10-Q 1 v406584_atel12-10q.htm 10-Q

  

  

 

  

Form 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
x   Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2015

 
o   Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.

For the transition period from          to         

Commission File number 000-53618

ATEL 12, LLC

(Exact name of registrant as specified in its charter)

 
California   20-8712853
(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)

Registrant’s 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

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 April 30, 2015 was 2,992,482.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL 12, LLC
 
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, March 31, 2015 and December 31, 2014     3  
Statements of Income for the three months ended March 31, 2015 and 2014     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2014 and for the three months ended March 31, 2015     5  
Statements of Cash Flows for the three months ended March 31, 2015 and 2014     6  
Notes to the Financial Statements     7  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

    22  

Item 4.

Controls and Procedures

    25  

Part II.

Other Information

    27  

Item 1.

Legal Proceedings

    27  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    27  

Item 3.

Defaults Upon Senior Securities

    27  

Item 4.

Mine Safety Disclosures

    27  

Item 5.

Other Information

    27  

Item 6.

Exhibits

    27  

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TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 12, LLC
 
BALANCE SHEETS

MARCH 31, 2015 AND DECEMBER 31, 2014
(In Thousands)

   
  March 31,
2015
  December 31,
2014
     (Unaudited)     
ASSETS
                 
Cash and cash equivalents   $       2,129     $       2,277  
Due from Managing Member           4  
Accounts receivable, net of allowance for doubtful accounts of $25 at March 31, 2015 and $15 at December 31, 2014     47       184  
Notes receivable, net of unearned interest income of $74 at March 31, 2015 and $97 as of December 31, 2014     718       837  
Investment in securities     258       258  
Fair value of warrants     410       393  
Investments in equipment and leases, net of accumulated depreciation of $11,060 at March 31, 2015 and $11,027 at December 31, 2014     5,502       6,058  
Prepaid expenses and other assets     25       29  
Total assets   $ 9,089     $ 10,040  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 49     $  
Accrued distributions to Other Members     229       229  
Other     266       276  
Non-recourse debt     1,604       1,894  
Unearned operating lease income     102       90  
Total liabilities     2,250       2,489  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     6,839       7,551  
Total Members’ capital     6,839       7,551  
Total liabilities and Members’ capital   $ 9,089     $ 10,040  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 12, LLC
 
STATEMENTS OF INCOME
 

FOR THE THREE MONTHS ENDED
MARCH 31, 2015 AND 2014

(In Thousands Except for Units and Per Unit Data)
(Unaudited)

   
  Three Months Ended
March 31,
     2015   2014
Revenues:
                 
Leasing and lending activities:
                 
Operating leases   $       588     $       901  
Direct financing leases     13       25  
Interest on notes receivable     23       49  
Gain on sales of lease assets and early termination of notes     31       115  
Unrealized gain (loss) on fair valuation of warrants     17       (78 ) 
Other     4       1  
Total revenues     676       1,013  
Expenses:
                 
Depreciation of operating lease assets     420       632  
Asset management fees to Managing Member     21       40  
Acquisition expense           23  
Cost reimbursements to Managing Member and/or affiliates     66       78  
Provision for credit losses     10        
Amortization of initial direct costs     3       7  
Interest expense     9       22  
Professional fees     65       58  
Outside services     13       13  
Taxes on income and franchise fees     38        
Other     15       26  
Total expenses     660       899  
Net income   $ 16     $ 114  
Net income (loss):
                 
Managing Member   $ 55     $ 55  
Other Members     (39 )      59  
     $ 16     $ 114  
Net (loss) income per Limited Liability Company Unit
(Other Members)
  $ (0.01 )    $ 0.02  
Weighted average number of Units outstanding     2,992,482       2,993,482  

See accompanying notes.

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ATEL 12, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
 

FOR THE YEAR ENDED DECEMBER 31, 2014
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2015

(In Thousands Except for Units and Per Unit Data)

       
  Other Members   Managing
Member
  Total
     Units   Amount
Balance December 31, 2013     2,993,482     $    9,571     $      —     $     9,571  
Repurchases of Units     (1,000 )      (3 )            (3 ) 
Distributions to Other Members ($0.90 per Unit)           (2,693 )            (2,693 ) 
Distributions to Managing Member                 (218 )      (218 ) 
Net income           676       218       894  
Balance December 31, 2014     2,992,482       7,551             7,551  
Distributions to Other Members ($0.22 per Unit)           (673 )            (673 ) 
Distributions to Managing Member                 (55 )      (55 ) 
Net (loss) income           (39 )      55       16  
Balance March 31, 2015 (Unaudited)     2,992,482     $ 6,839     $     $ 6,839  

See accompanying notes.

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ATEL 12, LLC
 
STATEMENTS OF CASH FLOWS
 

FOR THE THREE MONTHS ENDED
MARCH 31, 2015 AND 2014

(In Thousands)
(Unaudited)

   
  Three Months Ended
March 31,
     2015   2014
Operating activities:
                 
Net income   $       16     $       114  
Adjustment to reconcile net income to cash provided by operating activities:
                 
Gain on sales of lease assets and early termination of notes     (31 )      (115 ) 
Depreciation of operating lease assets     420       632  
Amortization of initial direct costs     3       7  
Provision for credit losses     10        
Unrealized (gain) loss on fair valuation of warrants     (17 )      78  
Changes in operating assets and liabilities:
                 
Accounts receivable     127       22  
Prepaid expenses and other assets     4       5  
Accounts payable, Managing Member     53       40  
Accounts payable, other     (10 )      16  
Unearned operating lease income     12       (39 ) 
Net cash provided by operating activities     587       760  
Investing activities:
                 
Proceeds from sales of lease assets and early termination of notes     141       183  
Payments of initial direct costs           (5 ) 
Principal payments received on direct financing leases     24       27  
Principal payments received on notes receivable     118       192  
Net cash provided by investing activities     283       397  
Financing activities:
                 
Repayments under non-recourse debt     (290 )      (587 ) 
Distributions to Other Members     (673 )      (673 ) 
Distributions to Managing Member     (55 )      (55 ) 
Net cash used in financing activities     (1,018 )      (1,315 ) 
Net decrease in cash and cash equivalents     (148 )      (158 ) 
Cash and cash equivalents at beginning of period     2,277       857  
Cash and cash equivalents at end of period   $ 2,129     $ 699  
Supplemental disclosures of cash flow information:
                 
Cash paid during the period for interest   $ 9     $ 23  
Cash paid during the period for taxes   $ 1     $ 1  
Schedule of non-cash transactions:
                 
Distributions payable to Other Members at period-end   $ 229     $ 230  
Distributions payable to Managing Member at period-end   $ 19     $ 19  

See accompanying notes.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL 12, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on January 25, 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the “principal operations”). From its inception into the third quarter of 2013, the Company’s Managing Member was ATEL Associates 12, LLC (“AA12”), a Nevada limited liability company. Effective September 30, 2013, AA12 was merged into ATEL Financial Services, LLC (“AFS”) (the “Managing Member” or “Manager”), a California limited liability company, which assumed the role of Managing Member of the Company. The Fund may continue until December 31, 2030. 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 Company conducted a public offering of 20,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2008. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. The offering was terminated on September 25, 2009.

As of March 31, 2015, cumulative contributions, net of rescissions and/or redemptions, totaling $29.9 million (inclusive of the $500 initial Member’s capital investment) have been received and 2,992,482 Units were issued and outstanding.

The Fund, or Managing Member and/or affiliates on behalf of the Fund, has incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs to be borne by the Fund is limited by certain provisions of the ATEL 12, LLC Limited Liability Company Operating Agreement dated April 3, 2007 (the “Operating Agreement”).

The Company’s principal objectives are to invest in a diversified portfolio of investments that (i) preserves, protects and returns the Company’s invested capital; (ii) generates regular cash distributions to Unitholders, any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Company’s public offering of Units) which ends on December 31, 2015 and (iii) provides additional cash distributions following the Reinvestment Period and until all investment portfolio assets have been sold or otherwise disposed. The Company is governed by its Operating Agreement, as amended.

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, 2014, filed with the Securities and Exchange Commission.

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 months ended March 31, 2015 are not necessarily indicative of the results to be expected for the full year.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

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 from operations.

Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.

In preparing the accompanying unaudited financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2015, 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 residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowances for doubtful accounts and reserve for credit losses on notes receivable.

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 regions in which the Company sought leasing opportunities were North America and Europe. For the three months ended March 31, 2015 and 2014, and as of March 31, 2015 and December 31, 2014, 100% of the Company’s operating revenues and long-lived assets relate to customers domiciled in North America.

Investment in securities:

Purchased securities

Purchased securities 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. Based upon the Company’s review of its portfolio, no fair value adjustment was deemed necessary for the three months ended March 31, 2015 and 2014. Purchased securities totaled $258 thousand at both March 31, 2015 and December 31, 2014. There were no sales or dispositions of securities during the three months ended March 31, 2015 and 2014.

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. During the three months ended March 31, 2015 and 2014, the Company recorded unrealized gains of $17 thousand and unrealized losses of $78 thousand, respectively, on fair valuation of its warrants. As of March 31, 2015 and December 31, 2014, the estimated fair value of the Company’s portfolio of warrants amounted to $410 thousand and $393 thousand, respectively. There were no net exercises of warrants during the three months ended March 31, 2015 and 2014.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

2. Summary of significant accounting policies: - (continued)

Per Unit data:

Net income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.

Recent accounting pronouncements:

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 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. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

3. Notes receivable, net:

The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At March 31, 2015, the terms of the notes receivable are from 36 to 42 months and bear interest at rates ranging from 11.37% to 14.30% per annum. The notes are generally secured by the equipment financed and have maturity dates ranging from 2015 through 2017. The Company had neither notes in non-accrual status nor impaired notes at both March 31, 2015 and December 31, 2014.

As of March 31, 2015, the minimum future payments receivable are as follows (in thousands):

 
Nine months ending December 31, 2015   $       349  
Year ending December 31, 2016     400  
2017     40  
       789  
Less: portion representing unearned interest income     (74 ) 
       715  
Unamortized initial direct costs     3  
Notes receivable, net   $ 718  

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

3. Notes receivable, net: - (continued)

Initial direct costs (“IDC”) amortization expense related to notes receivable and the Company’s operating and direct financing leases for the three months ended March 31, 2015 and 2014 are as follows (in thousands):

   
  Three Months Ended
March 31,
     2015   2014
IDC amortization – notes receivable   $         1     $          2  
IDC amortization – lease assets     2       5  
Total   $ 3     $ 7  

4. Allowance for credit losses:

The Company’s allowance for credit losses are as follows (in thousands):

           
  Accounts Receivable Allowance for
Doubtful Accounts
  Valuation Adjustments on
Financing Receivables
  Total
Allowance
for Credit
Losses
     Notes
Receivable
  Finance
Leases
  Operating
Leases
  Notes
Receivable
  Finance
Leases
 
Balance December 31, 2013   $      —     $       —     $       3     $      —     $       —     $       3  
Provision           1       11                   12  
Balance December 31, 2014           1       14                   15  
Provision           4       6                   10  
Balance March 31, 2015   $     $ 5     $ 20     $     $     $ 25  

Accounts receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and 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 lessees and 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 lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases and notes receivable are applied only against outstanding principal balances.

Financing receivables

In addition to the allowance established for delinquent accounts receivable, the total allowance related solely to financing receivables also includes anticipated impairment charges on notes receivable and direct financing leases.

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

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest when due. If it is determined that a loan is impaired with regard to scheduled payments, the Company will perform an analysis of the note to determine if an impairment valuation reserve is necessary. This analysis considers the estimated cash flows from the note, or the collateral value of the property underlying the note when note repayment is collateral dependent. Any required valuation reserve is charged to earnings when determined; and notes are charged off to the allowance as they are deemed uncollectible.

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.

The Company’s allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables as of March 31, 2015 and December 31, 2014 were as follows (in thousands):

     
March 31, 2015   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $       —     $       —     $       —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 7181     $ 83     $ 801  
Ending balance: individually evaluated for impairment   $ 718     $ 83     $ 801  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
1 Includes $3 of unamortized initial direct costs.

     
December 31, 2014   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $       —     $       —     $       —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 8372     $ 107     $ 944  
Ending balance: individually evaluated for impairment   $ 837     $ 107     $ 944  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
2 Includes $4 of unamortized initial direct costs.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass – Any account whose lessee/debtor, co-lessee/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 March 31, 2015 and December 31, 2014, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):

       
  Notes Receivable   Finance Leases
     March 31, 2015   December 31, 2014   March 31, 2015   December 31, 2014
Pass   $       630     $       833     $        83     $       107  
Special mention     85                    
Substandard                        
Doubtful                        
Total   $ 715     $ 833     $ 83     $ 107  

At March 31, 2015 and December 31, 2014, investment in financing receivables is aged as follows (in thousands):

             
March 31, 2015   31 – 60 Days Past Due   61 – 90 Days
Past Due
  Greater
Than
90 Days
  Total Past
Due
  Current   Total
Financing
Receivables
  Recorded
Investment
> 90 Days
and Accruing
Notes receivable   $       —     $       —     $       —     $       —     $      715     $      715     $       —  
Finance leases                 32       32       51       83       32  
Total   $     $     $ 32     $ 32     $ 766     $ 798     $ 32  

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

             
December 31, 2014   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   $       —     $      —     $       —     $       —     $      833     $      833     $       —  
Finance leases                 47       47       60       107       47  
Total   $     $     $ 47     $ 47     $ 893     $ 940     $ 47  

The Company had neither financing receivables in non-accrual status nor impaired financing receivables at both March 31, 2015 and December 31, 2014. As of March 31, 2015 and December 31, 2014, certain investments in financing receivables with related accounts receivable past due more than 90 days were still on an accrual basis based on management’s assessment of the collectability of such receivables. However, these accounts receivable were fully reserved and included in the allowance for doubtful accounts presented above.

5. Investments in equipment and leases, net:

The Company’s investment in leases consists of the following (in thousands):

       
  Balance
December 31,
2014
  Reclassifications,
Additions/
Dispositions and
Impairment
Losses
  Depreciation/
Amortization
Expense or
Amortization
of Leases
  Balance
March 31,
2015
Net investment in operating leases   $       5,242     $         (19 )    $        (420 )    $       4,803  
Net investment in direct financing leases     107             (24 )      83  
Assets held for sale or lease, net     701       (91 )            610  
Initial direct costs, net of accumulated amortization of $43 at March 31, 2015 and $44 at December 31, 2014     8             (2 )      6  
Total   $ 6,058     $ (110 )    $ (446 )    $ 5,502  

Impairment of investments in leases:

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances.

As a result of these reviews, the Company recorded fair value adjustments of $226 thousand during 2014 to reduce the cost basis of certain impaired off-lease equipment. There were no such adjustments during the three months ended March 31, 2015.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

5. Investments in equipment and leases, net: - (continued)

The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $420 thousand and $632 thousand for the respective three months ended March 31, 2015 and 2014.

IDC amortization expense related to the Company’s operating leases totaled $2 thousand and $5 thousand for the respective three months ended March 31, 2015 and 2014 (See Note 3).

All of the Company’s leased property was acquired in the years 2008 through 2013.

Operating leases:

Property on operating leases consists of the following (in thousands):

       
  Balance
December 31,
2014
  Additions   Reclassifications
or Dispositions
  Balance
March 31,
2015
Transportation   $       4,935     $          —     $         —     $       4,935  
Construction     2,740                   2,740  
Manufacturing     2,434                   2,434  
Aviation     2,167                   2,167  
Materials handling     1,291             (45 )      1,246  
Computer     119             (32 )      87  
Other     1                   1  
       13,687             (77 )      13,610  
Less accumulated depreciation     (8,445 )      (420 )      58       (8,807 ) 
Total   $ 5,242     $ (420 )    $ (19 )    $ 4,803  

The average estimated residual value for assets on operating leases was 24% of the assets’ original cost at both March 31, 2015 and December 31, 2014. There were no operating leases in non-accrual status at March 31, 2015 and December 31, 2014.

Direct financing leases:

As of March 31, 2015 and December 31, 2014, investment in direct financing leases consists of materials handling equipment. The components of the Company’s investment in direct financing leases as of March 31, 2015 and December 31, 2014 are as follows (in thousands):

   
  March 31,
2015
  December 31,
2014
Total minimum lease payments receivable   $       100     $        137  
Estimated residual values of leased equipment (unguaranteed)     2       2  
Investment in direct financing leases     102       139  
Less unearned income     (19 )      (32 ) 
Net investment in direct financing leases   $ 83     $ 107  

There were no investments in direct financing leases in non-accrual status at March 31, 2015 and December 31, 2014.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

5. Investments in equipment and leases, net: - (continued)

At March 31, 2015, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

     
  Operating
Leases
  Direct Financing
Leases
  Total
Nine months ending December 31, 2015   $         926     $         82     $         1,008  
Year ending December 31, 2016     664       17       681  
2017     552       1       553  
2018     109             109  
     $ 2,251     $ 100     $ 2,351  

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of March 31, 2015, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

 
Equipment category   Useful Life
Aviation     15 – 20  
Manufacturing     10 – 15  
Construction     7 – 10  
Materials handling     7 – 10  
Transportation     7 – 10  
Computer     3 – 5  

6. Related party transactions:

The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company.

The Operating Agreement allows for the reimbursement of costs incurred by Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and lease and equipment 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. The Company would be liable for certain future costs to be incurred by the Managing Member to manage the administrative services provided to the Company.

Each of AFS and ATEL Leasing Corporation (“ALC”) is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.

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 managed 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.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

6. Related party transactions: - (continued)

During the three months ended March 31, 2015 and 2014, the Managing Member and/or affiliates earned fees and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows (in thousands):

   
  Three Months Ended
March 31,
     2015   2014
Administrative costs reimbursed to Managing Member and/or affiliates   $       66     $        78  
Asset management fees to Managing Member     21       40  
Acquisition and initial direct costs paid to Managing Member and/or affiliates           28  
     $ 87     $ 146  

7. Non-recourse debt:

At March 31, 2015, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 1.78% to 2.75% per annum. The notes are secured by assignments of lease payments and pledges of assets. At March 31, 2015, gross lease rentals totaled approximately $1.6 million over the remaining lease terms; and the carrying value of the pledged assets is approximately $3.1 million. The notes mature at various dates from 2015 through 2018.

The non-recourse debt does not contain any material financial covenants. The debt is secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.

Future minimum payments of non-recourse debt are as follows (in thousands):

     
  Principal   Interest   Total
Nine months ending December 31, 2015   $         583     $          21     $         604  
Year ending December 31, 2016     454       17       471  
2017     464       7       471  
2018     103       1       104  
     $ 1,604     $ 46     $ 1,650  

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

8. Borrowing facilities:

During the first quarter of 2015, the Company’s participation in a revolving credit facility (the “Credit Facility”) with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.

Prior to the first quarter of 2015, the Company participated with AFS and certain of its affiliates in the Credit Facility comprised of a working capital facility to AFS, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”) to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions as lenders. The Credit Facility was for an amount up to $75 million and included certain financial covenants. The interest rate on the Credit Facility was based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-priced daily. Principal amounts of loans made under the Credit Facility that were prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility.

9. Commitments:

At March 31, 2015, the Company had no commitments to purchase lease assets or fund investments in notes receivable.

10. Guarantees:

The Company enters into contracts that contain a variety of indemnifications. The Company’s maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The Managing Member knows of no facts or circumstances that would make the Company’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Company’s similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP.

11. Members’ capital:

A total of 2,992,482 Units were issued and outstanding at both March 31, 2015 and December 31, 2014. The Fund was authorized to issue up to 20,000,000 total Units.

The Company has the right, exercisable in the Manager’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

11. Members’ capital: - (continued)

The Fund’s net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, as defined in the Company’s Operating Agreement, net income and net loss shall be allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss shall be allocated 92.5% to the Other Members and 7.5% to the Managing Member.

Fund distributions are to be allocated 7.5% to the Managing Member and 92.5% to the Other Members. Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):

   
  Three Months Ended
March 31,
     2015   2014
Distributions   $        673     $         673  
Weighted average number of Units outstanding     2,992,482       2,993,482  
Weighted average distributions per Unit   $ 0.22     $ 0.22  

12. Fair value measurements:

Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange.

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.

At March 31, 2015 and December 31, 2014, only the Company’s warrants were measured on a recurring basis.

The Company had no non-recurring adjustments during the three months ended March 31, 2015 and 2014. During the last nine months of 2014, the Company recorded non-recurring adjustments to reflect the fair values of certain impaired off-lease assets. Amounts at December 31, 2014 reflect the fair value of the then existing impaired assets.

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, information from third party remarketing agents, 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

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.

The fair value adjustments utilized the following methodology:

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 stock price(s), the exercise price(s), the volatility of comparable venture companies, and a risk free interest rate for the term(s) of the warrant exercise(s). As of March 31, 2015 and December 31, 2014, the calculated fair values of the Fund’s warrant portfolio approximated $410 thousand and $393 thousand, respectively. Such valuations are classified within Level 3 of the valuation hierarchy.

The following table reconciles the beginning and ending balances of the Company’s Level 3 recurring assets (in thousands):

 
  Level 3
Assets
Balance at December 31, 2014   $          393  
Unrealized gain on warrants, net recorded during the period     17  
Balance at March 31, 2015   $ 410  

Impaired off-lease equipment (non-recurring)

The Company did not record non-recurring fair value adjustment during the first quarters of 2015 and 2014. During the second quarter of 2014, the Company deemed certain off-lease equipment (assets) to be impaired and recorded fair value adjustments of $226 thousand to reduce the cost basis of the equipment. Such amount also represents total fair value adjustments through December 31, 2014.

The fair value adjustments recorded during 2014 were non-recurring. Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired lease assets were classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of such assets reflect significant inputs that are unobservable in the market. Such valuation utilizes a market approach technique and uses inputs that reflect the sales price of similar assets sold by affiliates and/or information from third party remarketing agents not readily available in the market.

The following table presents the fair value measurement of 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, 2014 (in thousands):

       
  December 31,
2014
  Level 1
Estimated
Fair Value
  Level 2
Estimated
Fair Value
  Level 3
Estimated
Fair Value
Impaired off-lease equipment   $       610     $       —     $       —     $       610  

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring fair value calculation categorized as Level 3 in the fair value hierarchy at March 31, 2015 and December 31, 2014:

       
                                                                                  March 31, 2015
Name   Valuation Frequency   Valuation Technique   Unobservable Inputs   Range of Input Values
Warrants
    Recurring       Black-Scholes formulation       Stock price       $0.05 – $25.76  
                         Exercise price       $0.05 – $25.76  
                         Time to maturity (in years)
      0.72 – 7.30  
                         Risk-free interest rate       0.20% – 1.74%  
                         Annualized volatility       15.63% – 100.00%  

       
                                                                                  December 31, 2014
Name   Valuation Frequency   Valuation Technique   Unobservable Inputs   Range of Input Values
Warrants
    Recurring       Black-Scholes formulation       Stock price       $0.05 – $25.76  
                         Exercise price       $0.05 – $25.76  
                         Time to maturity (in years)
      0.96 – 7.55  
                         Risk-free interest rate       0.25% – 2.01%  
                         Annualized volatility       15.88% – 100.00%  
Lease Equipment
    Non-recurring       Market Approach       Third Party Agents’ Pricing
  Quotes – per equipment
      $5,000 – $150,000
(total of $610,000)
 
                         Equipment Condition       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 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. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize or has realized in a current market exchange. 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.

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ATEL 12, LLC
 
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)

12. Fair value measurements: - (continued)

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.

Non-recourse debt

The fair value of the Company’s non-recourse debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements.

Commitments and Contingencies

Management has determined that no recognition for the fair value of the Company’s loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Company’s credit requirements at the time of funding.

The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred.

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 March 31, 2015 and December 31, 2014 (in thousands):

         
  Fair Value Measurements at March 31, 2015
     Carrying Value   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $      2,129     $      2,129     $        —     $         —     $       2,129  
Notes receivable, net     718                   718       718  
Investment in securities     258                   258       258  
Fair value of warrants     410                   410       410  
Financial liabilities:
 
Non-recourse debt     1,604                   1,603       1,603  

         
  Fair Value Measurements at December 31, 2014
     Carrying Value   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $      2,277     $      2,277     $        —     $         —     $       2,277  
Notes receivable, net     837                   837       837  
Investment in securities     258                   258       258  
Fair value of warrants     393                   393       393  
Financial liabilities:
                                            
Non-recourse debt     1,894                   1,885       1,885  

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

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” 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, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. 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.

Overview

ATEL 12, LLC (the “Company” or the “Fund”) is a California limited liability company that was formed in January 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the “principal operations”), primarily in the United States.

The Company conducted a public offering of 20,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter of 2008. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. As of September 25, 2009, the offering was terminated.

During 2009, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Company has utilized its credit facilities and reinvested cash flow in excess of certain amounts required to be distributed to the Other Members to acquire additional equipment and/or to fund financing transactions. Throughout the Reinvestment Period, which ends December 31, 2015, the Company anticipates continued reinvestment of cash flow in excess of minimum distributions and other obligations. The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”), as amended.

The Company may continue until December 31, 2030. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

The three months ended March 31, 2015 versus the three months ended March 31, 2014

The Company had net income of $16 thousand and $114 thousand for the three months ended March 31, 2015 and 2014, respectively. Results for the first quarter of 2015 reflect decreases in both total revenues and total expenses when compared to the prior year period.

Revenues

Total revenues for the first quarter of 2015 decreased by $337 thousand, or 33%, as compared to the prior year period. The decrease was primarily due to a reduction in operating lease revenues and gain on sales of lease assets and early termination of notes offset, in part, by an unrealized gain on fair valuation of warrants.

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The decrease in operating lease revenues totaled $313 thousand and was primarily a result of run-off and sales of lease assets. Gain on sales of lease assets and early termination of notes declined by $84 thousand largely due to a reduction in volume and a change in the mix of assets sold.

Partially offsetting the aforementioned decreases in revenue was a gain on fair valuation of warrants. During the first quarter of 2015, the Company recorded $17 thousand of unrealized gains on fair valuation of warrants as compared to $78 thousand of unrealized losses during the prior year period. The unrealized gains for the current year period increased the fair value of the Company’s portfolio of warrants from $393 thousand at December 31, 2014 to $410 thousand at March 31, 2015. Such change in market value was attributable to the required periodic revaluation of the warrants in the Company’s portfolio of investments. In this regard, the majority of the increase in fair market value is related to the period over period growth in the stock price of one portfolio company.

Expenses

Total expenses for the first quarter of 2015 decreased by $239 thousand, or 27%, as compared to the prior year period. The net decrease in expenses was primarily the result of reductions in depreciation expense, acquisition expense and asset management fees to the Managing Member offset, in part, by an increase in taxes on income and franchise fees.

The reduction in depreciation expense totaled $212 thousand and was largely a result of run-off and sales of lease assets. Acquisition expense decreased by $23 thousand as new funding activities ceased for the Fund; and, asset management fees paid to Managing Member declined by $19 thousand as a result of the continued decline in managed assets and related rents.

Partially offsetting the aforementioned decreases in expenses was a $38 thousand increase in taxes on income and franchise fees. Such increase was attributable to an increase in estimated tax payments and liabilities based on higher overall taxable income during 2014, including gains on sales of lease assets.

Capital Resources and Liquidity

At March 31, 2015 and December 31, 2014, the Company’s cash and cash equivalents totaled $2.1 million and $2.3 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The primary source of liquidity for the Company has been its cash flow from fixed-term leasing activities. As the lease terms expire, the Company will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Company’s success in remarketing or selling the equipment as it comes off rental.

Throughout the Reinvestment Period (as defined in the Operating Agreement), the Company anticipates reinvesting a portion of lease payments from assets owned, and/or payments received on notes receivable, in new leasing or financing transactions. Such reinvestment will occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management fees to the Manager and providing for cash distributions to the Members.

If inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Company’s leased assets may increase as the costs of similar assets increase. However, the Company’s revenues from existing leases and notes would not increase as such rates are generally fixed for the terms of the leases and notes without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the rates that the Company can obtain on future lease or financing transactions will be expected to increase as the cost of capital is a significant factor in the pricing of leases and investments in notes receivable. Leases and notes already in place, for the most part, would not be affected by changes in interest rates.

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The Company currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. The Managing Member envisions no such requirements for operating purposes.

Cash Flows

The following table sets forth summary cash flow data (in thousands):

   
  Three Months Ended
March 31,
     2015   2014
Net cash provided by (used in):
                 
Operating activities   $      587     $       760  
Investing activities     283       397  
Financing activities     (1,018 )      (1,315 ) 
Net decrease in cash and cash equivalents   $ (148 )    $ (158 ) 

The three months ended March 31, 2015 versus the three months ended March 31, 2014

During the three months ended March 31, 2015 and 2014, the Company’s primary sources of liquidity were cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. Moreover, the Company realized $141 thousand and $183 thousand of proceeds from the sales of lease assets and/or the early termination of notes receivable during the respective three months ended March 31, 2015 and 2014.

During the same respective periods, cash was primarily used to pay distributions to both the Other Members and the Managing Member, and to pay down debt. Total distributions paid to Members amounted to $728 thousand for each of the three months ended March 31, 2015 and 2014; while cash used to pay down debt totaled $290 thousand and $587 thousand for the first quarters of 2015 and 2014, respectively.

Revolving credit facility

During the first quarter of 2015, the Company’s participation in a revolving credit facility with AFS and certain of its affiliates was terminated. The Company had no related balances outstanding at the time.

Prior to the first quarter of 2015, the Company participated with AFS and certain of its affiliates in a revolving credit facility comprised of a working capital facility to AFS, an acquisition facility and a warehouse facility to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions as lenders.

Non-Recourse Long-Term Debt

As of March 31, 2015 and December 31, 2014, the Company had non-recourse long-term debt totaling $1.6 million and $1.9 million, respectively. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items.

For detailed information on the Company’s debt obligations, see Notes 7 and 8 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).

Distributions

The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of February 2008. Such distributions have been consistently made through March 31, 2015.

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Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2015, the Company had no commitments to purchase lease assets or fund investments in notes receivable.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 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. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company evaluated the impact of the new standard on its financial statements and has determined that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements  —  Going Concern (subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard provides guidance relative to management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted. Management is currently evaluating the standard and its operational and related disclosure requirements.

Critical Accounting Policies and Estimates

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.

The Company’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2014. There have been no material changes to the Company’s critical accounting policies since December 31, 2014.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, Management 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.

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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 Member’s 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 Commission’s 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 issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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 Member’s financial position or results of operations.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

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 not applicable, 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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 14, 2015

ATEL 12, LLC
(Registrant)

By: ATEL Financial Services, LLC
Managing Member of Registrant

 
 

By:

/s/ Dean L. Cash

Dean L. Cash
Chairman of the Board, President and
Chief Executive Officer of
ATEL Financial Services, LLC (Managing Member)

    

By:

/s/ Paritosh K. Choksi

Paritosh K. Choksi
Director, Executive Vice President and
Chief Financial Officer and Chief Operating Officer of
ATEL Financial Services, LLC (Managing Member)

    

By:

/s/ Samuel Schussler

Samuel Schussler
Vice President and Chief Accounting Officer of
ATEL Financial Services, LLC (Managing Member)

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