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EXCEL - IDEA: XBRL DOCUMENT - ATEL 14, LLCFinancial_Report.xls
EX-31.2 - EXHIBIT 31.2 - ATEL 14, LLCv311923_ex31x2.htm
EX-32.2 - EXHIBIT 32.2 - ATEL 14, LLCv311923_ex32x2.htm
EX-31.1 - EXHIBIT 31.1 - ATEL 14, LLCv311923_ex31x1.htm
EX-32.1 - EXHIBIT 32.1 - ATEL 14, LLCv311923_ex32x1.htm

  

  

 

  

Form 10-Q

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

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

For the quarterly period ended March 31, 2012

 
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 000-54356

ATEL 14, LLC

(Exact name of registrant as specified in its charter)

 
California   26-4695354
(State or other jurisdiction of
Incorporation or organization)
  (I. R. S. Employer
Identification 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o     Accelerated filer o     Non-accelerated filer o     Smaller reporting company x

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

The number of Limited Liability Company Units outstanding as of April 30, 2012 was 8,395,515.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL 14, LLC
  
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, March 31, 2012 and December 31, 2011     3  
Statements of Operations for the three months ended March 31, 2012 and 2011     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2011 and for the three months ended March 31, 2012     5  
Statements of Cash Flows for the three months ended March 31, 2012 and 2011     6  
Notes to the Financial Statements     7  

Item 2.

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

    21  

Item 4.

Controls and Procedures

    26  

Part II.

Other Information

    27  

Item 1.

Legal Proceedings

    27  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    27  

Item 3.

Defaults Upon Senior Securities

    28  

Item 4.

[Removed and Reserved]

    28  

Item 5.

Other Information

    28  

Item 6.

Exhibits

    28  

2


 
 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ATEL 14, LLC
  
BALANCE SHEETS
  
MARCH 31, 2012 AND DECEMBER 31, 2011

(In Thousands)
(Unaudited)

   
  March 31,
2012
  December 31,
2011
ASSETS
                 
Cash and cash equivalents   $     20,356     $      24,307  
Accounts receivable, net of allowance for doubtful accounts of $6 at March 31, 2012 and $27 at December 31, 2011     313       222  
Notes receivable, net of unearned interest income of $379 at March 31, 2012 and $470 at December 31, 2011     2,543       2,883  
Investment in securities     32       32  
Investments in equipment and leases, net of accumulated depreciation of $7,165 at March 31, 2012 and $5,393 at December 31, 2011     39,856       38,206  
Other assets     66       83  
Total assets   $ 63,166     $ 65,733  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 71     $ 102  
Affiliates     428       308  
Accrued distributions to Other Members     821       821  
Other     331       99  
Deposits due lessees     4       4  
Non-recourse debt     2,648       2,897  
Unearned operating lease income     246       267  
Total liabilities     4,549       4,498  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     58,617       61,235  
Total Members’ capital     58,617       61,235  
Total liabilities and Members’ capital   $ 63,166     $ 65,733  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 14, LLC
  
STATEMENTS OF OPERATIONS
  
FOR THE THREE MONTHS ENDED
MARCH 31, 2012 AND 2011

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

   
  Three Months Ended
March 31,
     2012   2011
Revenues:
                 
Leasing and lending activities:
                 
Operating lease income   $       2,291     $        1,058  
Direct financing leases     22       1  
Notes receivable interest income     76       88  
Gain on sales of lease assets and early termination of notes     17       73  
Other     8       1  
Total revenues     2,414       1,221  
Expenses:
                 
Depreciation of operating lease assets     1,788       688  
Asset management fees to Managing Member     114       54  
Acquisition expense     389       190  
Cost reimbursements to Managing Member and affiliates     259       178  
Reversal of provision for credit losses     (21 )      (5 ) 
Amortization of initial direct costs     32       12  
Interest expense     41       42  
Professional fees     88       42  
Taxes on income and franchise fees     15       9  
Bank charges     57       27  
Railcar maintenance     134       199  
Other     78       33  
Total operating expenses     2,974       1,469  
Net loss   $ (560 )    $ (248 ) 
Net income (loss):
                 
Managing Member   $ 153     $ 81  
Other Members     (713 )      (329 ) 
     $ (560 )    $ (248 ) 
Net loss per Limited Liability Company Unit (Other Members)   $ (0.08 )    $ (0.07 ) 
Weighted average number of Units outstanding     8,402,515       4,462,531  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 14, LLC
  
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
  
FOR THE YEAR ENDED DECEMBER 31, 2011
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2012

(In Thousands Except Per Unit Data)
(Unaudited)

       
    Amount  
     Units   Other Members   Managing
Member
  Total
Balance December 31, 2010     4,051,543     $   30,773     $       —     $    30,773  
Capital contributions     4,352,972       43,530             43,530  
Rescissions of Units     (2,000 )      (19 )            (19 ) 
Less selling commissions to affiliates           (3,916 )            (3,916 ) 
Syndication costs           (1,525 )            (1,525 ) 
Distributions to Other Members ($0.90 per Unit)           (5,676 )            (5,676 ) 
Distributions to Managing Member                 (460 )      (460 ) 
Net (loss) income           (1,932 )      460       (1,472 ) 
Balance December 31, 2011     8,402,515       61,235             61,235  
Syndication costs           (14 )            (14 ) 
Distributions to Other Members ($0.23 per Unit)           (1,891 )            (1,891 ) 
Distributions to Managing Member                 (153 )      (153 ) 
Net (loss) income           (713 )      153       (560 ) 
Balance March 31, 2012     8,402,515     $ 58,617     $     $ 58,617  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 14, LLC
  
STATEMENTS OF CASH FLOWS
  
FOR THE THREE MONTHS ENDED
MARCH 31, 2012 AND 2011

(In Thousands)
(Unaudited)

   
  Three Months Ended
March 31,
     2012   2011
Operating activities:
                 
Net loss   $       (560 )    $       (248 ) 
Adjustment to reconcile net loss to cash provided by (used in) operating activities:
                 
Gain on sales of lease assets and early termination of notes     (17 )      (73 ) 
Depreciation of operating lease assets     1,788       688  
Amortization of initial direct costs     32       12  
Reversal of provision for credit losses     (21 )      (5 ) 
Changes in operating assets and liabilities:
                 
Accounts receivable     (70 )      68  
Prepaid and other assets     17       3  
Accounts payable, Managing Member     (9 )      (2 ) 
Accounts payable, other     232       (643 ) 
Accrued liabilities, affiliates     120       112  
Unearned operating lease income     (21 )      (110 ) 
Net cash provided by (used in) operating activities     1,491       (198 ) 
Investing activities:
                 
Purchases of equipment on operating leases     (2,635 )      (1,044 ) 
Purchases of equipment on direct financing leases     (550 )       
Proceeds from sales of lease assets and early termination of notes receivable     76       902  
Due to affiliates           99  
Payments of initial direct costs     (46 )      (64 ) 
Principal payments received on direct financing leases     71       6  
Note receivable advances     (300 )       
Principal payments received on notes receivable     271       198  
Net cash (used in) provided by investing activities     (3,113 )      97  
Financing activities:
                 
Repayments under non-recourse debt     (249 )      (245 ) 
Borrowings under acquisition facility           500  
Repayments under acquisition facility           (500 ) 
Selling commissions to affiliates           (774 ) 
Syndication costs paid to Managing Member     (36 )      (382 ) 
Distributions to Other Members     (1,891 )      (900 ) 
Distributions to Managing Member     (153 )      (73 ) 
Capital contributions           8,598  
Net cash (used in) provided by financing activities     (2,329 )      6,224  
Net (decrease) increase in cash and cash equivalents     (3,951 )      6,123  
Cash and cash equivalents at beginning of period     24,307       15,414  
Cash and cash equivalents at end of period   $ 20,356     $ 21,537  
Supplemental disclosures of cash flow information:
                 
Cash paid during the period for interest   $ 42     $ 35  
Schedule of non-cash transactions:
                 
Distributions payable to Other Members at period-end   $ 821     $ 474  
Distributions payable to Managing Members at period-end   $ 67     $ 38  

See accompanying notes.

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TABLE OF CONTENTS

ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL 14, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 1, 2009 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or “Manager”), a Nevada limited liability corporation. Prior to May 9, 2011, the Manager was named ATEL Associates 14, LLC. The Fund may continue until December 31, 2030. Contributions in the amount of $500 were received as of May 8, 2009, which represented the initial member’s capital investment. As a limited liability company, the liability of any individual member for the obligations of the Fund is limited to the extent of capital contributions to the Fund by the individual member.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of December 2, 2009, 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 first quarter of 2010. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on February 12, 2010, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on October 6, 2011.

As of March 31, 2012, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable), totaling $84.0 million (inclusive of the $500 initial member’s capital investment) have been received. As of the same date, 8,402,515 Units were issued and outstanding.

The Fund, or Managing Member on behalf of the Fund, has and will continue to incur costs in connection with the organization, registration and issuance of the limited liability company units (Units). The amount of such costs to be borne by the Fund is limited by certain provisions of the ATEL 14, LLC amended and restated limited liability company operating agreement dated October 7, 2009 (the “Operating Agreement”).

The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unitholders, with 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) and (iii) provide additional cash distributions following the Reinvestment Period and until all investment portfolio assets has been sold or otherwise disposed. The Company is governed by its Operating Agreement, as amended.

Pursuant to the terms of the Operating Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (Note 6). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

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, 2011, 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, 2012 are not necessarily indicative of the results to be expected for the full year.

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TABLE OF CONTENTS

ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.

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

In preparing the accompanying unaudited financial statements, the Managing Member has reviewed events that have occurred after March 31, 2012, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.

Use of Estimates:

The preparation of 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 those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and 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 seeks leasing opportunities are North America and Europe. Currently, 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. The Company had $32 thousand of purchased securities at both March 31, 2012 and December 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, 2012 and December 31, 2011, 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.

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TABLE OF CONTENTS

ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Recent accounting pronouncements:

In May 2011, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) (collectively the “Boards”) issued Accounting Standards Update (“ASU”) No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 created a uniform framework for applying fair value measurement principles for companies around the world and clarified existing guidance in US GAAP. ASU 2011-04 is effective for the first interim or annual reporting period beginning after December 15, 2011 and shall be applied prospectively. The Company adopted the provisions of ASU 2011-04 effective January 1, 2012. The fair value measurement provisions of ASU 2011-04 had no material impact on the Company’s 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. The original terms of the notes receivable are 36 to 42 months and bear interest at rates ranging from 10.96% to 18.00%. The notes are generally secured by the equipment financed. The notes mature from 2013 through 2015. There were no notes impaired or in non-accrual status as of March 31, 2012 and December 31, 2011.

As of March 31, 2012, the minimum future payments receivable are as follows (in thousands):

 
Nine months ending December 31, 2012   $     1,025  
Year ending December 31, 2013     1,166  
2014     597  
2015     121  
       2,909  
Less: portion representing unearned interest income     (379 ) 
       2,530  
Unamortized initial direct costs     13  
Notes receivable, net   $ 2,543  

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, 2012 and 2011 are as follows (in thousands):

   
  Three Months Ended
March 31,
     2012   2011
IDC amortization – notes receivable   $         3     $         5  
IDC amortization – lease assets     29       7  
Total   $ 32     $ 12  

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TABLE OF CONTENTS

ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses:

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

           
  Accounts Receivable
Allowance for Doubtful Accounts
  Valuation Adjustments on
Financing Receivables
  Total Allowance for
Credit Losses
     Notes
Receivable
  Finance
Leases
  Operating
Leases
  Notes
Receivable
  Finance
Leases
 
Balance December 31, 2010   $        —     $        —     $        17     $        —     $        —     $        17  
Provision for credit losses                 10                   10  
Balance December 31, 2011                 27                   27  
Reversal of provision for credit losses                 (21 )                  (21 ) 
Balance March 31, 2012   $     $     $ 6     $     $     $ 6  

Accounts receivable

Accounts receivable represent the amounts billed under operating and direct financing lease contracts, and notes receivable which are currently due to the Company.

Allowances for doubtful accounts are typically established based upon their aging and historical charge off and collection experience and the creditworthiness of specifically identified lessees and borrowers, and invoiced amounts. Accounts receivable deemed uncollectible are generally charged off against the allowance on a specific identification basis. Recoveries of amounts that were previously written-off are recorded as other income in the period received.

Accounts receivable are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management periodically reviews the creditworthiness of companies with lease or note payments outstanding less than 90 days. Based upon management’s judgment, such leases or notes may be placed in non-accrual status. Leases or notes placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid receivable is probable. Until such time, revenues on operating leases are recognized on a cash basis. All payments received on amounts billed under direct financing leases contracts and notes receivable are applied only against outstanding principal balances.

Financing receivables

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

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

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly.

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TABLE OF CONTENTS

ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.

As of March 31, 2012 and December 31, 2011, the Company’s allowance for credit losses (related solely to financing receivables) and its recorded investment in financing receivables were as follows (in thousands):

     
March 31, 2012   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $        —     $        —     $         —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 2,5431     $ 9672     $ 3,510  
Ending balance: individually evaluated for impairment   $ 2,543     $ 967     $ 3,510  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
1 Includes $13 of unamortized initial direct costs.
2 Includes $3 of unamortized initial direct costs.

     
December 31, 2011   Notes
Receivable
  Finance
Leases
  Total
Allowance for credit losses:
                          
Ending balance   $        —     $        —     $         —  
Ending balance: individually evaluated for impairment   $     $     $  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
Financing receivables:
                          
Ending balance   $ 2,8833     $ 1184     $ 3,001  
Ending balance: individually evaluated for impairment   $ 2,883     $ 118     $ 3,001  
Ending balance: collectively evaluated for impairment   $     $     $  
Ending balance: loans acquired with deteriorated credit quality   $     $     $  
3 Includes $12 of unamortized initial direct costs.
4 Includes $2 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.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

4. Allowance for credit losses: - (continued)

Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the Manager’s Credit Watch List.

Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the Manager’s Credit Watch List, and has been declared in default and the Manager has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired notes and leases as applicable.

At March 31, 2012 and December 31, 2011, the Company’s financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):

       
  Notes Receivable   Finance Leases
     March 31, 2012   December 31, 2011   March 31, 2012   December 31, 2011
Pass   $          2,342     $          2,871     $            964     $            116  
Special mention     188                    
Substandard                        
Doubtful                        
Total   $ 2,530     $ 2,871     $ 964     $ 116  

At March 31, 2012 and December 31, 2011, the investment in financing receivables is aged as follows (in thousands):

             
March 31, 2012   30 – 59 Days
Past Due
  60 – 89 Days
Past Due
  Greater Than
90 Days
  Total
Past Due
  Current   Total
Financing
Receivables
  Recorded
Investment>90
Days and
Accruing
Notes receivable   $       —     $       —     $       —     $       —     $     2,530     $     2,530     $        —  
Finance leases     414                   414       550       964        
Total   $ 414     $     $     $ 414     $ 3,080     $ 3,494     $  

             
December 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>90
Days and
Accruing
Notes receivable   $       —     $       —     $       —     $       —     $     2,871     $     2,871     $        —  
Finance leases                 67       67       49       116       67  
Total   $     $     $ 67     $ 67     $ 2,920     $ 2,987     $ 67  

There were no impaired financing receivables at both March 31, 2012 and December 31, 2011. Likewise, there were no financing receivables placed in non-accrual status as of March 31, 2012 and December 31, 2011.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Investments in equipment and leases, net:

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

       
  Balance
December 31,
2011
  Reclassifications
& Additions/
Dispositions
  Depreciation/
Amortization
Expense or
Amortization
of Leases
  Balance
March 31,
2012
Net investment in operating leases   $       37,758     $       2,576     $       (1,788 )    $       38,546  
Net investment in direct financing leases     116       919       (71 )      964  
Initial direct costs, net of accumulated amortization of $101 at March 31, 2012 and $73 at December 31, 2011     332       43       (29 )      346  
Total   $ 38,206     $ 3,538     $ (1,888 )    $ 39,856  

Impairment of investments in leases:

Management periodically reviews the carrying values of its lease assets for impairment. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded for the three months ended March 31, 2012 and 2011.

The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $1.8 million and $688 thousand for the respective three months ended March 31, 2012 and 2011.

All of the Company’s leased property was acquired starting from December 2009 through March 31, 2012.

Operating leases:

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

       
  Balance
December 31,
2011
  Additions   Reclassifications
or Dispositions
  Balance
March 31,
2012
Transportation, rail   $      13,889     $          —     $         (75 )    $       13,814  
Materials handling     9,756       1,460             11,216  
Transportation     7,820                   7,820  
Construction     4,155       1,175             5,330  
Mining     4,830                   4,830  
Research     2,391                   2,391  
Other     310                   310  
       43,151       2,635       (75 )      45,711  
Less accumulated depreciation     (5,393 )      (1,788 )      16       (7,165 ) 
Total   $ 37,758     $ 847     $ (59 )    $ 38,546  

The average estimated residual value for assets on operating leases was 36% of the assets’ original cost at both March 31, 2012 and December 31, 2011, respectively.

There were no operating leases in non-accrual status at both March 31, 2012 and December 31, 2011. At December 31, 2011, the Company had certain operating leases with related receivables aged 90 days or more that had not been placed on non-accrual status. In accordance with Company policy, such receivables were fully reserved. Management continues to closely monitor these leases for any actual change in collectability status.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Direct financing leases:

As of March 31, 2012, investment in direct financing leases consists of various types of computer-related, research and materials handling equipment. As of December 31, 2011, such investment primarily consisted of materials handling equipment. The components of the Company’s investment in direct financing leases as of March 31, 2012 and December 31, 2011 are as follows (in thousands):

   
  March 31,
2012
  December 31,
2011
Total minimum lease payments receivable   $       1,128     $         110  
Estimated residual values of leased equipment (unguaranteed)     17       17  
Investment in direct financing leases     1,145       127  
Less unearned income     (181 )      (11 ) 
Net investment in direct financing leases   $ 964     $ 116  

As of March 31, 2012 and December 31, 2011, there were no investments in direct financing leases in non-accrual status.

At March 31, 2012, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

     
  Operating
Leases
  Direct Financing
Leases
  Total
Nine months ending December 31, 2012   $       6,664     $         261     $        6,925  
Year ending December 31, 2013     8,564       337       8,901  
2014     6,647       309       6,956  
2015     3,614       221       3,835  
2016     1,542             1,542  
2017     1,170             1,170  
Thereafter     277             277  
     $ 28,478     $ 1,128     $ 29,606  

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 the 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.

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

Cost reimbursements to the Managing Member or its affiliates are based on its costs incurred in performing administrative services for the Company. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred. The Managing Member believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Company or (ii) the amount the Company would be required to pay independent parties for comparable administrative services in the same geographic location.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

6. Related party transactions: - (continued)

The Managing Member and/or affiliates earned commissions and received cost reimbursements, pursuant to the Operating Agreement, during the three months ended March 31, 2012 and 2011 (in thousands):

   
  Three Months Ended
March 31,
     2012   2011
Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members capital   $         —     $         774  
Reimbursement of other syndication costs to Managing Member and/or affiliates, deducted from Other Members capital     14       384  
Administrative costs reimbursed to Managing Member and/or affiliates     259       178  
Asset management fees to Managing Member     114       54  
Acquisition and initial direct costs paid to Managing Member     401       254  
     $ 788     $ 1,644  

7. Syndication costs:

Syndication costs are reflected as a reduction to Members’ capital as such costs are netted against the capital raised. The amount shown is primarily comprised of fees pertaining to the organization of the Fund, document preparation, regulatory filing fees, and accounting and legal costs. Syndication costs totaled $14 thousand and $1.2 million for the respective three months ended March 31, 2012 and 2011.

The Operating Agreement places a limit for cost reimbursements to the Managing Member and/or affiliates. When added to selling commissions, such cost reimbursements may not exceed a total equal to 15% of all offering proceeds. At March 31, 2012 and December 31, 2011, there were no syndication costs in excess of the limitation. The limitation on the amount of syndication costs pursuant to the Operating Agreement is determined on the date of termination of the offering. At such time, the Manager guarantees repayment of any excess expenses above the determined limitation, which guarantee is without recourse or reimbursement by the Fund.

8. Non-recourse debt:

At March 31, 2012, non-recourse debt consists of a note payable to a financial institution. The note payments are due in monthly installments. Interest on the note is at a fixed rate of 4.40%. The note is secured by assignments of lease payments and pledges of assets. At March 31, 2012, gross operating lease rentals and future payments on direct financing leases totaled approximately $2.8 million over the remaining lease terms; and the carrying value of the pledged assets is $4.1 million. The note matures in 2014.

The non-recourse debt does not contain any material financial covenants. The debt is secured by a lien granted by the Company to the non-recourse lender on (and only on) the discounted lease transactions. The lender has 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 lender, 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

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

8. Non-recourse debt: - (continued)

customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.

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

     
  Principal   Interest   Total
Nine months ending December 31, 2012   $         764     $          76     $          840  
Year ending December 31, 2013     1,059       62       1,121  
2014     825       14       839  
     $ 2,648     $ 152     $ 2,800  

9. Borrowing facilities:

Effective June 15, 2010, the Company participated 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. Negotiations are currently in process of extending the facility at $60 million through June 2013. During the third quarter of 2010, the Company amended its Master Borrowing Agreement with respect to the Warehouse Facility to suspend its participation in such Facility while retaining its ability to borrow from time to time under the Acquisition Facility on the condition that it maintains with the lender (subject to certain provisions) cash collateral on deposit in an amount not less than the principal amount of loans outstanding from time to time. Commencing with the second quarter of 2011, the Company regained eligibility for full unrestricted participation under the Warehouse Facility as it was in compliance with all relevant financial covenants.

As of March 31, 2012 and December 31, 2011, borrowings under the facility were as follows (in thousands):

   
  March 31,
2012
  December 31,
2011
Total available under the financing arrangement   $      75,000     $       75,000  
Amount 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           (7,476 ) 
Total remaining available under the working capital, acquisition and warehouse facilities   $ 75,000     $ 67,524  

The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of March 31, 2012, the aggregate amount of 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 of March 31, 2012, the Company’s Tangible Net Worth requirement under the Credit Facility was $10.0 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 $58.6 million, 0.05 to 1, and 39.56 to 1, respectively, as of March 31, 2012. As such, as of March 31, 2012, 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.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

9. Borrowing facilities: - (continued)

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. At March 31, 2012, the Company has no outstanding borrowings under the acquisition facility, as all outstanding borrowings under the Credit Facility have been repaid during the second quarter of 2011. Interest paid on outstanding amounts under the Credit Facility was nominal during the three months ended March 31, 2011.

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 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, 2012, the investment program participants were the ATEL Capital Equipment Fund X, LLC, ATEL Capital Equipment Fund XI, LLC, ATEL 12, 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, 2012, there were no borrowings under the Warehouse Facility. As of December 31, 2011, borrowings of $5.6 million were outstanding under such facility. The Company’s maximum contingent obligation on the outstanding warehouse balances at December 31, 2011 was $2.9 million.

10. Commitments:

The terms of the Operating Agreement provided that the Managing Member and/or affiliates are entitled to receive certain fees, in addition to the allocations described above, which are more fully described in Section 8 of the Operating Agreement. The additional fees to management include fees for equipment management, administration and resale.

At March 31, 2012, there were commitments to purchase lease assets and to fund investments in notes receivable totaling approximately $17.7 million and $4.2 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. 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.

12. Members’ capital:

A total of 8,402,515 Units were issued and outstanding at both March 31, 2012 and December 31, 2011, including the 50 Units issued to the Initial Member (Managing Member). The Fund was authorized to issue up to 15,000,000 total Units.

The Company has the right, exercisable at the Managing Member’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 Managing Member on terms it determines to be appropriate under given circumstances, in the event that the Managing Member 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, net income and net loss were allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss are to 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 for the three months ended March 31, 2012 and 2011 were as follows (in thousands except Units and per Unit data):

   
  Three Months Ended
March 31,
     2012   2011
Distributions   $       1,891     $        1,004  
Weighted average number of Units outstanding     8,402,515       4,462,531  
Weighted average distributions per Unit   $ 0.23     $ 0.22  

Cash distributions were based on current and anticipated gross revenues from the leases and loans acquired. During the Fund’s acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund’s actual and anticipated gross revenues to be generated from the binding initial terms of the leases and loans acquired.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

13. 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, 2012 and December 31, 2011, the Company had no assets or liabilities that require measurement at fair value on a recurring or non-recurring basis.

The Company’s valuation policy is determined by members of the Asset Management, Credit and Accounting departments. Whenever possible, the policy is to obtain quoted market prices in active markets to estimate fair values for recognition and disclosure purposes. Where quoted market prices in active markets are not available, fair values are estimated using discounted cash flow analyses, broker quotes, information from third party remarketing agents, third party appraisals of collateral and/or other valuation techniques. These techniques are significantly affected by certain of the Company’s assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs are not considered in estimating fair values. As the Company is responsible for determining fair value, an analysis is performed on prices obtained from third parties. Such analysis is performed by asset management and credit department personnel who are familiar with the Company’s investments in equipment, notes receivable and equity securities of venture companies. The analysis may include a periodic review of price fluctuations and validation of numbers obtained from a specific third party by reference to multiple representative sources.

The 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 determines the estimated fair value amounts by using market information and valuation methodologies that it considers appropriate and consistent with the fair value accounting guidance. Considerable judgment is required to interpret market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

Cash and cash equivalents

The recorded amounts of the Company’s cash and cash equivalents approximate fair value because of the liquidity and short-term maturity of these instruments.

Notes receivable

The fair value of the Company’s notes receivable is estimated using either third party appraisals of collateral or discounted cash flow analyses based upon current market rates for similar types of lending arrangements, with adjustments for impaired loans as deemed necessary.

Investment in securities

The Company’s investment securities are not registered for public sale and are carried at cost which management believes approximates fair value, as appropriately adjusted for impairment.

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ATEL 14, LLC
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

13. Fair value measurements: - (continued)

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.

Borrowings

Borrowings include the outstanding amounts on the Company’s acquisition facility. The carrying amount of these variable rate obligations approximate fair value based on current borrowing rates for similar types of borrowings.

Commitments and Contingencies

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

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

The following table presents a summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company’s balance sheet at March 31, 2012 and December 31, 2011 (in thousands):

         
  Fair Value Measurements at March 31, 2012
     Carrying
Amount
  Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $     20,356     $     20,356     $        —     $         —     $      20,356  
Notes receivable, net     2,543                   2,543       2,543  
Investment in securities     32                   32       32  
Financial liabilities:
                                            
Non-recourse debt     2,648                   2,681       2,681  

   
  December 31, 2011
     Carrying
Amount
  Estimated
Fair Value
Financial assets:
                 
Cash and cash equivalents   $     24,307     $       24,307  
Notes receivable, net     2,883       2,883  
Investment in securities     32       32  
Financial liabilities:
                 
Non-recourse debt     2,897       2,940  

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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 14, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 1, 2009 (“Date of Inception”) for the purpose of equipment financing and acquiring equipment to engage in equipment leasing and sales activities.

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of December 2, 2009, 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 first quarter of 2010. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on February 12, 2010, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on October 6, 2011 with a total of 8,402,515 Units subscribed, representing contributions, net of rescissions, approximating $84.0 million.

The Company is in the process of completing 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 will reinvest cash flow in excess of certain amounts required to be distributed to the Other Members and/or utilize its credit facilities to acquire additional equipment. Throughout the Reinvestment Period, which ends December 31, 2017, 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, 2012 versus the three months ended March 31, 2011

The Company had net losses of $560 thousand and $248 thousand for the three months ended March 31, 2012 and 2011, respectively. Results for the first quarter of 2012 reflect an increase in total operating expenses offset, in part, by an increase in total revenues when compared to the prior year period.

Revenues

Total revenues for the first quarter of 2012 increased by $1.2 million, or 98%, as compared to the prior year period. The increase was largely due to the $1.2 million growth in operating lease revenues. Such growth was largely due to income derived from an approximate $26.0 million of operating lease assets acquired since March 31, 2011.

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Expenses

Total expenses for the first quarter of 2012 increased by $1.5 million, or 102%, as compared to the prior year period. Such increase is consistent with the growth in total revenues and was largely a result of increased depreciation expense, acquisition expense, costs reimbursed to the Manager and asset management fees to the Manager.

Depreciation expense increased by $1.1 million largely due to the increment of approximately $26.0 million of net equipment purchases for operating leases made since March 31, 2011. Acquisition expense was higher by $199 thousand as a result of the period over period increase in lease asset purchase activity, consistent with the growth in the Fund’s operations. Likewise, cost reimbursed to the Manager increased by $81 thousand as a result of increased costs allocated by the Manager consistent with the Fund’s expanded operations; and, asset management fees paid to the Manager increased by $60 thousand mainly as a result of the increase in managed assets and related rents.

Capital Resources and Liquidity

At March 31, 2012 and December 31, 2011, the Company’s cash and cash equivalents totaled $20.4 million and $24.3 million, respectively. The liquidity of the Company will vary in the future, increasing to the extent cash flows from subscriptions, 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 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,
     2012   2011
Net cash provided by (used in):
                 
Operating activities   $      1,491     $        (198 ) 
Investing activities     (3,113 )      97  
Financing activities     (2,329 )      6,224  
Net (decrease) increase in cash and cash equivalents   $ (3,951 )    $ 6,123  

The three months ended March 31, 2012 versus the three months ended March 31, 2011

Prior to the termination of the offering on October 6, 2011, the Company’s primary source of liquidity had been subscription proceeds from the sale of Units. Through the termination of the offering, cumulative subscription proceeds approximating $84.0 million, net of rescissions, had been received. Subsequently, the Company’s primary source of liquidity has been cash flows from its portfolio of operating and direct financing lease contracts, and its investments in notes receivable. In addition, the Company utilized non-recourse debt to finance equipment purchases.

During the three months ended March 31, 2012 and 2011, cash was primarily used to purchase equipment for long-term operating and direct financing leases. Total equipment purchased amounted to $3.2 million and $1.0 million for the respective three months ended March 31, 2012 and 2011. Cash was also used to pay distributions to both Other Members and the Managing Member, and to pay commissions and syndication costs associated with the offering. Distributions paid totaled a combined $2.0 million and $973 thousand for the respective first quarters of 2012 and 2011; while combined commissions and syndication costs totaled $36 thousand and $1.2 million for the first quarters of 2012 and 2011, respectively. During the first quarter of 2012, cash totaling $300 thousand was used to fund investments in notes receivable. No such funding occurred during the prior year period. Moreover, cash was used to partially pay down $249 thousand and $745 thousand of debt during the first quarters of 2012 and 2011, respectively; and, to pay invoices related to management fees and expenses.

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Revolving credit facility

Effective June 15, 2010, the Company participated 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. The Credit Facility is for an amount up to $75 million and expires in June 2012. During the third quarter of 2010, the Company amended its Master Borrowing Agreement with respect to the Warehouse Facility to suspend its participation in such Facility while retaining its ability to borrow from time to time under the Acquisition Facility on the condition that it maintains with the lender (subject to certain provisions) cash collateral on deposit in an amount not less than the principal amount of loans outstanding from time to time. At March 31, 2012, the Company has no outstanding borrowings under the acquisition facility. Commencing with the second quarter of 2011, the Company gained eligibility for full unrestricted participation under the Warehouse Facility as it was in compliance with all relevant financial covenants.

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 applicable covenants under the Credit Facility as of March 31, 2012. 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:

As of March 31, 2012, the material financial covenants are summarized as follows:

Minimum Tangible Net Worth: $10.0 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

“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, 2012, the Company’s Tangible Net Worth requirement under the Credit Facility was $10.0 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 $58.6 million, 0.05 to 1, and 39.6 to 1, respectively, as of March 31, 2012. As such, as of March 31, 2012, 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 net loss to EBITDA for the three months ended March 31, 2012 (in thousands):

 
Net loss – GAAP basis   $       (560 ) 
Interest expense     41  
Depreciation and amortization     1,788  
Amortization of initial direct costs     32  
Reversal of provision for credit losses     (21 ) 
Principal payments received on direct financing leases     71  
Principal payments received on notes receivable     271  
EBITDA (for Credit Facility financial covenant calculation only)   $ 1,622  

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, 2012, the Company had non-recourse long-term debt totaling $2.6 million. Such non-recourse note payable does not contain any material financial covenants. The note is secured by a lien granted by the Company to the non-recourse lender on (and only on) the discounted lease transactions. The lender has 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 8 and 9 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).

Distributions

The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of December 2009. Additional distributions have been consistently made through March 31, 2012.

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The following table is a summary of cash distributions paid by the Fund to Unitholders of record as of February 29, 2012, and paid through March 31, 2012. Distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the Prospectus under “Income, Losses and Distributions —  Reinvestment.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.

Cash distributions were based on current and anticipated gross revenues from the leases and loans acquired. During the Fund’s acquisition and operating stages, the Fund may incur short term borrowing to fund regular distributions of such gross revenues to be generated by newly acquired transactions during their respective initial fixed terms. As such, all Fund periodic cash distributions made during these stages have been, and are expected in the future to be, based on the Fund’s actual and anticipated gross revenues to be generated from the binding initial terms of the leases and loans acquired.

The following table summarizes distribution activity for the Fund from inception through March 31, 2012 (in thousands except for Units and Per Unit Data):

                 
Distribution Period(1)   Paid   Return of
Capital
    Distribution
of Income
    Total
Distribution
    Total
Distribution
per Unit
(2)
  Weighted
Average Units
Outstanding
(3)
Monthly and quarterly distributions
                                                              
Oct 2009 – Feb 2010
(Distribution of
escrow interest)
    Jan – Mar 2010     $      —              $      —              $       —                n/a       n/a  
Dec 2009 – Dec 2010     Jan 2010 – 
Jan 2011
      2,003                               2,003              $     0.90       2,214,171  
Jan 2011 – Nov 2011     Feb 2011 – 
Dec 2011
      4,855                               4,855                0.87       5,597,722  
Dec 2011 – Feb 2012     Jan – Mar 2012       1,891                         1,891             0.23       8,402,515  
           $ 8,749           $           $ 8,749           $ 2.00        
Source of distributions
                                                                       
Lease and loan payments received            $ 6,749       77.14 %    $       0.00 %    $ 6,749       77.14 %                   
Interest Income                    0.00 %            0.00 %            0.00 %                   
Debt against non-cancellable firm term payments on leases and loans           2,000       22.86 %            0.00 %      2,000       22.86 %             
           $ 8,749       100.00 %    $       0.00 %    $ 8,749       100.00 %             

(1) Investors may elect to receive their distributions either monthly or quarterly (See “Timing and Method of Distributions” on Page 73 of the Prospectus).
(2) Total distributions per Unit represents the per Unit distribution rate for those units which were outstanding for all of the applicable period.
(3) Balances shown represent weighted average units for the year ended December 31, 2010, and the periods from January 1 – November 30, 2011, and December 1, 2011 – February 29, 2012, respectively.

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Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2012, there were commitments to purchase lease assets and to fund investments in notes receivable totaling approximately $17.7 million and $4.2 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/investee or may not be accepted by the Company. There were no cancellations subsequent to year-end.

Off-Balance Sheet Transactions

None.

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, 2011. There have been no material changes to the Company’s critical accounting policies since December 31, 2011.

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, 2012 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.

None.

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

Information provided pursuant to §229.701 (Item 701(f)) (formerly included in Form SR):

(1) Effective date of the offering: October 7, 2009; File Number: 333-159578
(2) Offering commenced: October 7, 2009
(3) The offering did not terminate before any securities were sold.
(4) The managing underwriter is ATEL Securities Corporation.
(5) The title of the registered class of securities is “Units of Limited Liability Company Interest.”
(6) Aggregate amount and offering price of securities registered and sold as of March 31, 2012 (dollars in thousands):

         
Title of Security   Amount Registered   Aggregate price of offering amount registered   Units
sold
  Aggregate price of offering amount sold
Units of Limited Company Interest     15,000,000     $     150,000       8,402,515     $      84,025  
(7) Costs incurred for the issuers’ account in connection with the issuance and distribution of the securities registered for each category listed below (in thousands):

     
  Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer   Direct or indirect payments to others   Total
Underwriting discounts and commissions   $             1,260     $             6,302     $              7,562  
Other syndication costs           4,022       4,022  
Total expenses   $ 1,260     $ 10,324     $ 11,584  

(8)

Net offering proceeds to the issuer after total expenses in item 7 (in thousands):

  $ 72,441  
(9) The amount of net offering proceeds to the issuer used for each of the purposes listed below (in thousands):

     
  Direct or indirect payments to directors, officers, Managing Members of the issuer or their associates, to persons owning ten percent or more of any class of equity securities of the issuer; and to affiliates of the issuer   Direct or indirect payments to others   Total
Purchase and installation of machinery and equipment   $               273     $             46,547     $              46,820  
Investment in notes receivable     40       4,906       4,946  
Distributions paid and accrued     776       9,569       10,345  
Other expenses     7,067             7,067  
     $ 8,156     $ 61,022     $ 69,178  

(10)

Net offering proceeds to the issuer after total expenses in item 9 (in thousands):

  $ 3,263  

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved].

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Documents filed as a part of this report
1. Financial Statement Schedules

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

2. Other Exhibits

31.1  Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash
31.2  Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi
32.1  Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2  Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi

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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 11, 2012

ATEL 14, LLC (Registrant)

 
    

By:

ATEL Managing Member, LLC
Managing Member of Registrant

 

By:

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

    

By:

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

    

By:

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

    

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