Form 10-Q

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

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

For the quarterly period ended September 30, 2011

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

For the transition period from          to         

Commission File number 000-24175

ATEL Capital Equipment Fund VII, L.P.

(Exact name of registrant as specified in its charter)

California		94-3248318
(State or other jurisdiction of Incorporation or organization)		(I. R. S. Employer Identification No.)

600 California Street, 6th Floor, San Francisco, California 94108-2733
(Address of principal executive offices)

Registrant’s telephone number, including area code (415) 989-8800

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: Limited Partnership Units

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

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

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

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

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

The number of Limited Partnership Units outstanding as of October 31, 2011 was 14,985,550.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ATEL CAPITAL EQUIPMENT FUND VII, L. P.
  
Index

Part I. Financial Information			3
Item 1. Financial Statements (Unaudited)			3
Balance Sheets, September 30, 2011 and December 31, 2010			3
Statements of Operations for the three and nine months ended September 30, 2011 and 2010			4
Statements of Changes in Partners’ Capital for the year ended December 31, 2010 and for the nine months ended September 30, 2011			5
Statements of Cash Flows for the three and nine months ended September 30, 2011 and 2010			6
Notes to the Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 4. Controls and Procedures			21
Part II. Other Information			22
Item 1. Legal Proceedings			22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			22
Item 3. Defaults Upon Senior Securities			22
Item 4. [Removed and Reserved]			22
Item 5. Other Information			22
Item 6. Exhibits			22

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
BALANCE SHEETS
  
SEPTEMBER 30, 2011 AND DECEMBER 31, 2010
(in thousands)
(Unaudited)

		September 30, 2011				December 31, 2010
ASSETS
Cash and cash equivalents		$	4,746			$	2,637
Accounts receivable, net of allowance for doubtful accounts of $19 as of September 30, 2011 and $11 as of December 31, 2010			195				311
Investments in equipment and leases, net of accumulated depreciation of $39,962 as of September 30, 2011 and $41,618 as of December 31, 2010			7,836				8,760
Other assets			9				7
Total assets		$	12,786			$	11,715
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued liabilities:
General Partner		$	651			$	504
Other			451				271
Unearned operating lease income			426				102
Total liabilities			1,528				877
Partners’ capital:
General Partner			—				—
Limited Partners			11,258				10,838
Total Partners’ capital			11,258				10,838
Total liabilities and Partners’ capital		$	12,786			$	11,715

See accompanying notes.

3

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
STATEMENTS OF OPERATIONS
  
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2011 AND 2010
(in thousands except units and per unit data)
(Unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Revenues:
Leasing activities:
Operating leases		$	1,054			$	1,674			$	3,005			$	2,973
Direct financing leases			66				80				211				251
Gain on sales of assets			102				120				181				243
Other			1				1				12				7
Total revenues			1,223				1,875				3,409				3,474
Expenses:
Depreciation of operating lease assets			186				411				795				1,234
Marine vessel maintenance and other operating costs			—				283				159				386
Cost reimbursements to General Partner			—				—				750				750
Equipment and incentive management fees to General Partner			35				89				97				126
Railcar and equipment maintenance			155				127				435				345
Professional fees			5				25				69				164
Insurance			2				27				(16	)			98
Outside services			18				12				43				48
Other management fees			60				99				111				250
Equipment storage			1				38				54				114
Franchise fees and state taxes			20				—				62				(10	)
Freight and shipping			3				2				247				5
(Reversal of) provision for doubtful accounts			(35	)			—				8				11
Property taxes			2				—				58				42
Other			32				27				108				101
Total operating expenses			484				1,140				2,980				3,664
Income (loss) from operations			739				735				429				(190	)
Other (loss) income, net			(2	)			3				(9	)			(7	)
Net income (loss)		$	737			$	738			$	420			$	(197	)
Net income (loss):
General Partner		$	—			$	—			$	—			$	182
Limited Partners			737				738				420				(379	)
		$	737			$	738			$	420			$	(197	)
Net income (loss) per Limited Partnership Unit		$	0.05			$	0.05			$	0.03			$	(0.03	)
Weighted average number of Units outstanding			14,985,550				14,985,550				14,985,550				14,985,550

See accompanying notes.

4

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
  
FOR THE YEAR ENDED DECEMBER 31, 2010
AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 2011
(in thousands except units and per unit data)
(Unaudited)

		Limited Partners								General Partner				Total
		Units				Amount
Balance December 31, 2009			14,985,550			$	14,247			$	—			$	14,247
Distributions to Limited Partners ($0.25 per Unit)			—				(3,747	)			—				(3,747	)
Distributions to General Partner			—				—				(304	)			(304	)
Net income			—				338				304				642
Balance December 31, 2010			14,985,550				10,838				—				10,838
Net income			—				420				—				420
Balance September 30, 2011			14,985,550			$	11,258			$	—			$	11,258

See accompanying notes.

5

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
STATEMENTS OF CASH FLOWS
  
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2011 AND 2010
(in thousands)
(Unaudited)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Operating activities:
Net income (loss)		$	737			$	738			$	420			$	(197	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Gain on sales of assets			(102	)			(120	)			(181	)			(243	)
Depreciation of operating lease assets			186				411				795				1,234
(Reversal of) provision for doubtful accounts			(35	)			—				8				11
Changes in operating assets and liabilities:
Accounts receivable			65				(492	)			108				(454	)
Other assets			(8	)			(8	)			(2	)			1
Accounts payable:
General Partner			(78	)			(87	)			147				189
Other			(118	)			(233	)			30				(72	)
Affiliates			—				(55	)			—				(2	)
Unearned lease income			195				131				324				83
Net cash provided by operating activities			842				285				1,649				550
Investing activities:
Proceeds from sales of lease assets			193				206				380				428
Principal payments received on direct financing leases			31				18				80				51
Net cash provided by investing activities			224				224				460				479
Financing activities:
Distributions:
General Partner			—				—				—				(182	)
Limited Partners			—				—				—				(2,248	)
Net cash used in financing activities			—				—				—				(2,430	)
Net increase (decrease) in cash and cash equivalents			1,066				509				2,109				(1,401	)
Cash and cash equivalents at beginning of period			3,680				1,988				2,637				3,898
Cash and cash equivalents at end of period		$	4,746			$	2,497			$	4,746			$	2,497
Supplemental disclosures of cash flow information:
Cash paid during the period for taxes		$	16			$	—			$	78			$	45
Schedule of non-cash transactions:
Improvements to operating lease equipment		$	—			$	—			$	150			$	—

See accompanying notes.

6

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

1. Organization and Limited Partnership matters:

ATEL Capital Equipment Fund VII, L.P. (the “Partnership” or the “Fund”) was formed under the laws of the State of California on May 17, 1996 for the purpose of acquiring equipment to engage in equipment leasing and sales activities, primarily in the United States. The Partnership may continue until December 31, 2017. The General Partner of the Partnership is ATEL Financial Services, LLC (“AFS”), a California limited liability company. Prior to converting to a limited liability company structure, AFS was formerly known as ATEL Financial Corporation.

The Partnership conducted a public offering of 15,000,000 Units of Limited Partnership Interest (“Units”), at a price of $10 per Unit. On January 7, 1997, subscriptions for the minimum number of Units (120,000, $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Partnership. On that date, the Partnership commenced operations in its primary business. Gross contributions in the amount of $150 million (15,000,000 units) were received as of November 27, 1998, exclusive of $500 of Initial Partners’ capital investment and $100 of AFS’ capital investment. The offering was terminated on November 27, 1998. As of September 30, 2011, 14,985,550 Units remain issued and outstanding.

The Partnership’s principal objectives have been to invest in a diversified portfolio of equipment that (i) preserves, protects and returns the Partnership’s invested capital; (ii) generates regular distributions to the partners of cash from operations and cash from sales or refinancing, with any balance remaining after certain minimum distributions to be used to purchase additional equipment during the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), which ended December 31, 2004 and (iii) provides additional distributions following the Reinvestment Period and until all equipment has been sold. The Partnership is governed by its Limited Partnership Agreement (“Partnership Agreement”).

Pursuant to the Partnership Agreement, AFS receives compensation for services rendered and reimbursements for costs incurred on behalf of the Partnership (Note 5). The Partnership is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

As of September 30, 2011, the Partnership continues to be in the liquidation phase of its life cycle as defined in the Partnership Agreement.

These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q as mandated by the Securities and Exchange Commission. The unaudited interim financial statements reflect all adjustments which are, in the opinion of the General Partner, necessary for a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year.

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no significant effect on the reported financial position or results from operations.

Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.

In preparing the accompanying unaudited financial statements, the General Partner has reviewed events that have occurred after September 30, 2011, up until the issuance of the financial statements. No events were noted which would require disclosure in the footnotes to the financial statements, or adjustments thereto.

7

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Use of estimates:

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such estimates primarily relate to the determination of residual values at the end of the lease term, expected future cash flows used for impairment analysis purposes, and determination of the allowance for doubtful accounts.

Segment reporting:

The Partnership is not organized by multiple operating segments for the purpose of making operating decisions or assessing performance. Accordingly the Partnership operates in one reportable operating segment in the United States.

However, certain of the Partnership’s lessee customers may have international operations. In these instances, the Partnership is aware that certain equipment, primarily rail and transportation, may periodically exit the country. However, these lessee customers are US-based, and it is impractical for the Partnership to track, on an asset-by-asset and day-by-day basis, where these assets are deployed. The primary geographic regions in which the Partnership sought leasing opportunities were North America and Europe. The table below summarizes geographic information relating to the sources, by nation, of the Partnership’s total revenues for nine months ended September 30, 2011 and 2010 and long-lived tangible assets as of September 30, 2011 and December 31, 2010 (dollars in thousands):

		For The Nine Months Ended September 30,
		2011				% of Total				2010				% of Total
Revenue
United States		$	3,179				93	%		$	3,440				99	%
United Kingdom			16				0	%			34				1	%
Canada			214				7	%			—				0	%
Total International			230				7	%			34				1	%
Total		$	3,409				100	%		$	3,474				100	%

		As of September 30,								As of December 31,
		2011				% of Total				2010				% of Total
Long-lived assets
United States		$	7,596				97	%		$	8,760				100	%
United Kingdom			—				0	%			—				0	%
Canada			240				3	%			—				0	%
Total International			240				3	%			—				0	%
Total		$	7,836				100	%		$	8,760				100	%

Other (loss) gain, net:

Other (loss) gain, net consists of losses on foreign currency transactions. The table below details the Partnership’s other (loss) gain, net for the three and nine months ended September 30, 2011 and 2010 (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Foreign currency (loss) gain		$	(2	)		$	3			$	(9	)		$	(7	)

8

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

Per Unit data:

Net income (loss) and distributions per Unit are based upon the weighted average number of Limited Partnership Units outstanding during the period.

Recent accounting pronouncements:

In April 2011, the FASB issued ASU No. 2011-02, “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” ASU 2011-02 clarifies guidance on a creditor’s evaluation of whether it has granted a concession to a borrower and a creditor’s evaluation of whether a borrower is experiencing financial difficulties. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. In addition, an entity should disclose the information required by Accounting Standards Codification paragraphs 310-10-50-33 through 50-34, which was deferred by ASU 2011-01, for interim and annual periods beginning on or after June 15, 2011. The amendments in this update were adopted by the Partnership on July 1, 2011, and for purposes of measuring impairment, were applied retrospectively to January 1, 2011. The Partnership evaluated the guidance included in 2011-02 and has determined that it does not result in any new troubled debt restructurings that should be reported.

In January 2011, the FASB issued ASU No. 2011-01, “Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20.” ASU 2011-01 temporarily delays the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring. The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring will then be coordinated. The guidance became effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. The adoption of this update did not have a material effect on the Partnership’s financial position or results of operations.

3. Provision for credit losses:

Activity in the allowance for doubtful accounts consists of the following (in thousands):

		Accounts Receivable Allowance for Doubtful Accounts								Valuation Adjustments on Financing Receivables				Total Allowance for Credit Losses
		Finance Leases				Operating Leases				Finance Leases
Balance December 31, 2009		$	1			$	—			$	—			$	1
Provision for credit losses			9				1				—				10
Balance December 31, 2010			10				1				—				11
Provision for credit losses			2				6				—				8
Balance September 30, 2011		$	12			$	7			$	—			$	19

Accounts Receivable

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

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

9

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Provision for credit losses: - (continued)

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

Financing Receivables

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

The asset underlying a direct financing lease contract is considered impaired if the estimated undiscounted future cash flows of the asset are less than its net book value. The estimated undiscounted future cash flows are the sum of the estimated residual value of the asset at the end of the asset’s expected holding period and estimates of undiscounted future rents. The residual value assumes, among other things, that the asset is utilized normally in an open, unrestricted and stable market. Short-term fluctuations in the market place are disregarded and it is assumed that there is no necessity either to dispose of a significant number of the assets, if held in quantity, simultaneously or to dispose of the asset quickly.

As of September 30, 2011 and December 31, 2010, the Partnership did not record an allowance for credit losses related to its financing receivables. The Partnership’s recorded investment in financing receivables at September 30, 2011 and December 31, 2010 are as follows (in thousands):

September 30, 2011		Finance Leases				Total
Allowance for credit losses:
Ending balance		$	—			$	—
Ending balance: individually evaluated for impairment		$	—			$	—
Ending balance: collectively evaluated for impairment		$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—
Financing receivables:
Ending balance		$	442			$	442
Ending balance: individually evaluated for impairment		$	442			$	442
Ending balance: collectively evaluated for impairment		$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—

December 31, 2010		Finance Leases				Total
Allowance for credit losses:
Ending balance		$	—			$	—
Ending balance: individually evaluated for impairment		$	—			$	—
Ending balance: collectively evaluated for impairment		$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—
Financing receivables:
Ending balance		$	522			$	522
Ending balance: individually evaluated for impairment		$	522			$	522
Ending balance: collectively evaluated for impairment		$	—			$	—
Ending balance: loans acquired with deteriorated credit quality		$	—			$	—

10

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Provision for credit losses: - (continued)

The Partnership evaluates the credit quality of its financing receivables on a scale equivalent to the following quality indicators related to corporate risk profiles:

Pass – Any account whose lessee/debtor, co-lessee/debtor or any guarantor has a credit rating on publicly traded or privately placed debt issues as rated by Moody’s or S&P for either Senior Unsecured debt, Long Term Issuer rating or Issuer rating that are in the tiers of ratings generally recognized by the investment community as constituting an Investment Grade credit rating; or, has been determined by the General Partner to be an Investment Grade Equivalent or High Quality Corporate Credit per its Credit Policy or has a Not Rated internal rating by the General Partner and the account is not considered by the Chief Credit Officer of the General Partner to fall into one of the three risk profiles below.

Special Mention – Any traditional corporate type account with potential weaknesses (e.g. large net losses or major industry downturns) or, any growth capital account that has less than three months of cash as of the end of the calendar quarter to fund their continuing operations. These accounts deserve management’s close attention. If left uncorrected, those potential weaknesses may result in deterioration of the Fund’s receivable at some future date.

Substandard – Any account that is inadequately protected by the current worth and paying capacity of the borrower or of the collateral pledged, if any. Accounts that are so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Fund will sustain some loss as the likelihood of fully collecting all receivables may be questionable if the deficiencies are not corrected. Such accounts are on the General Partner’s Credit Watch List.

Doubtful – Any account where the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Accordingly, an account that is so classified is on the General Partner’s Credit Watch List, and has been declared in default and the General Partner has repossessed, or is attempting to repossess, the equipment it financed. This category includes impaired leases as applicable.

At September 30, 2011 and December 31, 2010, the Partnership’s financing receivables by credit quality indicator and by class of financing receivables are as follows (in thousands):

		Finance Leases				Finance Leases
		September 30, 2011				December 31, 2010
Pass		$	442			$	522
Special mention			—				—
Substandard			—				—
Doubtful			—				—
Total		$	442			$	522

At September 30, 2011 and December 31, 2010, net investment in financing receivables is aged as follows (in thousands):

September 30, 2011		30 – 59 Days Past Due				60 – 89 Days Past Due				Greater Than 90 Days				Total Past Due				Current				Total Financing Receivables				Recorded Investment>90 Days and Accruing
Finance leases		$	—			$	—			$	85			$	85			$	357			$	442			$	85

December 31, 2010		30 – 59 Days Past Due				60 – 89 Days Past Due				Greater Than 90 Days				Total Past Due				Current				Total Financing Receivables				Recorded Investment>90 Days and Accruing
Finance leases		$	—			$	—			$	—			$	—			$	522			$	522			$	—

11

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

3. Provision for credit losses: - (continued)

The Partnership did not carry an impairment reserve on its financing receivables at September 30, 2011 and December 31, 2010. At September 30, 2011, certain net investments in financing receivables with related accounts receivable past due more than 90 days are still on an accrual basis based on management’s assessment of the collectability of such receivables. However, these accounts receivable are fully reserved and included in the allowance for doubtful accounts presented above. At December 31, 2010, there were no accounts receivable related to net investments in financing receivables placed in non-accrual status.

4. Investment in equipment and leases, net:

The Partnership’s investments in equipment and leases consist of the following (in thousands):

		Balance December 31, 2010				Reclassifications & Additions/ Dispositions				Depreciation/ Amortization Expense or Amortization of Leases				Balance September 30, 2011
Net investment in operating leases		$	7,817			$	292			$	(794	)		$	7,315
Net investment in direct financing leases			522				—				(80	)			442
Assets held for sale or lease, net			421				(341	)			(1	)			79
Total		$	8,760			$	(49	)		$	(875	)		$	7,836

Impairment of investments in leases and assets held for sale or lease:

Management periodically reviews the carrying values of its assets on leases and assets held for lease or sale. Impairment losses are recorded as an adjustment to the net investment in operating leases. No impairment losses were recorded during the three and nine months ended September 30, 2011 and 2010.

The Partnership utilizes a straight line depreciation method over the term of the equipment lease for equipment on operating leases currently in its portfolio. Depreciation expense on the Partnership’s equipment was approximately $186 thousand and $411 thousand for the three months ended September 30, 2011 and 2010, and was $795 thousand and $1.2 million for the respective nine months ended September 30, 2011 and 2010.

All of the property subject to leases was acquired in the years 1997 through 2002.

Operating leases:

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

		Balance December 31, 2010				Additions				Reclassifications or Dispositions				Balance September 30, 2011
Transportation		$	26,526			$	—			$	3,720			$	30,246
Marine vessels/barges			16,638				150				(1,113	)			15,675
Construction			431				—				—				431
Materials handling			83				—				—				83
Other			135				—				(135	)			—
			43,813				150				2,472				46,435
Less accumulated depreciation			(35,996	)			(794	)			(2,330	)			(39,120	)
Total		$	7,817			$	(644	)		$	142			$	7,315

The average estimated residual value for assets on operating leases was 14% and 15% of the assets’ original cost at September 30, 2011 and December 31, 2010, respectively.

The Partnership earns revenues from its marine vessels and certain lease assets based on utilization of such assets or through fixed term leases. Contingent rentals (i.e., short-term, operating charter hire payments) and the associated

12

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

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

expenses are recorded when earned and/or incurred. The revenues associated with these rentals are included as a component of Operating Lease Revenues. Prior to 2011, the most significant sources of contingent rentals were the Partnership’s two largest marine vessels. Such vessels were converted to fixed term leases in August 2010 and March 2011. Contingent rentals totaled $30 thousand and $1.1 million for the respective three months ended September 30, 2011 and 2010, and were $208 thousand and $1.3 million for the respective nine months ended September 30, 2011 and 2010.

There were no operating leases in non-accrual status at September 30, 2011 and December 31, 2010.

Direct financing leases:

As of September 30, 2011 and December 31, 2010, investment in direct financing leases primarily consists of various transportation, ground support and manufacturing equipment. The components of the Partnership’s investment in direct financing leases as of September 30, 2011 and December 31, 2010 are as follows (in thousands):

		September 30, 2011				December 31, 2010
Total minimum lease payments receivable		$	630			$	921
Estimated residual values of leased equipment (unguaranteed)			75				75
Investment in direct financing leases			705				996
Less unearned income			(263	)			(474	)
Net investment in direct financing leases		$	442			$	522

There were no net investments in direct financing leases in non-accrual status as of September 30, 2011 and December 31, 2010.

At September 30, 2011, the aggregate amounts of future minimum lease payments are as follows (in thousands):

		Operating Leases				Direct Financing Leases				Total
Three months ending December 31, 2011		$	839			$	97			$	936
Year ending December 31, 2012			2,521				368				2,889
2013			1,059				165				1,224
2014			323				—				323
2015			320				—				320
2016			27				—				27
		$	5,089			$	630			$	5,719

5. Related party transactions:

The terms of the Partnership Agreement provide that AFS and/or affiliates are entitled to receive certain fees for equipment management and resale and for management of the Partnership.

The Partnership Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as disposition of equipment. The Partnership would be liable for certain future costs to be incurred by AFS to manage the administrative services provided to the Partnership.

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

13

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

5. Related party transactions: - (continued)

Cost reimbursements to the General Partner are based on its costs incurred in performing administrative services for the Partnership. These costs are allocated to each managed entity based on certain criteria such as managed assets, number of investors or contributed capital based upon the type of cost incurred, subject to limitations as described below.

Incentive management fees are computed as 4.0% of distributions of cash from operations, as defined in the Partnership Agreement and equipment management fees are computed as 3.5% of gross revenues from operating leases, as defined in the Partnership Agreement plus 2.0% of gross revenues from full payout leases, as defined in the Partnership Agreement.

During the three and nine months ended September 30, 2011 and 2010, AFS and/or affiliates earned fees and commissions, and billed for reimbursements, pursuant to the Partnership Agreement as follows (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Equipment and incentive management fees to General Partner		$	35			$	89			$	97			$	126
Cost reimbursements to General Partner and/or affiliates			—				—				750				750
		$	35			$	89			$	847			$	876

The Fund’s Limited Partnership Agreement places an annual and cumulative limit for cost reimbursements to AFS and/or its affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent such amounts may be payable if within the annual and cumulative limits in such future years. The Fund is a finite life and self liquidating entity, and AFS and its affiliates have no recourse against the Fund for the amount of any unpaid excess reimbursable administrative expenses. The Fund will continue to require administrative services from AFS and its affiliates through the end of its term, and will therefore continue to incur reimbursable administrative expenses in each year. The Fund has determined that payment of any amounts in excess of the annual and cumulative limits is not probable, and the date any portion of such amount may be paid, if ever, is uncertain. When the Fund completes its liquidation stage and terminates, any unpaid amount will expire unpaid, with no claim by AFS or its affiliates against any liquidation proceeds or any party for the unpaid balance. Accordingly, the Partnership has recorded neither an obligation nor an expense for such contingent reimbursement of the approximate $251 thousand and $560 thousand excess reimbursable administrative expenses at September 30, 2011 and December 31, 2010, respectively.

6. Gain contingencies:

The Partnership’s vessel activity in the Gulf of Mexico was severely impacted by the British Petroleum (“BP”) “Deep Water Horizon” oil spill of 2010 which severely adversely impacted charter activity in the Gulf region. BP established a program to compensate those businesses and individuals suffering economic hardship and loss as a result of the Deep Water Horizon oil spill. The Partnership has submitted a claim to the BP program administrator seeking an approximate $2.8 million for loss of revenues during the period of the vessel’s diminished activity commencing at the time of the oil spill and continuing through 2010. While BP’s claim administrator reviews the Partnership’s claim, and the Partnership believes such claim to be of merit, the amount of any compensation or award from BP is currently extremely difficult to determine. As such, the potential for compensation or award has not been recorded on the Partnership’s books and records.

ATEL filed a claim on behalf of certain of its Funds for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate $2.8 million for the years 2005 – 2007 (of which the Partnership’s portion is an approximate $1.4 million). Such amounts are not considered material to any of the Funds in any given year. While the Funds' recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. The trial date for this matter has been rescheduled several times, and the suit has recently been assigned to a newly-appointed Federal Judge. The outcome of this claim remains uncertain.

14

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

7. Guarantees:

The Partnership enters into contracts that contain a variety of indemnifications. The Partnership’s maximum exposure under these arrangements is unknown. However, the Partnership has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

The General Partner knows of no facts or circumstances that would make the Partnership’s contractual commitments outside standard mutual covenants applicable to commercial transactions between businesses. Accordingly, the Partnership believes that these indemnification obligations are made in the ordinary course of business as part of standard commercial and industry practice, and that any potential liability under the Partnership’s similar commitments is remote. Should any such indemnification obligation become payable, the Partnership would separately record and/or disclose such liability in accordance with GAAP.

8. Partners’ capital:

As of September 30, 2011 and December 31, 2010, 14,985,550 Units were issued and outstanding. The Partnership had been authorized to issue up to 15,000,050 Units, including the 50 Units issued to the Initial Limited Partners, as defined.

The Partnership has the right, exercisable at the General Partner’s discretion, but not the obligation, to repurchase Units of a Unitholder who ceases to be a U.S. Citizen, for a price equal to 100% of the holder’s capital account. The Partnership is otherwise permitted, but not required, to repurchase Units upon a holder’s request. The repurchase of Fund Units is made in accordance with Section 13 of the Amended and Restated Agreement of Limited Partnership. The repurchase would be at the discretion of the General Partner on terms it determines to be appropriate under given circumstances, in the event that the General Partner deems such repurchase to be in the best interest of the Partnership; provided, the Partnership is never required to repurchase any Units. Upon the repurchase of any Units by the Fund, the tendered Units are cancelled. Units repurchased in prior periods were repurchased at amounts representing the original investment less cumulative distributions made to the Unitholder with respect to the Units. All Units repurchased during a quarter are deemed to be repurchased effective the last day of the preceding quarter, and are not deemed to be outstanding during, or entitled to allocations of net income, net loss or distributions for the quarter in which such repurchase occurs.

As defined in the Partnership Agreement, the Partnership’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Limited Partners and 7.5% to AFS.

As defined in the Partnership Agreement, available Cash from Operations shall be distributed as follows:

First, Distributions of Cash from Operations shall be 88.5% to the Limited Partners, 7.5% to AFS and 4% to AFS or its affiliate designated as the recipient of the Incentive Management Fee, until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital, as defined in the Partnership Agreement.

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its affiliate designated as the recipient of the Incentive Management Fee.

As defined in the Partnership Agreement, available Cash from Sales or Refinancing are to be distributed as follows:

First, Distributions of Sales or Refinancing shall be 92.5% to the Limited Partners and 7.5% to AFS, until the Limited Partners have received Aggregate Distributions in an amount equal to their Original Invested Capital, as defined, plus a 10% per annum cumulative (compounded daily) return on their Adjusted Invested Capital.

Second, 85% to the Limited Partners, 7.5% to AFS and 7.5% to AFS or its affiliate designated as the recipient of the Incentive Management Fee.

15

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
  
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

8. Partners’ capital: - (continued)

Distributions to Limited Partners were as follows (in thousands, except per Unit data):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Distributions declared		$	—			$	—			$	—			$	2,248
Weighted average number of Units outstanding			14,985,550				14,985,550				14,985,550				14,985,550
Weighted average distributions per Unit		$	—			$	—			$	—			$	0.15

16

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

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

Overview

ATEL Capital Equipment Fund VII, L.P. (the “Partnership” or the “Fund”) is a California partnership that was formed in May 1996 for the purpose of engaging in the sale of limited liability investment units and acquiring equipment to generate revenues from equipment leasing and sales activities, primarily in the United States.

The Partnership conducted a public offering of 15,000,000 Units of Limited Partnership Interest (“Units”), at a price of $10 per Unit. The offering was terminated in November 1998. During early 1999, the Partnership completed its initial acquisition stage with the investment of the net proceeds from the public offering of Units. Subsequently, throughout the reinvestment period (“Reinvestment Period”) (defined as six full years following the year the offering was terminated), the Partnership reinvested cash flow in excess of certain amounts required to be distributed to the Limited Partners and/or utilized its credit facilities to acquire additional equipment.

The Partnership may continue until December 31, 2017. However, pursuant to the guidelines of the Limited Partnership Agreement (“Partnership Agreement”), the Partnership began to liquidate its assets and distribute the proceeds thereof after the end of the Reinvestment Period which ended in December 2004.

As of September 30, 2011, the Partnership continues in its liquidation phase. Accordingly, assets that mature will be returned to inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions are paid at the discretion of the General Partner.

Results of Operations

The three months ended September 30, 2011 versus the three months ended September 30, 2010

The Partnership had net income of $737 thousand and $738 thousand for the three months ended September 30, 2011 and 2010, respectively. The results for the third quarter of 2011 reflect decreases in both total operating expenses and total revenues when compared to the prior year period.

Revenues

Total revenues for the third quarter of 2011 declined by $652 thousand, or 35%, as compared to the prior year period, largely as a result of a $620 thousand net reduction in operating lease revenues. The net decrease in operating lease revenues was primarily attributable to a decline in contingent rental revenues offset, in part, by an increase in fixed-term rental income.

17

Contingent rental revenues declined by an approximate $1.1 million as the Partnership’s two largest vessels, formerly the most significant source of contingent rentals, were converted to fixed term leases in August 2010 and in March 2011 at lower negotiated rates. Partially offsetting such decrease was an increase in fixed-term rental revenues derived from an approximate $3.8 million of off-lease assets that were re-leased during the second quarter of 2011. In addition, the two marine vessels which were converted to fixed-term leases likewise contributed incremental operating lease revenues during the period.

Expenses

Total operating expenses for the third quarter of 2011 decreased by $656 thousand, or 58%, as compared to the prior year period. The net decrease in expenses was primarily a result of decreases in marine vessel maintenance and other operating costs, depreciation expense, management fees paid to AFS, other management fees, equipment storage expense, and the provision for doubtful accounts.

Marine vessel maintenance and other operating costs decreased by $283 thousand as the responsibility for such expenses pertaining to both vessels were assumed by lessees under a “bareboat charter” provision. The bareboat charter provision transfers possession and full control of the vessels, including all legal and financial responsibility, to the lessee. Under this type of arrangement, the lessee pays for all operating expenses, including fuel, crew, port expenses and all required insurance coverage.

The $225 thousand reduction in depreciation expense was mainly attributable to continued run-off and sales of lease assets; and, the $54 thousand decline in management fees paid to AFS was primarily due to the continued decline in managed assets and related rents.

Other management fees declined by $39 thousand as the usage-based vessels formerly managed by a third party manager are now under fixed-term leases. Equipment storage expense decreased by $37 thousand as certain off-lease railcars, which were previously in inventory, were re-leased during the second quarter of 2011. Finally, provision for doubtful accounts was lower by $35 thousand due to recovery of amounts previously reserved.

Other

The Partnership recorded other loss, net totaling $2 thousand and other income, net totaling $3 thousand for the third quarters ended September 30, 2011 and 2010, respectively. The $5 thousand unfavorable variance represents the net impact of foreign currency transaction gains and losses and was a result of the period over period strength of the U.S. currency against the British pound at the time of the transactions. The Partnership’s foreign currency transactions are primarily denominated in British pounds.

The nine months ended September 30, 2011 versus the nine months ended September 30, 2010

The Partnership had net income of $420 thousand and a net loss of $197 thousand for the nine months ended September 30, 2011 and 2010, respectively. The results for the first nine months of 2011 reflect decreases in both total operating expenses and total revenues when compared to the prior year period.

Revenues

Total revenues for the first nine months of 2011 decreased by $65 thousand, or 2%, as compared to the prior year period. The net decrease in total revenues was mostly attributable to decreases in gain on sales of assets and in direct financing lease revenues offset, in part, by an increase in operating lease revenues.

Gain on sales of lease assets decreased by $62 thousand largely due to the lower volume and the change in the mix of assets sold during the current year period. Direct financing lease revenues declined by $40 thousand mainly due to run-off of the portfolio.

The aforementioned decreases in revenues were partially offset by a $32 thousand net increase in operating lease revenues. The net increase in operating lease revenues was primarily due to income derived from (i) an approximate $3.8 million of off-lease equipment that were re-leased during the first half of 2011 and (ii) incremental revenues from the Partnership’s two largest marine vessels which were converted from charter hires to fixed-term leases in August 2010 and March 2011. Partially offsetting such increases was a reduction in contingent rentals as a result of the aforementioned conversion of the Partnership’s vessels, formerly the most significant source of contingent revenues, to fixed-term leases.

18

Expenses

Total operating expenses for the first nine months of 2011 decreased by $684 thousand as compared to the prior year period. The net decrease in expenses was primarily a result of decreases in depreciation expense, marine vessel maintenance and other operating costs, other management fees, and insurance costs offset, in part, by increases in freight and shipping costs.

Depreciation expense was lower by $439 thousand primarily as a result of continued run-off and sales of lease assets. Marine vessel maintenance and other operating costs decreased by $227 thousand as the responsibility for such expenses pertaining to both vessels was assumed by its lessee under a “bareboat charter” provision. The bareboat charter provision transfers possession and full control of the vessels, including all legal and financial responsibility, to the lessee. Under this type of arrangement, the lessee pays for all operating expenses, including fuel, crew, port expenses and all required insurance coverage. Other management fees declined by $139 thousand as the usage-based vessels formerly managed by a third party manager are now under fixed-term leases. Moreover, insurance costs related to the Partnership’s marine vessels decreased by $114 thousand as (i) the responsibility for such expenses pertaining to both vessels was assumed by its lessee under a “bareboat charter” provision as previously discussed, and (ii) lower insurance costs were negotiated under a new policy.

Partially offsetting the aforementioned decreases in expenses was a $242 thousand increase in freight and shipping costs. The increase in freight and shipping expenses reflects costs reimbursed to a rail management company for transferring certain railcars from the United States to Canada as part of a lease deal restructuring during first quarter of 2011.

Other

The Partnership recorded other loss, net totaling $9 thousand and $7 thousand for the nine months ended September 30, 2011 and 2010, respectively. Both amounts represent losses from foreign currency transactions during the respective periods, resulting from the strength of the U.S. currency against the British pound at the time of the transactions. The British pound comprises the majority of the Partnership’s foreign currency transactions.

Capital Resources and Liquidity

At September 30, 2011 and December 31, 2010, the Partnership’s cash and cash equivalents totaled $4.7 million and $2.6 million, respectively. The liquidity of the Partnership varies, increasing to the extent cash flows from leases and proceeds from lease asset sales exceed expenses and decreasing as distributions are made to the partners and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

The primary source of liquidity for the Partnership has been its cash flow from leasing activities. As the initial lease terms have expired, the Partnership ventured to re-lease or sell the equipment. Future liquidity will depend on the Partnership’s success in remarketing or selling the equipment as it comes off rental.

In a normal economy, if inflation in the general economy becomes significant, it may affect the Partnership in as much as the residual (resale) values and rates on re-leases of the Partnership’s leased assets may increase as the costs of similar assets increase. However, the Partnership’s revenues from existing leases would not increase; as such rates are generally fixed for the terms of the leases without adjustment for inflation. In addition, if interest rates increase significantly under such circumstances, the lease rates that the Partnership can obtain on future leases will be expected to increase as the cost of capital is a significant factor in the pricing of lease financing. Leases already in place, for the most part, would not be affected by changes in interest rates.

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

19

Cash Flows

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

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Net cash provided by (used in):
Operating activities		$	842			$	285			$	1,649			$	550
Investing activities			224				224				460				479
Financing activities			—				—				—				(2,430	)
Net increase (decrease) in cash and cash equivalents		$	1,066			$	509			$	2,109			$	(1,401	)

The three months ended September 30, 2011 versus the three months ended September 30, 2010

During the three months ended September 30, 2011 and 2010, the Partnership’s primary source of liquidity was cash flow from its portfolio of operating lease contracts and proceeds from sales of lease assets. During the same periods, cash was primarily used to pay invoices related to General Partner fees and expenses, and other payables.

The nine months ended September 30, 2011 versus the nine months ended September 30, 2010

During the nine months ended September 30, 2011 and 2010, the Partnership’s primary source of liquidity was cash flow from its portfolio of operating lease contracts and proceeds from sales of lease assets.

During the same periods, cash was primarily used to pay invoices related to General Partner fees and expenses, and other payables. In addition, during the prior year period, cash was used to pay distributions to both the Limited Partners and the General Partner totaling $2.2 million and $182 thousand, respectively. As the Fund is in its liquidation phase, any future financing activity is anticipated to only include distributions to Partners.

Distributions

The Partnership commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1997. During its liquidation phase, the rates and frequency of periodic distributions paid by the Fund are solely at the discretion of the General Partner.

Commitments and Contingencies and Off-Balance Sheet Transactions

Commitments and contingencies

At September 30, 2011, the Partnership had no commitments to purchase lease assets and pursuant to the Partnership Agreement, the Partnership will no longer purchase any new lease assets.

Gain Contingencies

The Partnership’s vessel activity in the Gulf of Mexico was severely impacted by the British Petroleum (“BP”) “Deep Water Horizon” oil spill of 2010 which severely adversely impacted charter activity in the Gulf region. BP established a program to compensate those businesses and individuals suffering economic hardship and loss as a result of the Deep Water Horizon oil spill. The Partnership has submitted a claim to the BP program administrator seeking an approximate $2.8 million for loss of revenues during the period of the vessel’s diminished activity commencing at the time of the oil spill and continuing through 2010. While BP’s claim administrator reviews the Partnership’s claim, and the Partnership believes such claim to be of merit, the amount of any compensation or award from BP is currently extremely difficult to determine. As such, the potential for compensation or award has not been recorded on the Partnership’s books and records.

20

Moreover, ATEL filed a claim on behalf of certain of its Funds for the under-reporting of revenue by a fleet manager of three marine vessels, seeking to recover an approximate $2.8 million for the years 2005 – 2007 (of which the Partnership’s portion is an approximate $1.4 million). Such amounts are not considered material to any of the Funds in any given year. While the Funds' recovery with respect to this matter may be substantial, there is no assurance that judgment will be rendered in favor of the Funds. The trial date for this matter has been rescheduled several times, and the suit has recently been assigned to a newly-appointed Federal Judge. The outcome of this claim remains uncertain.

Off-Balance Sheet Transactions

None.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is included in Note 2 to the financial statements, Summary of significant accounting policies, as set forth in Part I, Item 1, Financial Statements (Unaudited).

Critical Accounting Policies and Estimates

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

The Partnership’s critical accounting policies are described in its Annual Report on Form 10-K for the year ended December 31, 2010. There have been no material changes to the Partnership’s critical accounting policies since December 31, 2010.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

The Partnership’s General Partner’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer and Chief Operating Officer (“Management”), evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on the evaluation of the Partnership’s disclosure controls and procedures, Management concluded that as of the end of the period covered by this report, the design and operation of these disclosure controls and procedures were effective.

The Partnership does not control the financial reporting process, and is solely dependent on the Management of the General Partner, which is responsible for providing the Partnership with financial statements in accordance with generally accepted accounting principles in the United States. The General Partner’s disclosure controls and procedures, as applicable to the Partnership, were effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Changes in internal control

There were no changes in the General Partner’s internal control over financial reporting, as it is applicable to the Partnership, during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the General Partner’s internal control over financial reporting, as it is applicable to the Partnership.

21

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

In the ordinary course of conducting business, there may be certain claims, suits, and complaints filed against the Partnership. In the opinion of management, the outcome of such matters, if any, will not have a material impact on the Partnership’s financial position or results of operations. No material legal proceedings are currently pending against the Partnership or against any of its assets.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. [Removed and Reserved].

Item 5. Other Information.

None.

Item 6. Exhibits.

Documents filed as a part of this report:

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

31.1 Rule 13a-14(a)/ 15d-14(a) Certification of Dean L. Cash
31.2 Rule 13a-14(a)/ 15d-14(a) Certification of Paritosh K. Choksi
32.1 Certification Pursuant to 18 U.S.C. section 1350 of Dean L. Cash
32.2 Certification Pursuant to 18 U.S.C. section 1350 of Paritosh K. Choksi

22

SIGNATURES

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

Date: November 14, 2011

ATEL CAPITAL EQUIPMENT FUND VII, L.P.
(Registrant)

		By: ATEL Financial Services, LLC General Partner of Registrant

By: /s/ Dean L. Cash Dean L. Cash President and Chief Executive Officer of ATEL Financial Services, LLC (General Partner)
By: /s/ Paritosh K. Choksi Paritosh K. Choksi Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (General Partner)
By: /s/ Samuel Schussler Samuel Schussler Vice President and Chief Accounting Officer of ATEL Financial Services, LLC (General Partner)

23