,490
)
 
(36,715
)
Total net deferred tax assets
 
$

 
$


As of December 31, 2017, the net operating losses from UBT are permitted to carry forward for 20 years and are due to expire at various dates, but no later than 2037.


43

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

(11)  Geographic Information
     
Geographic information for revenue, long-lived assets and other assets deemed relatively illiquid, based on the country of origin, was as follows:
 
Year Ended December 31, 2017
 
North America
 
Vessels (a)
 
Total
Revenue and other income:
 
 
 
 
 
Finance income
$
674,542

 
 
$
53,156

 
 
$
727,698

 
Income from investment in joint ventures
$
96,834

 
 
$
256,176

 
 
$
353,010

 
 
 
 
 
 
 
 
At December 31, 2017
 
North America
 
Vessels (a)
 
Total
Long-lived assets:
 
 
 
 
 
Net investment in notes receivable
$
2,421,407

 
 
$
546,164

 
 
$
2,967,571

 
Investment in joint ventures
$
3,979

 
 
$
2,131,112

 
 
$
2,135,091

 
 (a) Vessels are generally free to trade worldwide.

 
Year Ended December 31, 2016
 
North America
 
Vessels (a)
 
Total
Revenue and other income:
 
 
 
 
 
Finance income
$
617,737

 
 
$
2,487

 
 
$
620,224

 
Income from investment in joint ventures
$
525,957

 
 
$
336,844

 
 
$
862,801

 
 
 
 
 
 
 
 
At December 31, 2016
 
North America
 
Vessels (a)
 
Total
Long-lived assets:
 
 
 
 
 
Net investment in notes receivable
$
2,418,267

 
 
$
581,069

 
 
$
2,999,336

 
Net investment in finance lease
$
3,463,004

 
 
$

 
 
$
3,463,004

 
Investment in joint ventures
$
793,789

 
 
$
2,547,936

 
 
$
3,341,725

 
 (a) Vessels are generally free to trade worldwide.

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

(13) Income Tax Reconciliation (unaudited)

At December 31, 2017 and 2016, shareholders’ capital included in the consolidated financial statements totaled $9,440,748 and $12,293,128, respectively. Shareholders’ capital for federal income tax purposes at December 31, 2017 and 2016 totaled $10,360,636 and $13,005,669, respectively. The difference arises primarily from sales and offering expenses reported as a reduction in shareholders' capital accounts for financial reporting purposes, but not for federal income tax reporting purposes, and differences in taxable loss from joint ventures primarily related to differences in depreciation and amortization, nondeductible impairment loss and taxable income attributable to noncontrolling interests between financial reporting purposes and federal income tax reporting purposes.



44

ICON ECI Fund Sixteen
  (A Delaware Statutory Trust) 
Notes to Consolidated Financial Statements 
December 31, 2017

The following table reconciles net (loss) income attributable to us for financial statement reporting purposes to net loss attributable to us for federal income tax purposes for the years ended December 31, 2017 and 2016:
 
Years Ended December 31,
 
2017
 
2016
Net (loss) income attributable to Fund Sixteen per financial statements
$
(525,117
)
 
$
8,182

Taxable loss from joint ventures
(510,047
)
 
(902,345
)
Impairment loss
595,000

 

Taxable income attributable to noncontrolling interests
105,525

 
250,726

Other
20,493

 
241,244

Net loss attributable to Fund Sixteen for federal income tax purposes
$
(314,146
)
 
$
(402,193
)


45


Item 9.   Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
 
None.  

Item 9A. Controls and Procedures

Evaluation of disclosure controls and procedures

In connection with the preparation of this Annual Report on Form 10-K for the year ended December 31, 2017, our Managing Owner carried out an evaluation, under the supervision and with the participation of the management of our Managing Owner, including its Co-Chief Executive Officers and the Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our Managing Owner’s disclosure controls and procedures as of the end of the period covered by this report pursuant to the Securities Exchange Act of 1934, as amended. Based on the foregoing evaluation, the Co-Chief Executive Officers and the Principal Financial and Accounting Officer concluded that our Managing Owner’s disclosure controls and procedures were effective.

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

Our Managing Owner’s Co-Chief Executive Officers and Principal Financial and Accounting Officer have determined that no weakness in disclosure controls and procedures had any material effect on the accuracy and completeness of our financial reporting and disclosure included in this Annual Report on Form 10-K.

Evaluation of internal control over financial reporting

Our Managing Owner is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our Managing Owner assessed the effectiveness of its internal control over financial reporting as of December 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control - Integrated Framework” as issued in 2013.

Based on its assessment, our Managing Owner believes that, as of December 31, 2017, its internal control over financial reporting is effective.


46


Changes in internal control over financial reporting
     
There were no changes in our Managing Owner’s internal control over financial reporting during the quarter ended December 31, 2017 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Item 9B. Other Information
Not applicable.


47


PART III

Item 10. Directors, Executive Officers of the Registrant's Managing Owner and Corporate Governance

Our Managing Owner

Our Managing Owner was formed as a Delaware limited liability company on January 3, 2013 to act as our managing owner. Its principal office is located at 3 Park Avenue, 36th Floor, New York, New York 10016, and its telephone number is (212) 418-4700. The sole member of our Managing Owner is ICON Capital, LLC, a Delaware limited liability company (“ICON Capital”).

Name
 
Age
 
Title
Michael A. Reisner
 
47
 
Co-Chairman, Co-Chief Executive Officer, Co-President and Director
Mark Gatto
 
45
 
Co-Chairman, Co-Chief Executive Officer, Co-President and Director
Christine H. Yap
 
47
 
Managing Director and Principal Financial and Accounting Officer

Biographical information regarding the officers and directors of our Managing Owner follows the table setting forth information regarding our Investment Manager’s current executive officers and directors.

Our Investment Manager

Our Investment Manager, ICON Capital, was formed in 1985. Our Investment Manager's principal office is located at 3 Park Avenue, 36th Floor, New York, New York 10016, and its telephone number is (212) 418-4700.

In addition to the primary services related to our disposing of investments, our Investment Manager provides services relating to the day-to-day management of our investments. These services include collecting payments due from lessees, borrowers, and other counterparties; remarketing Capital Assets that are off-lease; inspecting Capital Assets; serving as a liaison with lessees, borrowers, and other counterparties; supervising equipment maintenance; and monitoring performance by lessees, borrowers, and other counterparties of their obligations, including payment of contractual payments and all operating expenses.

Name
 
Age
 
Title
Michael A. Reisner
 
47
 
Co-Chairman, Co-Chief Executive Officer, Co-President and Director
Mark Gatto
 
45
 
Co-Chairman, Co-Chief Executive Officer, Co-President and Director
Christine H. Yap
 
47
 
Managing Director and Principal Financial and Accounting Officer

Michael A. Reisner, Co-Chairman, Co-CEO, Co-President and Director, joined ICON Capital in 2001. Prior to purchasing the company in 2008, Mr. Reisner held various positions in the firm, including Executive Vice President and Chief Financial Officer, General Counsel and Executive Vice President of Acquisitions. Before his tenure with ICON Capital, Mr. Reisner was an attorney from 1996 to 2001 with Brodsky Altman & McMahon, LLP in New York, concentrating on commercial transactions. Mr. Reisner received a J.D. from New York Law School and a B.A. from the University of Vermont.

Mark Gatto, Co-Chairman, Co-CEO, Co-President and Director, originally joined ICON Capital in 1999. Prior to purchasing the company in 2008, Mr. Gatto held various positions in the firm, including Executive Vice President and Chief Acquisitions Officer, Executive Vice President - Business Development and Associate General Counsel. Before his tenure with ICON Capital, he was an attorney with Cella & Goldstein in New Jersey, concentrating on commercial transactions and general litigation matters. Additionally, he was Director of Player Licensing for the Topps Company and in 2003, he co-founded a specialty business consulting firm in New York City, where he served as managing partner before re-joining ICON Capital in 2005. Mr. Gatto received an M.B.A. from the W. Paul Stillman School of Business at Seton Hall University, a J.D. from Seton Hall University School of Law, and a B.S. from Montclair State University.

Christine H. Yap, Managing Director and Principal Financial and Accounting Officer, joined ICON Capital in May 2013 as a Senior Director of Accounting and Finance and was promoted to Principal Financial and Accounting Officer in September 2014. Prior to joining ICON Capital, Ms. Yap was previously a Vice President and Fund Controller at W.P. Carey Inc. from October 2011 to December 2012. Prior to W.P. Carey, from June 1997 to October 2011, Ms. Yap was employed

48


by PricewaterhouseCoopers LLP, rising to the level of Director. Ms. Yap received a B.S. in Accounting from Meredith College and an M.S. in Accounting from the University of Rhode Island and is a certified public accountant.

Code of Ethics
Our Investment Manager, on our behalf, has adopted a code of ethics for its Co-Chief Executive Officers and Principal Financial and Accounting Officer. The Code of Ethics is available free of charge by requesting it in writing from our Investment Manager. Our Investment Manager's address is 3 Park Avenue, 36th Floor, New York, New York 10016.

Item 11. Executive Compensation

We have no directors or officers. Our Investment Manager and affiliates were paid or we accrued the following compensation and reimbursement for costs and expenses:
 
 
 
 
 
 
Years Ended December 31,
Entity
 
Capacity
 
Description
 
2017
 
2016
ICON Capital, LLC
 
Investment Manager
 
Management fees (1)
 
$
58,793

 
$
198,086

ICON Capital, LLC
 
Investment Manager
 
Administrative expense
 reimbursements (1)
 
523,972

 
492,784

 
 
 
 
 
 
$
582,765

 
$
690,870

(1) Amount charged directly to operations.

Our Managing Owner has a 1% interest in our profits, losses, distributions and liquidation proceeds. We paid distributions to our Managing Owner of $25,854 and $10,669 for the years ended December 31, 2017 and 2016, respectively. Additionally, our Managing Owner's interest in the net (loss) income attributable to us was $(5,251) and $82 for the years ended December 31, 2017 and 2016, respectively.

Item 12. Security Ownership of Certain Beneficial Owners and the Managing Owner and Related Security Holder Matters

(a)   We do not have any securities authorized for issuance under any equity compensation plan. The following table sets forth, as of March 16, 2018, the beneficial ownership of each person who is known by us to beneficially own 5% or more of the outstanding Shares.
Name of Beneficial Owner
 
Number of Shares Owned Beneficially (1)
 
Percentage (2)
The Saginaw Chippewa Indian Tribe Housing and Land Expendable Trust Fund
 
1,013
 
 
5.8
%
The Saginaw Chippewa Indian Tribe Future Securities Expendable Trust Fund
 
1,013
 
 
5.8
%
Brad Heckenberg IRA
 
937
 
 
5.3
%

(1)     Represents ownership of Class A shares. Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Ownership information for those persons who beneficially own 5% or more of our Shares is solely based upon information furnished by our transfer agent.

(2) Based on a total of 17,599 Shares, consisting of 17,189 Class A and 410 Class I shares, issued and outstanding on March 16, 2018. Class A shares and Class I shares have identical rights and privileges, such as identical voting and distribution rights.

(b)   As of March 16, 2018, no directors or officers of our Managing Owner own any of our equity securities.

(c)   Neither we nor our Managing Owner are aware of any arrangements with respect to our securities, the operation of which may at a subsequent date result in a change of control of us.


49


Item 13. Certain Relationships and Related Transactions, and Director Independence

See “Item 11. Executive Compensation” for a discussion of our related party transactions. See Notes 5 and 7 to our consolidated financial statements for a discussion of our investment in joint ventures and transactions with related parties, respectively.

Because we are not listed on any national securities exchange or inter-dealer quotation system, we have elected to use the Nasdaq Stock Market’s definition of “independent director” in evaluating whether any of our Managing Owner’s directors are independent. Under this definition, the board of directors of our Managing Owner has determined that our Managing Owner does not have any independent directors, nor are we required to have any.

Item 14. Principal Accounting Fees and Services

During the years ended December 31, 2017 and 2016, our auditors provided audit services relating to our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q. Additionally, our auditors provided other services in the form of tax compliance work.

Ernst & Young LLP (“EY”) was our independent registered public accounting firm for 2016 and a portion of 2017. On June 30, 2017, we dismissed EY as our independent registered public accounting firm. On July 6, 2017, we engaged RSM US LLP (“RSM”) as our independent registered public accounting firm for the year ending December 31, 2017. The following table presents the fees for both audit and non-audit services rendered by EY and RSM, as applicable, for the years ended December 31, 2017 and 2016:

Principal Audit Firm - RSM US LLP
December 31,
 
2017
 
2016
Audit fees
$
73,500

 
$

Tax fees

 

 
$
73,500

 
$

 
 
 
 
Predecessor Audit Firm - Ernst & Young LLP
December 31,
 
2017
 
2016
Audit fees
$
42,000

 
$
140,233

Tax fees
53,006

 
50,510

 
$
95,006

 
$
190,743






50


PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) 1.

Financial Statements
 
See index to consolidated financial statements included as Item 8 to this Annual Report on Form 10-K hereof.
2

Financial Statement Schedules
 
Schedules have been omitted because they are not applicable or the information required to be set forth therein is included in the financial statements or notes thereto.
3

Exhibits:
3.1

4.1

10.1

10.2

10.3

31.1

31.2

31.3

32.1

32.2

32.3

101.INS

XBRL Instance Document.
101.SCH

XBRL Taxonomy Extension Schema Document.
101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB

XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.
Item 16. Form 10-K Summary
    
None.


51


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.

ICON ECI Fund Sixteen
(Registrant)

By: ICON MT 16, LLC
(Managing Owner of the Registrant)

March 20, 2018

By:
/s/ Michael A. Reisner
 
Michael A. Reisner
 
Co-Chief Executive Officer and Co-President
 
(Co-Principal Executive Officer)

By:
/s/ Mark Gatto
 
Mark Gatto
 
Co-Chief Executive Officer and Co-President
 
(Co-Principal Executive Officer)

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. 

ICON ECI Fund Sixteen
(Registrant)

By: ICON MT 16, LLC
(Managing Owner of the Registrant)

March 20, 2018

By:
/s/ Michael A. Reisner
 
Michael A. Reisner
 
Co-Chief Executive Officer, Co-President and Director
 
(Co-Principal Executive Officer)

By:
/s/ Mark Gatto
 
Mark Gatto
 
Co-Chief Executive Officer, Co-President and Director
 
(Co-Principal Executive Officer)

By: