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 year ended December 31, 2001
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ______________
Commission file number 0-19232
Fidelity Leasing Income Fund VII, L.P.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 23-2581971
_________________________________________________________________
(State of Organization) (I.R.S. Employer Identification No.)
1845 Walnut Street, Suite 1000, Philadelphia, Pennsylvania 19103
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(215) 574-1636
_________________________________________________________________
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
None Not applicable
Securities registered pursuant to Section 12 (g) of the Act:
Limited Partnership Interests
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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_____
The number of outstanding limited partnership units of the Registrant at
December 31, 2001 is 64,773.
There is no public market for these securities.
The index of Exhibits is located on page 12.
1
PART I
Item 1. BUSINESS
Fidelity Leasing Income Fund VII, L.P. (the "Fund"), a Delaware limited
partnership, was organized in 1989 and acquires computer equipment, including
printers, tape and disk storage devices, data communications equipment, com-
puter terminals, technical workstations, networking equipment, as well as other
electronic equipment that is leased to third parties on a short-term basis.
The Fund's principal objective is to generate leasing revenues for distri-
bution. The Fund manages the equipment, releasing or disposing of equipment
as it comes off lease in order to achieve its principal objective. The Fund
does not borrow funds to purchase equipment.
The Fund generally acquires equipment subject to a lease. Purchases
of equipment for lease are typically made through equipment leasing brokers,
under a sale-leaseback arrangement directly from lessees owning equipment or
from the manufacturer either pursuant to a purchase agreement relating to
significant quantities of equipment or on an ad hoc basis to meet the needs
of a particular lessee.
The equipment leasing industry is highly competitive. The Fund competes
with leasing companies, equipment manufacturers and distributors, and entities
similar to the Fund (including similar programs sponsored by the General
Partner), some of which have greater financial resources than the Fund.
Other leasing companies and equipment manufacturers and distributors may be
in a position to offer equipment to prospective lessees on financial terms
that are more favorable than those which the Fund can offer. They may also
be in a position to offer trade-in-privileges, maintenance contracts and other
services that the Fund may not be able to offer. Equipment manufacturers and
distributors may offer to sell equipment on terms and conditions (such as
liberal financing terms and exchange privileges) that will afford benefits to
the purchaser similar to those obtained through leases. As a result of the
advantages that certain of its competitors may have, the Fund may find it
necessary to lease its equipment on a less favorable basis than certain of its
competitors.
A brief description of the types of equipment in which the Fund has
invested as of December 31, 2001, together with information concerning the
users of such equipment is contained in Item 2, following.
The Fund does not have any employees. All persons who work on the Fund
are employees of the General Partner.
2
Item 2. PROPERTIES
The following schedules detail the type, aggregate purchase price and
percentage of the various types of equipment acquired and leased by the Fund
under the operating and direct financing methods as of December 31, 2001:
Operating Leases:
Purchase Price Percentage of
Type of Equipment of Equipment Total Equipment
Network Communications $395,493 53.65%
PCB Assembly Equipment 341,619 46.35
________ ______
Totals $737,112 100.00%
======== ======
Direct Financing Leases:
Purchase Price Percentage of
Type of Equipment of Equipment Total Equipment
Network Communications $ 4,496,680 38.65%
Testing Equipment 3,572,201 30.70
Disk Storage Systems 2,741,140 23.55
PCB Assembly Equipment 765,117 6.58
Other 60,025 0.52
___________ ______
Totals $11,635,163 100.00%
=========== ======
The following schedules detail the type of business, aggregate purchase
price and percentage of equipment usage by industrial classification for equip-
ment leased by the Fund under the operating and direct financing methods as of
December 31, 2001:
Operating Leases:
Purchase Price Percentage of
Type of Business of Equipment Total Equipment
Retailing/Consumer Goods $395,493 53.65%
Manufacturing/Refining 341,619 46.35
________ ______
Totals $737,112 100.00%
======== ======
Direct Financing Leases:
Purchase Price Percentage of
Type of Business of Equipment Total Equipment
Retailing/Consumer Goods $ 4,968,960 42.71%
Manufacturing/Refining 3,786,465 32.53
Computers/Data Processing 2,666,334 22.92
Education 194,913 1.68
Diversified Financial/Banking 18,491 0.16
___________ ______
Totals $11,635,163 100.00%
=========== ======
Average Initial Term of Leases (in months): 36
3
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
4
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Fund's limited partnership units are not publicly traded. There
is no market for the Fund's limited partnership units and it is unlikely
that any will develop.
(b) Number of Equity Security Holders:
Number of Partners
Title of Class as of December 31, 2001
Limited Partnership Interests 2,326
General Partnership Interest 1
Item 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
2001 2000 1999 1998 1997
Total Income $812,406 $1,814,779 $2,293,932 $4,416,369 $4,846,809
Net Income (Loss) 350,472 639,275 279,122 (185,085) 197,895
Distributions to Partners 600,000 600,000 600,000 80,000 560,000
Net Income (Loss)
per Equivalent Limited
Partnership Unit 11.68 21.91 9.45 (6.14) 6.36
Weighted Average Number
of Equivalent Limited
Partnership Units
Outstanding During
the Year 28,684 28,884 28,917 29,856 30,302
December 31,
2001 2000 1999 1998 1997
Total Assets $9,690,449 $9,985,958 $10,028,870 $10,394,528 $10,620,394
Equipment under
Operating Leases and
Equipment Held for
Sale or Lease (Net) 539,265 236,345 1,357,657 2,957,392 6,254,336
Net Investment in
Direct Financing Leases 4,935,434 7,456,639 6,543,062 4,335,444 295,319
Limited Partnership
Units 64,773 64,773 64,773 64,833 65,449
Limited Partners 2,326 2,317 2,316 2,314 2,309
5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Fidelity Leasing Income Fund VII, L.P. had revenues of $812,406,
$1,814,779 and $2,293,932 for the years ended December 31, 2001, 2000 and
1999, respectively. Earned income from direct financing leases and rental
income from the leasing of equipment accounted for 81%, 87% and 91% of total
revenues in 2001, 2000 and 1999, respectively. The decrease in revenues in
both 2001 and 2000 was primarily attributable to the decrease in rental in-
come. In 2001 and 2000, rental income decreased by approximately $916,000
and $671,000, respectively, because of equipment under operating leases that
came off lease or terminated and was sold. The decrease in earned income on
direct financing leases also accounted for the overall decrease in revenues in
2001. The decrease in this account resulted from the amortization of unearned
income using the interest method. However, earned income on direct financing
leases increased in 2000 because of investments made in direct financing leases
during 2000. The increase in this account mitigated the overall decrease in
revenues during the year ended December 31, 2000. Additionally, the variation
in interest income also affected the overall decrease in revenues in 2001 and
2000. Interest income increased in 2001 and decreased in 2000 because of
fluctuating cash balances available for investment by the Fund as a result of
investments made in direct financing leases during late 1999 and 2000. The
Fund recorded a net gain on sale of equipment of $31,696, $90,945 and $25,388
in 2001, 2000 and 1999, respectively. The fluctuation in this account contri-
buted to the decrease in total revenues in 2001 and served to mitigate the
overall decrease in revenues in 2000. Furthermore, the fluctuation in other
income also contributed to the decrease in total revenues in 2001 and reduced
the overall decrease in revenues in 2000. There were no late charges on
delinquent rentals collected in 2001. During the years ended December 31,
2000 and 1999, the Fund recognized approximately $28,000 and $2,000, respec-
tively, of late charges on delinquent rentals collected. Approximately
$16,000, $24,000 and $14,000, respectively, of transfer fees on investor
account transfers were recorded for the years ended December 31, 2001, 2000
and 1999, respectively. These accounts are included in other income and
accounted for the change in this account during 2001, 2000 and 1999.
Expenses were $461,934, $1,175,504 and $2,014,810 for the twelve months
ended December 31, 2001, 2000 and 1999, respectively. Depreciation expense
comprised 20%, 67% and 72% of total expenses in 2001, 2000 and 1999,
respectively. The decrease in expenses in 2001 and 2000 was primarily
related to the decrease in depreciation expense due to equipment that came
off lease or terminated and was sold. The decrease in write-down of equipment
to net realizable value also accounted for the decrease in total expenses in
2001 and 2000. There was no write-down of equipment to net realizable value
for the year ended December 31, 2001. In 2000 and 1999, approximately $6,000
and $104,000, respectively, was charged to write-down of equipment to net
realizable value. Currently, the Fund's practice is to review the recover-
ability of its undepreciated costs of rental equipment quarterly. The Fund's
policy, as part of this review, is to analyze such factors as releasing of
equipment, technological developments and information provided in third party
publications. In accordance with accounting principles generally accepted in
the United States of America, the Fund writes down its rental equipment to its
estimated net realizable value when the amounts are reasonably estimated and
only recognizes gains, if any, upon actual sale of its rental equipment. Any
future losses are dependent upon unanticipated technological developments af-
fecting the types of equipment in the portfolio in subsequent years. Addition-
ally, the decrease in general and administrative expense to related party in
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
2001 and 2000 also contributed to the overall decrease in expenses during these
years. The decrease in this account resulted from a decrease in the expenses
charged by the General Partner or its parent company for services and materials
provided to the Fund during the years ended December 31, 2001, 2000 and 1999.
Furthermore, management fee to related party decreased in 2001 and 2000 as
a result of the decrease in rental income recognized on operating leases.
The decrease in this account also accounted for the decrease in total expenses
during the twelve months ended December 31, 2001 and 2000.
The Fund's net income was $350,472, $639,275 and $279,122 for the years
ended December 31, 2001, 2000 and 1999, respectively. The earnings per
equivalent limited partnership unit, after earnings allocated to the General
Partner, were $11.68, $21.91 and $9.45 based on a weighted average number of
equivalent limited partnership units outstanding of 28,684, 28,884 and 28,917
for the years ended December 31, 2001, 2000 and 1999, respectively.
The Fund generated cash from operations of $411,349, $1,343,483, and
$1,812,604 for the purpose of determining cash available for distribution
during the years ended December 31, 2001, 2000 and 1999, respectively The
Fund distributed to partners $450,000 of those amounts during each of the
periods from April 1 through December 31, 2001, 2000 and 1999. The Fund
distributed $1,000,000, $150,000 and $150,000 of those amounts to partners
during the first quarter of 2002, 2001 and 2000, respectively. For financial
statement purposes, the Fund records cash distributions to partners on a cash
basis in the period in which they are paid.
Analysis of Financial Condition
The Fund is currently in the process of dissolution. As provided in the
Restated Limited Partnership Agreement, the assets of the Fund shall be
liquidated as promptly as is consistent with obtaining their fair value.
During this time, the Fund will continue to look for opportunities to purchase
equipment under operating leases or invest in direct financing leases for lease
terms consistent with the plan of dissolution. During the years ended December
31, 2001 and 1999, the Fund purchased $395,493 and $60,024, respectively, of
equipment subject to operating leases. There was no equipment subject to
operating leases purchased in 2000. Additionally, the Fund invested in
$911,086, $3,369,964 and $3,522,588 of equipment under direct financing
leases during the twelve months ended December 31, 2001, 2000 and 1999,
respectively.
The cash position of the Fund is reviewed daily and cash is invested on
a short-term basis.
The Fund's cash from operations is expected to continue to be adequate
to cover all operating expenses and contingencies during the next fiscal year.
7
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this
report commencing on page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
8
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In December 2001, the General Partner's Certificate of Incorporation was
amended to change the name of the General Partner of the Fund from F.L.
Partnership Management, Inc. to LEAF Financial Corporation (LEAF). LEAF
Financial Corporation is a wholly owned subsidiary of Resource Leasing, Inc.
which is a wholly owned subsidiary of Resource America, Inc. (Resource
America). The Directors and Executive Officers of LEAF are:
CRIT S. DEMENT, age 49, Chairman, President and Chief Executive Officer
of LEAF since November 2001. President of Fidelity Leasing, Inc. and its
successor, the Technology Finance Group of CitiCapital Vendor Finance from
1996 to 2001. Vice President of Marketing for Tokai Financial Services
from 1987 through 1996.
EDWARD E. COHEN, age 62, Director of LEAF since November 2001. Chairman
of the Board of Resource America since 1990, President of Resource America
since 2000 and Chief Executive Officer and a Director of Resource America
since 1988. Chairman of the Managing Board of Directors of Atlas Pipeline
Partners GP, LLC (a wholly owned subsidiary of Resource America that is
the general partner of a publicly traded limited partnership that owns and
operates natural gas pipelines) since its formation in 1999. Chairman of
the Board of Directors of Brandywine Construction & Management, Inc. (a
property management company) since 1994. Mr. Cohen is the father of
Jonathan Z. Cohen.
JONATHAN Z. COHEN, age 31, Director of LEAF since November 2001. Execu-
tive Vice President of Resource America since 2001, Senior Vice President
of Resource America from 1999 to 2001. Vice Chairman of the Managing
Board of Atlas Pipeline Partners GP, LLC since its formation in 1999.
Trustee and Secretary of RAIT Investment Trust (a publicly traded real
estate investment trust) since 1997. Mr. Cohen is the son of Edward E.
Cohen.
MILES HERMAN, age 42, Vice President and a Director of LEAF since November
2001. Held various senior operational offices with Fidelity Leasing, Inc.
and its successor from 1998 to 2001. Held several management positions in
sales, marketing and operations at Tokai Financial Services from 1983 to
1998.
FREDDIE M. KOTEK, age 46, Director of LEAF since 1996. Senior Vice
President of Resource America since 1995. President of Resource Leasing,
Inc. since 1995.
MARIANNE T. SCHUSTER, age 43, Vice President and Treasurer of LEAF
since 1984.
9
Item 11. EXECUTIVE COMPENSATION
The following table sets forth information relating to the aggregate
compensation earned by the General Partner of the Fund during the year
ended December 31, 2001:
Name of Individual or Capacities in
Number in Group Which Served Compensation
LEAF Financial
Corporation General Partner $85,279(1)
=======
(1) This amount does not include the General Partner's share of
cash distributions made to all partners.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Based upon a review of Schedule 13D as filed with the Securities and
Exchange Commission, the table set forth below outlines the persons or
groups known to the Fund that own more than 5% of the Fund's outstanding
securities either beneficially or of record.
Name of Individual Number of
or Group Units Owned
James S. and Danea T. Riley 5,466.46 (1)
Odd Lot Liquidity Fund, LLC 5,466.46 (2)
Sierra Fund 4, LLC 5,466.46 (3)
(1) Amount represents beneficial ownership interest through
ownership of Odd Lot Liquidity Fund, LLC and Sierra Fund 4, LLC
which own 2,825.90 units and 2,640.56 units, respectively, of
the outstanding limited partnership units of the Fund.
(2) Amount represents direct ownership by Odd Lot Liquidity
Fund, LLC of 2,825.90 units and beneficial ownership of
2,640.56 units by virtue of group membership and affiliate
status with Sierra Fund 4, LLC.
(3) Amount represents direct ownership by Sierra Fund 4, LLC
of 2,640.56 units and beneficial ownership of 2,825.90 units
by virtue of group membership and affiliate status with Odd Lot
Liquidity Fund, LLC.
(b) In 1989, the General Partner contributed $1,000 to the capital of
the Fund but it does not own any of the Fund's outstanding securities.
No individual director or officer of LEAF Financial Corporation
nor such directors or officers as a group, owns more than one percent of
the Fund's outstanding securities. The General Partner owns a general
partnership interest which entitles it to receive 1% of cash distri-
butions until the Limited Partners have received an amount equal to the
purchase price of their units plus a 12% compounded priority return;
thereafter 10%. The General Partner will also share in net income equal
to the greater of its cash distributions or 1% of net income or to the
extent there are losses, 1% of such losses.
10
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Continued)
(c) There are no arrangements known to the Fund that would, at any
subsequent date, result in a change in control of the Fund.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 2001, the Fund was charged $85,279
of management fees by the General Partner. The General Partner will continue
to receive 5% or 2% of rental payments on equipment under operating and full
pay-out leases, respectively, for administrative and management services
performed on behalf of the Fund. Full pay-out leases are noncancellable
leases for which rental payments due during the initial term of the leases
are at least sufficient to recover the purchase price of the equipment,
including acquisition fees. All of the direct financing leases in which the
Fund has invested meet the criteria for a full pay-out lease and pay a 2%
management fee to the General Partner. This management fee is paid monthly
only if and when the Limited Partners have received distributions for the
period from January 1, 1991 through the end of the most recent quarter
equal to a return for such period at a rate of 12% per year on the aggregate
amount paid for their units.
The General Partner may also receive up to 3% of the proceeds from the
sale of the Fund's equipment for services and activities to be performed in
connection with the disposition of equipment. The payment of this sales fee
is deferred until the Limited Partners have received cash distributions equal
to the purchase price of their units plus a 12% cumulative compounded priority
return. Based on current estimates, it is not expected that the Fund will be
required to pay this sales fee to the General Partner.
The General Partner also receives 1% of cash distributions until the
Limited Partners have received an amount equal to the purchase price of their
units plus a 12% cumulative compounded priority return. Thereafter, the
General Partner will receive 10% of cash distributions. During the year ended
December 31, 2001, the General Partner received $6,000 of cash distributions.
The Fund incurred $168,720 of reimbursable costs to the General Partner
and its parent company for services and materials provided in connection with
the administration of the Fund during 2001.
11
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted
as a separate section of this report commencing on page F-1.
(a) (3) and (c) Exhibits (numbered in accordance with Item 601 of
Regulation S-K)
Exhibit Numbers Description Page Number
3(a) & (4) Amended and Restated Agreement *
of Limited Partnership
(9) not applicable
(10) not applicable
(11) not applicable
(12) not applicable
(13) not applicable
(18) not applicable
(19) not applicable
(22) not applicable
(23) not applicable
(24) not applicable
(25) not applicable
(28) not applicable
* Incorporated by reference.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIDELITY LEASING INCOME FUND VII, L.P.
A Delaware limited partnership
By: LEAF FINANCIAL CORPORATION
/s/ Crit S. DeMent
By: ___________________________
Crit S. DeMent, Chairman and President
Dated March 28, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons, on behalf of the
Registrant and in the capacities and on the date indicated:
Signature Title Date
/s/ Crit S. DeMent
____________________________ Chairman of the Board of Directors 3-28-02
Crit S. DeMent and President of LEAF Financial
Corporation
(Principal Executive Officer)
/s/ Miles Herman
____________________________ Vice President and Director of 3-28-02
Miles Herman LEAF Financial Corporation
/s/ Freddie M. Kotek
____________________________ Director of LEAF Financial Corporation 3-28-02
Freddie M. Kotek
/s/ Marianne T. Schuster
____________________________ Vice President and Treasurer of 3-28-02
Marianne T. Schuster LEAF Financial Corporation
(Principal Financial Officer)
13
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 2001 and 2000 F-3
Statements of Operations for the years ended
December 31, 2001, 2000 and 1999 F-4
Statements of Partners' Capital for the years ended
December 31, 2001, 2000 and 1999 F-5
Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 F-6
Notes to Financial Statements F-7 - F-13
All schedules have been omitted because the required information is not
applicable or is included in the Financial Statements or Notes thereto.
F-1
Report of Independent Certified Public Accountants
The Partners
Fidelity Leasing Income Fund VII, L.P.
We have audited the accompanying balance sheets of Fidelity Leasing
Income Fund VII, L.P. as of December 31, 2001 and 2000, and the related state-
ments of operations, partners' capital and cash flows for each of the three
years in the period ended December 31, 2001. These financial statements are
the responsibility of the Fund'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 of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the finan-
cial statements are free of material misstatement. An audit includes examin-
ing, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting princi-
ples 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 Fidelity Leasing
Income Fund VII, L.P. 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 of America.
Grant Thornton LLP
Philadelphia, Pennsylvania
February 14, 2002
F-2
FIDELITY LEASING INCOME FUND VII, L.P.
BALANCE SHEETS
ASSETS
December 31,
2001 2000
Cash and cash equivalents $3,877,912 $2,055,814
Accounts receivable 254,207 234,535
Due from related parties 83,631 2,625
Net investment in direct financing
leases 4,935,434 7,456,639
Equipment under operating leases
(net of accumulated depreciation
of $286,489 and $491,659,
respectively) 450,623 147,703
Equipment held for sale or lease 88,642 88,642
__________ __________
Total assets $9,690,449 $9,985,958
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Lease rents paid in advance $ 64,745 $ 13,930
Accounts payable and
accrued expenses 38,433 67,642
Due to related parties 23,591 23,353
Security deposits - 67,825
__________ __________
Total liabilities 126,769 172,750
Partners' capital 9,563,680 9,813,208
__________ __________
Total liabilities and
partners' capital $9,690,449 $9,985,958
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF OPERATIONS
For the years ended December 31,
2001 2000 1999
Income:
Earned income on direct
financing leases $546,365 $ 560,405 $ 396,265
Rentals 110,711 1,027,197 1,698,640
Interest 107,671 83,727 156,774
Gain on sale of equipment, net 31,696 90,945 25,388
Other 15,963 52,505 16,865
________ __________ __________
812,406 1,814,779 2,293,932
________ __________ __________
Expenses:
Depreciation 92,573 788,886 1,454,819
Write-down of equipment to
net realizable value - 6,267 104,051
General and administrative 115,362 100,429 111,692
General and administrative to
related party 168,720 171,465 231,221
Management fee to related party 85,279 108,457 113,027
________ __________ __________
461,934 1,175,504 2,014,810
________ __________ __________
Net income $350,472 $ 639,275 $ 279,122
======== ========== ==========
Net income per equivalent limited
partnership unit $ 11.68 $ 21.91 $ 9.45
======== ========== ==========
Weighted average number of
equivalent limited partnership
units outstanding during the year 28,684 28,884 28,917
======== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENT OF PARTNERS' CAPITAL
For the years ended December 31, 2001, 2000 and 1999
General Limited Partners
Partner Units Amount Total
________ ___________________ _____
Balance, January 1, 1999 $(33,315) 64,833 $10,137,064 $10,103,749
Redemptions - (60) (8,938) (8,938)
Cash distributions (6,000) - (594,000) (600,000)
Net income 6,000 - 273,122 279,122
________ ______ ___________ ___________
Balance, December 31, 1999 (33,315) 64,773 9,807,248 9,773,933
Cash distributions (6,000) - (594,000) (600,000)
Net income 6,393 - 632,882 639,275
________ ______ ___________ ___________
Balance, December 31, 2000 (32,922) 64,773 9,846,130 9,813,208
Cash distributions (6,000) - (594,000) (600,000)
Net income 15,500 - 334,972 350,472
________ ______ ___________ ___________
Balance, December 31, 2001 $(23,422) 64,773 $ 9,587,102 $ 9,563,680
======== ====== =========== ===========
The accompanying notes are an integral part of this financial statement.
F-5
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF CASH FLOWS
For the years ended December 31,
2001 2000 1999
Cash flows from operating activities:
Net income $ 350,472 $ 639,275 $ 279,122
__________ __________ __________
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 92,573 788,886 1,454,819
Write-down of equipment to net
realizable value - 6,267 104,051
Gain on sale of equipment, net (31,696) (90,945) (25,388)
(Increase) decrease in accounts receivable (19,672) 38,957 (203,882)
(Increase) decrease in due from related
parties (81,006) 82,294 (20,000)
Increase (decrease) in lease rents paid in
advance 50,815 (108,401) 91,656
Increase (decrease) in accounts payable
and accrued expenses (29,209) 18,272 (14,399)
Increase (decrease) in due to related parties 238 7,942 (113,099)
Increase (decrease) in security deposits (67,825) - -
__________ __________ __________
(85,782) 743,272 1,273,758
__________ __________ __________
Net cash provided by operating activities 264,690 1,382,547 1,552,880
__________ __________ __________
Cash flows from investing activities:
Acquisition of equipment (395,493) - (60,024)
Investment in direct financing leases (911,086) (3,369,964) (3,522,588)
Proceeds from direct financing leases,
net of earned income 3,432,291 2,516,412 1,386,595
Proceeds from sale of equipment 31,696 357,079 54,652
__________ __________ __________
Net cash provided by (used in)
investing activities 2,157,408 (496,473) (2,141,365)
__________ __________ __________
Cash flows from financing activities:
Distributions (600,000) (600,000) (600,000)
Redemptions of capital - - (8,938)
__________ __________ __________
Net cash used in financing activities (600,000) (600,000) (608,938)
__________ __________ __________
Increase (decrease) in cash and cash
equivalents 1,822,098 286,074 (1,197,423)
Cash and cash equivalents, beginning of year 2,055,814 1,769,740 2,967,163
__________ __________ __________
Cash and cash equivalents, end of year $3,877,912 $2,055,814 $1,769,740
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-6
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Fidelity Leasing Income Fund VII, L.P. (the Fund) was formed in November
1989. In December 2001, the General Partner's Certificate of Incorporation
was amended to change the name of the General Partner of the Fund from F.L.
Partnership Management, Inc. to LEAF Financial Corporation (LEAF). LEAF
Financial Corporation is a wholly owned subsidiary of Resource Leasing, Inc.,
which is a wholly owned subsidiary of Resource America, Inc. (Resource Amer-
ica). The Fund is managed by the General Partner. The Fund's limited partner-
ship interests are not publicly traded. There is no market for the Fund's
limited partnership interests and it is unlikely that any will develop. The
Fund acquires computer equipment including printers, tape storage devices, data
communications equipment, computer terminals, technical workstations and net-
working equipment, as well as other electronic equipment. This equipment is
leased to third parties throughout the United States on a short-term basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
Financial instruments that potentially subject the Fund to concentra-
tions of credit risk consist principally of temporary cash investments. The
Fund places its temporary investments in money market savings accounts.
Concentrations of credit risk with respect to accounts receivables are
limited due to the dispersion of the Fund's lessees over different industries
and geographies.
Impairment of Long-Lived Assets
The Fund reviews its assets to determine if it has any long-lived assets
that are carried on the books for an amount that may not be recoverable. If
it is determined that an asset's estimated future cash flows will not be suf-
ficient to recover its carrying amount, an impairment charge will be recorded.
Equipment Held for Sale or Lease
Equipment held for sale or lease is carried at its estimated net realiz-
able value.
Use of Estimates
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Accounting for Leases
The Fund's leasing operations consist of both direct financing and
operating leases. Under the direct financing method of accounting for leases,
income (the excess of the aggregate future rentals and estimated unguaranteed
residuals upon expiration of the lease over the related equipment cost) is
recognized over the life of the lease using the interest method.
Under the operating method of accounting for leases, the cost of the
leased equipment is recorded as an asset and depreciated on a straight-line
basis over its estimated useful life, up to seven years. Acquisition fees
associated with lease placements are allocated to equipment when purchased
and depreciated as part of equipment cost. Rental income consists primarily
of monthly periodic rentals due under the terms of the leases. Generally,
during the remaining terms of existing operating leases, the Fund will not
recover all of the undepreciated cost and related expenses of its rental
equipment and is prepared to remarket the equipment in future years. Upon
sale or other disposition of assets, the cost and related accumulated de-
preciation are removed from the accounts and the resulting gain or loss, if
any, is reflected in income.
Income Taxes
Federal and State income tax regulations provide that taxes on the
income or benefits from losses of the Fund are reportable by the partners in
their individual income tax returns. Accordingly, no provision for such taxes
has been made in the accompanying financial statements.
Statements of Cash Flows
For purposes of the statements of cash flows, the Fund considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Net Income per Equivalent Limited Partnership Unit
Net income per equivalent limited partnership unit is computed by
dividing net income allocated to limited partners by the weighted average
number of equivalent limited partnership units outstanding during the year.
The weighted average number of equivalent units outstanding during the year is
computed based on the weighted average monthly limited partners' capital
account balances, converted into equivalent units at $500 per unit.
3. ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH DISTRIBUTIONS
Cash distributions, if any, are made monthly as follows: 99% to the
Limited Partners and 1% to the General Partner, until the Limited Partners
have received an amount equal to the purchase price of their units, plus a
12% compounded priority return (an amount equal to 12% compounded annually
on the portion of the purchase price not previously distributed); thereafter,
90% to the Limited Partners and 10% to the General Partner.
F-8
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
3. ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH DISTRIBUTIONS (Continued)
Net Losses are allocated 99% to the Limited Partners and 1% to the
General Partner. The General Partner is allocated Net Income equal to its
cash distributions, but not less than 1% of Net Income, with the balance
allocated to the Limited Partners.
Net Income (Losses) allocated to the Limited Partners are allocated to
individual limited partners based on the ratio of the daily weighted average
partner's net capital account balance (after deducting related commission
expense) to the total daily weighted average of the Limited Partners' net
capital account balances.
4. EQUIPMENT LEASED
The Fund's direct financing leases are for initial lease terms ranging
from 7 to 60 months. Unguaranteed residuals for direct financing leases
represent the estimated amounts recoverable at lease termination from lease
extensions or disposition of the equipment. The Fund reviews these residual
values quarterly. If the equipment's fair market value is below the estimated
residual value, an adjustment is made.
The approximate net investment in direct financing leases as of Decem-
ber 31, 2001 is as follows:
Minimum lease payments to be received $4,076,000
Unguaranteed residuals 1,181,000
Unearned rental income (252,000)
Unearned residual income (70,000)
__________
$4,935,000
==========
Equipment on lease consists of equipment under operating leases. The
lessees have agreements with the manufacturer to provide maintenance for the
leased equipment. The Fund's operating leases are for initial lease terms of
47 to 59 months.
In accordance with accounting principles generally accepted in the United
States of America, the Fund writes down its rental equipment to its estimated
net realizable value when the amounts are reasonably estimated and only recog-
nizes gains upon actual sale of its rental equipment. As a result, there was
no charge to write-down of equipment to net realizable value for the year ended
December 31, 2001. For the years ended December 31, 2000 and 1999, approxi-
mately $6,000 and $104,000, respectively was charged to write-down of equipment
to net realizable value. Any future losses are dependent upon unanticipated
technological developments affecting the equipment in subsequent years.
F-9
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. EQUIPMENT LEASED (Continued)
The future approximate minimum rentals to be received on noncancellable
direct financing and operating leases as of December 31 are as follows:
Direct
Financing Operating
2002 $3,091,000 $192,000
2003 795,000 129,000
2004 190,000 -
__________ ________
$4,076,000 $321,000
========== ========
5. RELATED PARTY TRANSACTIONS
The General Partner receives 5% or 2% of rental payments on equipment
under operating leases and full pay-out leases, respectively, for administra-
tive and management services performed on behalf of the Fund. Full pay-out
leases are noncancellable leases for which rental payments during the initial
term are at least sufficient to recover the purchase price of the equipment,
including acquisition fees. This management fee is paid monthly only if and
when the Limited Partners have received distributions for the period from
January 1, 1991 through the end of the most recent quarter equal to a return
for such period at a rate of 12% per year on the aggregate amount paid for
their units.
The General Partner may also receive up to 3% of the proceeds from the
sale of the Fund's equipment for services and activities to be performed in
connection with the disposition of equipment. The payment of this sales fee
is deferred until the Limited Partners have received cash distributions equal
to the purchase price of their units plus a 12% cumulative compounded priority
return. Based on current estimates, it is not expected that the Fund will be
required to pay this sales fee to the General Partner.
Additionally, the General Partner and its parent company are reimbursed
by the Fund for certain costs of services and materials used by or for the
Fund except those items covered by the above-mentioned fees. The following
is a summary of fees and costs charged by the General Partner or its parent
company during the years ended December 31:
2001 2000 1999
Management fee $ 85,279 $108,457 $113,027
Reimbursable costs 168,720 171,465 231,221
During 2001, the Fund transferred its checking and investment accounts
from Hudson United Bank to The Bancorp.com, Inc. (TBI). The son and the spouse
of the Chairman of Resource America, Inc. are the Chairman and Chief Executive
Officer, respectively, of TBI. The Fund maintains a normal banking relation-
ship with TBI.
Amounts due from related parties at December 31, 2001 and 2000 represent
monies due to the Fund from the General Partner and/or other affiliated funds
for rentals and sales proceeds collected and not yet remitted to the Fund.
F-10
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. RELATED PARTY TRANSACTIONS (Continued)
Amounts due to related parties at December 31, 2001 and 2000 represent
monies due to the General Partner for the fees and costs mentioned above, as
well as, rentals and sales proceeds collected by the Fund on behalf of other
affiliated funds.
6. MAJOR CUSTOMERS
For the year ended December 31, 2001, three customers accounted for
approximately 57%, 16% and 13% of the Fund's rental income. For the year
ended December 31, 2000, one customer accounted for approximately 48% of the
Fund's rental income and two customers accounted for approximately 11% each of
the Fund's rental income. For the year ended December 31, 1999, four customers
accounted for approximately 33%, 16%, 13% and 11% of the Fund's rental income.
7. CASH DISTRIBUTIONS
Below is a summary of the cash distributions paid to partners during the
years ended December 31:
For the Quarter Ended 2001 2000 1999
March $150,000 $150,000 $150,000
June 150,000 150,000 200,000
September 200,000 150,000 150,000
December 100,000 150,000 100,000
________ ________ ________
$600,000 $600,000 $600,000
======== ======== ========
In addition, the General Partner declared and paid two cash distri-
butions of $50,000 each in January and February 2002 for the months ended
October 31 and November 30, 2001, respectively, to all admitted partners as
of October 31 and November 30, 2001. The General Partner also paid a cash
distribution of $1,000,000 in February 2002 for the month ended December 31,
2001 to all admitted partners as of December 31, 2001.
F-11
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following table summarizes the results of operations on a quarterly
basis during 2001 and 2000:
2001
----------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Income:
Earned income on direct financing
leases $113,788 $129,528 $148,779 $154,270
Rentals 34,691 23,139 27,377 25,504
Interest 30,041 32,006 25,109 20,515
Gain on sale of equipment, net 1 - 110 31,585
Other 4,432 7,725 2,166 1,640
________ ________ ________ ________
Total income 182,953 192,398 203,541 233,514
________ ________ ________ ________
Expenses:
Depreciation 37,268 18,435 18,435 18,435
General and administrative 23,434 33,668 34,429 23,831
General and administrative to
related party 48,620 44,971 36,722 38,407
Management fee to related party 22,280 21,600 21,181 20,218
________ ________ ________ ________
Total expenses 131,602 118,674 110,767 100,891
________ ________ ________ ________
Net income $ 51,351 $ 73,724 $ 92,774 $132,623
======== ======== ======== ========
Net income per equivalent limited
partnership unit $ 1.45 $ 2.53 $ 3.17 $ 4.53
======== ======== ======== ========
F-12
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (Continued)
2000
----------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Income:
Earned income on direct financing
leases $157,742 $134,736 $143,194 $124,733
Rentals 91,024 236,100 299,539 400,534
Interest 16,974 22,806 19,216 24,731
Gain on sale of equipment, net 2,045 - 38,093 54,948
Other 2,924 21,368 17,876 10,337
________ ________ ________ ________
Total income 270,709 415,010 517,918 615,283
________ ________ ________ ________
Expenses:
Depreciation 61,752 167,857 242,350 316,927
Write-down of equipment to
net realizable value - - - 6,267
General and administrative 25,163 23,011 14,077 38,178
General and administrative to
related party 51,924 41,957 37,015 40,569
Management fee to related party 21,959 26,111 29,497 30,890
Loss on sale of equipment, net - 4,141 - -
________ ________ ________ ________
Total expenses 160,798 263,077 322,939 432,831
________ ________ ________ ________
Net income $109,911 $151,933 $194,979 $182,452
======== ======== ======== ========
Net income per equivalent limited
partnership unit $ 3.75 $ 5.20 $ 6.69 $ 6.27
======== ======== ======== ========
F-13