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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, 1997
/ / 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.)
3 North Columbus Blvd., Philadelphia, Pennsylvania 19106
_________________________________________________________________
(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, 1997 is 65,449
There is no public market for these securities.
The index of Exhibits is located on page 11.
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
equipment, primarily computer equipment, including, printers,
tape and disk storage devices, data communications equipment,
computer terminals, technical workstations as well as networking
equipment, which is leased to third parties on a short-term
basis. The Fund's principal objective is to generate leasing
revenues for distribution. 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, 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 which 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 which 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) which
will afford benefits to the purchaser similar to those obtained
through leases. As a result of the advantages which 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.
The computer equipment industry is extremely competitive as
well. Competitive factors include pricing, technological
innovation and methods of financing. Certain manufacturer-
lessors maintain advantages through patent protection, where
applicable, and through product protection by the use of a policy
which combines service and hardware benefits with payment for
such benefits accomplished through a single periodic charge.
A brief description of the types of equipment in which the
Fund has invested as of December 31, 1997, 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 and aggregate
purchase price of the various types of equipment acquired and
leased by the Fund as of December 31, 1997, along with the
percentage of total equipment represented by each type of
equipment, a breakdown of equipment usage by industrial
classification and the average initial term of leases:
Purchase Price Percentage of
Type of Equipment Acquired of Equipment Total Equipment
Communication Controllers $ 254,240 1.95%
Disk Storage Systems 2,178,316 16.72
Mini Computer Systems 365,416 2.80
Network Communications 415,800 3.19
Printers 2,299,421 17.65
Semiconductors 1,732,707 13.30
Technical Workstation and
Terminals 4,421,728 33.93
Other 1,363,850 10.46
___________ ______
Totals $13,031,478 100.00%
=========== ======
Breakdown of Equipment Usage
By Industrial Classification
Purchase Price Percentage of
Type of Business of Equipment Total Equipment
Computers/Data Processing $ 534,763 4.10%
Aerospace 602,487 4.63
Diversified Financial/
Banking/Insurance 3,442,921 26.42
Manufacturing/Refining 4,169,885 32.00
Retailing/Consumer Goods 3,678,619 28.23
Telephone/Telecommunications 365,416 2.80
Utilities 237,387 1.82
___________ ______
Totals $13,031,478 100.00%
=========== ======
Average Initial Term of Leases (in months): 40
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
3
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER 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, 1997
Limited Partnership Interests 2,309
General Partnership Interest 1
Item 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
1997 1996 1995 1994 1993
Total Income $4,846,809 $5,778,248 $5,636,048 $8,309,679 $9,881,829
Net Income (Loss) 197,895 604,654 (17,688) 440,247 383,537
Distributions to
Partners 560,000 600,000 3,577,138 4,211,302 5,474,654
Net Income (Loss)
per Equivalent Limited
Partnership Unit 6.36 19.23 (0.50) 9.16 6.08
Weighted Average Number
of Equivalent Limited
Partnership Units
Outstanding During
the Year 30,302 31,096 35,095 43,457 54,121
December 31,
1997 1996 1995 1994 1993
Total Assets $10,620,394 $10,941,033 $11,594,773 $15,723,457 $20,906,034
Equipment under
Operating Leases
and Equipment
Held for Sale or
Lease (Net) 6,254,336 7,734,171 8,696,769 10,164,497 12,777,429
Net Investment in
Direct Financing
Leases 295,319 29,334 38,961 47,752 55,776
Limited Partnership
Units 65,449 65,589 68,718 69,572 71,593
Limited Partners 2,309 2,307 2,396 2,423 2,455
4
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 $4,846,809,
$5,778,248 and $5,636,048 for the years ended December 31, 1997, 1996
and 1995, respectively. Rental income from the leasing of computer
equipment accounted for 96%, 87% and 94% of total revenues in 1997,
1996 and 1995, respectively. The decrease in revenues in 1997 is
primarily attributable to a decrease in the net gain on sale of
equipment. The Fund recognized no net gain on sale of equipment for
the year ended December 31, 1997 as compared to a net gain on sale of
equipment of $627,800 and $76,124 for the years ended December 31, 1996
and 1995, respectively. The fluctuation in this account contributed to
the decrease in total revenues in 1997 and the increase in total
revenues in 1996. Additionally, rental income decreased in both 1997
and 1996 which accounts for the overall decrease in revenues during the
year ended December 31, 1997 and reduced the overall increase in
revenues during the year ended December 31, 1996. In 1997, rental
income decreased by approximately $1,500,000 because of equipment that
came off lease and was re-leased at lower rental rates or sold. This
decrease, however, was reduced by rental income of approximately
$1,131,000 generated from equipment on operating leases purchased
during 1997 as well as rental income earned on 1996 equipment purchases
for which a full year of rental income was earned in 1997 and only a
partial year was earned in 1996. In 1996, rental income decreased by
approximately $1,226,000 because of equipment that came off lease and
was re-leased at lower rental rates or sold. This decrease, however,
was reduced by rental income of approximately $984,000 generated from
equipment on operating leases purchased during 1996 as well as rental
income earned on 1995 equipment purchases for which a full year of
rental income was earned in 1996 and only a partial year was earned in
1995. Furthermore, interest income increased in 1997 because of higher
interest rates earned on cash invested by the Fund which mitigated the
decrease in total revenues in 1997. In 1996, however, interest income
decreased because of lower interest rates earned on cash invested by
the Fund which reduced the amount by which total revenues increased
from 1995.
Expenses were $4,648,914, $5,173,594 and $5,653,736 for the twelve
months ended December 31, 1997, 1996 and 1995, respectively.
Depreciation comprised 82%, 76% and 75% of total expenses in 1997, 1996
and 1995, respectively. The decrease in expenses in 1997 and 1996 was
partially related to the decrease in depreciation expense due to
equipment which came off lease, terminated or was sold. The decrease
in write-down of equipment to net realizable value also accounted for
the decrease in total expenses in both 1997 and 1996. In 1997, 1996
and 1995, approximately $102,000, $546,000 and $711,000, respectively
was charged to write-down of equipment to net realizable value.
Currently, the Fund's practice is to review the recoverability 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
5
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
party publications. In accordance with Generally Accepted Accounting
Principles, the Fund writes down its rental equipment to its estimated
net realizable value when the amounts are reasonably estimated and only
recognizes gains upon actual sale of its rental equipment. Any future
losses are dependent upon unanticipated technological developments
affecting the computer equipment industry in subsequent years. In
1997, the Fund recorded a net loss on sale of equipment of $116,083 but
there was no net loss recorded for the years ended December 31, 1996
and 1995. The increase in this account reduced the decrease in total
expenses in the current year.
The Fund's net income (loss) was $197,895, $604,654 and ($17,688)
for the years ended December 31, 1997, 1996 and 1995, respectively.
The earnings (loss) per equivalent limited partnership unit, after
earnings (loss) allocated to the General Partner, were $6.36, $19.23
and ($0.50) based on a weighted average number of equivalent limited
partnership units outstanding of 30,302, 31,096 and 35,095 for the
years ended December 31, 1997, 1996 and 1995, respectively.
The Fund generated cash from operations, of $4,242,564,
$4,458,863 and $4,852,588 for the purpose of determining cash available
for distribution, and distributed 13%, 13% and 74% of these amounts to
partners in 1997, 1996 and 1995, respectively, and 2%, 3% and 0% of
these amounts to partners in January and February 1998, 1997 and 1996,
respectively. For financial statement purposes, the Fund records cash
distributions to partners on a cash basis in the period in which they
are paid. During the fourth quarter of 1996, the General Partner
revised its policy regarding cash distributions so that the distri-
butions more accurately reflect the net income of the Fund over the
most recent twelve months.
Analysis of Financial Condition
The Fund continues to purchase computer equipment for lease with
cash available from operations which is not distributed to partners.
During the years ended December 31, 1997, 1996 and 1995, the Fund
purchased $2,942,752, $3,759,606, and $4,514,330, respectively, of
equipment subject to operating leases. Additionally, the Fund invested
in $302,825 of equipment under a direct financing lease during the
twelve months ended December 31, 1997.
In January 1998, the Fund purchased approximately $3,052,000 of
equipment subject to an operating lease with an initial lease term of
60 months.
The cash position of the Fund is reviewed daily and cash is
invested on a short-term basis.
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
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.
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 AND ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
7
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
F.L. Partnership Management, Inc. (FLPMI) is a wholly owned
subsidiary of Resource Leasing, Inc., a wholly owned subsidiary of
Resource America, Inc. The Directors and Executive Officers of FLPMI
are:
FREDDIE M. KOTEK, age 41, Chairman of the Board of Directors,
President, and Chief Executive Officer of FLPMI since September
1995 and Senior Vice President of Resource America, Inc. since
1995. President of Resource Leasing, Inc. since September 1995.
Executive Vice President of Resource Properties, Inc. (a wholly
owned subsidiary of Resource America, Inc.) since 1993. Senior
Vice President and Chief Financial Officer of Paine Webber
Properties from 1990 to 1991.
MICHAEL L. STAINES, age 48, Director and Secretary of FLPMI since
September 1995 and Senior Vice President and Secretary of Resource
America, Inc. since 1989.
SCOTT F. SCHAEFFER, age 35, Director of FLPMI since September 1995
and Senior Vice President of Resource America, Inc. since 1995.
Vice President-Real Estate of Resource America, Inc. and President
of Resource Properties, Inc. (a wholly owned subsidiary of Resource
America, Inc.) since 1992. Vice President of the Dover Group, Ltd.
(a real estate investment company) from 1985 to 1992.
Others:
STEPHEN P. CASO, age 42, Vice President and General Counsel of
FLPMI since 1992.
MARIANNE T. SCHUSTER, age 39, Vice President and Controller of
FLPMI since 1984.
KRISTIN L. CHRISTMAN, age 30, Portfolio Manager of FLPMI since
December 1995 and Equipment Brokerage Manager since 1993.
8
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, 1997:
Name of Individual or Capacities in
Number in Group Which Served Compensation
F.L. Partnership
Management, Inc. General Partner $231,067(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) As of December 31, 1997, there was no person or group known
to the Fund that owned more than 5% of the Fund's outstanding
securities either beneficially or of record.
(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
F.L. Partnership Management, Inc. 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 distributions
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.
(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, 1997, the Fund was charged
$231,067 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. 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.
9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
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, 1997, the General Partner received
$5,600 of cash distributions.
The Fund incurred $263,767 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 1997.
10
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.
11
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: F.L. PARTNERSHIP MANAGEMENT, INC.
Freddie M. Kotek, Chairman
By: ___________________________
Freddie M. Kotek, Chairman
and President
Dated March 26, 1998
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
Freddie M. Kotek
___________________________ Chairman of the Board of Directors 3-26-98
Freddie M. Kotek and President of F.L. Partnership
Management, Inc. (Principal Executive
Officer)
Michael L. Staines
___________________________ Director of F.L. Partnership 3-26-98
Michael L. Staines Management, Inc.
Marianne T. Schuster
___________________________ Vice President and Controller 3-26-98
Marianne T. Schuster of F.L. Partnership Management, Inc.
(Principal Financial Officer)
12
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 1997 and 1996 F-3
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-4
Statements of Partners' Capital for the years ended
December 31, 1997, 1996 and 1995 F-5
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7 - F-12
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, 1997 and 1996, and the related
statements of operations, changes in partners' capital and cash flows
for each of the three years in the period ended December 31, 1997.
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 generally accepted
auditing standards. 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 Fidelity
Leasing Income Fund VII, L.P. as of December 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
February 17, 1998
F-2
FIDELITY LEASING INCOME FUND VII, L.P.
BALANCE SHEETS
ASSETS
December 31,
1997 1996
Cash and cash equivalents $ 3,185,012 $ 2,983,264
Accounts receivable 440,830 146,010
Due from related parties 444,897 48,254
Equipment under operating leases
(net of accumulated depreciation
of $6,817,100 and $11,958,429,
respectively) 6,214,378 7,704,003
Net investment in direct financing
leases 295,319 29,334
Equipment held for sale or lease 39,958 30,168
___________ ___________
Total assets $10,620,394 $10,941,033
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Lease rents paid in advance $ 101,304 $ 98,834
Accounts payable - equipment 7,050 -
Accounts payable and
accrued expenses 100,885 67,530
Due to related parties 42,321 19,620
___________ ___________
Total liabilities 251,560 185,984
Partners' capital 10,368,834 10,755,049
___________ ___________
Total liabilities and
partners' capital $10,620,394 $10,941,033
=========== ===========
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,
1997 1996 1995
Income:
Rentals $4,663,392 $5,032,406 $5,273,962
Earned income on direct
financing leases 4,215 3,067 3,902
Interest 169,945 103,513 242,632
Gain on sale of equipment, net - 627,800 76,124
Other 9,257 11,462 39,428
__________ __________ __________
4,846,809 5,778,248 5,636,048
__________ __________ __________
Expenses:
Depreciation 3,826,599 3,935,706 4,234,982
Write-down of equipment to
net realizable value 101,987 546,303 711,418
General and administrative 109,411 136,453 73,628
General and administrative to
related party 263,767 303,419 378,463
Management fee to related party 231,067 251,713 255,245
Loss on sale of equipment, net 116,083 - -
__________ __________ __________
4,648,914 5,173,594 5,653,736
__________ __________ __________
Net income (loss) $ 197,895 $ 604,654 $ (17,688)
========== ========== ==========
Net income (loss) per equivalent
limited partnership unit $ 6.36 $ 19.23 $ (0.50)
========== ========== ==========
Weighted average number of
equivalent limited partnership
units outstanding during
the year 30,302 31,096 35,095
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF PARTNERS' CAPITAL
For the years ended December 31, 1997, 1996 and 1995
General Limited Partners
Partner Units Amount Total
________ ___________________ _____
Balance, January 1, 1995 $ 4,484 69,572 $15,019,492 $15,023,976
Redemptions - (854) (168,046) (168,046)
Cash distributions (35,771) - (3,541,367) (3,577,138)
Net loss (177) - (17,511) (17,688)
________ ______ ___________ ___________
Balance, December 31, 1995 (31,464) 68,718 11,292,568 11,261,104
Redemptions - (3,129) (510,709) (510,709)
Cash distributions (6,000) - (594,000) (600,000)
Net income 7,200 - 597,454 604,654
________ ______ ___________ ___________
Balance, December 31, 1996 (30,264) 65,589 10,785,313 10,755,049
Redemptions - (140) (24,110) (24,110)
Cash distributions (5,600) - (554,400) (560,000)
Net income 5,200 - 192,695 197,895
________ ______ ___________ ___________
Balance, December 31, 1997 $(30,664) 65,449 $10,399,498 $10,368,834
======== ====== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
FIDELITY LEASING INCOME FUND VII, L.P.
STATEMENTS OF CASH FLOWS
For the years ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net income (loss) $ 197,895 $ 604,654 $ (17,688)
_________ _________ __________
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 3,826,599 3,935,706 4,234,982
Write-down of equipment to net
realizable value 101,987 546,303 711,418
Proceeds from direct financing leases,
net of earned income 36,839 9,627 8,791
(Gain)loss on sale of equipment, net 116,083 (627,800) (76,124)
(Increase) decrease in accounts receivable (294,820) (67,637) 14,805
(Increase) decrease in due from
related parties (396,643) 17,995 43,201
Increase (decrease) in lease rents paid in
advance 2,470 51,473 (226,578)
Increase (decrease) in accounts payable
and accrued expenses 33,355 3,560 (184,367)
Increase (decrease) in due to related parties 22,701 (202,718) 45,133
Increase (decrease) in other, net 7,050 15,225 14,354
_________ _________ _________
3,455,621 3,681,734 4,585,615
_________ _________ _________
Net cash provided by operating activities 3,653,516 4,286,388 4,567,927
_________ _________ _________
Cash flows from investing activities:
Acquisition of equipment (2,942,752) (3,759,606) (4,514,330)
Investment in direct financing leases (302,825) - -
Purchase of investment securities
held to maturity - - (749,993)
Maturity of investment securities
held to maturity - 499,740 746,244
Proceeds from sale of equipment 377,919 867,995 1,112,448
_________ _________ _________
Net cash used in investing activities (2,867,658) (2,391,871) (3,405,631)
_________ _________ _________
Cash flows from financing activities:
Distributions (560,000) (600,000) (3,577,138)
Redemptions of capital (24,110) (510,709) (168,046)
_________ _________ _________
Net cash used in financing activities (584,110) (1,110,709) (3,745,184)
_________ _________ _________
Increase (decrease) in cash and cash
equivalents 201,748 783,808 (2,582,888)
Cash and cash equivalents, beginning of year 2,983,264 2,199,456 4,782,344
_________ _________ _________
Cash and cash equivalents, end of year $3,185,012 $2,983,264 $2,199,456
========== ========== ==========
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. The General Partner of the Fund is F.L. Partnership
Management, Inc. ("FLPMI") which is a wholly owned subsidiary of
Resource Leasing, Inc., a wholly owned subsidiary of Resource America,
Inc. The Fund is managed by the General Partner. The Fund's limited
partnership 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 equipment, primarily computer
equipment, including printers, tape and disk storage devices, data
communications equipment, computer terminals, technical workstations as
well as networking equipment, which is leased to third parties
throughout the United States on a short-term basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment Securities Held to Maturity
The debt securities that the Fund has the positive intent and ability
to hold to maturity are classified as held to maturity and are reported
at amortized cost. As the Fund does not engage in security trading,
the balance, if any, of its debt securities and equity securities are
classified as available for sale. Net unrealized gains and losses for
securities available for sale are required to be recognized as a
separate component of partners' capital and excluded from the
determination of net income.
Concentration of Credit Risk
Financial instruments which potentially subject the Fund to
concentrations of credit risk consist principally of temporary cash
investments. The Fund places its temporary investments in bank
repurchase agreements.
Concentrations of credit risk with respect to accounts receivable are
limited due to the dispersion of the Fund's lessees over different
industries and geographies.
Impairment of Long-Lived Assets
Effective January 1, 1996, the Fund adopted Statement of Financial
Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
standard provides guidance on when to recognize and how to measure
impairment losses of long-lived assets and how to value long-lived
assets to be disposed of. The adoption of SFAS No. 121 had no impact
on the net income of the Fund.
F-7
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Equipment Held for Sale or Lease
Equipment held for sale or lease is carried at its estimated net
realizable value.
Use of Estimates
In preparing financial statements in conformity with Generally Accepted
Accounting Principles, 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.
Accounting for Leases
The Fund's leasing operations consist primarily of operating leases
whereby 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 six 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 depreciation are removed from the accounts and the
resulting gain or loss, if any, is reflected in income.
The Fund does have direct financing leases, as well. Under the direct
financing method, income (the excess of the aggregate future rentals
and estimated additional amounts recoverable upon expiration of the
lease over the related equipment cost) is recognized over the life of
the lease using the interest method.
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.
F-8
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
Significant Fourth Quarter Adjustments
Currently, the Fund's practice is to review the recoverability 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. Based upon this review, the Fund recorded an
adjustment of approximately $57,000, $133,000 and $435,000 or $1.88,
$4.28 and $12.39 per equivalent limited partnership unit to write down
its rental equipment in the fourth quarter of 1997, 1996 and 1995,
respectively.
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.
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.
F-9
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. EQUIPMENT LEASED
Equipment on lease consists primarily of computer 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 21 to 60 months.
In accordance with Generally Accepted Accounting Principles, the Fund
writes down its rental equipment to its estimated net realizable value
when the amounts are reasonably estimated and only recognizes gains
upon actual sale of its rental equipment. As a result, in 1997, 1996
and 1995, approximately $102,000, $546,000 and $711,000, respectively
was charged to write-down of equipment to net realizable value.
Any future losses are dependent upon unanticipated technological
developments affecting the computer equipment industry in subsequent
years.
During the year ended December 31, 1997, the Fund leased equipment
under the direct financing method in accordance with SFAS
No. 13. This method provides for recognition of income (the excess of
the aggregate future rentals and estimated additional amounts
recoverable upon expiration of the lease over the related equipment
cost) over the life of the lease using the interest method.
The net investment in direct financing leases as of December 31, 1997
is as follows:
Net minimum lease payments to be received $330,000
Less unearned income 35,000
Add expected future residuals -
________
$295,000
========
The future approximate minimum rentals to be received on non-
cancellable operating and direct financing leases as of December 31 are
as follows:
Direct
Operating Financing
1998 $2,830,000 $113,000
1999 1,867,000 113,000
2000 550,000 104,000
__________ _______
$5,247,000 $330,000
========== ========
In January 1998, the Fund purchased $3,052,179 of equipment subject to
an operating lease with an initial lease term of 60 months. The future
approximate minimum rentals to be received on this noncancellable
operating lease are $630,696 in each of the next five years.
F-10
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. RELATED PARTY TRANSACTIONS
The General Partner receives 5% or 2% of gross rental payments on
equipment under operating leases 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 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.
Following is a summary of fees and costs charged by the General Partner
or its parent company during the years ended December 31:
1997 1996 1995
Management fee $231,067 $251,713 $255,245
Reimbursable costs 263,767 303,419 378,463
During 1997, the Fund maintained its checking and investment accounts
in Jefferson Bank, a subsidiary of JeffBanks, Inc. in which the
Chairman of Resource America, Inc. serves as a director.
Amounts due from related parties at December 31, 1997 and 1996
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.
Amounts due to related parties at December 31, 1997 and 1996 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.
F-11
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
6. MAJOR CUSTOMERS
For the year ended December 31, 1997, two customers accounted for
approximately 16% each and one customer accounted for 15% of the Fund's
rental income. For the year ended December 31, 1996, two customers
accounted for approximately 20% and 19% of the Fund's rental income.
For the year ended December 31, 1995, two customers accounted for
approximately 20% and 16% 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 1997 1996 1995
March $170,000 $120,000 $1,043,568
June 200,000 180,000 1,035,741
September 100,000 180,000 1,034,351
December 90,000 120,000 463,478
________ ________ __________
$560,000 $600,000 $3,577,138
======== ======== ==========
In addition, the General Partner declared and paid a cash distribution
of $40,000 in both January and February 1998 for the months ended
October 31 and November 30, 1997 to all admitted partners as of
October 31 and November 30, 1997. There was no cash distribution made
to partners for the month ended December 31, 1997.
F-12