UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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x | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
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o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
(Exact name of registrant as specified in its charter)
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California | 37-1656343 | |
(State or other jurisdiction of Incorporation or organization) |
(I. R. S. Employer Identification No.) |
The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)
Registrants telephone number, including area code (415) 989-8800
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units
Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
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 Act).Yes o No x
The number of Limited Liability Company Units outstanding as of July 31, 2017 was 1,615,096 Units.
None.
2
(in thousands)
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June 30, 2017 |
December 31, 2016 |
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(Unaudited) | ||||||||
ASSETS |
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Cash and cash equivalents | $ | 2,114 | $ | 1,860 | ||||
Accounts receivable | | 7 | ||||||
Notes receivable, net | 3,144 | 4,430 | ||||||
Investment in securities | 521 | 521 | ||||||
Warrants, fair value | 508 | 481 | ||||||
Prepaid expenses and other assets | 6 | 4 | ||||||
Total assets | $ | 6,293 | $ | 7,303 | ||||
LIABILITIES AND MEMBERS CAPITAL |
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Accounts payable and accrued liabilities: |
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Managing Member | $ | 28 | $ | 39 | ||||
Affiliates | 2 | | ||||||
Accrued distributions to Other Members | 250 | 250 | ||||||
Other | | 3 | ||||||
Total liabilities | 280 | 292 | ||||||
Commitments and contingencies |
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Members capital: |
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Managing Member | | | ||||||
Other Members | 6,013 | 7,011 | ||||||
Total Members capital | 6,013 | 7,011 | ||||||
Total liabilities and Members capital | $ | 6,293 | $ | 7,303 |
See accompanying notes.
3
(in thousands except units and per unit data)
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues: |
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Notes receivable interest income, including accretion of net note origination costs and discounts | $ | 123 | $ | 140 | $ | 267 | $ | 306 | ||||||||
Gain on early termination of notes receivable | | | 70 | | ||||||||||||
Gain on sales or dispositions of investment in securities | | | 1 | | ||||||||||||
Unrealized (loss) gain on fair value adjustment for warrants | (2 | ) | (33 | ) | 27 | (19 | ) | |||||||||
Other | 4 | 8 | 13 | 16 | ||||||||||||
Total revenues | 125 | 115 | 378 | 303 | ||||||||||||
Expenses: |
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Acquisition expense | 41 | 38 | 105 | 38 | ||||||||||||
Cost reimbursements to affiliates | 63 | 59 | 135 | 115 | ||||||||||||
(Reversal of) provision for credit losses | (24 | ) | 611 | (24 | ) | 620 | ||||||||||
Asset management fees to Managing Member | 14 | 19 | 32 | 40 | ||||||||||||
Professional fees | 36 | 22 | 57 | 60 | ||||||||||||
Outside services | 19 | 9 | 39 | 19 | ||||||||||||
Taxes on income and franchise fees | | | 2 | 3 | ||||||||||||
Bank charges | 5 | 4 | 10 | 9 | ||||||||||||
Other | 8 | 9 | 15 | 14 | ||||||||||||
Total expenses | 162 | 771 | 371 | 918 | ||||||||||||
Net (loss) income | $ | (37 | ) | $ | (656 | ) | $ | 7 | $ | (615 | ) | |||||
Net income (loss): |
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Managing Member | $ | 50 | $ | 50 | $ | 99 | $ | 99 | ||||||||
Other Members | (87 | ) | (706 | ) | (92 | ) | (714 | ) | ||||||||
$ | (37 | ) | $ | (656 | ) | $ | 7 | $ | (615 | ) | ||||||
Net loss per Limited Liability Company Unit (Other Members) | $ | (0.05 | ) | $ | (0.44 | ) | $ | (0.06 | ) | $ | (0.44 | ) | ||||
Weighted average number of Units outstanding | 1,615,475 | 1,618,296 | 1,616,311 | 1,618,296 |
See accompanying notes.
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(in thousands except units and per unit data)
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Units | Amount | Total | ||||||||||||||
Other Members |
Managing Member |
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Balance December 31, 2015 | 1,618,296 | $ | 9,756 | $ | | $ | 9,756 | |||||||||
Distributions to Other Members ($1.10 per Unit) | | (1,780 | ) | | (1,780 | ) | ||||||||||
Distributions to Managing Member | | | (198 | ) | (198 | ) | ||||||||||
Net (loss) income | | (965 | ) | 198 | (767 | ) | ||||||||||
Balance December 31, 2016 | 1,618,296 | 7,011 | | 7,011 | ||||||||||||
Repurchase of Units | (3,200 | ) | (18 | ) | | (18 | ) | |||||||||
Distributions to Other Members ($0.55 per Unit) | | (888 | ) | | (888 | ) | ||||||||||
Distributions to Managing Member | | | (99 | ) | (99 | ) | ||||||||||
Net (loss) income | | (92 | ) | 99 | 7 | |||||||||||
Balance June 30, 2017 (unaudited) | 1,615,096 | $ | 6,013 | $ | | $ | 6,013 |
See accompanying notes.
5
(in thousands)
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Three Months Ended June 30, |
Six Months Ended June 30, |
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2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating activities: |
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Net (loss) income | $ | (37 | ) | $ | (656 | ) | $ | 7 | $ | (615 | ) | |||||
Adjustment to reconcile net (loss) income to cash used in operating activities: |
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Accretion of note discount warrants | (10 | ) | (13 | ) | (23 | ) | (26 | ) | ||||||||
Amortization of net note origination costs | 3 | 5 | 8 | 10 | ||||||||||||
Gain on early termination of notes receivable | | | (70 | ) | | |||||||||||
Gain on sales or dispositions of investment in securities | | | (1 | ) | | |||||||||||
(Reversal of) provision for credit losses | (24 | ) | 611 | (24 | ) | 620 | ||||||||||
Unrealized loss (gain) on fair value adjustment for warrants | 2 | 33 | (27 | ) | 19 | |||||||||||
Changes in operating assets and liabilities: |
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Accounts receivable | | (37 | ) | 7 | (36 | ) | ||||||||||
Due from affiliates | (24 | ) | 36 | 2 | 127 | |||||||||||
Prepaid expenses and other assets | (2 | ) | (38 | ) | (2 | ) | (103 | ) | ||||||||
Accounts payable, Managing Member | | | | (1 | ) | |||||||||||
Accounts payable, other | | (2 | ) | (3 | ) | 1 | ||||||||||
Unearned fee income related to notes receivable | (4 | ) | (7 | ) | (13 | ) | (15 | ) | ||||||||
Net cash used in operating activities | (96 | ) | (68 | ) | (139 | ) | (19 | ) | ||||||||
Investing activities: |
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Advance payments | | | (56 | ) | (18 | ) | ||||||||||
Purchase of securities | | (34 | ) | | (192 | ) | ||||||||||
Proceeds from early termination of notes receivable | | | 130 | | ||||||||||||
Proceeds from sales or dispositions of investment in securities | | | 1 | | ||||||||||||
Payments of note origination costs | | (2 | ) | | (3 | ) | ||||||||||
Note receivable and warrants advances | | (213 | ) | | (213 | ) | ||||||||||
Principal payments received on notes receivable | 554 | 826 | 1,334 | 1,704 | ||||||||||||
Net cash provided by investing activities | 554 | 577 | 1,409 | 1,278 | ||||||||||||
Financing activities: |
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Distributions to Other Members | (444 | ) | (446 | ) | (888 | ) | (891 | ) | ||||||||
Distributions to Managing Member | (50 | ) | (50 | ) | (110 | ) | (99 | ) | ||||||||
Repurchase of Units | (2 | ) | | (18 | ) | | ||||||||||
Net cash used in financing activities | (496 | ) | (496 | ) | (1,016 | ) | (990 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents | (38 | ) | 13 | 254 | 269 | |||||||||||
Cash and cash equivalents at beginning of period | 2,152 | 3,274 | 1,860 | 3,018 | ||||||||||||
Cash and cash equivalents at end of period | $ | 2,114 | $ | 3,287 | $ | 2,114 | $ | 3,287 | ||||||||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for taxes | $ | | $ | 3 | $ | 3 | $ | 3 | ||||||||
Schedule of non-cash investing and financing transactions: |
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Distributions payable to Other Members at period-end | $ | 250 | $ | 250 | $ | 250 | $ | 250 | ||||||||
Distributions payable to Managing Member at period-end | $ | 28 | $ | 28 | $ | 28 | $ | 28 |
See accompanying notes.
6
ATEL Growth Capital Fund 8, LLC (the Company or the Fund) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies. The Fund may continue until it is terminated in accordance with the ATEL Growth Capital Fund 8, LLC limited liability company operating agreement dated December 13, 2011 (the Operating Agreement). The Managing Member of the Company is AGC Managing Member, LLC (the Managing Member or Manager), the renamed AGC 8 Managing Member, LLC which was formed in December 2011 as a Nevada limited liability company. Such name change is the result of an amendment to the articles of incorporation filed with the State of Nevada effective March 18, 2014. Contributions in the amount of $500 were received as of December 31, 2011, which represented the initial Members capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.
The offering was terminated on August 20, 2014. Through June 30, 2017, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Members capital investment) have been received. As of June 30, 2017, a total of 1,615,096 Units were issued and outstanding.
Prior to the termination of its offering, the Fund, or Managing Member on behalf of the Fund, incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs borne by the Fund was limited by certain provisions of the Operating Agreement.
These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.
The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year.
Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.
Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2017, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements.
7
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of credit losses on notes receivable and the fair valuation of equity securities and warrants.
The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.
The primary geographic region in which the Company seeks financing opportunities is North America. Currently, 100% of the Companys operating revenues are from customers domiciled in the United States.
Accounts receivable represent the amounts billed under notes receivable which are currently due to the Company.
Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.
Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon managements judgment, such notes may be placed in non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. All payments received on amounts billed under notes receivable are applied only against outstanding principal balances.
In addition to the allowance established for delinquent accounts receivable, the total allowance also includes probable impairment charges on notes receivable.
Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
From time to time, the Company may purchase securities of its borrowers or receive warrants and rights to purchase securities in connection with its lending arrangements.
8
Purchased securities (primarily preferred stocks) are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. As of June 30, 2017 and December 31, 2016, investments in equity securities totaled $521 thousand for both periods. There were no sales or dispositions of securities during the three and six months ended June 30, 2017 and 2016, respectively.
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. At June 30, 2017 and December 31, 2016, the Managing Member estimated the fair value of warrants to be $508 thousand and $481 thousand, respectively. During the three and six months ended June 30, 2017, the Company recorded an unrealized loss of $2 thousand and an unrealized gain of $27 thousand, respectively, on the fair valuation of its warrants. During the three and six months ended June 30, 2016, the Company recorded unrealized losses of $33 thousand and $19 thousand, respectively, on fair valuation of its warrants. The Company also realized $0 thousand and $1 thousand related to the net exercise of certain warrants during the three and six month periods ended June 30, 2017, respectively. There were no exercises of warrants during the three and six months ended June 30, 2017, and 2016. See Note 8 for further discussion.
Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, notes receivable and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250,000. The remainder of the Funds cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from various industries.
The Company issues only one class of Units, none of which are considered dilutive. Net income (loss) per Unit is based upon the weighted average number of Other Members Units outstanding during the period.
Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:
Level 1 Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.
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Level 3 Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability.
The Companys valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes and third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Companys assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Companys investments in notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting. The adoption of ASU 2016-15 by the Company is not expected to have a material effect on its financial statements.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments Credit Losses (Topic 326) (ASU 2016-13). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.
In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the method(s) and
10
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements. The Companys implementation efforts include the identification of equity securities within the scope of the guidance, the evaluation of the measurement alternative available for equity securities without a readily determinable fair value, and the related impact to accounting policies, presentation and disclosures.
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (ASU 2015-14). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company expects to adopt the Standards Update. A preliminary evaluation of the impact of such adoption on the financial statements of the Fund indicates that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Companys revenues. Management expects that accounting policies will not materially change since the principles of revenue recognition from the standard are largely consistent with existing guidance and current practices applied by the Company.
The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. As of June 30, 2017, the terms of the notes receivable are from 30 to 84 months and bear interest at implicit or stated rates ranging from 11.25% to 18.06% per annum. The notes are secured by the equipment financed and have maturity dates ranging from 2017 through 2020.
As of June 30, 2017 and December 31, 2016, four (Notes A and C) and seven (Note A, B and C) of the Companys notes receivable were on non-accrual status, respectively. Details are as follows, in thousands, except for the number of notes receivable and the annual interest rate:
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Notes receivable A | ||||||||
Non-accrual | ||||||||
June 30, 2017 |
December 31, 2016 |
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Number of notes | 3 | 3 | ||||||
Net investment value | $ | 82 | $ | 133 | ||||
Annual interest rate | 18.00 | % | 18.00 | % | ||||
Fair value adjustments | $ | 82 | $ | 106 | ||||
Fair value amount | $ | | $ | 27 | ||||
Interest income not recorded relative to original terms | $ | 16 | $ | 16 |
11
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Date | Notes A modification | |
December 1, 2014 | Notes placed on non-accrual status. | |
January 1, 2015 | Defer payment of principal, interest-only payments at their original rates through June 30, 2015. | |
Payments will be adjusted so ultimate amounts paid will reflect interest earned at 18% per annum related to the entire term from the original funding date. | ||
1st quarter 2015 | Impairment totaling $51 thousand was recorded. | |
3rd quarter 2015 | Impairment totaling $46 thousand was recorded. | |
4th quarter 2015 | Extend interest only payments through June 30, 2016. | |
Entire balance on the notes due on July 1, 2016. | ||
1st quarter 2016 | Impairment totaling $9 thousand was recorded. | |
3rd quarter 2016 | Extend interest only payments through January 1, 2017. | |
1st quarter 2017 | Extend payment schedule through January 1, 2020. | |
Notes mature on January 1, 2020. |
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Notes receivable B | ||||||||
Non-accrual | ||||||||
December 31, 2016 |
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Number of notes | 3 | |||||||
Net investment value | $ | 668 | ||||||
Annual interest rate | 14.40 | % | ||||||
Fair value adjustments | $ | 611 | ||||||
Fair value amount | $ | 57 | ||||||
Interest income not recorded relative to original terms | $ | 96 |
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Date | Notes B modification | |
February 1, 2016 | Defer payment of principal, interest-only payments at their original rates. | |
2nd quarter 2016 | Impairment totaling $611 thousand was recorded. | |
3rd quarter 2016 | Defer payment of principal, interest-only payments at their original rates with through January 1, 2017 with an increase to the final balloon payment original maturity dates ranging from April to June 2018 remain. | |
January 1, 2017 | Payments reverted back to their original rates. | |
February 22, 2017 | Notes terminated upon the receipt of proceeds from the disposal of underlying collateral totaling $130 thousand, resulting in a net loss of $406 thousand. |
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Note receivable C | ||||||||
Non-accrual | Non-accrual | |||||||
June 30, 2017 |
December 31, 2016 |
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Number of notes | 1 | 1 | ||||||
Net investment value | $ | 39 | $ | 53 | ||||
Annual interest rate | 15.88 | % | 15.88 | % | ||||
Fair value adjustments | $ | | $ | | ||||
Fair value amount | $ | 39 | $ | 53 | ||||
Interest income not recorded relative to original terms | $ | 5 | $ | 2 |
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Date | Note C modification | |
November 1, 2016 | Note placed on non-accrual status. |
12
As of June 30, 2017, the minimum future payments receivable are as follows (in thousands):
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Six Months ending December 31, 2017 | $ | 1,093 | ||
Year ending 2018 | 1,747 | |||
2019 | 1,025 | |||
2020 | 57 | |||
3,922 | ||||
Less: portion representing unearned interest income, net | (696 | ) | ||
Less: allowance for credit losses | (82 | ) | ||
Notes receivable, net | $ | 3,144 |
The Companys allowance for credit losses are as follows (in thousands):
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Valuation Adjustments Notes Receivable |
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Balance December 31, 2015 | $ | 97 | ||
Provision for credit losses | 620 | |||
Balance December 31, 2016 | 717 | |||
Note receivable disposal | (611 | ) | ||
Reversal of provision for credit losses | (24 | ) | ||
Balance June 30, 2017 | $ | 82 |
The Companys allowance for credit losses and its recorded investment in notes receivable as of June 30, 2017 and December 31, 2016 were as follows (in thousands):
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June 30, 2017 | Notes Receivable |
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Allowance for credit losses: |
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Ending balance | $ | 82 | ||
Ending balance: individually evaluated for impairment | $ | 82 | ||
Ending balance: collectively evaluated for impairment | $ | | ||
Financing receivables: |
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Ending balance | $ | 3,226 | ||
Ending balance: individually evaluated for impairment | $ | 3,226 | ||
Ending balance: collectively evaluated for impairment | $ | |
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December 31, 2016 | Notes Receivable |
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Allowance for credit losses: |
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Ending balance | $ | 717 | ||
Ending balance: individually evaluated for impairment | $ | 717 | ||
Ending balance: collectively evaluated for impairment | $ | | ||
Financing receivables: |
||||
Ending balance | $ | 5,147 | ||
Ending balance: individually evaluated for impairment | $ | 5,147 | ||
Ending balance: collectively evaluated for impairment | $ | |
13
The Company evaluates the credit quality of its notes receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:
Pass Any account whose debtor, co-debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moodys or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.
Special Mention Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve managements close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Funds receivable at some future date.
Substandard Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Managers Credit Watch List.
Doubtful Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Managers Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.
At June 30, 2017 and December 31, 2016, the Companys notes receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):
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Notes Receivable | ||||||||
June 30, 2017 |
December 31, 2016 |
|||||||
Pass | $ | 2,879 | $ | 4,293 | ||||
Special mention | 347 | 53 | ||||||
Substandard | | 133 | ||||||
Doubtful | | 668 | ||||||
Total | $ | 3,226 | $ | 5,147 |
14
As of June 30, 2017 and December 31, 2016, the Companys impaired loans were as follows (in thousands):
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Impaired Loans | ||||||||||||||||||||
June 30, 2017 | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | | ||||||||||
With an allowance recorded |
||||||||||||||||||||
Notes receivable | 82 | 82 | 82 | 95 | | |||||||||||||||
Total | $ | 82 | $ | 82 | $ | 82 | $ | 95 | $ | |
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Impaired Loans | ||||||||||||||||||||
December 31, 2016 | Recorded Investment |
Unpaid Principal Balance |
Related Allowance |
Average Recorded Investment |
Interest Income Recognized |
|||||||||||||||
With no related allowance recorded |
||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | | ||||||||||
With an allowance recorded |
||||||||||||||||||||
Notes receivable | 801 | 809 | 717 | 833 | | |||||||||||||||
Total | $ | 801 | $ | 809 | $ | 717 | $ | 833 | $ | |
At June 30, 2017 and December 31, 2016, investment in financing receivables is aged as follows (in thousands):
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June 30, 2017 | 31 60 Days Past Due |
61 90 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment > 90 Days and Accruing |
|||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | 3,226 | $ | 3,226 | $ | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | 3,226 | $ | 3,226 | $ | |
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December 31, 2016 | 31 60 Days Past Due |
61 90 Days Past Due |
Greater Than 90 Days |
Total Past Due |
Current | Total Financing Receivables |
Recorded Investment > 90 Days and Accruing |
|||||||||||||||||||||
Notes receivable | $ | | $ | | $ | | $ | | $ | 5,147 | $ | 5,147 | $ | | ||||||||||||||
Total | $ | | $ | | $ | | $ | | $ | 5,147 | $ | 5,147 | $ | |
As of June 30, 2017 and December 31, 2016, the Company had four and seven notes receivable, respectively, which were on non-accrual status (See Note 3 for details).
15
The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.
The Operating Agreement allows for the reimbursement of costs incurred by the Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and equipment financing documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments.
Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location. During the three and six months ended June 30, 2017 and 2016, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):
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Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Administrative costs reimbursed to Managing Member and/or affiliates | $ | 63 | $ | 59 | $ | 135 | $ | 115 | ||||||||
Asset management fees to Managing Member | 14 | 19 | 32 | 40 | ||||||||||||
Acquisition costs and note origination fees paid to Managing Member | 41 | 40 | 105 | 41 | ||||||||||||
$ | 118 | $ | 118 | $ | 272 | $ | 196 |
At June 30, 2017, there were commitments to fund investments in notes receivable totaling $1.5 million. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
A total of 1,615,096 and 1,618,296 Units were issued and outstanding as of June 30, 2017 and December 31, 2016, respectively. The Fund is authorized to issue up to 7,500,000 Units in addition to the Units issued to the initial Member (50 Units).
Distributions to the Other Members for the three and six months ended June 30, 2017 and 2016 are as follows (in thousands, except as to Units and per Unit data):
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Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Distributions declared | $ | 444 | $ | 446 | $ | 888 | $ | 891 | ||||||||
Weighted average number of Units outstanding | 1,615,475 | 1,618,296 | 1,616,311 | 1,618,296 | ||||||||||||
Weighted average distributions per Unit | $ | 0.27 | $ | 0.28 | $ | 0.55 | $ | 0.55 |
16
At June 30, 2017 and December 31, 2016, only the Companys warrants were measured on a recurring basis.
During the three and six months ended June 30, 2017, no non-recurring adjustments were recorded to write down the fair values of certain notes receivable. During the period ended December 31, 2016, the Company recorded non-recurring fair value adjustments to reduce the cost basis of certain impaired notes receivable.
The measurement methodology is as follows:
Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the volatility of respective similar publicly traded companies, time to maturity, a risk free interest rate for the term(s) of the warrant exercise(s), and the respective exercise prices and number of warrants.
As of June 30, 2017 and December 31, 2016, the calculated fair value of the Funds warrant portfolio totaled $508 thousand and $481 thousand, respectively. Such valuation is classified within Level 3 of the valuation hierarchy.
The fair value of warrants that were accounted for on a recurring basis as of the three and six months ended June 30, 2017 and 2016 and classified as level 3 are as follows (in thousands):
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Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Fair value of warrants at beginning of period | $ | 510 | $ | 736 | $ | 481 | $ | 722 | ||||||||
Unrealized (loss) gain on fair value adjustment for warrants | (2 | ) | (33 | ) | 27 | (19 | ) | |||||||||
Fair value of warrants at end of period | $ | 508 | $ | 703 | $ | 508 | $ | 703 |
The fair value of the Companys notes receivable, when impairment adjustments are required, is estimated using either third party appraisals or estimations of the value of collateral (for collateral dependent loans).
During the three and six months ended June 30, 2017 the Company did not record any fair value adjustments. During the year ended December 31, 2016, the Company had recorded fair value adjustments totaling $620 thousand relative to six impaired notes. The fair value adjustments were non-recurring and were based upon an estimated valuation of underlying collateral. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable is classified within Level 3 of the valuation hierarchy. The valuation utilizes a market approach technique and uses inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral.
The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2016 (in thousands):
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December 31, 2016 |
Level 1 Estimated Fair Value |
Level 2 Estimated Fair Value |
Level 3 Estimated Fair Value |
|||||||||||||
Impaired notes receivable | $ | 84 | $ | | $ | | $ | 84 |
17
The following tables summarize the valuation techniques and significant unobservable inputs used for the Companys recurring and non-recurring fair value calculation categorized as Level 3 in the fair value hierarchy at June 30, 2017 and December 31, 2016:
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June 30, 2017 | ||||||||||||||||
Name | Valuation Frequency |
Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants |
Recurring | Black-Scholes formulation | Stock price | $ | 0.00 $14.75 | |||||||||||
Exercise price | $ | 0.01 $25.76 | ||||||||||||||
Time to maturity (in years) | 3.49 14.45 | |||||||||||||||
Risk-free interest rate | 1.64% 2.44 | % | ||||||||||||||
Annualized volatility | 33.35% 102.16 | % |
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December 31, 2016 | ||||||||||||||||
Name | Valuation Frequency |
Valuation Technique | Unobservable Inputs | Range of Input Values | ||||||||||||
Warrants |
Recurring | Black-Scholes formulation | Stock price | $ | 0.00 $14.75 | |||||||||||
Exercise price | $ | 0.19 $25.76 | ||||||||||||||
Time to maturity (in years) | 3.99 14.95 | |||||||||||||||
Risk-free interest rate | 1.70% 2.62 | % | ||||||||||||||
Annualized volatility | 34.86% 108.99 | % | ||||||||||||||
Notes Receivable |
Non-recurring | Market Approach | Third Party Agents estimate of the value of collateral | $ | 0 $121,376 | |||||||||||
Condition of collateral (equipment) | Poor to Average |
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Companys financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Companys financial statements and related notes.
The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
The recorded amounts of the Companys cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.
The fair value of the Companys notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.
18
The Companys investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.
The following tables present estimated fair values of the Companys financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at June 30, 2017 and December 31, 2016 (in thousands):
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June 30, 2017 | ||||||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 2,114 | $ | 2,114 | $ | | $ | | $ | 2,114 | ||||||||||
Notes receivable, net | 3,144 | | | 3,131 | 3,131 | |||||||||||||||
Investment in securities | 521 | | | 521 | 521 | |||||||||||||||
Warrants | 508 | | | 508 | 508 |
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December 31, 2016 | ||||||||||||||||||||
Carrying Amount |
Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash and cash equivalents | $ | 1,860 | $ | 1,860 | $ | | $ | | $ | 1,860 | ||||||||||
Notes receivable, net | 4,430 | | | 4,416 | 4,416 | |||||||||||||||
Investment in securities | 521 | | | 521 | 521 | |||||||||||||||
Warrants | 481 | | | 481 | 481 |
19
Statements contained in this Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, changes in general economic conditions, including significant rates of inflation and fluctuations in interest rates may result in reduced returns on invested capital. The Companys performance is subject to risks relating to borrower defaults and the creditworthiness of its borrowers. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.
ATEL Growth Capital Fund 8, LLC (the Company or the Fund) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies.
Through June 30, 2017, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Members capital investment) have been received. As of June 30, 2017, a total of 1,615,096 Units were issued and outstanding.
The Company had net losses of $37 thousand and $656 thousand for the respective three month periods ended June 30, 2017 and 2016. The results for the second quarter of 2017 reflects an increase total revenues and a decrease in total operating expenses when compared to the prior year period.
Total revenues for the second quarter of 2017 increased by $10 thousand, or 9%, as compared to the prior year period. Such increase was largely due to a $31 thousand, or 94%, decrease in unrealized loss on the fair value adjustment for warrants; offset, in part, by a $17 thousand, or 12%, decrease in interest income on notes receivables, including accretion of net note origination costs and discounts, due to the scheduled run-off of the portfolio.
Total expenses for the second quarter ended June 30, 2017 decreased by $609 thousand, or 79%, as compared to the prior year period. The net decrease in total expenses was largely due to a $635 thousand, or 104%, decrease in the provision for credit losses, due to the impairment adjustment to three notes receivable; offset, in part, by a $14 thousand, or 64%, increase in professional fees related to the year over year differences in timing and related billings for professional audit and tax services, and a $10 thousand, or 111%, increase in outside services, indicative of additional efforts required to comply with certain regulatory requirements.
The Company had a net income of $7 thousand and a net loss of $615 thousand for the respective six month periods ended June 30, 2017 and 2016. The results for the six months ending June 30, 2017 reflect an increase in total revenues and a decrease in total operating expenses when compared to the prior year period.
20
Total revenues for the first half of 2017 increased by $75 thousand, or 25%, as compared to the prior year period. Such increase was largely due to a $70 thousand, or 100%, increase in gain on early termination of notes receivable; a $46 thousand, or 242%, favorable change in the unrealized gain/loss on the fair value adjustment for warrants; offset, in part, by a $39 thousand, or 13%, decrease in interest income on notes receivables, including accretion of net note origination costs and discounts, due to the scheduled run-off of the portfolio.
Total expenses for the six months ended June 30, 2017 decreased by $547 thousand, or 60%, as compared to the prior year period. The net decrease in total expenses was due to a $644 thousand, or 104%, decrease in the provision for credit losses, primarily due to management review and adjustment of three notes receivable in the prior year period; an $8 thousand, or 20%, decrease in asset management fees related to lower interest income; offset, in part, by a $67 thousand, or 176%, increase in acquisition expense relative to increased venture origination allocations during the current period; a $20 thousand, or 17%, increase in cost reimbursements to affiliates related to increased indirect allocations and a $20 thousand, or 105%, increase in outside services, indicative of additional efforts required to comply with certain regulatory requirements.
The Companys cash and cash equivalents totaled $2.1 million and $1.9 million at June 30, 2017 and December 31, 2016, respectively. The liquidity of the Company varies, increasing to the extent cash flows from its portfolio investments exceed expenses and decreasing as portfolio investments are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from its portfolio investments.
The Fund will acquire its investments with cash. The Fund will not borrow to acquire its portfolio assets and does not intend or expect to incur any indebtedness. The Fund anticipates that it would incur indebtedness only in the event that it is required to borrow for temporary working capital purposes.
The following table sets forth summary cash flow data (in thousands):
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Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net cash (used in) provided by: |
||||||||||||||||
Operating activities | $ | (96 | ) | $ | (68 | ) | $ | (139 | ) | $ | (19 | ) | ||||
Investing activities | 554 | 577 | 1,409 | 1,278 | ||||||||||||
Financing activities | (496 | ) | (496 | ) | (1,016 | ) | (990 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents | $ | (38 | ) | $ | 13 | $ | 254 | $ | 269 |
During the three months ended June 30, 2017 and 2016, the Companys primary source of liquidity was cash flow from its investments in notes receivable of $554 thousand and $826 thousand, respectively.
During the same respective periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling $494 thousand and $496 thousand for the three months ended June 30, 2017 and 2016, respectively. Cash was also used to make purchases of investment securities totaling $34 thousand and during the second quarter of 2016. Similar investments were not made during the second quarter of 2017.
21
During the six months ended June 30, 2017 and 2016, the Companys primary source of liquidity was cash flow from its investments in notes receivable of $1.3 million and $1.7 million, respectively. In addition, the Company realized $131 thousand and $0, of proceeds from the early termination of notes and sales or dispositions of investment securities during the respective six months ended June 30, 2017 and 2016.
During the same respective periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, totaling $998 thousand and $990 thousand for the six months ended June 30, 2017 and 2016, respectively. Cash was also used to make purchases of investment securities totaling $192 thousand during the first half of 2016. Similar investments were not made during the first half of 2017.
The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of November 2012. Additional distributions have been made through June 30, 2017.
Cash distributions were paid by the Fund to Unitholders of record as of May 31, 2017, and paid through June 30, 2017. The distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the ATEL Growth Capital Fund 8, LLC Prospectus dated August 20, 2012 (Prospectus) under Income, Losses and Distributions Reinvestment. Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.
The cash distributions were based on current and anticipated gross revenues from the loans funded and equity investments acquired. During the Funds acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Funds actual and anticipated gross revenues to be generated from the binding initial terms of the loans and investments funded.
22
The following table summarizes distribution activity for the Fund from inception through June 30, 2017 (in thousands):
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Distribution Period(1) | Paid | Return of Capital |
Distribution of Income |
Total Distribution |
Total Distribution per Unit(2) |
Weighted Average Units Outstanding(3) |
||||||||||||||||||||||||||||||
Monthly and quarterly distributions |
||||||||||||||||||||||||||||||||||||
Oct 2012 Mar 2013 (Distribution of all escrow interest) |
July 2013 | $ | | $ | | $ | | n/a | n/a | |||||||||||||||||||||||||||
Nov 14, 2012 Nov 30, 2012 | Dec 2012 | 3 | | 3 | $ | 0.43 | 6,306 | |||||||||||||||||||||||||||||
Dec 2012 Nov 2013 | Jan Dec 2013 | 866 | | 866 | 1.57 | 551,608 | ||||||||||||||||||||||||||||||
Dec 2013 Nov 2014 | Jan Dec 2014 | 1,452 | | 1,452 | 1.08 | 1,349,575 | ||||||||||||||||||||||||||||||
Dec 2014 Nov 2015 | Jan Dec 2015 | 1,779 | | 1,779 | 1.10 | 1,618,296 | ||||||||||||||||||||||||||||||
Dec 2015 Nov 2016 | Jan Dec 2016 | 1,780 | | 1,780 | 1.10 | 1,618,296 | ||||||||||||||||||||||||||||||
Dec 2016 May 2017 | Jan Jun 2017 | 888 | | 888 | 0.55 | 1,616,827 | ||||||||||||||||||||||||||||||
$ | 6,768 | $ | | $ | 6,768 | $ | 5.83 | |||||||||||||||||||||||||||||
Source of distributions |
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Lease and loan payments/payoffs | $ | 6,768 | 100.00 | % | $ | | 0.00 | % | $ | 6,768 | 100.00 | % | ||||||||||||||||||||||||
Interest income | | 0.00 | % | | 0.00 | % | | 0.00 | % | |||||||||||||||||||||||||||
$ | 6,768 | 100.00 | % | $ | | 0.00 | % | $ | 6,768 | 100.00 | % |
(1) | Investors may elect to receive their distributions either monthly or quarterly. See Timing and Method of Distributions on Page 46 of the Prospectus. |
(2) | Total distributions per Unit represents the per Unit distributions rate for those units which were outstanding for all of the applicable period. |
(3) | Balances shown represent weighted average units for the period from November 14 (date the escrow requirement was met) November 30, 2012, December 1, 2012 November 30, 2013, December 1, 2013 November 30, 2014, December 1, 2014 November 30, 2015, December 1, 2015 November 30, 2016, and December 1, 2016 May 31, 2017, respectively. |
At June 30, 2017, there were commitments to fund investments in notes receivable totaling $1.5 million. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
None.
For detailed information on recent accounting pronouncements, see Note 2, Summary of significant accounting policies.
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.
23
The Companys significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to the Companys significant accounting policies since December 31, 2016.
The Companys Managing Members Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (Management), evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Companys disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.
The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Members disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuers management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as it is applicable to the Company.
24
In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Members financial position or results of operations.
None.
None.
Not Applicable.
None.
(a) | Documents filed as a part of this report |
1. | Financial Statement Schedules |
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
2. | Other Exhibits |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi |
32.1 | Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash |
32.2 | Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
25
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 10, 2017
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By: AGC Managing Member, LLC |
By: | /s/ Dean L. Cash![]() Dean L. Cash Chairman of the Board, President and Chief Executive Officer of AGC Managing Member, LLC (Managing Member) |
By: | /s/ Paritosh K. Choksi![]() Paritosh K. Choksi Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of AGC Managing Member, LLC (Managing Member) |
By: | /s/ Samuel Schussler![]() Samuel Schussler Senior Vice President and Chief Accounting Officer of AGC Managing Member, LLC (Managing Member) |
26
Exhibit 31.1
I, Dean L. Cash, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of ATEL Growth Capital Fund 8, 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 and 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 the end of the period covered by 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 registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual 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, based on our most recent evaluation of internal control over financial reporting, 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: August 10, 2017
/s/ Dean L. Cash
Dean L. Cash
Chairman of the Board, President and
Chief Executive Officer of
AGC Managing Member, LLC (Managing Member)
Exhibit 31.2
I, Paritosh K. Choksi, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of ATEL Growth Capital Fund 8, 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 and 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 Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 the end of the period covered by 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 registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual 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, based on our most recent evaluation of internal control over financial reporting, 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: August 10, 2017
/s/ Paritosh K. Choksi
Paritosh K. Choksi
Director, Executive Vice President and
Chief Financial Officer and Chief Operating Officer of
AGC Managing Member, LLC (Managing Member)
Exhibit 32.1
In connection with the Quarterly Report of ATEL Growth Capital Fund 8, LLC (the Company) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Dean L. Cash, Chairman of the Board, President and Chief Executive Officer of AGC Managing Member, LLC, Managing Member of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 10, 2017
/s/ Dean L. Cash
Dean L. Cash
Chairman of the Board, President and
Chief Executive Officer of
AGC Managing Member, LLC (Managing Member)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
In connection with the Quarterly Report of ATEL Growth Capital Fund 8, LLC (the Company) on Form 10-Q for the period ended June 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Paritosh K. Choksi, Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of AGC Managing Member, LLC, Managing Member of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: August 10, 2017
/s/ Paritosh K. Choksi
Paritosh K. Choksi
Director, Executive Vice President and
Chief Financial Officer and Chief Operating Officer
of AGC Managing Member, LLC (Managing Member)
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Document And Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jul. 31, 2017 |
|
Document and Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | ATEL Growth Capital Fund 8, LLC | |
Entity Central Index Key | 0001537069 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Smaller Reporting Company | |
Entity Units Outstanding | 1,615,096 |
Balance Sheets - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
ASSETS | ||
Cash and cash equivalents | $ 2,114 | $ 1,860 |
Accounts receivable | 7 | |
Notes receivable, net | 3,144 | 4,430 |
Investment in securities | 521 | 521 |
Warrants, fair value | 508 | 481 |
Prepaid expenses and other assets | 6 | 4 |
Total assets | 6,293 | 7,303 |
Accounts payable and accrued liabilities: | ||
Managing Member | 28 | 39 |
Affiliates | 2 | |
Accrued distributions to Other Members | 250 | 250 |
Other | 3 | |
Total liabilities | 280 | 292 |
Commitments and contingencies | ||
Members' capital: | ||
Managing Member | ||
Other Members | 6,013 | 7,011 |
Total Members' capital | 6,013 | 7,011 |
Total liabilities and Members' capital | $ 6,293 | $ 7,303 |
Statements of Changes in Members' Capital - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Beginning Balance (in Units) | 1,618,296 | |||
Beginning Balance | $ 7,011 | $ 9,756 | $ 9,756 | |
Repurchase of Units | (18) | |||
Distributions to Other Members | $ (444) | (888) | (891) | (1,780) |
Distributions to Managing Member | (99) | (198) | ||
Net (loss) income | $ (37) | $ 7 | $ (615) | $ (767) |
Ending Balance (in Units) | 1,615,096 | 1,615,096 | 1,618,296 | |
Ending Balance | $ 6,013 | $ 6,013 | $ 7,011 | |
Other Members [Member] | ||||
Beginning Balance (in Units) | 1,618,296 | 1,618,296 | 1,618,296 | |
Beginning Balance | $ 7,011 | $ 9,756 | $ 9,756 | |
Repurchase of Units | $ (18) | |||
Repurchase of Units (in Units) | (3,200) | |||
Distributions to Other Members | $ (888) | (1,780) | ||
Net (loss) income | $ (92) | $ (965) | ||
Ending Balance (in Units) | 1,615,096 | 1,615,096 | 1,618,296 | |
Ending Balance | $ 6,013 | $ 6,013 | $ 7,011 | |
Managing Member [Member] | ||||
Beginning Balance | ||||
Distributions to Managing Member | (99) | (198) | ||
Net (loss) income | $ 99 | $ 198 |
Statements of Changes in Members' Capital (Parenthetical) - $ / shares |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Statements of Changes in Members' Capital [Abstract] | |||||
Distributions to Other Members, per unit | $ 0.27 | $ 0.28 | $ 0.55 | $ 0.55 | $ 1.10 |
Organization and Limited Liability Company Matters |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Organization and Limited Liability Company Matters [Abstract] | |
Organization and Limited Liability Company Matters | 1. Organization and Limited Liability Company matters: ATEL Growth Capital Fund 8, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 8, 2011 for the purpose of providing financing for the acquisition of equipment and other goods and services used by emerging growth companies and established privately held companies without publicly traded securities, and for providing other forms of financing for, and to acquire equity interests and warrants and rights to purchase equity interests in such companies. The Fund may continue until it is terminated in accordance with the ATEL Growth Capital Fund 8, LLC limited liability company operating agreement dated December 13, 2011 (the “Operating Agreement”). The Managing Member of the Company is AGC Managing Member, LLC (the “Managing Member” or “Manager”), the renamed AGC 8 Managing Member, LLC which was formed in December 2011 as a Nevada limited liability company. Such name change is the result of an amendment to the articles of incorporation filed with the State of Nevada effective March 18, 2014. Contributions in the amount of $500 were received as of December 31, 2011, which represented the initial Member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member. The offering was terminated on August 20, 2014. Through June 30, 2017, cumulative contributions, net of rescissions and related distributions paid, totaling $16.2 million (inclusive of the $500 initial Member’s capital investment) have been received. As of June 30, 2017, a total of 1,615,096 Units were issued and outstanding. Prior to the termination of its offering, the Fund, or Managing Member on behalf of the Fund, incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs borne by the Fund was limited by certain provisions of the Operating Agreement. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.
|
Summary of Significant Accounting Policies |
6 Months Ended |
---|---|
Jun. 30, 2017 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies: Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations. Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data. In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2017, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements. Use of estimates: The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of credit losses on notes receivable and the fair valuation of equity securities and warrants. Segment reporting: The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States. The primary geographic region in which the Company seeks financing opportunities is North America. Currently, 100% of the Company’s operating revenues are from customers domiciled in the United States. Accounts Receivable Accounts receivable represent the amounts billed under notes receivable which are currently due to the Company. Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon management’s judgment, such notes may be placed in non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. All payments received on amounts billed under notes receivable are applied only against outstanding principal balances. Valuation Adjustments In addition to the allowance established for delinquent accounts receivable, the total allowance also includes probable impairment charges on notes receivable. Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible. Investment in securities: From time to time, the Company may purchase securities of its borrowers or receive warrants and rights to purchase securities in connection with its lending arrangements. Purchased securities Purchased securities (primarily preferred stocks) are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. As of June 30, 2017 and December 31, 2016, investments in equity securities totaled $521 thousand for both periods. There were no sales or dispositions of securities during the three and six months ended June 30, 2017 and 2016, respectively. Warrants Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. At June 30, 2017 and December 31, 2016, the Managing Member estimated the fair value of warrants to be $508 thousand and $481 thousand, respectively. During the three and six months ended June 30, 2017, the Company recorded an unrealized loss of $2 thousand and an unrealized gain of $27 thousand, respectively, on the fair valuation of its warrants. During the three and six months ended June 30, 2016, the Company recorded unrealized losses of $33 thousand and $19 thousand, respectively, on fair valuation of its warrants. The Company also realized $0 thousand and $1 thousand related to the net exercise of certain warrants during the three and six month periods ended June 30, 2017, respectively. There were no exercises of warrants during the three and six months ended June 30, 2017, and 2016. See Note 8 for further discussion. Credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, notes receivable and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250,000. The remainder of the Funds’ cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from various industries. Per Unit data: The Company issues only one class of Units, none of which are considered dilutive. Net income (loss) per Unit is based upon the weighted average number of Other Members Units outstanding during the period. Fair value: Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market. Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability. The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes and third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources. Recent accounting pronouncements: In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-15 — Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting. The adoption of ASU 2016-15 by the Company is not expected to have a material effect on its financial statements. In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments. In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements. The Company’s implementation efforts include the identification of equity securities within the scope of the guidance, the evaluation of the measurement alternative available for equity securities without a readily determinable fair value, and the related impact to accounting policies, presentation and disclosures. In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company expects to adopt the Standards Update. A preliminary evaluation of the impact of such adoption on the financial statements of the Fund indicates that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues. Management expects that accounting policies will not materially change since the principles of revenue recognition from the standard are largely consistent with existing guidance and current practices applied by the Company.
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Notes Receivable, Net |
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Notes Receivable, Net | 3. Notes receivable, net: The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. As of June 30, 2017, the terms of the notes receivable are from 30 to 84 months and bear interest at implicit or stated rates ranging from 11.25% to 18.06% per annum. The notes are secured by the equipment financed and have maturity dates ranging from 2017 through 2020. As of June 30, 2017 and December 31, 2016, four (Notes A and C) and seven (Note A, B and C) of the Company’s notes receivable were on non-accrual status, respectively. Details are as follows, in thousands, except for the number of notes receivable and the annual interest rate:
As of June 30, 2017, the minimum future payments receivable are as follows (in thousands):
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Allowance for Credit Losses |
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Allowance for Credit Losses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for Credit Losses | 4. Allowance for credit losses: The Company’s allowance for credit losses are as follows (in thousands):
The Company’s allowance for credit losses and its recorded investment in notes receivable as of June 30, 2017 and December 31, 2016 were as follows (in thousands):
The Company evaluates the credit quality of its notes receivables on a scale equivalent to the following quality indicators related to corporate risk profiles: Pass – Any account whose debtor, co-debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below. Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date. Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List. Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable. At June 30, 2017 and December 31, 2016, the Company’s notes receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):
As of June 30, 2017 and December 31, 2016, the Company’s impaired loans were as follows (in thousands):
At June 30, 2017 and December 31, 2016, investment in financing receivables is aged as follows (in thousands):
As of June 30, 2017 and December 31, 2016, the Company had four and seven notes receivable, respectively, which were on non-accrual status (See Note 3 for details).
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Related Party Transactions |
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | 5. Related party transactions: The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company. The Operating Agreement allows for the reimbursement of costs incurred by the Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and equipment financing documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments. Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as total assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location. During the three and six months ended June 30, 2017 and 2016, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):
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Commitments |
6 Months Ended |
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Jun. 30, 2017 | |
Commitments [Abstract] | |
Commitments | 6. Commitments: At June 30, 2017, there were commitments to fund investments in notes receivable totaling $1.5 million. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.
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Members' Capital |
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Members' Capital [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Members' Capital | 7. Members’ Capital: A total of 1,615,096 and 1,618,296 Units were issued and outstanding as of June 30, 2017 and December 31, 2016, respectively. The Fund is authorized to issue up to 7,500,000 Units in addition to the Units issued to the initial Member (50 Units). Distributions to the Other Members for the three and six months ended June 30, 2017 and 2016 are as follows (in thousands, except as to Units and per Unit data):
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Fair Value Measurements |
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Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 8. Fair value measurements: At June 30, 2017 and December 31, 2016, only the Company’s warrants were measured on a recurring basis. During the three and six months ended June 30, 2017, no non-recurring adjustments were recorded to write down the fair values of certain notes receivable. During the period ended December 31, 2016, the Company recorded non-recurring fair value adjustments to reduce the cost basis of certain impaired notes receivable. The measurement methodology is as follows: Warrants (recurring) Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the volatility of respective similar publicly traded companies, time to maturity, a risk free interest rate for the term(s) of the warrant exercise(s), and the respective exercise prices and number of warrants. As of June 30, 2017 and December 31, 2016, the calculated fair value of the Fund’s warrant portfolio totaled $508 thousand and $481 thousand, respectively. Such valuation is classified within Level 3 of the valuation hierarchy. The fair value of warrants that were accounted for on a recurring basis as of the three and six months ended June 30, 2017 and 2016 and classified as level 3 are as follows (in thousands):
Impaired notes receivable (non-recurring) The fair value of the Company’s notes receivable, when impairment adjustments are required, is estimated using either third party appraisals or estimations of the value of collateral (for collateral dependent loans). During the three and six months ended June 30, 2017 the Company did not record any fair value adjustments. During the year ended December 31, 2016, the Company had recorded fair value adjustments totaling $620 thousand relative to six impaired notes. The fair value adjustments were non-recurring and were based upon an estimated valuation of underlying collateral. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired notes receivable is classified within Level 3 of the valuation hierarchy. The valuation utilizes a market approach technique and uses inputs from third party appraisers that utilize current market transactions as adjusted for certain factors specific to the underlying collateral. The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2016 (in thousands):
The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and non-recurring fair value calculation categorized as Level 3 in the fair value hierarchy at June 30, 2017 and December 31, 2016:
The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes. The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments. Notes receivable The fair value of the Company’s notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary. Investment in securities The Company’s investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment. The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at June 30, 2017 and December 31, 2016 (in thousands):
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Summary of Significant Accounting Policies (Policy) |
6 Months Ended |
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Jun. 30, 2017 | |
Summary of Significant Accounting Policies [Abstract] | |
Basis of Presentation | Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations. Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data. In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2017, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements.
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Use of Estimates | Use of estimates: The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of credit losses on notes receivable and the fair valuation of equity securities and warrants.
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Segment Reporting | Segment reporting: The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States. The primary geographic region in which the Company seeks financing opportunities is North America. Currently, 100% of the Company’s operating revenues are from customers domiciled in the United States.
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Accounts Receivable | Accounts Receivable Accounts receivable represent the amounts billed under notes receivable which are currently due to the Company. Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received. Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with note payments outstanding less than 90 days. Based upon management’s judgment, such notes may be placed in non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. All payments received on amounts billed under notes receivable are applied only against outstanding principal balances.
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Valuation Adjustments | Valuation Adjustments In addition to the allowance established for delinquent accounts receivable, the total allowance also includes probable impairment charges on notes receivable. Notes are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and/or interest when due according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.
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Investment in Securities | Investment in securities: From time to time, the Company may purchase securities of its borrowers or receive warrants and rights to purchase securities in connection with its lending arrangements. Purchased securities Purchased securities (primarily preferred stocks) are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. As of June 30, 2017 and December 31, 2016, investments in equity securities totaled $521 thousand for both periods. There were no sales or dispositions of securities during the three and six months ended June 30, 2017 and 2016, respectively. Warrants Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. At June 30, 2017 and December 31, 2016, the Managing Member estimated the fair value of warrants to be $508 thousand and $481 thousand, respectively. During the three and six months ended June 30, 2017, the Company recorded an unrealized loss of $2 thousand and an unrealized gain of $27 thousand, respectively, on the fair valuation of its warrants. During the three and six months ended June 30, 2016, the Company recorded unrealized losses of $33 thousand and $19 thousand, respectively, on fair valuation of its warrants. The Company also realized $0 thousand and $1 thousand related to the net exercise of certain warrants during the three and six month periods ended June 30, 2017, respectively. There were no exercises of warrants during the three and six months ended June 30, 2017, and 2016. See Note 8 for further discussion.
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Credit Risk | Credit risk: Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, notes receivable and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250,000. The remainder of the Funds’ cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from various industries.
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Per Unit Data | Per Unit data: The Company issues only one class of Units, none of which are considered dilutive. Net income (loss) per Unit is based upon the weighted average number of Other Members Units outstanding during the period.
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Fair Value | Fair value: Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market. Level 3 – Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company's own estimates of assumptions that market participants would use in pricing the asset or liability. The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes and third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.
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Recent Accounting Pronouncements | Recent accounting pronouncements: In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-15 — Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting. The adoption of ASU 2016-15 by the Company is not expected to have a material effect on its financial statements. In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments. In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements. The Company’s implementation efforts include the identification of equity securities within the scope of the guidance, the evaluation of the measurement alternative available for equity securities without a readily determinable fair value, and the related impact to accounting policies, presentation and disclosures. In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company expects to adopt the Standards Update. A preliminary evaluation of the impact of such adoption on the financial statements of the Fund indicates that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues. Management expects that accounting policies will not materially change since the principles of revenue recognition from the standard are largely consistent with existing guidance and current practices applied by the Company.
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Notes Receivable, Net (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Minimum Future Payments Receivable | As of June 30, 2017, the minimum future payments receivable are as follows (in thousands):
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Notes Receivable A [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notes Receivable on Non-Accrual Status | As of June 30, 2017 and December 31, 2016, four (Notes A and C) and seven (Note A, B and C) of the Company’s notes receivable were on non-accrual status, respectively. Details are as follows, in thousands, except for the number of notes receivable and the annual interest rate:
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Notes Receivable B [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notes Receivable on Non-Accrual Status |
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Notes Receivable C [Member] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Notes Receivable on Non-Accrual Status |
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Allowance for Credit Losses (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Allowance for Credit Losses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity in Allowance for Doubtful Accounts | The Company’s allowance for credit losses are as follows (in thousands):
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Recorded Investment in Financing Receivables | The Company’s allowance for credit losses and its recorded investment in notes receivable as of June 30, 2017 and December 31, 2016 were as follows (in thousands):
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Financing Receivables by Credit Quality Indicator and by Class | At June 30, 2017 and December 31, 2016, the Company’s notes receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):
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Schedule of Impaired Loans | As of June 30, 2017 and December 31, 2016, the Company’s impaired loans were as follows (in thousands):
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Net Investment in Financing Receivables by Age | At June 30, 2017 and December 31, 2016, investment in financing receivables is aged as follows (in thousands):
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Related Party Transactions (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Managing Member and/or Affiliates Earned Commissions and Billed for Reimbursements Pursuant to Operating Agreement | During the three and six months ended June 30, 2017 and 2016, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):
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Members' Capital (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Members' Capital [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Distributions to Other Members | Distributions to the Other Members for the three and six months ended June 30, 2017 and 2016 are as follows (in thousands, except as to Units and per Unit data):
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Level 3 Recurring Assets | The fair value of warrants that were accounted for on a recurring basis as of the three and six months ended June 30, 2017 and 2016 and classified as level 3 are as follows (in thousands):
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Fair Value Measurement of Impaired Assets and Liabilities Measured at Fair Value on Non-Recurring Basis | The following table presents the fair value measurement of impaired assets measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2016 (in thousands):
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Summary of Valuation Techniques and Significant Unobservable Inputs | The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and non-recurring fair value calculation categorized as Level 3 in the fair value hierarchy at June 30, 2017 and December 31, 2016:
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Estimated Fair Values of Financial Instruments | The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at June 30, 2017 and December 31, 2016 (in thousands):
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Organization and Limited Liability Company Matters (Narrative) (Details) - USD ($) |
67 Months Ended | ||
---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
Dec. 31, 2011 |
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Organization and Limited Liability Company Matters [Abstract] | |||
Contributions of capital, initial | $ 500 | ||
Capital contribution | $ 16,200,000 | ||
Units issued | 1,615,096 | 1,618,296 | |
Units outstanding | 1,615,096 | 1,618,296 |
Notes Receivable, Net (Narrative) (Details) - contract |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Number of notes receivables on non-accrual status | 4 | 7 |
Minimum [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Terms of the notes receivable | 30 months | |
Notes receivable, interest rate | 11.25% | |
Notes maturity period | 2017 | |
Maximum [Member] | ||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||
Terms of the notes receivable | 84 months | |
Notes receivable, interest rate | 18.06% | |
Notes maturity period | 2020 |
Notes Receivable, Net (Minimum Future Payments Receivable) (Details) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Notes Receivable, Net [Abstract] | ||
Six months ending December 31, 2017 | $ 1,093 | |
Year ending December 31, 2018 | 1,747 | |
2019 | 1,025 | |
2020 | 57 | |
Notes receivable, gross | 3,922 | |
Less: portion representing unearned interest income, net | (696) | |
Less: allowance for credit losses | (82) | |
Notes receivable, net | $ 3,144 | $ 4,430 |
Allowance for Credit Losses (Activity in Allowance for Doubtful Accounts) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
(Reversal of) provision for credit losses | $ (24) | $ 611 | $ (24) | $ 620 | $ 620 |
Ending Balance | 82 | 82 | |||
Valuation Adjustments on Financing Receivables [Member] | |||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||
Beginning Balance | 717 | $ 97 | 97 | ||
(Reversal of) provision for credit losses | (24) | 620 | |||
Notes receivable disposal | (611) | ||||
Ending Balance | $ 82 | $ 82 | $ 717 |
Allowance for Credit Losses (Recorded Investment in Financing Receivables) (Details) - Notes Receivable [Member] - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Allowances for credit losses: | ||
Ending balance | $ 82 | $ 717 |
Ending balance: individually evaluated for impairment | 82 | 717 |
Ending balance: collectively evaluated for impairment | ||
Financing receivables: | ||
Ending balance | 3,226 | 5,147 |
Ending balance: individually evaluated for impairment | 3,226 | 5,147 |
Ending balance: collectively evaluated for impairment |
Allowance for Credit Losses (Financing Receivables by Credit Quality Indicator and by Class) (Details) - USD ($) $ in Thousands |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Financing Receivable, Recorded Investment [Line Items] | ||
Notes receivable | $ 3,226 | $ 5,147 |
Pass [Member] | ||
Financing Receivable, Recorded Investment [Line Items] | ||
Notes receivable | 2,879 | 4,293 |
Special Mention [Member] | ||
Financing Receivable, Recorded Investment [Line Items] | ||
Notes receivable | $ 347 | 53 |
Substandard [Member] | ||
Financing Receivable, Recorded Investment [Line Items] | ||
Notes receivable | 133 | |
Doubtful [Member] | ||
Financing Receivable, Recorded Investment [Line Items] | ||
Notes receivable | $ 668 |
Allowance for Credit Losses (Schedule of Impaired Loans) (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|
Allowance for Credit Losses [Abstract] | ||
Notes receivable, With no allowance recorded, Recorded investment | ||
Notes receivable, With no allowance recorded, Unpaid principal balance | ||
Notes receivable, With no allowance recorded, Average recorded investment | ||
Notes receivable, With no allowance recorded, Interest income recognized | ||
Notes receivable, With an allowance recorded, Recorded investment | 82 | 801 |
Notes receivable, With an allowance recorded, Unpaid principal balance | 82 | 809 |
Notes receivable, With an allowance recorded, Related allowance | 82 | 717 |
Notes receivable, With an allowance recorded, Average recorded investment | 95 | 833 |
Notes receivable, With an allowance recorded, Interest income recognized | ||
Recorded investment, Total | 82 | 801 |
Unpaid principal balance, Total | 82 | 809 |
Average recorded investment, Total | 95 | 833 |
Interest income recognized, Total |
Related Party Transactions (Managing Member and/or Affiliates Earned Commissions and Billed for Reimbursements Pursuant to Operating Agreement (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Related Party Transactions [Abstract] | ||||
Administrative costs reimbursed to Managing Member and/or affiliates | $ 63 | $ 59 | $ 135 | $ 115 |
Asset management fees to Managing Member | 14 | 19 | 32 | 40 |
Acquisition costs and note origination fees paid to Managing Member | 41 | 40 | 105 | 41 |
Related party transaction, total | $ 118 | $ 118 | $ 272 | $ 196 |
Commitments (Narrative) (Details) $ in Millions |
Jun. 30, 2017
USD ($)
|
---|---|
Commitments [Abstract] | |
Commitments to fund investments in notes receivable | $ 1.5 |
Members' Capital (Narrative) (Details) - shares |
Jun. 30, 2017 |
Dec. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|
Other Members Capital Account [Line Items] | |||
Members capital account, Units issued | 1,615,096 | 1,618,296 | |
Members capital account, Units outstanding | 1,615,096 | 1,618,296 | |
Members capital account, Units authorized | 7,500,000 | 7,500,000 | |
Other Members [Member] | |||
Other Members Capital Account [Line Items] | |||
Members capital account, Units issued | 1,615,096 | ||
Members capital account, Units outstanding | 1,615,096 | 1,618,296 | 1,618,296 |
Managing Member [Member] | |||
Other Members Capital Account [Line Items] | |||
Members capital account, Units issued | 50 | 50 |
Members' Capital (Distributions to Other Members) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Members' Capital [Abstract] | |||||
Distributions declared | $ 444 | $ 446 | $ 888 | $ 891 | $ 1,780 |
Weighted average number of Units outstanding | 1,615,475 | 1,618,296 | 1,616,311 | 1,618,296 | |
Weighted average distributions per Unit | $ 0.27 | $ 0.28 | $ 0.55 | $ 0.55 | $ 1.10 |
Fair Value Measurements (Narrative) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Fair Value Measurements [Abstract] | |||||
Warrants, fair value | $ 508 | $ 508 | $ 481 | ||
Fair value adjustments recorded on notes receivable | $ (24) | $ 611 | $ (24) | $ 620 | $ 620 |
Fair Value Measurements (Reconciliation of Level 3 Recurring Assets) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Fair value of warrants at beginning of period | $ 481 | |||
Unrealized (loss) gain on fair value adjustment for warrants | $ (2) | $ (33) | 27 | $ (19) |
Fair value of warrants at end of period | 508 | 508 | ||
Level 3 Estimated Fair Value [Member] | ||||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||
Fair value of warrants at beginning of period | 510 | 736 | 481 | 722 |
Unrealized (loss) gain on fair value adjustment for warrants | (2) | (33) | 27 | (19) |
Fair value of warrants at end of period | $ 508 | $ 703 | $ 508 | $ 703 |
Fair Value Measurements (Fair Value Measurement of Impaired Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis) (Details) $ in Thousands |
Dec. 31, 2016
USD ($)
|
---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Impaired notes receivable, net | $ 84 |
Level 3 Estimated Fair Value [Member] | |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | |
Impaired notes receivable, net | $ 84 |
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