Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

☒Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934.

For the quarterly period ended June 30, 2019

☐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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class:	Trading Symbol	Name of each exchange on which registered:
N/A	N/A	N/A

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 files).

Yes ☒ No ☐

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 ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No ☒

The number of Limited Liability Company Units outstanding as of July 31, 2019 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, June 30, 2019 and December 31, 2018	3
Statements of Operations for the three and six months ended June 30, 2019 and 2018	4
Statements of Changes in Members’ Capital for the three and six months ended June 30, 2019 and 2018	5
Statements of Cash Flows for the three and six months ended June 30, 2019 and 2018	6
Notes to the Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 4. Controls and Procedures	20

Part II. Other Information	22

Item 1. Legal Proceedings	22

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3. Defaults Upon Senior Securities	22

Item 4. Mine Safety Disclosures	22

Item 5. Other Information	22

Item 6. Exhibits	22

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 12, LLC

BALANCE SHEETS

JUNE 30, 2019 AND DECEMBER 31, 2018

(In Thousands)


	June 30,		December 31,
	2019		2018
	(Unaudited)
ASSETS
Cash and cash equivalents	$	1,285	$	1,524
Accounts receivable, net		3		10
Due from Managing Member and affiliates		42		46
Investment in securities		136		33
Warrants, fair value		56		153
Equipment under operating leases, net		893		1,542
Prepaid expenses and other assets		20		27
Total assets	$	2,435	$	3,335

LIABILITIES AND MEMBERS’ CAPITAL

Accounts payable and accrued liabilities:
Other	$	394	$	206
Unearned operating lease income		3		17
Total liabilities		397		223

Commitments and contingencies

Members’ capital:
Other Members		2,038		3,112
Total Members’ capital		2,038		3,112
Total liabilities and Members’ capital	$	2,435	$	3,335

See accompanying notes.

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ATEL 12, LLC

STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2019 AND 2018

(In Thousands Except for Units and Per Unit Data)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Revenues:
Leasing activities:
Operating leases	$	210	$	304	$	510	$	662
(Loss) gain on sales of lease assets		(53)		—		(53)		6
Gain on sales or dispositions of investment in securities		—		11		9		11
Unrealized (loss) gain on fair value adjustment for investment in securities		—		(10)		15		20
Unrealized (loss) gain on fair value adjustment for warrants		(4)		(1)		(4)		7
Other		117		22		117		26
Total revenues		270		326		594		732

Expenses:
Depreciation of operating lease assets		21		50		21		165
Asset management fees to Managing Member		7		14		13		29
Cost reimbursements to Managing Member and/or affiliates		19		41		40		85
(Reversal of) provision for credit losses		(3)		(2)		1		(37)
Impairment losses on investment in securities		—		—		5		—
Impairment losses on equipment		264		—		264		—
Professional fees		40		20		102		77
Outside services		12		12		32		39
Taxes on income and franchise fees		30		(5)		38		4
Other		6		5		20		18
Total expenses		396		135		536		380
Net (loss) income	$	(126)	$	191	$	58	$	352

Net (loss) income :
Managing Member	$	—	$	—	$	85	$	—
Other Members		(126)		191		(27)		352
	$	(126)	$	191	$	58	$	352

Net (loss) income per Limited Liability Company Unit (Other Members)	$	(0.04)	$	0.06	$	(0.01)	$	0.12
Weighted average number of Units outstanding		2,992,482		2,992,482		2,992,482		2,992,482

See accompanying notes.

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ATEL 12, LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2019 AND 2018

(In Thousands Except for Units and Per Unit Data)

(Unaudited)


		Three Months Ended June 30, 2019
	Other Members			Managing
	Units	Amount		Member		Total
Balance March 31, 2019	2,992,482	$	2,164	$	—	$	2,164
Net loss	—		(126)		—		(126)
Balance June 30, 2019	2,992,482	$	2,038	$	—	$	2,038

		Six Months Ended June 30, 2019
	Other Members			Managing
	Units	Amount		Member		Total
Balance December 31, 2018	2,992,482	$	3,112	$	—	$	3,112
Distributions of Other Members ($0.35 per Unit)	—		(1,047)		—		(1,047)
Distributions to Managing Member	—		—		(85)		(85)
Net (loss) income	—		(27)		85		58
Balance June 30, 2019	2,992,482	$	2,038	$	—	$	2,038

		Three Months Ended June 30, 2018
	Other Members			Managing
	Units	Amount		Member		Total
Balance March 31, 2018	2,992,482	$	2,384	$	—	$	2,384
Net income	—		191		—		191
Balance June 30, 2018	2,992,482	$	2,575	$	—	$	2,575

		Six Months Ended June 30, 2018
	Other Members			Managing
	Units	Amount		Member			Total
Balance December 31, 2017	2,992,482	$	2,223	$	—	$	2,223
Net income	—		352		—		352
Balance June 30, 2018	2,992,482	$	2,575	$	—	$	2,575

See accompanying notes.

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ATEL 12, LLC

STATEMENTS OF CASH FLOWS

FOR THE THREE AND SIX MONTHS ENDED

JUNE 30, 2019 AND 2018

(In Thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Operating activities:
Net (loss) income	$	(126)	$	191	$	58	$	352
Adjustment to reconcile net income to cash provided by operating activities:
Loss (gain) on sales of equipment under operating leases		53		—		53		(6)
Depreciation of operating lease assets		21		50		21		165
Provision for (reversal of) credit losses		(3)		(2)		1		(37)
Impairment on investment in securities		—		—		5		—
Impairment losses on equipment		264		—		264		—
Gain on sales or dispositions of investment in securities		—		(11)		(9)		(11)
Unrealized loss (gain) on fair value adjustment for investment in securities		—		10		(15)		(20)
Unrealized loss (gain) on fair value adjustment for warrants		4		1		4		(7)
Changes in operating assets and liabilities:
Accounts receivable		6		7		6		76
Due from Managing Member and affiliates		4		—		4		—
Prepaid expenses and other assets		4		(6)		7		(5)
Accounts payable, Managing Member and affiliate		(52)		10		—		2
Accounts payable, other		190		(28)		189		(57)
Accrued liabilities, affiliates		—		(27)		—		(23)
Unearned operating lease income		(10)		(28)		(14)		(7)
Net cash provided by operating activities		355		167		574		422

Investing activities:
Proceeds from sales of lease assets		310		—		310		93
Proceeds from sales or dispositions of investment in securities		—		—		9		—
Net cash provided by investing activities		310		—		319		93

Financing activities:
Repayments under non-recourse debt		—		—		—		(103)
Distributions to Other Members		—		—		(1,047)		—
Distributions to Managing Member		—		—		(85)		—
Net cash used in financing activities		—		—		(1,132)		(103)

Net increase (decrease) in cash and cash equivalents		665		167		(239)		412
Cash and cash equivalents at beginning of period		620		724		1,524		479
Cash and cash equivalents at end of period	$	1,285	$	891	$	1,285	$	891

Supplemental disclosures of cash flow information:
Cash paid during the period for taxes	$	38	$	18	$	53	$	19
Conversion of warrants to equity securities	$	—	$	—	$	93	$	—

See accompanying notes.

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ATEL 12, LLC

NOTES TO 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. From its inception into the third quarter of 2013, the 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” or “Managing Member” or “Manager”), a wholly-owned subsidiary of ATEL Capital Group. 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.

As of June 30, 2019, 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 Company is governed by the ATEL 12, LLC amended and restated Limited Liability Company Operating Agreement dated April 3, 2007 (the “Operating Agreement”). On January 1, 2016, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement. Prior thereto, the Company was in its acquisition phase and was making distributions on a monthly and quarterly basis. During the liquidation phase, periodic distributions are paid at the discretion of the Managing Member.

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, 2018, 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 and six months ended June 30, 2019 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 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 June 30, 2019, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements or adjustments thereto.

Cash and cash equivalents:

Cash and cash equivalents include cash in banks and cash equivalent investments such as U.S. Treasury instruments with original and/or purchased maturities of ninety days or less.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

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 sought leasing opportunities was North America. All of the Company’s operating revenues for the three and six months ended June 30, 2019 and 2018, and long-lived tangible assets as of June 30, 2019 and December 31, 2018 relate to customers domiciled in the United States.

Accounts receivable:

Accounts receivable represent the amounts billed under operating lease contracts 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 payments outstanding less than 90 days. Based upon management’s judgment, such leases may be placed in non-accrual status. Leases 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.

Investment in securities:

From time to time, the Company may purchase securities of its borrowers or receive warrants in connection with its lending arrangements.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Purchased securities

The Company’s investment securities registered for public sale are carried at fair value. The Company’s investment securities with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations. The Company’s investment securities that do not have readily determinable fair values are measured at cost minus impairment, and adjusted for changes in observable prices. 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, the Company recorded $0 and $15 thousand of unrealized gain on investment in securities during the respective three and six months ended June 30, 2019. Purchased securities totaled $136 thousand and $33 thousand as of June 30, 2019 and December 31, 2018 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. During the respective three months ended June 30, 2019 and 2018, the Company recorded $4 thousand and $1 thousand of unrealized loss on fair value adjustments for warrants. During the respective six months ended June 30, 2019 and 2018, the Company recorded a total of $4 thousand of unrealized losses and $7 thousand of unrealized gain on fair value adjustments for warrants. As of June 30, 2019 and December 31, 2018, the estimated fair value of the Company’s portfolio of warrants amounted to $56 thousand and $153 thousand, respectively. During the first quarter of 2019, there was a net exercise of warrants in exchange of securities. No exercises of any kind occurred during the comparative prior year period.

Credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating lease receivables, 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 Fund’s 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 in various industries, related to equipment on operating leases.

Equipment under operating leases, net and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with ASC 360‑20‑35‑3, over the periods of the lease terms contained in each asset’s respective lease contract to the estimated residual value at the end of the lease contract. All lease assets are purchased only concurrent with the execution of a lease commitment by the lessee. Thus, the original depreciation period corresponds with the term of the original lease. Once the term of an original lease contract is completed, the subject property is typically sold to the existing user, re-leased to the existing user, or, when off-lease, is held for sale. Assets which are re-leased continue to be depreciated using the terms of the new lease agreements and the estimated residual values at the end of the new lease terms, adjusted downward as necessary. Assets classified as held-for-sale are carried at the lower of carrying amount, or the fair value less cost to sell (ASC 360‑10‑35‑43).

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

The Company does not use the equipment held in its portfolio, but holds it solely for lease and ultimate sale. In the course of marketing equipment that has come off-lease, management may determine at some point that re-leasing the assets may provide a superior return for investors and would then execute another lease. Upon entering into a new lease contract, management will estimate the residual value once again and resume depreciation. If, and when, the Company, at any time, determines that depreciation in value may have occurred with respect to an asset held-for-sale, the Company would review the value to determine whether a material reduction in value had occurred and recognize any appropriate impairment. All lease assets, including off-lease assets, are subject to the Company’s quarterly impairment analysis, as described below. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred. Major additions and betterments are capitalized.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet. Operating leases 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 considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases 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 lease payments is probable. Until such time, revenues are recognized on a cash basis.

Initial direct costs:

With the adoption of ASU No. 2016-02 certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. In 2018 and prior, the Company capitalized initial direct costs (“IDC”) associated with the origination of lease assets. IDC includes both internal costs (e.g., the costs of employees’ activities in connection with successful lease originations) and external broker fees incurred with such originations. The costs are amortized on a lease by lease basis based on actual contract term using a straight-line method for operating leases. Upon disposal of the underlying lease assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases that are not consummated are not eligible for capitalization as initial direct costs and are expensed as acquisition expense.

Per Unit data:

The Company issues only one class of Units, none of which are considered dilutive. Net (loss) income and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.

Fair Value Measurement:

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.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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, 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 familiar with the Company’s investments in equipment, 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 February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-02, Leases. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842), Narrow-Scope Improvements for Lessors. In March 2019, the FASB issued ASU No. 2019-01, Leases: Codification Improvements. Collectively referred to hereafter as ASU No. 2016-02, these standards set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract to control an asset (i.e., lessees and lessors). The Company does not have any non-cancelable leases where it is a lessee.

ASU No. 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. These standards were effective as of January 1, 2019. Upon adoption, the Company applied the package of practical expedients that has allowed the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases and (iii) initial direct costs for any expired or existing leases. Furthermore, the Company applied the optional transition method in ASU No. 2018-11, which has allowed the Company to initially apply the new leases standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the adoption period, although the Company did not have an adjustment. Additionally, the Company’s leases met the criteria in ASU No. 2018-11 to not separate non-lease components from the related lease component; therefore, the accounting for these leases remained largely unchanged from the previous standard.

The adoption of ASU No. 2016-02 and the related improvements did not have a material impact in the Company’s financial statements. Upon adoption, (i) amounts previously recognized as lessee reimbursements and other income, for the three and six months ended June 30, 2019, have been classified as lease or financing income, (ii) allowances for bad debts are now recognized as a direct reduction of operating lease income, and (iii) certain costs associated with the execution of the Company’s leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. Subsequent to January 1, 2019, provisions for credit losses relating to operating leases are now included in lease income in the Company’s financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in operating expenses in the Company’s financial statements and prior periods are not reclassified to conform to the current presentation.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 November 2018, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new current expected credit losses (CECL) impairment model in ASU 2016-13. The amendment clarifies that receivables arising from operating leases are within the scope of ASC 842, rather than ASC 326; however, it will be applicable to the Company’s note receivables and direct financing leases, if any. The effective date and transition requirements in this Update are the same as the effective dates and transition requirements in Update 2016-13, as amended by this Update, which is for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.

In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (“ASU 2018-13”), which amends the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. This ASU modifies disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of this Update. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additional disclosures until their effective date. Management is currently evaluating the impact of this standard on the financial statements and related disclosure requirements.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

3. Equipment under operating leases, net:

The Company’s equipment under operating leases, net consists of the following (in thousands):


			Reclassifications,		Depreciation/
			Additions/		Amortization
	Balance		Dispositions and		Expense or		Balance
	December 31,		Impairment		Amortization		June 30,
	2018		Losses		of Leases		2019
Equipment under operating leases, net	$	1,342	$	(875)	$	(21)	$	446
Asset held for sale or lease, net		200		247		—		447
Total	$	1,542	$	(628)	$	(21)	$	893

Impairment of equipment under operating 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, if any. 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, there are $264 thousand of impairment losses on certain off-lease assets during the three and six months ended June 30, 2019. There were no impairment losses during the prior quarter or during the three and six months ended June 30, 2018

The Company utilizes a straight line depreciation method over the term of the equipment for equipment on operating leases currently in its portfolio. No depreciation expense was charged to the fund during the first quarter of 2019 on the Company’s equipment as all lease assets have been fully depreciated down to their respective residual values. Depreciation expense was charged to the fund during the second quarter of 2019 as some of lease assets residual value have been changed and lease term was extended. Depreciation expense on the Company’s equipment totaled $21 thousand and $50 thousand for the respective three months ended June 30, 2019 and 2018, and $21 thousand and $165 thousand for the respective six months ended June 30, 2019 and 2018. All of the Company’s leased property was acquired in the years 2008 through 2013.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Operating leases:

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


	Balance						Balance
	December 31,				Reclassifications		June 30,
	2018		Additions		or Dispositions		2019
Aviation	$	2,077	$	—	$	—	$	2,077
Construction		1,199		—		—		1,199
Transportation		3,842		—		(3,378)		464
Other		104		—		—		104
		7,222		—		(3,378)		3,844
Less accumulated depreciation		(5,880)		(21)		2,503		(3,398)
Total	$	1,342	$	(21)	$	(875)	$	446

The average estimated residual value for assets on operating leases was 11% and 16% of the assets’ original cost at June 30, 2019 and December 31, 2018, respectively. There were no operating leases on non-accrual status at June 30, 2019 and December 31, 2018.

At June 30, 2019, the aggregate amount of future minimum operating lease payments receivable is $118 thousand, all of which is due and receivable during 2019.

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2019, 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
Construction		7 - 10
Transportation		7 - 10
Other		3 - 5

4. 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.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Each of AFS and ATEL Leasing Corporation (“ALC”) is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. 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.

The Managing Member and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement during the three and six months ended June 30, 2019 and 2018 as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Administrative costs reimbursed to Managing Member and/or affiliates	$	19	$	41	$	40	$	85
Asset management fees to Managing Member		7		14		13		29
	$	26	$	55	$	53	$	114

5. Commitments:

At June 30, 2019, the Company had no commitments to purchase lease assets or fund investments in notes receivable.

6. Members’ capital:

A total of 2,992,482 Units were issued and outstanding at both June 30, 2019 and December 31, 2018. The Fund was authorized to issue up to 20,000,000 total Units.

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				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Distributions	$	—	$	—	$	1,047	$	—
Weighted average number of Units outstanding		2,992,482		2,992,482		2,992,482		2,992,482
Weighted average distributions per Unit	$	—	$	—	$	0.35	$	—

7. Fair value measurements:

Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

At June 30, 2019 and December 31, 2018, the Company’s investment in securities and warrants were measured on a recurring basis.

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, time to maturity, and a risk free interest rate for the term(s) of the warrant exercise(s). As of June 30, 2019 and December 31, 2018, the calculated fair value of the Fund’s warrant portfolio is $56 thousand and $153 thousand, respectively. Such valuations are 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, 2019 and 2018 and classified as Level 3 are as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Fair value of warrants at beginning of period	$	60	$	157	$	153	$	149
Unrealized (loss) gain on fair valuation of warrants		(4)		(1)		(4)		7
Warrants converted to securities		—		—		(93)		—
Fair value of warrants at end of period	$	56	$	156	$	56	$	156

Investment securities (recurring)

The Company’s investment securities registered for public sale, which are recurring, with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations.

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.

The fair value of investment securities that were accounted for on a recurring basis as of the three and six months ended June 30, 2019 and 2018 classified as Level 1 are as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
Fair value of investment in securities at beginning of period	$	20	$	51	$	27	$	21
Unrealized gain (loss) on fair valuation of investment in securities		1		(10)		(6)		20
Fair value of investment in securities at end of period	$	21	$	41	$	21	$	41

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Impaired lease and/or off-lease equipment (non-recurring)

The following table presents the fair value measurements of impaired assets measured at fair value on a non-recurring basis during and the level within the hierarchy in which the fair value measurements fall at June 30, 2019 (in thousands):


			Level I		Level 2		Level 3
	June 30,		Estimated		Estimated		Estimated
	2019		Fair Value		Fair Value		Fair Value
Assets measured at fair value on a non-recurring basis:
Impaired lease and off-lease equipment	$	248	$	—	$	—	$	248

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, 2019 and December 31, 2018:


June 30, 2019
	Valuation	Valuation	Unobservable	Range of
Name	Frequency	Technique	Inputs	Input Values
Warrants	Recurring	Black-Scholes formulation	Stock price	$0.05 - $12.92
			Exercise price	$0.41 - $38.64
			Time to maturity (in years)	1.49- 3.51
			Risk-free interest rate	1.74% - 1.86%
			Annualized volatility	60.35% - 67.53%
Impaired lease and off-lease equipment	Non-recurring	Market Approach	Third Party Agents' pricing Quotes - Per Equipment	$0 - $8,000 (total of $248,000)
			Equipment Condition	Poor to Average


December 31, 2018
	Valuation	Valuation	Unobservable	Range of
Name	Frequency	Technique	Inputs	Input Values
Warrants	Recurring	Black-Scholes formulation	Stock price	$0.05 - $9.98
			Exercise price	$0.36 - $38.64
			Time to maturity (in years)	1.99 - 4.84
			Risk-free interest rate	2.47% - 2.51%
			Annualized volatility	47.58% - 70.27%

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.

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ATEL 12, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

Investment in securities

The Company’s purchased securities registered for public sale with readily determinable fair value are carried at fair value. These investment securities are valued based on their quoted market prices.

Commitments and Contingencies

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

The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic 825 of the FASB Accounting Standards Codification at June 30, 2019 and December 31, 2018 (in thousands):


	Fair Value Measurements at June 30, 2019
	Carrying
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,285	$	1,285	$	—	$	—	$	1,285
Investment in securities		21		21		—		—		21
Warrants, fair value		56		—		—		56		56


	Fair Value Measurements at December 31, 2018
	Carrying
	Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	1,524	$	1,524	$	—	$	—	$	1,524
Investment in securities		27		27		—		—		27
Warrants, fair value		153		—		—		153		153

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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 may continue until December 31, 2030. However, pursuant to the guidelines of the Operating Agreement, the Company commenced liquidation phase activities on January 1, 2016. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

The Fund had a net loss of $126 thousand and net income of $58 thousand for the three and six months ended June 30, 2019.

Total revenues for the quarter were $270 thousand and a cumulative $594 thousand for the year to date. The main drivers of such revenues were from operating lease rents and a deferred maintenance from Walmart in favor of the fund recorded as other income during the second quarter. Operating lease rents for the quarter were $210 thousand and $510 thousand for the year to date period. This fund begun 2019 in its liquidation stage, and the trend is indicative of a fund in such stage, one where lease assets are sold as lease commitments end. In this regard, loss on sales of lease assets were $53 thousand for the both respective three and six month periods ended June 30, 2019.

Total operating expenses for the quarter were $396 thousand and a cumulative $536 thousand for the year to date. The main drivers of such operating expenses were from depreciation of operating lease assets, cost reimbursements to managing member and / or affiliates, professional fees and outside services. Depreciation of operating lease assets for the quarter and for the year to date period are both $21 thousand. In addition, the Company recorded an impairment loss of $264 thousand during the quarter to reduce the fair value of certain off-lease equipment. Such amount represents total impairment losses for the six months ended June 30, 2019. Cost reimbursements to managing member and/or affiliates of $19 thousand and $40 thousand for the respective three and six month periods ended June 30, 2019 were generally flat and reflective of consistent baseline allocations of common costs among the Fund and its affiliates. Expense amounts reflected as professional fees ($40 thousand and $102 thousand) and outside services ($12 thousand and $32 thousand) for the respective periods represent direct fund 12 – specific core costs of preparation, printing, filing and distribution of annual Form 1065 tax and shareholder reports on Form K-1. In addition, such costs also include costs attributable to the annual / quarterly tax preparation, valuation reports and mandated periodic regulatory filings with the SEC and PCAOB.

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Cash balances increased during the quarter by $665 and decreased during the year to date periods by $239 thousand. This was main result of the aforementioned items of net income, depreciation of operating lease assets, and loss on sales of lease assets augmented by the proceeds from sales of lease assets of $53 thousand during both the quarter and year to date periods.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At June 30, 2019, the Company had no commitments to purchase lease assets or fund investments in notes receivable.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2 Summary of significant accounting policies.

Significant 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 significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2018. There have been no material changes to the Company’s significant accounting policies since December 31, 2018.

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.

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.

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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 June 30, 2019 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:

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.

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: August 13, 2019

ATEL 12, LLC

(Registrant)

		By:	ATEL Financial Services, LLC
			Managing Member of Registrant
By:	/s/ Dean L. Cash
	Dean L. Cash
	President and Chief Executive Officer of ATEL Financial Services, LLC (Managing Member)


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


By:	/s/ Samuel Schussler
	Samuel Schussler
	Senior Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (Managing Member)

ATEL 12, LLC 10-Q