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Atel 14

Filed: 16 Nov 20, 6:19am

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 September 30, 2020

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

For the transition period from        to

Commission File number 000-54356

ATEL 14, LLC

(Exact name of registrant as specified in its charter)

California

26-4695354

(State or other jurisdiction of
incorporation or organization)

(I. R. S. Employer
Identification No.)

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 such files). Yes No

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

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 Exchange Act). Yes No

The number of Limited Liability Company Units outstanding as of October 31, 2020 was 8,246,919.

DOCUMENTS INCORPORATED BY REFERENCE

None.



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 14, LLC

BALANCE SHEETS

SEPTEMBER 30, 2020 AND DECEMBER 31, 2019

(In Thousands)

September 30, 

December 31,

    

2020

    

2019

(Unaudited)

ASSETS

 

  

 

  

Cash and cash equivalents

$

688

$

2,831

Accounts receivable, net

 

77

 

61

Investment in securities

 

528

 

99

Warrants, fair value

 

25

 

271

Equipment under operating leases, net

 

13,508

 

14,657

Prepaid expenses and other assets

 

15

 

79

Total assets

$

14,841

$

17,998

LIABILITIES AND MEMBERS’ CAPITAL

 

  

 

  

Accounts payable and accrued liabilities:

 

  

 

  

Affiliates

$

35

$

32

Other

 

166

 

212

Non-recourse debt

 

3,340

 

4,022

Unearned operating lease income

 

10

 

42

Total liabilities

 

3,551

 

4,308

 

Commitments and contingencies

 

  

 

  

Members’ capital:

 

  

 

  

Managing Member

 

 

Other Members

 

11,290

 

13,690

Total Members’ capital

 

11,290

 

13,690

Total liabilities and Members’ capital

$

14,841

$

17,998

See accompanying notes.

3


ATEL 14, LLC

STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019

(In Thousands Except for Units and Per Unit Data)

(Unaudited)

  

Three Months Ended

  

Nine Months Ended

September 30, 

September 30, 

  

2020

  

2019

  

2020

  

2019

Operating revenues:

 

  

 

  

 

  

 

  

Leasing and lending activities:

 

  

 

  

 

  

 

  

Operating leases

$

664

$

765

$

1,984

$

2,624

Interest on notes receivable

 

 

17

 

 

52

Gain (loss) on sales of operating lease assets and early termination of notes receivable

 

7

 

(283)

 

4

 

141

Other revenue

 

2

 

4

 

14

 

477

Total operating revenues

 

673

 

503

 

2,002

 

3,294

Operating expenses:

 

  

 

  

 

  

 

  

Depreciation of operating lease assets

 

477

 

501

 

1,155

 

1,683

Asset management fees to Managing Member

 

26

 

42

 

84

 

131

Cost reimbursements to Managing Member and/or affiliates

 

103

 

124

 

333

 

390

Impairment losses on equipment

 

 

 

 

801

Amortization of initial direct costs

 

 

1

 

 

1

Acquisition expense

1

6

Interest expense

 

30

 

38

 

95

 

104

Professional fees

 

14

 

41

 

121

 

165

Outside services

 

24

 

28

 

57

 

71

Taxes on income and franchise fees

 

32

 

37

 

92

 

117

Bank charges

3

2

7

7

Storage fees

38

43

86

93

Railcar maintenance

 

60

 

45

 

152

 

99

Freight and shipping

22

1

59

25

Other expense

 

19

 

32

 

63

 

95

Total operating expenses

 

849

 

935

 

2,310

 

3,782

Net loss from operations

(176)

(432)

(308)

(488)

Other income (loss):

Unrealized (loss) gain on fair value adjustment for warrants

(3)

 

25

 

145

 

10

Unrealized gain (loss) on fair value adjustment for marketable securities

37

(7)

37

(14)

Total other income (loss)

34

18

182

(4)

Net loss

$

(142)

$

(414)

$

(126)

$

(492)

Net loss:

 

  

 

  

 

  

 

  

Managing Member

$

$

$

171

$

167

Other Members

 

(142)

 

(414)

 

(297)

 

(659)

$

(142)

$

(414)

$

(126)

$

(492)

Net loss per Limited Liability Company Unit (Other Members)

$

(0.02)

$

(0.05)

$

(0.04)

$

(0.08)

Weighted average number of Units outstanding

 

8,246,919

 

8,246,919

 

8,246,919

 

8,246,919

4


See accompanying notes.

ATEL 14, LLC

STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL

FOR THE THREE AND NINE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019

(In Thousands Except for Units and Per Unit Data)

(Unaudited)

Three Months Ended September 30, 2020

Amount

Other

Managing

 

Units

Members

    

Member

    

Total

Balance June 30, 2020

8,246,919

$

11,432

$

$

11,432

Net loss

 

 

(142)

 

(142)

Balance September 30, 2020

8,246,919

$

11,290

$

$

11,290

Nine Months Ended September 30, 2020

Amount

Other

Managing

 

Units

Members

    

Member

    

Total

Balance December 31, 2019

8,246,919

$

13,690

$

$

13,690

Distributions to Other Members ($0.26 per Unit)

(2,103)

(2,103)

Distributions to Managing Member

(171)

(171)

Net (loss) income

 

 

(297)

 

171

(126)

Balance September 30, 2020

8,246,919

$

11,290

$

$

11,290

Three Months Ended September 30, 2019

Amount

Other

Managing

 

Units

Members

    

Member

    

Total

Balance June 30, 2019

8,246,919

$

14,027

$

$

14,027

Net loss

 

 

(414)

 

(414)

Balance September 30, 2019

8,246,919

$

13,613

$

$

13,613

Nine Months Ended September 30, 2019

Amount

Other

Managing

 

Units

Members

    

Member

    

Total

Balance December 31, 2018

8,246,919

$

16,335

$

$

16,335

Distributions to Other Members ($0.25 per Unit)

 

 

(2,063)

 

 

(2,063)

Distributions to Managing Member

 

 

(167)

 

(167)

Net (loss) income

 

 

(659)

 

167

(492)

Balance September 30, 2019

8,246,919

$

13,613

$

$

13,613

See accompanying notes.

5


ATEL 14, LLC

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2020 AND 2019

(In Thousands)

(Unaudited)

Nine Months Ended

September 30, 

2020

    

2019

Operating activities:

  

  

Net loss

$

(126)

$

(492)

Adjustment to reconcile net loss to cash provided by operating activities:

Gain on sales of operating lease assets and early termination of notes receivable

(4)

(141)

Depreciation of operating lease assets

1,155

1,683

Amortization of initial direct costs

1

Reversal of credit losses

(2)

Impairment losses on equipment

801

Unrealized gain on fair value adjustment for warrants

(145)

(10)

Unrealized (gain) loss on fair value adjustment for investments in securities

(37)

14

Changes in operating assets and liabilities:

Accounts receivable

(14)

103

Prepaid expenses and other assets

64

1

Accounts payable, Managing Member and affiliates

3

45

Other accounts payable and accruals

(46)

(463)

Unearned operating lease income

(32)

11

Net cash provided by operating activities

816

1,553

Investing activities:

  

  

Capital improvements to equipment under operating leases

(124)

Proceeds from sales of operating lease assets and early termination of notes receivable

121

2,244

Net cash (used in) provided by investing activities

(3)

2,244

Financing activities:

  

  

Repayments under non-recourse debt

(682)

(1,283)

Borrowings under non-recourse debt

4,624

Repayments under senior long term debt

(2,068)

Repayments under credit facility

(1,200)

Distributions to Other Members

(2,103)

(2,063)

Distributions to Managing Member

(171)

(167)

Net cash used in financing activities

(2,956)

(2,157)

Net (decrease) increase in cash and cash equivalents

(2,143)

1,640

Cash and cash equivalents at beginning of period

2,831

1,056

Cash and cash equivalents at end of period

$

688

$

2,696

Supplemental disclosures of cash flow information:

 

  

 

  

Cash paid during period for interest

$

95

$

101

Cash paid during period for taxes

$

140

$

166

Schedule of non-cash transactions:

 

  

 

  

Conversion of warrants to equity securities

$

391

$

See accompanying notes.

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Table of Contents

ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Limited Liability Company matters:

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

The Company conducted a public offering of 15,000,000 Limited Liability Company Units (“Units”), at a price of $10 per Unit. As of December 2, 2009, subscriptions for the minimum number of Units (120,000, representing $1.2 million), excluding subscriptions from Pennsylvania investors, had been received and the Fund requested subscription proceeds to be released from escrow. On that date, the Company commenced initial operations and continued in its development stage activities until transitioning to an operating enterprise during the first quarter of 2010. Pennsylvania subscriptions are subject to a separate escrow and are released to the Fund only when aggregate subscriptions for all investors equal to at least $7.5 million. Total contributions to the Fund exceeded $7.5 million on February 12, 2010, at which time a request was processed to release the Pennsylvania escrowed amounts. The offering was terminated on October 6, 2011.

As of September 30, 2020, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable), totaling $83.5 million (inclusive of the $500 initial Member’s capital investment) have been received. As of the same date, 8,246,919 Units were issued and outstanding.

The Company’s principal objectives are to invest in a diversified portfolio of investments that will (i) preserve, protect and return the Company’s invested capital; (ii) generate regular cash distributions to Unitholders, with any balance remaining after required minimum distributions to be used to purchase additional investments during the Reinvestment Period (ending six calendar years after the completion of the Company’s public offering of Units) and (iii) provide additional cash distributions following the Reinvestment Period and until all investment portfolio assets has been sold or otherwise disposed. The Company is governed by the ATEL 14, LLC amended and restated Limited Liability Company Operating Agreement dated October 7, 2009 (the “Operating Agreement”). On January 1, 2018, the Company commenced liquidation phase activities pursuant to the guidelines of the Operating Agreement.

Pursuant to the terms of the Operating Agreement, the Managing Member and/or its affiliates receives compensation for services rendered and reimbursements for costs incurred on behalf of the Company (Note 5). 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 the Managing Member.

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, 2019, filed with the Securities and Exchange Commission.

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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.

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

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after September 30, 2020, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements.

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 for determination of the allowance for doubtful accounts and reserve for credit losses on notes receivable.

Segment reporting:

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

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

The primary geographic region in which the Company seeks leasing opportunities is North America. For the three and nine months ended September 30, 2020 and 2019, and as of September 30, 2020 and December 31, 2019, all of the Company’s current operating revenues and long-lived assets relate to customers domiciled in the United States.

8


Table of Contents

ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 on historical charge off and collection experience and the collectability 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.

Investment in securities:

Purchased securities

The Company’s purchased securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations. The Company’s purchased securities that do not have readily determinable fair values are measured at cost minus impairment, and adjusted for changes in observable prices. 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. As of September 30, 2020 and December 31, 2019, investments in equity securities totaled $528 thousand and $99 thousand, respectively. For the respective three months ended September 30, 2020 and 2019, the Company recorded $37 thousand of unrealized gains and $7 thousand of unrealized losses on investment securities with readily determinable fair values. For the respective nine months ended September 30, 2020 and 2019, the Company recorded $37 thousand of unrealized gains and $14 thousand of unrealized losses on such securities. An approximate $40 thousand of the current quarter and nine-month period unrealized gains reflects the fair market value of certain warrants converted to equity securities totaling $391 thousand. Such conversion related to a borrower’s completion of an initial public offering in June 2020. There were no fair value adjustments on the Company’s remaining investment securities that do not have readily determinable fair values during the three and nine months ended September 30, 2020 and 2019. Cumulative adjustments totaling $227 thousand have been recorded to reduce the value of such investment securities held at September 30, 2020 based on changes in observable prices. The Company had no impairment adjustments on investment securities during the three and nine months ended September 30, 2020 and 2019. There were no sales or dispositions of investment securities during the three and nine months ended September 30, 2020.

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. As of September 30, 2020 and December 31, 2019, the estimated value of the Company’s portfolio of warrants totaled $25 thousand and $271 thousand, respectively. During the three months ended September 30, 2020 and 2019, the Company recorded unrealized losses of $3 thousand and unrealized gains of $25 thousand, respectively, on fair valuation of its warrants. Unrealized gains of $145 thousand and $10 thousand were recorded for the respective nine months ended September 30, 2020 and 2019. There was a net exercise of warrants in exchange for equity securities totaling $391 thousand during the third quarter of 2020. No other warrant exercises occurred during the nine-month periods ended September 30, 2020 and 2019.

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Table of Contents

ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 noninterest-bearing accounts with financial institutions that have no less than $10 billion in assets. Such deposits are insured up to $250 thousand. The remainder of the Funds’ 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 and notes receivable represent amounts due from lessees or borrowers in various industries, related to equipment on operating and direct financing leases or notes receivable.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values. Off-lease equipment is generally not subject to depreciation. The Company depreciates all lease assets, in accordance with guidelines consistent with Accounting Standards Codification (“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. Upon adoption of Accounting Standards Update (“ASU”) 2016-02, 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 the Company’s financial statements.

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Table of Contents

ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Initial direct costs:

Incremental costs of a lease that would not have been incurred if the lease had not been obtained are capitalized and amortized over the lease term. All other costs associated with the execution of the Company’s leases are expensed as incurred.

Asset valuation:

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. 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.

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, 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.

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Table of Contents

ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Per Unit data:

Net income (loss) and distributions per Unit are based upon the weighted average number of Other Members Units outstanding during the period.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). ASU 2020-03 improves and clarifies various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. ASU 2020-03 includes seven different issues that describe the areas of improvement and the related amendments to GAAP that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. Management is currently evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Fund’s financial statements and disclosures.

In June 2016, the FASB issued ASU 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 equipment under operating leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, equipment under operating 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. Management is currently evaluating the standard and expects the update may potentially result in the 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 ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses (“ASU 2018-19”). The new standard clarifies certain aspects of the new 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. Management is currently evaluating the impact of the standard on the financial statements and related disclosure requirements.

On August 15, 2019, the FASB issued a proposed ASU that would grant certain companies additional time to implement FASB standards on CECL, and hedging. The proposed ASU defers the effective date for CECL to fiscal periods beginning after December 15, 2022, including interim periods within those fiscal years; and defers the effective dates for hedging to fiscal periods beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The ASU was approved on October 16, 2019. In February 2020, the FASB issued ASU 2020-02 and delayed the effective date of Topic 326 until fiscal year beginning after December 15, 2022.

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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

In August 2018, the FASB issued ASU 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. The Company adopted ASU 2018-13 on January 1, 2020. Such adoption did not have a significant impact on the Company’s financial statements and related disclosure requirements.

3. Allowance for credit losses:

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

Allowance for

Doubtful Accounts

    

Operating Leases

Balance December 31, 2018

$

1

Provision for credit losses

 

Balance September 30, 2019

$

1

Balance December 31, 2019

$

5

Reversal of provision for credit losses

 

(2)

Balance September 30, 2020

$

3

4. Equipment under operating leases, net:

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

Depreciation/

Reclassifications, 

Amortization

Balance

Additions,

Expense or

Balance

December 31, 

Dispositions and 

Amortization

September 30, 

    

2019

    

Impairment Losses

    

of Leases

    

2020

Equipment under operating leases, net

$

11,477

$

(203)

$

(1,155)

$

10,119

Assets held for sale or lease, net

 

3,180

 

209

 

 

3,389

Total

$

14,657

$

6

$

(1,155)

$

13,508

The Company utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Company’s equipment totaled $477 thousand and $501 thousand for the respective three months ended September 30, 2020 and 2019. For the respective nine months ended September 30, 2020 and 2019, depreciation expense of $1.2 million and $1.7 million were recorded. Both three- and nine-month periods ended September 30, 2020 include $122 thousand of additional depreciation recorded to reflect year-to-date changes in estimated residual values of certain equipment generating revenue under month to-month extensions. Such estimated residual values of equipment associated with leases on month-to-month extensions are evaluated at least semi-annually, and depreciation recorded for the change in the estimated reduction in value. There were no such additional adjustments to depreciation recorded during the three and nine months ended September 30, 2019.

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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

All of the Company’s lease asset purchases and capital improvements were made during the years from 2009 through 2020.

Operating leases:

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

Balance

Balance

December 31, 

Reclassifications

September 30, 

  

2019

  

Additions

  

or Dispositions

  

2020

Marine vessel

$

19,410

$

$

$

19,410

Transportation, rail

 

4,010

 

 

 

4,010

Transportation

 

208

 

 

 

208

Manufacturing

 

5,292

 

 

(1,133)

 

4,159

Materials handling

 

326

 

 

(43)

 

283

Construction

 

919

 

124

 

(66)

 

977

Agriculture

 

542

 

 

 

542

 

30,707

 

124

 

(1,242)

 

29,589

Less accumulated depreciation

 

(19,230)

 

(1,155)

 

915

 

(19,470)

Total

$

11,477

$

(1,031)

$

(327)

$

10,119

The average estimated residual value for assets on operating leases was 24% of the assets’ original cost at September 30, 2020 and 25% at December 31, 2019. There were no operating leases in non-accrual status at both September 30, 2020 and December 31, 2019.

At September 30, 2020, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

Operating

    

Leases

Three months ending December 31, 2020

$

448

Year ending December 31, 2021

 

1,535

2022

 

1,368

2023

1,185

2024

 

211

$

4,747

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of September 30, 2020 and December 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

Manufacturing

 

10 -15

Agriculture

 

7 - 10

Construction

 

7 - 10

Materials handling

 

7 - 10

Transportation

 

7 - 10

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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

5. Related party transactions:

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

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

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

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 total 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.

The Managing Member and/or affiliates earned fees and billed for reimbursements, pursuant to the Operating Agreement, during the three and nine months ended September 30, 2020 and 2019 as follows (in thousands):

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Administrative costs reimbursed to Managing Member and/or affiliates

$

103

$

124

$

333

$

390

Asset management fees to Managing Member

 

26

 

42

 

84

 

131

$

129

$

166

$

417

$

521

The Fund’s Operating Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its 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 such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self-liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. As of September 30, 2020 and December 31, 2019, the Company has not exceeded the annual and/or cumulative limitations discussed above.

15


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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

6. Non-recourse debt:

At September 30, 2020, non-recourse debt consists of a note payable to financial institutions. Such note is due in monthly installments. Interest on the note is at 3.40% per annum. The note is secured by assignments of lease payments and pledges of assets. At September 30, 2020, gross operating lease rentals totaled approximately $3.5 million; and the carrying value of the pledged asset is $7.7 million. The note matures in 2024.

The non-recourse debt does not contain any material financial covenants. The debt is secured by a specific lien granted by the Company to the non-recourse lender on (and only on) the discounted lease transactions. The lender has recourse only to the following collateral: the leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and responsible for certain representations, warranties, and covenants made to the lender, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and 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

Three months ending December 31, 2020

$

231

$

28

$

259

Year ended December 31, 2021

946

91

1,037

2022

979

58

1,037

2023

1,012

25

1,037

2024

172

1

173

$

3,340

$

203

$

3,543

The non-recourse debt represents half of a $9.2 million non-recourse promissory note executed on May 20, 2019. The non-recourse promissory note was split evenly between the Fund and its affiliate, ATEL 15, LLC, and was used to pay off the senior long-term debt. The non-recourse promissory note is to be serviced by the cash flows generated under a renewed bareboat charter.

7. Borrowing facilities:

The Company was a party with ATEL Capital Group and certain subsidiaries, and affiliated funds in a $75 million revolving credit facility with a syndicate of financial institutions as lenders. The credit facility was renewed during the fourth quarter of 2019, upon which, the Company ceased to be a participant.

8. Commitments:

At September 30, 2020, there were no commitments to purchase lease assets or fund investments in notes receivable.

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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

9. Members’ capital:

A total of 8,246,919 Units were issued and outstanding at September 30, 2020 and December 31, 2019, 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.

The Company has the right, exercisable at the Managing Member’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Company is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund units is made in accordance with Section 13 of the Amended and Restated Limited Liability Company Operating Agreement. The repurchase would be at the discretion of the Managing Member on terms it determines to be appropriate under given circumstances, in the event that the Managing Member deems such repurchase to be in the best interest of the Company; provided, the Company is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.

The Fund’s net income or net losses are to be allocated 100% to the Members. From the commencement of the Fund until the initial closing date, net income and net loss were allocated 99% to the Managing Member and 1% to the initial Other Members. Commencing with the initial closing date, net income and net loss are to be allocated 92.5% to the Other Members and 7.5% to the Managing Member.

Fund distributions are to be allocated 7.5% to the Managing Member and 92.5% to the Other Members. The Company commenced periodic distributions in December 2009.

Distributions to the Other Members for the three and nine months ended September 30, 2020 and 2019 were as follows (in thousands except Units and per Unit data):

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Distributions declared

$

$

$

2,103

$

2,063

Weighted average number of Units outstanding

 

8,246,919

 

8,246,919

 

8,246,919

 

8,246,919

Weighted average distributions per Unit

$

$

-

$

0.26

$

0.25

10. Fair value measurements:

Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

At September 30, 2020 and December 31, 2019, certain investment in securities registered for public sale and warrants were measured on a recurring basis. In addition, certain off-lease equipment deemed impaired were measured at fair value on a non-recurring basis as of December 31, 2019. All of such impaired off-lease equipment have been disposed of prior to September 30, 2020.

17


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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Such fair value adjustments utilized the following methodology:

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). As of September 30, 2020 and December 31, 2019, the calculated fair value of the Fund’s warrant portfolio approximated $25 thousand and $271 thousand, respectively. Such valuations are classified within Level 3 of the valuation hierarchy.

The fair value of warrants that were accounted for on a recurring basis for the three and nine months ended September 30, 2020 and 2019 and classified as level 3 are as follows (in thousands):

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

    

2020

    

2019

Fair value of warrants at beginning of period

$

419

$

214

$

271

$

229

Unrealized (loss) gain on fair value adjustment for warrants

 

(3)

 

25

 

145

 

10

Warrants converted to securities

(391)

(391)

Fair value of warrants at end of period

$

25

$

239

$

25

$

239

Investment securities (recurring)

The Company’s investment securities registered for public sale with readily determinable fair values are measured at fair value with any changes in fair value recognized in the Company’s results of operations. The fair value of such securities totaled $443 thousand at September 30, 2020 and $15 thousand at December 31, 2019.

The fair value of investment securities that were accounted for on a recurring basis as of the three and nine months ended September 30, 2020 and 2019 and classified as Level 1 are as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2020

    

2019

2020

    

2019

Fair value of securities at beginning of period

 

$

15

$

20

$

15

$

27

Warrants converted to securities

391

391

Unrealized gain (loss) on fair value of securities

 

37

 

(7)

 

37

 

(14)

Fair value of investment securities at end of period

 

$

443

$

13

$

443

$

13

Impaired off-lease equipment (non-recurring)

Subsequent to the first quarter of 2019, the Company had deemed certain equipment to be impaired and recorded fair value adjustments totaling $801 thousand, all of which were recorded during the second quarter of 2019. Such adjustments reduced the cost basis of certain off-lease transportation equipment. No other impairment was recorded during the nine months ended September 30, 2020 and 2019.

18


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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Level 1

Level 2

Level 3

December 31,

Estimated

Estimated

Estimated

2019

    

Fair Value

    

Fair Value

    

Fair Value

Assets measured at fair value on a non-recurring basis (in thousands):

Impaired lease and off-lease equipment

$

104

$

$

$

104

Under the Fair Value Measurements Topic of the FASB Accounting Standards Codification, the fair value of impaired lease assets were classified within Level 3 of the valuation hierarchy as the data sources utilized for the valuation of such assets reflect significant inputs that are unobservable in the market. Such valuation utilizes a market approach technique and uses inputs that reflect the sales price of similar assets sold by affiliates and/or information from third party remarketing agents not readily available in the market.

The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring and non-recurring fair value calculation/adjustments categorized as Level 3 in the fair value hierarchy at September 30, 2020 and December 31, 2019:

September 30, 2020

Valuation

Valuation

Unobservable

Range of Input Values

Name

    

Frequency

    

Technique

    

Inputs

    

(Weighted Average)

Warrants

 

Recurring

 

Black-Scholes formulation

 

Stock price

$0.05 - $17.97 ($1.12)

 

  

 

  

 

Exercise price

$0.10 - $160.05 ($1.74)

 

  

 

  

 

Time to maturity (in years)

0.24 - 2.25 (0.32)

 

  

 

  

 

Risk-free interest rate

0.10% - 0.14% (0.10%)

 

  

 

  

 

Annualized volatility

33.63% - 121.45% (102.43%)

December 31, 2019

Valuation

Valuation

Unobservable

Range of Input Values

Name

    

Frequency

    

Technique

    

Inputs

    

(Weighted Average)

Warrants

 

Recurring

 

Black-Scholes formulation

 

Stock price

$0.12 - $12.92 ($0.38)

 

  

 

  

 

Exercise price

$0.10 - $1,000.00 ($0.50)

 

  

 

  

 

Time to maturity (in years)

0.99 - 6.08 (2.05)

 

  

 

  

 

Risk-free interest rate

1.58% - 1.73% (1.59%)

 

  

 

  

 

Annualized volatility

43.92% - 109.07% (50.73%)

Off-lease equipment

 

Non-recurring

 

Market Approach

 

Third Party Agents' Pricing

$0 - $8,000

Quotes - per equipment

(total of $104,000)

 

  

 

  

 

Equipment Condition

Poor to Average

���

The following disclosure of the estimated fair value of financial instruments is made in accordance with the guidance provided by the Financial Instruments Topic of the FASB Accounting Standards Codification. Fair value estimates, methods and assumptions, set forth below for the Company’s financial instruments, are made solely to comply with the requirements of the Financial Instruments Topic and should be read in conjunction with the Company’s financial statements and related notes.

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

19


Table of Contents

ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

Non-recourse debt

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

Commitments and Contingencies

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

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

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 September 30, 2020 and December 31, 2019 (in thousands):

Fair Value Measurements at September 30, 2020

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Financial assets:

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

688

$

688

$

$

$

688

Investment in securities

 

443

 

443

 

 

 

443

Warrants, fair value

 

25

 

 

 

25

 

25

Financial liabilities:

 

 

 

 

 

  

Non-recourse debt

 

3,340

 

 

 

3,459

 

3,459

Fair Value Measurements at December 31, 2019

    

Carrying Value

    

Level 1

    

Level 2

    

Level 3

    

Total

Financial assets:

 

  

 

  

 

  

 

  

 

  

Cash and cash equivalents

$

2,831

$

2,831

$

$

$

2,831

Investment in securities

 

15

 

15

 

 

 

15

Warrants, fair value

 

271

 

 

 

271

 

271

  

  

  

Financial liabilities:

 

 

 

 

 

  

Non-recourse debt

 

4,022

 

 

 

4,027

 

4,027

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ATEL 14, LLC

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

11.   Global health emergency:

On January 30, 2020, the World Health Organization declared the novel coronavirus outbreak a public health emergency. The Fund’s operations is located in California, which has restricted gatherings of people due to the coronavirus outbreak. At present, the Fund’s operations have not been adversely affected and continues to function effectively. Due to the dynamic nature of these unprecedented circumstances and possible business disruption, the Fund will continue to monitor the situation closely, but given the uncertainty about the situation, an estimate of the future impact, if any, cannot be made at this time.

21


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 defaults and the creditworthiness of its lessees. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the market for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.

Overview

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

The Company may continue until December 31, 2030. Periodic distributions are paid at the discretion of the Managing Member.

Results of Operations

Three months ended September 30, 2020 versus three months ended September 30, 2019

The Company had net losses of $142 thousand and $414 thousand for the respective three months ended September 30, 2020 and 2019. The results for the third quarter of 2020 reflect an increase in total operating revenues, a decrease in total operating expenses and an increase in other income when compared to the prior year period.

Total operating revenues were $673 thousand and $503 thousand for the three months ended September 30, 2020 and 2019, respectively. The $170 thousand, or 34%, period over period increase in operating revenues was primarily due to a $290 thousand positive change in gains and losses recognized on sales of operating lease assets partially offset by a $101 thousand decline in operating lease revenues. The favorable variance in gains/losses recognized on sales of operating lease assets was attributable to a change in mix of assets sold. During the prior year quarter, the Fund incurred $287 thousand of losses on sales of railroad equipment. The decrease in operating lease revenues was primarily due to continued run-off and disposition of lease assets.

Total operating expenses were $849 thousand and $935 thousand for the three months ended September 30, 2020 and 2019. The $86 thousand, or 9%, period over period decline in operating expenses was mostly due to decreases in professional fees, depreciation expense, costs reimbursed to the Manager, and asset management fees partially offset by an increase in freight and shipping costs.

Professional fees decreased by $27 thousand largely due to lower audit related billings. The net decline in depreciation expense was $24 thousand. Such decline was comprised of a $146 thousand decrease resulting from run-off and sales of lease assets; offset by $122 thousand of additional depreciation recorded to reflect year-to-date changes in estimated residual values of certain equipment generating revenue under month-to-month extensions. In addition, costs reimbursed to the Manager was reduced by $21 thousand due to lower allocated costs reflective of the Fund’s declining assets; and, asset management fees paid to the Manager declined by $16 thousand due to the continued decline in managed assets and related rents. The aforementioned decreases in expenses were partially offset by a $21 thousand increase in freight and shipping costs, most of which were related to railcars returned during the quarter.

During the current quarter, the Company also recorded other income totaling $34 thousand related to the fair valuation of its warrants and investment securities. This compares to other income of $18 thousand recorded on such assets during the prior year period. An approximate $40 thousand of current quarter unrealized gains reflects the fair market value of

22


certain warrants converted to equity securities during the current quarter subsequent to a borrower’s completion of an initial public offering in June 2020.

Nine months ended September 30, 2020 versus nine months ended September 30, 2019

The Company had net losses of $126 thousand and $492 thousand for the respective nine months ended September 30, 2020 and 2019. The results for the first nine months of 2020 reflect decreases in both operating revenues and expenses, and an increase in other income when compared to the prior year period.

Total operating revenues were $2.0 million and $3.3 million for the nine months ended September 30, 2020 and 2019, respectively. The $1.3 million, or 39%, period over period reduction in operating revenues was comprised of decreases in operating lease revenues, other revenue, gains recorded on sales of lease assets, and interest on notes receivable.

The reduction in operating lease revenues totaled $640 thousand were largely the result of run-off and sales of lease assets. Other revenue declined by $463 thousand as the prior year period included an amount of $468 thousand of deferred maintenance fees for excess wear and tear on certain equipment returned during the second quarter of 2019. Moreover, the Company experienced a $137 thousand unfavorable change in gains and losses recognized on sales of lease assets, which can mostly be attributed to a change in the mix of assets sold; and, interest on notes receivable declined by $52 thousand as all notes receivable have matured by the end of 2019.

Total operating expenses were $2.3 million and $3.8 million for the nine months ended September 30, 2020 and 2019, respectively. The $1.5 million, or 39%, period over period decline in operating expenses was mostly due to decreases in impairment losses on equipment, depreciation expense, costs reimbursed to the Manager, and asset management fees paid to the Managing Member. Such decreases were partially offset by increases in railcar maintenance costs and freight and shipping fees.

Impairment losses on equipment declined by $801 thousand as the prior year period included adjustments of the same amount to reduce the carrying value of certain assets deemed impaired during the second quarter of 2019. No such impairments were deemed necessary during the first nine months of 2020. The net decline in depreciation expense was $528 thousand. Such decline was comprised of a $650 thousand decrease resulting from run-off and sales of lease assets; offset by $122 thousand of additional depreciation recorded to reflect year-to-date changes in estimated residual values of certain equipment generating revenue under month-to-month extensions. Costs reimbursed to the Manager declined by $57 thousand due to lower allocated costs reflective of the Fund’s declining assets. Such declines in allocated costs are reflective of consistent baseline allocations of common costs among the Fund and its affiliates. In addition, asset management fees paid to the Manager was reduced by $47 thousand due to lower managed assets and related revenues.

Partially offsetting the aforementioned decreases in expenses were higher costs of railcar maintenance, and freight and shipping. Railcar maintenance costs were higher by $53 thousand due to an increase in off-lease railcar inventory, and freight and shipping costs were higher by $34 thousand due to an increase in returned equipment placed in off-lease inventory.

During the first nine months of 2020, the Company also recorded other income totaling $182 thousand related to the fair valuation of its warrants and investment securities. This compares to other loss of $4 thousand recorded on such assets during the prior year period. An approximate $164 thousand and $40 thousand of current period unrealized gains on the fair valuation of warrants and investment securities, respectively, reflects the fair market value of certain warrants converted to equity securities during the third quarter of 2020 subsequent to a borrower’s completion of an initial public offering in June 2020.

Capital Resources and Liquidity

At September 30, 2020 and December 31, 2019, the Company’s cash and cash equivalents totaled $688 thousand and $2.8 million, respectively. The liquidity of the Company varies, increasing to the extent cash flows from leases and proceeds of asset sales exceed expenses and decreasing as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

23


The Company currently believes it has adequate reserves available 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.

Cash Flows

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

    

Nine Months Ended

September 30, 

    

2020

    

2019

Net cash provided by (used in):

 

  

 

  

Operating activities

$

816

$

1,553

Investing activities

 

(3)

 

2,244

Financing activities

 

(2,956)

 

(2,157)

Net (decrease) increase in cash and cash equivalents

$

(2,143)

$

1,640

During the nine months ended September 30, 2020 and 2019, the Company’s primary source of liquidity was cash flow from its portfolio of operating lease contracts. In addition, during the same respective periods, the Company received $121 thousand and $2.2 million of proceeds from sales of lease assets. Also, during the first nine months of 2019, the Company obtained $4.6 million of borrowings under non-recourse debt. There were no such borrowings in 2020.

During the nine months ended September 30, 2020 and 2019, cash was primarily used to pay distributions, and to repay borrowings under non-recourse debt. Distributions paid to the Other Members and the Managing Member totaled $2.3 million and $2.2 million for the respective nine months ended September 30, 2020 and 2019; and, cash used to reduce non-recourse debt totaled $682 thousand and $1.3 million for the same respective periods. In addition, during the current year, the Company paid $124 thousand to upgrade certain equipment in preparation for a subsequent lease. During the prior year period, repayments were made to settle senior long term debt and credit facility outstanding balances of $2.1 million and $1.2 million, respectively. Cash was also used to pay invoices related to management fees and expenses, and other payables during both nine-month periods.

Distributions

The Unitholders of record are entitled to certain distributions as provided under the Operating Agreement. The Company commenced periodic distributions beginning with the month of December 2009. The monthly distributions were discontinued in 2018 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 Managing Member.

24


The following table summarizes distribution activity for the Fund from inception through September 30, 2020 (in thousands except for Units and Per Unit Data):

    

    

    

    

    

    

    

    

    

    

    

    

    

    

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

Oct 2009 - Feb 2010

(Distribution of escrow interest)

 

Jan - Mar 2010  

$

$

$

$

 

n/a

Dec 2009 - Dec 2010

 

Jan 2010 - Jan 2011  

 

2,003

 

 

2,003

 

0.90

 

2,214,171

Jan 2011 - Nov 2011

 

Feb - Dec 2011  

 

4,855

 

 

4,855

 

0.87

 

5,597,722

Dec 2011 - Nov 2012

 

Jan - Dec 2012  

 

7,562

 

 

7,562

 

0.90

 

8,400,238

Dec 2012 - Nov 2013

 

Jan - Dec 2013  

 

7,550

 

 

7,550

 

0.90

 

8,389,923

Dec 2013 - Nov 2014

 

Jan - Dec 2014  

 

7,548

 

 

7,548

 

0.90

 

8,386,015

Dec 2014 - Nov 2015

 

Jan - Dec 2015

 

7,535

 

 

7,535

 

0.90

 

8,378,495

Dec 2015 - Nov 2016

 

Jan - Dec 2016

 

7,507

 

 

7,507

 

0.90

 

8,355,428

Dec 2016 - Nov 2017

 

Jan - Dec 2017

 

7,429

 

  

 

 

7,429

 

0.90

 

8,293,381

Dec 2017

Jan 2018

797

797

0.10

8,260,392

Jan 2018 - Dec 2018

Jun 2019

2,063

2,063

0.25

8,246,919

Jan 2019 - Dec 2019

Jan 2020

2,103

2,103

0.26

8,246,919

 

  

$

56,952

$

$

56,952

$

7.78

 

  

Source of distributions

 

  

Lease and loan payments received

$

56,952

 

100.00

% 

$

 

0.00

% 

$

56,952

 

100.00

% 

Interest income

 

 

0.00

% 

 

 

0.00

% 

 

 

0.00

% 

Debt against non-cancellable firm term payments on leases and loans

 

 

0.00

% 

 

 

0.00

% 

 

 

0.00

% 

$

56,952

 

100.00

% 

$

 

0.00

% 

$

56,952

 

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.
(3)Balances shown represent weighted average units for the year ended December 31, 2013, periods from March 6 – November 30, 2014, December 1, 2014 – November 30, 2015, December 31, 2015 - November 30, 2016, December 1, 2016 – November 30, 2017, October 1, 2017 – January 31, 2018, December 1, 2017 – February 28, 2018, January 1, 2017 – January 31, 2018 and January 1, 2019 – December 2019, respectively.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At September 30, 2020, there were no commitments to purchase lease assets or fund investments in notes receivable.

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, 2019. There have been no material changes to the Company’s significant accounting policies since December 31, 2019.

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Item 4.  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, 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 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 September 30, 2020 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.

26


PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not Applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a)Documents filed as a part of this report

1.

Financial Statement Schedules

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

2.

Other Exhibits

(31.1)

Certification of Dean L. Cash pursuant to Rules 13a-14(a)/15d-14(a)

(31.2)

Certification of Paritosh K. Choksi pursuant to Rules 13a-14(a)/15d-14(a)

(32.1)

Certification of Dean L. Cash pursuant to 18 U.S.C. section 1350

(32.2)

Certification of Paritosh K. Choksi pursuant to 18 U.S.C. section 1350

(101.INS)

XBRL Instance Document

(101.SCH)

XBRL Taxonomy Extension Schema Document

(101.CAL)

XBRL Taxonomy Extension Calculation Linkbase Document

(101.DEF)

XBRL Taxonomy Extension Definition Linkbase Document

(101.LAB)

XBRL Taxonomy Extension Label Linkbase Document

(101.PRE)

XBRL Taxonomy Extension Presentation Linkbase Document

27


SIGNATURES

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

Date: November 16, 2020

ATEL 14, LLC

(Registrant)

By:

ATEL Managing Member, LLC

Managing Member of Registrant

By:

/s/ Dean L. Cash

Dean L. Cash

Chairman of the Board, President and Chief Executive Officer of ATEL Managing Member, LLC (Managing Member)

By:

/s/ Paritosh K. Choksi

Paritosh K. Choksi

Director, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Managing Member, LLC (Managing Member)

By:

/s/ Samuel Schussler

Samuel Schussler

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

28