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EX-32.2 - EXHIBIT 32.2 - ATEL Capital Equipment Fund XI, LLCv471104_exh32x2.htm
EX-32.1 - EXHIBIT 32.1 - ATEL Capital Equipment Fund XI, LLCv471104_exh32x1.htm
EX-31.2 - EXHIBIT 31.2 - ATEL Capital Equipment Fund XI, LLCv471104_exh31x2.htm
EX-31.1 - EXHIBIT 31.1 - ATEL Capital Equipment Fund XI, LLCv471104_exh31x1.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 June 30, 2017

 
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 000-51858

ATEL Capital Equipment Fund XI, LLC

(Exact name of registrant as specified in its charter)

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

The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111
(Address of principal executive offices)

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

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Liability Company Units

Indicate by a check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes x No o

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

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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 July 31, 2017 was 5,209,307.

DOCUMENTS INCORPORATED BY REFERENCE

None.

 


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
Index

 

Part I.

Financial Information

    3  

Item 1.

Financial Statements (Unaudited)

    3  
Balance Sheets, June 30, 2017 and December 31, 2016     3  
Statements of Income for the three and six months ended June 30, 2017 and 2016     4  
Statements of Changes in Members’ Capital for the year ended December 31, 2016 and for the six months ended June 30, 2017     5  
Statements of Cash Flows for the three and six months ended June 30, 2017 and 2016     6  
Notes to the Financial Statements     7  

Item 2.

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

    16  

Item 4.

Controls and Procedures

    18  

Part II.

Other Information

    20  

Item 1.

Legal Proceedings

    20  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

    20  

Item 3.

Defaults Upon Senior Securities

    20  

Item 4.

Mine Safety Disclosures

    20  

Item 5.

Other Information

    20  

Item 6.

Exhibits

    20  

2


 
 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
BALANCE SHEETS
 
JUNE 30, 2017 AND DECEMBER 31, 2016

(In Thousands)

   
  June 30,
2017
  December 31,
2016
     (Unaudited)     
ASSETS
                 
Cash and cash equivalents   $ 761     $ 1,932  
Accounts receivable, net     115       111  
Investment in securities     22       22  
Investments in equipment and leases, net     1,805       2,004  
Prepaid expenses and other assets     26       32  
Total assets   $ 2,729     $ 4,101  
LIABILITIES AND MEMBERS’ CAPITAL
                 
Accounts payable and accrued liabilities:
                 
Managing Member   $ 68     $ 31  
Accrued distributions to Other Members     521        
Other     56       78  
Unearned operating lease income     14       13  
Total liabilities     659       122  
Commitments and contingencies
                 
Members’ capital:
                 
Managing Member            
Other Members     2,070       3,979  
Total Members’ capital     2,070       3,979  
Total liabilities and Members’ capital   $   2,729     $   4,101  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
STATEMENTS OF INCOME
 
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2017 AND 2016

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

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2017   2016   2017   2016
Revenues:
                                   
Leasing and lending activities:
                                   
Operating leases   $ 255     $ 298     $ 499     $ 618  
Direct financing leases           1             2  
Gain on sales of lease assets     24       19       38       289  
Unrealized loss on fair value adjustment for warrants                       (17 ) 
Other     1       1       3       4  
Total revenues     280       319       540       896  
Expenses:
                                   
Depreciation of operating lease assets     76       99       153       202  
Asset management fees to Managing Member     15       17       25       49  
Cost reimbursements to Managing Member and/or affiliates     47       33       99       66  
Provision for (reversal of) credit losses     9             8       (1 ) 
Provision for losses on investment in securities                       16  
Amortization of initial direct costs     2       2       4       4  
Professional fees     45       14       101       94  
Outside services     23       10       48       25  
Taxes on income and franchise fees     6             13        
Printing and photocopying     3             7       3  
Other     6       6       17       13  
Total operating expenses     232       181       475       471  
Other income, net     1             2       1  
Net income   $ 49     $ 138     $ 67     $ 426  
Net income (loss):
                                   
Managing Member   $ 42     $ 105     $ 148     $ 105  
Other Members     7       33       (81 )      321  
     $ 49     $ 138     $ 67     $ 426  
Net income (loss) per Limited Liability Company Unit (Other Members)   $ 0.00     $ 0.01     $ (0.02 )    $ 0.06  
Weighted average number of Units outstanding     5,209,307       5,209,307       5,209,307       5,209,307  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
 
FOR THE YEAR ENDED DECEMBER 31, 2016
AND FOR THE SIX MONTHS ENDED JUNE 30, 2017

(In Thousands Except for Units and Per Unit Data)

       
    Amount  
     Units   Other
Members
  Managing
Member
  Total
Balance December 31, 2015     5,209,307     $ 4,593     $     $ 4,593  
Distributions to Other Members ($0.25 per Unit)           (1,303 )            (1,303 ) 
Distributions to Managing Member                 (105 )      (105 ) 
Net income           689       105       794  
Balance December 31, 2016     5,209,307       3,979             3,979  
Distributions to Other Members ($0.35 per Unit)           (1,828 )            (1,828 ) 
Distributions to Managing Member                 (148 )      (148 ) 
Net (loss) income           (81 )      148       67  
Balance June 30, 2017 (Unaudited)     5,209,307     $    2,070     $     —     $    2,070  

See accompanying notes.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
STATEMENTS OF CASH FLOWS
 
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2017 AND 2016

(In Thousands)
(Unaudited)

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2017   2016   2017   2016
Operating activities:
                                   
Net income   $ 49     $ 138     $ 67     $ 426  
Adjustments to reconcile net income to cash (used in) provided by operating activities:
                                   
Gain on sales of lease assets     (24 )      (19 )      (38 )      (289 ) 
Depreciation of operating lease assets     76       99       153       202  
Amortization of initial direct costs     2       2       4       4  
Provision for (reversal of) credit losses     9             8       (1 ) 
Provision for losses on investment in securities                       16  
Unrealized loss on fair value adjustment for warrants                       17  
Changes in operating assets and liabilities:
                                   
Accounts receivable     47       48       (12 )      36  
Prepaid expenses and other assets     2       2       6       5  
Accounts payable, Managing Member     (29 )      (55 )      (5 )      (12 ) 
Accounts payable, other     (6 )      (27 )      (22 )      (21 ) 
Unearned operating lease income     (130 )      (125 )      1       6  
Net cash (used in) provided by operating activities     (4 )      63       162       389  
Investing activities:
                                   
Proceeds from sales of lease assets     36       90       80       377  
Principal payments received on direct financing leases           3             6  
Net cash provided by investing activities     36       93       80       383  
Financing activities:
                                   
Distributions to Other Members     (2 )            (1,307 )      (1,303 ) 
Distributions to Managing Member                 (106 )      (105 ) 
Net cash used in financing activities     (2 )            (1,413 )      (1,408 ) 
Net increase (decrease) in cash and cash equivalents     30       156       (1,171 )      (636 ) 
Cash and cash equivalents at beginning of period     731       2,340       1,932       3,132  
Cash and cash equivalents at end of period   $ 761     $ 2,496     $ 761     $ 2,496  
Supplemental disclosures of cash flow information:
                                   
Cash paid during the period for taxes   $ 20     $ 21     $ 26     $ 21  
Schedule of non-cash transactions:
                                   
Distributions payable to Other Members at period-end   $    521     $   1,303     $    521     $   1,303  
Distributions payable to Managing Member at period-end   $ 42     $ 105     $ 42     $ 105  

See accompanying notes.

6


 
 

TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL Capital Equipment Fund XI, LLC (the “Company” or the “Fund”) was formed under the laws of the State of California on June 25, 2004. The Company was formed for the purpose of acquiring equipment to engage in equipment leasing, lending and sales activities. Also, from time to time, the Company may purchase securities of its borrowers or receive warrants to purchase securities in connection with its lending arrangements. The Managing Member or Manager of the Company is ATEL Financial Services, LLC (“AFS”), a California limited liability company. The Company may continue until December 31, 2025. Each Member’s personal liability for obligations of the Company generally will be limited to the amount of their respective contributions and rights to undistributed profits and assets of the Company.

As of July 13, 2005, the Company had received subscriptions for 958,274 Units ($9.6 million), thus exceeding the $7.5 million minimum requirement for Pennsylvania, and AFS requested that the remaining funds in escrow (from Pennsylvania investors) be released to the Company. The Company terminated sales of Units effective April 30, 2006. Life-to-date net contributions through June 30, 2017 totaled $52.2 million, consisting of approximately $52.8 million in gross contributions from Other Members purchasing Units under the public offering less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable) of $636 thousand. As of June 30, 2017, 5,209,307 Units were issued and outstanding.

The Company is governed by its Limited Liability Company Operating Agreement (“Operating Agreement”), as amended. On January 1, 2013, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement. Pursuant to the terms of the Operating Agreement, AFS and its affiliates receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (See Note 4). 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.

The Company’s 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, 2016, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the full year.

Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results 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 Company has reviewed, as determined necessary by the Managing Member, events that have occurred after June 30, 2017 up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements, or adjustments thereto.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

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.

Segment reporting:

The Company is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.

The primary geographic regions in which the Company seeks leasing opportunities are North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the six months ended June 30, 2017 and 2016 and long-lived assets as of June 30, 2017 and December 31, 2016 (dollars in thousands):

       
  For The Six Months Ended June 30,
     2017   % of Total   2016   % of Total
Revenue
                                   
United States   $   533          99 %    $    886          99 % 
United Kingdom     7       1 %      10       1 % 
Total   $ 540       100 %    $ 896       100 % 

       
  As of June 30,   As of December 31,
     2017   % of Total   2016   % of Total
Long-lived assets
                                   
United States   $  1,803         100 %    $   2,002         100 % 
United Kingdom     2       0 %      2       0 % 
Total   $ 1,805       100 %    $ 2,004       100 % 

Investment in securities:

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

Purchased securities

Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. Based upon the Company’s review of its portfolio, no fair value adjustments were recorded during the three months ended June 30, 2017 and 2016, and fair value adjustments of $0 and $16 thousand were recorded during the six months ended June 30, 2017 and 2016, respectively, to reduce the cost basis of an impaired investment security to zero. There were no sales or dispositions of investments in securities during the three and six months ended June 30, 2017 and 2016.

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. During the three months ended June 30, 2017 and 2016, no unrealized losses were recorded and during the six months ended June 30, 2017 and 2016, the Company recorded unrealized losses of $0 and $17 thousand, respectively, to adjust its warrants to fair value. As of June 30, 2017 and December 31, 2016, the Company had no portfolio of warrants. There were no exercises of warrants, net or otherwise, during the six months ended June 30, 2017 and 2016.

Foreign currency transactions:

Foreign currency transaction gains and losses are reported in the results of operations as “other income” or “other loss” in the period in which they occur.

Per Unit data:

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

Fair Value:

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.

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

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Recent accounting pronouncements:

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-15 — Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting. The adoption of ASU 2016-15 by the Company is not expected to have a material effect on its financial statements.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of this Update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this Update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and expects the Update may potentially result in an increase in the allowance for credit losses given the change to estimated losses over the contractual life adjusted for expected prepayments.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU-2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. While early adoption is permitted, the Company does not expect to elect that option. The Company expects to adopt the guidance in the first quarter 2019 using the modified retrospective method. Management is currently evaluating the impact of this standard on the financial statements and its operational and related disclosure requirements, including the impact on the Company’s current lease portfolio from a lessor perspective. Given the limited changes to lessor accounting, the Company does not expect material changes to recognition or measurement, but we are early in the implementation process and will continue to evaluate the impact. This adoption will primarily result in an increase in the assets and liabilities on the Company’s balance sheet.

In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01, among other things, (i) requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

financial instruments measured at amortized cost on the balance sheet, (iv) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, and (v) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements. The Company’s implementation efforts include the identification of equity securities within the scope of the guidance, the evaluation of the measurement alternative available for equity securities without a readily determinable fair value, and the related impact to accounting policies, presentation and disclosures.

In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. On July 9, 2015, the FASB approved the deferral of the effective date of ASU 2014-09 by one year and in August 2015, issued Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods within that reporting period. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company expects to adopt the Standards Update. A preliminary evaluation of the impact of such adoption on the financial statements of the Fund indicates that such impact is virtually non-existent as the new revenue guideline does not affect revenues from leases and loans, which comprise the majority of the Company’s revenues. Management expects that accounting policies will not materially change since the principles of revenue recognition from the standard are largely consistent with existing guidance and current practices applied by the Company.

3. Investment in equipment and leases, net:

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

       
  Balance
December 31,
2016
  Reclassifications,
Additions/
Dispositions
  Depreciation/
Amortization
Expense or
Amortization
of Leases
  Balance
June 30,
2017
Net investment in operating leases   $    1,996     $    (41 )    $    (153 )    $    1,802  
Assets held for sale or lease, net     1       (1 )             
Initial direct costs, net of accumulated amortization of $40 at June 30, 2017 and $36 at December 31, 2016     7             (4 )      3  
Total   $ 2,004     $ (42 )    $ (157 )    $ 1,805  

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

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of

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TABLE OF CONTENTS

ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. As a result of these reviews, management determined that no impairment losses existed during the three and six months ended June 30, 2017 and 2016.

The Company utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of operating lease transactions. Depreciation expense on the Company’s equipment totaled $76 thousand and $99 thousand for the respective three months ended June 30, 2017 and 2016, and totaled $153 thousand and $202 thousand for the respective six months ended June 30, 2017 and 2016.

Initial direct costs amortization expense related to the Company’s operating and direct financing leases amounted to $2 thousand each for the respective three months ended June 30, 2017 and 2016, and $4 thousand each for the respective six months ended June 30, 2017 and 2016.

All of the leased property was acquired during the years 2005 through 2011.

Operating leases:

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

       
  Balance
December 31,
2016
  Additions   Reclassifications
or Dispositions
  Balance
June 30,
2017
Transportation, rail   $     8,499     $     —     $     (351 )    $     8,148  
Aviation     1,658                   1,658  
Marine vessels     1,415                   1,415  
Transportation, other     1,349                   1,349  
Materials handling     156             (65 )      91  
Manufacturing     10                   10  
       13,087             (416 )      12,671  
Less accumulated depreciation     (11,091 )      (153 )      375       (10,869 ) 
Total   $ 1,996     $ (153 )    $ (41 )    $ 1,802  

The average estimated residual value for assets on operating leases was 8% of the assets’ original cost at both June 30, 2017 and December 31, 2016. There were no operating lease contracts placed in non-accrual status at June 30, 2017 and December 31, 2016.

At June 30, 2017, the aggregate amounts of future minimum lease payments to be received are as follows (in thousands):

 
  Operating
Leases
Six months ending December 31, 2017   $     434  
Year ending December 31, 2018     421  
2019     315  
2020     260  
2021     77  
     $ 1,507  

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ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of June 30, 2017, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

 
Equipment category   Useful Life
Transportation, rail     35 – 40  
Marine vessels     20 – 30  
Aviation     15 – 20  
Manufacturing     10 – 15  
Materials handling     7 – 10  
Transportation, other     7 – 10  

4. Related party transactions:

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

The Operating Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Company. Administrative services provided include Company accounting, finance/treasury, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as management of equipment.

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

Cost reimbursements to the Managing Member 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 Operating Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent of the cumulative limit. As of June 30, 2017, the Company has not exceeded the annual and/or cumulative limitations discussed above.

AFS and/or affiliates earned fees and billed for reimbursements of costs and expenses pursuant to the Operating Agreement as follows during the three and six months ended June 30, 2017 and 2016 (in thousands):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2017   2016   2017   2016
Costs reimbursed to Managing Member and/or affiliates   $    47     $    33     $    99     $    66  
Asset management fees to Managing Member     15       17       25       49  
     $ 62     $ 50     $ 124     $ 115  

5. Commitments:

At June 30, 2017, the Company had no commitments to either purchase lease assets or fund loans.

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ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

6. Members’ capital:

A total of 5,209,307 Units were issued and outstanding as of June 30, 2017 and December 31, 2016. The Fund was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial members (50 Units). The Company terminated the sales of Units effective April 30, 2006.

Distributions to the Other Members were as follows (in thousands, except as to Units and per Unit data):

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2017   2016   2017   2016
Distributions   $   523     $   1,303     $   1,828     $   1,303  
Weighted average number of Units outstanding     5,209,307       5,209,307       5,209,307       5,209,307  
Weighted average distributions per Unit   $ 0.10     $ 0.25     $ 0.35     $ 0.25  

The regular monthly distributions were discontinued in 2013 as the Company entered its liquidation phase. The rates and frequency of periodic distributions paid by the Fund during its liquidation phase are solely at the discretion of the Manager.

7. Fair value measurements:

At June 30, 2017 and December 31, 2016, only the Company’s warrants were measured on a recurring basis and the calculated fair value of the Company’s warrant portfolio was $0 at both June 30, 2017 and December 31, 2016. In addition, certain investment securities deemed impaired were measured at fair value on a non-recurring basis as of June 30, 2017 and December 31, 2016.

Such fair value adjustments utilized the following methodology:

Impaired investment securities (non-recurring)

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.

During both the three months ended June 30, 2017 and 2016, the Company recorded non-recurring fair value adjustments of $0, and during the six months ended June 30, 2017 and 2016, the Company recorded $0 and $16 thousand, respectively, to the Company’s investment in securities to reduce the cost basis of an impaired investment security to zero. The reduction in value was based on a market approach technique and uses inputs that reflect qualitative and quantitative information provided by the management of the investee.

Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of the aforementioned impaired investment securities were classified within Level 3 of the valuation hierarchy.

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.

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ATEL CAPITAL EQUIPMENT FUND XI, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Fair value measurements: - (continued)

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.

Contingencies

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

The following tables present estimated fair values of the Company’s financial instruments in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification at June 30, 2017 and December 31, 2016 (in thousands):

         
  Fair Value Measurements at June 30, 2017
     Carrying Value   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $     761     $     761     $     —     $     —     $     761  
Investment in securities     22                   22       22  

         
  Fair Value Measurements at December 31, 2016
     Carrying Value   Level 1   Level 2   Level 3   Total
Financial assets:
                                            
Cash and cash equivalents   $     1,932     $     1,932     $     —     $     —     $   1,932  
Investment in securities     22                   22       22  

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

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee and borrower defaults and the creditworthiness of its lessees and borrowers. 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 Capital Equipment Fund XI, LLC (the “Company” or the “Fund”) is a California limited liability company that was formed in June 2004 for the purpose of engaging in the sale of limited liability company investment units and acquiring equipment to generate revenues from equipment leasing, lending and sales activities, primarily in the United States.

The Company may continue until December 31, 2025. However, pursuant to the guidelines of the Limited Liability Company Operating Agreement (“Operating Agreement”), the Company commenced liquidation phase activities subsequent to the end of the Reinvestment Period which ended on December 31, 2012. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

The three months ended June 30, 2017 versus the three months ended June 30, 2016

The Company had net income of $49 thousand and $138 thousand for the respective three month periods ended June 30, 2017 and 2016. The results for the second quarter of 2017 reflects a decrease in total revenues and an increase in total operating expenses when compared to the prior year period.

Revenues

Total revenues for the second quarter of 2017 decreased by $39 thousand, or 12%, as compared to the prior year period. Such decrease was largely attributable to a $43 thousand, or 14%, decrease in operating lease revenue, primarily a result of continued run-off of the portfolio of lease assets, offset in part, by an increase in the gain on sales of lease assets totaling $5 thousand, or 26%, primarily due to a change in the mix of assets sold.

Expenses

Total operating expenses for the second quarter of 2017 increased by $51 thousand, or 28%, as compared to the prior year period. Such net increase was primarily due to a $31 thousand, or 2 times, additions in professional fees, related to year over year differences in timing and related billings for professional audits and tax services; a $14 thousand, or 42%, rise in expenditures for costs reimbursed to AFS and/or affiliates, due to higher costs allocated by the Manager based on the Company’s continued liquidation; a $13 thousand, or 130%, increase in expenditures for outside services, indicative of additional efforts required to comply with certain regulatory requirements; and a $9 thousand, or 100%, increase in the provision for credit losses relating to loss estimate from certain customers, offset in part by, a $23 thousand, or 23%, decrease in period over period depreciation expense, the result of continuing run-off of the portfolio of lease assets.

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The six months ended June 30, 2017 versus the six months ended June 30, 2016

The Company had net income of $67 thousand and $426 thousand for the six months ended June 30, 2017 and 2016, respectively. The results for the first half of 2017 reflects a decrease in total revenues and an increase in total operating expenses when compared to the prior year period.

Revenues

Total revenues for the six months ended June 30, 2017 decreased by $356 thousand, or 40%, as compared to the prior year period. Such decrease was largely due to a $251 thousand, or 87%, a reduction in gain on sales of lease assets due to a change in the volume and mix of assets sold; a $119 thousand, or 19%, decrease in operating lease revenues primarily a result of continued portfolio run-off and sales of lease assets, offset in part, by an increase in the fair value adjustment for warrants of $17 thousand, or 100%.

Expenses

Total operating expenses for the six months ended June 30, 2017 increased by $4 thousand, or 1%, as compared to the prior year period. Such increase was primarily due to a $33 thousand, or 50%, increase in costs reimbursed to AFS and/or affiliates, due to higher indirect costs allocated by the Manager; a $23 thousand, or 92%, increase in outside services, indicative of additional efforts required to comply with certain regulatory requirements; a $13 thousand, or 100%, increase in taxes on income and franchise fees, due to an adjustment in estimated tax liability related to prior year tax payments; and a $9 thousand increase in the provision for credit losses, relating to loss estimate from certain customers, offset in part, by a $49 thousand, or 24%, reduction in depreciation expense, mostly the result of run-off and sales of lease assets and a $24 thousand, or 49%, decrease in asset management fees, associated with a continued decline in the portfolio of managed assets, and the related lease revenue.

Capital Resources and Liquidity

At June 30, 2017 and December 31, 2016, the Company’s cash and cash equivalents totaled $761 thousand and $1.9 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The primary source of liquidity for the Company is its cash flow from 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 AFS’s success in remarketing or selling the equipment as it comes off rental.

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. AFS envisions no such requirements for operating purposes.

Cash Flows

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

       
  Three Months Ended
June 30,
  Six Months Ended
June 30,
     2017   2016   2017   2016
Net cash provided by (used in):
                                   
Operating activities   $   (4 )    $   63     $   162     $ 389  
Investing activities     36       93       80       383  
Financing activities       (2 )            (1,413 )      (1,408 ) 
Net increase (decrease) in cash and cash equivalents   $ 30     $   156     $   (1,171 )    $    (636 ) 

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The three months ended June 30, 2017 versus the three months ended June 30, 2016

During the respective three month periods ended June 30, 2017 and 2016, the Company’s primary source of liquidity was cash flow from its portfolio of operating lease contracts. In addition, the Company realized $36 thousand and $90 thousand from the sale or disposition of equipment during the respective three months ended June 30, 2017 and 2016.

During the same respective periods, $2 thousand and $0 cash distributions were made to the Other Members.

The six months ended June 30, 2017 versus the six months ended June 30, 2016

During the six months ended June 30, 2017 and 2016, the Company’s primary source of liquidity has been cash flows from its portfolio of operating lease contracts. In addition, the Fund realized $80 thousand and $377 thousand of proceeds from sales of equipment during the respective six months ended June 30, 2017 and 2016.

During the same respective periods, $1.4 million cash distributions were made to the Other Members and Managing Members for each period.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At June 30, 2017, the Company had no commitments to purchase lease assets or fund loans.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2 Summary of Significant Accounting Policies.

Significant Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates, which are based upon historical experiences, market trends and financial forecasts, and upon various other assumptions that management believes to be reasonable under the circumstances and at that certain point in time. Actual results may differ, significantly at times, from these estimates under different assumptions or conditions.

The Company’s significant accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to the Company’s significant accounting policies since December 31, 2016.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

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

The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure

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controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended June 30, 2017 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 Company. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Company’s financial position or results of operations.

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Documents filed as a part of this report:

1. Financial Statement Schedules

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

2. Other Exhibits
31.1 Rule 13a-14(a)/15d-14(a) Certification of Dean L. Cash
31.2 Rule 13a-14(a)/15d-14(a) Certification of Paritosh K. Choksi
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

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

Date: August 10, 2017

ATEL CAPITAL EQUIPMENT FUND XI, LLC
(Registrant)

 

By:

ATEL Financial Services, LLC
Managing Member of Registrant

    

 
 

By:

/s/ Dean L. Cash

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

    

By:

/s/ Paritosh K. Choksi

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

    

By:

/s/ Samuel Schussler

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

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