UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

or

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

Indicate by 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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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).

Number of outstanding shares of limited liability company interests of the registrant on November 6, 2015 is 348,335.

(1) Organization 

ICON Leasing Fund Twelve, LLC (the “LLC”) was formed on October 3, 2006 as a Delaware limited liability company. When used in these notes to consolidated financial statements, the terms “we,” “us,” “our” or similar terms refer to the LLC and its consolidated subsidiaries.

We operated as an equipment leasing and finance program in which the capital our members invested was pooled together to make investments, pay fees and establish a small reserve.  We primarily acquired equipment subject to lease, purchased equipment and leased it to third-party end users or financed equipment for third parties and, to a lesser degree, acquired ownership rights to items of leased equipment at lease expiration.

Our manager is ICON Capital, LLC, a Delaware limited liability company (the “Manager”).  Our Manager manages and controls our business affairs, including, but not limited to, our equipment leases and other financing transactions, pursuant to the terms of our limited liability company agreement (the “LLC Agreement”).

Our operating period ended on April 30, 2014. On May 1, 2014, we commenced our liquidation period, during which we will sell our assets and/or let our investments mature in the ordinary course of business.

(2) Summary of Significant Accounting Policies 

Basis of Presentation and Consolidation

Our accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Quarterly Reports on Form 10-Q. In the opinion of our Manager, all adjustments, which are of a normal recurring nature, considered necessary for a fair presentation have been included.  These consolidated financial statements should be read together with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.  The results for the interim period are not necessarily indicative of the results for the full year.

Restricted Cash

Cash that is restricted from use in operations is generally classified as restricted cash. Classification of changes in restricted cash within the consolidated statements of cash flows depends on the predominant source of the related cash flows. For the nine months ended September 30, 2015, the predominant cash inflows into restricted cash were related to interest income receipts associated with our leasing operations. The use of this cash was restricted pursuant to a provision in the non-recourse long-term debt agreement. For the nine months ended September 30, 2014, the predominant cash outflow from restricted cash was related to the release of previously restricted cash derived from interest income receipts to pay down certain non-recourse long-term debt. Restricted cash is presented within other non-current assets in our consolidated balance sheets. As a result, changes in restricted cash were classified within net cash provided by operating activities for both periods.

Credit Quality of Notes Receivable and Finance Leases and Credit Loss Reserve

Our Manager monitors the ongoing credit quality of our financing receivables by (i) reviewing and analyzing a borrower’s financial performance on a regular basis, including review of financial statements received on a monthly, quarterly or annual basis as prescribed in the loan or lease agreement, (ii) tracking the relevant credit metrics of each financing receivable and a borrower’s compliance with financial and non-financial covenants, (iii) monitoring a borrower’s payment history and public credit rating, if available, and (iv) assessing our exposure based on the current investment mix. As part of the monitoring process, our Manager may physically inspect the collateral or a borrower’s facility and meet with a borrower’s management to better understand such borrower’s financial performance and its future plans on an as-needed basis.

As our financing receivables, generally notes receivable and finance leases, are limited in number, our Manager is able to estimate the credit loss reserve based on a detailed analysis of each financing receivable as opposed to using portfolio-based metrics. Our Manager does not use a system of assigning internal risk ratings to each of our financing receivables. Rather, each financing receivable is analyzed quarterly and categorized as either performing or non-performing based on certain factors including, but not limited to, financial results, satisfying scheduled payments and compliance with financial covenants. A financing receivable is usually categorized as non-performing only when a borrower experiences financial difficulties and has failed to make scheduled payments. Our Manager then analyzes whether the financing receivable should be placed on a non-accrual status, a credit loss reserve should be established or the financing receivable should be restructured. As part of the assessment, updated collateral value is usually considered and such collateral value can be based on a third party industry expert appraisal or, depending on the type of collateral and accessibility to relevant published guides or market sales data, internally derived fair value. Material events would be specifically disclosed in the discussion of each financing receivable held. 

Financing receivables are generally placed in a non-accrual status when payments are more than 90 days past due. Additionally, our Manager periodically reviews the creditworthiness of companies with payments outstanding less than 90 days and based upon our Manager’s judgment, these accounts may be placed in a non-accrual status.

In accordance with the cost recovery method, payments received on non-accrual financing receivables are applied to principal if there is doubt regarding the ultimate collectability of principal. If collection of the principal of non-accrual financing receivables is not in doubt, interest income is recognized on a cash basis. Financing receivables in non-accrual status may not be restored to accrual status until all delinquent payments have been received, and we believe recovery of the remaining unpaid receivable is probable.

When our Manager deems it is probable that we will not be able to collect all contractual principal and interest on a non-performing financing receivable, we perform an analysis to determine if a credit loss reserve is necessary. This analysis considers the estimated cash flows from the financing receivable, and/or the collateral value of the asset underlying the financing receivable when financing receivable repayment is collateral dependent. If it is determined that the impaired value of the non-performing financing receivable is less than the net carrying value, we will recognize a credit loss reserve or adjust the existing credit loss reserve with a corresponding charge to earnings.  We then charge off a financing receivable in the period that it is deemed uncollectible by reducing the credit loss reserve and the balance of the financing receivable.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), requiring revenue to be recognized in an amount that reflects the consideration expected to be received in exchange for goods and services. This new revenue standard may be applied retrospectively to each prior period presented, or retrospectively with the cumulative effect recognized as of the date of adoption. In August 2015, FASB issued ASU No. 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date (“ASU 2015-14”), which defers implementation of ASU 2014-09 by one year. Under such deferral, the adoption of ASU 2014-09 becomes effective for us on January 1, 2018, including interim periods within that reporting period. Early adoption is permitted, but not before our original effective date of January 1, 2017.  We are currently in the process of evaluating the impact of the adoption of ASU 2014-09 on our consolidated financial statements.

In August 2014, FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”), which provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The adoption of ASU 2014-15 becomes effective for us on our fiscal year ending December 31, 2016, and all subsequent annual and interim periods. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have a material effect on our consolidated financial statements.

In January 2015, FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (“ASU 2015-01”), which simplifies income statement presentation by eliminating the concept of extraordinary items.  The adoption of ASU 2015-01 becomes effective for us on January 1, 2016, including interim periods within that reporting period.  Early adoption is permitted.  The adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements.

In February 2015, FASB issued ASU No. 2015-02, Consolidation – Amendments to the Consolidation Analysis (“ASU 2015-02”), which modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership, and affects the consolidation analysis by reducing the frequency of application of related party guidance and excluding certain fees in the primary beneficiary determination. The adoption of ASU 2015-02 becomes effective for us on January 1, 2016, including interim periods within that reporting period. Early adoption is permitted. The adoption of ASU 2015-02 is not expected to have a material effect on our consolidated financial statements.

In April 2015, FASB issued ASU No. 2015-03, Interest – Imputation of Interest (“ASU 2015-03”), which requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of such debt liability, consistent with debt discounts. ASU 2015-03 will be applied on a retrospective basis. The adoption of ASU 2015-03 becomes effective for us on January 1, 2016, including interim periods within that reporting period.  Early adoption is permitted. The adoption of ASU 2015-03 is not expected to have a material effect on our consolidated financial statements. Upon adoption of ASU 2015-03, debt issuance costs associated with non-recourse long-term debt will be reclassified in our consolidated balance sheets from other non-current assets to non-recourse long-term debt, less current portion.

(3)  Net Investment in Notes Receivable

As of September 30, 2015 and December 31, 2014, we had net investment in notes receivable on non-accrual status of $0 and $966,359, respectively.

As of September 30, 2015, our net investment in note receivable and accrued interest related to two affiliates of Técnicas Maritimas Avanzadas, S.A. de C.V. (collectively, “TMA”) totaled $21,002,938 and $1,965,269, respectively, of which an aggregate of $1,725,409 was over 90 days past due. TMA is in technical default due to its failure to cause all four platform supply vessels to be subject to a charter agreement and in payment default while available cash has been swept and applied to the senior tranche of the loan in accordance with the loan agreement since May 2015. Based upon the estimated fair value of the collateral securing the loan net the related estimated costs to sell, our Manager believes that all contractual interest and outstanding principal payments under the loan are collectible. As a result, we continue to account for our net investment in note receivable related to TMA on an accrual basis despite a portion of the outstanding balance being over 90 days past due.  Subsequently, on October 30, 2015, TMA entered into five year charter agreements covering the remaining two previously unchartered vessels, commencing November 7, 2015.

Net investment in notes receivable consisted of the following:

During the year ended December 31, 2014, VAS Aero Services, LLC (“VAS”) experienced financial hardship resulting in its failure to make the final monthly payment under the secured term loan as well as the balloon payment due on the October 6, 2014 maturity date. As a result, our Manager determined that we should record a credit loss reserve based on an estimated liquidation value of VAS’s inventory and accounts receivable. Accordingly, the loan was placed on non-accrual status and a credit loss reserve of $631,986 was recorded during the year ended December 31, 2014 based on our pro-rata share of the liquidation value of the collateral. The value of the collateral was based on a third-party appraisal using a sales comparison approach. As of December 31, 2014, the net carrying value of the loan was $966,359. In March 2015, the 90-day standstill period provided for in the loan agreement ended without a viable restructuring or refinancing plan agreed upon. In addition, the senior lender continued to charge VAS forbearance fees. Although discussions among the parties were still ongoing, these factors resulted in our Manager making a determination to record an additional credit loss reserve of $362,665 during the three months ended March 31, 2015 to reflect a potential forced liquidation of the collateral. The forced liquidation value of the collateral was primarily based on a third-party appraisal using a sales comparison approach. On July 23, 2015, we sold all of our interest in the loan to GB Loan, LLC (“GB”) for $268,975.  As a result, we recorded an additional credit loss of $334,719 and wrote off the credit loss reserve and corresponding balance of the loan of $1,329,370 during the three months ended June 30, 2015. No gain or loss was recognized for the three months ended September 30, 2015 as a result of the sale. No finance income was recognized since the date the loan was considered impaired. Accordingly, no finance income was recognized for the three and nine months ended September 30, 2015. Finance income recognized on the loan prior to recording the credit loss reserve was $68,363 and $193,653 for the three and nine months ended September 30, 2014, respectively.

On January 30, 2015, Superior Tube Company, Inc. and Tubes Holdco Limited (collectively, “Superior”) satisfied their obligations in connection with a secured term loan scheduled to mature on September 10, 2017 by making a prepayment of $4,191,328, comprised of all outstanding principal, accrued interest and a prepayment fee of $122,038. As a result, we recognized additional finance income of $50,550.

On May 7, 2015, NARL Marketing Inc. and certain of its affiliates (collectively, “NARL”) made a partial prepayment on their secured term loan of $827,333 pursuant to the excess cash sweep provision of the loan agreement. On July 15, 2015, NARL made a voluntary partial prepayment on the loan of $6,296,859, which included a prepayment fee of $270,000. The prepayment fee was recognized as additional finance income. On August 6, 2015, NARL satisfied its obligations in full by making a prepayment of $4,319,854 pursuant to the excess cash sweep provision of the loan agreement, comprised of all outstanding principal and unpaid interest.

On September 30, 2015, Cenveo Corporation (“Cenveo”) satisfied its obligations in connection with a secured term loan scheduled to mature on October 1, 2018 by making a prepayment of $6,936,875, comprised of all outstanding principal, accrued interest and a prepayment fee of $132,000. The prepayment fee was recognized as additional finance income.

There was no allowance for credit loss as of September 30, 2015 and no related activities during the three months ended September 30, 2015.

Credit loss allowance activities for the nine months ended September 30, 2015 were as follows:

There was no allowance for credit loss as of September 30, 2014 and no related activities during the three and nine months ended September 30, 2014.

(4) Net Investment in Finance Leases

As of September 30, 2015 and December 31, 2014, we had no net investment in finance leases on non-accrual status and no net investment in finance leases that was past due 90 days or more and still accruing.

Net investment in finance leases consisted of the following:

On May 12, 2015, Patriot Coal Corporation (“Patriot Coal”) commenced a voluntary Chapter 11 proceeding in the Bankruptcy Court for the Eastern District of Virginia. On July 24, 2015, Patriot Coal notified us that it was terminating the lease prior to its August 1, 2015 expiration date and that it would not be making the balloon payment of $4,866,000 due at the end of the lease term. We agreed with Patriot Coal to extend the term of the lease by one month with an additional lease payment of $150,000 and to reduce the balloon payment to $700,000, subject to the bankruptcy court’s approval. As a result, the finance lease was placed on non-accrual status and a credit loss of $4,151,594 was recorded during the three months ended June 30, 2015. After obtaining the bankruptcy court’s approval, our bankruptcy claim against Patriot Coal was strengthened from an unsecured to an administrative claim. In August 2015, title to the leased equipment was transferred to Patriot Coal upon our receipt of the additional lease payment and the reduced balloon payment. For the three months ended September 30, 2015 and 2014, we recognized finance income of $150,000 (which was recognized on a cash basis) and $11,259, respectively.  For the nine months ended September 30, 2015 and 2014, we recognized finance income of $159,694 (of which $150,000 was recognized on a cash basis) and $35,848, respectively.  No gain or loss was recognized during the three months ended September 30, 2015 as a result of the sale of leased equipment.

(5) Leased Equipment at Cost 

Leased equipment at cost consisted of the following:

Depreciation expense was $1,751,842 and $1,402,853 for the three months ended September 30, 2015 and 2014, respectively. Depreciation expense was $5,256,667 and $4,450,606 for the nine months ended September 30, 2015 and 2014, respectively.

(6) Vessels          

The Aegean Express and the Arabian Express were reclassified from leased equipment at cost to vessels on our consolidated balance sheets upon termination of the bareboat charters in April 2014. Depreciation expense was $428,849 and $428,848 for the three months ended September 30, 2015 and 2014, respectively. Depreciation expense was $1,286,548 and $495,249 for the nine months ended September 30, 2015 and 2014, respectively.

The time charters for the Aegean Express and the Arabian Express are scheduled to expire on December 16, 2015 and December 19, 2015, respectively. As of September 30, 2015, based on (i) the upcoming time charter expirations with no expectation that such charters will be renewed or timely replaced with new charter agreements and (ii) current low time charter rates, our Manager performed an impairment analysis and concluded that the carrying value of the Aegean Express and the Arabian Express was not recoverable and that an impairment existed. Our Manager estimated the fair market value of the vessels based on a third-party valuation using a sales comparison approach. Based upon our Manager’s assessment, the net book values of the Aegean Express and the Arabian Express exceeded their estimated undiscounted cash flows and their fair values and, as a result, we recognized an aggregate impairment loss of $10,440,129 for the three months ended September 30, 2015.

(7) Investment in Joint Ventures

On December 22, 2011, ICON Mauritius MI I, LLC (“ICON Mauritius MI I”), a joint venture owned 25% by us and 75% by ICON Equipment and Corporate Infrastructure Fund Fourteen, L.P. (“Fund Fourteen”), an entity also managed by our Manager, made a $20,124,000 subordinated term loan to Jurong Aromatics Corporation Pte. Ltd. (“JAC”).

On May 15, 2013, ICON Mauritius MI II, LLC (“ICON Mauritius MI II”), a joint venture owned 21% by us, 39% by ICON Leasing Fund Eleven, LLC (“Fund Eleven”) and 40% by ICON ECI Fund Fifteen, L.P. (“Fund Fifteen”), each an entity also managed by our Manager, purchased a portion of a $208,038,290 subordinated credit facility for JAC from Standard Chartered Bank (“Standard Chartered”) at $28,462,500.  

As of March 31, 2015, JAC was in technical default of the loan and facility as a result of its failure to provide certain financial data to the joint ventures. In addition, JAC realized lower than expected operating results caused in part by a temporary shutdown of its manufacturing facility due to technical constraints that have since been resolved. As a result, JAC failed to make the expected payments that were due to the joint ventures during the three months ended March 31, 2015.  Although these delayed payments did not trigger a payment default under the loan and facility agreements, the interest rate payable by JAC under the loan and facility increased from 12.5% to 15.5%.

During the three months ended June 30, 2015, the expected tolling arrangement did not commence and JAC’s stakeholders were unable to agree upon a restructuring plan. As a result, the manufacturing facility had not yet resumed operations and JAC continued to experience liquidity constraints. Accordingly, our Manager determined that there was doubt regarding the joint ventures’ ultimate collectability of the loan and facility. Our Manager visited JAC’s facility and engaged in discussions with JAC’s other stakeholders to agree upon a restructuring plan. Based upon such discussions, which included a potential conversion of a portion of the loan and facility to equity and/or a restructuring of the loan and facility, our Manager believed