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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-KSB



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

For the year ended December 31, 2006



| ̈ | 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 000-51858



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ATEL Capital Equipment Fund XI,
LLC

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                       
|-------------------------------------------------------------- |  | --------------------------------------
|California                                                     |  | 20-1357935                            
|(State or other jurisdiction of incorporation or organization) |  | (I. R. S. Employer Identification No.)

600 California Street, 6th Floor, San Francisco, California 94108

(Address of principal executive offices)

Registrants telephone number, including area code: (415) 989-8800



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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



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Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act of 1934. ̈

Check whether the issuer (1) 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  x

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ̈Accelerated filer ̈Non-accelerated filer  x

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

State the issuers revenues for the most recent fiscal year: $7,043,372.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.) Not applicable.

The number of Limited Liability Company Units outstanding as of April 30, 2007 was 5,232,607.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business disclosure Format (check one):    Yes ̈No  x



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PART I

Item 1. BUSINESS

General Development of Business

ATEL Capital Equipment Fund XI, LLC (the Company) was formed under the laws of the State of California on June 25, 2004. The Company was formed for the purpose of acquiring equipment to engage in
equipment leasing, lending and sales activities. The Managing Member of the Company is ATEL Financial Services, LLC (AFS), a California limited liability company. The Company may continue until December 31, 2025. Each Members
personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and asset of the Company.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On May 31, 2005, subscriptions for the minimum number of Units (120,000,
representing $1,200,000) had been received and AFS requested that the subscriptions be released to the Company. On that date the Company commenced operations in its primary business (leasing and lending activities). As of July 13, 2005, the
Company had received subscriptions for 958,274 Units ($9,582,740), thus exceeding the $7,500,000 minimum requirement for Pennsylvania, and AFS requested that the remaining funds in escrow (from Pennsylvania investors) be released to the Company. The
Companys offering was terminated effective April 30, 2006.

As of December 31, 2006, 5,232,607 Units were issued and outstanding.

The Companys principal objectives are to invest in a diversified portfolio of equipment that will (i) preserve, protect and return the
Companys invested capital; (ii) generate regular distributions to the members of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional
equipment during the Reinvestment Period (ending six calendar years after the completion of the Companys public offering of Units) and (iii) provide additional distributions following the Reinvestment Period and until all equipment has
been sold. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended.

The Company, or AFS
on behalf of the Company, has incurred costs in connection with the organization, registration and issuance of the Limited Liability Company Units (see Note 7 to the financial statements included in Item 7 of this report). The amount of such
costs to be borne by the Company is limited by certain provisions of the Companys Operating Agreement. The Company will pay AFS and affiliates of AFS substantial fees which may result in a conflict of interest. The Company will pay substantial
fees to AFS and its affiliates before distributions are paid to investors even if the Company does not produce profits.

The Company is in its acquisition
phase and is making distributions on a monthly and quarterly basis. Distributions commenced in the third quarter of 2005.

Narrative Description of
Business

The Company has acquired and intends to acquire various types of new and used equipment subject to leases and to make loans secured by
equipment acquired by its borrowers. The Companys investment objective is to acquire investments primarily in low-technology, low-obsolescence equipment such as materials handling equipment, manufacturing equipment, mining equipment, and
transportation equipment. A portion of the portfolio will include some more technology-dependent equipment such as certain types of communications equipment, medical equipment, manufacturing equipment and office equipment.

The Company will only purchase equipment for which a lease exists or for which a lease will be entered into at the time of the purchase.

Through December 31, 2006, the Company had purchased equipment with a total acquisition price of $42,086,103. The Company has also loaned $10,746,130 for notes
receivable secured by various assets.

The Companys objective is to lease a minimum of 75% of the equipment (by cost), as of the date of the final
commitment of its proceeds from the sale of Units, to lessees that the Manager deems to be high quality corporate credits, of which at least half of the high quality corporate credits satisfying the 75% minimum requirement will have either an
average credit rating by Moodys Investors Service, Inc. of Baa or better, or the credit equivalent as determined by the Manager, with the average rating weighted to account for the original equipment cost for each item leased; and
the balance will be public and private corporations with substantial revenues and histories of profitable operations, as well as established hospitals with histories of profitability or municipalities. The remaining 25% of the initial equipment
portfolio may include assets financed for companies which, although deemed creditworthy by the Manager, would not satisfy the specific credit criteria for the portfolio described above. Included in this 25% of the portfolio may be one or more growth
capital financing investments. No more than 20% of the initial portfolio, by cost, will consist of these growth capital financing investments.



2



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During 2006 and 2005 certain lessees generated significant portions of the Companys total operating revenues as
follows:



|                              |  |                   |  |      |   |  |      |  
|----------------------------- |  | ----------------- |  | ---- | - |  | ---- | -
|Lessee                        |  | Type of Equipment |  | 2006 |   |  | 2005 |  
|Union Pacific                 |  | Transportation    |  | 18   | % |  | 61   | %
|International Paper Co. - Mac |  | Material Handling |  | 15   | % |  | *    |  
|Whirlpool Corporation         |  | Material Handling |  | 13   | % |  | *    |  

---

|* | Less than 10%
|- | -------------

The above percentages are not expected to be comparable in
future periods.

The equipment leasing industry is highly competitive. Equipment manufacturers, corporations, partnerships and others offer users an
alternative to the purchase of most types of equipment with payment terms that vary widely depending on the lease term and type of equipment. The ability of the Company to keep the equipment leased and/or operating and the terms of the acquisitions,
leases and dispositions of equipment depends on various factors (many of which are not in the control of AFS or the Company), such as general economic conditions, including the effects of inflation or recession, and fluctuations in supply and demand
for various types of equipment resulting from, among other things, technological and economic obsolescence.

AFS will use its best efforts to diversify
lessees by geography and industry and to maintain an appropriate balance and diversity in the types of equipment acquired and the types of leases entered into by the Company, and will apply the following policies: (i) AFS will seek to limit the
amount invested in equipment leased to any single lessee to not more than 20% of the aggregate purchase price of equipment owned at any time during the reinvestment period following investment of the initial offering proceeds; (ii) in no event
will the Companys equity investment in equipment leased to a single lessee exceed an amount equal to 20% of the maximum capital from the sale of Units (or $30,000,000); (iii) when all the offering proceeds are committed to equipment and
all permanent debt has been put in place, at least a majority of the equipment, based on the aggregate purchase price, will be subject to leases with scheduled lease payments returning at least 90% of the purchase price of the equipment; and
(iv) AFS will seek to invest not more than 20% of the aggregate purchase price of equipment in equipment acquired from a single manufacturer. However, this last limitation is a general guideline only, and the Company may acquire equipment from
a single manufacturer in excess of the stated percentage during the offering period and before the offering proceeds are fully invested, or if AFS deems such a course of action to be in the Companys best interest.

The primary geographic regions in which the company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating
to the sources, by nation, of the Companys operating revenues for the year ended December 31, 2006 and 2005:



|                |  |      |   |  |      |  
|--------------- |  | ---- | - |  | ---- | -
|Geographic area |  | 2006 |   |  | 2005 |  
|United States   |  | 88   | % |  | 98   | %
|Europe          |  | 12   | % |  | 2    | %

The business of the Company is not seasonal.

The Company has no full time employees.



3



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Equipment Leasing Activities

The Company has acquired a diversified portfolio of equipment. The equipment has been leased to lessees in various industries. The following tables set forth the types of equipment acquired by the Company through
December 31, 2006 and the industries to which the assets have been leased:



|                        |  |                                           |            |                                  |     |  
|----------------------- |  | ----------------------------------------- | ---------- | -------------------------------- | --- | -
|Asset Types             |  | Purchase Price Excluding Acquisition
Fees |            | Percentage of Total Acquisitions |    
|Transportation          |  | $                                         | 20,475,227 |                                  | 49  | %
|Materials handling      |  |                                           | 14,748,610 |                                  | 35  | %
|Construction            |  |                                           | 3,561,702  |                                  | 8   | %
|Logging and Lumber      |  |                                           | 2,001,117  |                                  | 5   | %
|Manufacturing           |  |                                           | 1,153,540  |                                  | 3   | %
|Office furniture        |  |                                           | 145,907    |                                  | 0   | %
|                        |  |                                           |            |                                  |     |  
|                        |  | $                                         | 42,086,103 |                                  | 100 | %
|                        |  |                                           |            |                                  |     |  
|                        |  |                                          
|Industry of Lessee      |  | Purchase Price Excluding Acquisition
Fees |            | Percentage of Total Acquisitions |    
|Manufacturing           |  | $                                         | 19,054,711 |                                  | 45  | %
|Rail                    |  |                                           | 11,924,442 |                                  | 28  | %
|Transportation Services |  |                                           | 5,796,530  |                                  | 14  | %
|Health Care             |  |                                           | 4,966,705  |                                  | 12  | %
|Electrical              |  |                                           | 343,715    |                                  | 1   | %
|                        |  |                                           |            |                                  |     |  
|                        |  | $                                         | 42,086,103 |                                  | 100 | %
|                        |  |                                           |            |                                  |     |  

From inception to December 31, 2006, the Company has disposed of certain leased assets as set forth below:



|               |  |                         |         |            |   |                                |  |   |  
|-------------- |  | ----------------------- | ------- | ---------- | - | ------------------------------ |  | - | -
|Asset Types    |  | Original Equipment Cost |         | Sale Price |   | Excess of Rents Over Expenses*
|Transportation |  | $                       | 173,000 |            | $ | 221,343                        |  | $ | 
|               |  |                         |         |            |   |                                |  |   |  
|               |  | $                       | 173,000 |            | $ | 221,343                        |  | $ | 
|               |  |                         |         |            |   |                                |  |   |  

For further information regarding the Companys equipment lease portfolio as of December 31, 2006, see
Note 6 to the financial statements, Investments in equipment and leases, net, as set forth in Part II, Item 7 of this report.



4



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Notes Receivable Activities

The Company finances a diversified portfolio of assets in diverse industries. The following tables set forth the types of assets acquired by the Company through December 31, 2006 and the industries to which the
assets have been financed.



|                           |  |                                           |            |                                  |     |  
|-------------------------- |  | ----------------------------------------- | ---------- | -------------------------------- | --- | -
|Asset Types                |  | Purchase Price Excluding Acquisition Fees |            | Percentage of Total Acquisitions |    
|Computer equipment         |  | $                                         | 5,990,062  |                                  | 56  | %
|Equipment and other assets |  |                                           | 4,251,855  |                                  | 39  | %
|Manufacturing              |  |                                           | 504,213    |                                  | 5   | %
|                           |  |                                           |            |                                  |     |  
|                           |  | $                                         | 10,746,130 |                                  | 100 | %
|                           |  |                                           |            |                                  |     |  
|                           |  |                                          
|Industry of Lessee         |  | Purchase Price Excluding Acquisition
Fees |            | Percentage of Total Acquisitions |    
|Communications             |  | $                                         | 2,610,972  |                                  | 24  | %
|Manufacturing              |  |                                           | 2,503,105  |                                  | 23  | %
|Health Services            |  |                                           | 2,125,000  |                                  | 20  | %
|Business Services          |  |                                           | 1,491,692  |                                  | 14  | %
|Technology                 |  |                                           | 1,315,391  |                                  | 12  | %
|Electronics                |  |                                           | 699,970    |                                  | 7   | %
|                           |  |                                           |            |                                  |     |  
|                           |  | $                                         | 10,746,130 |                                  | 100 | %
|                           |  |                                           |            |                                  |     |  

For further information regarding the Companys note receivable portfolio as of December 31, 2006 see
Note 4 to the financial statements, Notes receivable, as set forth in Part II, Item 7 of this report.

Item 2. PROPERTIES

The Company does not own or lease any real property, plant or material physical properties other than the equipment held for lease as set forth in Item 1.

Item 3. LEGAL PROCEEDINGS

In the ordinary course
of conducting business, there may be certain claims, suits, and complaints filed against the Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Companys consolidated financial
position or results of operations. No material legal proceedings are currently pending against the Company or against any of its assets.

Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



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PART II

Item 5. MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There are certain material conditions and restrictions on the transfer of Units imposed by the terms of the
Limited Liability Company Operating Agreement. Consequently, there is no public market for Units and it is not anticipated that a public market for Units will develop. In the absence of a public market for the Units, there is no currently
ascertainable fair market value for the Units.

Holders

As of December 31, 2006, a total of 1,180 investors were record holders of Units in the Company.

Distributions

The record holders of Units are entitled to certain distributions as provided under the Operating Agreement.

AFS has sole discretion in determining the amount of distributions; provided, however, that AFS will not cause the Company to reinvest operating revenues in equipment, but will distribute available cash, subject to
payment of any obligations of the Company, (i) in an amount sufficient to allow an investor in a 31% federal income tax bracket to meet the federal and state income taxes due on income from the operations of the Fund; (ii) through the
first full fiscal quarter ending at least six months after termination of the offering of Units, an amount equal to the lesser of: (a) a rate of return on their original capital contribution equal to 2.5% over the average yield on five-year
United States Treasury Bonds for the fiscal quarter immediately preceding the date of distribution, as published in a national financial newspaper from time to time (with a minimum of 8% per annum and a maximum of 10% per annum), or
(b) 90% of the total amount of cash available for distributions; and (iii) for each quarter during the rest of the reinvestment period, an amount equal to 8% per annum on their original capital contribution.

The rate for monthly distributions from 2006 operations was $0.07 per Unit for the period from January through March 2006 and $0.08 per Unit for the period April through
December 2006. The distributions were paid in April 2006 through January 2007. The rate for quarterly distributions paid in April 2006 was $0.20 per Unit, while the rate for each of the quarterly distributions paid in July and October 2006, and
January 2007 was $0.23 per Unit.

The following table presents summarized information regarding distributions to members other than the Managing Member
(Other Members):



|                                                                                                             |  |      |       |   |      |   |       |  
|------------------------------------------------------------------------------------------------------------ |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                                                             |  | 2006 |       |   | 2005 |  
|Net loss per Other Member Limited Liability Unit, based on weighted average Units outstanding                |  | $    | (0.19 | ) |      | $ | (0.27 | )
|Return of investment                                                                                         |  |      | 1.09  |   |      |   | 1.07  |  
|                                                                                                             |  |      |       |   |      |   |       |  
|Distributions declared per Other Members Limited Liability Unit, based on weighted average Units outstanding |  |      | 0.90  |   |      |   | 0.80  |  
|Differences due to timing of distributions                                                                   |  |      | (0.01 | ) |      |   | (0.25 | )
|                                                                                                             |  |      |       |   |      |   |       |  
|Actual distribution rates per Unit                                                                           |  | $    | 0.89  |   |      | $ | 0.55  |  
|                                                                                                             |  |      |       |   |      |   |       |  



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Use of Proceeds from Registered Securities

Information provided pursuant to § 228.701 (Item 701(f)) (formerly included in Form SR):



| | (1) | Effective date of the offering: April 11, 2005; File Number: 333-120276.
| | --- | ------------------------------------------------------------------------



| | (2) | Offering commenced: April 11, 2005.
| | --- | -----------------------------------



| | (3) | The offering did not terminate before any securities were sold.
| | --- | ---------------------------------------------------------------



| | (4) | The offering was terminated on April 30, 2006.
| | --- | ----------------------------------------------



| | (5) | The managing underwriter is ATEL Securities Corporation.
| | --- | --------------------------------------------------------



| | (6) | The title of the registered class of securities is Units of Limited Liability Company Interest.
| | --- | -------------------------------------------------------------------------------------------------



| | (7) | Aggregate amount and offering price of securities registered and sold as of December 31, 2006:
| | --- | ----------------------------------------------------------------------------------------------

|                                                                                                                                                            |  |                   |  |                                                                                                                                                                                                                                |             |                                       |   |                                         |  |   |           
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------- | ------------------------------------- | - | --------------------------------------- |  | - | ----------
|Title of Security                                                                                                                                           |  | Amount Registered |  | Aggregate price of offering amount registered                                                                                                                                                                                  |             | Units sold                            |   | Aggregete price of offering amount sold
|Units of Limited Company Interest                                                                                                                           |  | 15,000,000        |  | $                                                                                                                                                                                                                              | 150,000,000 |                                       |   | 5,232,607                               |  | $ | 52,326,070
|(8)    Costs incurred for the issuers account in connection with the issuance and distribution of the securities registered for each category listed below:
|                                                                                                                                                            |  |                   |  | Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of
equity securities of the issuer; and to affiliates of the issuer |             | Direct or indirect payments to
others |   | Total                                  
|Underwriting discounts and commissions                                                                                                                      |  |                   |  | $                                                                                                                                                                                                                              | 789,774     |                                       | $ | 3,948,867                               |  | $ | 4,738,641 
|Other expenses                                                                                                                                              |  |                   |  |                                                                                                                                                                                                                                | 1,405,181   |                                       |   | 1,266,958                               |  |   | 2,672,139 
|                                                                                                                                                            |  |                   |  |                                                                                                                                                                                                                                |             |                                       |   |                                         |  |   |           
|Total expenses                                                                                                                                              |  |                   |  | $                                                                                                                                                                                                                              | 2,194,955   |                                       | $ | 5,215,825                               |  | $ | 7,410,780 
|                                                                                                                                                            |  |                   |  |                                                                                                                                                                                                                                |             |                                       |   |                                         |  |   |           
|(9)    The amount of net offering proceeds to the issuer used for each of the purposes listed below:                                                       
|                                                                                                                                                            |  |                   |  |                                                                                                                                                                                                                               
|                                                                                                                                                            |  |                   |  | Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of
equity securities of the issuer; and to affiliates of the issuer |             | Direct or indirect payments to
others |   | Total                                  
|Purchase and installation of machinery and equipment                                                                                                        |  |                   |  | $                                                                                                                                                                                                                              | 624,557     |                                       | $ | 33,476,104                              |  | $ | 34,100,661
|Investments in notes receivable                                                                                                                             |  |                   |  |                                                                                                                                                                                                                                | 68,499      |                                       |   | 10,746,130                              |  |   | 10,814,629
|                                                                                                                                                            |  |                   |  |                                                                                                                                                                                                                                |             |                                       |   |                                         |  |   |           
|                                                                                                                                                            |  |                   |  | $                                                                                                                                                                                                                              | 693,056     |                                       | $ | 44,222,234                              |  | $ | 44,915,290
|                                                                                                                                                            |  |                   |  |                                                                                                                                                                                                                                |             |                                       |   |                                         |  |   |           
|(10)  The use
of the proceeds in Item 10 does not represent a material change in the uses of proceeds described in the prospectus.                         



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Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this Item 6, Managements Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) and elsewhere in this Form 10-KSB, 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 markets 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-KSB. 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 1 0-KSB or to reflect the occurrence of unanticipated events, other than as required by law.

Capital
Resources and Liquidity

The Company commenced its offering of Units on April 11, 2005. On May 31, 2005, the Company commenced operations
in its primary business (leasing and lending activities). Until the Companys initial portfolio of equipment has been purchased, funds that have been received, but that have not yet been invested in leased equipment, are invested in
interest-bearing accounts or high-quality/short-term commercial paper. The Companys public offering provided for a total maximum capitalization of $150,000,000. The Company terminated sales of Units effective April 30, 2006.

During the funding period, the Companys primary source of liquidity was subscription proceeds from the public offering of Units. As of December 31, 2006,
$52,339,682 had been contributed of which $500 was contributed by the Initial Other Member and $52,851,572, less rescissions of $512,390, by Other Members purchasing Units under the public offering for net contributions from Other Members of
$52,339,182. The liquidity of the Company will vary in the future, increasing to the extent proceeds from cash flows from leases and proceeds of asset sales exceed expenses, and decreasing as lease assets are acquired, as distributions are made to
the Other Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

As another source of liquidity, the Company is
expected to have contractual obligations with a diversified group of lessees for fixed lease terms at fixed rental amounts. As the initial lease terms expire, the Company will re-lease or sell the equipment. The future liquidity beyond the
contractual minimum rentals will depend on AFSs success in re-leasing or selling the equipment as it comes off lease.

The Company participates with
AFS and certain of its affiliates in a financing arrangement ((the Master Terms Agreement) 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 group of financial institutions that includes certain financial and non-financial covenants. The financial arrangement is $75,000,000 and expires in June 2007. The availability of borrowings available to
the Company under this financing arrangement is reduced by the amount outstanding on any of the above mentioned facilities. As of December 31, 2006, the Company had outstanding borrowings of $9,500,000 under the facility.

Borrowings under the facility as of December 31, 2006 were as follows:



|                                                                                                           |  |   |             |  
|---------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Total amount available under the financing arrangement                                                     |  | $ | 75,000,000  |  
|Amount borrowed by the Company under the acquisition facility                                              |  |   | (9,500,000  | )
|Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition facility |  |   | (17,061,475 | )
|                                                                                                           |  |   |             |  
|Total remaining available under the acquisition and warehouse facilities                                   |  | $ | 48,438,525  |  
|                                                                                                           |  |   |             |  

The Company is contingently liable for principal payments under the warehouse facility as borrowings are recourse
jointly and severally to the extent of the pro-rata share of the Companys net worth (16.8% at December 31, 2006) as compared to the aggregate net worth of certain of the affiliated partnerships and limited liability companies of the
Company and including AFS and ATEL Leasing Corporation (ALC) (which latter two entities are 100% liable). The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of December 31, 2006,
borrowings of $3,061,475 were outstanding under the warehouse facility. The Companys maximum obligation on the outstanding warehouse balance at December 31, 2006 was approximately $514,428.

The interest rate on the Master Terms Agreement is 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-prices daily. Principal amounts of loans made under the Master Terms Agreement that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Master Terms Agreement. The effective
interest rate on borrowings at December 31, 2006 ranged from 6.60% to 8.25%.



8



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Draws on the acquisition facility by any individual borrower are secured only by that borrowers assets, including
but not limited to equipment and related leases.

To manage the warehousing facility for the holding of assets prior to allocation to specific investor
programs, a Warehousing Trust Agreement has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The warehousing facility is used to acquire and hold, on a short-term basis, certain
lease transactions that meet the investment objectives of each of such entities. Each of the leasing programs sponsored by AFS and ALC currently in its acquisition stage is a pro rata participant in the Warehousing Trust Agreement, as described
below. When a program no longer has a need for short term financing provided by the warehousing facility, it is removed from participation, and as new leasing investment entities are formed by AFS and ALC and commence their acquisition stages, these
new entities will be added. As of December 31, 2006, the investment program participants were ATEL Capital Equipment Fund VII, L.P., ATEL Capital Equipment Fund VIII, LLC, ATEL Capital Equipment Fund IX, LLC, ATEL Capital Equipment Fund X, LLC
and ATEL Capital Equipment Fund XI, LLC. Pursuant to the Warehousing Trust Agreement, the benefit of the lease transaction assets, and the corresponding liabilities under the warehouse borrowing facility, inure to each of such entities based upon
each entitys pro-rata share in the warehousing trust estate. The pro-rata share is calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the warehouse trust estate,
excepting that the trustees, AFS and ALC, are both liable for their pro-rata shares of the obligations based on their respective net worth, and jointly liable for the pro rata portion of the obligations of each of the affiliated partnerships and
limited liability companies participating under the borrowing facility. Transactions are financed through this warehousing facility only until the transactions are allocated to a specific program for purchase or are otherwise disposed by AFS and
ALC. When a determination is made to allocate the transaction to a specific program for purchase by the program, the purchaser repays the debt associated with the asset, either with cash or by means of the acquisition facility financing, the asset
is removed from the warehouse facility collateral, and ownership of the asset and any debt obligation associated with the asset are assumed solely by the purchasing entity.

The credit agreement includes certain financial and non-financial covenants applicable to each borrower. The Company and affiliates were not in compliance with a non-financial covenant as of December 31, 2006.
The Managing Member, on behalf of all borrowers, requested and received a waiver of this covenant from the lenders until May 31, 2007.

AFS or an
affiliate may purchase equipment in its own name, the name of an affiliate or the name of a nominee, a trust or otherwise and hold title thereto on a temporary or interim basis for the purpose of facilitating the acquisition of such equipment or the
completion of manufacture of the equipment or for any other purpose related to the business of the Company, provided, however that: (i) the transaction is in the best interest of the Company; (ii) such equipment is purchased by the Company
for a purchase price no greater than the cost of such equipment to AFS or affiliate (including any out-of-pocket carrying costs), except for compensation permitted by the Operating Agreement; (iii) there is no difference in interest terms of
the loans secured by the equipment at the time acquired by AFS or affiliate and the time acquired by the Company; (iv) there is no benefit arising out of such transaction to AFS or its affiliate apart from the compensation otherwise permitted
by the Operating Agreement; and (v) all income generated by, and all expenses associated with, equipment so acquired will be treated as belonging to the Company.

The Company currently 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. AFS envisions no such requirements for operating purposes.

The Company
commenced regular distributions, based on cash flows from operations, beginning with the month of June 2005. The distribution was made in July 2005 and additional distributions have been consistently made through December 2006.

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 would not increase as such rates are generally fixed for the terms of the leases without adjustment for
inflation.

If interest rates increase significantly, the lease rates that the Company can obtain on future leases will be expected to increase as the cost
of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates.

The Company has $8,893,142 in commitments to purchase lease assets or fund notes receivable as of December 31, 2006. This amount represents contract awards which may be cancelled by the prospective lessee or may
not be accepted by the Company. Of the $8,893,142, $339,440 was cancelled subsequent to year end.



9



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Cash Flows

2006 vs. 2005

The Companys primary sources of cash from operations for the years ended December 31, 2006 and 2005 were rents
from operating leases and interest on the notes receivable. The cash flows from operations for the years ended December 31, 2006 and 2005 were $6,027,132 and $1,523,982, respectively. The increase in cash flows were primarily the result of
increases in earning assets acquired by the Company as it expanded its leasing and lending activities.

During the years ended December 31, 2006 and
2005, the primary uses of cash in investing activities were the purchase of equipment on operating leases and investments in notes receivable. Cash used to acquire operating lease assets totaled $27,060,018 for 2006 and $14,970,671 for 2005. Cash
used to invest in notes receivable totaled $4,020,608 and $6,725,522 for 2006 and 2005, respectively.

During 2006 and 2005, the Companys main source
of cash from financing activities was the proceeds of its offering of Units. Capital contributions received totaled $13,148,592 in 2006 and $39,702,980 in 2005. The Company also borrowed approximately $12,500,000 from its acquisition facility during
2006. The primary use of cash from financing activities during the same periods consisted of payments of syndication costs related to the offering, distributions to Other Members and repayment of debt. Syndication costs paid were $1,996,285 and
$5,414,495 for 2006 and 2005, respectively, while distributions paid to Other Members totaled $4,482,452 in 2006 and $701,370 in 2005. The Company also used $3,000,000 to repay a portion of its borrowings during the second half of 2006.

Results of Operations

The Company commenced operations in
2005.

As of May 31, 2005, the Company had received, and accepted, subscriptions for the minimum amount of the offering ($1,200,000). As of that date,
the Company commenced operations in its primary business (leasing and lending activities). After the Companys public offering and its initial asset acquisition stage terminate, the results of operations are expected to change significantly.

Operations resulted in net losses of $620,592 and $263,255 for the years ended December 31, 2006 and 2005, respectively. The increase in loss
incurred was primarily due to expenses increasing at a faster pace than revenues. Total revenues for 2006 were $7,043,372 compared to $604,565 for 2005. Total expenses for 2006 were $7,737,675 compared to $867,820 for 2005.

During 2006 and 2005, the Companys revenues were primarily derived from income on its operating lease portfolio and interest on the notes receivable and cash held.
Operating lease revenue totaled $5,992,527 and $276,461 for the years ended December 31, 2006 and 2005, respectively; while interest income on the notes receivable and cash held totaled $956,088 and $328,104 for the years then ended.

The Companys largest expense during 2006 was depreciation, which is directly related to its acquisition of operating lease assets during its initial
acquisition phase. Depreciation expense totaled $5,020,736 for 2006 and $211,977 for 2005.

Under the terms of the Companys Operating Agreement, AFS
is entitled certain fees and reimbursements of costs. Management fees totaled $367,978 in 2006 and $19,895 in 2005. Cost reimbursements for the same periods consisted of acquisition expenses and initial direct costs (IDC) associated with
the initiation of leases and notes receivable and Company administration fees. Acquisition and IDC costs totaled $986,621 in 2006 and $359,651 for 2005. Administrative costs reimbursed to AFS totaled $448,508 and $74,733 for 2006 and 2005,
respectively.

As defined by the Companys Operating Agreement, acquisition expense shall mean expenses including, but not limited to, legal fees and
expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, and miscellaneous expenses relating to selection and acquisition of equipment, whether or not acquired.

Cost reimbursements to Managing Member are based on costs incurred by AFS in performing administrative services for the Company that are allocated to each Company that
AFS manages based on certain criteria such as existing or new leases, number of investors or equity depending on the type of cost incurred. AFS 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.

Recent Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement No.159,
The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. This Statement permits entities to choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Boards long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective as of the
beginning of an entitys first fiscal year that begins after November 15, 2007, with early adoption permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the
provisions of FASB Statement No. 157, Fair Value Measurements. The Company does not presently anticipate any significant impact on its consolidated financial position, results of operations or cash flows.

During September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108. This Bulletin provides the
Staffs views on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The guidance in SAB No. 108 is effective for financial statements of fiscal
years ending after November 15, 2006. Adoption of this guidance did not materially impact the Companys financial statements.

In September 2006, the
Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). This standard clarifies the definition of fair value for financial reporting, establishes a
framework for measuring fair value and requires additional disclosures about the use of fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal



10



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years. As of December 31, 2006, the Fund does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however,
additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income
Taxes (FIN 48), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides guidance on deregulation, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company will adopt FIN 48 as of January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings and other accounts as applicable. The Company has not
determined the effect, if any, the adoption of FIN 48 will have on the Companys financial position and results of operations.

Critical
Accounting Policies

The policies discussed below are considered by management of the Company to be critical to an understanding of the
Companys financial statements because their application requires significantly complex or subjective judgments, decisions, or assessments, with financial reporting results relying on estimation about the effect of matters that are inherently
uncertain. Specific risks for these critical accounting policies are described in the following paragraphs. The Company also states these accounting policies in the notes to the financial statements and in relevant sections in this discussion and
analysis. For all of these policies, management cautions that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally
accepted in the United States 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 those 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 provisions for doubtful accounts and notes receivable.

Direct financing leases and
related revenue recognition:

Income from direct financing lease transactions is reported using the financing method of accounting, in which the
Companys investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the
net receivable outstanding.

Allowances for losses on direct financing leases are typically established based on historical charge offs and collections
experience and are usually determined by specifically identified lessees and billed and unbilled receivables. Direct financing leases are written-off to the allowance as they are deemed uncollectible.

Direct financing 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 periodically reviews the credit worthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon managements judgment, direct finance lessees may be placed in a 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.

Equipment on operating leases 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 at the end of the leases.

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 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.



11



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Notes receivable, unearned interest income and related revenue recognition:

The Company records all future payments of principal and interest on notes as notes receivable and then offsets the related unearned interest income. For financial
statement purposes, the Company reports only the principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to generate a constant rate of return
on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.

Allowances for losses on notes receivable are typically established based on historical charge offs and collections experience and are usually determined by specifically identified borrowers and billed and unbilled
receivables. 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 or interest when due according to the contractual terms of the
note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Notes are written off to the allowance as they
are deemed uncollectible.

Notes 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 credit worthiness of companies with note payments outstanding less than 90 days. Based upon managements judgment, notes may be placed in a non-accrual status. Notes placed on
non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable.

Initial direct costs:

The Company capitalizes initial direct costs (IDC) associated with the origination
and funding of lease assets and investments in notes receivable (as defined in Statement of Financial Accounting Standards No. 91 (SFAS No. 91) Accounting for Nonrefundable Fees and Costs Associated with Originating or
Acquiring Loans and Initial Direct Costs of Leases). IDC includes both internal costs (e.g., labor and overhead) and external broker fees incurred with the origination. The costs are amortized on a lease by lease basis based on actual lease
term using a straight-line method for operating leases and the effective interest rate method for direct finance leases and notes receivable. Upon disposal of the underlying lease assets and notes receivable,, both the initial direct costs and the
associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible for capitalization as initial direct costs, such amounts are expensed as acquisition expense.

Acquisition Expense:

Acquisition expense represents costs which
include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses related to the selection and acquisition of equipment which are reimbursable to
the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as incurred.

Asset valuation:

Recorded values of the Companys asset portfolio are periodically reviewed for impairment in
accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. 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 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 the discounted estimated future cash flows) of
the assets and its carrying value on the measurement date.

Item 7. FINANCIAL STATEMENTS

See the Report of Independent Registered Public Accounting Firm, Financial Statements and Notes to Financial Statements attached hereto at pages 13 through 27.



12



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Members

ATEL Capital Equipment Fund XI, LLC

We have audited the accompanying balance sheet of ATEL Capital Equipment Fund XI, LLC (the Company) as of December 31, 2006, and the related statements
of operations, changes in members capital, and cash flows for the year then ended. These financial statements are the responsibility of the Companys Managing Member. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over
financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ATEL Capital Equipment Fund
XI, LLC as of December 31, 2006, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Moss Adams LLP

San Francisco,
California

May 17, 2007



13



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Report of Independent Registered Public Accounting Firm

The Members

ATEL Capital Equipment Fund XI, LLC

We have audited the accompanying statements of operations, changes in members capital, and cash flows of ATEL Capital Equipment Fund XI, LLC (the Company) for the
year ended December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations and the cash flows of ATEL Capital Equipment Fund XI, LLC for the year ended December 31,
2005, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

San Francisco, California

May 31, 2006



14



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ATEL CAPITAL EQUIPMENT FUND XI, LLC

BALANCE SHEET

DECEMBER 31, 2006



|                                          |  |   |           
|----------------------------------------- |  | - | ----------
|ASSETS                                    |  |   |           
|Cash and cash equivalents                 |  | $ | 4,902,086 
|Accounts receivable, net                  |  |   | 543,535   
|Notes receivable, net                     |  |   | 8,407,929 
|Investments in securities                 |  |   | 155,500   
|Investments in equipment and leases, net  |  |   | 37,190,929
|Other assets                              |  |   | 1,121     
|                                          |  |   |           
|Total assets                              |  | $ | 51,201,100
|                                          |  |   |           
|LIABILITIES AND MEMBERS CAPITAL          |  |   |           
|                                          | 
|Accounts payable and accrued liabilities: |  |   |           
|Managing Member                           |  | $ | 188,119   
|Accrued distributions to Other Members    |  |   | 553,722   
|Other                                     |  |   | 1,711,258 
|Acquisition facility obligation           |  |   | 9,500,000 
|Unearned operating lease income           |  |   | 1,113,300 
|                                          |  |   |           
|Total liabilities                         |  |   | 13,066,399
|                                          | 
|Commitments and contingencies             |  |   |           
|                                          | 
|Members capital:                         |  |   |           
|Managing Member                           |  |   |          
|Other Members                             |  |   | 38,134,701
|                                          |  |   |           
|Total Members capital                    |  |   | 38,134,701
|                                          |  |   |           
|Total liabilities and Members capital    |  | $ | 51,201,100
|                                          |  |   |           

See accompanying notes.



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ATEL CAPITAL EQUIPMENT FUND XI, LLC

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005



|                                                            |  |                         |           |   |      |   |           |  
|----------------------------------------------------------- |  | ----------------------- | --------- | - | ---- | - | --------- | -
|                                                            |  | Year ended December 31, |          
|                                                            |  | 2006                    |           |   | 2005 |  
|Revenues:                                                   |  |                         |           |   |      |   |           |  
|Operating lease income                                      |  | $                       | 5,992,527 |   |      | $ | 276,461   |  
|Direct financing leases                                     |  |                         | 263       |   |      |   |          |  
|Gain on sales of assets                                     |  |                         | 48,343    |   |      |   |          |  
|Interest income                                             |  |                         | 159,206   |   |      |   | 260,057   |  
|Gain on sale of securities                                  |  |                         | 7,598     |   |      |   |          |  
|Notes receivable interest income                            |  |                         | 796,882   |   |      |   | 68,047    |  
|Other                                                       |  |                         | 38,553    |   |      |   |          |  
|                                                            |  |                         |           |   |      |   |           |  
|Total revenues                                              |  |                         | 7,043,372 |   |      |   | 604,565   |  
|                                                            |  |                        
|Expenses:                                                   |  |                         |           |   |      |   |           |  
|Depreciation of operating lease assets                      |  |                         | 5,020,736 |   |      |   | 211,977   |  
|Asset management fees to Managing Member                    |  |                         | 367,978   |   |      |   | 19,895    |  
|Acquisition expense                                         |  |                         | 986,621   |   |      |   | 359,651   |  
|Cost reimbursements to Managing Member                      |  |                         | 448,508   |   |      |   | 74,733    |  
|Provision for losses and doubtful accounts                  |  |                         | 174,402   |   |      |   |          |  
|Amortization of initial direct costs                        |  |                         | 139,923   |   |      |   | 7,777     |  
|Interest expense                                            |  |                         | 127,188   |   |      |   | 3,667     |  
|Professional fees                                           |  |                         | 213,137   |   |      |   | 112,150   |  
|Outside services                                            |  |                         | 97,262    |   |      |   | 10,199    |  
|Other                                                       |  |                         | 161,920   |   |      |   | 67,771    |  
|                                                            |  |                         |           |   |      |   |           |  
|Total operating expenses                                    |  |                         | 7,737,675 |   |      |   | 867,820   |  
|Other income, net                                           |  |                         | 73,711    |   |      |   |          |  
|                                                            |  |                         |           |   |      |   |           |  
|Net income (loss)                                           |  | $                       | (620,592  | ) |      | $ | (263,255  | )
|                                                            |  |                         |           |   |      |   |           |  
|Net income (loss):                                          |  |                         |           |   |      |   |           |  
|Managing Member                                             |  | $                       | 329,954   |   |      | $ | 82,234    |  
|Other Members                                               |  |                         | (950,546  | ) |      |   | (345,489  | )
|                                                            |  |                         |           |   |      |   |           |  
|                                                            |  | $                       | (620,592  | ) |      | $ | (263,255  | )
|                                                            |  |                         |           |   |      |   |           |  
|Net loss per Limited Liability Company Unit (Other Members) |  | $                       | (0.19     | ) |      | $ | (0.27     | )
|Weighted average number of Units outstanding                |  |                         | 5,002,130 |   |      |   | 1,268,991 |  

See accompanying notes.



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ATEL CAPITAL EQUIPMENT FUND XI, LLC

STATEMENTS OF CHANGES IN MEMBERS CAPITAL

FOR THE YEARS ENDED

DECEMBER 31, 2006 AND 2005



|                                                          |  |               |   |  |                |            |   |       |   |          |   |  |   |            |  
|--------------------------------------------------------- |  | ------------- | - |  | -------------- | ---------- | - | ----- | - | -------- | - |  | - | ---------- | -
|                                                          |  | Other Members |   |  | ManagingMember |            |   | Total |  
|                                                          |  | Units         |   |  | Amount         |            |   |       |   |          |   | 
|Balance December 31, 2004                                 |  | 50            |   |  | $              | 500        |   |       | $ | 100      |   |  | $ | 600        |  
|                                                          |  |               |   | 
|Capital contributions                                     |  | 3,970,298     |   |  |                | 39,702,980 |   |       |   |         |   |  |   | 39,702,980 |  
|Less selling commissions to affiliates                    |  |              |   |  |                | (3,555,268 | ) |       |   |         |   |  |   | (3,555,268 | )
|Other syndication costs to Managing Member and affiliates |  |              |   |  |                | (1,859,227 | ) |       |   |         |   |  |   | (1,859,227 | )
|Recissions of capital contributions                       |  | (20,000       | ) |  |                | (200,000   | ) |       |   |         |   |  |   | (200,000   | )
|Distributions to Other Members ($.80 per unit)            |  |              |   |  |                | (1,015,714 | ) |       |   |         |   |  |   | (1,015,714 | )
|Distributions to Managing Member                          |  |              |   |  |                |            |   |       |   | (82,334  | ) |  |   | (82,334    | )
|Net income (loss)                                         |  |              |   |  |                | (345,489   | ) |       |   | 82,234   |   |  |   | (263,255   | )
|                                                          |  |               |   |  |                |            |   |       |   |          |   |  |   |            |  
|Balance December 31, 2005                                 |  | 3,950,348     |   |  |                | 32,727,782 |   |       |   |         |   |  |   | 32,727,782 |  
|                                                          |  |               |   | 
|Capital contributions                                     |  | 1,314,859     |   |  |                | 13,148,592 |   |       |   |         |   |  |   | 13,148,592 |  
|Less selling commissions to affiliates                    |  |              |   |  |                | (1,183,373 | ) |       |   |         |   |  |   | (1,183,373 | )
|Other syndication costs to Managing Member and affiliates |  |              |   |  |                | (812,912   | ) |       |   |         |   |  |   | (812,912   | )
|Recissions and repurchases of capital contributions       |  | (32,600       | ) |  |                | (312,390   | ) |       |   |         |   |  |   | (312,390   | )
|Distributions to Other Members ($.90 per unit)            |  |              |   |  |                | (4,482,452 | ) |       |   |         |   |  |   | (4,482,452 | )
|Distributions to Managing Member                          |  |              |   |  |                |           |   |       |   | (329,954 | ) |  |   | (329,954   | )
|Net income (loss)                                         |  |              |   |  |                | (950,546   | ) |       |   | 329,954  |   |  |   | (620,592   | )
|                                                          |  |               |   |  |                |            |   |       |   |          |   |  |   |            |  
|Balance December 31, 2006                                 |  | 5,232,607     |   |  | $              | 38,134,701 |   |       | $ |         |   |  | $ | 38,134,701 |  
|                                                          |  |               |   |  |                |            |   |       |   |          |   |  |   |            |  

See accompanying notes.



17



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ATEL CAPITAL EQUIPMENT FUND XI, LLC

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005



|                                                                           |  |                         |             |   |      |   |             |  
|-------------------------------------------------------------------------- |  | ----------------------- | ----------- | - | ---- | - | ----------- | -
|                                                                           |  | Year Ended December 31, |            
|                                                                           |  | 2006                    |             |   | 2005 |  
|Operating activities:                                                      |  |                         |             |   |      |   |             |  
|Net loss                                                                   |  | $                       | (620,592    | ) |      | $ | (263,255    | )
|Adjustment to reconcile net loss to cash provided by operating activities: |  |                         |             |   |      |   |             |  
|Depreciation of operating lease assets                                     |  |                         | 5,020,736   |   |      |   | 211,977     |  
|Amortization of initial direct costs                                       |  |                         | 139,923     |   |      |   | 7,777       |  
|Provision for doubtful accounts                                            |  |                         | 30,830      |   |      |   |            |  
|Provision for losses on notes receivable                                   |  |                         | 143,572     |   |      |   |            |  
|Recognition of unearned interest income                                    |  |                         |            |   |      |   | (68,047     | )
|(Gain) loss on sale of assets                                              |  |                         | (48,343     | ) |      |   |            |  
|(Gain) loss on sale of securities                                          |  |                         | (7,598      | ) |      |   |            |  
|Changes in operating assets and liabilities:                               |  |                         |             |   |      |   |             |  
|Accounts receivable                                                        |  |                         | (469,535    | ) |      |   | (104,829    | )
|Prepaids and other assets                                                  |  |                         | 446,493     |   |      |   | (447,614    | )
|Accounts payable, Managing Member                                          |  |                         |            |   |      |   | 11,814      |  
|Accounts payable, other                                                    |  |                         |            |   |      |   | 779         |  
|Accrued liabilities, Managing Member                                       |  |                         | (261,726    | ) |      |   | 438,031     |  
|Accrued liabilities, affiliates                                            |  |                         | (141,753    | ) |      |   | 141,753     |  
|Accrued liabilities, other                                                 |  |                         | 1,609,393   |   |      |   | 654,808     |  
|Advances from Managing Member                                              |  |                         | (300,000    | ) |      |   | 300,000     |  
|Unearned fee income related to note receivable                             |  |                         |            |   |      |   | 13,220      |  
|Unearned operating lease income                                            |  |                         | 485,732     |   |      |   | 627,568     |  
|                                                                           |  |                         |             |   |      |   |             |  
|Net cash provided by operating activities                                  |  |                         | 6,027,132   |   |      |   | 1,523,982   |  
|                                                                           |  |                         |             |   |      |   |             |  
|Investing activities:                                                      |  |                         |             |   |      |   |             |  
|Purchases of equipment on operating leases                                 |  |                         | (27,060,018 | ) |      |   | (14,970,671 | )
|Purchases of equipment on direct financing leases                          |  |                         | (55,414     | ) |      |   |            |  
|Purchases of securities                                                    |  |                         | (155,500    | ) |      |   |            |  
|Proceeds from sales of lease assets                                        |  |                         | 221,343     |   |      |   |            |  
|Payments of initial direct costs                                           |  |                         | (477,505    | ) |      |   | (215,551    | )
|Reduction of net investment in direct financing leases                     |  |                         | 524         |   |      |   |            |  
|Note receivable advances                                                   |  |                         | (4,020,608  | ) |      |   | (6,725,522  | )
|Proceeds from sale of securities                                           |  |                         | 7,598       |   |      |   |            |  
|Payments and amortization on notes receivable                              |  |                         | 2,021,348   |   |      |   | 262,401     |  
|                                                                           |  |                         |             |   |      |   |             |  
|Net cash used in investing activities                                      |  |                         | (29,518,232 | ) |      |   | (21,649,343 | )
|                                                                           |  |                         |             |   |      |   |             |  
|Financing activities:                                                      |  |                         |             |   |      |   |             |  
|Borrowings under acquisition facility                                      |  |                         | 12,500,000  |   |      |   |            |  
|Repayments under acquisition facility                                      |  |                         | (3,000,000  | ) |      |   |            |  
|Payment of syndication costs to Managing Member and affiliates             |  |                         | (1,996,285  | ) |      |   | (5,414,495  | )
|Distributions to Other Members                                             |  |                         | (4,482,452  | ) |      |   | (701,370    | )
|Distributions to Managing Member                                           |  |                         | (329,954    | ) |      |   | (56,846     | )
|Capital Contributions                                                      |  |                         | 13,148,592  |   |      |   | 39,702,980  |  
|Rescissions of capital contributions                                       |  |                         | (312,390    | ) |      |   | (200,000    | )
|Distributions declared and payable                                         |  |                         |            |   |      |   | (339,833    | )
|                                                                           |  |                         |             |   |      |   |             |  
|Net cash provided by financing activities                                  |  |                         | 15,527,511  |   |      |   | 32,990,436  |  
|                                                                           |  |                         |             |   |      |   |             |  
|Net (decrease) increase in cash and cash equivalents                       |  |                         | (7,963,589  | ) |      |   | 12,865,075  |  
|Cash and cash equivalents at beginning of year                             |  |                         | 12,865,675  |   |      |   | 600         |  
|                                                                           |  |                         |             |   |      |   |             |  
|Cash and cash equivalents at end of year                                   |  | $                       | 4,902,086   |   |      | $ | 12,865,675  |  
|                                                                           |  |                         |             |   |      |   |             |  
|Supplemental disclosures of cash flow information:                         |  |                         |             |   |      |   |             |  
|Cash paid during the period for interest                                   |  | $                       | 108,671     |   |      | $ |            |  
|                                                                           |  |                         |             |   |      |   |             |  
|Cash paid during the period for taxes                                      |  | $                       | 42,156      |   |      | $ |            |  
|                                                                           |  |                         |             |   |      |   |             |  
|Schedule of non-cash transactions:                                         |  |                         |             |   |      |   |             |  
|Distributions payable to Other Members at period-end                       |  | $                       | 553,722     |   |      | $ | 314,344     |  
|                                                                           |  |                         |             |   |      |   |             |  

See accompanying notes.



18



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS

1. Organization and Limited Liability Company matters:

ATEL Capital Equipment Fund XI, LLC (the Company) was formed under the laws of the State of California on June 25, 2004. The Company
was formed for the purpose of acquiring equipment to engage in equipment leasing, lending and sales activities. The Managing Member of the Company is ATEL Financial Services, LLC (AFS), a California limited liability company. The Company
may continue until December 31, 2025. Each Members personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and asset of the Company.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On May 31,
2005, subscriptions for the minimum number of Units (120,000, representing $1,200,000) had been received and AFS requested that the subscriptions be released to the Company. On that date the Company commenced operations in its primary business
(leasing and lending activities). As of July 13, 2005, the Company had received subscriptions for 958,274 Units ($9,582,740), thus exceeding the $7,500,000 minimum requirement for Pennsylvania, and AFS requested that the remaining funds in
escrow (from Pennsylvania investors) be released to the Company. The Company terminated sales of Units effective April 30, 2006.

As of
December 31, 2006, 5,232,607 Units were issued and outstanding.

The Companys principal objectives are to invest in a diversified portfolio of
equipment that will (i) preserve, protect and return the Companys invested capital; (ii) generate regular distributions to the Members of cash from operations and cash from sales or refinancing, with any balance remaining after
certain minimum distributions to be used to purchase additional equipment during the Reinvestment Period (ending six calendar years after the completion of the Companys public offering of Units) and (iii) provide additional distributions
following the Reinvestment Period and until all equipment has been sold. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended.

The Company, or AFS on behalf of the Company, has incurred costs in connection with the organization, registration and issuance of the Limited Liability Company Units
(Note 7). The amount of such costs to be borne by the Company is limited by certain provisions of the Companys Operating Agreement. The Company will pay AFS and affiliates of AFS substantial fees which may result in a conflict of interest. The
Company will pay substantial fees to AFS and its affiliates before distributions are paid to investors even if the Company does not produce profits. Therefore, the financial position of the Company could change significantly.

2. Summary of significant accounting policies:

Basis of
presentation:

The accompanying financial statements as of December 31, 2006, and for the years ended December 31, 2006 and 2005 have been
prepared in accordance with accounting principles generally accepted in the Unites States (GAAP).

Use of estimates:

The preparation of financial statements in conformity with accounting 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 those estimates. Such
estimates primarily relate to the determination of residual values at the end of the lease term.

Cash and cash equivalents:

Cash and cash equivalents include cash in banks and cash equivalent investments with original maturities of ninety days or less.

Accounts receivable:

Accounts receivable represent the amounts
billed under lease contracts and currently due to the Company. Allowances for doubtful accounts are typically established based on historical charge offs and collection experience and are usually determined by specifically identified lessees and
invoiced amounts. Accounts receivable deemed uncollectible are charged off on specific identification by AFS.



19



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



2. Summary of significant accounting policies (continued):

Credit risk:

Financial instruments that potentially subject the
Company to concentrations of credit risk include cash and cash equivalents, direct finance lease receivables, notes receivable and accounts receivable. The Company places its cash deposits and temporary cash investments with creditworthy, high
quality financial institutions. The Company believes that the concentration of such deposits and temporary cash investments is not deemed to create a significant risk. Accounts and notes receivable represent amounts due from lessees or borrowers in
various industries, related to equipment on operating and direct financing leases or notes receivable. See footnote 3 for a description of lessees and financial borrowers by industry as of December 31, 2006.

Direct financing leases and related revenue recognition:

Income from
direct financing lease transactions is reported using the financing method of accounting, in which the Companys investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest
income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.

Allowances for losses
on direct financing leases are typically established based on historical charge offs and collections experience and are usually determined by specifically identified lessees and billed and unbilled receivables. Direct financing leases are
charged-off to the allowance as they are deemed uncollectible.

Direct financing 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 periodically reviews the credit worthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon managements judgment, direct
finance lessees may be placed in a 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.

Equipment on operating leases 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 at the end of
the leases.

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.

Notes receivable, unearned interest income and related revenue recognition:

The Company records all future payments of principal and interest on notes as notes receivable, which is then offset by the amount of any related unearned interest
income. For financial statement purposes, the Company reports only the net amount of principal due on the balance sheet. The unearned interest is recognized over the term of the note and the income portion of each note payment is calculated so as to
generate a constant rate of return on the net balance outstanding. Any fees or costs related to notes receivable are recorded as part of the net investment in notes receivable and amortized over the term of the loan.

Allowances for losses on notes receivable are typically established based on historical charge offs and collections experience and are usually determined by specifically
identified borrowers and billed and unbilled receivables. 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 or interest when due
according to the contractual terms of the note agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.
Notes are charged off to the allowance as they are deemed uncollectible.

Notes 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 credit worthiness of companies with note payments outstanding less than 90 days. Based upon managements judgment, notes may be
placed in a non-accrual status. Notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable.

The fair value of the Companys notes receivable is commensurate with the amount at which the asset could be collected in a current transaction, exclusive of
transaction costs such as prepayment penalties. The estimated fair value of the Companys notes receivable was $8,407,929 at December 31, 2006.



20



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



2. Summary of significant accounting policies (continued):

Initial direct costs:

The Company capitalizes initial direct costs
(IDC) associated with the origination and funding of lease assets and investments in notes receivable (as defined in Statement of Financial Accounting Standards (SFAS) No. 91 (SFAS No. 91)
Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases. IDC includes both internal costs (e.g., labor and overhead) and external broker fees incurred with the
origination. The costs are amortized on a lease by lease basis based on actual lease term using a straight-line method for operating leases and the effective interest rate method for direct finance leases and notes receivable. Upon disposal of the
underlying lease assets and notes receivable, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases or notes receivable that are not consummated are not eligible for capitalization as initial
direct costs and are expensed as acquisition expense.

Acquisition expense:

Acquisition expense represents costs which include, but are not limited to, legal fees and expenses, travel and communication expenses, cost of appraisals, accounting fees and expenses and miscellaneous expenses
related to the selection and acquisition of equipment which are reimbursable to the Managing Member under the terms of the Operating Agreement. As the costs are not eligible for capitalization as initial direct costs, such amounts are expensed as
incurred.

Asset valuation:

Recorded values of the
Companys asset portfolio are periodically reviewed for impairment in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. 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 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 the
discounted estimated future cash flows) of the asset and its carrying value on the measurement date.

Segment reporting:

The Company reports segment information in accordance with SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information. SFAS
No. 131 establishes annual and interim standards for operating segments of a company. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports
revenue, and its major customers. The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly the Company operates in one reportable operating segment in the United
States.

The Companys chief operating decision makers are the Managing Members Chief Operating Officer and its Chief Executive Officer. The
Company believes that its equipment leasing business operates as one reportable segment because: a) the Company measures profit and loss at the equipment portfolio level as a whole; b) the chief operating decision makers do not review information
based on any operating segment other than the equipment leasing transaction portfolio; c) the Company does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Company has not
chosen to organize its business around different products and services other than equipment lease financing; and e) the Company has not chosen to organize its business around geographic areas.



21



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



2. Summary of significant accounting policies (continued):

The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating
to the sources, by nation, of the Companys total revenues for the years ended December 31, 2006 and 2005 and long-lived tangible assets as of December 31, 2006:



|                    |  |                                  |           |            |     |   |      |   |            |  |     |  
|------------------- |  | -------------------------------- | --------- | ---------- | --- | - | ---- | - | ---------- |  | --- | -
|                    |  | For the years ended December 31, |          
|                    |  | 2006                             |           | % of Total |     |   | 2005 |   | % of Total | 
|Revenue             |  |                                  |           |            |     |   |      |   |            |  |     |  
|United States       |  | $                                | 6,196,435 |            | 88  | % |      | $ | 598,752    |  | 99  | %
|                    |  |                                  |           |            |     |   |      |   |            |  |     |  
|United Kingdom      |  |                                  | 846,937   |            | 12  | % |      |   | 5,813      |  | 1   | %
|                    |  |                                  |           |            |     |   |      |   |            |  |     |  
|Total International |  |                                  | 846,937   |            | 12  | % |      |   | 5,813      |  | 1   | %
|                    |  |                                  |           |            |     |   |      |   |            |  |     |  
|Total               |  | $                                | 7,043,372 |            | 100 | % |      | $ | 604,565    |  | 100 | %
|                    |  |                                  |           |            |     |   |      |   |            |  |     |  



|                           |  |                    |            |            |     |  
|-------------------------- |  | ------------------ | ---------- | ---------- | --- | -
|                           |  | As of December 31, |           
|                           |  | 2006               |            | % of Total |    
|Long-lived tangible assets |  |                    |            |            |     |  
|United States              |  | $                  | 32,965,665 |            | 89  | %
|                           |  |                    |            |            |     |  
|United Kingdom             |  |                    | 4,225,264  |            | 11  | %
|                           |  |                    |            |            |     |  
|Total International        |  |                    | 4,225,264  |            | 11  | %
|                           |  |                    |            |            |     |  
|Total                      |  | $                  | 37,190,929 |            | 100 | %
|                           |  |                    |            |            |     |  

Foreign currency transactions:

Foreign currency transaction gains and losses are reported in the results of operations as other income in the period in which they occur. Currently, the Company does not use derivative instruments to hedge its
economic exposure with respect to assets, liabilities and firm commitments as the foreign currency transactions and risks to date have not been significant. During the year ended December 31, 2006, the Company recognized a foreign currency gain
of $73,711, which is included in other income, net. There was no foreign currency gain or loss recognized during 2005.

Unearned operating lease income:

The Company records prepayments on operating leases as a liability, unearned operating lease income. The liability is recorded when the prepayments are
received and recognized as operating lease revenue ratably over the period to which the prepayments relate.

Income taxes:

The Company is treated as a partnership for federal income tax purposes. Pursuant to the provisions of Section 701 of the Internal Review Code, a partnership is not
subject to federal income taxes. Accordingly, the Company has provided current income taxes for only those states, which levy income taxes on partnerships. For the years ended December 31, 2006 and 2005, the current provision for state income
taxes was approximately $40,000 and $43,000, respectively.



22



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



2. Summary of significant accounting policies (continued):

The tax basis of the Companys net assets and liabilities varies from the amounts presented in these financial statements at December 31:



|                                        |  |      |            |   |      |   |           
|--------------------------------------- |  | ---- | ---------- | - | ---- | - | ----------
|                                        |  | 2006 |            |   | 2005
|Financial statement basis of net assets |  | $    | 38,134,701 |   |      | $ | 32,727,782
|Tax basis of net assets (unaudited)     |  |      | 29,395,687 |   |      |   | 38,797,729
|                                        |  |      |            |   |      |   |           
|Difference                              |  | $    | (8,739,014 | ) |      | $ | 6,069,947 
|                                        |  |      |            |   |      |   |           

The primary differences between the tax basis of net assets and the amounts recorded in the financial statements
are the result of differences in accounting for syndication costs and differences between the depreciation methods used in the financial statements and the Companys tax returns.

The following reconciles the net losses reported in these financial statements to the net losses reported on the Companys federal tax returns (unaudited) for the years ended December 31, 2006 and 2005,
respectively:



|                                              |  |      |            |   |      |   |          |  
|--------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | -
|                                              |  | 2006 |            |   | 2005 |  
|Net (loss) per financial statements           |  | $    | (620,592   | ) |      | $ | (263,255 | )
|Tax adjustments (unaudited):                  |  |      |            |   |      |   |          |  
|Adjustment to depreciation expense            |  |      | (5,208,064 | ) |      |   | (452,478 | )
|Provision for losses and doubtful accounts    |  |      | 174,402    |   |      |   |         |  
|Adjustments to revenues                       |  |      | 804,673    |   |      |   | 341,526  |  
|Other                                         |  |      |           |   |      |   | 43,565   |  
|                                              |  |      |            |   |      |   |          |  
|Net (loss) per federal tax return (unaudited) |  | $    | (4,849,581 | ) |      | $ | (330,642 | )
|                                              |  |      |            |   |      |   |          |  

Other income (loss), net:

During the year ended December 31, 2006, other income was solely comprised of a foreign currency gain of $73,711. There was no other income (loss) during the year ended December 31, 2005.

Per unit data:

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

Organization and Offering Expenses.

The Managing Member and its Affiliates was reimbursed for certain expenses in connection with the organization of the Company and the offering of units. Total
Organization and Offering Expenses (Syndication Costs) paid or reimbursed by the Company, including selling commissions payable directly by the Company, did not exceed 15% of offering proceeds up to $25,000,000 and 14% of the offering
proceeds in excess of $25,000,000 (the Cap). Syndication Costs were recorded by the Company as a reduction of Other Members Capital.



23



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



2. Summary of significant accounting policies (continued):

Recent accounting pronouncements:

In February 2007, the Financial
Accounting Standards Board (FASB) issued Statement No.159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 115. This Statement permits entities to choose to measure
many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Boards long-term measurement objectives for accounting
for financial instruments. SFAS 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007, with early adoption permitted as of the beginning of a fiscal year that begins on or before November 15,
2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Company does not presently anticipate any significant impact on its consolidated financial position, results of operations or cash
flows.

During September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108. This
Bulletin provides the Staffs views on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. The guidance in SAB No. 108 is effective for financial
statements of fiscal years ending after November 15, 2006. Adoption of this guidance did not materially impact the Companys financial statements.

In
September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards No. 157, Fair Value Measurements (FAS 157). This standard clarifies the definition of fair value for financial
reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007
and interim periods within those fiscal years. As of December 31, 2006, the Fund does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the
inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes (FIN 48), to create a single model to address accounting
for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance
on deregulation, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt FIN 48 as of
January 1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded in retained earnings and other accounts as applicable. The Company has not determined the effect, if any, the adoption of FIN 48 will have on the
Companys financial position and results of operations.

3. Concentration of credit risk and major customers:

The Company leases equipment to lessees and provides debt financing to borrowers in diversified industries. Leases and notes receivable are subject to AFSs credit
committee review. The leases and notes receivable provide for the return of the equipment to the Company upon default.

As of December 31, 2006, there
were concentrations (greater than 10% as a percentage of total equipment cost) of equipment leased to lessees and/or financial borrowers in certain industries as follows:



|                        |  |      |  
|----------------------- |  | ---- | -
|                        |  | 2006 |  
|Manufacturing           |  | 45   | %
|Rail Transportation     |  | 28   | %
|Health Care             |  | 12   | %
|Transportation Services |  | 11   | %

During 2006, three customers comprised 48% of the Companys revenues from leases. During 2005, one customer
comprised 61% of the Companys revenues from leases.



24



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



4. Notes receivable net:

The Company has various notes receivable from parties who have financed their purchase of equipment through the Company. The terms of the notes receivable generally are up to 120 months and bear interest at rates ranging from 8.5% to 18.7%.
The notes are secured by the equipment financed. As of December 31, 2006, the minimum future payments receivable are as follows:



|                                                                 |  |   |            |  
|---------------------------------------------------------------- |  | - | ---------- | -
|Year ending December 31, 2007                                    |  |   | 3,587,997  |  
|2008                                                             |  |   | 3,321,155  |  
|2009                                                             |  |   | 1,401,858  |  
|2010                                                             |  |   | 393,128    |  
|2011                                                             |  |   | 393,128    |  
|Thereafter                                                       |  |   | 1,262,646  |  
|                                                                 |  |   |            |  
|                                                                 |  |   | 10,359,912 |  
|Less: portion representing interest                              |  |   | (1,842,704 | )
|                                                                 |  |   |            |  
|                                                                 |  |   | 8,517,208  |  
|Initial direct costs, net of accumulated amortization of $34,206 |  |   | 34,293     |  
|Less: reserve for impairment                                     |  |   | (143,572   | )
|                                                                 |  |   |            |  
|                                                                 |  | $ | 8,407,929  |  
|                                                                 |  |   |            |  

For the year 2006, IDC amortization expense related to notes receivable was $29,463. Together with IDC
amortization expense related to operating leases and direct finance leases (discussed in footnote 6) of $110,460, total IDC amortization expense was $139,923 for 2006.

For the year 2005, IDC amortization expense related to notes receivable was $4,832. Together with IDC amortization expense related to operating leases and direct finance leases (discussed in footnote 6) of $2,945,
total IDC amortization expense was $7,777 for 2005.

5. Reserves, impairment losses and provisions for doubtful accounts:

The Companys allowance for doubtful accounts and losses as of December 31, 2006 is shown below. The Company did not have an allowance for doubtful accounts in prior
years.



|                                           |  |                                                     |   |                                          |   |                                                  |  |                                                         |         |       |   |        |  |   |        
|------------------------------------------ |  | --------------------------------------------------- | - | ---------------------------------------- | - | ------------------------------------------------ |  | ------------------------------------------------------- | ------- | ----- | - | ------ |  | - | -------
|                                           |  | Reserve for losses on assets held for sale or lease |   | Realized losses on marketable securities |   | Notes Receivable allowance for doubtful accounts |  | Accounts receivable for allowance
for doubtful accounts |         | Total
|Balance December 31, 2005                  |  | $                                                   |  |                                          | $ |                                                 |  | $                                                       |        |       | $ |       |  | $ |       
|Provision for losses and doubtful accounts |  |                                                     |  |                                          |   |                                                 |  |                                                         | 143,572 |       |   | 30,830 |  |   | 174,402
|(Write-offs) Recoveries                    |  |                                                     |  |                                          |   |                                                 |  |                                                         |        |       |   |       |  |   |       
|                                           |  |                                                     |   |                                          |   |                                                  |  |                                                         |         |       |   |        |  |   |        
|Balance December 31, 2006                  |  | $                                                   |  |                                          | $ |                                                 |  | $                                                       | 143,572 |       | $ | 30,830 |  | $ | 174,402
|                                           |  |                                                     |   |                                          |   |                                                  |  |                                                         |         |       |   |        |  |   |        



25



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



6. Investments in equipment and leases, net:

The Companys investment in leases consists of the following:



|                                                                                             |  |                         |            |                                             |   |                                                                          |  |   |                         |   |  |   |           
|-------------------------------------------------------------------------------------------- |  | ----------------------- | ---------- | ------------------------------------------- | - | ------------------------------------------------------------------------ |  | - | ----------------------- | - |  | - | ----------
|                                                                                             |  | BalanceDecember 31,2005 |            | Reclassifications & Additions
/Dispositions |   | Depreciation /AmortizationExpense orAmortizationof DirectFinancingLeases |  |   | BalanceDecember 31,2006
|Net investment in operating leases                                                           |  | $                       | 14,758,694 |                                             | $ | 26,887,018                                                               |  | $ | (5,020,736              | ) |  | $ | 36,624,976
|Net investment in direct financing leases                                                    |  |                         |           |                                             |   | 55,414                                                                   |  |   | (524                    | ) |  |   | 54,890    
|Initial direct costs, net of accumulated amortization of $113,495 in 2006 and $2,952 in 2005 |  |                         | 167,752    |                                             |   | 453,771                                                                  |  |   | (110,460                | ) |  |   | 511,063   
|                                                                                             |  |                         |            |                                             |   |                                                                          |  |   |                         |   |  |   |           
|Total                                                                                        |  | $                       | 14,926,446 |                                             | $ | 27,396,203                                                               |  | $ | (5,131,720              | ) |  | $ | 37,190,929
|                                                                                             |  |                         |            |                                             |   |                                                                          |  |   |                         |   |  |   |           

Additions to net investment in operating leases are stated at cost and include amounts accrued at
December 31, 2006 and 2005 related to asset purchase obligations.

For the year 2006, IDC amortization expense related to operating and direct finance
leases was $110,460. Together with IDC amortization expense related to notes receivable (as discussed in note 4) of $29,463 total IDC amortization expense was $139,923 for 2006.

For the year 2005, IDC amortization expense related to operating and direct finance leases was $2,945. Together with IDC amortization expense related to notes receivable (as discussed in note 4) of $4,832, total IDC
amortization expense was $7,777 for 2005.

Impairment of investments in leases and assets held for sale or lease:

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. No impairment losses were recorded in 2006 or 2005.

Impairment losses are recorded as an addition to accumulated depreciation of the impaired assets. Depreciation expense on property subject to operating
leases and property held for lease or sale was $5,020,736 and $211,977 for the years ended December 31, 2006 and 2005, respectively.

All of the
leased property was acquired in 2006 and 2005.



26



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



6. Investment in equipment and leases, net (continued):

Operating leases:

Property on operating leases consists of the
following:



|                              |  |                         |            |   |           |   |            |                                   |  |   |                         |   |  |   |            |  
|----------------------------- |  | ----------------------- | ---------- | - | --------- | - | ---------- | --------------------------------- |  | - | ----------------------- | - |  | - | ---------- | -
|                              |  | BalanceDecember 31,2005 |            |   | Additions |   |            | Reclassifications or Dispositions |  |   | BalanceDecember 31,2006 |  
|Materials handling            |  | $                       | 4,132,141  |   |           | $ | 10,616,469 |                                   |  | $ |                        |   |  | $ | 14,748,610 |  
|Manufacturing                 |  |                         | 622,892    |   |           |   | 475,234    |                                   |  |   |                        |   |  |   | 1,098,126  |  
|Transportation                |  |                         | 10,215,638 |   |           |   | 10,259,589 |                                   |  |   | (173,000                | ) |  |   | 20,302,227 |  
|Construction                  |  |                         |           |   |           |   | 3,561,702  |                                   |  |   |                        |   |  |   | 3,561,702  |  
|Office furniture              |  |                         |           |   |           |   | 145,907    |                                   |  |   |                        |   |  |   | 145,907    |  
|Logging and Lumber            |  |                         |           |   |           |   | 2,001,117  |                                   |  |   |                        |   |  |   | 2,001,117  |  
|                              |  |                         |            |   |           |   |            |                                   |  |   |                         |   |  |   |            |  
|                              |  |                         | 14,970,671 |   |           |   | 27,060,018 |                                   |  |   | (173,000                | ) |  |   | 41,857,689 |  
|Less accumulated depreciation |  |                         | (211,977   | ) |           |   | (5,020,736 | )                                 |  |   |                        |   |  |   | (5,232,713 | )
|                              |  |                         |            |   |           |   |            |                                   |  |   |                         |   |  |   |            |  
|Total                         |  | $                       | 14,758,694 |   |           | $ | 22,039,282 |                                   |  | $ | (173,000                | ) |  | $ | 36,624,976 |  
|                              |  |                         |            |   |           |   |            |                                   |  |   |                         |   |  |   |            |  

Direct financing leases:

As of December 31, 2006, investment in direct financing leases consists of manufacturing equipment. The following lists the components of the Companys investment in direct financing leases as of
December 31, 2006:



|                                                             |  |                   |         |  
|------------------------------------------------------------ |  | ----------------- | ------- | -
|                                                             |  | December 31, 2006 |        
|Total minimum lease payments receivable                      |  | $                 | 55,922  |  
|Estimated residual values of leased equipment (unguaranteed) |  |                   | 10,390  |  
|                                                             |  |                   |         |  
|Investment in direct financing leases                        |  |                   | 66,312  |  
|Less unearned income                                         |  |                   | (11,422 | )
|                                                             |  |                   |         |  
|Net investment in direct financing leases                    |  | $                 | 54,890  |  
|                                                             |  |                   |         |  

At December 31, 2006, the aggregate amounts of future minimum lease payments receivable are as follows:



|                              |  |                 |            |                       |   |        |  |   |           
|----------------------------- |  | --------------- | ---------- | --------------------- | - | ------ |  | - | ----------
|                              |  | OperatingLeases |            | DirectFinancingLeases |   | Total 
|Year ending December 31, 2007 |  | $               | 7,752,299  |                       | $ | 9,452  |  | $ | 7,761,751 
|2008                          |  |                 | 7,726,752  |                       |   | 9,452  |  |   | 7,736,204 
|2009                          |  |                 | 5,750,039  |                       |   | 9,452  |  |   | 5,759,491 
|2010                          |  |                 | 5,027,023  |                       |   | 9,452  |  |   | 5,036,475 
|2011                          |  |                 | 2,676,457  |                       |   | 9,452  |  |   | 2,685,909 
|Thereafter                    |  |                 | 4,422,486  |                       |   | 8,662  |  |   | 4,431,148 
|                              |  |                 |            |                       |   |        |  |   |           
|                              |  | $               | 33,355,056 |                       | $ | 55,922 |  | $ | 33,410,978
|                              |  |                 |            |                       |   |        |  |   |           



27



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



6. Investment in equipment and leases, net (continued):

The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. The useful
lives for investment in leases by category are as follows:



|                        |  |            
|----------------------- |  | -----------
|Equipment category      |  | Useful Life
|Mining                  |  | 30 - 40    
|Marine Vessels          |  | 20 - 30    
|Manufacturing           |  | 10 - 20    
|Materials Handling      |  | 7 - 10     
|Transportation          |  | 7 - 10     
|Natural Gas Compressors |  | 7 - 10     
|Office Furniture        |  | 7 - 10     
|Communications          |  | 3 - 5      

7. Related party transactions:

The terms of the Operating Agreement provide that AFS 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 AFS in providing administrative services to the Company. Administrative services provided
include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as
management of equipment. Reimbursable costs incurred by AFS are allocated to the Company based upon estimated time incurred by employees working on Company business and an allocation of rent and other costs based on utilization studies. The Company
would be liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Company.

Each of ATEL Leasing
Corporation (ALC); ATEL Equipment Corporation (AEC); ATEL Investor Services (AIS); and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Company. Acquisition services are
performed for the Company by ALC; equipment management, lease administration and asset disposition services are performed by AEC; investor relations and communications services are performed by AIS; and general administrative services for the
Company are performed by AFS.

Cost reimbursements to Managing Member are based on costs incurred by AFS in performing administrative services for the
Company that are allocated to each fund that AFS manages based on criteria such as existing or new leases, number of investors or equity depending on the type of cost incurred.

AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to the Operating Agreement as follows during each of the years ended December 31:



|                                                                                                                                   |  |                         |           |      |   |          
|---------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | --------- | ---- | - | ---------
|                                                                                                                                   |  | Year ended December 31,
|                                                                                                                                   |  | 2006                    |           | 2005
|Selling commissions, equal to 9% of the selling price of the Limited Liability Company units, deducted from Other Members
capital |  | $                       | 1,183,373 |      | $ | 3,555,268
|Reimbursement of other syndication costs to Managing Member, deducted from Other Members capital                                  |  |                         | 812,912   |      |   | 1,859,227
|Administrative costs reimbursed to Managing Member                                                                                 |  |                         | 448,508   |      |   | 74,733   
|Asset management fees to Managing Member                                                                                           |  |                         | 367,978   |      |   | 19,895   
|Acquisition and initial direct costs paid to Managing Member                                                                       |  |                         | 1,198,851 |      |   | 478,257  
|                                                                                                                                   |  |                         |           |      |   |          
|                                                                                                                                   |  | $                       | 4,011,622 |      | $ | 5,987,380
|                                                                                                                                   |  |                         |           |      |   |          



28



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



8. Borrowing facilities:

The Company participates with AFS and certain of its affiliates in a financing arrangement (comprised of a term loan to AFS and a line of credit) with a group of financial institutions that includes certain financial covenants. The
financial arrangement is $75,000,000 and expires in June 2007. The availability of borrowings to the Company under this financing arrangement is reduced by the amount AFS has outstanding as a term loan.

As of December 31, 2006, borrowings under the facility were as follows:



|                                                                                                           |  |   |             |  
|---------------------------------------------------------------------------------------------------------- |  | - | ----------- | -
|Total amount available under the financing arrangement                                                     |  | $ | 75,000,000  |  
|Amount borrowed by the Company under the acquisition facility                                              |  |   | (9,500,000  | )
|Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition facility |  |   | (17,061,475 | )
|                                                                                                           |  |   |             |  
|Total remaining available under the acquisition and warehouse facilities                                   |  | $ | 48,438,525  |  
|                                                                                                           |  |   |             |  

Draws on the acquisition facility by any individual borrower are secured only by that borrowers assets,
including equipment and related leases. Borrowings on the warehouse facility are recourse jointly to certain of the affiliated Memberships and limited liability companies, the Company and AFS. As of December 31, 2006, borrowings of $3,061,475
were outstanding under the warehouse facility. The Companys maximum obligation on the outstanding warehouse balance at December 31, 2006 was approximately $514,428.

The credit agreement includes certain financial covenants applicable to each borrower. The Company and affiliates were not in compliance with non-financial covenants as of December 31, 2006. The Managing Member,
on behalf of all borrowers, requested and received a waiver of this covenant from the lenders until May 31, 2007.

Draws on the acquisition facility
by any affiliated partnership and/or limited liability company borrower are secured only by that borrowers assets, including but not limited to equipment and related leases.

As of December 31, 2006, the Company had $9,500,000 outstanding under the acquisition facility. Interest on the line of credit is based on either the thirty day LIBOR rate or the banks prime rate. The
carrying amount of the Companys acquisition facility obligation approximates fair value.

The financial institutions providing the above discussed
financing arrangement have a blanket lien on the Companys assets as collateral on any and all borrowings.

9. Commitments:

At December 31, 2006, there were commitments to purchase lease asset totaling approximately $8,900,000. This amount represents contract awards which may be canceled
by the prospective lessee or may not be accepted by the Company. Of the $8,900,000 commitment at December 31, 2006, approximately $340,000 was canceled subsequent to year-end.

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.

In the normal course of business, the Company enters into contracts of various types, including lease contracts, contracts for the sale or purchase of lease assets, management contracts, loan agreements, credit lines
and other debt facilities. It is prevalent industry practice for most contracts of any significant value to include provisions that each of the contracting parties - in addition to assuming liability for breaches of the representations, warranties,
and covenants that are part of the underlying contractual obligations - also assume an obligation to indemnify and hold the other contracting party harmless for such breaches, for harm caused by such partys gross negligence and willful
misconduct, including, in certain instances, certain costs and expenses arising from the contract. The Managing Member has substantial experience in managing similar leasing programs subject to similar contractual commitments in similar
transactions, and the losses and claims arising from these commitments have been insignificant, if any. Generally, to the extent these contracts are performed in the ordinary course of business under the reasonable business judgment of the Managing
Member, no liability will arise as a result of these provisions. The Managing Member has no reason to believe that the facts and circumstances relating to the Companys contractual commitments differ from those it has entered into on



29



---

ATEL CAPITAL EQUIPMENT FUND XI, LLC

NOTES TO FINANCIAL STATEMENTS



10. Guarantees (continued):

behalf of the prior programs it has managed. 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:

As of December 31, 2006, 5,232,607
Units were issued and outstanding. The Company terminated sales of Units effective April 30, 2006. The Company was authorized to issue up to 15,000,000 Units.



30



---

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

Item 8A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The
Companys Managing Members Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(d)
and 15(e) under the Securities Exchange Act of 1934) during and as of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that at
December 31, 2006, certain controls were ineffective and thus there was a material weakness in the Companys internal control over financial reporting.

The Company does not control the financial reporting process, and is dependent on the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles. The
Managing Members disclosure controls and procedures over the: a) application of generally accepted accounting principles for leasing transactions (specifically, timely identification and recording of impairment of leased assets, accumulating
and capitalizing costs for initiating leases (IDC), and properly amortizing costs associated with the initiation of a lease); b) allocation of cost reimbursements to Managing Member; c) process of identifying and estimating liabilities
in the correct period; and d) financial statement close process; and evaluating the relative significance of misstatements, were determined to be ineffective and constitute material weaknesses in internal control over financial reporting.

Changes in internal control

The Managing
Member has reviewed the material weaknesses and has taken the following steps to address the above mentioned issues:

With regard to the timely
identification and recording of impairment of leased assets, the Managing Member has strengthened its quarterly impairment analysis through additional management review of the analysis.

With regard to IDC, the accounting guidance has been reviewed, and a standard cost model (the Model) has been developed that includes quarterly reviews from management. Information from the model drives
the rates to be capitalized on a lease by lease basis. IDC is amortized over the term of the lease based on a straight-line basis for operating leases and on the effective interest method for financing transactions.

With regard to the allocations of costs and expenses incurred by the Managing Member, the allocation process has been reviewed and the costs and expenses have been
properly allocated in accordance with the Operating Agreement.

With regard to identifying and estimating liabilities in the correct period the Managing
Member has performed a detailed review to identify and record the liabilities, in the correct period. A standardized quarterly review process has been implemented to ensure the identification and estimation of the liabilities.

The Managing Member has taken the following steps to mitigate the weakness regarding its financial statement close process: a Chief Accounting Officer and an SEC
reporting manager have been hired, and the controller position has been split into two separate roles to ensure proper management of the Managing Member and the managed Funds accounting operations. Controls and job functions are being
redesigned to increase the documentation of processes and transparency of procedures going forward.



31



---

PART III

Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The
registrant is a Limited Liability Company and has no officers or directors.

ATEL Financial Services, LLC (AFS) is the Companys Managing
Member or Manager. AFS is controlled by ATEL Capital Group (ACG or ATEL), a holding company formed to control ATEL and affiliated companies, through its subsidiaries, ATEL Leasing Corporation (ALC), AFSs
managing member, and ATEL Business Credit, Inc. (ABC), the other member of AFS. ALC and ABC are AFSs only members. The outstanding voting capital stock of ATEL Capital Group is owned 100% by Dean Cash.

Each of ATEL Leasing Corporation (ALC), ATEL Equipment Corporation (AEC), ATEL Investor Services (AIS) and ATEL Financial Services,
LLC (AFS) is a subsidiary under the control of ATEL Capital Group and performs services for the Company. Acquisition services are performed for the Company by ALC, equipment management, lease administration and asset disposition services
are performed by AEC, investor relations and communications services are performed by AIS and general administrative services for the Company are performed by AFS. ATEL Securities Corporation (ASC) is a wholly-owned subsidiary of AFS
which performs distribution services in connection with the Companys public offering of its Units.

The officers and directors of ATEL Capital Group
and its affiliates are as follows:



|                   |  |                                                                                                                     
|------------------ |  | --------------------------------------------------------------------------------------------------------------------
|Dean L. Cash       |  | President and Chief Executive Officer of ATEL
Financial Services, LLC (Managing Member)                             
|                   | 
|Paritosh K. Choksi |  | Executive Vice President and Chief Financial and Operating Officer of ATEL Financial Services, LLC (Managing Member)
|                   | 
|Vasco H. Morais    |  | Senior Vice President, Secretary and General Counsel of ATEL Financial Services, LLC (Managing Member)              

Dean L. Cash, age 56, joined ATEL as director of marketing in 1980 and has been a vice president since 1981,
executive vice president since 1983 and a director since 1984. He has been President and CEO since April 2001. Prior to joining ATEL, Mr. Cash was a senior marketing representative for Martin Marietta Corporation, data systems division, from
1979 to 1980. From 1977 to 1979, he was employed by General Electric Corporation, where he was an applications specialist in the medical systems division and a marketing representative in the information services division. Mr. Cash was a
systems engineer with Electronic Data Systems from 1975 to 1977, and was involved in maintaining and developing software for commercial applications. Mr. Cash received a B.S. degree in psychology and mathematics in 1972 and an M.B.A. degree
with a concentration in finance in 1975 from Florida State University. Mr. Cash is an arbitrator with the American Arbitration Association.

Paritosh
K. Choksi, age 54, joined ATEL in 1999 as a director, senior vice president and its chief financial officer. He became its executive vice president and CFO/COO in April 2001. Prior to joining ATEL, Mr. Choksi was chief financial officer at Wink
Communications, Inc. from 1997 to 1999. From 1977 to 1997, Mr. Choksi was with Phoenix American Incorporated, a financial services and management company, where he held various positions during his tenure, and was senior vice president, chief
financial officer and director when he left the company. Mr. Choksi was involved in all corporate matters at Phoenix and was responsible for Phoenixs capital market needs. He also served on the credit committee overseeing all corporate
investments, including its venture lease portfolio. Mr. Choksi was a part of the executive management team which caused Phoenixs portfolio to increase from $50 million in assets to over $2 billion. Mr. Choksi is a member of the board
of directors of Syntel, Inc. Mr. Choksi received a bachelor of technology degree in mechanical engineering from the Indian Institute of Technology, Bombay; and an M.B.A. degree from the University of California, Berkeley.

Vasco H. Morais, age 48, joined ATEL in 1989 as general counsel to provide legal support in the drafting and reviewing of lease documentation, advising on general
corporate law matters, and assisting on securities law issues. From 1986 to 1989, Mr. Morais was employed by the BankAmeriLease Companies, Bank of Americas equipment leasing subsidiaries, providing in-house legal support on the
documentation of tax-oriented and non-tax oriented direct and leveraged lease transactions, vendor leasing programs and general corporate matters. Prior to the BankAmeriLease Companies, Mr. Morais was with the Consolidated Capital Companies in
the corporate and securities legal department involved in drafting and reviewing contracts, advising on corporate law matters and securities law issues. Mr. Morais received a B.A. degree in 1982 from the University of California in Berkeley, a
J.D. degree in 1986 from Golden Gate University Law School and an M.B.A. (Finance) in 1997 from Golden Gate University. Mr. Morais has been an active member of the State Bar of California since 1986.



32



---

Audit Committee

ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC. ATEL Financial Services, LLC is the Managing Member of the registrant. The board of directors of ATEL Leasing Corporation acts as the audit committee of the
registrant. Dean L. Cash and Paritosh K. Choksi are members of the board of directors of ALC and are deemed to be financial experts. They are not independent of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely on a review of Forms 3, 4, and 5,
the Company is not aware of any failures to file reports of beneficial ownership required to be filed during or for the year ended December 31, 2006.

Code of Ethics

ACG on behalf of AFS and ALC has adopted a code of ethics for its Chief Executive Officer and Chief Financial and
Operating Officer. The Code of Ethics is included as Exhibit 14.1 to this report.

Item 10. EXECUTIVE COMPENSATION

The registrant has no officers or directors.

Set forth hereinafter is a
description of the nature of remuneration paid and to be paid to ATEL and its Affiliates. The amount of such remuneration paid in 2006 is set forth in Item 8 of this report under the caption Financial Statements and Supplementary Data -
Notes to the Financial Statements - Related party transactions, at Note 7 thereof, which information is hereby incorporated by reference.

Selling Commissions

The Company paid selling commissions in the amount of 9% of Gross Proceeds, as defined, to ATEL Securities
Corporation, an affiliate of ATEL.

Through December 31, 2006, $4,738,641 of such commissions had been paid to AFS or its affiliate. Of that amount,
$3,948,868 has been re-allowed to other broker/dealers.

Asset Management Fee and Carried Interest

The Company pays AFS an Asset Management Fee in an amount equal to 4% of Operating Revenues, which includes Gross Lease Revenues and Cash From Sales or Refinancing. The
Asset Management Fee is paid on a monthly basis. The amount of the Asset Management Fee payable in any year is reduced for that year to the extent it would otherwise exceed the Asset Management Fee Limit, as described below. The Asset Management Fee
is paid for services rendered by AFS and its affiliates in determining portfolio and investment strategies (i.e., establishing and maintaining the composition of the Equipment portfolio as a whole and the Companys overall debt structure) and
generally managing or supervising the management of the Equipment.

AFS also receives, as its Carried Interest, an amount equal to 7.5% of all Company
Distributions.

AFS supervises performance of among others activities, collection of lease revenues, monitoring compliance by lessees with the lease terms,
assuring that Equipment is being used in accordance with all operative contractual arrangements, paying operating expenses and arranging for necessary maintenance and repair of Equipment in the event a lessee fails to do so, monitoring property,
sales and use tax compliance and preparation of operating financial data. AFS intends to delegate all or a portion of its duties and the Asset Management Fee to one or more of its affiliates who are in the business of providing such services.

Limitations on Fees

The Fund has adopted a single
Asset Management Fee plus the Carried Interest as a means of compensating the Manager for sponsoring the Fund and managing its operations. While this compensation structure is intended to simplify management compensation for purposes of
investors understanding, state securities administrators use a more complicated compensation structure in their review of equipment program offerings in order to assure that those offerings are fair under the states merit review
guidelines. The total of all Front End Fees, the Carried Interest and the Asset Management Fee will be subject to the Asset Management Fee Limit in order to assure these state administrators that Fund will not bear greater fees than permitted under
the



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state merit review guidelines. The North American Securities Administrators Association, Inc. (NASAA) is an organization of state securities
administrators, those state government agencies responsible for qualifying securities offerings in their respective states. NASAA has established standards for the qualification of a number of different types of securities offerings and investment
products, including its Statement of Policy on Equipment Programs (the NASAA Equipment Leasing Guidelines). Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines establish the standards for payment of reasonable
carried interests, promotional interests and fees for equipment acquisition, management, resale and releasing services to equipment leasing program sponsors. Article IV, Sections C through G of the NASAA Equipment Leasing Guidelines set the maximum
compensation payable to the sponsor and its affiliates from an equipment leasing program such as the Fund. The Asset Management Fee Limit will equal the maximum compensation payable under Article IV, Sections C through G of the NASAA Equipment
Leasing Guidelines as in effect on the date of the Funds prospectus (the NASAA Fee Limitation). Under the Asset Management Fee Limit, the Fund will calculate the maximum fees payable under the NASAA Fee Limitation and guarantee
that the Asset Management Fee it will pay the Manager and its Affiliates, when added to its Carried Interest, will never exceed the fees and interests payable to a sponsor and its affiliates under the NASAA Fee Limitation.

Asset Management Fee Limit. The Asset Management Fee Limit will be calculated each year during the Funds term by calculating the total fees that would be paid to
the Manager if the Manager were to be compensated on the basis of the maximum compensation payable under the NASAA Fee Limitation, including the Managers Carried Interest, as described below. To the extent that the amount paid as Front End
Fees, the Asset Management Fee, and the Carried Interest for any year would cause the total fees to exceed the aggregate amount of fees calculated under the NASAA Fee Limitation for the year, the Asset Management Fee and/or Carried Interest for that
year will be reduced to equal the maximum aggregate fees under the NASAA Fee Limitation . To the extent any such fees are reduced, the amount of such reduction will be accrued and deferred, and such accrued and deferred compensation would be paid to
the Manager in a subsequent period, but only to the extent that the deferred compensation would be within the Asset Management Fee Limit for that later period. Any deferred fees that cannot be paid under the applicable limitations through the date
of liquidation would be forfeited by the Manager at liquidation.

Under the NASAA Equipment Leasing Guidelines, the Fund is required to commit a minimum
percentage of the Gross Proceeds to Investment in Equipment, calculated as the greater of: (i) 80% of the Gross Proceeds reduced by 0.0625% for each 1% of indebtedness encumbering the Funds equipment; or (ii) 75% of such Gross
Proceeds. The Fund intends to incur total indebtedness equal to 50% of the aggregate cost of its equipment. The Operating Agreement requires the Fund to commit at least 85.875% of the Gross Proceeds to Investment in Equipment. Based on the formula
in the NASAA Guidelines, the Funds minimum Investment in Equipment would equal 76.875% of Gross Proceeds (80% - [50% x .0625%] = 76.875%), and the Funds minimum Investment in Equipment would therefore exceed the NASAA Fee Limitation
minimum by 9%.

The amount of the Carried Interest permitted the Manager under the NASAA Fee Limitation will be dependent on the amount by which the
percentage of Gross Proceeds the Fund ultimately commits to Investment in Equipment exceeds the minimum Investment in Equipment under the NASAA Fee Limitation. The NASAA Fee Limitation permits the Manager and its Affiliates to receive compensation
in the form of a carried interest in Fund Net Income, Net Loss and Distributions equal to 1% for the first 2.5% of excess Investment in Equipment over the NASAA Guidelines minimum, 1% for the next 2% of such excess, and 1% for each additional 1% of
excess Investment in Equipment. With a minimum Investment in Equipment of 85.875%, the Manager and its Affiliates may receive an additional carried interest equal to 6.5% of Net Profit, Net Loss and Distributions under the foregoing formula (2.5% +
2% + 4.5% = 9%; 1% + 1% + 4.5% = 6.5%). At the lowest permitted level of Investment in Equipment, the NASAA Guidelines would permit the Manager and its Affiliates to receive a promotional interest equal to 5% of Distributions of Cash from Operations
and 1% of Distributions of Sale or Refinancing Proceeds until Members have received total Distributions equal to their Original Invested Capital plus an 8% per annum cumulative return on their Adjusted Invested Capital, and, thereafter, the
promotional interest may increase to 15% of all Distributions.

With the additional carried interest calculated as described above, the maximum aggregate
fees payable to the Manager and Affiliates under the NASAA Guidelines as carried interest and promotional interest would equal 11.5% of Distributions of Cash from Operations (6.5% + 5% = 11.5%), and 7.5% of Distributions of Sale or Refinancing
Proceeds (6.5% + 1% = 7.5%), before the subordination level was reached, and 2 1.5% of all Distributions thereafter. The maximum amounts to be paid under the terms of the Operating Agreement are subject to the application of the Asset Management Fee
Limit provided in Section 8.3 of the Agreement, which limits the annual amount payable to the Manager and its Affiliates as the Asset Management Fee and the Carried Interest to an aggregate not to exceed the total amount of fees that would be
payable to the Manager and its Affiliates under the NASAA Fee Limitation.

Upon completion of the offering of Units, final commitment of offering proceeds
to acquisition of equipment and establishment of final levels of permanent portfolio debt, the Manager will calculate the maximum carried interest and promotional interest payable to the Manager and its Affiliates under the NASAA Fee Limitation and
compare such total permitted fees to the total of the Asset Management Fee and Managers Carried Interest. If and to the extent that the Asset Management Fee and Managers Carried Interest would exceed the fees calculated under the NASAA
Fee Limitation, the fees payable to the Manager and its Affiliates will be reduced by an amount sufficient to cause the total of such compensation to comply with the NASAA Fee Limitation. The adjusted Asset Management Fee Limit will then be applied
to the Asset Management Fee and Carried Interest as described above. A comparison of the Front End Fees actually paid by the Fund and the NASAA Fee Limitation maximums will be repeated, and any required adjustments will be made, at least annually
thereafter.



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A Carried Interest equal to 7.5% of all Distributions of Cash from Operations and Cash from Sales or Refinancing. See
Note 7 to the financial statements included in Item 7 for amounts paid.

Managing Members Interest in Operating Proceeds

AFS receives an allocation of all 7.5% of all Company net income, net loss and investment tax credits corresponding to its Carried Interest in
Distributions, and the remaining 92.5% is allocated among the Members. See financial statements included in Item 7, Part I of this report for amounts allocated to AFS in 2006.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners

At December 31, 2006, no investor is known to hold beneficially more
than 5% of the issued and outstanding Units.

Security Ownership of Management

The parent of AFS is the beneficial owner of Limited Liability Company Units as follows:



|                                |  |                                                                             |  |                                                         |  |                  |  
|------------------------------- |  | --------------------------------------------------------------------------- |  | ------------------------------------------------------- |  | ---------------- | -
|                                |  | (2)                                                                         |  | (3)                                                     |  | (4)              |  
|(1) Title of Class              |  | Name and Address of Beneficial Owner                                        |  | Amount and Nature of Beneficial Ownership               |  | Percent of Class |  
|Limited Liability Company Units |  | ATEL Capital Group 600 California Street, 6th Floor San Francisco, CA 94108 |  | Initial Limited Liability Company Units 50 Units ($500) |  | 0.0011           | %

Changes in Control

The Members have the right, by vote of the Members owning more than 50% of the outstanding Limited Liability Company Units, to remove the Managing Member.

AFS may at any time call a meeting of the Members or a vote of the Members without a meeting, on matters on which they are entitled to vote, and shall call such meeting or for vote without a meeting following receipt of a written request
therefore of Members holding 10% or more of the total outstanding Limited Liability Company Units.

Item 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

The responses to Item 1 of this report under the caption Equipment Leasing Activities, Item 7 of this report under
the caption Financial Statements and Supplemental Data - Notes to the Financial Statements - Related party transactions at Note 7 thereof, and Item 10 of this report under the caption Executive Compensation, are hereby
incorporated by reference.



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Item 13.EXHIBITS

The following exhibits are included with or incorporated into this report:



|               |  |                                                                                                                                                                                                                                                                                                      
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Exhibit                                                                                                                                                                                                                                                                               
|3.1, 4.1       |  | Amended and Restated Limited Liability Company Agreement, included as Exhibit B to the Prospectus included in the registrants registration statement on form S-1 effective April 11, 2005,
(File Number 333-120276) is hereby incorporated as Exhibits 3.1 and 4.1 to this report by this reference.
|               | 
|14.1           |  | Code of Ethics                                                                                                                                                                                                                                                                                       
|               | 
|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                                                                                                                                                                                                                               

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

During the last two years, the Company incurred audit, audit related, tax and other fees with its principal auditors as follows:



|                   |  |      |         |      |   |       
|------------------ |  | ---- | ------- | ---- | - | ------
|                   |  | 2006 |         | 2005
|Audit fees         |  | $    | 106,855 |      | $ | 78,353
|Audit related fees |  |      | 67,743  |      |   |      
|Tax fees           |  |      | 4,407   |      |   | 18,100
|Other              |  |      |        |      |   |      
|                   |  |      |         |      |   |       
|                   |  | $    | 179,005 |      | $ | 96,453
|                   |  |      |         |      |   |       

ATEL Leasing Corporation is the managing member of ATEL Financial Services, LLC. ATEL Financial Services, LLC is
the Managing Member of the registrant. The board of directors of ATEL Leasing Corporation acts as the audit committee of the registrant. Engagements for audit services, audit related services and tax services are approved in advance by the Chief
Financial Officer of ATEL Leasing Corporation acting on behalf the board of directors of ATEL Leasing Corporation in its role as the audit committee of the Company.



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                                                             |  |                                                  |  |                                                                                                                     
|------------------------------------------------------------ |  | ------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------
|Date: May 17, 2007                                           |  |                                                  |  |                                                                                                                     
|                                                             |  | ATEL Capital Equipment Fund XI, LLC (Registrant)
|By: ATEL Financial Corporation Managing Member of Registrant |  |                                                  |  |                                                                                                                     
|                                                             |  | By:                                              |  | /s/ Dean Cash                                                                                                       
|                                                             |  |                                                  |  | Dean 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 and Operating Officer of ATEL Financial Services, LLC (Managing Member)

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



|                                          |  |                                                                                                                      |  |             
|----------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ------------
|SIGNATURE                                 |  | CAPACITIES                                                                                                           |  | DATE        
|/s/ Dean L. Cash Dean Cash                |  | President and Chief Executive Officer of ATEL
Financial Services, LLC (Managing Member)                              |  | May 17, 2007
|                                          |  |                                                                                                                     
|/s/ Paritosh K. Choksi Paritosh K. Choksi |  | Executive Vice President and Chief Financial and Operating Officer of ATEL Financial Services, LLC (Managing Member) |  | May 17, 2007

No proxy materials have been or will be sent to security holders. An annual report will be furnished to security
holders subsequent to the filing of this report on Form 10-KSB, and copies thereof will be furnished supplementally to the Commission when forwarded to the security holders.



37