atel17_Current_Folio

Form 10‑Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2019

☐Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934.

For the transition period from to

Commission File number 333‑203841

ATEL 17, LLC

(Exact name of registrant as specified in its charter)

California		90‑1108275
(State or other jurisdiction of Incorporation or organization)		(I. R. S. Employer Identification No.)

The Transamerica Pyramid, 600 Montgomery Street, 9th Floor, San Francisco, California 94111

(Address of principal executive offices)

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

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

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit files). Yes ☒ No ☐

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

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

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

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

The number of Limited Liability Company Units outstanding as of April 30, 2019 was 2,565,749.

DOCUMENTS INCORPORATED BY REFERENCE

None.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 17, LLC

BALANCE SHEETS

MARCH 31, 2019 AND DECEMBER 31, 2018

(In Thousands)


		March 31,		December 31,
	2019		2018
		(Unaudited)
ASSETS
Cash and cash equivalents	$	7,732	$	6,484
Due from affiliates		16		44
Accounts receivable, net		52		60
Notes receivable, net		2,286		3,455
Warrants, fair value		298		302
Equipment under operating leases, net		9,868		10,186
Prepaid expenses and other assets		53		13
Total assets	$	20,305	$	20,544

LIABILITIES AND MEMBERS' CAPITAL

Accounts payable and accrued liabilities:
Affiliates		5		—
Accrued distributions to Other Members		228		228
Other		24		51
Non-recourse debt		3,809		3,531
Unearned operating lease income		103		113
Total liabilities		4,169		3,923

Commitments and contingencies

Members’ capital:
Managing Member		—		1
Other Members		16,136		16,620
Total Members’ capital		16,136		16,621
Total liabilities and Members’ capital	$	20,305	$	20,544

See accompanying notes.

ATEL 17, LLC

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED

MARCH 31, 2019 AND 2018

(In Thousands Except for Units and Per Unit Data)

(Unaudited)


		Three Months Ended
		March 31,
	2019		2018
Revenues:
Leasing and lending activities:
Operating leases	$	447	$	403
Notes receivable interest income		119		151
Gain on sales of lease assets and early termination of notes receivable		116		—
Unrealized loss on fair value adjustment for warrants		(4)		(1)
Other		—		2
Total revenues		678		555

Expenses:
Depreciation of operating lease assets		318		304
Asset management fees to Managing Member		68		65
Acquisition expense		—		75
Cost reimbursements to Managing Member and/or affiliates		98		104
Reversal of provision for credit losses		—		(18)
Amortization of initial direct costs		—		18
Interest expense		37		—
Professional fees		57		38
Outside services		24		31
Taxes on income and franchise fees		—		2
Bank charges		38		28
Other		10		9
Total expenses		650		656
Net income (loss)	$	28	$	(101)

Net income (loss):
Managing Member		—		—
Other Members		28		(101)
	$	28	$	(101)

Net income (loss) per Limited Liability Company Unit (Other Members)	$	0.01	$	(0.04)
Weighted average number of Units outstanding		2,565,749		2,514,220

See accompanying notes.

ATEL 17, LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE MONTHS ENDED

MARCH 31, 2019 AND 2018

(In Thousands Except for Units and Per Unit Data)


		Amount
		Other		Managing
	Units	Members		Member		Total
Balance December 31, 2017	2,551,749	$	18,706	$	1	$	18,707
Capital contributions	34,000		340		—		340
Repurchase of units	(20,000)		(151)		—		(151)
Syndication costs	—		(51)		—		(51)
Distributions to Other Members ($0.20 per Unit)	—		(512)		—		(512)
Net loss	—		(101)		—		(101)
Balance March 31, 2018 (Unaudited)	2,565,749	$	18,231	$	1	$	18,232


Balance December 31, 2018	2,565,749	$	16,620	$	1	$	16,621
Distributions to Other Members ($0.20 per Unit)	—		(513)		—		(513)
Distributions to Managing Member	—		—		—		—
Net income	—		28		—		28
Balance March 31, 2019 (unaudited)	2,565,749	$	16,135	$	1	$	16,136

See accompanying notes.

ATEL 17, LLC

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED

MARCH 31, 2019 AND 2018

(In Thousands)

(Unaudited)


	Three Months Ended
	March 31,
	2019		2018
Operating activities:
Net income (loss)	$	28	$	(101)
Adjustment to reconcile net income (loss) to cash provided by operating activities:
Gain on early termination of notes receivable		(116)		—
Accretion of note discount - warrants		(23)		(8)
Depreciation of operating lease assets		318		304
Amortization of initial direct costs		—		18
Reversal of provision for credit losses		—		(18)
Unrealized loss on fair value adjustment for warrants		4		1
Changes in operating assets and liabilities:
Accounts receivable		8		27
Due from Managing Member and affiliates		28		—
Prepaid expenses and other assets		(40)		(26)
Accounts payable, Managing Member and affiliates		(1)		(33)
Accounts payable, other		(26)		(2)
Accrued liabilities, affiliates		5		(143)
Unearned operating lease income		(10)		(15)
Net cash provided by operating activities		175		4

Investing activities:
Purchases of equipment under operating leases		—		(408)
Payments of initial direct costs		—		(32)
Note receivable advances		—		(2,571)
Proceeds from early termination of notes receivable		838		—
Principal payments received on notes receivable		470		385
Net cash provided by (used in) investing activities		1,308		(2,626)

Financing activities:
Borrowings under non-recourse debt		535		—
Repayments under non-recourse debt		(257)		—
Syndication costs paid to Managing Member and affiliates		—		(51)
Distributions to Other Members		(513)		(501)
Capital contributions		—		340
Repurchase/Rescissions of Units		—		(151)
Net cash used in financing activities		(235)		(363)

Net increase (decrease) in cash and cash equivalents		1,248		(2,985)
Cash at beginning of period		6,484		7,092
Cash at end of period	$	7,732	$	4,107

Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	35		—
Cash paid during the period for taxes		3		1

Schedule of non-cash investing and financing transactions:
Distributions payable to Other Members at period-end	$	228		228

See accompanying notes.

1. Organization and Limited Liability Company matters:

ATEL 17, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on April 16, 2015 for the purpose of raising capital and originating equipment financing transactions 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 the “Manager”), a Nevada limited liability corporation. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group (“ACG” or “ATEL”). The Fund may continue until terminated as provided in the ATEL 17, LLC limited liability company operating agreement dated April 24, 2015 (the “Operating Agreement”). Contributions in the amount of $500 were received as of April 28, 2015, 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 offering of the Company was granted effectiveness by the Securities and Exchange Commission as of January 5, 2016. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company units (Units) to the public reach $150 million. As of February 2, 2016, 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. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal not less than $7.5 million in gross proceeds. Total contributions to the Fund exceeded $7.5 million on July 6, 2016. The offering was terminated on January 5, 2018.

As of March 31, 2019, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable) totaling $25.7 million have been received, inclusive of the $500 initial member’s capital investment. Through the same date, a net total of $151 thousand of such contributions (representing 20,000 Units) have been rescinded or repurchased (net of distributions paid and allocated syndication costs) by the Company. As of March 31, 2019, a total of 2,565,749 Units were issued and outstanding.

The Fund, or Managing Member on behalf of the Fund had incurred costs in connection with the organization, registration and issuance of the Units. The amount of such costs borne by the Fund was limited by certain provisions of the Operating Agreement.

The Company’s principal objectives are to invest in a diversified portfolio of investments that will generate a favorable overall return to investors and (i) preserve, protect and return the Fund’s invested capital; (ii) generate regular cash distributions to Unit holders during the Offering Stage and Operating Stage of the Fund, with any balance remaining after required minimum distributions, equal to not less than 8% nor more than 10% per annum on investors’ Original Invested Capital, to be used to purchase additional investments during the first six years after the year the offering terminates; and (iii) provide additional cash distributions during the Liquidating Stage, commencing with the end of the six year reinvestment period and continuing until all investment portfolio assets have been sold or otherwise disposed.

These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10‑K for the year ended December 31, 2018, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10‑Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2019 and 2018 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.

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2019, 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.

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

Cash and cash equivalents:

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

Use of Estimates:

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts.

Segment reporting:

The Company is organized into one operating segment for the purpose of making operating decisions or assessing performance. Accordingly, the Company operates in one reportable operating segment in the United States.

The primary geographic region in which the Company seeks financing opportunities is North America. Currently, 100% of the Company’s operating revenues and long-lived assets are from customers domiciled in the United States.

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 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 Fund’s investment in direct financing leases are included in other assets, with related revenues reflected on the income statement under other revenues. Direct financing lease amounts, and related disclosures, are immaterial as of and for the quarter ended March 31, 2019.

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. 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.

Investment in securities:

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

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 March 31, 2019 and March 31, 2018, the Company recorded unrealized losses of $4 and $1 thousand, respectively, on fair valuation of its warrants. As of March 31, 2019 and December 31, 2018, the estimated fair value of the Fund’s portfolio of warrants amounted to $298 thousand and $302 thousand, respectively. There have been no exercises of warrants, net or otherwise, during the three months ended March 31, 2019 and 2018.

Credit risk:

Financial instruments that potentially subject the Company to concentrations of credit risk include cash and cash equivalents, operating and direct financing lease receivables, notes receivable and accounts receivable. The Company places the majority of its cash deposits in non-interest bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250,000. The remainder of the Fund’s cash is temporarily invested in U.S. Treasury denominated instruments. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Company. Accounts receivable represent amounts due from various industries, related to equipment on operating leases.

Equipment under operating leases, net and related revenue recognition:

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

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

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally on terms from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Operating leases are generally placed in a non-accrual status (i.e., no revenue is recognized) when payments are more than 90 days past due. Additionally, management considers the equipment underlying the lease contracts for impairment and periodically reviews the credit worthiness of all operating lessees with payments outstanding less than 90 days. Based upon management’s judgment, the related operating leases may be placed on non-accrual status. Leases placed on non-accrual status are only returned to an accrual status when the account has been brought current and management believes recovery of the remaining unpaid lease payments is probable. Until such time, revenues are recognized on a cash basis.

Initial direct costs:

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

Acquisition expense:

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

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.

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, 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.

Per Unit data:

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

Emerging growth company:

Section 107 of the Jumpstart Our Business Startups Act (the “JOBS Act”) provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we have chosen to “opt out” of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

Recent accounting pronouncements:

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

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

The adoption of ASU No. 2016-02 and the related improvements did not have a material impact in our financial statements. Upon adoption, (i) amounts previously recognized as lessee reimbursements and other income, for the three months ended March 31, 2019, have been classified as lease or financing income, (ii) allowances for bad debts are now recognized as a direct reduction of operating lease income, and (iii) certain costs associated with the execution of our leases, which were previously capitalized and amortized over the life of their respective leases, are expensed as incurred. Subsequent to January 1, 2019, provisions for credit losses relating to operating leases are now included in lease income in the Company’s financial statements. Provisions for credit losses prior to January 1, 2019 were previously included in operating expenses in our financial statements and prior periods are not reclassified to conform to the current presentation.

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

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

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

In August 2016, the 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. This guidance was adopted beginning on January 1, 2018. The adoption of ASU 2016-15 did not have a material impact on its financial statements and disclosures.

3. Notes receivable, net:

The Company has various notes receivables from borrowers who have financed the purchase of equipment through the Company. The original terms of the notes receivable are from 24 to 42 months and bear interest at rates ranging from 11.6% to 16.49% per annum. The notes are secured by the equipment financed. The notes mature from 2020 through 2022. There were neither impaired notes nor notes placed in non-accrual status as of March 31, 2019 and December 31, 2018.

As of March 31, 2019, the future minimum payments receivable are as follows (in thousands):


Nine months ending December 31, 2019	$	1,438
Year ending December 31, 2020		830
2021		437
2022		9
		2,714
Less: portion representing unearned interest income		(283)
		2,431
Less: warrants - notes receivable discount		(155)
Unamortized initial direct costs		10
Notes receivable, net	$	2,286

IDC (Initial Direct Cost) amortization expense related to notes receivable and operating leases for the three months ended March 31, 2019 and 2018 are as follows (in thousands):


	Three Months Ended
	March 31,
	2019		2018
IDC amortization - notes receivable	$	—	$	2
IDC amortization - lease assets		—		16
Total	$	—	$	18

4. Allowance for credit losses:

The Company has no allowance for credit losses for the three months ending March 31, 2019 and for the year ending December 31, 2018.

The Company evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass — Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the Manager to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the Manager and the account is not considered by the Chief Credit Officer of the Manager to fall into one of the three risk profiles below.

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

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

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

At March 31, 2019 and December 31, 2018, the Company’s investment in financing receivables by credit quality indicator and by class of financing receivables are as follows (excludes initial direct costs) (in thousands):


	Notes Receivable
	March 31, 2019		December 31, 2018
Pass	$	2,431	$	3,623
Special mention		—		—
Substandard		—		—
Doubtful		—		—
Total	$	2,431	$	3,623

At March 31, 2019 and December 31, 2018, investment in financing receivables is aged as follows (in thousands):


													Recorded
					Greater						Total		Investment>90
	31-60 Days		61-90 Days		Than		Total				Financing		Days and
March 31, 2019	Past Due		Past Due		90 Days		Past Due		Current		Receivables		Accruing
Notes receivable	$	—	$	—	$	—	$	—	$	2,431	$	2,431	$	—
Total	$	—	$	—	$	—	$	—	$	2,431	$	2,431	$	—


													Recorded
					Greater						Total		Investment>90
	31-60 Days		61-90 Days		Than		Total				Financing		Days and
December 31, 2018	Past Due		Past Due		90 Days		Past Due		Current		Receivables		Accruing
Notes receivable	$	—	$	—	$	—	$	—	$	3,623	$	3,623	$	—
Total	$	—	$	—	$	—	$	—	$	3,623	$	3,623	$	—

The Company had no financing receivables on non-accrual or impaired status at March 31, 2019 and December 31, 2018.

5. Equipment under operating leases, net:

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


	Balance				Depreciation/		Balance
	December 31,				Amortization		March 31,
	2018		Additions		Expense		2019
Equipment under operating leases, net	$	10,001	$	—	$	(318)	$	9,683
Initial direct costs, net of accumulated amortization of $148 thousand at March 31, 2019 and $148 thousand at December 31, 2018		185		—		—		185
Total	$	10,186	$	—	$	(318)	$	9,868

Additions to net investment in operating lease assets are stated at cost. All of the Company’s leased property was acquired beginning in March 2016 through January 2018.

Impairment of equipment under operating leases:

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. As a result of these reviews, management determined that no impairment losses existed during the months ended March 31, 2019 and 2018.

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 $318 thousand and $304 thousand for the respective three months ended March 31, 2019 and 2018.

IDC amortization expense related to the Company’s operating leases totaled $0 and $16 thousand for the respective three months ended March 31, 2019 and 2018.

Operating leases:

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


	Balance						Balance
	December 31,				Reclassifications		March 31,
	2018		Additions		or Dispositions		2019
Transportation, rail	$	3,679	$		$		$	3,679
Mining		1,728						1,728
Construction		1,242						1,242
Paper processing		1,058						1,058
Marine vessels		1,041						1,041
Containers		860						860
Agriculture		742						742
Materials handling		711						711
Aviation		1,306						1,306
Transportation, other		97						97
		12,464		—		—		12,464
Less accumulated depreciation		(2,463)		(318)				(2,781)
Total	$	10,001	$	(318)	$	—	$	9,683

The average estimated residual value for assets on operating leases was 38% of the assets’ original cost at both March 31, 2019 and December 31, 2018.

At March 31, 2019, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):


	Operating
	Leases
Nine months ending December 31, 2019	$	1,331
Year ending December 31, 2020		1,595
2021		1,110
2022		897
2023		842
2024		493
thereafter		389
	$	6,657

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of March 31, 2019, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):


Equipment category		Useful Life
Transportation, rail		35 - 50
Marine vessel		20 - 30
Containers		15 - 20
Aviation		15 - 20
Mining		10 - 15
Paper processing		10 - 15
Agriculture		7 - 10
Construction		7 - 10
Materials handling		7 - 10
Transportation		7 - 10

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 acquisition and asset management services and to receive reimbursements for payments made on behalf of the Fund for certain operating expenses, which are more fully described in Section 8 of the Operating Agreement.

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 equipment financing 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.

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.

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

During its offering period, the Fund paid selling commissions of up to 9% of the selling price of the Units to ATEL Securities Corporation (‘‘ASC’’), an affiliate of the Managing Member acting as Dealer Manager for the group of selling broker-dealers. ASC in turn paid to participating broker-dealers selling commissions of up to 7% of the price of the Units sold by them, retaining the balance of 2%.

During the three months ended March 31, 2019 and 2018, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements pursuant to the Operating Agreement as follows (in thousands):


	For the Three Months Ended
	March 31,
	2019		2018
Selling commissions, equal to 9% of the selling price of the Limited Liability Company Units, deducted from Other Members capital	$	—	$	31
Reimbursement of other syndication costs to Managing Member and/or affiliates, deducted from Other Members capital		—		20
Administrative costs reimbursed to Managing Member and/or affiliates		98		104
Asset management fees to Managing Member		68		65
Acquisition and initial direct costs paid to Managing Member		—		106
	$	166	$	326

7. Non-recourse debt:

At March 31, 2019 and December 31, 2018, non-recourse debt consists of notes payable to financial institutions. The note payments are due in monthly installments. Interest on the notes range from 3.70% to 4.66% per annum The notes are secured by assignments of lease payments and pledges of assets. At March 31, 2019, gross operating lease rentals totaled approximately $3.8 million over the remaining lease terms and the carrying value of the pledged assets was $6 million. The notes mature from 2020 through 2024.

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 lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.

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


	Principal		Interest		Total
Nine months ending December 31, 2019	$	924	$	103	$	1,027
Year ending December 31, 2020		1,111		96		1,207
2021		645		60		705
2022		455		39		494
2023		456		19		475
2024		218		4		222
	$	3,809	$	321	$	4,130

8. 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 selling commissions as well as fees pertaining to the organization of the Fund, document preparation, regulatory filing fees, and accounting and legal costs. Such costs relating to the comparative three month periods ended March 31, 2019 and 2018, are listed below:


		Three Months Ended
		March 31,
	2019		2018
Administration and Other	$	—	$	20
Selling Commissions		—		31
Total Syndication Cost	$	—	$	51

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. As of March 31, 2019, the Company had not recorded any 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 syndication costs (above the limitation) which it may have collected from the Company, which guarantee is without recourse or reimbursement by the Fund.

9. Special Discounts:

The Fund sold Units subject to volume discounts to investors who purchased more than $500 thousand of Units through the same broker dealer in this offering. In these instances the Fund applied the reduced per unit price and appropriate scheduled sales commission, as detailed in the offering prospectus, to the entire purchase, not just the portion of the purchase price which exceeds the $500 thousand threshold. These special discounts are reflected in the financial statements as a reduction of Members’ Capital.

10. Borrowing facilities:

Effective June 30, 2017, the Company participated with ATEL Capital Group and certain subsidiaries and affiliated funds in a $75 million revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions as lenders. The Credit Facility is comprised of a working capital facility, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”), the Company and affiliates, and a venture facility. As of March 31, 2019, the Credit Facility is for an amount of $75 million and has been extended to June 30, 2019. 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. Such Credit Facility includes certain financial covenants. 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. At March 31, 2019 and December 31, 2018, approximately $73.5 million and $72.9 million, respectively, were available under the facility, and the Company had no outstanding borrowings under the facility.

11. Commitments:

At March 31, 2019, there were no commitments to fund investments in notes receivable.

12. Members’ Capital:

A total of 2,565,749 Units were issued and outstanding as of both March 31, 2019 and December 31, 2018, including the 50 Units issued to the initial Member (Managing Member). The Fund was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Member.

Distributions to the Other Members for the three months ended March 31, 2019 and 2018 were as follows (in thousands except Units and per Unit data):


		Three Months Ended
		March 31,
	2019		2018
Distributions	$	513	$	512
Weighted average number of Units outstanding		2,565,749		2,514,220
Weighted average distributions per Unit	$	0.20	$	0.20

13. Fair value measurements:

At March 31, 2019 and December 31, 2018, only the Company’s warrants were measured on a recurring basis.

The measurement methodology is as follows:

Warrants (recurring)

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, time to maturity, and a risk free interest rate for the term(s) of the warrant exercise(s). The calculated fair value of the Fund’s warrant portfolio was $298 thousand and $302 thousand at March 31, 2019 and December 31, 2018, respectively. Such valuation is classified within Level 3 of the valuation hierarchy.

The following table reconciles the beginning and ending balances of the Company’s Level 3 recurring assets (in thousands):


	Three Months Ended
	March 31,
	2019		2018
Fair value of warrants at beginning of period	$	302	$	62
Fair value of new warrants, recorded during the period (included as a discount on notes receivable)		—		129
Unrealized loss on fair valuation of warrants		(4)		(1)
Fair value of warrants at end of period	$	298	$	190

The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring fair value calculation categorized as Level 3 in the fair value hierarchy at March 31, 2019 and December 31, 2018:


March 31, 2019
	Valuation	Valuation	Unobservable	Range of
Name	Frequency	Technique	Inputs	Input Values
Warrants	Recurring	Black-Scholes formulation	Stock price	$0.24 - $14.50
			Exercise price	0.02 - 9.00
			Time to maturity (in years)	7.38 - 12.70
			Risk-free interest rate	2.32% - 2.47%
			Annualized volatility	37.43% - 130.03%


December 31, 2018
	Valuation	Valuation	Unobservable	Range of
Name	Frequency	Technique	Inputs	Input Values
Warrants	Recurring	Black-Scholes formulation	Stock price	$0.18 - $14.50
			Exercise price	0.02 - 9.00
			Time to maturity (in years)	7.63 - 12.95
			Risk-free interest rate	2.61% - 2.74%
			Annualized volatility	34.20% - 292.35%

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. 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 generally estimated based upon various methodologies deployed by financial and credit management based on assumptions market participants would consider including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.

Non-recourse and Long-term debt

The fair value of the Company’s non-recourse debt is estimated using discounted cash flow analyses, based upon current market borrowing rates for similar types of borrowing arrangements.

Commitments and Contingencies

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

The 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 March 31, 2019 and December 31, 2018 (in thousands):


	March 31, 2019
	Carrying
	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	7,732	$	7,732	$	—	$	—	$	7,732
Notes receivable, net		2,286		—		—		2,248		2,248
Warrants, fair value		298		—		—		298		298
Financial liabilities:
Non-recourse debt		3,809		—		—		3,809		3,809


	December 31, 2018
	Carrying
	Amount		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	6,484	$	6,484	$	—	$	—	$	6,484
Notes receivable, net		3,455		—		—		3,370		3,370
Warrants, fair value		302		—		—		302		302
Financial liabilities:
Non-recourse debt		3,531		—		—		3,539		3,539

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” (“MD&A”) 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 markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-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

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. The offering will continue until the earlier of a period of two years from that date or until sales of the limited liability company Units to the public reach $150 million. As of February 2, 2016, 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. Pennsylvania subscriptions are subject to a separate escrow and will be released to the Fund only at such time as total subscription proceeds received by the Fund from all subscribers, including the escrowed Pennsylvania subscriptions, equal not less than $7.5 million in gross proceeds. Total contributions to the Fund exceeded $7.5 million on July 6, 2016. The offering was terminated on January 5, 2018.

Results of Operations

The three months ended March 31, 2019 versus the three months ended March 31, 2018

The Company had net income of $28 thousand and a net loss of $101 thousand for the three months ended March 31, 2019 and 2018, respectively. The net results for the first quarter of 2019 primarily reflect an increase in total revenues when compared to the prior year period.

Revenues

Total revenues for the three months ended March 31, 2019 increased by $123 thousand, or 22%, as compared to the prior year period. Such increase was mainly due to a $116 thousand gain from early termination of notes receivable. There were no such gains during the prior year period. In addition, the Fund’s revenues from operating leases grew by $44 thousand, or 11%, as the Fund purchased an approximate $844 thousand of lease assets since March 31, 2018.

Partially offsetting the aforementioned increases in revenues was a $32 thousand, or 21%, reduction in interest income on notes receivable. Such decrease was due to an early termination of a note during the first quarter of 2019.

Expenses

Total expenses for the three months ended March 31, 2019 were relatively flat as compared to the prior year period. The main variances were a $75 thousand, or 100%, decrease in acquisition expense related to the period over period reduction in lease assets purchases offset, in part, by a $37 thousand increase in interest expense as the Fund had accumulated an approximate $4.2 million of non-recourse debt since the first quarter of 2018.

Capital Resources and Liquidity

The Company’s cash and cash equivalents totaled $7.7 million and $6.5 million at March 31, 2019 and December 31, 2018, respectively. The liquidity of the Company will vary in the future, increasing to the extent cash flows from cash flows from subscriptions, leases and notes receivable 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.

Cash Flows

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


	For the Three
	Months Ended
	March 31,
	2019		2018
Net cash (used in) provided by:
Operating activities	$	175	$	4
Investing activities		1,308		(2,626)
Financing activities		(235)		(363)
Net increase (decrease) in cash and cash equivalents	$	1,248	$	(2,985)

The three months ended March 31, 2019 versus the three months ended March 31, 2018

During the three months ended March 31, 2019 and 2018, the Company’s primary sources of liquidity were cash flows from its portfolio of operating lease contracts and investments in notes receivable. In addition, during the first quarter of 2019, the Company recorded $838 thousand of proceeds from the early termination of a note receivable and $535 thousand of new borrowings under non-recourse debt. There were no such early termination of notes or borrowings during the prior year quarter. The Company did receive, however, an approximate $340 thousand of Member contributions during the prior year quarter.

During the three months ended March 31, 2019, cash was primarily used to pay $513 thousand of member distributions and to repay $257 thousand of non-recourse debt. By comparison, during the prior year quarter, cash was mainly used to fund $2.6 million of new investments in notes receivable, purchase $408 thousand of new equipment, pay $501 thousand of distributions to Members, and repurchase $151 thousand of its Units.

Revolving Credit facility

At March 31, 2019 and December 31, 2018, approximately $72.9 million and $69.2 million, respectively, were available under the facility, and the Company had no outstanding borrowings under the facility.

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 February 2016. Additional distributions have been made through March 31, 2019.

Cash distributions were paid by the Fund to Unitholders of record as of February 28, 2018, and paid through March 31, 2019. The 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.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.

The cash distributions were based on current and anticipated gross revenues from the loans funded and equity investments 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 loans and investments funded.

The following table summarizes distribution activity for the Fund from inception through March 31, 2019 (in thousands):


														Total		Weighted
		Return of				Distribution				Total				Distribution		Average Units
Distribution Period (1)	Paid	Capital				of Income				Distribution				per Unit (2)		Outstanding (3)
Monthly and quarterly distributions
Feb 2016 - Nov 2016	Apr 2016 - Dec 2016	$	492			$	—			$	492				0.64	770,832
Dec 2016 - Nov 2017	Jan 2017 - Dec 2017		1,540				—				1,540				0.78	1,967,313
Dec 2017 - Nov 2018	Jan 2018 - Dec 2018		2,043				—				2,043				0.80	2,562,088
Dec 2018 - Feb 2019	Jan 2019 - March 2019		513				—				513				0.20	2,565,749

		$	4,588			$	—			$	4,588			$	2.42
Source of distributions
Lease and loan payments and sales proceeds received		$	4,588	100.00%	%	$	—	0.00%	%	$	4,588	100.00%	%
		$	4,588	100.00%	%	$	—	0.00%	%	$	4,588	100.00%	%

(1)

Investors may elect to receive their distributions either monthly or quarterly. See “Timing and Method of Distributions” on Page 67 of the Prospectus.

(2)

Total distributions per Unit represents the per Unit distributions rate for those units which were outstanding for all of the applicable period. Total distributions per Unit represents the per Unit distributions rate for those units which were outstanding for all of the applicable period.

(3)

Balances shown represent weighted average units for the period from February 2 – November 30, 2016, from December 1, 2016 – November 30, 2017, December 1, 2017 – November 30, 2018, and from December 1, 2018 – February 28, 2019, respectively.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2019, there were no commitments to purchase lease assets.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

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

Significant Accounting Policies and Estimates

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

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

Item 3. Controls and procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s Chief Executive Officer, and Executive Vice President and Chief Financial and Operating Officer (“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, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

The Company does not control the financial reporting process, and is solely dependent on the Management of the Managing Member, who is responsible for providing the Company with financial statements in accordance with generally accepted accounting principles in the United States. The Managing Member’s disclosure controls and procedures, as they are applicable to the Company, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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, 2019 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Managing Member. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Managing Member’s financial position or results of operations.

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

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

(1)

Effective date of the offering: January 5, 2016; File Number: 333‑203841

(2)

Offering commenced: January 5, 2016

(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, 2019:


					Aggregate price
	Amount	Aggregate price of offering			of offering
Title of Security	Registered	amount registered		Units sold	amount sold
Units of Limited Company Interest	15,000,000	$	150,000	2,565,749	$	25,699

(7)

Costs incurred for the issuers’ account in connection with the issuance and distribution of the securities registered for each category listed below:


	Direct or indirect payments
	to directors, officers,
	Managing Members of the
	issuer or their associates, to
	persons owning ten percent
	or more of any class of		Direct or
	equity securities of the		indirect
	issuer; and to affiliates of		payments to
	the issuer		others		Total
Underwriting discounts and commissions	$	516	$	1,807	$	2,323
Other syndication costs		—		1,548		1,548
Total expenses	$	516	$	3,355	$	3,871

(8)

Net offering proceeds to the issuer after total expenses in item 7: $21,828

(9)

The amount of net offering proceeds to the issuer used for each of the purposes listed below:


	Direct or indirect payments
	to directors, officers,
	Managing Members of the
	issuer or their associates, to
	persons owning ten percent
	or more of any class of		Direct or
	equity securities of the		indirect
	issuer; and to affiliates of		payments to
	the issuer		others		Total
Purchase and installation of machinery and equipment	$	332	$	12,465	$	12,797
Investment in notes receivable		24		6,177		6,201
Distributions paid and accrued		—		4,816		4,816
Other expenses		—		3,280		3,280
	$	356	$	26,738	$	27,094

(10)Net offering proceeds to the issuer after total expenses in item 9: $(5,266)

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

Unit Valuation

As noted above, there is no public market for Units and, in order to preserve the Company’s status for federal income tax purposes, the Company will not permit a secondary market or the substantial equivalent of a secondary market for the Units. In the absence of a public market for the Units, there is no currently ascertainable fair market value for the Units.

Nevertheless, in order to provide an estimated per Unit value for those Unitholders who seek valuation information, the Manager has calculated an estimated value per Unit as of June 30, 2018. The Manager estimates the Company’s per Unit value by first estimating the aggregate net asset value of the Company. The valuation does not take into account any future business activity of the Company; rather it is a snapshot view of the Fund’s portfolio as of the valuation date.

The estimated values for non-interest bearing items such as any current assets and liabilities, as well as for any investment in securities, were assumed to equal their reported balances, which management believes approximate their fair values. The same was applied to loans incurred under the acquisition facility since they bear variable rates of interest. A discounted cash flow approach was used to estimate the values of notes receivable, investments in leases and non-recourse debt. Under such approach, the value of a financial instrument was estimated by calculating the present value of the instrument’s expected cash flows. The present value was determined by discounting the cash flows the instrument is expected to generate by discount rates as deemed appropriate by the Manager. In most cases, the discount rates used were based on U.S. Treasury yields reported as of the reporting date, plus a spread to account for the credit risk difference between the instrument being valued and Treasury securities. The valuation of the Company’s warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, and a risk free interest rate for the term(s) of the warrant exercise(s).

After calculating the aggregate estimated net asset value of the Company, the Manager then calculated the portion of the aggregate estimated value that would be distributed to Unitholders on liquidation of the Company, and divided the total that would be so distributable by the number of outstanding Units as of the June 30, 2018 valuation date. As of June 30, 2018, the value of the Company’s assets, calculated on this basis, was approximately $8.14 per Unit. Hereafter this initial post-offering unit valuation, such unit valuation will be performed and subjected to independent appraisal on an annual basis, and published in the company’s annual Form 10-K.

The foregoing valuation was performed solely for the purpose of providing an estimated value per Unit for those Unitholders who seek valuation information. It is important to note again that there is no market for the Units, and, accordingly, this value does not represent an estimate of the amount a Unitholder would receive if he were to seek to sell his Units. The Company will liquidate its assets in the ordinary course of its business and investment cycle. Furthermore, there can be no assurance as to when the Company will be fully liquidated, the amount the Company may actually receive if and when it seeks to liquidate its assets, the amount of lease payments and equipment disposition proceeds the Company will actually receive over the remaining term of the Company, or the amounts that may actually be received in distributions by Unitholders over the course of the Company’s remaining term.

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 10, 2019

ATEL 17, 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
			Senior Vice President and Chief Accounting Officer of ATEL Managing Member, LLC (Managing Member)

31.1	Certification of Dean L. Cash
31.2	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


Part I. Financial Information		3

Item 1.	Financial Statements (Unaudited)	3
	Balance Sheets, March 31, 2019 and December 31, 2018	3
	Statements of Operations for the three months ended March 31, 2019 and 2018	4
	Statements of Changes in Members’ Capital for the three months ended March 31, 2019 and 2018	5
	Statements of Cash Flows for the three months ended March 31, 2019 and 2018	6
	Notes to the Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	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.	Mine Safety Disclosures	28

Item 5.	Other Information	28

Item 6.	Exhibits	29