Form 10-Q

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

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

For the quarterly period ended March 31, 2017

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

For the transition period from          to         

Commission File number 333-174418

ATEL 16, LLC

(Exact name of registrant as specified in its charter)

California		90-0920813
(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

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

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

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

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

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

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

The number of Limited Liability Company Units outstanding as of April 30, 2017 was 4,297,836.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ATEL 16, LLC
 
Index

Part I. Financial Information			3
Item 1. Financial Statements (Unaudited)			3
Balance Sheets, March 31, 2017 and December 31, 2016			3
Statements of Operations for the three months ended March 31, 2017 and 2016			4
Statements of Changes in Members’ Capital for the year ended December 31, 2016 and for the three months ended March 31, 2017			5
Statements of Cash Flows for the three months ended March 31, 2017 and 2016			6
Notes to the Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 4. Controls and Procedures			26
Part II. Other Information			27
Item 1. Legal Proceedings			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 3. Defaults Upon Senior Securities			27
Item 4. Mine Safety Disclosures			27
Item 5. Other Information			27
Item 6. Exhibits			27

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL 16, LLC
 
BALANCE SHEETS
 
MARCH 31, 2017 AND DECEMBER 31, 2016
(In Thousands)

		March 31, 2017				December 31, 2016
		(Unaudited)
ASSETS
Cash and cash equivalents		$	6,923			$	4,934
Due from Managing Member			1				—
Accounts receivable, net			1,083				685
Notes receivable, net			1,906				2,201
Investment in securities			100				100
Warrants, fair value			94				54
Investments in equipment and leases, net			27,103				28,397
Prepaid expenses and other assets			40				45
Total assets		$	37,250			$	36,416
LIABILITIES AND MEMBERS’ CAPITAL
Accounts payable and accrued liabilities:
Managing Member		$	—			$	1
Affiliates			167				74
Accrued distributions to Other Members			290				290
Other			187				224
Non-recourse debt			8,296				6,647
Unearned operating lease income			394				326
Total liabilities			9,334				7,562
Commitments and contingencies
Members’ capital:
Managing Member			—				—
Other Members			27,916				28,854
Total Members’ capital			27,916				28,854
Total liabilities and Members’ capital		$	37,250			$	36,416

See accompanying notes.

3

ATEL 16, LLC
 
STATEMENTS OF OPERATIONS
 
FOR THE THREE MONTHS ENDED
MARCH 31, 2017 AND 2016
(In Thousands Except for Units and Per Unit Data)
(Unaudited)

		Three Months Ended March 31,
		2017				2016
Revenues:
Leasing and lending activities:
Operating lease revenue		$	1,672			$	1,559
Notes receivable interest income			68				50
Gain (loss) on sales of lease assets and early termination of notes receivable			124				(3	)
Unrealized gain on fair value adjustment for warrants			40				2
Other			11				1
Total revenues			1,915				1,609
Expenses:
Depreciation of operating lease assets			1,319				1,253
Asset management fees to Managing Member			176				151
Acquisition expense			141				89
Cost reimbursements to Managing Member and/or affiliates			186				147
Provision for credit losses			2				—
Amortization of initial direct costs			72				44
Interest expense			51				68
Professional fees			49				59
Outside services			45				19
Taxes on income and franchise fees			(1	)			8
Bank charges			30				32
Other			13				13
Total expenses			2,083				1,883
Net loss		$	(168	)		$	(274	)
Net loss:
Managing Member		$	—			$	—
Other Members			(168	)			(274	)
		$	(168	)		$	(274	)
Net loss per Limited Liability Company Unit (Other Members)		$	(0.04	)		$	(0.06	)
Weighted average number of Units outstanding			4,299,475				4,307,636

See accompanying notes.

4

ATEL 16, LLC
 
STATEMENTS OF CHANGES IN MEMBERS’ CAPITAL
 
FOR THE YEAR ENDED DECEMBER 31, 2016
AND FOR THE THREE MONTHS ENDED
MARCH 31, 2017
(In Thousands Except for Units and Per Unit Data)

						Amount
		Units				Other Members				Managing Member				Total
Balance December 31, 2015			4,307,636			$	32,955			$	—			$	32,955
Repurchases of Units			(7,300	)			(54	)			—				(54	)
Distributions to Other Members ($0.70 per Unit)			—				(3,011	)			—				(3,011	)
Net loss			—				(1,036	)			—				(1,036	)
Balance December 31, 2016			4,300,336				28,854				—				28,854
Repurchases of Units			(2,500	)			(17	)			—				(17	)
Distributions to Other Members ($0.18 per Unit)			—				(753	)			—				(753	)
Net loss			—				(168	)			—				(168	)
Balance March 31, 2017 (Unaudited)			4,297,836			$	27,916			$	—			$	27,916

See accompanying notes.

5

ATEL 16, LLC
 
STATEMENTS OF CASH FLOWS
 
FOR THE THREE MONTHS ENDED
MARCH 31, 2017 AND 2016
(In Thousands)
(Unaudited)

		Three Months Ended March 31,
		2017				2016
Operating activities:
Net loss		$	(168	)		$	(274	)
Adjustment to reconcile net loss to cash provided by operating activities:
Accretion of note discount-warrants			(4	)			—
Depreciation of operating lease assets			1,319				1,253
(Gain) loss on sales of lease assets and early termination of notes receivable			(124	)			3
Amortization of initial direct costs			72				44
Provision for credit losses			2				—
Unrealized gain on fair value adjustment for warrants			(40	)			(2	)
Changes in operating assets and liabilities:
Accounts receivable			(400	)			(481	)
Prepaid expenses and other assets			5				(96	)
Accounts payable, Managing Member			(2	)			(5	)
Accounts payable, other			(37	)			59
Accrued liabilities, affiliates			93				34
Unearned operating lease income			68				148
Net cash provided by operating activities			784				683
Investing activities:
Purchases of equipment on operating leases			(452	)			(277	)
Purchase of securities			—				(33	)
Proceeds from sales of lease assets			503				12
Payments of initial direct costs			(22	)			(49	)
Principal payments received on notes receivable			297				161
Net cash provided by (used in) investing activities			326				(186	)
Financing activities:
Borrowings under non-recourse debt			1,998				—
Repayments under non-recourse debt			(349	)			(411	)
Distributions to Other Members			(753	)			(754	)
Repurchases of Units			(17	)			—
Net cash provided by (used in) financing activities			879				(1,165	)
Net increase (decrease) in cash and cash equivalents			1,989				(668	)
Cash and cash equivalents at beginning of period			4,934				11,763
Cash and cash equivalents at end of period		$	6,923			$	11,095
Supplemental disclosures of cash flow information:
Cash paid during the period for interest		$	59			$	29
Cash paid during the period for taxes		$	2			$	—
Schedule of non-cash investing and financing transactions:
Distributions payable to Other Members at Period-end		$	290			$	295

See accompanying notes.

6

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Liability Company matters:

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 for the purpose of raising capital and originating equipment financing transactions and acquiring equipment to engage in equipment leasing and sales activities. The Managing Member of the Company is ATEL Managing Member, LLC (the “Managing Member” or the “Manager”), a Nevada limited liability company. The Managing Member is controlled by ATEL Financial Services, LLC (“AFS”), a wholly-owned subsidiary of ATEL Capital Group (“ACG” or “ATEL”). The Fund may continue until terminated as provided in the ATEL 16, LLC limited liability company operating agreement dated November 1, 2013 (the “Operating Agreement”). Contributions in the amount of $500 were received as of December 31, 2012, 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.

Through March 31, 2017, cumulative gross contributions, less rescissions and repurchases (net of distributions paid and allocated syndication costs, as applicable) totaling $43.0 million (inclusive of the $500 initial Member’s capital investment), have been received. As of March 31, 2017, a total of 4,297,836 Units were issued and outstanding.

The Company is governed by 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 (See Note 6). The Company is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the Managing Member, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for the full year. Certain prior period amounts may have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results of operations.

In preparing the accompanying financial statements, the Company has reviewed, as determined necessary by the Managing Member, events that have occurred after March 31, 2017, up until the issuance of the financial statements. No events were noted which would require additional disclosure in the footnotes to the financial statements.

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

7

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

the reporting period. Actual results could differ from the estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term and expected future cash flows used for impairment analysis purposes and determination of the allowance for doubtful accounts 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 table below summarizes geographic information relating to the sources, by nation, of the Company’s total revenues for the three months ended March 31, 2017 and 2016 and long-lived tangible assets as of March 31, 2017 and December 31, 2016 (dollars in thousands):

		For The Three Months Ended March 31,
		2017				% of Total				2016				% of Total
Revenue
United States		$	1,682				88	%		$	1,376				86	%
Costa Rica			233				12	%			233				14	%
Total		$	1,915				100	%		$	1,609				100	%

		As of March 31,								As of December 31,
		2017				% of Total				2016				% of Total
Long-lived assets
United States		$	22,740				84	%		$	23,872				84	%
Costa Rica			4,363				16	%			4,525				16	%
Total		$	27,103				100	%		$	28,397				100	%

Accounts receivable

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

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

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

8

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Financing receivables

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

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

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date.

Investment in securities:

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

Purchased securities

Purchased securities are generally not registered for public sale and are carried at cost. Such securities are adjusted to fair value if the fair value is less than the carrying value and such impairment is deemed by the Managing Member to be other than temporary. Factors considered by the Managing Member in determining fair value include, but are not limited to, available financial information, the issuer’s ability to meet its current obligations and indications of the issuer’s subsequent ability to raise capital. The Company made its initial investment in purchased securities during the first quarter of 2016. As of March 31, 2017 and December 31, 2016, purchased securities both totaled $100 thousand, respectively.

Warrants

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are reflected at an estimated fair value on the balance sheet as determined by the Managing Member. During the respective three months ended March 31, 2017 and 2016, the Company recorded unrealized gains of $40 thousand and $2 thousand on fair valuation of its warrants. As of March 31, 2017 and December 31, 2016, the estimated fair value of the Fund’s portfolio of warrants amounted to $94 thousand and $54 thousand, respectively. There have been no exercises of warrants, net or otherwise, during the three months ended March 31, 2017 and 2016.

9

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Fair Value:

Fair value measurements and disclosures are based on a fair value hierarchy as determined by significant inputs used to measure fair value. The three levels of inputs within the fair value hierarchy are defined as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuations in which all significant inputs are observable in the market.

Level 3 — Valuation is modeled using significant inputs that are unobservable in the market. These unobservable inputs reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability.

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

Per Unit data:

The Company issues only one class of Units, none of which are considered dilutive. Net loss and distributions per Unit for the three months ended March 31, 2017 and 2016 is based upon the weighted average number of Other Members Units outstanding during the respective periods.

Emerging growth company:

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

Recent accounting pronouncements:

In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2016-15 — Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses specific cash flow issues with the objective of reducing the

10

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

existing diversity in practice. The amendments in this Update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Management is currently evaluating the standard and its impact on operations and financial reporting.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments — Credit Losses (Topic 326) (“ASU 2016-13”). The main objective of the new standard 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 ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments affect entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018. Management is currently evaluating the standard and its operational and related disclosure requirements.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”). The new standard will require lessees to recognize lease assets and lease liabilities arising from operating leases with lease terms greater than 12 months in the statement of financial position. Lessor accounting per ASU 2016-02 is mostly unchanged from the previous lease accounting GAAP. Certain changes were made to the lessor accounting guidance in order to align the lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. Similar to the previous guidance, lessors will classify leases as operating, direct financing, or sales-type. Lessors in operating leases will continue to recognize the underlying asset and recognize income on a straight-line basis. Lessors determine whether a lease is a sale of the underlying asset based on whether the lessee effectively obtains control of the underlying assets. ASU-2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. Management will adopt the standard and is currently evaluating the standard and its operational and related disclosure requirements.

In January 2016, the FASB issued Accounting Standards Update 2016-01, Financial Instruments — Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The new standard provides guidance related to accounting for equity investments and financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Management is currently evaluating the standard and its operational and related disclosure requirements.

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU-2014-15”). The new standard provides guidance relative to 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 new standard is effective for annual periods ending after December 15, 2016, and interim periods within annual periods, beginning after December 15, 2016. Early adoption is permitted. Management adopted the standard and the adoption of ASU 2014-15 did not have a material impact on the Company’s financial statements or related disclosures.

11

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

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

3. Notes receivable, net:

The Company has various notes receivables from borrowers who have financed the purchase of equipment through the Company. The terms of the notes receivable are from 30 to 36 months and bear interest at rates ranging from 11.26% to 17.31% per annum. The notes are secured by the equipment financed. The notes mature from 2017 through 2020. There were neither impaired notes nor notes placed in non-accrual status as of March 31, 2017 and December 31, 2016.

As of March 31, 2017, the minimum future payments receivable are as follows (in thousands):

Nine Months Ending December 31, 2017		$	914
Year Ending December 31, 2018			768
2019			474
2020			45
			2,201
Less: portion representing unearned interest income			(256	)
			1,945
Unamortized initial direct costs			6
Warrants – notes receivable discount			(45	)
Notes receivable, net		$	1,906

IDC (Initial Direct Cost) amortization expense related to notes receivable and the Company’s operating and direct financing leases for the three months ended March 31, 2017 and 2016 are as follows (in thousands):

		Three Months Ended March 31,
		2017				2016
IDC amortization – notes receivable		$	2			$	2
IDC amortization – lease assets			70				42
Total		$	72			$	44

4. Allowance for credit losses:

The Company’s allowance for credit losses totaled $5 thousand and $3 thousand at March 31, 2017 and December 31, 2016, respectively. All of such allowance were related to delinquent operating lease receivables.

The Company had no financing receivables on non-accrual or impaired status at both March 31, 2017 and December 31, 2016.

12

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Investment in equipment and leases, net:

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

		Balance December 31, 2016				Additions/ Dispositions				Depreciation/ Amortization Expense				Balance March 31, 2017
Net investment in operating leases		$	27,986			$	73			$	(1,319	)		$	26,740
Initial direct costs, net of accumulated amortization of $290 at March 31, 2017 and $302 at December 31, 2016			411				22				(70	)			363
Total		$	28,397			$	95			$	(1,389	)		$	27,103

Additions to net investment in operating lease assets are stated at cost.

Impairment of investments in leases:

Recorded values of the Company’s leased asset portfolio are reviewed each quarter to confirm the reasonableness of established residual values and to determine whether there is indication that an asset impairment might have taken place. The Company uses a variety of sources and considers many factors in evaluating whether the respective book values of its assets are appropriate. In addition, the Company may direct a residual value review at any time if it becomes aware of issues regarding the ability of a lessee to continue to make payments on its lease contract. An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their net book value. The estimated undiscounted future cash flows are the sum of the residual value of the asset at the end of the asset’s lease contract and undiscounted future rents from the existing lease contract, if any. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the marketplace are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows, third party appraisals or comparable sales of similar assets as applicable based on asset type) of the asset and its carrying value on the measurement date. Upward adjustments for impairments recognized in prior periods are not made in any circumstances. As a result of these reviews, management determined that no impairment losses existed during the respective three months ended March 31, 2017 and 2016.

The Company utilizes a straight-line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. Depreciation expense on the Company’s equipment both totaled $1.3 million for the respective three months ended March 31, 2017 and 2016.

IDC amortization expense related to the Company’s operating leases totaled $72 thousand and $44 thousand for the respective three months ended March 31, 2017 and 2016.

All of the Company’s leased property was acquired in the years 2014 through 2017.

Operating leases:

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

		Balance December 31, 2016				Additions				Dispositions				Balance March 31, 2017
Aviation		$	8,013			$	452			$	—			$	8,465
Containers			6,707				—				—				6,707
Coal terminal			5,000				—				—				5,000
Materials handling			4,064				—				—				4,064

13

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

		Balance December 31, 2016				Additions				Dispositions				Balance March 31, 2017
Transportation, rail			3,311				—				—				3,311
Mining			2,766				—				—				2,766
Marine vessels			2,291				—				—				2,291
Transportation, other			1,830				—				—				1,830
Manufacturing			1,243				—				—				1,243
Construction			799				—				(275	)			524
Other			826				—				(257	)			569
			36,850				452				(532	)			36,770
Less accumulated depreciation			(8,864	)			(1,319	)			153				(10,030	)
Total		$	27,986			$	(867	)		$	(379	)		$	26,740

The average estimated residual value for assets on operating leases was 32% and 32% of the assets’ original cost at March 31, 2017 and December 31, 2016, respectively. There were no operating leases in non-accrual status at March 31, 2017 and December 31, 2016.

At March 31, 2017, the aggregate amounts of future minimum lease payments receivable are as follows (in thousands):

		Operating Leases
Nine months ending December 31, 2017		$	5,042
Year ending December 31, 2018			6,064
2019			3,445
2020			2,246
2021			1,331
2022			951
Thereafter			443
		$	19,522

The useful lives for each category of leases is reviewed at a minimum of once per quarter. As of March 31, 2017, the respective useful lives of each category of lease assets in the Company’s portfolio are as follows (in years):

Equipment category		Useful Life
Coal terminal			50 – 60
Transportation, rail			35 – 40
Marine vessel			20 – 30
Aviation			20 – 30
Containers			15 – 20
Manufacturing			10 – 15
Mining			10 – 15
Construction			7 – 10
Materials handling			7 – 10
Transportation, other			7 – 10

14

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

6. Related Party Transactions:

The terms of the Operating Agreement provide that the Managing Member and/or affiliates are entitled to receive certain fees, for equipment acquisition and asset management services and to receive reimbursements for payments made on behalf of the Fund for certain operating expenses, which are more fully described in Section 8 of the Operating Agreement.

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

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

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

During the three months ended March 31, 2017 and 2016, the Managing Member and/or affiliates earned commissions and fees, and billed for reimbursements pursuant to the Operating Agreement as follows (in thousands):

		Three Months Ended March 31,
		2017				2016
Administrative costs reimbursed to Managing Member and/or affiliates			186				147
Asset management fees to Managing Member			176				151
Acquisition and initial direct costs paid to Managing Member			164				138
		$	526			$	436

7. Non-recourse debt:

At March 31, 2017, non-recourse debt consists of notes payable to financial institutions. The note payments are due in monthly installments. Interest on the notes range from 2.25% to 5.00% per annum. The notes are secured by assignments of lease payments and pledges of assets. At March 31, 2017, gross operating lease rentals totaled approximately $8.9 million over the remaining lease terms and the carrying value of the pledged assets is $11.8 million. The notes mature from 2017 through 2022.

The non-recourse debt does not contain any material financial covenants. The debt is secured by a lien granted by the Company to the non-recourse lenders on (and only on) the discounted lease transactions. The lenders have recourse only to the following collateral: the specific leased equipment; the related lease chattel paper; the lease receivables; and proceeds of the foregoing items. The non-recourse obligation is payable solely out of the respective specific security and the Company does not guarantee (nor is the Company otherwise contractually responsible for) the payment of the non-recourse debt as a general obligation or liability of the Company. Although the Company does not have any direct or general liability in connection with the non-recourse debt apart from the security granted, the Company is directly and generally liable and

15

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Non-recourse debt: - (continued)

responsible for certain representations, warranties, and covenants made to the lenders, such as warranties as to genuineness of the transaction parties’ signatures, as to the genuineness of the respective lease chattel paper or the transaction as a whole, or as to the Company’s good title to or perfected interest in the secured collateral, as well as similar representations, warranties and covenants typically provided by non-recourse borrowers and customary in the equipment finance industry, and are viewed by such industry as being consistent with non-recourse discount financing obligations. Accordingly, as there are no financial covenants or ratios imposed on the Company in connection with the non-recourse debt, the Company has determined that there are no material covenants with respect to the non-recourse debt that warrant footnote disclosure.

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

		Principal				Interest				Total
Nine months ending December 31, 2017		$	2,579			$	212			$	2,791
Year ending December 31, 2018			3,071				187				3,258
2019			1,078				82				1,160
2020			530				53				583
2021			509				34				543
2022			529				15				544
		$	8,296			$	583			$	8,879

8. Borrowing facilities:

Effective January 7, 2014, the Company participated with ATEL Capital Group and certain subsidiaries and affiliated funds in a $75 million revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions as lenders. The Credit Facility is comprised of a working capital facility, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”), the Company and affiliates, and a venture facility. After various amendments to extend, and adjust the base amounts availability, the Credit Facility is set to expire on June 30, 2017. Negotiations for the extension of the credit facility to June 30, 2019 and the addition of an affiliated company, ATEL 17, LLC to the credit facility are currently underway, and expected to be finalized well in advance of such current expiration. The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

As of March 31, 2017 and December 31, 2016, borrowings under the Credit Facility were as follows (in thousands):

		March 31, 2017				December 31, 2016
Total available under the financing arrangement		$	75,000			$	75,000
Amounts borrowed by affiliated partnerships and limited liability companies under the venture, acquisition and warehouse facilities			(1,015	)			(1,030	)
Amounts borrowed by institutional leasing trust under institutional line			—				(8,488	)
Total remaining available under the working capital, acquisition and warehouse facilities		$	73,985			$	65,482

The Company and its affiliates pay an annual commitment fee to have access to this line of credit. As of March 31, 2017, the aggregate amount of the Credit Facility is potentially available to the Company, subject to certain sub-facility and borrowing-base limitations. However, as amounts are drawn on the Credit Facility

16

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

8. Borrowing facilities: - (continued)

by each of the Company and the affiliates who are borrowers under the Credit Facility, the amount remaining available to all borrowers to draw under Credit Facility is reduced. As the Warehousing Facility is a short term bridge facility, any amounts borrowed under the Warehousing Facility, and then repaid by the affiliated borrowers (including the Company) upon allocation of an acquisition to a specific purchaser, become available under the Warehouse Facility for further short term borrowing.

As of March 31, 2017, the Company’s Tangible Net Worth requirement under the Credit Facility was $10.0 million, the permitted maximum leverage ratio was not to exceed 1.25 to 1, and the required minimum interest coverage ratio was not to be less than 2 to 1. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and interest coverage ratio, as calculated per the Credit Facility agreement of $27.9 million, 0.30 to 1, and 25.60 to 1, respectively, as of March 31, 2017. As such, as of March 31, 2017, the Company was in compliance with all material financial covenants, and with all other material conditions of the Credit Facility. The Company does not anticipate any covenant violations nor does it anticipate that any of these covenants will restrict its operations or its ability to procure additional financing.

Fee and interest terms

The interest rate on the Credit Facility is based on either the LIBOR/Eurocurrency rate of 1-, 2-, 3- or 6-month maturity plus a lender designated spread, or the bank’s Prime rate, which re-prices daily. Principal amounts of loans made under the Credit Facility that are prepaid may be re-borrowed on the terms and subject to the conditions set forth under the Credit Facility. The Company had no borrowings outstanding as of March 31, 2017 and December 31, 2016.

Warehouse facility

To hold the assets under the Warehousing Facility prior to allocation to specific investor programs, a Warehousing Trust has been entered into by the Company, AFS, ALC, and certain of the affiliated partnerships and limited liability companies. The Warehousing Trust is used by the Warehouse Facility borrowers to acquire and hold, on a short-term basis, certain lease transactions that meet the investment objectives of each of such entities. Each of the leasing programs sponsored by AFS and ALC is a pro rata participant in the Warehousing Trust, as described below. When a program no longer has a need for short-term financing provided by the Warehousing Facility, it is removed from participation, and as new leasing investment entities are formed by AFS and ALC and commence their acquisition stages, these new entities are added.

As of March 31, 2017, the investment program participants were ATEL 14, LLC, ATEL 15, LLC and the Company. Pursuant to the Warehousing Trust, the benefit of the lease transaction assets, and the corresponding liabilities under the Warehouse Facility, inure to each of such entities based upon each entity’s pro-rata share in the Warehousing Trust estate. The “pro-rata share” is calculated as a ratio of the net worth of each entity over the aggregate net worth of all entities benefiting from the Warehousing Trust estate, excepting that the trustees, AFS and ALC, are both jointly and severally liable for the pro-rata portion of the obligations of each of the affiliated limited liability companies participating under the Warehouse Facility. Transactions are financed through this Warehouse Facility only until the transactions are allocated to a specific program for purchase or are otherwise disposed by AFS and ALC. When a determination is made to allocate the transaction to a specific program for purchase by the program, the purchaser repays the debt associated with the asset, either with cash or by means of proceeds of a draw under the Acquisition Facility, and the asset is removed from the Warehouse Facility collateral, and ownership of the asset and any debt obligation associated with the asset are assumed solely by the purchasing entity.

There were no borrowings under the Warehouse Facility as of March 31, 2017 and December 31, 2016.

17

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

9. Commitments:

At March 31, 2017, there were two commitments to purchase lease assets and to fund investments in notes receivable totaling approximately $2.0 million and $1.7 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/lessee or may not be accepted by the Company.

10. Members’ Capital:

Units issued and outstanding totaled 4,297,836 and 4,300,336 Units at March 31, 2017 and December 31, 2016, respectively, including the 50 Units issued to the initial Member (Managing Member). The Fund was authorized to issue up to 15,000,000 Units in addition to the Units issued to the initial Member.

Distributions to the Other Members for the three months ended March 31, 2017 and 2016 were as follows (in thousands except Units and per Unit data):

		Three Months Ended March 31,
		2017				2016
Distributions		$	753			$	754
Weighted average number of Units outstanding			4,299,475				4,307,636
Weighted average distributions per Unit		$	0.18			$	0.18

11. Fair value measurements:

At March 31, 2017 and December 31, 2016, only the Company’s warrants were measured on a recurring basis. As of the same dates, the Company had certain other assets or liabilities that required measurement at fair value on a non-recurring basis.

The measurement methodology is as follows:

Warrants (recurring)

Warrants owned by the Company are not registered for public sale, but are considered derivatives and are carried on the balance sheet at an estimated fair value at the end of the period. The valuation of the warrants was determined using a Black-Scholes formulation of value based upon the stock price(s), the exercise price(s), the volatility of comparable venture companies, and a risk free interest rate for the term(s) of the warrant exercise(s). The calculated fair value of the Fund’s warrant portfolio was $94 thousand and $54 thousand at March 31, 2017 and December 31, 2016, respectively. Such valuation is classified within Level 3 of the valuation hierarchy.

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

		Three Months Ended March 31,
		2017				2016
Fair value of warrants at beginning of period		$	54			$	53
Unrealized gain on fair value adjustment for warrants			40				2
Fair value of warrants at end of period		$	94			$	55

18

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. Fair value measurements: - (continued)

The following tables summarize the valuation techniques and significant unobservable inputs used for the Company’s recurring fair value calculation categorized as Level 3 in the fair value hierarchy at March 31, 2017 and December 31, 2016:

March 31, 2017

Name

Valuation Frequency

Valuation Technique

Unobservable Inputs

Range of Input Values

Warrants

Recurring

Black-Scholes formulation

Stock price

$

1.67 – $3.68

Exercise price

$

1.00 – $3.98

Time to maturity (in years)

7.07 – 14.70

Risk-free interest rate

2.23% – 2.57%

Annualized volatility

42.36% – 47.58%

December 31, 2016

Name

Valuation Frequency

Valuation Technique

Unobservable Inputs

Range of Input Values

Warrants

Recurring

Black-Scholes formulation

Stock price

$

0.10 – $3.68

Exercise price

$

1.00 – $3.98

Time to maturity (in years)

7.31 – 14.95

Risk-free interest rate

2.27% – 2.62%

Annualized volatility

43.96% – 108.99%

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

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

Cash and cash equivalents

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

Notes receivable

The fair value of the Company’s notes receivable is generally estimated based upon various methodologies deployed by financial and credit management including, but not limited to, credit analysis, third party appraisal and/or discounted cash flow analysis based upon current market valuation techniques and market rates for similar types of lending arrangements, which may consider adjustments for impaired loans as deemed necessary.

Investment in securities

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

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.

19

ATEL 16, LLC
 
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

11. Fair value measurements: - (continued)

Borrowings

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

Commitments and Contingencies

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

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

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

		March 31, 2017
		Carrying Amount				Level 1				Level 2				Level 3				Total
Financial assets:
Cash and cash equivalents		$	6,923			$	6,923			$	—			$	—			$	6,923
Notes receivable, net			1,906				—				—				1,906				1,906
Investment in securities			100				—				—				100				100
Fair value of warrants			94				—				—				94				94
Financial liabilities:
Non-recourse debt			8,296				—				—				8,367				8,367

		December 31, 2016
		Carrying Amount				Level 1				Level 2				Level 3				Total
Financial assets:
Cash and cash equivalents		$	4,934			$	4,934			$	—			$	—			$	4,934
Notes receivable, net			2,201				—				—				2,201				2,201
Investment in securities			100				—				—				100				100
Fair value of warrants			54				—				—				54				54
Financial liabilities:
Non-recourse debt			6,647				—				—				6,732				6,732

20

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

Statements contained in this Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) and elsewhere in this Form 10-Q, which are not historical facts, may be forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. In particular, economic recession and changes in general economic conditions, including fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, delays in leasing, re-leasing, and disposition of equipment, and reduced returns on invested capital. The Company’s performance is subject to risks relating to lessee and borrower defaults and the creditworthiness of its lessees and borrowers. The Company’s performance is also subject to risks relating to the value of its equipment at the end of its leases, which may be affected by the condition of the equipment, technological obsolescence and the markets for new and used equipment at the end of lease terms. Investors are cautioned not to attribute undue certainty to these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, other than as required by law.

Overview

ATEL 16, LLC (the “Company” or the “Fund”) was formed under the laws of the state of California on December 27, 2012 for the purpose of raising capital and originating equipment financing transactions and acquiring equipment to engage in equipment leasing and sales activities. The offering of the Company was granted effectiveness by the Securities and Exchange Commission as of November 5, 2013.

Through March 31, 2017, cumulative gross contributions, less recissions and repurchases (net of distributions paid and allocated syndication costs, as applicable) totaling $43.0 million (inclusive of the $500 initial Member’s capital investment), have been received. As of March 31, 2017, a total of 4,297,836 Units were issued and outstanding.

Results of Operations

The three months ended March 31, 2017 versus the three months ended March 31, 2016

The Company had net losses of $168 thousand and $274 thousand for the three months ended March 31, 2017 and 2016, respectively. Results for the first quarter of 2017 reflect increases in both total revenues and total expenses when compared to the prior year period.

Revenues

Total revenues for the first quarter of 2017 increased by $306 thousand or 19%, as compared to the prior year period. Such growth in revenues was primarily due to a $127 thousand increase in gains from the sales of lease assets and the early termination of notes receivable; an increase of $113 thousand, or 7% in operating lease revenues due to $4.8 million of lease asset acquisitions acquired during the twelve (12) month period following the period ended March 31, 2016; and an increase of $38 thousand in unrealized gains on fair value relative to warrant holdings.

Expenses

Total expenses for the first quarter of 2017 increased by $200 thousand or 11%, as compared to the prior year period. Such increase was primarily attributable to $66 thousand, or 5%, higher amounts of depreciation expense resulting from net acquisitions of lease assets during the twelve (12) months following the end of the first quarter of 2016; a $52 thousand, or 58%, increase in acquisition expense, reflective of a 63% increase in period over period acquisitions of lease assets; a $39 thousand, or 27%, increase in cost reimbursements to affiliates, pursuant to incremental operations and support efforts; a $28 thousand, 64%, incremental amortization of initial direct costs, as incurred in relation to investment asset acquisitions during the year following 2016’s initial quarterly reporting period; and a $26 thousand increase in outside services, indicative of additional efforts required to comply with certain regulatory requirements.

21

Capital Resources and Liquidity

The Company’s cash and cash equivalents totaled $6.9 million and $4.9 million as of March 31, 2017 and December 31, 2016, 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 lease assets are acquired, as distributions are made to the Members and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The Company currently believes it has available adequate reserves to meet its immediate cash requirements and those of the next twelve months, but in the event those reserves were found to be inadequate, the Company would likely be in a position to borrow against its current portfolio to meet such requirements. The Managing Member envisions no such requirements for operating purposes.

Cash Flows

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

		Three Months Ended March 31,
		2017				2016
Net cash provided by (used in):
Operating activities		$	784			$	683
Investing activities			326				(186	)
Financing activities			879				(1,165	)
Net increase (decrease) in cash and cash equivalents		$	1,989			$	(668	)

The three months ended March 31, 2017 versus the three months ended March 31, 2016

During the three months ended March 31, 2017, the Company’s primary source of liquidity was from borrowings of $2.0 million of non-recourse debt as well as cash flow from its portfolio of operating lease contracts and its investments in notes receivable. In addition, the Company realized $503 thousand and $12 thousand of proceeds from the sale of lease assets and early termination of certain notes receivable for the three months ended March 31, 2017 and 2016, respectively.

The main uses of cash during the three months ended March 31, 2017 were to purchase $452 thousand of lease equipment, pay down $349 thousand of non-recourse debt, and to pay $753 thousand of distributions to other members.

During the prior year period, the cash was used to acquire lease equipment totaling $277 thousand. The Company funded repayments on non-recourse debt totaling $411 thousand. Cash was also used to purchase securities and incur intangible direct costs on lease transactions in the amount of $33 thousand and $49 thousand, respectively, and to pay distributions to Other Members totaling $754 thousand.

Revolving credit facility

Effective January 7, 2014, the Company participated with ATEL Capital Group and certain subsidiaries and affiliated funds in a $75 million revolving credit facility (the “Credit Facility”) with a syndicate of financial institutions as lenders. The Credit Facility is comprised of a working capital facility, an acquisition facility (the “Acquisition Facility”) and a warehouse facility (the “Warehouse Facility”), the Company and affiliates, and a venture facility. After various amendments to extend, and adjust the base amounts availability, the Credit Facility is set to expire on June 30, 2017. Negotiations for the extension of the credit facility to June 30, 2019 and the addition of an affiliated company, ATEL 17, LLC to the credit facility are currently underway, and expected to be finalized well in advance of such current expiration. The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility. Such Credit Facility includes certain financial covenants.

22

Compliance with covenants

The Credit Facility includes certain financial and non-financial covenants applicable to each borrower, including the Company. Such covenants include covenants typically found in credit facilities of the size and nature of the Credit Facility, such as accuracy of representations, good standing, absence of liens and material litigation, etc. The Company was in compliance with all applicable covenants under the Credit Facility as of March 31, 2017. The Company considers certain financial covenants to be material to its ongoing use of the Credit Facility and these covenants are described below.

Material financial covenants

Under the Credit Facility, the Company is required to maintain a specific tangible net worth, to comply with a leverage ratio and an interest coverage ratio, and to comply with other terms expressed in the Credit Facility, including limitation on the incurrence of additional debt and guaranties, defaults, and delinquencies.

As of March 31, 2017, the material financial covenants are summarized as follows:

Minimum Tangible Net Worth:  $10 million
Leverage Ratio (leverage to Tangible Net Worth): Not to exceed 1.25 to 1
Collateral Value: Collateral value under the Warehouse Facility must be no less than the outstanding
borrowings under that facility
EBITDA to Interest Ratio:  Not to be less than 2 to 1 for the four fiscal quarters just ended

“EBITDA” is defined under the Credit Facility as, for the relevant period of time (1) gross revenues (all payments from leases and notes receivable) for such period minus (2) expenses deducted in determining net income for such period plus (3) to the extent deducted in determining net income for such period (a) provision for income taxes and (b) interest expense, and (c) depreciation, amortization and other non-cash charges. Extraordinary items and gains or losses on (and proceeds from) sales or dispositions of assets outside of the ordinary course of business are excluded in the calculation of EBITDA. “Tangible Net Worth” is defined as, as of the date of determination, (i) the net worth of the Company, after deducting therefrom (without duplication of deductions) the net book amount of all assets of the Company, after deducting any reserves and other amounts for assets which would be treated as intangibles under accounting principles generally accepted in the United States of America (“GAAP”), and after certain other adjustments permitted under the agreements.

The financial covenants referred to above are applicable to the Company only to the extent that the Company has borrowings outstanding under the Credit Facility. The Company was in compliance with these financial covenants under the Credit Facility with a minimum Tangible Net Worth, leverage ratio and interest coverage ratio, as calculated per the Credit Facility agreement of $27.9 million, 0.3 to 1, and 25.60 to 1, respectively, as of March 31, 2017. As such, as of March 31, 2017, the Company was in compliance with all such material financial covenants.

Reconciliation to GAAP of EBITDA

For purposes of compliance with the Credit Facility covenants, the Company uses a financial calculation of EBITDA, as defined therein, which is a non-GAAP financial performance measure. The EBITDA is utilized by the Company to calculate its debt covenant ratios.

The following is a reconciliation of net loss to EBITDA, as defined in the loan agreement, for the twelve months ended March 31, 2017 (in thousands):

Net loss – GAAP basis		$	(930	)
Interest expense			218
Depreciation and amortization			5,267
Amortization of initial direct costs			202
Provision for doubtful accounts			5
Unrealized loss on fair valuation of warrants			13
Principal payments received on notes receivable			806
EBITDA (for Credit Facility financial covenant calculation only)		$	5,581

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Events of default, cross-defaults, recourse and security

The terms of the Credit Facility include standard events of default by the Company which, if not cured within applicable grace periods, could give lenders remedies against the Company, including the acceleration of all outstanding borrowings and a demand for repayment in advance of their stated maturity. If a breach of any material term of the Credit Facility should occur, the lenders may, at their option, increase borrowing rates, accelerate the obligations in advance of their stated maturities, terminate the facility, and exercise rights of collection available to them under the express terms of the facility, or by operation of law. The lenders also retain the discretion to waive a violation of any covenant at the Company’s request.

The Company is currently in compliance with its obligations under the Credit Facility. In the event of a technical default (e.g., the failure to timely file a required report, or a one-time breach of a financial covenant), the Company believes it has ample time to request and be granted a waiver by the lenders, or, alternatively, cure the default under the existing provisions of its debt agreements, including, if necessary, arranging for additional capital from alternate sources to satisfy outstanding obligations.

The lending syndicate providing the Credit Facility has a blanket lien on all of the Company’s assets as collateral for any and all borrowings under the Acquisition Facility, and on a pro-rata basis under the Warehouse Facility.

The Acquisition Facility is generally recourse solely to the Company, and is not cross-defaulted to any other obligations of affiliated companies under the Credit Facility, except as described in this paragraph. The Credit Facility is cross-defaulted to a default in the payment of any debt (other than non-recourse debt) or any other agreement or condition beyond the period of grace (not exceeding 30 days), the effect of which would entitle the lender under such agreement to accelerate the obligations prior to their stated maturity in an individual or aggregate principal amount in excess of 15% of the Company’s consolidated Tangible Net Worth. Also, a bankruptcy of AFS will trigger a default for the Company under the Credit Facility.

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 April 2014. Additional distributions have been made through March 31, 2017.

Cash distributions were paid by the Fund to Unitholders of record as of February 28, 2017, and paid through March 31, 2017. The distributions may be characterized for tax, accounting and economic purposes as a return of capital, a return on capital (including escrow interest) or a portion of each. Generally, the portion of each cash distribution by a company which exceeds its net income for the fiscal period would constitute a return of capital. The Fund is required by the terms of its Operating Agreement to distribute the net cash flow generated by its investments in certain minimum amounts during the Reinvestment Period before it can reinvest its operating cash flow in additional portfolio assets. See the discussion in the ATEL 16, LLC Prospectus dated November 5, 2013 (“Prospectus”) under “Income, Losses and Distributions.” Accordingly, the amount of cash flow from Fund investments distributed to Unitholders will not be available for reinvestment in additional portfolio assets.

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

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The following table summarizes distribution activity for the Fund from inception through March 31, 2017 (in thousands except for Units and Per Unit Data):

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and Contingencies

At March 31, 2017, there were two commitments to purchase lease assets and fund investments in notes receivable totaling approximately $2.0 million and $1.7 million, respectively. These amounts represent contract awards which may be canceled by the prospective borrower/lessee or may not be accepted by the Company.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

For information on recent accounting pronouncements, see Note 2 to the financial statements as set forth in Part I, Item 1, Financial Statements (Unaudited).

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Significant Accounting Policies and Estimates

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

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

Item 4. Controls and procedures.

Evaluation of disclosure controls and procedures

The Company’s Managing Member’s 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) and 15d-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Company’s disclosure controls and procedures, the Chief Executive Officer and Executive Vice President and Chief Financial and Operating Officer concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

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

Changes in internal control

There were no changes in the Managing Member’s internal control over financial reporting, as it is applicable to the Company, during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Managing Member’s internal control over financial reporting, as it is applicable to the Company.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the 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.

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

31.1		Certification of Dean L. Cash
31.2		Certification of Paritosh K. Choksi
32.1		Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2		Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

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SIGNATURES

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

Date: May 11, 2017

ATEL 16, LLC
(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)

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