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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, 1998
/ / 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, 1998 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, including
printers, tape and disk storage devices, data communications equipment,
computer terminals, technical workstations, networking equipment, as well as
other electronic 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 distri-
butors 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 equip-
ment 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.
A brief description of the types of equipment in which the Fund has
invested as of December 31, 1998, 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, 1998:
Operating Leases:
Purchase Price Percentage of
Type of Equipment of Equipment Total Equipment
Communication Controllers $ 241,022 3.60%
Disk Storage Systems 585,327 8.74
Mini Computer Systems 365,416 5.46
Network Communications 415,798 6.21
PCB Assembly Equipment 341,620 5.10
Printers 347,147 5.18
Technical Workstation and Terminals 1,305,201 19.49
Testing Equipment 1,732,707 25.86
Other 1,363,848 20.36
__________ ______
Totals $6,698,086 100.00%
========== ======
Direct Financing Leases:
Purchase Price Percentage of
Type of Equipment of Equipment Total Equipment
PCB Assembly Equipment $1,179,792 24.97%
Testing Equipment 3,097,961 65.58
Other 446,500 9.45
__________ ______
Totals $4,724,253 100.00%
========== ======
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, 1998:
Operating Leases:
Purchase Price Percentage of
Type of Business of Equipment Total Equipment
Aerospace $ 602,487 9.00%
Computers/Data Processing 85,596 1.28
Diversified Financial/Banking/Insurance 105,827 1.58
Manufacturing/Refining 3,935,453 58.75
Retailing/Consumer Goods 1,365,920 20.39
Telephone/Telecommunications 365,416 5.46
Utilities 237,387 3.54
__________ ______
Totals $6,698,086 100.00%
========== ======
Direct Financing Leases:
Purchase Price Percentage of
Type of Business of Equipment Total Equipment
Manufacturing/Refining $3,722,717 78.80%
Professional Services 586,503 12.41
Retailing/Consumer Goods 415,033 8.79
__________ ______
Totals $4,724,253 100.00%
========== ======
Average Initial Term of Leases (in months): 40
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 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, 1998
Limited Partnership Interests 2,314
General Partnership Interest 1
Item 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
1998 1997 1996 1995 1994
Total Income $4,416,369 $4,846,809 $5,778,248 $5,636,048 $8,309,679
Net Income (Loss) (185,085) 197,895 604,654 (17,688) 440,247
Distributions to Partners 80,000 560,000 600,000 3,577,138 4,211,302
Net Income (Loss)
per Equivalent Limited
Partnership Unit (6.14) 6.36 19.21 (0.50) 9.16
Weighted Average Number
of Equivalent Limited
Partnership Units
Outstanding During
the Year 29,856 30,302 31,096 35,095 43,457
December 31,
1998 1997 1996 1995 1994
Total Assets $10,394,528 $10,620,394 $10,941,033 $11,594,773 $15,723,457
Equipment under
Operating Leases and
Equipment Held for
Sale or Lease (Net) 2,957,392 6,254,336 7,734,171 8,696,769 10,164,497
Net Investment in
Direct Financing Leases 4,335,444 295,319 29,334 38,961 47,752
Limited Partnership
Units 65,449 65,449 65,589 68,718 69,572
Limited Partners 2,314 2,309 2,307 2,396 2,423
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 $4,416,369,
$4,846,809 and $5,778,248 for the years ended December 31, 1998, 1997 and
1996, respectively. Rental income from the leasing of equipment accounted
for 89%, 96% and 87% of total revenues in 1998, 1997 and 1996, respectively.
The decrease in revenues in both 1998 and 1997 was attributable to the
decrease in rental income. In 1998, rental income decreased $2,432,000
because of equipment that came off lease and sold. This decrease, however,
was mitigated by an increase in rental income of $547,000 generated from
equipment purchased during 1998 as well as rental income earned on 1997
equipment purchases for which a full year of rent was recognized in 1998
and only a partial year was earned in 1997. Additionally, the Fund entered
into several transactions in which it collected the remaining rents owed
on certain leases and recognized $1,131,000 of rental income in 1998. In
1997, rental income decreased by approximately $1,500,000 because of equip-
ment 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 for which
a full year of rental income was earned in 1997 and only a partial year was
earned in 1996. The Fund recorded a net gain on sale of equipment of $116,049
in 1998, $-0- in 1997 and $627,800 in 1996. The increase in this account
in 1998 reduced the overall decrease in revenues during this year. In 1997,
the decrease in this account contributed significantly to the overall
decrease in total revenues in 1997. During 1998, the Fund invested in
$6,066,963 of direct financing leases compared to $302,825 in 1997 and $-0-
in 1996. The increase in income earned on these direct financing leases
served to lower the decrease in total revenues in 1998.
Expenses were $4,601,454, $4,648,914 and $5,173,594 for the twelve months
ended December 31, 1998, 1997 and 1996, respectively. Depreciation expense
comprised 79%, 82% and 76% of total expenses in 1998, 1997 and 1996,
respectively. The decrease in expenses in 1998 and 1997 was partially
related to the decrease in depreciation expense due to equipment which came
off lease, terminated or was sold. Additionally, the Fund recorded a net
loss on sale of equipment of $116,000 during the twelvemonths ended
December 31, 1997. There was no net loss incurred during 1998 and 1996.
The fluctuation in this account contributed to the decrease in total expenses
during 1998 and reduced the overall decrease in expenses in 1997. The change
in write-down of equipment to net realizable value also affected the decrease
in total expenses in 1998 and 1997. In 1998, 1997 and 1996, approximately
$340,000, $102,000 and $546,000, respectively, was charged to write-down of
equipment to net realizable value. The increase in this account during 1998
lowered the overall decrease in expenses in this year but the decrease in
this account in 1997 contributed to the decrease in total expenses in 1997.
Currently, the Fund's practice is to review the recoverability of its unde-
preciated costs of rental equipment quarterly. The Fund's policy, as part
of this review, is to analyze such factors as releasing of equipment, techno-
logical developments and information provided in third 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 types of equipment in the portfolio
in subsequent years.
6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
The Fund's net income (loss) was ($185,085), $197,895 and $604,654 for
the years ended December 31, 1998, 1997 and 1996, respectively. The earnings
(loss) per equivalent limited partnership unit, after earnings (loss) al-
located to the General Partner, were ($6.14), $6.36 and $19.21 based on a
weighted average number of equivalent limited partnership units outstanding
of 29,856, 30,302 and 31,096 for the years ended December 31, 1998, 1997 and
1996, respectively.
The Fund generated cash from operations of $3,664,714, $4,242,564 and
$4,458,863 for the purpose of determining cash available for distribution,
and distributed 0%, 13% and 13% of these amounts to partners in 1998, 1997
and 1996, respectively, and 4%, 2% and 3% of these amounts to partners in
January and February 1999, 1998 and 1997, respectively. For financial state-
ment 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 distributions more accurately reflect the net income of the Fund over
the most recent twelve months.
Analysis of Financial Condition
The Fund continues to purchase equipment for lease with cash available
from operations which is not distributed to partners. During the years ended
December 31, 1998, 1997 and 1996, the Fund purchased $999,749, $2,942,752 and
$3,759,606, respectively, of equipment subject to operating leases.
Additionally, the Fund invested in $6,066,963 and $302,825 of equipment under
direct financing leases during the twelve months ended December 31, 1998 and
1997, 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.
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. (Resource America). The Directors and Executive Officers of FLPMI are:
FREDDIE M. KOTEK, age 43, Chairman of the Board of Directors, President,
and Chief Executive Officer of FLPMI since September 1995 and Senior Vice
President of Resource America since 1995. President of Resource Leasing,
Inc. since September 1995. Executive Vice President of Resource
Properties, Inc. (a wholly owned subsidiary of Resource America) since
1993.
MICHAEL L. STAINES, age 49, Director and Secretary of FLPMI since
September 1995. Director of Resource America since 1994 and Senior Vice
President of Resource America since 1989.
SCOTT F. SCHAEFFER, age 36, Director of FLPMI since September 1995.
Vice Chairman of the Board of Resource America since 1998 and Executive
Vice President of Resource America since 1997. Prior thereto, Senior
Vice President of Resource America since 1995. Vice President-Real
Estate of Resource America and President of Resource Properties, Inc.
(a wholly owned subsidiary of Resource America) since 1992.
Others:
STEPHEN P. CASO, age 43, Vice President and General Counsel of FLPMI
since 1992.
MARIANNE T. SCHUSTER, age 40, Vice President and Controller of FLPMI
since 1984.
KRISTIN L. CHRISTMAN, age 31, 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, 1998:
Name of Individual or Capacities in
Number in Group Which Served Compensation
F.L. Partnership
Management, Inc. General Partner $218,917(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, 1998, 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
theFund but it does not own any of the Fund's outstanding securities.
No individual director or officer of F.L. Partnership Management, Inc.
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.
(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, 1998, the Fund was charged $218,917
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 o 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
9
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
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, 1998, the General Partner received $800 of cash distributions.
The Fund incurred $278,762 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 1998.
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
(27) Financial Data Schedule
(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
By: ___________________________
Freddie M. Kotek, Chairman and President
Dated March 29, 1999
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
Freddie M. Kotek and President of F.L. Partnership 3-29-99
Management, Inc.
(Principal Executive Officer)
Michael L. Staines
____________________________ Director of F.L. Partnership
Michael L. Staines Management, Inc. 3-29-99
Marianne T. Schuster
____________________________ Vice President and Controller
Marianne T. Schuster of F.L. Partnership Management, Inc. 3-29-99
(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, 1998 and 1997 F-3
Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Statements of Partners' Capital for the years ended
December 31, 1998, 1997 and 1996 F-5
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 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, 1998 and 1997, and the related state-
ments of operations, partners' capital and cash flows for each of the three
years in the period ended December 31, 1998. 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 signi-
ficant 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, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Grant Thornton LLP
Philadelphia, Pennsylvania
February 12, 1999
F-2
FIDELITY LEASING INCOME FUND VII, L.P.
BALANCE SHEETS
ASSETS
December 31,
1998 1997
Cash and cash equivalents $ 2,967,163 $ 3,185,012
Accounts receivable 69,610 440,830
Due from related parties 64,919 444,897
Equipment under operating leases
(net of accumulated depreciation
of $4,039,764 and $6,817,100,
respectively) 2,658,322 6,214,378
Net investment in direct financing
leases 4,335,444 295,319
Equipment held for sale or lease 299,070 39,958
___________ ___________
Total assets $10,394,528 $10,620,394
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Lease rents paid in advance $ 30,675 $ 101,304
Accounts payable - equipment - 7,050
Accounts payable and
accrued expenses 63,769 100,885
Due to related parties 128,510 42,321
Security deposits 67,825 -
___________ ___________
Total liabilities 290,779 251,560
Partners' capital 10,103,749 10,368,834
___________ ___________
Total liabilities and
partners' capital $10,394,528 $10,620,394
=========== ===========
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,
1998 1997 1996
Income:
Rentals $3,909,010 $4,663,392 $5,032,406
Earned income on direct
financing leases 288,680 4,215 3,067
Interest 84,274 169,945 103,513
Gain on sale of equipment, net 116,049 - 627,800
Other 18,356 9,257 11,462
__________ __________ __________
4,416,369 4,846,809 5,778,248
__________ __________ __________
Expenses:
Depreciation 3,625,790 3,826,599 3,935,706
Write-down of equipment to
net realizable value 340,058 101,987 546,303
General and administrative 137,927 109,411 136,453
General and administrative to
related party 278,762 263,767 303,419
Management fee to related party 218,917 231,067 251,713
Loss on sale of equipment, net - 116,083 -
__________ __________ __________
4,601,454 4,648,914 5,173,594
__________ __________ __________
Net income (loss) $ (185,085) $ 197,895 $ 604,654
========== ========== ==========
Net income (loss) per equivalent
limited partnership unit $ (6.14) $ 6.36 $ 19.21
========== ========== ==========
Weighted average number of
equivalent limited partnership
units outstanding during the year 29,856 30,302 31,096
========== ========== ==========
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, 1998, 1997 and 1996
General Limited Partners
Partner Units Amount Total
________ ___________________ _____
Balance, January 1, 1996 $(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
Cash distributions (800) - (79,200) (80,000)
Net loss (1,851) - (183,234) (185,085)
________ ______ ___________ ___________
Balance, December 31, 1998 $(33,315) 65,449 $10,137,064 $10,103,749
======== ====== =========== ===========
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,
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $ (185,085) $ 197,895 $ 604,654
__________ __________ __________
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 3,625,790 3,826,599 3,935,706
Write-down of equipment to net
realizable value 340,058 101,987 546,303
(Gain) loss on sale of equipment, net (116,049) 116,083 (627,800)
(Increase) decrease in accounts receivable 371,220 (294,820) (67,637)
(Increase) decrease in due from
related parties 379,978 (396,643) 17,995
Increase (decrease) in lease rents paid in
advance (70,629) 2,470 51,473
Increase (decrease) in accounts payable
and accrued expenses (37,116) 33,355 3,560
Increase (decrease) in due to related parties 86,189 22,701 (202,718)
Increase (decrease) in other, net (7,050) 7,050 15,225
__________ __________ __________
4,572,391 3,418,782 3,672,107
__________ __________ __________
Net cash provided by operating activities 4,387,306 3,616,677 4,276,761
__________ __________ __________
Cash flows from investing activities:
Acquisition of equipment (999,749) (2,942,752) (3,759,606)
Investment in direct financing leases (6,066,963) (302,825) -
Maturity of investment securities
held to maturity - - 499,740
Proceeds from direct financing leases,
net of earned income 2,026,837 36,839 9,627
Proceeds from sale of equipment 446,895 377,919 867,995
Security deposits received 67,825 - -
__________ __________ __________
Net cash used in investing activities (4,525,155) (2,830,819) (2,382,244)
__________ __________ __________
Cash flows from financing activities:
Distributions (80,000) (560,000) (600,000)
Redemptions of capital - (24,110) (510,709)
_________ __________ __________
Net cash used in financing activities (80,000) (584,110) (1,110,709)
__________ __________ __________
Increase (decrease) in cash and cash
equivalents (217,849) 201,748 783,808
Cash and cash equivalents, beginning of year 3,185,012 2,983,264 2,199,456
__________ __________ __________
Cash and cash equivalents, end of year $2,967,163 $3,185,012 $2,983,264
========== ========== ==========
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 partner-
ship interests and it is unlikely that any will develop. The Fund acquires
equipment including printers, tape and disk storage devices, data communi-
cations equipment, computer terminals, technical workstations, networking
equipment as well as other electronic 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 concentra-
tions of credit risk consist principally of temporary cash investments. The
Fund places its temporary investments in bank repurchase agreements and jumbo
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.
F-7
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
In preparing financial statements in conformity with Generally Accepted
Accounting Principles, management is required to make estimates and assump-
tions that affect the reported amounts of assets and liabilities and the dis-
closure 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 of both operating and direct
financing leases. 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 accu-
mulated depreciation are removed from the accounts and the resulting gain or
loss, if any, is reflected in income.
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.
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.
F-8
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, tech-
nological developments and information provided in third party publications.
Based upon this review, the Fund recorded an adjustment of approximately
$27,000, $57,000 and $133,000 or $0.90, $1.88 and $4.28 per equivalent limited
partnership unit to write down its rental equipment in the fourth quarter of
1998, 1997 and 1996, respectively.
Reclassification
Certain amounts on the 1997 and 1996 financial statements have been re-
classified to conform to the presentation adopted in 1998.
3. YEAR 2000 COMPLIANCE
The "Year 2000 Issue" addresses the ability of computer programs to
distinguish between the year 2000 and the year 1900. Computer programs were
written using two digits rather than four digits for the year in a date field.
This could ultimately result in miscalculations or inaccuracies in processing
data.
The Fund is currently in the process of ensuring that all of its systems
are Year 2000 compliant. The Fund's operating system is year 2000 capable.
Additionally, two of the three main software systems are Year 2000 compliant
and in the testing phase. The third software system is expected to be year
2000 capable by July 1999.
The costs incurred to make the software system Year 2000 compliant has
not been material as of December 31, 1998. It is not anticipated that any
remaining costs incurred to complete this project will have a material affect
on the net income of the Fund.
Furthermore, all significant outside suppliers have been contacted to
ensure that their systems will be Year 2000 compliant. All have indicated
that their systems are in compliance or that Year 2000 Compliance programs
will be completed in early 1999. If the Fund determines that any of its
significant external suppliers are not in compliance, the Fund will not be
materially adversely affected and will seek the services of another supplier.
4. 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-9
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. 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.
5. EQUIPMENT LEASED
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
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 1998, 1997 and 1996, approxi-
mately $340,000, $102,000 and $546,000, 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 sub-
sequent years.
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 net investment in direct financing leases as of December 31, 1998
is as follows:
Minimum lease payments to be received $4,352,000
Unguaranteed residuals 694,000
Unearned rental income (541,000)
Unearned residual income (170,000)
__________
$4,335,000
==========
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
1999 $1,687,000 $1,193,000
2000 774,000 1,183,000
2001 216,000 1,029,000
2002 162,000 899,000
2003 129,000 48,000
__________ __________
$2,968,000 $4,352,000
========== ==========
F-10
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. EQUIPMENT LEASED (Continued)
In December 1998, the Fund financed $71,626 of equipment under a direct
financing lease with an initial lease term of 47 months commencing January
1999. The future approximate minimum rentals to be received on this direct
financing lease are $21,504 in years 1999 through 2001 and $19,712 in 2002.
6. 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:
1998 1997 1996
Management fee $218,917 $231,067 $251,713
Reimbursable costs 278,762 263,767 303,419
During 1998, 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, 1998 and 1997 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, 1998 and 1997 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)
7. MAJOR CUSTOMERS
For the year ended December 31, 1998, one customer accounted for approxi-
mately 29%, and three customers accounted for 14% of the Fund's rental income.
For the year ended December 31, 1997, two customers accounted for approxi-
mately16% each and one customer accounted for 15% of the Fund's rental income.
For the year ended December 31, 1996, two customers accounted for approxi-
mately 20% and 19% of the Fund's rental income.
8. CASH DISTRIBUTIONS
Below is a summary of the cash distributions paid to partners during the
years ended December 31:
For the Quarter Ended 1998 1997 1996
March $80,000 $170,000 $120,000
June - 200,000 180,000
September - 100,000 180,000
December - 90,000 120,000
_______ ________ ________
$80,000 $560,000 $600,000
======= ======== ========
In addition, the General Partner declared and paid a cash distribution
of $50,000 in January and February 1999 for each of the months ended
October 31, November 30 and December 31, 1998 to all admitted partners as of
October 31, November 30 and December 31, 1998.
F-12