Form 10-Q UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549  x

          

          Quarterly Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934.
 For the quarterly period ended March 31, 2011  o

          

          Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934.
 For the transition period from          to Commission File number 000-53618 ATEL 12, LLC (Exact name of registrant as specified in its charter)  California

          

          20-8712853(State or other jurisdiction ofIncorporation or organization)

          

          (I. R. S. EmployerIdentification No.)
 600 California Street, 6th Floor, San Francisco, California 94108-2733(Address of principal executive offices) Registrants telephone number, including area code (415) 989-8800 Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes o No o Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer o    Accelerated filer o    Non-accelerated filer o    Smaller reporting company x Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x The number of Limited Liability Company Units outstanding as of April 30, 2011 was 2,999,482. DOCUMENTS INCORPORATED BY REFERENCE None.


TABLE OF CONTENTS

ATEL 12, LLC   Index  Part I.Financial Information





3Item 1.Financial Statements (Unaudited)





3Balance Sheets, March 31, 2011 and December 31, 2010





3Statements of Operations for the three months ended March 31, 2011 and 2010





4Statements of Changes in Members Capital for the year ended December 31, 2010 and for the three months ended March 31, 2011





5Statements of Cash Flows for the three months ended March 31, 2011 and 2010





6Notes to the Financial Statements





7Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations





21Item 4.Controls and Procedures





27Part II.Other Information





28Item 1.Legal Proceedings





28Item 2.Unregistered Sales of Equity Securities and Use of Proceeds





28Item 3.Defaults Upon Senior Securities





28Item 4.[Removed and Reserved]





28Item 5.Other Information





28Item 6.Exhibits





28
 
 2


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). ATEL 12, LLC   BALANCE SHEETS MARCH 31, 2011 AND DECEMBER 31, 2010(in thousands)(Unaudited)  March 31, 2011

          

          December 31, 2010ASSETSCash and cash equivalents

          

          $

          3,078

          

          

          $

          4,765Accounts receivable, net of allowance for doubtful accounts of $17 at March 31, 2011 and $20 at December 31, 2010

          

          

          149

          

          

          

          111Notes receivable, net of unearned interest income of $261 and allowance for credit losses of $500 at March 31, 2011 and net of unearned interest income of $360 and allowance for credit losses of $500 at December 31, 2010

          

          

          1,273

          

          

          

          1,571Investment in securities

          

          

          167

          

          

          

          167Investments in equipment and leases, net of accumulated depreciation of $7,261 at March 31, 2011 and $6,683 at December 31, 2010

          

          

          15,395

          

          

          

          15,184Prepaid expenses and other assets

          

          

          16

          

          

          

          16Total assets

          

          $

          20,078

          

          

          $

          21,814LIABILITIES AND MEMBERS CAPITALAccounts payable and accrued liabilities:Managing Member

          

          $

          26

          

          

          $

          19Affiliates

          

          

          130

          

          

          

          160Accrued distributions to Other Members

          

          

          230

          

          

          

          230Other

          

          

          77

          

          

          

          667Non-recourse debt

          

          

          3,497

          

          

          

          3,734Unearned operating lease income

          

          

          117

          

          

          

          119Total liabilities

          

          

          4,077

          

          

          

          4,929Commitments and contingenciesMembers capital:Managing Member

          

          

          

          

          

          

          Other Members

          

          

          16,001

          

          

          

          16,885Total Members capital

          

          

          16,001

          

          

          

          16,885Total liabilities and Members capital

          

          $

          20,078

          

          

          $

          21,814
 See accompanying notes.
 
 3


TABLE OF CONTENTS

ATEL 12, LLC   STATEMENTS OF OPERATIONS   FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (in thousands except for units and per unit data)(Unaudited)  Three Months Ended March 31,2011

          

          2010Revenues:Operating leases

          

          $

          1,195

          

          

          $

          995Direct financing leases

          

          

          23

          

          

          

          2Interest on notes receivable

          

          

          46

          

          

          

          26Gain on sales of lease assets and early termination of notes

          

          

          16

          

          

          

          Other

          

          

          2

          

          

          

          5Total revenues

          

          

          1,282

          

          

          

          1,028Expenses:Depreciation of operating lease assets

          

          

          967

          

          

          

          851Asset management fees to Managing Member

          

          

          63

          

          

          

          45Acquisition expense

          

          

          148

          

          

          

          Cost reimbursements to Managing Member and affiliates

          

          

          94

          

          

          

          114(Reversal of) provision for credit losses

          

          

          (3

          )

          

          

          97Amortization of initial direct costs

          

          

          20

          

          

          

          21Interest expense

          

          

          60

          

          

          

          20Professional fees

          

          

          49

          

          

          

          56Outside services

          

          

          13

          

          

          

          9Other

          

          

          25

          

          

          

          21Total operating expenses

          

          

          1,436

          

          

          

          1,234Net loss

          

          $

          (154

          )

          

          $

          (206

          )Net income (loss):Managing Member

          

          $

          55

          

          

          $

          55Other Members

          

          

          (209

          )

          

          

          (261

          )$

          (154

          )

          

          $

          (206

          )Net loss per Limited Liability Company Unit (Other Members)

          

          $

          (0.07

          )

          

          $

          (0.09

          )Weighted average number of Units outstanding

          

          

          2,999,482

          

          

          

          2,999,482
 See accompanying notes.
 
 4


TABLE OF CONTENTS

ATEL 12, LLC   STATEMENTS OF CHANGES IN MEMBERS CAPITAL   FOR THE YEAR ENDED DECEMBER 31, 2010 AND FOR THE THREE MONTHS ENDED MARCH 31, 2011(in thousands except for units and per unit data)(Unaudited)  Other Members

          

          ManagingMemberUnits

          

          Amount

          

          TotalBalance December 31, 2009

          

          

          2,999,482

          

          

          $

          20,949

          

          

          $

          

          

          

          $

          20,949Distributions to Other Members ($0.90 per Unit)

          

          

          

          

          

          

          (2,699

          )

          

          

          

          

          

          

          (2,699

          )Distributions to Managing Member

          

          

          

          

          

          

          

          

          

          

          (219

          )

          

          

          (219

          )Net (loss) income

          

          

          

          

          

          

          (1,365

          )

          

          

          219

          

          

          

          (1,146

          )Balance December 31, 2010

          

          

          2,999,482

          

          

          

          16,885

          

          

          

          

          

          

          

          16,885Distributions to Other Members ($0.23 per Unit)

          

          

          

          

          

          

          (675

          )

          

          

          

          

          

          

          (675

          )Distributions to Managing Member

          

          

          

          

          

          

          

          

          

          

          (55

          )

          

          

          (55

          )Net (loss) income

          

          

          

          

          

          

          (209

          )

          

          

          55

          

          

          

          (154

          )Balance March 31, 2011

          

          

          2,999,482

          

          

          $

          16,001

          

          

          $

          

          

          

          $

          16,001
 See accompanying notes.
 
 5


TABLE OF CONTENTS

ATEL 12, LLC   STATEMENTS OF CASH FLOWS   FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010(in thousands)(Unaudited)  Three Months Ended March 31,2011

          

          2010Operating activities:Net loss

          

          $

          (154

          )

          

          $

          (206

          )Adjustment to reconcile net loss to cash used in operating activities:Gain on sales of lease assets and early termination of notes

          

          

          (16

          )

          

          

          Depreciation of operating lease assets

          

          

          967

          

          

          

          851Amortization of initial direct costs

          

          

          20

          

          

          

          21(Reversal of provision) provision for credit losses

          

          

          (3

          )

          

          

          97Changes in operating assets and liabilities:Accounts receivable

          

          

          (35

          )

          

          

          81Prepaid expenses and other assets

          

          

          

          

          

          

          1Accounts payable, Managing Member

          

          

          7

          

          

          

          (2

          )Accounts payable, other

          

          

          (590

          )

          

          

          (42

          )Accrued liabilities, affiliates

          

          

          (30

          )

          

          

          170Unearned operating lease income

          

          

          (2

          )

          

          

          (82

          )Net cash provided by operating activities

          

          

          164

          

          

          

          889Investing activities:Purchases of equipment on operating leases

          

          

          (1,241

          )

          

          

          Purchase of securities

          

          

          

          

          

          

          (13

          )Proceeds from sales of lease assets and early termination of notes

          

          

          197

          

          

          

          Payments of initial direct costs

          

          

          (29

          )

          

          

          (1

          )Principal payments received on direct financing leases

          

          

          69

          

          

          

          5Principal payments received on notes receivable

          

          

          120

          

          

          

          86Net cash (used in) provided by investing activities

          

          

          (884

          )

          

          

          77Financing activities:Repayments under non-recourse debt

          

          

          (237

          )

          

          

          Borrowings under acquisition facility

          

          

          632

          

          

          

          Repayments under acquisition facility

          

          

          (632

          )

          

          

          Repayment of amount due from affiliate

          

          

          

          

          

          

          1,670Distributions to Other Members

          

          

          (675

          )

          

          

          (675

          )Distributions to Managing Member

          

          

          (55

          )

          

          

          (55

          )Net cash (used in) provided by financing activities

          

          

          (967

          )

          

          

          940Net (decrease) increase in cash and cash equivalents

          

          

          (1,687

          )

          

          

          1,906Cash and cash equivalents at beginning of period

          

          

          4,765

          

          

          

          3,976Cash and cash equivalents at end of period

          

          $

          3,078

          

          

          $

          5,882Supplemental disclosures of cash flow information:Cash paid during the period for interest

          

          $

          55

          

          

          $

          20Schedule of non-cash transactions:Distributions payable to Other Members at period-end

          

          $

          230

          

          

          $

          230Distributions payable to Managing Member at period-end

          

          $

          19

          

          

          $

          19
 See accompanying notes.
 
 6


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 1. Organization and Limited Liability Company matters: ATEL 12, LLC (the Company or the Fund) was formed under the laws of the state of California on January 25, 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the principal operations). The Managing Member of the Company is ATEL Associates 12, LLC (the Managing Member or Manager), a Nevada limited liability corporation. The Fund may continue until December 31, 2030. As a limited liability company, the liability of any
individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member. The Company conducted a public offering of 20,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only
when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. The offering was terminated on September 25, 2009. As of March 31, 2011, cumulative contributions, net of rescissions and/or redemptions, totaling $30.0 million (inclusive of the $500 initial members capital investment) have been received and 2,999,482 Units were issued and outstanding. The Fund, or Managing Member and/or affiliates on behalf of the Fund, has incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs to be borne by the Fund is limited by certain provisions of the ATEL 12, LLC Limited Liability Company Operating Agreement dated April 3, 2007 (the Operating Agreement). The Companys principal objectives are to invest in a diversified portfolio of investments that (i) preserves, protects and returns the Companys invested capital; (ii) generates regular cash distributions to Unitholders, any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Companys public offering of Units) which ends on December 31, 2015 and (iii) provides additional cash distributions following the Reinvestment Period and until all investment portfolio assets have been sold or otherwise disposed.
The Company is governed by its Operating Agreement, as amended. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission. 2. Summary of significant accounting policies: Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2011 are not
necessarily indicative of the results to be expected for the full year. Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on the reported financial position or results from operations. Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.
 
 7


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 2. Summary of significant accounting policies: - (continued) In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after March 31, 2011 up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, and adjustments thereto. Use of Estimates: The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and for determination of the allowance for doubtful accounts and reserve for credit
losses on notes receivable. Segment reporting: The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States. The primary geographic regions in which the Company sought leasing opportunities were North America and Europe. For the three months ended March 31, 2011 and 2010, and as of March 31, 2011 and December 31, 2010, 100% of the Companys operating revenues and long-lived assets are from customers domiciled in North America. Investment in securities: Purchased securities Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. At December 31, 2010, the Company deemed an investment security to be impaired and recorded a fair value adjustment of
approximately $356 thousand which reduced the cost basis of the investment. There were no additional impaired securities at March 31, 2011. Warrants Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried at an estimated fair value on the balance sheet at the end of the period, as determined by the Managing Member. At March 31, 2011 and December 31, 2010, the Managing Member estimated the fair value of the warrants to be nominal in amount. Per Unit data: Net loss and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period. Recent accounting pronouncements: In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-02, A Creditors Determination of Whether a Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 clarifies guidance on a creditors evaluation of whether it has granted a concession to a borrower and a creditors evaluation of whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or
 
 8


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 2. Summary of significant accounting policies: - (continued) after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. In addition, an entity should disclose the information required by Accounting Standards Codification paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, for interim and annual periods beginning on or after June 15, 2011. The
Company anticipates that adoption of this update will not have a material impact on its financial position or results of operations. In January 2011, the FASB issued ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. Currently, that
guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011. The Company anticipates that adoption of these additional disclosures will not have a material effect on its financial position or results of operations. 3. Notes receivable, net: The Company has various notes receivable from borrowers who have financed the purchase of equipment through the Company. At March 31, 2011, the original terms of the notes receivable are between 17 and 36 months and bear interest at rates ranging from 11% to 18%. The notes are generally secured by the equipment financed. The notes mature from 2011 through 2014. At December 31, 2010, the Company had a $500 thousand reserve related to an impaired note receivable. Such reserve reduced the net book value of the investment to zero at December 31, 2010 and thus, at March 31, 2011. In addition to the fully reserved note, three notes with a combined net book value of $196 thousand were on non-accrual status at December 31, 2010 and were considered impaired relative to their payment terms. Of these non-accrual status notes, a note for $145 thousand was restructured pursuant to a forbearance agreement at graduated default interest-only payment terms followed by a balloon payment of unpaid principal scheduled for
October 2011. The default interest rates increase starts at 12.50% and graduate up to 18.00%. Two of the remaining non-accrual notes, for $51 thousand, were modified to defer the repayment of principal until April 2012 while maintaining interest-only payments at the original rate of 11.58% and 11.78%. As of March 31, 2011, the aforementioned notes continue in non-accrual status and reflect a total principal balance outstanding of $188 thousand. Management has determined that no valuation adjustment is necessary as of the same dates and is vigilant in taking appropriate steps to ensure collection of the outstanding non-accrual balances. As of March 31, 2011, the minimum future payments receivable are as follows (in thousands):  Nine months ending December 31, 2011

          

          $

          1,108Year ending December 31, 2012

          

          

          5642013

          

          

          3402014

          

          

          92,021Less: portion representing unearned interest income

          

          

          (261

          )1,760Unamortized initial direct costs

          

          

          13Less: Reserve for impairment

          

          

          (500

          )Notes receivable, net

          

          $

          1,273
 
 9


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 3. Notes receivable, net: - (continued) Initial direct costs (IDC) amortization expense related to notes receivable and the Companys operating and direct finance leases for the three months ended March 31, 2011 and 2010 are as follows (in thousands):  Three Months Ended March 31,2011

          

          2010IDC amortization  notes receivable

          

          $

          3

          

          

          $

          2IDC amortization  lease assets

          

          

          17

          

          

          

          19Total

          

          $

          20

          

          

          $

          21
 4. Provision for credit losses: The Companys provision for credit losses are as follows (in thousands):  Valuation Adjustments on Financing Receivables

          

          AccountsReceivableAllowance for Doubtful Accounts

          

          TotalBalance December 31, 2009

          

          $

          375

          

          

          $

          19

          

          

          $

          394Provision

          

          

          125

          

          

          

          1

          

          

          

          126Balance December 31, 2010

          

          

          500

          

          

          

          20

          

          

          

          520Reversal of provision

          

          

          

          

          

          

          (3

          )

          

          

          (3

          )Balance March 31, 2011

          

          $

          500

          

          

          $

          17

          

          

          $

          517
 At March 31, 2011 and December 31, 2010, the entire allowance for doubtful accounts represents reserves against operating lease receivables. The Companys allowance for credit losses (related solely to financing receivables) and its recorded net investment in financing receivables as of March 31, 2011 and December 31, 2010 were as follows (in thousands):  March 31, 2011

          

          Notes Receivable

          

          Finance Leases

          

          TotalAllowance for credit losses:Ending balance

          

          $

          500

          

          

          $

          

          

          

          $

          500Ending balance: individually evaluated for impairment

          

          $

          500

          

          

          $

          

          

          

          $

          500Ending balance: collectively evaluated for impairment

          

          $

          

          

          

          $

          

          

          

          $

          Ending balance: loans acquired with deteriorated credit quality

          

          $

          

          

          

          $

          

          

          

          $

          Financing receivables, net:Ending balance

          

          $

          1,7731

          

          

          $

          307

          

          

          $

          2,080Ending balance: individually evaluated for impairment

          

          $

          1,773

          

          

          $

          307

          

          

          $

          2,080Ending balance: collectively evaluated for impairment

          

          $

          

          

          

          $

          

          

          

          $

          Ending balance: loans acquired with deteriorated credit quality

          

          $

          

          

          

          $

          

          

          

          $

          
 1

          Includes $13 of unamortized initial direct costs.
 
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ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 4. Provision for credit losses: - (continued)  December 31, 2010

          

          Notes Receivable

          

          Finance Leases

          

          TotalAllowance for credit losses:Ending balance

          

          $

          500

          

          

          $

          

          

          

          $

          500Ending balance: individually evaluated for impairment

          

          $

          500

          

          

          $

          

          

          

          $

          500Ending balance: collectively evaluated for impairment

          

          $

          

          

          

          $

          

          

          

          $

          Ending balance: loans acquired with deteriorated credit quality

          

          $

          

          

          

          $

          

          

          

          $

          Financing receivables, net:Ending balance

          

          $

          2,0712

          

          

          $

          58

          

          

          $

          2,129Ending balance: individually evaluated for impairment

          

          $

          2,071

          

          

          $

          58

          

          

          $

          2,129Ending balance: collectively evaluated for impairment

          

          $

          

          

          

          $

          

          

          

          $

          Ending balance: loans acquired with deteriorated credit quality

          

          $

          

          

          

          $

          

          

          

          $

          
 2

          Includes $11 of unamortized initial direct costs. The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles: Pass  Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moodys or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the
Manager to fall into one of the three risk profiles below. Special Mention  Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve managements close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Funds receivable at some future date. Substandard  Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Managers Credit Watch List. Doubtful  Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Managers Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.
 
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TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 4. Provision for credit losses: - (continued) At March 31, 2011 and December 31, 2010, the Companys financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes IDC) (in thousands):  Notes Receivable

          

          Finance LeasesMarch 31, 2011

          

          December 31, 2010

          

          March 31, 2011

          

          December 31, 2010Pass

          

          $

          1,121

          

          

          $

          1,415

          

          

          $

          307

          

          

          $

          58Special mention

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          Substandard

          

          

          139

          

          

          

          145

          

          

          

          

          

          

          

          Doubtful

          

          

          500

          

          

          

          500

          

          

          

          

          

          

          

          Total

          

          $

          1,760

          

          

          $

          2,060

          

          

          $

          307

          

          

          $

          58
 As of March 31, 2011 and December 31, 2010, the Companys impaired loans were as follows (in thousands):  Impaired LoansMarch 31, 2011

          

          Recorded Investment

          

          Unpaid Principal Balance

          

          Related Allowance

          

          Average Recorded Investment

          

          Interest Income RecognizedWith no related allowance recordedNotes receivable

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          With an allowance recordedNotes receivable

          

          

          500

          

          

          

          500

          

          

          

          500

          

          

          

          500

          

          

          

          Total

          

          $

          500

          

          

          $

          500

          

          

          $

          500

          

          

          $

          500

          

          

          $

          
  Impaired LoansDecember 31, 2010

          

          Recorded Investment

          

          Unpaid Principal Balance

          

          Related Allowance

          

          Average Recorded Investment

          

          Interest Income RecognizedWith no related allowance recordedNotes receivable

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          With an allowance recordedNotes receivable

          

          

          500

          

          

          

          500

          

          

          

          500

          

          

          

          500

          

          

          

          5Total

          

          $

          500

          

          

          $

          500

          

          

          $

          500

          

          

          $

          500

          

          

          $

          5
 At March 31, 2011 and December 31, 2010, net investment in financing receivables is aged as follows (in thousands):  March 31, 2011

          

          30  59 Days Past Due

          

          60  89 Days Past Due

          

          Greater Than 90 Days

          

          Total Past Due

          

          Current

          

          Total Financing Receivables

          

          Recorded Investment>90Days andAccruingNotes receivable

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          1,260

          

          

          $

          1,260

          

          

          $

          Finance leases

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          

          307

          

          

          

          307

          

          

          

          Total

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          1,567

          

          

          $

          1,567

          

          

          $

          
  December 31, 2010

          

          30  59 Days Past Due

          

          60  89 Days Past Due

          

          Greater Than 90 Days

          

          Total Past Due

          

          Current

          

          Total Financing Receivables

          

          Recorded Investment>90Days andAccruingNotes receivable

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          

          

          

          $

          1,560

          

          

          $

          1,560

          

          

          $

          Finance leases

          

          

          22

          

          

          

          

          

          

          

          

          

          

          

          22

          

          

          

          36

          

          

          

          58

          

          

          

          Total

          

          $

          22

          

          

          $

          

          

          

          $

          

          

          

          $

          22

          

          

          $

          1,596

          

          

          $

          1,618

          

          

          $

          
 
 12


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 4. Provision for credit losses: - (continued) In addition to the fully reserved impaired note receivable discussed in Note 3, there were three other notes in non-accrual status as of March 31, 2011 and December 31, 2010. Such notes were considered impaired relative to their payment terms; however, management has determined that no valuation adjustment is necessary as of the same date. There were no accounts receivable related to net investments in financing receivables placed in non-accrual status as of March 31, 2011 and December 31, 2010. 5. Investments in equipment and leases, net: The Companys investment in leases consists of the following (in thousands):  Balance December 31, 2010

          

          Reclassifications & Additions / Dispositions

          

          Depreciation/ Amortization Expense or Amortization of Leases

          

          Balance March 31, 2011Net investment in operating leases

          

          $

          14,956

          

          

          $

          923

          

          

          $

          (965

          )

          

          $

          14,914Net investment in direct financing leases

          

          

          58

          

          

          

          319

          

          

          

          (70

          )

          

          

          307Assets held for sale or lease, net

          

          

          37

          

          

          

          

          

          

          

          (2

          )

          

          

          35Initial direct costs, net of accumulated amortization of $126 at March 31, 2011 and $118 at December 31, 2010

          

          

          133

          

          

          

          23

          

          

          

          (17

          )

          

          

          139Total

          

          $

          15,184

          

          

          $

          1,265

          

          

          $

          (1,054

          )

          

          $

          15,395
 Impairment of investments in leases: Management periodically reviews the carrying values of its assets on leases. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded during the three months ended March 31, 2011 and 2010. The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. Depreciation expense on the Companys equipment totaled $967 thousand and $851 thousand for the respective three months ended March 31, 2011 and 2010. All of the Companys leased property was acquired in the years 2008 through 2011. Operating leases: Property on operating leases consists of the following (in thousands):  Balance December 31, 2010

          

          Additions

          

          Reclassifications or Dispositions

          

          Balance March 31, 2011Materials handling

          

          $

          7,030

          

          

          $

          653

          

          

          $

          

          

          

          $

          7,683Research

          

          

          3,796

          

          

          

          

          

          

          

          (708

          )

          

          

          3,088Transportation

          

          

          2,416

          

          

          

          588

          

          

          

          

          

          

          

          3,004Construction

          

          

          2,989

          

          

          

          

          

          

          

          

          

          

          

          2,989Mining

          

          

          2,893

          

          

          

          

          

          

          

          

          

          

          

          2,893Aviation

          

          

          2,167

          

          

          

          

          

          

          

          

          

          

          

          2,167Manufacturing

          

          

          249

          

          

          

          

          

          

          

          

          

          

          

          249Cleaning & maintenance

          

          

          79

          

          

          

          

          

          

          

          

          

          

          

          7921,619

          

          

          

          1,241

          

          

          

          (708

          )

          

          

          22,152Less accumulated depreciation

          

          

          (6,663

          )

          

          

          (965

          )

          

          

          390

          

          

          

          (7,238

          )Total

          

          $

          14,956

          

          

          $

          276

          

          

          $

          (318

          )

          

          $

          14,914
 
 13


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 5. Investments in equipment and leases, net: - (continued) The average estimated residual value for assets on operating leases was 28% and 25% of the assets original cost at March 31, 2011 and December 31, 2010, respectively. Direct financing leases: As of March 31, 2011, investment in direct financing leases consists of research equipment, cleaning services and materials handling equipment such as sweepers, forklifts and lift trucks. The following lists the components of the Companys investment in direct financing leases as of March 31, 2011 and December 31, 2010 (in thousands):  March 31, 2011

          

          December 31, 2010Total minimum lease payments receivable

          

          $

          306

          

          

          $

          55Estimated residual values of leased equipment (unguaranteed)

          

          

          38

          

          

          

          8Investment in direct financing leases

          

          

          344

          

          

          

          63Less unearned income

          

          

          (37

          )

          

          

          (5

          )Net investment in direct financing leases

          

          $

          307

          

          

          $

          58
 There were no investments in direct financing leases in non-accrual status at March 31, 2011 and December 31, 2010. At March 31, 2011, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):  Operating Leases

          

          Direct Financing Leases

          

          TotalNine months ending December 31, 2011

          

          $

          3,269

          

          

          $

          149

          

          

          $

          3,418Year ending December 31, 2012

          

          

          3,180

          

          

          

          151

          

          

          

          3,3312013

          

          

          2,257

          

          

          

          6

          

          

          

          2,2632014

          

          

          1,756

          

          

          

          

          

          

          

          1,7562015

          

          

          481

          

          

          

          

          

          

          

          481Thereafter

          

          

          419

          

          

          

          

          

          

          

          419$

          11,362

          

          

          $

          306

          

          

          $

          11,668
 6. Related party transactions: The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Company. The Operating Agreement allows for the reimbursement of costs incurred by Managing Member and/or affiliates for providing administrative services to the Company. Administrative services provided include Company accounting, investor relations, legal counsel and lease and equipment documentation. The Managing Member is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of investments. The Company would be liable for certain future costs to be incurred by the Managing Member to manage the administrative services provided to the Company. Each of ATEL Financial Services, LLC (AFS) and ATEL Leasing Corporation (ALC) is a wholly-owned subsidiary of ATEL Capital Group, Inc. and performs services for the Company on behalf of the Managing Member. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications and general administrative services are performed by AFS.
 
 14


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 6. Related party transactions: - (continued) Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location. During the three months ended March 31, 2011 and 2010, the Managing Member and/or affiliates earned commissions and billed for reimbursements, pursuant to the Operating Agreement as follows (in thousands):  Three Months EndedMarch 31,2011

          

          2010Administrative costs reimbursed to Managing Member and/or affiliates

          

          $

          94

          

          

          $

          114Asset management fees to Managing Member and/or affiliates

          

          

          63

          

          

          

          45Acquisition and initial direct costs paid to Managing Member and/or affiliates

          

          

          173

          

          

          

          $

          330

          

          

          $

          159
 7. Non-recourse debt: At March 31, 2011, non-recourse debt consists of notes payable to financial institutions. The notes are due in monthly installments. Interest on the notes is at fixed rates ranging from 4.11% to 4.40% per annum. The notes are secured by assignments of lease payments and pledges of assets. At March 31, 2011, gross lease rentals totaled approximately $3.8 million over the remaining lease terms; and the carrying value of the pledged assets is approximately $4.5 million. The notes all mature in 2014. The non-recourse debt does not contain any material financial covenants. The debt is secured by liens granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the
Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Companys good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with
respect to the non-recourse debt that warrant footnote disclosure. Future minimum payments of non-recourse debt are as follows (in thousands):  Principal

          

          Interest

          

          TotalNine months ending December 31, 2011

          

          $

          713

          

          

          $

          102

          

          

          $

          815Year ending December 31, 2012

          

          

          987

          

          

          

          100

          

          

          

          1,0872013

          

          

          1,030

          

          

          

          57

          

          

          

          1,0872014

          

          

          767

          

          

          

          14

          

          

          

          781$

          3,497

          

          

          $

          273

          

          

          $

          3,770
 
 15


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 8. Borrowing facilities: The Company participates with AFS and certain of its affiliates in a revolving credit facility (the Credit Facility) comprised of a working capital facility to AFS, an acquisition facility (the Acquisition Facility) and a warehouse facility (the Warehouse Facility) to AFS, the Company and affiliates, and a venture facility available to an affiliate with a syndicate of financial institutions which Credit Facility includes certain financial covenants. The Credit Facility is for an amount up to $75 million and expires in June 2012. The lending syndicate providing the Credit Facility has a blanket lien on all of the
Companys assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. As of March 31, 2011 and December 31, 2010, borrowings under the facility were as follows (in thousands):  March 31, 2011

          

          December 31, 2010Total available under the financing arrangement

          

          $

          75,000

          

          

          $

          75,000Amount borrowed by the Company under the acquisition facility

          

          

          

          

          

          

          Amounts borrowed by affiliated partnerships and Limited Liability Companies under the working capital, acquisition and warehouse facilities

          

          

          (500

          )

          

          

          (5,345

          )Total remaining available under the working capital, acquisition and warehouse facilities

          

          $

          74,500

          

          

          $

          69,655
 The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of March 31, 2011, the aggregate amount remaining unutilized under the Credit Facility is potentially available to the Company, subject to certain sub-facility and borrowing-base limitations. However, as amounts are drawn on the Credit Facility by each of the Company and the affiliates who are borrowers under the Credit Facility, the amount remaining available to all borrowers to draw under the Credit Facility is reduced. As the Warehousing Facility is a short term bridge facility, any amounts borrowed under the Warehousing Facility, and then repaid
by the affiliated borrowers (including the Company) upon allocation of an acquisition to a specific purchaser, become available under the Warehouse Facility for further short term borrowing. As of March 31, 2011, the Companys Tangible Net Worth requirement under the Credit Facility was $7.5 million, the permitted maximum leverage ratio was not to exceed 1.25 to 1, and the required minimum interest coverage ratio was not to be less than 2 to 1. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and interest coverage ratio, as calculated per the Credit Facility agreement of $16.0 million, 0.22 to 1, and 17.98 to 1, respectively, as of March 31, 2011. As such, as of March 31, 2011, the Company was in compliance with all material financial covenants,
and with all other material conditions of the Credit Facility. The Company does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing. Fee and interest terms The interest rate on the Credit Facility 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 Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility. There were no borrowings outstanding at December 31, 2010. During the current quarter, the Company borrowed $632 thousand, of which the whole amount was repaid during the quarter. The weighted average rate on such borrowings was 3.25%. Warehouse facility To hold the assets under the Warehousing Facility prior to allocation to specific investor programs, a Warehousing Trust has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The Warehousing Trust is used by the Warehouse Facility borrowers to acquire and hold, on a short-term basis, certain lease transactions that meet the investment objectives of each
 
 16


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 8. Borrowing facilities: - (continued) 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, 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 are added. As of March 31, 2011, the investment program participants were ATEL Capital Equipment Fund X, LLC, ATEL Capital Equipment Fund XI, LLC, and the Company. Pursuant to the Warehousing Trust, the benefit of the lease transaction assets, and the corresponding liabilities under the Warehouse 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 Warehousing Trust estate, excepting that the trustees, AFS and ALC, are both jointly and severally
liable for the pro rata portion of the obligations of each of the affiliated partnerships and limited liability companies participating under the Warehouse Facility. Transactions are financed through this Warehouse 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 proceeds of a draw under the Acquisition Facility, and 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. As of March 31, 2011, there were no borrowings under the Warehouse Facility. At December 31, 2010, borrowings of $4.8 million were outstanding under such facility. The Companys maximum contingent obligation on the outstanding warehouse balance at December 31, 2010 was approximately $1.1 million. 9. Commitments: At March 31, 2011, there were commitments to purchase lease assets and fund investments in notes receivable totaling approximately $3.9 million and $1.7 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company. 10. Guarantees: The Company enters into contracts that contain a variety of indemnifications. The Companys maximum exposure under these arrangements is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote. The Managing Member knows of no facts or circumstances that would make the Companys contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Company believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Companys similar commitments is remote. Should any such indemnification obligation become payable, the Company would separately record and/or disclose such liability in accordance with GAAP. 11. Members capital: A total of 2,999,482 Units were issued and outstanding as of March 31, 2011 and December 31, 2010, respectively. The Fund was authorized to issue up to 20,000,000 total Units. The Company has the right, exercisable in the Managers discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holders capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holders request. The repurchase of Fund units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Manager on terms
 
 17


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 11. Members capital: - (continued) it determines to be appropriate under given circumstances, in the event that the Manager deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs. The Funds net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, as defined in the Companys Operating Agreement, net income and net loss shall be allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss shall be allocated 92.5% to the Other Members and 7.5% to the Managing Member. Fund distributions are to be allocated 7.5% to the Managing Member and 92.5% to the Other Members. Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):  Three Months EndedMarch 31,2011

          

          2010Distributions

          

          $

          675

          

          

          $

          675Weighted average number of Units outstanding

          

          

          2,999,482

          

          

          

          2,999,482Weighted average distributions per Unit

          

          $

          0.23

          

          

          $

          0.23
 12. Fair value measurements: Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows: Level 1  Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, generally on a national exchange. Level 2  Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market. Level 3  Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Companys own estimates of assumptions that market participants would use in pricing the asset or liability. At March 31, 2011 and December 31, 2010, the Company had no assets or liabilities that require measurement at fair value on a recurring basis. However, at December 31, 2010, the Company measured an impaired investment security at fair value on a non-recurring basis. Such estimate of measurement methodology is as follows: Impaired investment securities The Companys investment securities are not registered for public sale and are carried at cost. The investment securities are adjusted for impairment, if any, based upon factors which include, but are not limited to, available financial information, the issuers ability to meet its current obligations and indications of the issuers subsequent ability to raise capital. At December 31, 2010, the Company deemed an investment security to be impaired and recorded a fair value adjustment of approximately $356 thousand which reduced the cost basis of the investment. The non-recurring fair value adjustment was based on an approximate 79%
reduction in valuation as determined by investee cash burn and potential for additional venture investors.
 
 18


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 12. Fair value measurements: - (continued) Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the impaired investment security is classified within Level 3 of the valuation hierarchy due to the significant inputs that are unobservable in the market. At March 31, 2011, managements review of its investment securities indicated no necessity for additional impairment. The following table presents the fair value measurement of the impaired investment security measured at fair value on a non-recurring basis and the level within the hierarchy in which the fair value measurements fall at December 31, 2010 (in thousands):  December 31, 2010

          

          Level 1 Estimated Fair Value

          

          Level 2 Estimated Fair Value

          

          Level 3 Estimated Fair ValueImpaired investment security

          

          $

          94

          

          

          $

          

          

          

          $

          

          

          

          $

          94
 The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Companys financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Companys financial statements and related notes. The Company has determined the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize or has realized in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents The recorded amounts of the Companys cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments. Notes receivable The fair value of the Companys notes receivable is estimated using discounted cash flow analyses, based upon current market rates for similar types of lending arrangements. Investment in securities The Companys investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment. Non-recourse debt The fair value of the Companys non-recourse debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements. Commitments and Contingencies Management has determined that no recognition for the fair value of the Companys loan commitments is necessary because their terms are made on a market rate basis and require borrowers to be in compliance with the Companys credit requirements at the time of funding. The fair value of contingent liabilities (or guarantees) is not considered material because management believes there has been no event that has occurred wherein a guarantee liability has been incurred or will likely be incurred. Limitations The fair value estimates presented herein were based on pertinent information available to the Company as of March 31, 2011 and December 31, 2010. Although the Company is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
 
 19


TABLE OF CONTENTS

ATEL 12, LLC   NOTES TO THE FINANCIAL STATEMENTS (Unaudited) 12. Fair value measurements: - (continued) The following table presents estimated fair values of the Companys financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at March 31, 2011 and December 31, 2010 (in thousands):  March 31, 2011

          

          December 31, 2010Carrying Amount

          

          Estimated Fair Value

          

          Carrying Amount

          

          Estimated Fair ValueFinancial assets:Cash and cash equivalents

          

          $

          3,078

          

          

          $

          3,078

          

          

          $

          4,765

          

          

          $

          4,765Notes receivable

          

          

          1,273

          

          

          

          1,273

          

          

          

          1,571

          

          

          

          1,571Investment in securities

          

          

          167

          

          

          

          167

          

          

          

          167

          

          

          

          167Financial liabilities:Non-recourse debt

          

          

          3,497

          

          

          

          3,480

          

          

          

          3,734

          

          

          

          3,733
 
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations. Statements contained in this Item 2, Managements Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, the economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and
reduced returns on invested capital. The Companys performance is subject to risks relating to lessee defaults and the creditworthiness of its lessees. The Companys performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law. Overview ATEL 12, LLC (the Company or the Fund) is a California limited liability company that was formed in January 2007 for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities, as well as in real estate, growth capital investment activities and green technologies (the principal operations), primarily in the United States. The Company conducted a public offering of 20,000,000 Limited Liability Company Units (Units), at a price of $10 per Unit. On January 24, 2008, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the second quarter. Pennsylvania subscriptions were subject to a separate escrow to be released to the Fund only
when the Fund had received aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on July 15, 2008. As of September 25, 2009, the offering was terminated. During 2009, the Company completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, during the reinvestment period (Reinvestment Period) (defined as six full years following the year the offering was terminated), the Company has utilized its credit facilities and reinvested cash flow in excess of certain amounts required to be distributed to the Other Members to acquire additional equipment and/or to fund financing transactions. Throughout the Reinvestment Period, which ends December 31, 2015, the Company anticipates continued reinvestment of cash flow in excess of
minimum distributions and other obligations. The Company is governed by its Limited Liability Company Operating Agreement (Operating Agreement), as amended. The Company may continue until December 31, 2030. Periodic distributions are paid at the discretion of the Managing Member. Results of Operations The three months ended March 31, 2011 versus the three months ended March 31, 2010 The Company had net losses of $154 thousand and $206 thousand for the three months ended March 31, 2011 and 2010, respectively. Results for the first quarter of 2011 reflect increases in both total revenues and total operating expenses when compared to the prior year period. Revenues Total first quarter 2011 revenues increased by $254 thousand as compared to the prior year period. The increase was primarily due to higher operating and direct financing lease revenues, as well as higher interest income on the Companys notes receivable.
 
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Operating lease revenues increased by $200 thousand primarily due to income derived from $5.7 million of lease assets acquired since the second quarter of 2010. Direct financing lease revenues increased by $21 thousand as certain equipment under an operating lease were re-leased as a direct financing lease during the first quarter of 2011; and, interest income on notes receivable increased by $20 thousand due to revenues derived from $1.3 million of loans funded during the second half of 2010. During the first three months of 2011 and 2010, revenues derived from the Companys investments in lease assets and notes receivable, excluding proceeds from sales of lease assets and early termination of notes receivable, approximated 98.5% and 99.5% of total revenues, respectively. Revenues for the first quarter of 2011 also included a $16 thousand gain on an early termination of a note receivable and $2 thousand from processing and servicing fees on certain lease transactions. Likewise, revenues for the first quarter of 2010 included an approximate $5 thousand of such processing and servicing fees. Expenses Total expenses for the first quarter of 2011 increased by $202 thousand as compared to the prior year period, primarily due to higher acquisition costs, depreciation, and interest expense offset, in part, by a reduction in the provision for credit losses. Acquisition costs were higher by $148 thousand due to a period over period increase in acquisition activity. An approximate $1.2 million of lease assets were acquired during the first quarter of 2011. By comparison, there were no lease assets purchased during the first quarter of 2010. Likewise, depreciation expense increased by $116 thousand mainly due to the period over period increase in the Companys lease asset portfolio; and, interest expense increased by $40 thousand largely as a result of new non-recourse debt associated with the acquisition of certain operating lease assets during the second half of 2010. Partially offsetting the aforementioned increases in expenses was a $100 thousand reduction in the provision for credit losses. The decrease reflects a first quarter 2010 reserve relative to an impaired note receivable. There was no such reserve recorded during the first quarter of 2011. Capital Resources and Liquidity At March 31, 2011 and December 31, 2010, the Companys cash and cash equivalents totaled $3.1 million and $4.8 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales. The primary source of liquidity for the Company has been its cash flow from fixed-term leasing activities. As the lease terms expire, the Company will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Companys success in remarketing or selling the equipment as it comes off rental. Throughout the Reinvestment Period (as defined in the Operating Agreement), the Company anticipates reinvesting a portion of lease payments from assets owned, and/or payments received on notes receivable, in new leasing or financing transactions. Such reinvestment will occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management fees to the Manager and providing for cash distributions to the Members. In a normal economy, if inflation in the general economy becomes significant, it may affect the Company in as much as the residual (resale) values and rates on re-leases of the Companys leased assets may increase as the costs of similar assets increase. However, the Companys revenues from existing leases and notes would not increase as such rates are generally fixed for the terms of the leases and notes without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the rates that the Company can obtain on future lease or financing transactions will be expected to increase as the cost of
capital is a significant factor in the pricing of leases and investments in notes receivable. Leases and notes already in place, for the most part, would not be affected by changes in interest rates.
 
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The Company currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. The Managing Member envisions no such requirements for operating purposes. Cash Flows The following table sets forth summary cash flow data (in thousands):  Three Months Ended March 31,2011

          

          2010Net cash provided by (used in):Operating activities

          

          $

          164

          

          

          $

          889Investing activities

          

          

          (884

          )

          

          

          77Financing activities

          

          

          (967

          )

          

          

          940Net (decrease) increase in cash and cash equivalents

          

          $

          (1,687

          )

          

          $

          1,906
 Operating Activities Cash provided by operating activities during the first quarter of 2011 decreased by $725 thousand, or 82%, as compared to the prior year period. The net decrease in cash flow was mainly attributable to a period over period increase in payments made against accounts payable and accrued liabilities, and a reduction in collections of accounts receivable offset, in part, by a decline in unearned rents and a smaller net loss during the first quarter of 2011 as compared to the prior year period. Investing Activities Cash used in investing activities for the first quarter of 2011 totaled $884 thousand as compared to cash provided by investing activities totaling $77 thousand for the first quarter of 2010, a $961 thousand decline. The net decrease in cash flow was mainly due to an approximate $1.2 million of cash used to acquire operating lease assets offset, in part, by $197 thousand of proceeds from an early termination of a note receivable and a combined $98 thousand increase in principal payments received on direct financing leases and notes receivable. Principal payments on direct financing leases increased as certain equipment under an operating lease were
re-leased as a direct financing lease during the first quarter of 2011; and, principal payments on notes receivable increased as a result of new loans funded during the second half of 2010. Financing Activities Net cash used in financing activities during the first quarter of 2011 totaled $967 thousand as compared to cash provided by financing activities totaling $940 thousand for the first quarter of 2010, a $1.9 million decrease. Cash flow declined as the first quarter 2010 amount included a $1.7 million settlement of an amount due from an affiliate relative to a December 31, 2009 reassignment of a newly purchased asset. Moreover, an approximate $237 thousand was used to pay down the Companys non-recourse debt during the first quarter of 2011. Such scheduled payments on the non-recourse debt commenced during the second half of 2010. Revolving credit facility The Company participates with AFS and certain of its affiliates in a revolving credit facility (the Credit Facility) comprised of a working capital facility to AFS, an acquisition facility (the Acquisition Facility) and a warehouse facility (the Warehouse Facility) to AFS, the Company and affiliates, and a venture facility available to an affiliate, with a syndicate of financial institutions.
 
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Compliance with covenants The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was in compliance with all covenants under the Credit Facility as of March 31, 2011. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below. Material financial covenants Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies. The material financial covenants are summarized as follows: Minimum Tangible Net Worth: $7.5 million Leverage Ratio (leverage to Tangible Net Worth): Not to exceed 1.25 to 1 Collateral Value: Collateral value under the Warehouse Facility must be no less than the outstanding borrowings under that facility EBITDA to Interest Ratio: Not to be less than 2 to 1 for the four fiscal quarters just ended EBITDA is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. Tangible Net Worth is
defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under accounting principles generally accepted in the United States of America (GAAP), and after certain other adjustments permitted under the agreements. The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the Credit Facility. As of March 31, 2011, the Companys Tangible Net Worth requirement under the Credit Facility was $7.5 million, the permitted maximum leverage ratio was 1.25 to 1, and the required minimum interest coverage ratio (EBITDA/interest expense) was 2 to 1. The Company was in compliance with each of these financial covenants with a minimum Tangible Net Worth, leverage ratio and (EBITDA) interest coverage ratio, as calculated per the Credit Facility agreement of $16.0 million, 0.22 to 1, and
17.98 to 1, respectively, as of March 31, 2011. As such, as of March 31, 2011, the Company was in compliance with all such material financial covenants. Reconciliation to GAAP of EBITDA For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.
 
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The following is a reconciliation of EBITDA to net loss for the three months ended March 31, 2011 (in thousands):  Net loss  GAAP basis

          

          $

          (154

          )Interest expense

          

          

          60Depreciation and amortization

          

          

          967Amortization of initial direct costs

          

          

          20Reversal of provision for doubtful accounts

          

          

          (3

          )Principal payments received on direct finance leases

          

          

          69Principal payments received on notes receivable

          

          

          120EBITDA (for Credit Facility financial covenant calculation only)

          

          $

          1,079
 Events of default, cross-defaults, recourse and security The terms of the Credit Facility include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the Credit Facility should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders
also retain the discretion to waive a violation of any covenant at the Companys request. The Company is currently in compliance with its obligations under the Credit Facility. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations. The lending syndicate providing the Credit Facility has a blanket lien on all of the Companys assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. The Acquisition Facility is generally recourse solely to the Company, and is not cross-defaulted to any other obligations of affiliated companies under the Credit Facility, except as described in this paragraph. The Credit Facility is cross-defaulted to a default in the payment of any debt (other than non-recourse debt) or any other agreement or condition beyond the period of grace (not exceeding 30 days), the effect of which would entitle the lender under such agreement to accelerate the obligations prior to their stated maturity in an individual or aggregate principal amount in excess of 15% of the Companys consolidated Tangible Net Worth.
Also, a bankruptcy of AFS will trigger a default for the Company under the Credit Facility. Non-Recourse Long-Term Debt As of March 31, 2011 and December 31, 2010, the Company had non-recourse long-term debt totaling $3.5 million and $3.7 million, respectively. Such non-recourse notes payable do not contain any material financial covenants. The notes are secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. For detailed information on the Companys debt obligations, see Notes 7 and 8 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).
 
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Unit Valuation There is no public market for Units and, in order to preserve the Companys status for federal income tax purposes, the Company will not permit a secondary market or the substantial equivalent of a secondary market for the Units. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units. Nevertheless, in order to provide an estimated per Unit value for those Unitholders who seek valuation information, the Manager has calculated an estimated value per Unit as of March 31, 2011. The Manager estimates the Companys per Unit value by first estimating the aggregate net asset value of the Company. The valuation does not take into account any future business activity of the Company; rather it is a snapshot view of the Funds portfolio as of the valuation date. The estimated values for non-interest bearing items such as any current assets and liabilities, as well as for any investment in securities, were assumed to equal their reported balances, which management believes approximate their fair values, as adjusted for impairment. The same was applied to loans incurred under the acquisition facility since they bear variable rates of interest. A discounted cash flow approach was used to estimate the values of notes receivable, investments in leases, non-recourse debt and interest rate swaps. Under such approach, the value of a financial instrument was estimated by calculating the present value of the instruments expected cash flows. The present value was determined by discounting the cash flows the instrument is expected to generate by discount rates as deemed appropriate by the Manager. In most cases, the discount rates used were based on U.S. Treasury yields reported as of the reporting date, plus a spread to account for the credit risk difference between the instrument being valued
and Treasury securities. After calculating the aggregate estimated net asset value of the Company, the Manager then calculated the portion of the aggregate estimated value that would be distributed to Unitholders on liquidation of the Company, and divided the total that would be so distributable by the number of outstanding Units as of the March 31, 2011 valuation date. As of March 31, 2011, the value of the Companys assets, calculated on this basis, was approximately $7.45 per Unit. The foregoing valuation was performed solely for the purpose of providing an estimated liquidation value per Unit for those Unitholders who seek valuation information. It is important to note again that there is no market for the Units, and, accordingly, this value does not represent an estimate of the amount a Unitholder would receive if he were to seek to sell his Units. The Company will liquidate its assets in the ordinary course of its business and investment cycle. Furthermore, there can be no assurance as to when the Company will be fully liquidated, the amount the Company may actually receive if and when it seeks to liquidate its assets, the
amount of lease payments and equipment disposition proceeds the Company will actually receive over the remaining term of the Company, or the amounts that may actually be received in distributions by Unitholders over the course of the Companys remaining term. Distributions The Company commenced periodic distributions, based on cash flows from operations, beginning with the month of February 2008. Additional distributions have been consistently made through March 31, 2011. Commitments and Contingencies and Off-Balance Sheet Transactions Commitments and Contingencies At March 31, 2011, the Company had commitments to purchase lease assets totaling approximately $3.9 million and to fund investments in notes receivable approximately $1.7 million (see Note 9, Commitments, as set forth in Part I, Item 1, Financial Statements (Unaudited)). Off-Balance Sheet Transactions None.
 
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Recent Accounting Pronouncements Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part I, Item 1, Financial Statements (Unaudited). Critical Accounting Policies and Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances
and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions. The Companys critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the Companys critical accounting policies since December 31, 2010. Item 4. Controls and Procedures. Evaluation of disclosure controls and procedures The Companys Managing Members President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (Management), evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Companys disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective. The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, which is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Members disclosure controls and procedures, as applicable to the Company, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Changes in internal control There were no changes in the Managing Members internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Managing Members internal control over financial reporting, as it is applicable to the Company.
 
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PART II. OTHER INFORMATION Item 1. Legal Proceedings. In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Members financial position or results of operations. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. [Removed and Reserved]. Item 5. Other Information. None. Item 6. Exhibits. Documents filed as a part of this report: 1.

          Financial Statement Schedules All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are not applicable, and therefore have been omitted. 2.

          Other Exhibits 31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash 31.2 Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi 32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash 32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi
 
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 13, 2011 ATEL 12, LLC (Registrant)  By:ATEL Associates 12, LLCManaging Member of Registrant
  By:/s/ Dean L. CashDean L. Cash Chairman of the Board, President and Chief Executive Officer of ATEL Associates 12, LLC (Managing Member)By:/s/ Paritosh K. ChoksiParitosh K. Choksi Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Associates 12, LLC (Managing Member)By:/s/ Samuel SchusslerSamuel Schussler Vice President and Chief Accounting Officer of ATEL Associates 12, LLC (Managing Member)
 
 29