UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number |
811-22251 | |||||||
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HATTERAS VC CO-INVESTMENT FUND II, LLC | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
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8540 COLONNADE CENTER DRIVE, SUITE 401 RALEIGH, NORTH CAROLINA |
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27615 | ||||||
(Address of principal executive offices) |
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(Zip code) | ||||||
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DAVID B. PERKINS | ||||||||
(Name and address of agent for service) | ||||||||
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Registrants telephone number, including area code: |
(919) 846-2324 |
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Date of fiscal year end: |
June 30 |
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Date of reporting period: |
December 31, 2013 |
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Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Financial Statements
As of and for the six months ended December 31, 2013
(Unaudited)
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
Table of Contents
Schedule of Investments |
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1-6 |
Statement of Assets, Liabilities and Members Capital |
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7 |
Statement of Operations |
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8 |
Statements of Changes in Members Capital |
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9 |
Statement of Cash Flows |
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10 |
Notes to Financial Statements |
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11-22 |
Board of Managers |
|
23-24 |
Fund Management |
|
25 |
Other Information |
|
26 |
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
SCHEDULE OF INVESTMENTS
December 31, 2013 (Unaudited)
|
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Initial |
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% of |
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|
|
Investment |
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Fair |
|
Members |
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Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Private Company: |
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Consumer: |
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Ooma, Inc. (a),(b) |
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| ||
Palo Alto, California |
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|
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|
| ||
162,287 shares of Series Alpha Preferred Stock |
|
Oct. 2009 |
|
$ |
371,317 |
|
$ |
511,959 |
|
5.50 |
% |
|
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|
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| ||
Sonim Technologies, Inc. (a),(b) |
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San Mateo, California |
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180,208 shares of Series B Preferred Stock |
|
Nov. 2009 |
|
167,180 |
|
269,987 |
|
2.90 |
% | ||
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Sonim Technologies, Inc. (a),(b) |
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San Mateo, California |
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440,312 shares of Series A Preferred Stock |
|
Nov. 2012 |
|
174,794 |
|
439,181 |
|
4.72 |
% | ||
Total Consumer |
|
|
|
713,291 |
|
1,221,127 |
|
13.12 |
% | ||
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Healthcare: |
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Clinipace, Inc. (a),(b) |
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Raleigh, North Carolina |
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|
| ||
3,816,881 shares of Series C Preferred Stock |
|
Sep. 2011 |
|
500,000 |
|
824,408 |
|
8.85 |
% | ||
|
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Information Technology: |
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Stoke, Inc. (a),(b) |
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Santa Clara, California |
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76,453 shares of Series E Preferred Stock |
|
Nov. 2010 |
|
250,001 |
|
139,120 |
|
1.49 |
% | ||
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Medical Technology: |
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Anulex Technologies, Inc. (a),(b) |
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Minnetonka, Minnesota |
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150,000 shares of Series E Preferred Stock |
|
May 2010 |
|
150,000 |
|
39,000 |
|
0.42 |
% | ||
|
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Lineagen, Inc. (b) |
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Salt Lake City, Utah |
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12,000 shares of Common Stock |
|
Nov. 2013 |
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|
|
12,000 |
|
0.13 |
% | ||
(continued)
See notes to financial statements.
ONE
|
|
Initial |
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|
% of |
| ||
|
|
Investment |
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|
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Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Medical Technology (continued): |
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|
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|
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Lineagen, Inc. (b) |
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Salt Lake City, Utah |
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|
|
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|
| ||
336,117 shares of Series B Preferred Stock |
|
Nov. 2013 |
|
$ |
300,000 |
|
$ |
336,117 |
|
3.61 |
% |
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Lineagen, Inc. (b) |
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Salt Lake City, Utah |
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|
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|
| ||
150,000 shares of Series C Preferred Stock |
|
Nov. 2013 |
|
150,000 |
|
150,000 |
|
1.61 |
% | ||
|
|
|
|
|
|
|
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|
| ||
Total Medical Technology |
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|
600,000 |
|
537,117 |
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5.77 |
% | ||
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Semiconductor: |
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GainSpan Corporation (a),(b) |
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San Jose, California |
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|
| ||
312,500 shares of Series C Preferred Stock |
|
Sep. 2011 |
|
250,000 |
|
281,250 |
|
3.02 |
% | ||
|
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|
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| ||
GainSpan Corporation (a),(b) |
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San Jose, California |
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|
| ||
156,292 shares of Series D Preferred Stock |
|
Jun. 2012 |
|
140,663 |
|
140,663 |
|
1.51 |
% | ||
|
|
|
|
|
|
|
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|
| ||
Luxtera, Inc. (a),(b) |
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| ||
Carlsbad, California |
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|
|
|
|
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|
| ||
2,203,210 shares of Series C Preferred Stock |
|
Apr. 2012 |
|
301,413 |
|
|
|
0.00 |
% | ||
|
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| ||
Magnum Semiconductor, Inc. (a),(b) |
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| ||
Milpitas, California |
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|
|
|
|
|
|
|
| ||
134,219 shares of Series E-1 Preferred Stock |
|
Jun. 2010 |
|
161,063 |
|
18,415 |
|
0.20 |
% | ||
|
|
|
|
|
|
|
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|
| ||
Magnum Semiconductor, Inc. (a),(b) |
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| ||
Milpitas, California |
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| ||
Convertible Promissory Note |
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|
|
|
|
|
|
|
| ||
Principal of $2,207, |
|
|
|
|
|
|
|
|
| ||
8.00%,12/31/2015 |
|
Oct. 2013 |
|
2,207 |
|
2,239 |
|
0.02 |
% | ||
(continued)
See notes to financial statements.
TWO
|
|
Initial |
|
|
|
|
|
% of |
| ||
|
|
Investment |
|
|
|
Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Semiconductor (continued): |
|
|
|
|
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| ||
|
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|
| ||
Quantenna Communications, Inc. (a),(b) |
|
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|
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|
| ||
Fremont, California |
|
|
|
|
|
|
|
|
| ||
1,893,223 shares of Series D Preferred Stock |
|
Apr. 2010 |
|
$ |
150,000 |
|
$ |
150,000 |
|
1.61 |
% |
|
|
|
|
|
|
|
|
|
| ||
Quantenna Communications, Inc. (a),(b) |
|
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|
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|
| ||
Fremont, California |
|
|
|
|
|
|
|
|
| ||
673,734 shares of Series E Preferred Stock |
|
Oct. 2010 |
|
75,000 |
|
75,000 |
|
0.81 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Quantenna Communications, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
Fremont, California |
|
|
|
|
|
|
|
|
| ||
256,158 shares of Series F-1 Preferred Stock |
|
Nov. 2011 |
|
39,084 |
|
39,665 |
|
0.43 |
% | ||
Total Semiconductor |
|
|
|
1,119,430 |
|
707,232 |
|
7.60 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Software: |
|
|
|
|
|
|
|
|
| ||
|
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|
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|
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|
| ||
Clustrix, Inc. (a),(b) |
|
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|
| ||
San Francisco, California |
|
|
|
|
|
|
|
|
| ||
9,667 shares of Common Stock |
|
Dec. 2010 |
|
250,001 |
|
9,667 |
|
0.10 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
KnowledgeTree, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
Raleigh, North Carolina |
|
|
|
|
|
|
|
|
| ||
59,695 shares of Series B Preferred Stock |
|
Jun. 2012 |
|
250,002 |
|
250,002 |
|
2.68 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (a),(b) |
|
|
|
|
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|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
45,670 shares of Common Stock |
|
Jan. 2012 |
|
|
|
22,264 |
|
0.24 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
333,334 shares of Series B Preferred Stock |
|
Jul. 2010 |
|
250,001 |
|
130,000 |
|
1.40 |
% | ||
(continued)
See notes to financial statements.
THREE
|
|
Initial |
|
|
|
|
|
% of |
| ||
|
|
Investment |
|
|
|
Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Software (continued): |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
234,522 shares of Series C Preferred Stock |
|
Jan. 2012 |
|
$ |
91,463 |
|
$ |
114,329 |
|
1.23 |
% |
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $32,847 |
|
|
|
|
|
|
|
|
| ||
8.00%, 12/31/2013 |
|
Mar. 2013 |
|
32,847 |
|
36,964 |
|
0.40 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $16,423 |
|
|
|
|
|
|
|
|
| ||
8.00%, 12/31/2013 |
|
Apr. 2013 |
|
16,423 |
|
18,219 |
|
0.20 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Kontiki, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
Sunnyvale, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $41,059 |
|
|
|
|
|
|
|
|
| ||
8.00%, 12/31/2013 |
|
Jun. 2013 |
|
41,059 |
|
42,854 |
|
0.46 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Posit Science Corporation (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Francisco, California |
|
|
|
|
|
|
|
|
| ||
2,415,460 shares of Common Stock |
|
Dec. 2009 |
|
200,000 |
|
59,848 |
|
0.64 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Posit Science Corporation (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Francisco, California |
|
|
|
|
|
|
|
|
| ||
642,85 shares of Series AA Preferred Stock |
|
Sep. 2010 |
|
11,893 |
|
15,928 |
|
0.17 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Sailthru, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
New York, New York |
|
|
|
|
|
|
|
|
| ||
171,141 shares of Series A Preferred Stock |
|
Sep. 2011 |
|
299,999 |
|
801,248 |
|
8.61 |
% | ||
(continued)
See notes to financial statements.
FOUR
|
|
Initial |
|
|
|
|
|
% of |
| ||
|
|
Investment |
|
|
|
Fair |
|
Members |
| ||
Description of Investment |
|
Date |
|
Cost |
|
Value |
|
Capital |
| ||
Software (continued): |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
278,500 shares of Series BB Preferred Stock |
|
Dec. 2009 |
|
$ |
150,000 |
|
$ |
363,657 |
|
3.91 |
% |
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
579,375 shares of Series CC Preferred Stock |
|
Feb. 2011 |
|
350,000 |
|
794,480 |
|
8.53 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (a),(b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
73,119 shares of Series DD Preferred Stock |
|
Dec. 2011 |
|
68,000 |
|
124,095 |
|
1.33 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
SugarSync, Inc. (b) |
|
|
|
|
|
|
|
|
| ||
San Mateo, California |
|
|
|
|
|
|
|
|
| ||
Convertible Promissory Note |
|
|
|
|
|
|
|
|
| ||
Principal of $127,400, |
|
|
|
|
|
|
|
|
| ||
4.00%, 11/15/2013 |
|
May 2013 |
|
127,400 |
|
130,588 |
|
1.40 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Univa Corporation (a),(b) |
|
|
|
|
|
|
|
|
| ||
Austin, Texas |
|
|
|
|
|
|
|
|
| ||
939,541 shares of Series I Preferred Stock |
|
Oct. 2010 |
|
432,114 |
|
536,738 |
|
5.77 |
% | ||
Total Software |
|
|
|
2,571,202 |
|
3,450,881 |
|
37.07 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total Private Company |
|
|
|
5,753,924 |
|
6,879,885 |
|
73.90 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Short-Term Investments: |
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
| ||
Federated Prime Obligations Fund #10, 0. 02% (c) |
|
|
|
2,450,781 |
|
2,450,781 |
|
26.33 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total Short-Term Investments |
|
|
|
2,450,781 |
|
2,450,781 |
|
26.33 |
% | ||
|
|
|
|
|
|
|
|
|
| ||
Total Investments (United States) |
|
|
|
$ |
8,204,705 |
|
$ |
9,330,666 |
|
100.23 |
% |
|
|
|
|
|
|
|
|
|
| ||
Liabilities in Excess of Other Assets |
|
|
|
|
|
(21,165 |
) |
(0.23 |
)% | ||
|
|
|
|
|
|
|
|
|
| ||
Members Capital |
|
|
|
|
|
$ |
9,309,501 |
|
100.00 |
% |
(continued)
See notes to financial statements.
FIVE
(a) Non-income producing.
(b) Portfolio holdings are subject to substantial restrictions as to resale.
(c) The rate shown is the annualized 7-day yield as of December 31, 2013.
The cost and fair value of restricted Private Company Investments are $5,753,924 and $6,879,885 respectively.
INVESTMENT TYPE AS A PERCENTAGE OF MEMBERS CAPITAL PERCENTAGES AS FOLLOWS:
See notes to financial statements.
SIX
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF ASSETS, LIABILITIES AND MEMBERS CAPITAL
December 31, 2013
(Unaudited)
Assets |
|
|
| |
Investments in private companies, at fair value (cost $5,753,924) |
|
$ |
6,879,885 |
|
Short-term investments, at fair value (cost $2,450,781) |
|
2,450,781 |
| |
Receivable for investment sold |
|
57,915 |
| |
Interest receivable |
|
47 |
| |
Total assets |
|
$ |
9,388,628 |
|
Liabilities and members capital |
|
|
| |
Management fee payable |
|
$ |
37,895 |
|
Professional fees payable |
|
30,000 |
| |
Accounting and administration fees payable |
|
10,000 |
| |
Custodian fees payable |
|
1,232 |
| |
Total liabilities |
|
79,127 |
| |
|
|
|
| |
Members capital |
|
9,309,501 |
| |
Total liabilities and members capital |
|
$ |
9,388,628 |
|
|
|
|
| |
Components of members capital: |
|
|
| |
Capital contributions |
|
$ |
10,514,912 |
|
Accumulated net investment loss |
|
(1,713,537 |
) | |
Accumulated net realized loss on investments |
|
(617,835 |
) | |
Accumulated net unrealized appreciation on investments |
|
1,125,961 |
| |
Members capital |
|
$ |
9,309,501 |
|
|
|
|
| |
Net asset value per unit |
|
$ |
81.18 |
|
Number of authorized units |
|
Unlimited |
| |
Number of outstanding units |
|
114,678.93 |
|
See notes to financial statements.
SEVEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF OPERATIONS
For the six months ended December 31, 2013
(Unaudited)
Investment income |
|
|
| |
Interest |
|
$ |
425 |
|
Total investment income |
|
425 |
| |
Operating expenses |
|
|
| |
Management fee |
|
93,360 |
| |
Professional fees |
|
37,461 |
| |
Accounting and administration fees |
|
20,000 |
| |
Managers fees |
|
17,500 |
| |
Custodian fees |
|
5,400 |
| |
Other expenses |
|
2,773 |
| |
Total operating expenses, before management fee waiver |
|
176,494 |
| |
|
|
|
| |
Management fee waived |
|
11,177 |
| |
Net expenses |
|
165,317 |
| |
|
|
|
| |
Net investment loss |
|
(164,892 |
) | |
Net change in unrealized appreciation on investments |
|
|
| |
Net unrealized appreciation on investments |
|
1,585,452 |
| |
Net change in unrealized appreciation on investments |
|
1,585,452 |
| |
Net increase in members capital resulting from operations |
|
$ |
1,420,560 |
|
See notes to financial statements.
EIGHT
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENTS OF CHANGES IN MEMBERS CAPITAL
For the six months ended December 31, 2013(Unaudited)
And for the period from September 1, 2012 to June 30, 2013(Audited)
|
|
Members |
| |
Members capital, at August 31, 2012 |
|
$ |
9,930,054 |
|
Net investment loss |
|
(296,552 |
) | |
Net realized loss on investments in private companies |
|
(617,835 |
) | |
Net change in unrealized depreciation on investments in private companies |
|
(1,126,726 |
) | |
Members capital, at June 30, 2013 |
|
$ |
7,888,941 |
|
Net investment loss |
|
(164,892 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
1,585,452 |
| |
Members capital, at December 31, 2013 |
|
$ |
9,309,501 |
|
See notes to financial statements.
NINE
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
STATEMENT OF CASH FLOWS
For the six months ended December 31, 2013
(Unaudited)
Cash flows from operating activities: |
|
|
| |
Net increase in members capital resulting from operations |
|
$ |
1,420,560 |
|
Adjustments to reconcile net increase in members capital resulting from operations to net cash used in operating activities: |
|
|
| |
Purchases of investments |
|
(152,207 |
) | |
Net proceeds on sale of short-term investments |
|
285,767 |
| |
Net change in unrealized appreciation on investments in private companies |
|
(1,585,452 |
) | |
Decrease in receivable for investment sold |
|
57,914 |
| |
Decrease in interest receivable |
|
60 |
| |
Decrease in management fee payable |
|
(1,748 |
) | |
Decrease in professional fees payable |
|
(24,387 |
) | |
Decrease in custodian fees payable |
|
(507 |
) | |
Net cash used in operating activities |
|
|
| |
|
|
|
| |
Net change in cash |
|
|
| |
|
|
|
| |
Cash at beginning of period |
|
|
| |
Cash at end of period |
|
$ |
|
|
See notes to financial statements.
TEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited)
1. ORGANIZATION
Hatteras VC Co-Investment Fund II, LLC (the Fund) was organized as a limited liability company under the laws of the State of Delaware on November 7, 2008 and commenced operations on September 1, 2009. The Fund is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end, non-diversified management investment company. The Fund is managed by Hatteras Capital Investment Management, LLC (the Adviser), an investment adviser registered with the Securities and Exchange Commission (the SEC) under the Investment Advisers Act of 1940, as amended. The Funds placement agent, an affiliate of the Adviser, is Hatteras Capital Distributors, LLC. The Fund had an initial closing on September 1, 2009 (Initial Closing) and a final closing August 31, 2010 (Final Closing), as determined by the Board of Managers (the Board) of the Fund. The Funds investment period (the Investment Period) is three years following the Initial Closing of the Fund. The Fund will continue until the date that is six years from the date of the Initial Closing, unless terminated earlier pursuant to applicable terms of the Funds limited liability company agreement (LLC Agreement). The term may be extended for two one-year periods at the discretion of the Board.
The Board has overall responsibility for the management and supervision of the business operations of the Fund on behalf of the members of the Fund (Members), subject to the laws of the State of Delaware and the Funds LLC Agreement, including authority to oversee and establish policies regarding the management, conduct and operation of the Funds business. The Funds investment objective is to seek superior risk-adjusted returns by investing in venture-backed companies. The Fund intends to achieve its investment objective by investing all or substantially all of its assets in venture-backed companies alongside of top-tier venture capital firms.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting and reporting policies used in preparing the financial statements.
a. Basis of Accounting
The Funds accounting and reporting policies conform to accounting principles generally accepted within the United States of America (U.S. GAAP).
b. Cash
Cash, if any, includes short-term interest bearing deposit accounts. At times, such deposits may be in excess of federally insured limits. The Fund has not experienced any losses in such accounts and does not believe it is exposed to significant credit risk on such accounts. At December 31, 2013, the Fund held no cash balances in deposit accounts.
ELEVEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments
All portfolio investments are recorded at fair value in accordance with the Funds valuation procedures. The Funds valuation procedures have been approved by and are subject to continued oversight by the Funds Board. The valuation procedures are implemented by the Adviser and the Funds third-party administrator, which report to the Board. For third-party information, the Funds administrator monitors and reviews the methodologies of the various pricing services employed by the Fund.
Investments in Private Companies Investments for which observable market prices in active markets do not exist are reported at fair value, as determined in good faith by the Adviser. Fair value is based on the best information available and is determined by reference to information including, but not limited to, the following: projected sales, net earnings, earnings before interest, taxes, depreciation and amortization (EBITDA), balance sheets, public or private transactions, valuations for publicly traded comparable companies, recent rounds of financing in the companys stock, and/or other measures, and consideration of any other pertinent information including the types of securities held and restrictions on disposition. The amount determined to be fair value may incorporate the Advisers own assumptions (including appropriate risk adjustments for nonperformance and/or lack of marketability). The methods used to estimate the fair value of private companies include: (1) the market approach (whereby fair value is derived by reference to observable valuation measures for comparable companies or assets e.g., multiplying a key performance metric of the investee company or asset, such as projected revenue or EBITDA, by a relevant valuation multiple observed in the range of comparable companies or transactions adjusted by the Adviser for differences between the investment and the referenced comparables and in some instances by reference to option pricing models or other similar methods), (2) the income approach (e.g., the discounted cash flow method), and (3) cost for a period of time after an acquisition (where such amount is determined by the Adviser to be the best indicator of fair value), and (4) based upon a recent round of financing, which usually includes referencing recent or pending transactions in the same or similar securities of the issuer. These valuation methodologies involve a significant degree of judgment. These valuation methodologies involve a significant degree of judgment. Due to the absence of readily determinable fair values and the inherent uncertainty of valuations, the estimated fair values for private companies may differ significantly from values that would have been used had a ready market for the securities existed, and the differences could be material.
Short-Term Investments - During period from July 1, 2013 to December 31, 2013, the Fund held its short-term investment in the Federated Prime Obligation Fund #10, an open-ended money market fund (the MMF) incorporated in the United States of America. The MMFs objective is to seek and provide current income consistent with the stability of principal. The MMF invests in a portfolio of short-term, high-quality, fixed income securities
TWELVE
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (CONTINUED)
issued by banks, corporations and the U.S. government. The MMF held by the Fund seeks to preserve a net asset value of $1.00 per share. The MMF is valued at a yield-adjusted net asset value per share, which is currently equal to $1.00 per share as represented on one or more of the U.S. national securities exchanges.
The Fund classifies its assets into three levels based on the lowest level of input that is significant to the fair value measurement. The three-tier hierarchy distinguishes between (1) inputs that reflect the assumptions market participants would use in pricing an asset or liability developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) inputs that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing an asset or liability developed based on the best information available in the circumstances (unobservable inputs) and to establish classification of fair value measurements for disclosure purposes. Various inputs are used in determining the value of the Funds investments.
The inputs are summarized in the three broad levels listed below:
Valuation of Investments
· Level 1 quoted prices (unadjusted) in active markets for identical assets and liabilities
· Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
· Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
The following table presents the Funds fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2013:
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
Private Company(1) |
|
|
|
|
|
|
|
|
| ||||
Convertible Promissory Notes |
|
$ |
|
|
$ |
|
|
$ |
230,864 |
|
$ |
230,864 |
|
Preferred Stock |
|
|
|
|
|
6,545,242 |
|
6,545,242 |
| ||||
Common Stock |
|
|
|
|
|
103,779 |
|
103,779 |
| ||||
Total Private Company |
|
|
|
|
|
6,879,885 |
|
6,879,885 |
| ||||
Short-Term Investments |
|
2,450,781 |
|
|
|
|
|
2,450,781 |
| ||||
Total |
|
$ |
2,450,781 |
|
$ |
- |
|
$ |
6,879,885 |
|
$ |
9,330,666 |
|
(1) All private companies held in the Fund are Level 3 securities. For a detailed break-out of private companies by industry classification, please refer to the Schedule of Investments.
THIRTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (CONTINUED)
There were no transfers among Levels 1, 2 and 3 during the six months ended December 31, 2013. Should a transfer between Levels occur, the Fund would recognize the transfer at the beginning of the reporting period following the actual date of the event or change in circumstance that caused the transfer.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
|
|
Convertible |
|
Preferred Stock |
|
Common Stock |
|
Total |
| ||||
Balance as of July 1, 2013 |
|
$ |
219,413 |
|
$ |
4,879,855 |
|
$ |
42,958 |
|
$ |
5,142,226 |
|
Net Realized Gain (Loss) |
|
|
|
|
|
|
|
|
| ||||
Change in Unrealized Appreciation/(Depreciation) |
|
9,244 |
|
1,525,054 |
|
51,154 |
|
1,585,452 |
| ||||
Transfers In/(Out)* |
|
|
|
(9,667 |
) |
9,667 |
|
|
| ||||
Gross Purchases |
|
2,207 |
|
150,000 |
|
|
|
152,207 |
| ||||
Gross Sales |
|
|
|
|
|
|
|
|
| ||||
Balance as of December 31, 2013 |
|
$ |
230,864 |
|
$ |
6,545,242 |
|
$ |
103,779 |
|
$ |
6,879,885 |
|
*Transfers in or out reflect changes in investment categories and are represented by their balance at the beginning of the period.
Change in unrealized appreciation included in the statement of operations attributable to Level 3 investments held as of the reporting date is $1,723,719.
The following is a summary of quantitative information about significant unobservable inputs used for Level 3 fair value measurements for investments held as of December 31, 2013:
Type of Investment |
|
Fair Value |
|
Valuation Technique |
|
Unobservable Input |
|
Weighted |
|
Range |
|
Impact to |
| |
Convertible Promissory Notes |
|
$ |
230,864 |
|
Most Recent Capitalization |
|
Private Financing |
|
N/A |
|
N/A |
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Preferred Stock |
|
3,478,225 |
|
Market Comparable Companies |
|
Forward Revenue Multiple |
|
3.9x |
|
1.5x - 6.5x |
|
Increase |
| |
|
|
|
|
|
|
Discount Rate |
|
27 |
% |
15% - 50% |
|
Decrease |
| |
|
|
3,028,017 |
|
Most Recent Capitalization |
|
Private Financing |
|
N/A |
|
N/A |
|
N/A |
| |
|
|
39,000 |
|
Liquidating Value |
|
Private Financing |
|
N/A |
|
N/A |
|
N/A |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Common Stock |
|
59,848 |
|
Market Comparable Companies |
|
Forward Revenue Multiple |
|
3.4x |
|
3.4x |
|
Increase |
| |
|
|
|
|
|
|
Discount Rate |
|
15 |
% |
15% |
|
Decrease |
| |
|
|
43,931 |
|
Most Recent Capitalization |
|
Private Financing |
|
N/A |
|
N/A |
|
N/A |
| |
Total Private Company |
|
$ |
6,879,885 |
|
|
|
|
|
|
|
|
|
|
|
FOURTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. Valuation of Portfolio Investments (CONTINUED)
Investments in private companies are generally valued using most recent capitalization technique and market comparable companies techniques. The significant unobservable input used in the most recent capitalization technique is private financing. Two significant unobservable inputs used in the market comparable companies technique is the particular type of market multiple relied upon and a discount rate. Different types of multiples (e.g., forward revenue multiple) are relied upon across the Funds portfolio. A significant decrease in one of these multiples in isolation would result in a significantly lower fair value measurement. A significant increase in the discount rate in isolation would result in a significantly lower fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Funds bridge financing notes and the convertible promissory notes are the likelihood that cash flows or shares will not be received in the future. Significant increases in the probability of default for these securities would result in a lower fair value measurement. The significant unobservable inputs used in the fair value measurement of the Funds preferred and common stock are generally the financial results of privately held entities. If the financial condition of these companies were to deteriorate, or if market comparables were to fall, the value of the preferred stock or common stock in these private companies held by the Fund would be lower.
d. Investment Income
Interest income is recorded when earned. Interest income is not recognized when collection is doubtful, but instead, such amounts are tracked in a memorandum account. At December 31, 2013, all interest was deemed collectable. Disbursements received from investments in private companies are ordinarily accounted for as a reduction of cost, or allocated between cost and realized gains and losses dependent upon information received from the private company. Investments in short-term investments are recorded on a trade-date basis. Investments in private companies are recorded on a subscription effective date basis. Realized gains and losses are determined on a specific identified cost basis.
e. Fund Expenses
Fund expenses that are specifically attributed to the Fund are charged to the Fund and recorded on an accrual basis. Expenses of the Fund include, but are not limited to, the following: all costs and expenses related to portfolio transactions, legal fees, accounting, auditing, and tax preparation fees, custodial fees, fees for data and software providers, costs of insurance, registration expenses, management fee, and expenses of meetings of the Board.
FIFTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f. Income Taxes
The Fund is treated as a partnership for federal income tax purposes and therefore is not subject to U.S. federal income tax. For income tax purposes, the individual Members will be taxed upon their distributive share of each item of the Funds profit and loss.
The Fund has reviewed any potential tax positions as of December 31, 2013 and has determined that it does not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statement of operations. During the six months ended December 31, 2013, the Fund did not incur any interest or penalties. The Fund files income tax returns in U.S. federal jurisdictions and various states, which remain open for examination by the tax authorities for a period of three years from when they are filed. The tax years subject to evaluation by tax authorities are 2010 to 2013.
g. Distributions
The Fund may make distributions to Members at least annually, or more frequently, at the Funds discretion, as permitted by applicable laws, rules and regulations. Amounts distributed will be intended to represent the amounts of distributions received by the Fund from underlying investments during the period since the last distribution (or from commencement of operations in the case of the first distribution). Any distributions to Members will be made pro-rata.
h. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Fund to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in Members capital from operations during the reporting period. Actual results could differ from those estimates.
i. Recent Accounting Pronouncement
In June 2013, FASB issued ASU No. 2013-08, Financial Services Investment Companies (Topic 946): Amendments to the Scope, Measurements and Disclosure Requirements (ASU 2013-08). ASU 2013-08 creates a two-tiered approach to assess whether an entity is an investment company. The guidance will also require an investment company to measure noncontrolling ownership interests in other investment companies at fair value and will require additional disclosures relating to investment company status, any changes thereto and information about financial support provided or contractually required to be provided to any of the investment companys investees.
SIXTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
i. Recent Accounting Pronouncement (CONTINUED)
interim periods within those fiscal years. Management is evaluating the impact of this guidance on the Funds financial statement disclosures.
3. MANAGEMENT FEE AND RELATED PARTY TRANSACTIONS
The Adviser is responsible for providing day-to-day investment management services to the Fund, subject to the ultimate supervision of and subject to any policies established by the Board, pursuant to the terms of an investment management agreement with the Fund (the Investment Management Agreement). Under the Investment Management Agreement, the Adviser is responsible for developing, implementing and supervising the Funds investment program.
In consideration for such services, the Fund pays the Adviser a quarterly investment management fee equal to 2.00% on an annualized basis of the net assets of the Fund as of each quarter-end. The Adviser has committed to waive permanently a portion of its contractual fee rate under the Investment Management Agreement as of the end of any quarter at which (or month-end during the period from the Initial Closing to the Final Closing) the cost basis of the Funds portfolio companies plus cash and cash equivalents, including short-term investments, is less than the Funds net asset value (NAV) as of such quarter-end (or month-end during the period from the Initial Closing to the Final Closing). When this occurs, the Adviser will waive the portion of its management fee that is in excess of the annual rate equal to 2.00% of the cost basis of the Funds portfolio companies plus cash and cash equivalents, including short-term investments. The management fee for the six months ended December 31, 2013 was $93,360. For the six months ended December 31, 2013, the Adviser waived $11,177 of the management fee.
Each member of the Board who is not an interested person of the Fund, as defined by Section 2(a)(19) of the 1940 Act (each an Independent Manager), receives an annual retainer of $5,000 from the Fund for services on the Board and for services as a member of the audit committee of the Fund. All Board members are reimbursed by the Fund for all reasonable out-of-pocket expenses incurred by them in performing their duties. For the six months ended December 31, 2013, retainers to the Independent Managers totaled $17,500 and are included in the statement of operations under Managers fees.
On October 1, 2013, RCS Capital Corporation (the Company) and Scotland Acquisition, LLC, a newly formed wholly-owned subsidiary of RCS Advisory Services, LLC, which is an operating subsidiary of the Company, entered into an asset purchase agreement with certain principals of the Adviser (the Sellers) and David Perkins, as the Sellers representative. The purchase will result in a change in control of the Adviser and, therefore, constitute an assignment within the meaning of the 1940 Act of the existing advisory agreement between the Adviser and the Fund. The purchase is expected to close on March 31, 2014.
SEVENTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
4. ACCOUNTING, ADMINISTRATION, AND CUSTODIAL AGREEMENT
In consideration for accounting, administrative, and recordkeeping services, the Fund pays J.D. Clark & Company, a division of UMB Fund Services, Inc. (the Administrator) a monthly administration fee based on the month-end net asset value of the Fund. The Administrator also provides regulatory administrative services, transfer agency functions, and Member services at an additional cost. For the six months ended December 31, 2013, the total accounting and administration fee was $20,000, and is included in the statement of operations under accounting and administration fees. UMB Bank, n.a., an affiliate of the Administrator, serves as custodian of the Funds assets and provides custodial services for the Fund.
5. INVESTMENT TRANSACTIONS
Total purchases of investments in private companies for the six months ended December 31, 2013 amounted to $152,207. There were no sales of investments in private companies for the six months ended December 31, 2013. The cost of investments in private companies for U.S. federal income tax purposes is adjusted for items of taxable income allocated to the Fund from the investments in private companies. The Fund relies upon actual and estimated tax information provided by the private companies in which it invests as to the amounts of taxable income allocated to the Fund as of December 31, 2013.
The Fund intends to invest substantially all of its available capital in private companies. These investments will generally be restricted securities that are subject to substantial holding periods or are not traded in public markets at all, so that the Fund may not be able to resell some of its securities holdings for extended periods.
6. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that provide general indemnifications. The Funds maximum exposure under these agreements is dependent on future claims that may be made against the Fund, and therefore cannot be established; however, based on experience, the risk of loss from such claims is considered remote.
7. COMMITMENTS
As of December 31, 2013, the Fund did not have any outstanding investment commitments to private companies.
EIGHTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
8. RISK FACTORS
An investment in the Fund involves significant risks, including liquidity risk, non-diversification risk and economic conditions risk, that should be carefully considered prior to investing and should only be considered by persons financially able to maintain their investment and who can afford a loss of a substantial part or all of such investment.
Liquidity risk: Transfer of the units of limited liability company interests (Units) of the Fund is subject to significant restrictions. Because of these restrictions and the absence of a public market for the Units, a Member may be unable to liquidate his, her or its investment even though his, her or its personal financial circumstances would make liquidation advisable or desirable. The Units will not be readily acceptable as collateral for loans and the Units are not permitted to be pledged as collateral for loans. Moreover, even if a Member were able to dispose of his, her or its Units, adverse tax consequences could result.
Non-diversification risk: If there is an industry in which the Fund concentrates its investments, the Fund may be subject to greater investment risk as companies engaged in similar businesses are more likely to be similarly affected by any adverse market conditions and other adverse industry-specific factors.
Economic risk: The Funds investments expose Members to a range of potential economic risks that could have an adverse effect on the Fund. These may include, but are not limited to, declines in economic growth, inflation, deflation, taxation, governmental restrictions, and/or adverse regulation.
9. FINANCIAL HIGHLIGHTS
The financial highlights are intended to help an investor understand the Funds financial performance for past periods. The total return in the table represents the rate that a typical Member would be expected to have earned or lost on an investment in the Fund.
The ratios and total return amount are calculated based on the Member group taken as a whole. An individual Members results may vary from those shown below due to the timing of capital transactions.
The ratios are calculated by dividing total dollars of net investment income/(loss) or expenses, as applicable, by the average of total monthly Members capital. The total return amount is calculated by geometrically linking returns based on the change in the net asset value during each accounting period.
NINTEEN
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
9. FINANCIAL HIGHLIGHTS (CONTINUED)
Per Unit Operating Performance:
Net Asset Value, September 1, 2009 |
|
$ |
100.00 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(4.81 |
) | |
Net change in unrealized depreciation on investments in private companies |
|
(7.28 |
) | |
Total from investment operations |
|
(12.09 |
) | |
Net Asset Value, August 31, 2010 |
|
$ |
87.91 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(3.36 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
2.00 |
| |
Total from investment operations |
|
(1.36 |
) | |
Net Asset Value, August 31, 2011 |
|
$ |
86.55 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(2.78 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
2.82 |
| |
Total from investment operations |
|
0.04 |
| |
Net Asset Value, August 31, 2012 |
|
$ |
86.59 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(2.59 |
) | |
Net realized loss and change in unrealized depreciation on investments in private companies |
|
(15.21 |
) | |
Total from investment operations |
|
(17.80 |
) | |
Net Asset Value, June 30, 2013 |
|
$ |
68.79 |
|
Income/(loss) from investment operations: |
|
|
| |
Net investment loss |
|
(1.44 |
) | |
Net change in unrealized appreciation on investments in private companies |
|
13.83 |
| |
Total from investment operations |
|
12.39 |
| |
Net Asset Value, December 31, 2013 |
|
$ |
81.18 |
|
TWENTY
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONTINUED)
9. FINANCIAL HIGHLIGHTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
For the period |
| |||||
|
|
|
|
|
|
|
|
|
|
from |
| |||||
|
|
|
|
|
|
|
|
|
|
September 1, |
| |||||
|
|
|
|
For the |
|
|
|
|
|
2009 |
| |||||
|
|
For the six |
|
period from |
|
|
|
|
|
(commencement |
| |||||
|
|
months ended |
|
September 1, |
|
For the years ended |
|
of operations) |
| |||||||
|
|
December 31, |
|
2012 to June |
|
August 31, |
|
to August 31, |
| |||||||
|
|
2013 |
|
30, 2013* |
|
2012 |
|
2011 |
|
2010 |
| |||||
Total return (1) |
|
18.01 |
%(3) |
(20.56 |
)%(3) |
0.05 |
% |
(1.55 |
)% |
(12.09 |
)% | |||||
Members capital, end of period (000s) |
|
$ |
9,310 |
|
$ |
7,889 |
|
$ |
9,930 |
|
$ |
9,925 |
|
$ |
10,081 |
|
Portfolio turnover |
|
0.00 |
%(3) |
0.00 |
%(3) |
8.00 |
% |
0.00 |
% |
0.00 |
% | |||||
Net investment loss: |
|
|
|
|
|
|
|
|
|
|
| |||||
Before reimbursement of placement agent fees |
|
(3.80 |
)%(4) |
(3.58 |
)%(4) |
(3.15 |
)% |
(3.84 |
)% |
(13.76 |
)% | |||||
After reimbursement of placement agent fees |
|
(3.80 |
)%(4) |
(3.58 |
)%(4) |
(3.15 |
)% |
(3.84 |
)% |
(13.34 |
)% | |||||
Total expenses (2): |
|
|
|
|
|
|
|
|
|
|
| |||||
Before reimbursement of placement agent fees |
|
3.81 |
%(4) |
3.62 |
%(4) |
3.29 |
% |
3.94 |
% |
13.92 |
% | |||||
After reimbursement of placement agent fees |
|
3.81 |
%(4) |
3.62 |
%(4) |
3.29 |
% |
3.94 |
% |
13.50 |
% | |||||
* At a Board meeting held on August 23, 2012, the Board approved the change in fiscal year-end for the Fund from August 31 to the June 30 effective as of the end of the fiscal year ended August 31, 2012.
(1) Internal rate of return since inception: As of December 31, 2013 was (4.70)%; As of June 30, 2013 was (9.30)%; As of August 31, 2012 was (4.69)%; As of August 31, 2011 was (6.97)%.
(2) Total expenses before and after waiver of the management fee for the period from July 1, 2013 to December 31, 2013 were 4.06% and 3.81%, respectively. Total expenses before and after waiver of the management fee for the period from September 1, 2012 to June 30, 2013 were 3.78% and 3.62%, respectively. Total expenses before and after waiver of the management fee for the year ended August 31, 2012 were 3.46% and 3.29%, respectively. Total expenses before and after waiver of the management fee for the period from September 1, 2010 to August 31, 2011 were 3.98% and 3.94%, respectively. There was no management fee waived for the period from September 1, 2009 (commencement of operations) to August 31, 2010.
(3) Not annualized.
(4) Annualized.
TWENTY-ONE
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
NOTES TO FINANCIAL STATEMENTS
As of and for the six months ended December 31, 2013
(Unaudited) (CONCLUDED)
10. SUBSEQUENT EVENTS
The Fund has evaluated subsequent events through the date the financial statements were issued, and determined there were no subsequent events that required disclosure in or adjustment to the financial statements.
TWENTY-TWO
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
BOARD OF MANAGERS
(Unaudited)
The identity of the Board members (each a Manager) and brief biographical information, as of December 31, 2013, is set forth below. The business address of each Manager is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615. The Managers serve on the Board for terms of indefinite duration. A Managers position in that capacity will terminate if the Manager is removed or resigns or, among other events, upon the Managers death, incapacity, retirement or bankruptcy. The Funds Statement of Additional Information includes additional information about the Managers and may be obtained without charge by calling Hatteras at 1-866-388-6292.
Name & |
|
Position(s) |
|
Length of |
|
Principal Occupation(s) During Past |
|
Number of |
INTERESTED MANAGER | ||||||||
David B. Perkins(2) July 18, 1962 |
|
President and Chairman of the Board of Managers |
|
Since Inception |
|
Mr. Perkins has been Chairman of the Board of Directors and President of the Fund since inception. Mr. Perkins is the Chief Executive Officer of Hatteras and its affiliated entities. He founded the firm in September 2003. Prior to that, he was the co-founder and Managing Partner of CapFinancial Partners, LLC. |
|
18 |
INDEPENDENT MANAGERS | ||||||||
H. Alexander Holmes May 4, 1942 |
|
Manager; Audit Committee Member |
|
Since Inception |
|
Mr. Holmes founded Holmes Advisory Services, LLC, a financial consultation firm, in 1993. |
|
18 |
Steve E. Moss, CPA February 18, 1953 |
|
Manager; Audit Committee Member |
|
Since Inception |
|
Mr. Moss is a principal of Holden, Moss, Knott, Clark & Copley, P.A. and has been a member manager of HMKCT Properties, LLC since January 1996. |
|
18 |
Gregory S. Sellers May 5, 1959 |
|
Manager; Audit Committee Member |
|
Since Inception |
|
Mr. Sellers has been the Chief Financial Officer of Imagemark Business Services, Inc., a strategic communications provider of marketing and print communications solutions, since June 2009. From 2003 to June 2009, Mr. Sellers was the Chief Financial Officer and a director of Kings Plush, Inc., a fabric manufacturer. |
|
18 |
(1) The Fund Complex consists of the Fund, Hatteras Master Fund, L.P., Hatteras Core Alternatives Fund, L.P., Hatteras Core Alternatives TEI Fund, L.P., Hatteras Core Alternatives Institutional Fund, L.P., Hatteras Core Alternatives TEI Institutional Fund, L.P., Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund II, LLC, Hatteras Alternative Mutual Funds Trust (consisting of five funds), and Underlying Funds Trust (consisting of five funds).
(2) Mr. Perkins is deemed to be an interested Manager of the Fund because of his affiliations with the Adviser.
TWENTY-THREE
Name & |
|
Position(s) Held |
|
Length of |
|
Principal Occupation(s) During Past |
|
Number of |
INDEPENDENT MANAGERS (CONTINUED) | ||||||||
Joseph E. Breslin November 18, 1953 |
|
Manager; Audit Committee Member |
|
Since 2012 |
|
Mr. Breslin is currently a private investor. Mr Breslin has been a Director of Kinetics Mutual Funds, Inc. (mutual fund) from 2000 to Present (8 portfolios); Trustee, Kinetics Portfolios Trust (mutual fund) from 2000 to Present (8 portfolios). From 2007 to 2009, Mr. Breslin was the Chief Operating Officer of Central Park Credit Holdings, Inc. and prior to that, was the Chief Operating Officer of Aladdin Capital Management LLC, beginning in 2005. |
|
18 |
Thomas Mann February 1, 1950 |
|
Manager; Audit Committee Member |
|
Since 2012 |
|
Mr. Mann is currently a private investor. From 2003 until 2012, Mr. Mann was the Managing Director and Group Head Financial Institutions Group, Société Générale, Sales of Capital Market Solutions and Products. Mr. Mann is also a Director of Virtus Global Multi-Sector Income Fund since 2011, Virtus Total Return Fund since 2012, and F-Squared Investments, Inc. since January 2012. |
|
18 |
(1) The Fund Complex consists of the Fund, Hatteras Master Fund, L.P., Hatteras Core Alternatives Fund, L.P., Hatteras Core Alternatives TEI Fund, L.P., Hatteras Core Alternatives Institutional Fund, L.P., Hatteras Core Alternatives TEI Institutional Fund, L.P., Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund II, LLC, Hatteras Alternative Mutual Funds Trust (consisting of five funds), and Underlying Funds Trust (consisting of five funds).
TWENTY-FOUR
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
FUND MANAGEMENT
(Unaudited)
Set forth below is the name, date of birth, position with the Fund, length of term of office, and the principal occupation for the last five years, as of December 31, 2013, of each of the persons currently serving as Executive Officer. The business address of each officer is care of Hatteras Funds, 8540 Colonnade Center Drive, Suite 401, Raleigh, NC 27615.
Name & |
|
Position(s) Held |
|
Length of Time |
|
Principal Occupation(s) During Past |
|
Number of |
OFFICERS |
|
|
|
|
|
|
|
|
J. Michael Fields July 14, 1973 |
|
Secretary of each fund in the Fund Complex |
|
Since Inception |
|
Prior to becoming Secretary of each of the funds in the Fund Complex, Mr. Fields was Treasurer of each of the funds in the Fund Complex. Mr. Fields is Chief Operating Officer of the Adviser and its affiliates and has been employed by the Hatteras firm since its inception in September 2003. |
|
N/A |
Andrew P. Chica September 7, 1975 |
|
Chief Compliance Officer of each fund in the Fund Complex |
|
Since Inception |
|
Mr. Chica joined Hatteras in November 2007 and became Chief Compliance Officer of each of the funds in the Fund Complex and the Adviser as of January 2008. |
|
N/A |
Robert Lance Baker September 17, 1971 |
|
Treasurer of each fund in the Fund Complex |
|
Since Inception |
|
Mr. Baker joined Hatteras in March 2008 and became Treasurer of each of the funds in the Fund Complex in December 2008. Mr. Baker serves as the Chief Financial Officer of the Adviser and its affiliates. |
|
N/A |
(1) The Fund Complex consists of the Fund, Hatteras Master Fund L.P., Hatteras Core Alternatives Fund, L.P., Hatteras Core Alternatives TEI Fund, L.P., Hatteras Core Alternatives Institutional Fund, L.P., Hatteras Core Alternatives TEI Institutional Fund, L.P., Hatteras Global Private Equity Partners Institutional, LLC, Hatteras GPEP Fund II, LLC, Hatteras Alternative Mutual Funds Trust (consisting of five funds), and Underlying Funds Trust (consisting of five funds).
TWENTY-FIVE
Hatteras VC Co-Investment Fund II, LLC
(a Delaware Limited Liability Company)
OTHER INFORMATION
(Unaudited)
Proxy Voting
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and the Funds record of actual proxy votes cast is available at www.sec.gov and by calling 1-800-504-9070 and may be obtained at no additional charge.
Availability of Quarterly Portfolio Schedules
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds Form N-Q is available, without charge and upon request, on the SECs website at http://www.sec.gov or may be reviewed and copied at the SECs Public Reference Room in Washington.
TWENTY-SIX
ITEM 2. CODE OF ETHICS.
Not applicable to semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to semi-annual reports.
ITEM 6. SCHEDULE OF INVESTMENTS.
(a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to members filed under Item 1 of this form.
(b) The registrant did not need to divest itself of securities in accordance with Section 13(c) of the Investment Company Act of 1940, as amended (the 1940 Act), following the filing of its last report on Form N-CSR and before filing of the current report.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to semi-annual reports.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to semi-annual reports.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the members may recommend nominees to the registrants board of managers, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407 (c)(2)(iv) of Regulation S-K, or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrants principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrants second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
ITEM 12. EXHIBITS.
|
(a)(1) |
|
Not applicable. |
|
|
|
|
|
(a)(2) |
|
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are |
attached hereto. | |||
|
|
|
|
|
(a)(3) |
|
Not applicable. |
|
|
|
|
|
(b) |
|
Not applicable. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) |
HATTERAS VC CO-INVESTMENT FUND II, LLC |
| ||
|
| |||
By (Signature and Title)* |
| |||
|
/s/ David B. Perkins |
| ||
|
David B. Perkins, President |
| ||
|
(principal executive officer) |
| ||
|
| |||
Date |
July 16, 2014 |
| ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* |
| |||
|
/s/ David B. Perkins |
|
| |
|
David B. Perkins, President |
|
| |
|
(principal executive officer) |
|
| |
|
|
| ||
Date |
July 16, 2014 |
| ||
|
| |||
|
| |||
By (Signature and Title)* |
| |||
|
/s/ R. Lance Baker |
| ||
|
R. Lance Baker, Treasurer |
| ||
|
(principal financial officer) |
| ||
|
|
| ||
Date |
July 16, 2014 |
| ||
* Print the name and title of each signing officer under his or her signature.
Exhibit 99.CERT
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF
THE SARBANES-OXLEY ACT
I, David B. Perkins, certify that:
1. I have reviewed this report on Form N-CSR of Hatteras VC Co-Investment Fund II, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
July 16, 2014 |
|
|
|
|
|
/s/ David B. Perkins |
|
David B. Perkins, President | ||
|
(principal executive officer) |
CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF
THE SARBANES-OXLEY ACT
I, R. Lance Baker, certify that:
1. I have reviewed this report on Form N-CSR of Hatteras VC Co-Investment Fund II, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: |
July 16, 2014 |
|
|
|
|
|
/s/ R. Lance Baker |
|
R. Lance Baker, Treasurer | ||
|
(principal financial officer) |
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