UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-17589
NTS-PROPERTIES VII, LTD.
(Exact name of registrant as specified in its charter)
| 10172 Linn Station Road | |
| 61-1119232 | Louisville, Kentucky 40223 |
| (I.R.S. Employer Identification No.) | (Address of principal executive offices) |
Registrant's telephone number, including area code: (502) 426-4800
Florida
(State or other jurisdiction of incorporation or organization)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each Class: None
Name of each exchange on which registered: None
Securities registered pursuant to Section 12(g) of the Act:
| Limited partnership interests | None | |
| | | |
| (Title of Class) | (Name of each exchange on which registered) |
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. Yes [X]
No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
(Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of
the Registrant's knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
[X]
Indicate by check mark whether Registrant is an accelerated filer (as defined by Rule 12b-2
of the Securities Exchange Act of 1934).
Yes [ ]
No [X]
State the aggregate market value of the voting and non-voting common equity held by non-
affiliates computed by reference to the price at which the common equity was sold, or the
average bid and asked price of such common equity, as of a specified date within the past 60
days: No aggregate market value can be determined because no established market exists for the
limited partnership interests.
TABLE OF CONTENTS
PART I
| Pages | ||||
| Items 1. and 2. | Business and Properties | 3-11 | ||
| Item 3. | Legal Proceedings | 11-12 | ||
| Item 4. | Submission of Matters to a Vote of Security Holders | 12 |
PART II
| Item 5. | Market for Registrant's Limited Partnership Interests | |||
| and Related Partner Matters | 13 | |||
| Item 6. | Selected Financial Data | 14-15 | ||
| Item 7. | Management's Discussion and Analysis of Financial Condition | |||
| and Results of Operations | 15-22 | |||
| Item 7A. | Quantitative and Qualitative Disclosures About | |||
| Market Risk | 23 | |||
| Item 8. | Financial Statements and Supplementary Data | 24-49 | ||
| Item 9. | Change in and Disagreements with Accountants on | |||
| Accounting and Financial Disclosure | 50 |
PART III
| Item 10. | Directors and Executive Officers of the Registrant | 51-52 | ||
| Item 11. | Management Remuneration and Transactions | 52 | ||
| Item 12. | Security Ownership of Certain Beneficial | |||
| Owners and Management | 53 | |||
| Item 13. | Certain Relationships and Related Transactions | 53-54 | ||
| Item 14. | Controls and Procedures | 54 |
PART IV
| Item 15. | Exhibits, Financial Statement Schedules and | |||
| Reports on Form 8-K | 55-57 | |||
| Signatures | 58 | |||
| Certifications | 59-60 |
2
INFORMATION REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements included in this Form 10-K, particularly those included in Part I, Items 1 and 2 - Business and Properties, and Part II, Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), may be considered "forward-looking statements" because such statements relate to matters which have not yet occurred. For example, phrases such as "we anticipate," "believe" or "expect" indicate that it is possible that the event anticipated, believed or expected may not occur. Should such event not occur, then the result which we expected also may not occur or occur in a different manner, which may be more or less favorable to us. We do not undertake any obligations to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances.
Any forward-looking statements included in MD&A, or elsewhere in this report, reflect management's best judgment based on known factors and involve risks and uncertainties. Actual results could differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including but not limited to those discussed below. Any forward-looking information provided by us pursuant to the "safe harbor" provisions established by recent securities legislation should be evaluated in the context of these factors. See Part II - Item 7 for Cautionary Statements.
PART I
Items 1 and 2 - Business and PropertiesNTS-Properties VII, Ltd., a Florida limited partnership (the "Partnership"), was formed in 1987. The General Partner is NTS-Properties Associates VII, a Kentucky limited partnership (the "General Partner"). The general partners of the General Partner are NTS Capital Corporation and J.D. Nichols. As of December 31, 2002, the Partnership owned the following properties and joint venture interest listed below. As used in this Form 10-K the terms "we," "us" or "our," as the context requires, may refer to the Partnership or its interests in these properties and joint venture:
3
We or the joint venture in which we are a partner has a fee title interest in the above properties. While we believe that our properties are adequately covered by property insurance, there is a risk that unknown mold and other microbial damage may not be covered by our insurance. Please see Part II, Item 7 for a discussion of this potential liability.
As of December 31, 2002, our properties were encumbered by mortgages as shown in the table below:
Interest Maturity Balance
Property Rate Date on 12/31/02
- ---------------------------------------- ------------- ---------------- ------------------
Park Place Apartments Phase II 7.37% 10/15/12 (1) $ 3,488,518
Blankenbaker Business Center 1A 8.50% 11/15/05 (2) $ 1,733,466
(1) Monthly principal payments are based upon a 19-year amortization schedule. The outstanding principal balance
at maturity based on the current rate of amortization is estimated to be approximately $1,436,000.
(2) Current monthly principal payments are based upon an 11-year amortization schedule. At maturity, we believe the
mortgage will have been repaid based on the current rate of amortization.
The Park at the Willows was not encumbered by any outstanding mortgages on December 31, 2002.
Financial Information About Industry SegmentsWe are presently engaged solely in the business of developing, constructing, owning and operating residential apartments. A presentation of information concerning industry segments is therefore not applicable. See Part II, Item 8 - Note 8 for information regarding our operating segments.
Narrative Description of BusinessOur current investment objectives are consistent with our original objectives, which are to provide cash distributions from the operation or financing of our properties, obtain long-term capital gain treatment on the sale or refinancing of properties, provide limited partners with deferrals of federal income taxes, and preserve limited partners' capital. Proceeds of any sale or refinancing of our properties may be distributed to limited partners, or may be used to repay debt or to make capital improvements to properties.
4
The properties we currently own, which are described in the following
section, are the same as those we originally acquired. Our properties are in a
condition suitable for their intended use. We periodically evaluate whether to
retain, refinance, or sell or otherwise dispose of these properties, with a view
toward meeting the above investment objectives, including the making of
distributions. In deciding whether to sell a property, we will consider factors
such as potential capital appreciation, mortgage pre-payment penalties, market
conditions, cash flow and federal income tax considerations, including possible
adverse federal income tax consequences to the limited partners. Distributions
have been suspended to fund current and future capital improvements and debt
repayment. For information on distributions, see Part II, Item 5 of this Form
10-K. In addition, see "Potential Consolidation" later in this section for a
discussion of our potential consolidation with other affiliated entities. All apartments in The Park at the Willows are loft, one-bedroom or deluxe one-bedroom apartments.
All apartments have wall-to-wall carpeting, individually controlled heating and air conditioning,
dishwashers, ranges, refrigerators with ice makers, garbage disposals and microwave ovens. Loft
and one-bedroom apartments have stackable washers and dryers. Deluxe apartments have
washer/dryer hook-ups. In addition, pursuant to an agreement with the Willows of Plainview
apartment community, which was developed adjacent to The Park at the Willows and is owned by
NTS-Properties IV and NTS-Properties V, two publicly registered limited partnerships sponsored
by an affiliate of our General Partner, tenants of The Park at the Willows have access to and use of
the coin-operated washer/dryer facilities, clubhouse, management offices, swimming pool, whirlpool
and tennis courts at The Willows of Plainview. We share proportionately in the costs of maintaining
and operating these facilities. As of December 31, 2002, monthly rental rates at The Park at the Willows start at $604 for one-
bedroom apartments, $699 for deluxe apartments and $749 for lofts, with additional monthly rental
amounts for special features and locations. Tenants pay all costs of heating, air conditioning, water,
sewer and electricity. Most leases are for a period of one year. Apartments will be rented in some
cases, however, on a shorter term basis at an additional charge. The occupancy levels at the
apartment complex as of December 31 were 90% (2002), 75% (2001), 90% (2000), 81% (1999) and
77% (1998). See Part II, Item 7 for average occupancy information. Apartments at Park Place Apartments Phase II include one-bedroom and two-bedroom apartments
and two-bedroom town homes. All apartments have wall-to-wall carpeting, individually controlled
heating and air conditioning, dishwashers, ranges, refrigerators with ice makers, garbage disposals
and microwave ovens. Each unit has either a washer/dryer hook-up or access to coin-operated
washers and dryers. Amenities include the clubhouse with a party room, swimming pool, tennis 5
courts, racquetball courts, exercise facility and management offices. The amenities are shared with
Phase I and Phase III of the Park Place Development which were developed and constructed by
NTS-Properties VI, an affiliate of our General Partner. The costs to construct and operate the
common amenities are shared proportionately by each phase. As of December 31, 2002, monthly rental rates at Park Place Apartments Phase II start at $669 for
one-bedroom apartments, $909 for two-bedroom apartments and $1,169 for two-bedroom town
homes, with additional monthly rental amounts for special features and locations. Tenants pay all
costs of heating, air conditioning, water, sewer and electricity. Most leases are for a period of one
year. Apartments will be rented in some cases, however, on a shorter term basis at an additional
charge. The occupancy levels at the apartment complex as of December 31 were 89% (2002), 76%
(2001), 77% (2000), 86% (1999) and 85% (1998). See Part II, Item 7 for average occupancy
information. A single tenant leases 100% of the Blankenbaker Business Center 1A building. The annual base
rent, which does not include the cost of utilities, is $7.48 per square foot. The lease term is for 11
years and expires July 2005. The lease provides for the tenant to contribute toward the payment of
common area maintenance expenses, insurance and real estate taxes. The tenant is a professional
service entity in the insurance industry. The occupancy level at the business center as of December
31, 2002, 2001, 2000, 1999 and 1998 was 100%. See Part II, Item 7 for average occupancy
information. The following table contains approximate data concerning the major tenant lease in effect on
December 31, 2002: Additional operating data regarding our properties and joint venture is furnished in the following
table: 6
Depreciation for book purposes is computed using the straight-line method over the estimated useful
lives of the assets which are 7-30 years for land improvements, 5-30 years for buildings and
improvements, 5-30 years for amenities and the applicable lease term for tenant improvements. On December 28, 1990, we entered into a joint venture agreement with NTS-Properties Plus Ltd.
to own and operate Blankenbaker Business Center 1A and to acquire an approximately 2.49 acre
parking lot that was being leased by the business center from an affiliate of our General Partner. The
use of the parking lot is a provision of the tenant's lease agreement with the business center. On
August 16, 1994, the Blankenbaker Business Center Joint Venture Agreement was amended to admit
NTS-Properties IV to the joint venture. The terms of the joint venture shall continue until dissolved.
Dissolution shall occur upon, but not before, the first to occur of the following: The net cash flow for each calendar quarter is distributed to the partners in accordance with their
respective percentage interests. The term "Net Cash Flow" for any period shall mean the excess, if
any of A) the sum of (i) the gross receipts of the joint venture property for such period, other than
capital contributions plus (ii) any funds released by the partners for previously established reserves
(referred to in clause (B) (iv) below), over (B) the sum of (i) all cash operating expenses paid by the
joint venture property during such period in the course of business, (ii) capital expenditures paid in
cash during such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the joint venture property and (iv) reserves for contingent
liabilities and future expenses of the joint venture property as established by the partners; provided,
however, that the amounts referred to in (B) (i), (ii) and (iii) above shall only be taken into account
to the extent not funded by capital contributions or paid out of previously established reserves.
"Percentage Interest" means that percentage which the capital contribution of a partner bears to the
aggregate capital contributions of all the partners. Net income or net loss is also allocated between
the partners pursuant to their Percentage Interest as described in the joint venture agreement. Our
ownership share was 31.34% on December 31, 2002, 2001 and 2000. We use the equity method of
accounting for this joint venture. 7
The joint venture obtained permanent financing of $4,800,000 in November 1994. The outstanding
balance on December 31, 2002 was approximately $1,733,000. The mortgage bears interest at a
fixed rate of 8.5% and is due November 15, 2005. Currently, monthly principal payments are based
upon an 11-year amortization schedule. At maturity, we believe the mortgage will have been repaid
based on the current rate of amortization. In June 2002, NTS-Properties Plus, one of the original members of the
Blankenbaker Business Center joint venture, merged into ORIG, LLC, an affiliate
of ours. As a result of the merger, ORIG has succeeded to the interests of
NTS-Properties Plus in the joint venture. See the information under the caption
"Ownership of Joint Venture" in Part II, Item 7 of this Form 10-K. Our properties are subject to competition from similar types of properties (including, in certain areas,
properties owned or managed by affiliates of our General Partner) in the respective vicinities in
which they are located. Such competition is generally for the retention of existing tenants at lease
expiration or for new tenants when vacancies occur. We maintain the suitability and competitiveness
of our properties primarily on the basis of effective rents, amenities and service provided to tenants.
Competition is expected to increase in the future as a result of the construction of additional
properties. As of December 31, 2002, properties under construction, or scheduled to start
construction in 2003, in the respective vicinities in which our properties are located are as follows:
In the vicinity of The Park at the Willows, there are three apartment communities scheduled to start
construction in 2003. The first community will have approximately 300 units and is scheduled to
break ground in Spring 2003. The second community will have approximately 500 units and is
scheduled to begin construction in August 2003. The third community will have approximately 200
units and is expected to start construction some time in the late summer of 2003. The expected
completion date for all three communities is unknown at this time. In the vicinity of Park Place
Apartments Phase II, there is one community of approximately 500 units that could potentially be
constructed in 2003. The estimated begin construction date and the completion date are unknown
at this time. We have not commissioned a formal market analysis of competitive conditions in any
market in which we own properties, but rely upon the market condition knowledge of the employees
at NTS Development Company who manage and supervise leasing for each property. See "Conflict
of Interest." NTS Development Company, an affiliate of our General Partner, directs the management of our
properties pursuant to a written agreement (the "Agreement"). NTS Development Company is a
wholly-owned subsidiary of NTS Corporation. Mr. J. D. Nichols has a controlling interest in NTS
Corporation and is a General Partner of NTS-Properties Associates VII. Under the Agreement, NTS
Development Company establishes rental policies and rates and directs the marketing activity of
leasing personnel. NTS Development Company also coordinates the purchase of equipment and
supplies, maintenance activity and the selection of all vendors, suppliers and independent
contractors. 8
As compensation for its services, NTS Development Company received $77,413 in property
management fees from our residential properties for the year ended December 31, 2002. The fee is
equal to 5% of gross revenues from residential properties. In addition, the Agreement requires us to purchase all insurance relating to the managed properties,
to pay the direct out-of-pocket expenses of NTS Development Company in connection with our
operations, including the cost of goods and materials used for and on our behalf, and to reimburse
NTS Development Company for the salaries, commissions, fringe benefits and related employment
expenses of personnel. The term of the Agreement between NTS Development Company and us was initially for five years,
and renewed thereafter for succeeding one-year periods, until cancelled. The Agreement is subject
to cancellation by either party upon 60-days written notice. As of December 31, 2002, the
Agreement is still in effect. Information about our working capital practices is included in Management's Discussion and
Analysis of Financial Condition and Results of Operations in Part II, Item 7. We do not consider our operations to be seasonal to any material degree. Principals of the General Partner or its affiliates own or operate real estate properties that compete,
directly or indirectly, with properties owned by us. Because we were organized by, and are operated
by the General Partner, conflicts arising from our competition with properties owned by affiliated
partnerships are not resolved through arms-length negotiations, but through the exercise of the
General Partner's judgment consistent with its fiduciary responsibility to the limited partners and
our investment objectives and policies. The General Partner is accountable to the limited partners
as a fiduciary and consequently must exercise good faith and integrity in handling our affairs. A
provision has been made in our Partnership Agreement that the General Partner will not be liable
to us except for acts or omissions performed or omitted fraudulently, in bad faith or with negligence.
The Partnership Agreement provides for indemnification of the General Partner by us for liability
resulting from errors in judgment or certain acts or omissions. The General Partner and its affiliates
have the right to compete with our properties including the right to develop competing properties
now and in the future, in addition to the existing properties which may compete directly or
indirectly. 9
NTS Development Company, an affiliate of the General Partner, acts in a similar capacity for other
affiliated entities in the same geographic region where we have property interests. As a result of the
affiliation between NTS Development Company and our General Partner, there is a conflict of
interest between our General Partner's duty to the limited partners and its incentive to cause us to
retain our properties because of the payment of fees to NTS Development Company. We believe
the agreement with NTS Development Company is on terms no less favorable to us than those which
could be obtained from a third party for similar services in the same geographical region in which
the properties are located. The contract is terminable by either party without penalty upon 60-days
written notice. We have no employees. Under the terms of the property management agreement with NTS
Development Company, NTS Development Company makes its employees available to perform
services for us. In addition to the property management fees that we pay to NTS Development
Company, we reimburse this affiliate for the actual costs of providing such services. See Part II,
Item 8 - Note 6 and Part III, Item 13 for further discussions of related party transactions. Our General Partner, along with the general partners of four other public limited partnerships
affiliated with us, is investigating a consolidation with other affiliated entities. In addition to these
affiliated entities, the consolidation would likely involve several private partnerships and our General
Partner. The new combined entity would own all of the properties currently owned by the public
limited partnerships, and the limited partners or other owners of these entities would receive an
ownership interest in the combined entity. The number of ownership interests to be received by
limited partners and the other owners of the entities participating in the consolidation would likely
be determined based on the relative value of the assets contributed to the combined entity by each
public limited partnership, reduced by any indebtedness assumed by the entity. The majority of the
contributed assets would consist of real estate properties, whose relative values would be based on
appraisals. The potential benefits of consolidating the entities include: reducing the administrative
costs as a percentage of assets and revenues by creating a single public entity; diversifying limited
partners' investments in real estate to include additional markets and types of properties; and
creating an asset base and capital structure that may enable greater access to the capital markets.
There are, however, also a number of potential adverse consequences to a consolidation such as, the
expenses associated with a consolidation and the fact that the duration of the new entity would likely
exceed our anticipated duration, and that the interests of our limited partners in the combined entity
would be smaller on a percentage basis than their interests in us. Further, the new entity may adopt
investment and management policies that are different from those presently used by our General
Partner. A consolidation requires approval of our limited partners and the limited partners and other
equity holders of the other proposed participants to the consolidation. Accordingly, there is no
assurance that the consolidation will occur. 10
Website Information Our Internet website address is www.ntsdevelopment.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act are available and may
be accessed free of charge through the "About NTS" section of our Internet website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our
Internet website and the information contained therein or connected thereto are not intended to be
incorporated into this Annual Report on Form 10-K. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $25,000, which was expensed. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against our General Partner, the general partners of three public
partnerships affiliated with us and several individuals and entities affiliated with us. On March 21,
2003, the complaint was amended to include the general partners of another public partnership
affiliated with us and a partnership that was affiliated with us but is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited partners and 11
derivatively on behalf of us and affiliated public partnerships based on alleged overpayments of fees,
prohibited investments, improper failures to make distributions, purchases of limited partnership
interests at insufficient prices and other violations of the limited partnership agreements. The
plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified
amount, an accounting, the appointment of a receiver or liquidating trustee, the entry of an order of
dissolution against the public partnerships, a declaratory judgment, and injunctive relief. Our
General Partner believes that this action is without merit, and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. None. 12 PART II There is no established trading market for the limited partnership interests. We had 776 limited
partners as of January 31, 2003. Cash distributions and allocations of income (loss) are made as
described in Item 8 - Note 1E. No distributions were paid during 2002 or 2001. Quarterly distributions are
determined based on current cash balances, cash flow being generated by
operations and cash reserves needed for future leasing costs, tenant finish
costs and capital improvements. Distributions have been suspended to fund
current and future capital improvements and debt repayment. Our ability to pay
distributions is dependent upon, among other things, our ability to refinance
properties on favorable terms. Annual distributions totaling $0.15 per limited partnership interest were paid during the year ended
December 31, 2000. Distributions were paid quarterly as follows: The table below presents that portion of the distributions that represents a return of capital based
on Accounting Principles Generally Accepted in the United States for the
years ended December 31, 2002, 2001 and 2000. 13 Years ended December 31: The above selected financial data should be read in conjunction with the financial statements and
related notes appearing elsewhere in this Form 10-K report. 14 The Emerging Issues Tasks Force ("EITF") of the Financial Accounting Standards Board ("FASB")
reached a consensus on Issue No. 00-1, "Applicability of the Pro Rata Method of Consolidation to
Investments in Certain Partnerships and Other Unincorporated Joint Ventures." The EITF reached
a consensus that a proportionate gross financial statement presentation (referred to as "proportionate
consolidation" in the Notes to Financial Statements) is not appropriate for an investment in an
unincorporated legal entity accounted for by the equity method of accounting, unless the investee
is in either the construction industry or an extractive industry where there is a longstanding practice
of its use. The consensus is applicable to financial statements for annual periods ending after June 15, 2000.
We have applied the consensus to all comparative financial statements, restating them to conform
with the consensus for all periods presented. The application of this consensus did not result in a
restatement of previously reported partners' equity or results of operations, but did result in a
recharacterization or reclassification of certain financial statements' captions and amounts. The data
in the table above has been restated for all periods presented. This Management's Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") should be read in conjunction with the Financial Statements in Item 8 and the
Cautionary Statements below. Our most critical business assumption is that our properties' occupancy will remain at a level which
provides for debt payments and adequate working capital, currently and in the future. If occupancy
were to fall below that level and remain at or below that level for a significant period of time, then
our ability to make payments due under our debt agreements and to continue paying daily
operational costs would be greatly affected. We review properties for impairment on a property-by-property basis whenever events or changes
in circumstances indicate that the carrying value may not be recoverable. These circumstances
include, but are not limited to, declines in cash flows and occupancy.
We recognize an impairment of property when the estimated undiscounted
operating income before depreciation and amortization is less than the carrying value of the property.
To the extent an impairment has occurred, we charge to income the excess of the carrying value of
the property over its estimated fair value. We may decide to sell properties that are held for use. The
sales prices of these properties may differ from their carrying values. 15 During the year ended December 31, 2002, we adopted Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions." SFAS No. 144 requires one accounting model to be used for long-lived assets
to be disposed of by sale, whether previously held or used or newly acquired, and it broadens the
presentation of discontinued operations to include more disposal transactions. Our adoption of
SFAS No. 144 did not impact the financial statements in 2002. The occupancy levels at our properties and joint venture as of December 31 were as
follows: The average occupancy levels at our properties and joint venture for the years ended December 31
were as follows: 16 Rental and other income generated by our properties and joint venture for the years ended December
31 were as follows: If there has not been a material change in a particular line item on the Statements of
Operations from one year to the next, we have omitted any discussion concerning that
individual line item. In 2001, we retired a portion of the original building assets that were not fully depreciated, as a result
of an exterior paint and repair project at Park Place Apartments Phase II. We also retired a roof asset
at Park Place Apartments Phase II due to replacement of the roof. In 2000, we retired assets that
were not fully depreciated due to a clubhouse renovation project at Park Place Apartments Phase II
and exterior renovations at The Park at the Willows. Professional and administrative expenses increased approximately $28,000, or 39%, in 2002. The
increase is primarily due to increased legal and professional services as a result of litigation. See
Part II, Item 8 - Note 7 for information regarding our litigation. Professional and administrative expenses decreased approximately $14,000, or 16%, in 2001. The
decrease is primarily due to decreased investor service expenditures and decreased legal and
professional services. Professional and administrative expenses - affiliated increased approximately $24,000, or 28%, in
2001. The increase is primarily the result of increased personnel costs. Professional and
administrative expenses - affiliated are for the services performed by employees of NTS
Development Company, an affiliate of our General Partner. These employee services include legal,
financial and others necessary to manage and operate our properties and joint ventures. 17 Depreciation and amortization expense increased approximately $48,000, or 11%, in 2002 and
approximately $72,000, or 19%, in 2001. The increase for both years is primarily due to
management's change in the estimated useful life of all of the roof assets at Park Place Apartments
Phase II in July 2001. The estimated useful life was reduced in anticipation of replacing the roofs.
The increase in 2001 is also a result of building improvements (exterior repair projects) and water
sub-metering installations at both Park Place Apartments Phase II and The Park at the Willows,
clubhouse renovations at Park Place Apartments Phase II and studio renovations at The Park at the
Willows (all net of retirements). Depreciation is computed using the straight-line method over the estimated useful lives of the assets
which are 7-30 years for land improvements, 5-30 years for buildings and improvements, 5-30 years
for amenities and the applicable lease term for tenant improvements. The aggregate cost of our
wholly-owned properties for federal tax purposes is approximately $12,823,000. The majority of our cash flow is derived from operating activities. Cash flows used in investing
activities consist of amounts spent for capital improvements at our properties. Cash flows used in
financing activities consist of cash distributions, principal payments on mortgages payable, payment
of loan costs and amounts paid to repurchase limited partnership interests. We do not expect any
material changes in the mix and relative cost of capital resources from those in 2002. We do not foresee any material reduction in occupancy levels at any of our properties which would
have a material adverse effect upon our cash flow. The following table illustrates our cash flows provided by or used in operating activities, investing
activities and financing activities: Net cash provided by operating activities decreased approximately $237,000, or 56%, in 2002. The
decrease was primarily driven by the changes in accounts payable and accounts receivable as well
as the reduced operating results before non-cash items. Net cash provided by operating activities increased approximately $106,000, or 34%, in 2001. The
increase was driven primarily by increased accounts payable and a decrease in accounts receivable
partially offset by decreased income before depreciation and amortization. 18 Net cash used in investing activities decreased approximately $127,000, or 65%, in 2002. The
decrease was primarily the result of decreased capital expenditures at Park Place Apartments Phase
II, partially offset by increased capital expenditures at The Park at the Willows. The decrease is also
driven by the change in investments in and advances to the joint venture. Net cash used in financing activities increased approximately $63,000, or 61%, in 2002. The
increase was primarily the result of loan proceeds received in 2001 (no loan proceeds were received
in 2002) and increased principal payments made in 2002. Net cash used in financing activities decreased approximately $116,000, or 53% in 2001. The
decrease is primarily the result of the discontinuance of cash distributions starting in the fourth
quarter of 2000 and proceeds from two notes payable obtained in March 2001. See Item 8, Note 5
- - Mortgage and Notes Payable for further detail on notes payable. During the year ended December 31, 2000, we used cash flow from operations and cash on hand to
make a 1% (annualized) distribution of $84,076. The annualized distribution rate is calculated as
a percent of the original capital contribution. The limited partners received 99% and the General
Partner received 1% of these distributions. The primary source of future liquidity is expected to be
derived from cash generated by our properties after adequate cash reserves are established for future
leasing, roof replacements and renovations. It is anticipated that the cash flow from operations and
cash reserves will be sufficient to meet our needs. Cash reserves (which are unrestricted cash and
equivalents as shown on our balance sheet as of December 31) were $382,533, $431,232 and
$307,173 on December 31, 2002, 2001 and 2000, respectively. The table below presents that portion of the distributions that represents a return of capital based on
Accounting Principles Generally Accepted in the United States for the
years ended December 31, 2002, 2001 and 2000. On January 24, 2001, we notified our limited partners that we would be suspending distributions
starting with the fourth quarter 2000. The suspension is necessary to build up cash reserves in
contemplation of the roof replacements at Park Place Apartments Phase II (mentioned below). Once
sufficient reserves are accumulated, we will review cash, working capital levels and projections for
their use, and resume distributions if appropriate. 19 The demand on future liquidity is anticipated to increase as a result of the replacement of the roofs
at Park Place Apartments Phase II (18 buildings) all of which were installed using shingles produced
by a single manufacturer. The shingles appear to contain defects which may cause roofs to fail. As
the shingle manufacturer has declared bankruptcy, we do not expect to be able to recover any of the
costs of the roof replacements in the event of any such failures. Based upon these facts, management
changed the estimated useful life of the roof assets. The change resulted in an approximate increase
in depreciation expense of $96,000 and $48,000 for 2002 and 2001, respectively. We do not have
sufficient working capital to make all of the roof replacements at one time. As of December 31,
2002, one roof replacement has been completed. The total cost of replacing the remaining roofs is
estimated to be $340,000 ($20,000 per building). Nine roof replacements have been budgeted for
2003. Blankenbaker Business Center 1A is expected to require a new roof in 2003. The roof replacement
is expected to cost approximately $235,000. Our share of this cost is expected to be approximately
$74,000. We had no other material commitments for renovations or capital expenditures as of December 31,
2002. We are making efforts to improve occupancy at our residential properties. We have an on-site
leasing staff, that are employees of NTS Development Company, at each of the apartment
communities. The staff handles all on-site visits from potential tenants, coordinates local advertising
with NTS Development Company's marketing staff, makes visits to local companies to promote
fully furnished apartments and works with current residents on lease renewals. The lease at Blankenbaker Business Center 1A provides for the tenant to contribute toward the
payment of common area maintenance expenses, insurance, utilities and real estate taxes. These
lease provisions, along with the fact that residential leases are generally for a period of one year,
should protect our operations from the impact of inflation and changing prices. Across the United States there have been recent reports of lawsuits against owners and managers of
multi-family and commercial properties asserting claims of personal injury and property damage
caused by the asserted presence of mold and other microbial organisms in residential units and
commercial space. Some of these lawsuits have resulted in substantial monetary judgments or
settlements. We have not, at present, been named as a defendant in any lawsuit that has alleged the
presence of mold or other microbial organisms. Prior to September 13, 2002, we were insured
against claims arising from the presence of mold due to water intrusion. However, since September
13, 2002, certain of our insurance carriers have excluded from insurance coverage property damage
loss claims arising from the presence of mold, although certain of our insurance carriers do provide
some coverage for personal injury claims. We are in the process of implementing protocols and
procedures to prevent the build-up of mold and other microbial organisms in our properties, and are
in the process of implementing more stringent maintenance, housekeeping and notification
requirements for tenants in our properties. We believe that these measures will eliminate, or at least,
minimize any effect that mold or other microbial organisms could have on our tenants. To date, we 20 have not incurred any material costs or liabilities relating to claims of mold exposure or to abate
mold conditions. Because the law regarding mold is unsettled and subject to change, however, we
can make no assurance that liabilities resulting from the presence of, or exposure to, mold or other
microbial organisms will not have a material adverse effect on our consolidated financial condition
or results of operations and our subsidiaries taken as a whole. The following disclosure represents our obligations and commitments to make future payments
under contracts, such as debt and lease agreements, and under contingent commitments, such as debt
guarantees. 21 Cautionary Statements Our liquidity, capital resources and results of operations are subject to a number of risks and
uncertainties including, but not limited to the following: 22 Our primary market risk exposure with regard to financial instruments is changes in interest rates.
Our two notes payable bear interest at the Prime Rate. Our mortgage payable bears interest at a fixed
rate. A hypothetical 100 basis point increase in interest rates would not significantly increase annual
interest expenses on the variable rate notes. A hypothetical 100 basis point increase in interest rates
would result in an approximate $202,000 decrease in the fair value of debt. 23
Item 8 - Financial Statements and Supplementary Data REPORT OF INDEPENDENT AUDITORS To NTS-Properties VII, Ltd.: We have audited the accompanying balance sheet of NTS-Properties VII, Ltd. (the Partnership) as
of December 31, 2002, and the related statements of operations, partners' equity and cash flows for
the year then ended. Our audit also included the financial statement schedule listed in the index at
Item 15(a). These financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on our audit. The
financial statements of the Partnership and the financial statement schedule as of December 31,
2001, and for each of the two years in the period ended December 31, 2001, were audited by other
auditors who have ceased operations and whose report dated March 21, 2002, expressed an
unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above present fairly, in all material respects,
the financial position of NTS-Properties VII, Ltd. as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein. Louisville, Kentucky 24
This report is a copy of the previously issued Arthur Andersen LLP ("Andersen") Auditors' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To NTS-Properties VII, Ltd.: We have audited the accompanying balance sheets of NTS-Properties VII, Ltd. (a Florida limited
partnership) as of December 31, 2001 and 2000, and the related statements of operations, partners'
equity and cash flows for each of the three years in the period ended December 31, 2001. These
financial statements and the schedules referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial statements and schedules
based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of NTS-Properties VII, Ltd. as of December 31, 2001 and 2000, and the results
of its operations and its cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken
as a whole. The schedule of Real Estate and Accumulated Depreciation included in this filing is
presented for purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in relation to the basic financial
statements taken as a whole. ARTHUR ANDERSEN LLP Louisville, Kentucky 25
NTS-PROPERTIES VII, LTD. The accompanying notes to financial statements are an integral part of these statements. 26
NTS-PROPERTIES VII, LTD. The accompanying notes to financial statements are an integral part of these statements. 27
NTS-PROPERTIES VII, LTD. The accompanying notes to financial statements are an integral part of these statements. 28
NTS-PROPERTIES VII, LTD. The accompanying notes to financial statements are an integral part of these statements. 29
NTS-PROPERTIES VII, LTD. Note 1 - Significant Accounting Policies NTS-Properties VII, Ltd. (the "Partnership") is a limited partnership organized under the laws of the
state of Florida in April 1987. Our General Partner is NTS-Properties Associates VII (a Kentucky
limited partnership). We are in the business of developing, constructing, owning and operating
apartment complexes and commercial real estate. The financial statements include the accounts of all wholly-owned properties. Intercompany
transactions and balances have been eliminated. Our less than 50% owned joint venture is accounted
for under the equity method. The terms "we," "us" or "our," as the context requires, may refer to
the Partnership or its interests in these properties and joint venture. Please see the accompanying Blankenbaker Business Center Joint Venture financial statements and
notes. We own and operate the following properties and joint venture: We recognize revenue in accordance with each tenant's respective lease agreement. Our typical
apartment lease is for a period of one year or less and does not contain scheduled rent increases. 30
Pre-termination date net cash receipts and interim net cash receipts, as defined in the Partnership
Agreement, and which are made available for distribution, will be distributed 99% to the limited
partners and 1% to the General Partner. Net operating income (excluding net gains from sales and other specially allocated items) shall be
allocated to the limited partners and the General Partner in proportion to their respective cash
distributions. Net operating income in excess of cash distributions shall be allocated as follows: (1)
pro rata to all partners with a negative capital account in an amount to restore the negative capital
account to zero; (2) 99% to the limited partners and 1% to the General Partner until the limited
partners have received an amount equal to their original capital less cash distributions except
distribution of pre-termination date net cash receipts; (3) the balance, 80% to the limited partners and
20% to the General Partner. Net operating losses shall be allocated 99% to the limited partners and
1% to the General Partner for all periods presented in the accompanying financial statements. We have received a ruling from the Internal Revenue Service stating that we are classified as a
limited partnership for federal income tax purposes. As such, we make no provision for income
taxes. The taxable income or loss is passed through to the holders of partnership interests for
inclusion on their individual income tax returns. A reconciliation of net (loss) income for financial statement purposes versus that for income tax
reporting is as follows: The preparation of financial statements in accordance with Accounting Principles Generally
Accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. 31
We have a cash management program which provides for the overnight investment of excess cash
balances. Per an agreement with a bank, excess cash is invested in a repurchase agreement for U.S.
Government or agency securities on a nightly basis. As of December 31, 2002, approximately
$331,000 was transferred into the investment. Cash and equivalents - restricted represents funds received for residential security deposits. Land, buildings and amenities are stated at historical cost less accumulated depreciation. Costs
directly associated with the acquisition, development and construction of a project are capitalized.
Depreciation is computed using the straight-line method over the estimated useful lives of the assets
which are 7-30 years for land improvements, 5-30 years for buildings and improvements and 5-30
years for amenities. The aggregate cost of our properties for federal tax purposes as of December
31, 2002 is approximately $12,823,000. Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying value must be written down to fair
value. Application of this standard during the year ended December 31, 2002 did not result in an
impairment loss. We expense advertising costs as incurred. Advertising expense was immaterial to us during the
years ended December 31, 2002, 2001 and 2000. For purposes of reporting cash flows, cash and equivalents include cash on hand and short-term,
highly liquid investments with initial maturities of three months or less. During the year ended December 31, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed 32
Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
requires one accounting model to be used for long-lived assets to be disposed of by sale, whether
previously held or used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. Our adoption of SFAS No. 144 did not impact the
financial statements in 2002. We own and operate, through a joint venture, a commercial rental property in Louisville, Kentucky.
The sole tenant which occupies 100% of the property is a business which has operations in the
Louisville area. We also own and operate apartment communities in Louisville and Lexington,
Kentucky. Our financial instruments that are exposed to concentrations of credit risk consist of cash and
equivalents. We maintain our cash accounts primarily with banks located in Kentucky. The total
cash balances are insured by the FDIC up to $100,000 per bank account. We may at times, in certain
accounts, have deposits in excess of $100,000. Between December 7, 1998 and December 31, 2001, we and ORIG, LLC, ("ORIG") an affiliate of
ours, (the "Offerors"), filed four tender offers with the Securities and Exchange Commission.
Through the four tender offers, we repurchased 23,500 Interests for $141,000 or $6.00 per Interest.
ORIG purchased 159,613 Interests for $957,678 or $6.00 per Interest. Interests repurchased by us
were retired. Interests purchased by ORIG are being held by it. On May 10, 2002, ORIG commenced a tender offer to purchase up to 20,000 Interests at a price of
$6.00 per Interest. ORIG had the option to acquire additional Interests on a pro rata basis if more
than 20,000 Interests were tendered. The tender offer was scheduled to expire on August 16, 2002. On August 7, 2002, ORIG amended its tender offer to extend the expiration date from August 16,
2002, to September 16, 2002. The tender offer was amended on September 5, 2002, to increase the
purchase price to $6.50 per Interest and increase the number of Interests to 50,000. This amendment
also extended the expiration date to October 1, 2002. On October 1, 2002, the tender offer expired. Upon expiration, 43,607 Interests had been tendered.
ORIG purchased 43,607 Interests for $283,446 and incurred $3,075 in expenses associated with the
tender offer. We did not participate in this tender offer. 33
The following schedule provides an analysis of our investment in property held for lease as of
December 31: Mortgage and notes payable as of December 31, consisted of the following: Our mortgage may be prepaid but is subject to prepayment of a yield-maintenance premium. Scheduled maturities of debt are as follows: 34
Based on the borrowing rates currently available to us for mortgages with similar terms and average
maturities, the fair value of long-term debt on December 31, 2002 and 2001 was approximately
$3,768,000 and $3,739,000, respectively. Pursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner,
receives property management fees on a monthly basis. The fee is equal to 5% of the gross revenues
from our residential properties. Also pursuant to an agreement, NTS Development Company
receives a repair and maintenance fee equal to 5.9% of costs incurred which relates to capital
improvements and major repair and renovation projects. These repair and maintenance fees are
capitalized as part of land, buildings and amenities. We were charged the following amounts pursuant to an agreement with NTS Development Company
for the years ended December 31, 2002, 2001 and 2000. These charges include items which have
been expensed as operating expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land, buildings and amenities. We, as an owner of real estate, are subject to various environmental laws of federal, state and local
governments. Compliance by us with existing laws has not had a material adverse effect on our
financial condition and results of operations. However, we cannot predict the impact of new or
changed laws or regulations on our current properties or on properties that we may acquire in the
future. 35
We are jointly and severally liable under the mortgage loan agreement for the Blankenbaker
Business Center 1A debt. The outstanding balances on this mortgage on December 31, 2002 and
2001 were $1,733,466 and $2,235,829, respectively. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against our General Partner, the general partners of four
public partnerships affiliated with us and several individuals and entities affiliated with us. The
action purports to bring claims on behalf of a class of limited partners based on, among other things,
tender offers made by the public partnerships and an affiliate of our General Partner. The plaintiffs
allege, among other things, that the prices at which limited partnership interests were purchased in
these tender offers were too low. The plaintiffs are seeking monetary damages and equitable relief,
including an order directing the disposition of the properties owned by the public partnerships and
the distribution of the proceeds. No amounts have been accrued as a liability for this action in our
financial statements at December 31, 2002. Under an indemnification agreement with our General
Partner, we are responsible for the costs of defending this action. For the year ended December 31,
2002, our share of these legal costs was approximately $25,000, which was expensed. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of our General Partner and
the general partners of two limited partnerships affiliated with us. The effect of this ruling is that
our General Partner and the other two general partners are no longer parties to the lawsuit. On the
same date the court overruled the demurrer of the general partners of two of the partnerships
affiliated with us and one individual and two entities affiliated with us. The entities and individuals
whose demurrers were overruled remain defendants in the lawsuit. These parties believe the lawsuit
is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against our General Partner, the general partners of three public
partnerships affiliated with us and several individuals and entities affiliated with us. On March 21,
2003, the complaint was amended to include the general partners of another public partnership
affiliated with us and a partnership that was affiliated with us but is no longer in existence. In the
amended complaint, the plaintiffs purport to bring claims on behalf of a class of limited partners and
derivatively on behalf of us and affiliated public partnerships based on alleged overpayments of fees,
prohibited investments, improper failures to make distributions, purchases of limited partnership
interests at insufficient prices and other violations of the limited partnership agreements. The
plaintiffs are seeking, among other things, compensatory and punitive damages in an unspecified
amount, an accounting, the appointment of a receiver or liquidating trustee, the entry of an order of
dissolution against the public partnerships, a declaratory judgment, and injunctive relief. Our
General Partner believes that this action is without merit, and intends to vigorously defend it. 36
We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. We plan to replace the roofs at Park Place Apartments Phase II (18 buildings) all of which were
installed using shingles produced by a single manufacturer. The shingles appear to contain defects
which may cause roofs to fail. As the shingle manufacturer has declared bankruptcy, we do not
expect to be able to recover any of the costs of the roof replacements in the event of any such
failures. Based upon these facts, management changed the estimated useful life of the roof assets.
The change resulted in an approximate increase in depreciation expense of $96,000 and $48,000 for
2002 and 2001, respectively. We do not have sufficient working capital to make all of the roof
replacements at one time. As of December 31, 2002 one roof replacement has been completed. The
total cost of replacing the remaining roofs is estimated to be $340,000 ($20,000 per building). Our reportable operating segments include only one segment - Residential Real Estate Operations. 37
REPORT OF INDEPENDENT AUDITORS To the Blankenbaker Business Center Joint Venture: We have audited the accompanying balance sheet of the Blankenbaker Business Center Joint
Venture (the Joint Venture) as of December 31, 2002, and the related statements of operations, partners' equity and cash
flows for the year then ended. These financial statements are the responsibility of the Joint Venture's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of the
Joint Venture as of December 31, 2001, and for each of the two years in the period ended
December 31, 2001, were audited by other auditors who have ceased operations and whose report
dated March 21, 2002, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above present fairly, in all material respects,
the financial position of the Blankenbaker Business Center Joint Venture as of December 31, 2002,
and the results of its operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States. Louisville, Kentucky 38
This report is a copy of the previously issued Arthur Andersen LLP ("Andersen") Auditors' REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Blankenbaker Business Center Joint Venture: We have audited the accompanying balance sheets of the Blankenbaker Business Center Joint
Venture as of December 31, 2001 and 2000, and the related statements of operations, partners' equity
and cash flows for each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Blankenbaker Business Center Joint Venture's management.
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United
States. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Blankenbaker Business Center Joint Venture as of December 31, 2001 and
2000, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally accepted in the United
States. ARTHUR ANDERSEN LLP Louisville, Kentucky 39
BLANKENBAKER BUSINESS CENTER JOINT VENTURE The accompanying notes to financial statements are an integral part of these statements. 40
BLANKENBAKER BUSINESS CENTER JOINT VENTURE The accompanying notes to financial statements are an integral part of these statements. 41
BLANKENBAKER BUSINESS CENTER JOINT VENTURE The accompanying notes to financial statements are an integral part of these statements. 42
BLANKENBAKER BUSINESS CENTER JOINT VENTURE The accompanying notes to financial statements are an integral part of these statements. 43
BLANKENBAKER BUSINESS CENTER JOINT VENTURE Note 1 - Significant Accounting Policies Blankenbaker Business Center Joint Venture (the "Joint Venture") was organized on December 28,
1990, by NTS-Properties VII, Ltd. and NTS-Properties Plus Ltd. to own and operate Blankenbaker
Business Center 1A and to acquire an approximately 2.49 acre parking lot that was being leased by
the business center from an affiliate of the General Partner. On August 16, 1994, the Blankenbaker
Business Center Joint Venture Agreement was amended to admit NTS-Properties IV to the Joint
Venture. The terms "we," "us" or "our," as the context requires, may refer to the Joint Venture or
its interests in this property. Blankenbaker Business Center Joint Venture owns Blankenbaker Business Center 1A, a business
center with approximately 50,000 net rentable ground floor square feet and approximately 50,000
net rentable mezzanine square feet located in Louisville, Kentucky. The net cash flow for each calendar quarter is distributed to the partners in accordance with their
respective percentage interests. The term "Net Cash Flow" for any period shall mean the excess, if
any of A) the sum of (i) the gross receipts of the joint venture property for such period, other than
capital contributions plus (ii) any funds released by the partners for previously established reserves
(referred to in clause (B) (iv) below), over (B) the sum of (i) all cash operating expenses paid by the
joint venture property during such period in the course of business, (ii) capital expenditures paid in
cash during such period, (iii) payments during such period on account of amortization of the
principal of any debts or liabilities of the joint venture property and (iv) reserves for contingent
liabilities and future expenses of the joint venture property as established by the partners; provided,
however, that the amounts referred to in (B) (i), (ii) and (iii) above shall only be taken into account
to the extent not funded by capital contributions or paid out of previously established reserves.
"Percentage Interest" means that percentage which the capital contribution of a partner bears to the
aggregate capital contributions of all the partners. Net income or loss is allocated between the partners in accordance with their respective
percentage interests pursuant to the Joint Venture agreement. 44
The preparation of financial statements in accordance with Accounting Principles Generally
Accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Cash and equivalents - restricted represents funds which have been escrowed with a mortgage
company for property taxes in accordance with the loan agreement. Land, buildings and amenities are stated at cost. Costs directly associated with
the acquisition, development and construction of a project are capitalized. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets which are 10-30 years for
land improvements, 5-30 years for building and improvements and the applicable lease term for
tenant improvements. The aggregate cost of Blankenbaker Business Center 1A for federal tax
purposes as of December 31, 2002 is approximately $7,387,000. Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," specifies circumstances in which certain long-lived assets must
be reviewed for impairment. If such review indicates that the carrying amount of an asset exceeds
the sum of its expected future cash flows, the asset's carrying value must be written down to fair
value. Application of this standard during the year ended December 31, 2002 did not result in an
impairment loss. For financial reporting purposes, the income from commercial leases is recognized on a straight-line
basis over the lease term. There was no accrued income connected with commercial leases as of
December 31, 2002 and 2001, due to the renewal lease having no scheduled and specified rent
increases. All commissions paid to commercial property leasing agents are deferred and amortized
on a straight-line basis over the applicable lease term. The Joint Venture expenses advertising costs as incurred. Advertising expense was immaterial to
the Joint Venture during the years ended December 31, 2002, 2001 and 2000. 45
During the year ended December 31, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of," and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
requires one accounting model to be used for long-lived assets to be disposed of by sale, whether
previously held or used or newly acquired, and it broadens the presentation of discontinued
operations to include more disposal transactions. Our adoption of SFAS No. 144 did not impact the
financial statements in 2002. The Joint Venture owns and operates a commercial property in Louisville, Kentucky. The sole
tenant which occupies 100% of the property is a business which has operations in the Louisville area. The following schedule provides an analysis of the Joint Venture investment in property held for
lease as of December 31: Mortgage payable as of December 31 consist of the following: 46
Scheduled maturities of debt are as follows: Based on the borrowing rates currently available to the Joint Venture for mortgages with similar
terms and average maturities, the fair value of long-term debt on December 31, 2002 and 2001 was
approximately $1,784,000 and $2,278,000, respectively. The following is a schedule of minimum future rental income on the noncancellable operating lease: Pursuant to an agreement with the partnerships which formed the Blankenbaker Business Center
Joint Venture, NTS Development Company, an affiliate of the General Partners of the partnerships,
receives property management fees on a monthly basis. The fee is equal to 6% of the gross revenues
from the partnerships' commercial properties. Also permitted by an agreement, NTS Development
Company receives a repair and maintenance fee equal to 5.9% of costs incurred which relate to
capital improvements. These repair and maintenance fees are capitalized as part of land, buildings
and amenities. The Blankenbaker Business Center Joint Venture was charged the following amounts pursuant to
an agreement with NTS Development Company for the years ended December 31, 2002, 2001 and
2000. These charges include items which have been expensed as operating expenses - affiliated or
professional and administrative expenses - affiliated and items which have been capitalized as other
assets or as land, buildings and amenities. The professional and administrative expenses - affiliated
includes a cost recovery to provide for expenditures made on the Joint Venture's behalf. 47
The Joint Venture, as an owner of real estate, is subject to various environmental laws of federal,
state and local governments. Compliance by the Joint Venture with existing laws has not had a
material adverse effect on the Joint Venture's financial condition and results of operations.
However, the Joint Venture cannot predict the impact of new or changed laws or regulations on the
currently owned properties or on properties that may be acquired in the future. On December 12, 2001, three individuals filed an action in the Superior Court of the State of
California for the County of Contra Costa against the General Partner of NTS-Properties VII, Ltd.,
the general partners of four public partnerships affiliated with us and several individuals and entities
affiliated with us. The action purports to bring claims on behalf of a class of limited partners based
on, among other things, tender offers made by the public partnerships and an affiliate of the General
Partner of NTS-Properties VII, Ltd. The plaintiffs allege, among other things, that the prices at
which limited partnership interests were purchased in these tender offers were too low. The
plaintiffs are seeking monetary damages and equitable relief, including an order directing the
disposition of the properties owned by the public partnerships and the distribution of the proceeds.
No amounts have been accrued as a liability for this action in our financial statements at December
31, 2002. On September 24, 2002, in connection with the above-described lawsuit, the plaintiffs voluntarily
dismissed two of the individuals and one of the entities that had objected to the lawsuit on personal
jurisdiction grounds. This dismissal was the result of an agreement under which some defendants
agreed not to contest jurisdiction and plaintiffs agreed to dismiss other defendants. Additionally,
on October 22, 2002, the court issued an order sustaining the demurrer of the General Partner of
NTS-Properties VII, Ltd. and the general partners of two limited partnerships affiliated with us. The
effect of this ruling is that the General Partner of NTS-Properties VII, Ltd. and the other two general
partners are no longer parties to the lawsuit. On the same date the court overruled the demurrer of
the general partners of two of the partnerships affiliated with us and one individual and two entities 48
affiliated with us. The entities and individuals whose demurrers were overruled remain defendants
in the lawsuit. These parties believe the lawsuit is without merit, and are vigorously defending it. On February 27, 2003, two individuals filed a class and derivative action in the Circuit Court of
Jefferson County, Kentucky against the General Partner of NTS-Properties VII, Ltd, the general
partners of three public partnerships affiliated with us and several individuals and entities affiliated
with us. On March 21, 2003, the complaint was amended to include the general partners of another
public partnership affiliated with us and a partnership that was affiliated with us but is no longer in
existence. In the amended complaint, the plaintiffs purport to bring claims on behalf of a class of
limited partners and derivatively on behalf of us and affiliated public partnerships based on alleged
overpayments of fees, prohibited investments, improper failures to make distributions, purchases of
limited partnership interests at insufficient prices and other violations of the limited partnership
agreements. The plaintiffs are seeking, among other things, compensatory and punitive damages in
an unspecified amount, an accounting, the appointment of a receiver or liquidating trustee, the entry
of an order of dissolution against the public partnerships, a declaratory judgment, and injunctive
relief. The General Partner of NTS-Properties VII, Ltd. believes that this action is without merit,
and intends to vigorously defend it. We do not believe there is any other litigation threatened against us other than routine litigation
arising out of the ordinary course of business, some of which is expected to be covered by insurance,
none of which is expected to have a material effect on our financial position or results of operations
except as discussed herein. The Joint Venture's reportable operating segments include only one segment - Commercial Real
Estate Operations. 49
None. 50
PART III Because we are a limited partnership and not a corporation, we do not have directors or officers. We
are managed by our General Partner, NTS-Properties Associates VII. Additionally we have entered
into a management contract with NTS Development Company, an affiliate of our General Partner,
to provide property management services. The General Partners of NTS-Properties Associates VII are as follows: Mr. Nichols (age 61) is the managing General Partner of NTS-Properties Associates VII and is
Chairman of the Board of NTS Corporation (since 1985) and NTS Development Company (since
1977). NTS Capital Corporation (formerly NTS Corporation) is a Kentucky corporation formed in October
1979. J. D. Nichols is Chairman of the Board and the sole director of NTS Capital Corporation. The Manager of our properties is NTS Development Company, the executive officers and/or
directors of which are J. D. Nichols, Brian F. Lavin and Gregory A. Wells. Brian F. Lavin (age 49), President of NTS Corporation and NTS Development Company joined the
Manager in June 1997. From November 1994 through June 1997, Mr. Lavin served as President of
the Residential Division of Paragon Group, Inc. and as a Vice President of Paragon's Midwest
Division prior to November 1994. In this capacity, he directed the development, marketing, leasing
and management operations for the firms expanding portfolios. Mr. Lavin attended the University of Missouri where he received his Bachelor's Degree in Business
Administration. He is a licensed Kentucky Real Estate Broker and Certified Property Manager. Mr.
Lavin is a member of the Institute of Real Estate Management, council member of the Urban Land
Institute and member of the National Multi-Housing Council. He has served on the Boards of the
Louisville Science Center, Louisville Ballet, Greater Louisville Inc., National Multi-Housing
Council, Louisville Apartment Association, the Board of Trustees for the Louisville Olmsted Parks
Conservancy, Inc. and currently serves on the Board of Directors and Executive Committee of
Greater Louisville Inc. and Board of Overseers for the University of Louisville. 51
Mr. Wells (age 44), Senior Vice President and Chief Financial Officer of NTS Corporation and NTS
Development Company, joined the Manager in July 1999. From May 1998 through June 1999, Mr.
Wells served as Chief Financial Officer of Hokanson Companies, Inc. and as Secretary and Treasurer
of Hokanson Construction, Inc. in Indianapolis, Indiana from January 1995 through May 1998. In
these capacities, he directed financial and operational activities for commercial real estate, company
owned and third-party managed properties, building and suite renovations, and commercial and
residential construction. Mr. Wells previously served as Vice President of Operations and Treasurer
of Executive Telecom System, Inc., a subsidiary of The Bureau of National Affairs, Inc.
(Washington, D.C.). Mr. Wells received a Bachelor's Degree in Business Administration from
George Mason University and is a Certified Public Accountant in Virginia and Kentucky. He
participates in a number of charitable and volunteer activities in the Louisville, Kentucky area. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that certain persons,
including persons who own more than ten percent (10%) of our limited partnership interests, file
initial statements of beneficial ownership (Form 3), and statements of changes in beneficial
ownership (Forms 4 or 5), with the U.S. Securities and Exchange Commission (the "SEC"). The
SEC requires that these persons furnish us with copies of all forms filed with the SEC. To our knowledge, based solely on review of the copies of the forms we received, or written
representations from certain reporting persons, that no additional forms were required for those
persons. The officers and/or directors of our corporate General Partner receive no direct remuneration in such
capacities. We are required to pay a property management fee based on gross revenues to NTS
Development Company. We are also required to pay to NTS Development Company a repair and
maintenance fee on costs related to specific projects and a refinancing fee on Net Cash Proceeds
from the refinancing of any of our properties. Also, NTS Development Company provides certain
other services to us. See Item 8 - Note 6 which describes the calculations
of these fees and sets forth transactions with affiliates of our General Partner for the years ended
December 31, 2002, 2001 and 2000. Our General Partner is entitled to receive cash distributions and allocations of profits and losses from
us. See Item 8 - Note 1E which describes the methods used to determine income
allocations and cash distributions. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations, along with Consolidated Cash Flows and Financial Condition, for information
concerning recent tender offers for our limited partners. 52
The following provides details regarding owners of more than 5% of the total outstanding limited
partnership interests as of January 31, 2003. ORIG, LLC
216,080 Interests (39.13%) ORIG, LLC is a Kentucky limited liability company, the members of which are J. D. Nichols (1%),
Barbara M. Nichols (J.D. Nichols' wife) (74%), and Brian F. Lavin (25%). J.D. Nichols and Brian
F. Lavin are the Chairman and President, respectively, of NTS Capital Corporation, a general partner
of NTS Properties Associates VII, our General Partner. Our General Partner is NTS-Properties Associates VII, a Kentucky limited partnership, 10172 Linn
Station Road, Louisville, Kentucky 40223. The general partners of our General Partner and their
total respective interests (general and limited) in NTS-Properties Associates VII are as follows: J. D. Nichols
36.05% NTS Capital Corporation
11.95% The remaining 52.00% interests are owned by various limited partners of NTS-Properties Associates
VII. Pursuant to an agreement with us, NTS Development Company, an affiliate of our General Partner,
receives property management fees on a monthly basis. The fee is equal to 5% of gross revenues
from the residential properties. Also pursuant to an agreement with us, NTS Development Company
receives a repair and maintenance fee equal to 5.9% of costs incurred which relates to capital
improvements and major repair and renovation projects. These repair and maintenance fees are
capitalized as part of land, buildings and amenities. We were charged the following amounts pursuant to an agreement with NTS Development Company
for the years ended December 31, 2002, 2001, and 2000. These charges include items which have
been expensed as operating expenses - affiliated or professional and administrative expenses -
affiliated and items which have been capitalized as other assets or as land, buildings and amenities. 53
These charges were as follows: Our affiliate, ORIG, LLC has participated in tender offers for our Interests. See Item 8 - Note 3
for additional information on these tender offers. The Chief Executive Officer and Chief Financial Officer of NTS Capital Corporation, the General
Partner of our General Partner, have concluded, based on their evaluation within 90 days of the filing
date of this report, that our disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information we are required to disclose in our reports filed under the Securities
Exchange Act of 1934. There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of the previously
mentioned evaluation. 54
PART IV Item 15 - Exhibits, Financial Statement Schedules and Reports on Form 8-K The financial statements for the year ended December 31, 2002 along with the report from Ernst &
Young LLP dated March 26, 2003, and the financial statements for the years ended December 31,
2001 and 2000 along with a copy of the report from Arthur Andersen LLP dated March 21, 2002,
which has not been reissued, appear in Part II, Item 8. The following schedules should be read in
conjunction with those financial statements. 2 - Financial Statement Schedules All other schedules have been omitted because they are not applicable, are not required, or because
the required information is included in the financial statements or notes thereto. 3 - Exhibits 4 - Reports on Form 8-K None. 55
NTS-PROPERTIES VII, LTD. 56
NTS-PROPERTIES VII, LTD. 57
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. Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has
been signed below by the following persons on behalf of the registrant in their capacities and on
the date indicated above. We are a limited partnership and no proxy material has been sent to the limited partners. We will
deliver to the limited partners an annual report containing our financial statements and a message
from our General Partner. 58
CERTIFICATION Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 I, Brian F. Lavin, certify that: Date: March 31, 2003 /s/ Brian F. Lavin See also the certification pursuant to Section 906 of the Sarbanes Oxley Act of
2002, which is also attached to this report. 59 CERTIFICATION Pursuant to Section 302 of the Sarbanes Oxley Act of 2002 I, Gregory A. Wells, certify that: Date: March 31, 2003 /s/ Gregory A. Wells See also the certification pursuant to Section 906 of the Sarbanes Oxley Act
of 2002, which is also attached to this report. 60
The Park at the Willows
Year of Square Feet and % of Current Annual Rental
Major Tenant (1): Expiration Net Rentable Area (2) per Square Foot
- ------------------------------- ------------------ -------------------------- ---------------------------
1 2005 100,640 (100%) $7.48
(1) Major tenants are those that individually occupy 10% or more of the rentable square footage.
(2) Rentable area includes ground floor and mezzanine square feet.
Additional Operating Data
Federal Tax Property Tax Annual Property
Basis Rate Taxes
------------------ ----------------- ------------------
Wholly-Owned Properties
The Park at the Willows $ 2,684,182 .010950 $ 15,023
Park Place Apartments Phase II $ 9,850,043 .009575 $ 70,605
Joint Venture Property
Blankenbaker Business Center 1A $ 7,386,626 .010850 $ 51,281
Blankenbaker Business Center Joint Venture
2002 2001 2000
----------------- ----------------- -----------------
First quarter $ -- $ -- $ .05
Second quarter -- -- .05
Third quarter -- -- .05
Fourth quarter -- -- --
----------------- ----------------- -----------------
$ -- $ -- $ .15
================= ================= =================
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
------------------ ------------------ -----------------
Limited partners
2002 $ (209,579) $ -- $ --
2001 (155,772) -- --
2000 28,759 83,236 54,477
General Partner
2002 $ (2,117) $ -- $ --
2001 (1,573) -- --
2000 290 840 550
2002 2001 2000 1999 1998
--------------- --------------- --------------- --------------- ----------------
Rental income $ 1,515,528 $ 1,528,920 $ 1,617,578 $ 1,649,799 $ 1,624,385
Other income 7,753 14,573 30,565 24,413 27,851
Income (loss) from
investment in joint venture 95,935 77,932 54,881 52,317 36,158
Gain on sale of assets 364 26 4,118 -- --
Total expenses (1,831,276) (1,778,796) (1,678,093) (1,649,633) (1,718,890)
--------------- --------------- --------------- --------------- ----------------
Net income (loss) $ (211,696) $ (157,345)$ 29,049 $ 76,896 $ (30,496)
=============== =============== =============== =============== ================
Net income (loss)
allocated to:
General Partner $ (2,117) $ (1,573)$ 290 $ 769 $ (305)
Limited partners $ (209,579) $ (155,772)$ 28,759 $ 76,127 $ (30,191)
Net income (loss) per
limited partnership
interest $ (0.38) $ (0.28)$ 0.05 $ 0.13 $ (0.05)
Weighted average number
of limited partnership
interests 552,236 553,031 554,828 567,325 581,622
Cumulative net income
(loss) allocated to:
General Partner $ (29,354) $ (27,237)$ (25,664)$ (25,954)$ (26,723)
Limited partners $ (2,906,131) $ (2,696,552)$ (2,540,780)$ (2,569,539)$ (2,645,666)
Cumulative taxable
income (loss) allocated to:
General Partner $ 26,476 $ 26,437 $ 26,699 $ 26,100 $ 23,511
Limited partners $ (2,962,914) $ (2,876,673)$ (2,781,494)$ (2,809,106)$ (2,915,767)
Distributions declared:
General Partner $ -- $ -- $ 840 $ 1,138 $ 1,458
Limited partners $ -- $ -- $ 83,236 $ 112,646 $ 144,299
Cumulative distributions
declared:
General Partner $ 27,445 $ 27,445 $ 27,445 $ 26,605 $ 25,467
Limited partners $ 2,717,046 $ 2,717,046 $ 2,717,046 $ 2,633,810 $ 2,521,164
At year end:
Cash and equivalents $ 382,533 $ 431,232 $ 307,173 $ 396,110 $ 394,778
Land, buildings and
amenities, net $ 7,299,579 $ 7,730,705 $ 8,088,455 $ 8,327,056 $ 8,601,080
Total assets $ 8,432,230 $ 8,820,883 $ 9,004,494 $ 9,282,186 $ 9,554,908
Mortgages and notes
payable $ 3,494,218 $ 3,659,778 $ 3,756,533 $ 3,876,398 $ 3,987,830
2002 (1) 2001 2000
-------------- ------------- -------------
Wholly-Owned Properties
The Park at the Willows 90% 75% 90%
Park Place Apartments Phase II 89% 76% 77%
Joint Venture Property
(Ownership % on December 31, 2002)
Blankenbaker Business Center 1A (31.34%) 100% 100% 100%
(1) Current occupancy levels are considered adequate to continue the operation of our properties.
2002 2001 2000
-------------- ------------- -------------
Wholly-Owned Properties
The Park at the Willows (1) 83% 90% 81%
Park Place Apartments Phase II 82% 77% 83%
Joint Venture Property
(Ownership % on December 31, 2002)
Blankenbaker Business Center 1A (31.34%) 100% 100% 100%
(1) In our opinion, the decrease in year ending average occupancy is only a temporary fluctuation and does not
represent a permanent downward occupancy trend.
2002 2001 2000
-------------- ------------- -------------
Wholly-Owned Properties
The Park at the Willows $ 323,586 $ 353,343 $ 308,120
Park Place Apartments Phase II $ 1,195,876 $ 1,178,628 $ 1,321,808
Joint Venture Property
(Ownership % on December 31, 2002)
Blankenbaker Business Center 1A (31.34%) $ 952,219 $ 935,165 $ 908,100
Results of Operations for 2000, 2001 and 2002
2002 2001 2000
-------------- ------------- -------------
Operating activities $ 184,149 $ 421,539 $ 315,895
Investing activities (67,288) (194,725) (185,891)
Financing activities (165,560) (102,755) (218,941)
-------------- ------------- -------------
Net (decrease) increase in cash and equivalents $ (48,699)$ 124,059 $ (88,937)
============== ============= =============
Net Income Cash
(Loss) Distributions Return of
Allocated Declared Capital
------------------ ------------------ -----------------
Limited partners
2002 $ (209,579)$ -- $ --
2001 (155,772) -- --
2000 28,759 83,236 54,477
General Partner
2002 $ (2,117)$ -- $ --
2001 (1,573) -- --
2000 290 840 550
Payments Due by Period
--------------------------------------------------------------------------
Within One Two - Three Four - Five After 5
Contractual Obligations Total Year Years Years Years
- -------------------------------- ------------- ------------- ------------- ------------- -------------
Long-term debt $ 3,494,218 $ 155,200 $ 334,034 $ 386,941 $ 2,618,043
Capital lease obligations $ -- $ -- $ -- $ -- $ --
Operating leases (1) $ -- $ -- $ -- $ -- $ --
Other long-term obligations (2) $ -- $ -- $ -- $ -- $ --
------------- ------------- ------------- ------------- -------------
Total contractual cash
obligations $ 3,494,218 $ 155,200 $ 334,034 $ 386,941 $ 2,618,043
============= ============= ============= ============= =============
(1) We are party to numerous small operating leases for office equipment such as copiers, postage machines and fax
machines, which represent an insignificant obligation.
(2) We are party to several annual maintenance agreements with vendors for such items as outdoor maintenance, pool
service and security systems, which we may or may not renew each year.
Amount of Commitment Expiration Per Period
-----------------------------------------------------------
Total
Other Commercial Amounts Within One Two - Three Four - Five Over 5
Commitments Committed Year Years Years Years
- ------------------------------- -------------- ------------- ------------- ------------- -------------
Line of credit $ -- $ -- $ -- $ -- $ --
Standby letters of credit and
guarantees (1) $ 1,733,466 $ 546,767 $ 1,186,699 $ -- $ --
Other commercial
commitments (2) $ -- $ -- $ -- $ -- $ --
-------------- ------------- ------------- ------------- -------------
Total commercial
commitments $ 1,733,466 $ 546,767 $ 1,186,699 $ -- $ --
============== ============= ============= ============= =============
(1) We are a guarantor, along with NTS-Properties Plus, of Blankenbaker Business Center 1A's mortgage. The balance
in the table represents 100% of the outstanding mortgage balance, of which we are jointly and severally liable.
(2) We do not, as a practice, enter into long term purchase commitments for commodities or services. We may from
time to time agree to "fee for service arrangements" which are for a term of greater than one year.
Ernst & Young LLP
March 26, 2003
Report. This report has not been reissued by Andersen.
March 21, 2002
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
------------------ -----------------
ASSETS
Cash and equivalents $ 382,533 $ 431,232
Cash and equivalents - restricted 28,775 23,568
Accounts receivable, net 4,532 1,173
Land, buildings and amenities, net 7,299,579 7,730,705
Investment in and advances to joint venture 663,678 572,171
Other assets 53,133 62,034
------------------ -----------------
TOTAL ASSETS $ 8,432,230 $ 8,820,883
================== =================
LIABILITIES AND PARTNERS' EQUITY
Mortgage and notes payable $ 3,494,218 $ 3,659,778
Accounts payable 48,583 97,604
Security deposits 28,775 23,375
Other liabilities 40,910 8,686
------------------ -----------------
TOTAL LIABILITIES 3,612,486 3,789,443
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY 4,819,744 5,031,440
------------------ -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 8,432,230 $ 8,820,883
================== =================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- -------------
REVENUES
Rental income $ 1,515,528 $ 1,528,920 $ 1,617,578
Interest and other income 7,753 14,573 30,565
Income from investment in joint venture 95,935 77,932 54,881
Gain on sale of assets 364 26 4,118
------------- ------------- -------------
TOTAL REVENUES 1,619,580 1,621,451 1,707,142
EXPENSES
Operating expenses 418,331 395,607 377,700
Operating expenses - affiliated 266,307 254,364 235,801
Loss on disposal of assets 2,038 51,421 54,533
Interest expense 266,573 277,416 285,383
Management fees 77,413 78,563 83,823
Real estate taxes 84,039 86,890 88,011
Professional and administrative expenses 100,183 72,310 86,342
Professional and administrative expenses -
affiliated 115,224 109,311 85,611
Depreciation and amortization 501,168 452,914 380,889
------------- ------------- -------------
TOTAL EXPENSES 1,831,276 1,778,796 1,678,093
------------- ------------- -------------
Net (loss) income $ (211,696) $ (157,345)$ 29,049
============= ============= =============
Net (loss) income allocated to the limited
partners $ (209,579) $ (155,772)$ 28,759
============= ============= =============
Net (loss) income per limited partnership
interest $ (0.38) $ (0.28)$ 0.05
============= ============= =============
Weighted average number of limited
partnership interests 552,236 553,031 554,828
============= ============= =============
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Limited
Partners' Limited General
Interests Partners Partner Total
------------- ------------- -------------- -------------
PARTNERS' EQUITY/(DEFICIT)
Balances on January 1, 2000 555,736 $ 5,317,271 $ (52,459)$ 5,264,812
Net income 28,759 290 29,049
Distributions declared (83,236) (840) (84,076)
Repurchase of limited partnership
interests (2,500) (15,000) -- (15,000)
------------- ------------- -------------- -------------
Balances on December 31, 2000 553,236 5,247,794 (53,009) 5,194,785
Net loss (155,772) (1,573) (157,345)
Repurchase of limited partnership
interests (1,000) (6,000) -- (6,000)
------------- ------------- -------------- -------------
Balances on December 31, 2001 552,236 5,086,022 (54,582) 5,031,440
Net loss (209,579) (2,117) (211,696)
------------- ------------- -------------- -------------
Balances on December 31, 2002 552,236 $ 4,876,443 $ (56,699)$ 4,819,744
============= ============= ============== =============
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (211,696)$ (157,345)$ 29,049
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Provision for doubtful accounts 6,508 2,487 --
Write-off of uncollectible accounts receivable -- (2,487) --
Loss on disposal of assets 2,038 51,421 54,533
Gain on sale of assets (364) (26) (4,118)
Depreciation and amortization 504,289 456,034 384,197
Income from investment from joint venture (95,935) (77,932) (54,881)
Changes in assets and liabilities:
Cash and equivalents - restricted (5,207) 2,607 1,649
Accounts receivable (9,867) 61,805 24,607
Other assets 5,780 8,486 (31,341)
Accounts payable (49,021) 83,166 (78,337)
Security deposits 5,400 (1,950) (1,150)
Other liabilities 32,224 (4,727) (8,313)
------------- ------------- --------------
Net cash provided by operating activities 184,149 421,539 315,895
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and amenities (72,080) (146,618) (199,637)
Proceeds from sale of assets 364 60 6,934
Investment in and advances to joint venture 4,428 (48,167) 6,812
------------- ------------- --------------
Net cash used in investing activities (67,288) (194,725) (185,891)
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage and notes payable (165,560) (147,815) (119,865)
Proceeds from notes payable -- 51,060 --
Cash distributions -- -- (84,076)
Repurchase of limited partnership interests -- (6,000) (15,000)
------------- ------------- --------------
Net cash used in financing activities (165,560) (102,755) (218,941)
------------- ------------- --------------
Net (decrease) increase in cash and equivalents (48,699) 124,059 (88,937)
CASH AND EQUIVALENTS, beginning of year 431,232 307,173 396,110
------------- ------------- --------------
CASH AND EQUIVALENTS, end of year $ 382,533 $ 431,232 $ 307,173
============= ============= ==============
Interest paid on a cash basis $ 263,928 $ 274,703 $ 285,047
============= ============= ==============
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
D) Revenue Recognition
2002 2001 2000
-------------- ------------- -------------
Net (loss) income $ (211,696)$ (157,345)$ 29,049
Items handled differently for tax purposes:
Depreciation and amortization 88,113 58,033 (14,534)
Prepaid rent and other capitalized leasing costs 28,958 2,390 9,384
Bad debt allowance 6,508 -- --
Gain/loss on disposal of assets 658 (2,899) 4,312
Accrued expenses 1,056 3,500 --
Non-deductible expenses 201 880 --
-------------- ------------- -------------
Taxable (loss) income $ (86,202)$ (95,441)$ 28,211
============== ============= =============
G) Use of Estimates in the Preparation of Financial Statements
2002 2001
------------------ ------------------
Land and improvements $ 3,116,312 $ 3,090,080
Building and improvements 10,172,892 10,146,423
------------------ ------------------
13,289,204 13,236,503
Less accumulated depreciation 5,989,625 5,505,798
------------------ ------------------
$ 7,299,579 $ 7,730,705
================== ==================
Note 5 - Mortgage and Notes Payable
2002 2001
------------------ -----------------
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 7.37%, due
October 15, 2012, secured by land and buildings. $ 3,488,518 $ 3,627,428
Note payable to a bank in monthly installments, bearing interest
at the Prime Rate, but not less than 6.0%, due March 27, 2003.
On December 31, 2002, the interest rate was 6.0%. 4,259 24,169
Note payable to a bank in monthly installments, bearing interest
at the Prime Rate, but not less than 6.0%, due March 27, 2003.
On December 31, 2002, the interest rate was 6.0%. 1,441 8,181
------------------ -----------------
$ 3,494,218 $ 3,659,778
================== =================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 155,200
2004 160,841
2005 173,193
2006 186,366
2007 200,575
Thereafter 2,618,043
---------------------------
$ 3,494,218
===========================
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 77,413 $ 78,563 $ 83,823
------------------ ------------------ -----------------
Property management 153,129 154,611 138,777
Leasing 31,968 27,450 25,057
Administrative - operating 79,844 70,865 70,758
Other 1,366 1,438 1,209
------------------ ------------------ -----------------
Total operating expenses - affiliated 266,307 254,364 235,801
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated 115,224 109,311 85,611
------------------ ------------------ -----------------
Repairs and maintenance fees 2,235 2,150 9,340
Construction management 1,547 600 116
------------------ ------------------ -----------------
Total related party transactions capitalized 3,782 2,750 9,456
------------------ ------------------ -----------------
Total related party transactions $ 462,726 $ 444,988 $ 414,691
================== ================== =================
Note 7 - Commitments and Contingencies
For the Quarters Ended
--------------------------------------------------------------------
2002 March 31 June 30 September 30 December 31
- ------------------------------------ --------------- ---------------- --------------- ----------------
Total revenues $ 380,712 $ 394,014 $ 406,780 $ 438,074
Total expenses 422,009 441,073 492,308 475,886
Net loss (41,297) (47,059) (85,528) (37,812)
Net loss allocated to the
limited partners (40,884) (46,588) (84,673) (37,434)
Net loss per limited
partnership interest (0.07) (0.08) (0.15) (0.08)
For the Quarters Ended
--------------------------------------------------------------------
2001 March 31 June 30 September 30 December 31
- ------------------------------------ --------------- ---------------- --------------- ----------------
Total revenues $ 402,169 $ 406,864 $ 408,705 $ 403,713
Total expenses 448,317 445,857 443,939 440,683
Net loss (46,148) (38,993) (35,234) (36,970)
Net loss allocated to the
limited partners (45,687) (38,603) (34,882) (36,600)
Net loss per limited
partnership interest (0.08) (0.07) (0.06) (0.07)
Ernst & Young LLP
March 26, 2003
Report. This report has not been reissued by Andersen.
March 21, 2002
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
2002 2001
------------------ -----------------
ASSETS
Cash and equivalents $ 42,955 $ 59,123
Cash and equivalents - restricted 3,663 9,597
Accounts receivable 51,130 60,238
Land, buildings and amenities, net 3,124,368 3,318,229
Other assets 112,911 150,699
------------------ -----------------
TOTAL ASSETS $ 3,335,027 $ 3,597,886
================== =================
LIABILITIES AND PARTNERS' EQUITY
Mortgage payable $ 1,733,466 $ 2,235,829
Accounts payable 9,040 59,223
Other liabilities 51,129 53,423
------------------ -----------------
TOTAL LIABILITIES 1,793,635 2,348,475
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY 1,541,392 1,249,411
------------------ -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 3,335,027 $ 3,597,886
================== =================
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- -------------- -------------
REVENUES
Rental income $ 951,763 $ 934,612 $ 907,614
Interest and other income 456 553 486
------------- -------------- -------------
TOTAL REVENUES 952,219 935,165 908,100
EXPENSES
Operating expenses 114,999 92,516 100,128
Operating expenses - affiliated 38,007 36,062 33,802
Loss on disposal of assets -- -- 242
Interest expense 176,836 217,369 255,004
Management fees 57,133 56,110 54,486
Real estate taxes 51,281 49,412 54,677
Professional and administrative expenses -
affiliated -- -- 200,000
Depreciation and amortization 207,852 204,683 204,296
------------- -------------- -------------
TOTAL EXPENSES 646,108 656,152 902,635
------------- -------------- -------------
Net income $ 306,111 $ 279,013 $ 5,465
============= ============== =============
STATEMENTS OF PARTNERS' EQUITY (1)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Partners' Equity
----------------------
Balances on January 1, 2000 $ 633,779
Net income 5,465
Distributions (41,398)
Capital contributions 219,690
----------------------
Balances on December 31, 2000 817,536
Net income 279,013
Distributions (47,138)
Capital contributions 200,000
----------------------
Balances on December 31, 2001 1,249,411
Net income 306,111
Distributions (14,130)
----------------------
Balances on December 31, 2002 $ 1,541,392
======================
(1) For the periods presented, there are no elements of other comprehensive income as defined by the Financial
Accounting Standards Board, Statement of Financial Accounting Standards Statement No. 130, "Reporting
Comprehensive Income."
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
------------- ------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 306,111 $ 279,013 $ 5,465
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of assets -- -- 242
Depreciation and amortization 247,306 244,137 211,745
Changes in assets and liabilities:
Cash and equivalents - restricted 5,934 (3,739) 33,260
Accounts receivable 9,108 (28,307) (31,931)
Other assets (1,666) (358) 30,608
Accounts payable (50,183) (155,912) (9,550)
Other liabilities (2,294) (614) 44,716
------------- ------------- --------------
Net cash provided by operating activities 514,316 334,220 284,555
------------- ------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and amenities (13,991) (18,414) --
------------- ------------- --------------
Net cash used in investing activities (13,991) (18,414) --
------------- ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on mortgage payable (502,363) (461,564) (424,080)
Cash distributions (14,130) (47,138) (41,398)
Capital contributions -- 200,000 219,690
------------- ------------- --------------
Net cash used in financing activities (516,493) (308,702) (245,788)
------------- ------------- --------------
Net (decrease) increase in cash and equivalents (16,168) 7,104 38,767
CASH AND EQUIVALENTS, beginning of year 59,123 52,019 13,252
------------- ------------- --------------
CASH AND EQUIVALENTS, end of year $ 42,955 $ 59,123 $ 52,019
============= ============= ==============
Interest paid on a cash basis $ 170,773 $ 211,572 $ 256,506
============= ============= ==============
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001
------------------ ------------------
Land and improvements $ 2,236,516 $ 2,236,516
Building and improvements 5,150,109 5,136,118
------------------ ------------------
7,386,625 7,372,634
Less accumulated depreciation 4,262,257 4,054,405
------------------ ------------------
$ 3,124,368 $ 3,318,229
================== ==================
Note 4 - Mortgage Payable
2002 2001
----------------- ------------------
Mortgage payable to an insurance company in monthly
installments, bearing interest at a fixed rate of 8.5%,
due November 15, 2005, secured by land and $ 1,733,466 $ 2,235,829
buildings.
----------------- ------------------
$ 1,733,466 $ 2,235,829
================= ==================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 546,767
2004 595,096
2005 591,603
---------------------------
$ 1,733,466
===========================
For the Years Ended December 31, Amount
- ------------------------------------ ---------------------------
2003 $ 752,787
2004 752,787
2005 439,126
---------------------------
$ 1,944,700
===========================
Note 6 - Related Party Transactions
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 57,133 $ 56,110 $ 54,486
------------------ ------------------ -----------------
Property management 22,595 20,091 15,563
Leasing 3,831 5,106 --
Administrative - operating 9,900 9,903 17,268
Other 1,681 962 971
------------------ ------------------ -----------------
Total operating expenses - affiliated 38,007 36,062 33,802
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated -- -- 200,000
------------------ ------------------ -----------------
Total related party transactions $ 95,140 $ 92,172 $ 288,288
================== ================== =================
Note 7 - Commitments and Contingencies
10172 Linn Station Rd.
Louisville, Kentucky 40223
10172 Linn Station Road
Louisville, Kentucky 40223
10172 Linn Station Road
Louisville, Kentucky 40223
For the Years Ended December 31,
---------------------------------------------------------
2002 2001 2000
------------------ ------------------ -----------------
Property management fees $ 77,413 $ 78,563 $ 83,823
------------------ ------------------ -----------------
Property management 153,129 154,611 138,777
Leasing 31,968 27,450 25,057
Administrative - operating 79,844 70,865 70,758
Other 1,366 1,438 1,209
------------------ ------------------ -----------------
Total operating expenses - affiliated 266,307 254,364 235,801
------------------ ------------------ -----------------
Professional and administrative expenses - affiliated 115,224 109,311 85,611
------------------ ------------------ -----------------
Repairs and maintenance fees 2,235 2,150 9,340
Construction management 1,547 600 116
------------------ ------------------ -----------------
Total related party transactions capitalized 3,782 2,750 9,456
------------------ ------------------ -----------------
Total related party transactions $ 462,726 $ 444,988 $ 414,691
================== ================== =================
Schedules Page No.
III-Real Estate and Accumulated Depreciation 56-57
Exhibit No.
3. Amended and Restated Agreement and Certificate of Limited *
Partnership of NTS-Properties VII, Ltd., a Florida limited partnership.
10. Property Management and Construction Agreement between NTS *
Development Company and NTS-Properties VII, Ltd.
99.1 Certification of Chief Executive Officer Pursuant to Section 906 **
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to Section 906 **
of the Sarbanes-Oxley Act of 2002.
* Incorporated by reference to documents filed with the Securities and Exchange Commission
in connection with the filing of the Registration Statements on Form S-11 on May 15, 1987
(effective October 29, 1987) under Commission File No. 33-14308.
** Attached as an exhibit with this Form 10-K.
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2002
Park Place
The Park at Apartments
the Willows Phase II Total
--------------- --------------- ---------------
Encumbrances None (A)
Initial cost to partnership:
Land $ 457,048 $ 2,616,693 $ 3,073,741
Buildings and improvements 2,091,968 7,692,119 9,784,087
Cost capitalized subsequent to acquisition:
Improvements (net of retirements) 135,817 277,618 413,435
Gross amount at which carried
December 31, 2002 (B):
Land $ 461,250 $ 2,655,062 $ 3,116,312
Buildings and improvements 2,223,583 7,931,368 10,154,951
--------------- --------------- ---------------
Total $ 2,684,833 $ 10,586,430 $ 13,271,263
=============== =============== ===============
Accumulated depreciation $ 1,205,864 $ 4,771,202 $ 5,977,066
=============== =============== ===============
Date of construction N/A 02/90
Date acquired 05/88 N/A
Life at which depreciation in latest
income statement is computed (C) (C)
(A) First mortgage held by an insurance company.
(B) Aggregate cost of real estate for tax purposes is approximately $12,823,000.
(C) Depreciation is computed using the straight-line method over the estimated useful lives of the assets which are 7-30
years for land improvements, 5-30 years for buildings and improvements and 5-30 years for amenities.
(D) Reconciliation, net of accumulated depreciation, to financial statements:
Total gross cost on December 31, 2002 $ 13,271,263
Additions to Partnership for computer hardware and software in 1998 8,797
Additions to Partnership for computer hardware and software in 1999 9,144
---------------
Balance on December 31, 2002 13,289,204
Less accumulated depreciation 5,977,066
Less accumulated depreciation for Partnership computer hardware and software 12,559
---------------
Land, buildings and amenities, net on December 31, 2002 $ 7,299,579
===============
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Real Accumulated
Estate Depreciation
------------------ ------------------
Balances on January 1, 2000 $ 13,084,898 $ 4,757,842
Additions during period:
Improvements 199,637 --
Depreciation -- 380,889
Deductions during period:
Retirements (97,760) (40,411)
------------------ ------------------
Balances on December 31, 2000 13,186,775 5,098,320
Additions during period:
Improvements 146,618 --
Depreciation -- 452,914
Deductions during period:
Retirements (96,890) (45,436)
------------------ ------------------
Balances on December 31, 2001 13,236,503 5,505,798
Additions during period:
Improvements 72,080 --
Depreciation -- 501,168
Deductions during period:
Retirements (19,379) (17,341)
------------------ ------------------
Balances on December 31, 2002 $ 13,289,204 $ 5,989,625
================== ==================
NTS-PROPERTIES VII, LTD
By: NTS-Properties Associates VII,
General Partner
By: NTS Capital Corporation,
General Partner
/s/ Gregory A. Wells
Gregory A. Wells
Chief Financial Officer of
NTS Capital Corporation
Date: March 31, 2003
Signature Title
/s/ J. D. Nichols
J. D. Nichols General Partner of NTS-Properties Associates VII and
Chairman of the Board and Sole Director of NTS
Capital Corporation
/s/ Brian F. Lavin
Brian F. Lavin President of NTS Capital Corporation
/s/ Gregory A. Wells
Gregory A. Wells Chief Financial Officer of NTS Capital Corporation
President of NTS Capital Corporation, General Partner of NTS-Properties Associates VII, General Partner of NTS-Properties VII, Ltd.
Chief Financial Officer of NTS Capital Corporation, General Partner of
NTS-Properties Associates VII, General Partner of NTS-Properties VII, Ltd.