10-Q 1 fund710q2q2002.txt REPORT FOR THE SIX MONTHS ENDED JUNE 30, 2002 Form 10-Q 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 June 30, 2002 |_| 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 0-24175 ATEL Capital Equipment Fund VII, L.P. (Exact name of registrant as specified in its charter) California 94-3248318 ---------- ---------- (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.) 235 Pine Street, 6th Floor, San Francisco, California 94104 (Address of principal executive offices) Registrant's telephone number, including area code: (415) 989-8800 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 |_| DOCUMENTS INCORPORATED BY REFERENCE None 1 Part I. FINANCIAL INFORMATION Item 1. Financial Statements. 2 ATEL CAPITAL EQUIPMENT FUND VII, L.P. BALANCE SHEETS JUNE 30, 2002 AND DECEMBER 31, 2001 (Unaudited) ASSETS 2002 2001 ---- ---- Cash and cash equivalents $ 1,523,154 $ 936,189 Accounts receivable, net of allowance for doubtful accounts of $488,067 in 2002 and $118,067 in 2001 3,471,097 5,759,540 Other assets 30,017 108,015 Investments in leases 123,493,324 129,049,875 ----------------- ------------------ Total assets $128,517,592 $ 135,853,619 ================= ================== LIABILITIES AND PARTNERS' CAPITAL Long-term debt $40,529,000 $ 38,540,000 Non-recourse debt 7,027,922 9,971,225 Line of credit 7,000,000 4,100,000 Accounts payable: General Partner 580,916 Other 1,071,273 510,598 Accrued interest payable 178,908 355,458 Interest rate swap contracts 698,178 1,323,006 Unearned operating lease income 816,435 976,565 ----------------- ------------------ Total liabilities 57,321,716 56,357,768 Partners' capital 71,195,876 79,495,851 ----------------- ------------------ Total partners' capital 71,195,876 79,495,851 ----------------- ------------------ Total liabilities and partners' capital $128,517,592 $ 135,853,619 ================= ================== See accompanying notes. 3 ATEL CAPITAL EQUIPMENT FUND VII, L.P. STATEMENT OF OPERATIONS SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (Unaudited)
Six Months Three Months Ended June 30, Ended June 30, -------------- -------------- 2002 2001 2002 2001 ---- ---- ---- ---- Revenues: Leasing activities: Operating leases $12,543,651 $16,333,829 $ 5,832,667 $ 8,040,945 Direct financing 768,332 543,677 364,652 264,834 Leveraged leases - - - Loss on sales of assets (1,057,988) (351,040) (1,010,652) (270,078) Interest 8,542 36,770 2,425 14,378 Other 90,059 5,167 87,948 2,593 ----------------- ------------------ ----------------- ------------------ 12,352,596 16,568,403 5,277,040 8,052,672 Expenses: Depreciation and amortization 9,095,832 10,771,879 4,672,320 5,179,501 Interest expense 1,737,408 2,159,511 847,810 1,049,036 Equipment and incentive management fees to General Partner 491,462 689,171 209,110 362,185 Provision for doubtful accounts 370,000 - 70,000 - Cost reimbursements to General Partner 672,409 492,543 108,383 297,166 Railcar maintenance 347,462 425,191 194,252 188,344 Other 317,908 340,215 168,096 151,016 Professional fees 148,480 103,909 54,951 49,619 ----------------- ------------------ ----------------- ------------------ 13,180,961 14,982,419 6,324,922 7,276,867 ----------------- ------------------ ----------------- ------------------ Net (loss) income $ (828,365) $ 1,585,984 $(1,047,882) $ 775,805 ================= ================== ================= ================== Net (loss) income: General Partner $ 596,584 $ 518,964 $ 300,277 $ 303,981 Limited Partners (1,424,949) 1,067,020 (1,348,159) 471,824 ----------------- ------------------ ----------------- ------------------ $ (828,365) $ 1,585,984 $(1,047,882) $ 775,805 ================= ================== ================= ================== Net (loss) income per Limited Partnership Unit ($0.10) $0.07 ($0.09) $0.03 Weighted average number of Units outstanding 14,996,050 14,996,050 14,996,050 14,996,050
See accompanying notes. 4 ATEL CAPITAL EQUIPMENT FUND VII, L.P. STATEMENT OF CHANGES IN PARTNERS' CAPITAL SIX MONTH PERIOD ENDED JUNE 30, 2002 (Unaudited)
Accumulated Other Comprehensive Limited Partners General Income ---------------- Units Amount Partner (Loss) Total Balance December 31, 2001 14,996,050 $80,818,857 $ - $(1,323,006) $ 79,495,851 Unrealized decrease in value of interest rate swap contracts - - 624,828 624,828 Distributions to partners (7,499,854) (596,584) (8,096,438) Net (loss) income (1,424,949) 596,584 - (828,365) ------------------- ----------------- ------------------ ----------------- ------------------ Balance June 30, 2002 14,996,050 $71,894,054 $ - $ (698,178) $ 71,195,876 =================== ================= ================== ================= ==================
See accompanying notes. 5 ATEL CAPITAL EQUIPMENT FUND VII, L.P. STATEMENTS OF CASH FLOWS SIX AND THREE MONTH PERIODS ENDED JUNE 30, 2002 AND 2001 (Unaudited)
Six Months Three Months Ended June 30, Ended June 30, -------------- -------------- Operating activities: 2002 2001 2002 2001 ---- ---- ---- ---- Net (loss) income $ (828,365) $ 1,585,984 $(1,047,882) $ 775,805 Adjustments to reconcile net (loss) income to cash provided by operating activities: Depreciation 9,095,832 10,771,879 4,672,320 5,179,501 Loss on sales of assets 1,057,988 351,040 1,010,652 270,078 Provision for doubtful accounts 370,000 - 70,000 - Changes in operating assets and liabilities: Accounts receivable 1,918,443 1,464,456 580,491 115,429 Other assets 77,998 19,998 9,999 9,999 Accounts payable, General Partner (580,916) 178,027 (287,088) 508,731 Accounts payable, other 560,675 (142,541) 303,897 47,104 Accrued interest expense (176,550) (210,127) (105,079) (140,400) Unearned lease income (160,130) (336,984) (204,262) (293,713) ----------------- ------------------ ----------------- ------------------ Net cash provided by operations 11,334,975 13,681,732 5,003,048 6,472,534 ----------------- ------------------ ----------------- ------------------ Investing activities: Purchases of equipment on operating leases (3,959,522) (1,950,111) - - Reduction in net investment in direct financing leases 1,597,356 1,355,342 787,491 889,208 Proceeds from sales of assets 925,430 821,864 684,549 374,513 Purchases of equipment on direct financing leases (3,052,572) (492,988) 6,568 (41,066) Payment of initial direct costs to General Partner (107,961) (16,726) - - ----------------- ------------------ ----------------- ------------------ Net cash (used in) provided by investing activities (4,597,269) (282,619) 1,478,608 1,222,655 ----------------- ------------------ ----------------- ------------------ Financing activities: Distributions to partners (8,096,438) (8,019,110) (4,050,183) (4,054,171) Repayments of long-term debt (8,111,000) (8,114,000) (3,515,000) (3,174,000) Proceeds of long-term debt 10,100,000 2,000,000 - 2,000,000 Borrowings under line of credit 13,200,000 5,500,000 3,500,000 1,000,000 Repayments of borrowings under line of credit (10,300,000) (2,000,000) (500,000) (2,000,000) Repayments of non-recourse debt (2,943,303) (3,207,037) (1,186,766) (1,645,135) ----------------- ------------------ ----------------- ------------------ Net cash used in financing activities (6,150,741) (13,840,147) (5,751,949) (7,873,306) ----------------- ------------------ ----------------- ------------------ Net increase (decrease) in cash and cash equivalents 586,965 (441,034) 729,707 (178,117) Cash and cash equivalents at beginning of period 936,189 1,321,417 793,447 1,058,500 ----------------- ------------------ ----------------- ------------------ Cash and cash equivalents at end of period $ 1,523,154 $ 880,383 $ 1,523,154 $ 880,383 ================= ================== ================= ================== Supplemental disclosures of cash flow information: Cash paid during the period for interest $ 1,913,958 $ 2,369,638 $ 952,889 $ 1,189,436 ================= ================== ================= ==================
See accompanying notes. 6 ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) 1. Summary of significant accounting policies: Interim financial statements: The unaudited interim financial statements reflect all adjustments which are, in the opinion of the general partners, necessary to a fair statement of financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. These unaudited interim financial statements should be read in conjunction with the most recent report on Form 10K. 2. Organization and partnership matters: ATEL Capital Equipment Fund VII, L.P. (the Fund), was formed under the laws of the State of California on July 17 , 1996, for the purpose of acquiring equipment to engage in equipment leasing and sales activities. The Partnership does not make a provision for income taxes since all income and losses will be allocated to the Partners for inclusion in their individual tax returns. 3. Investment in leases: The Partnership's investment in leases consists of the following:
Depreciation Balance Expense or Reclassi- Balance December 31, Amortization fications or June 30, 2001 Additions of Leases Dispositions 2002 ---- --------- --------- - ------------- ---- Net investment in operating leases $101,066,589 $ 3,959,522 $ (8,986,718) $ (537,720) $ 95,501,673 Net investment in direct financing leases 18,931,921 3,052,572 (1,597,356) (1,283,606) 19,103,531 Assets held for sale or lease 9,267,614 - - (666,319) 8,601,295 Reserve for losses (504,227) - - 504,227 - Initial direct costs, net of accumulated amortization 287,978 107,961 (109,114) - 286,825 ------------------- ----------------- ------------------ ----------------- ------------------ $129,049,875 $ 7,120,055 $ (10,693,188) $(1,983,418) $ 123,493,324 =================== ================= ================== ================= ==================
7 ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) 3. Investment in leases (continued): Property on operating leases consists of the following:
Balance Dispositions & Balance December 31, Reclassifications June 30, ----------------- 2001 1st Quarter 2nd Quarter 2002 ---- ----------- ----------- ---- Transportation $80,788,684 $ (180,106) $ (356,586) $ 80,251,992 Marine vessels / barges 27,030,136 - - 27,030,136 Construction 22,831,963 (417,700) - 22,414,263 Manufacturing 9,702,801 (28,868) (306,545) 9,367,388 Materials handling 5,265,654 3,959,522 (166,602) 9,058,574 Mining 9,012,965 - - 9,012,965 Other 5,813,733 (120,237) 320,234 6,013,730 Communications 4,387,819 - - 4,387,819 Office automation 5,297,632 (466,740) (1,119,362) 3,711,530 ----------------- ------------------ ----------------- ------------------ 170,131,387 2,745,871 (1,628,861) 171,248,397 Less accumulated depreciation (69,064,798) (3,445,301) (3,236,625) (75,746,724) ----------------- ------------------ ----------------- ------------------ $101,066,589 $ (699,430) $(4,865,486) $ 95,501,673 ================= ================== ================= ==================
All of the property on leases was acquired in 1997, 1998, 1999, 2001 and 2002. At June 30, 2002, the aggregate amounts of future minimum lease payments are as follows:
Direct Operating Financing Leases Leases Total Six months ending December 31, 2002 $10,686,978 $ 2,141,528 $12,828,506 Year ending December 31, 2003 14,940,321 3,943,273 18,883,594 2004 9,664,461 3,857,280 13,521,741 2005 6,430,500 3,786,011 10,216,511 2006 1,509,428 1,713,362 3,222,790 Thereafter 769,347 756,133 1,525,480 ----------------- ------------------ ----------------- $44,001,035 $16,197,587 $60,198,622 ================= ================== =================
8 ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) 4. Non-recourse debt: Notes payable to financial institutions are due in varying monthly and quarterly installments of principal and interest. The notes are secured by assignments of lease payments and pledges of the assets which were purchased with the proceeds of the particular notes. Interest rates on the notes vary from 7.40% to 8.828%. Future minimum principal payments of non-recourse debt are as follows:
Principal Interest Total Six months ending December 31, 2002 $ 2,814,146 $ 245,283 $ 3,059,429 Year ending December 31, 2003 3,261,130 288,831 3,549,961 2004 298,403 67,364 365,767 2005 322,838 42,927 365,765 2006 216,850 20,179 237,029 Thereafter 114,555 5,418 119,973 ----------------- ------------------ ----------------- $ 7,027,922 $ 670,002 $ 7,697,924 ================= ================== =================
5. Long-term debt: In 1998, the Partnership entered into a $65 million receivables funding program (the Program) with a receivables financing company that issues commercial paper rated A1 by Standard and Poors and P1 by Moody's Investor Services. Under the Program, the receivables financing company receives a general lien against all of the otherwise unencumbered assets of the Partnership. The Program provides for borrowing at a variable interest rate (1.8539% at June 30, 2002). As of June 30, 2002, the program has been closed as to additional borrowings. The Program requires the General Partner to enter into various interest rate swaps with a financial institution (also rated A1/P1) to manage interest rate exposure associated with variable rate obligations under the Program by effectively converting the variable rate debt to fixed rates. As of June 30, 2002, the Partnership receives or pays interest on a notional principal of $40,529,000, based on the difference between nominal rates ranging from 4.10% to 7.58% and the variable rate under the Program. No actual borrowing or lending is involved. The last of the swaps terminates in 2009. The differential to be paid or received is accrued as interest rates change and is recognized currently as an adjustment to interest expense related to the debt. 9 ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) 5. Long-term debt (continued): Borrowings under the Program are as follows: Original Balance Rate on Date Amount June 30, Interest Swap Borrowed Borrowed 2002 Agreement -------- -------- ---- --------- 4/1/98 $21,770,000 $ 2,386,000 6.220% 7/1/98 25,000,000 4,543,000 6.155% 10/1/98 20,000,000 7,601,000 5.550% 4/16/99 9,000,000 2,772,000 5.890% 1/26/00 11,700,000 7,578,000 7.580% 5/25/01 2,000,000 1,596,000 5.790% 9/28/01 6,000,000 4,889,000 4.360% 1/31/02 4,400,000 3,974,000 4.100% 2/19/02 5,700,000 5,190,000 5.490% ----------------- ------------------ $105,570,000 $40,529,000 ================= ================== The long-term debt borrowings mature from 2004 through 2009. Future minimum principal payments of long-term debt are as follows:
Rates on Interest Swap Principal Interest Total Agreements* --------- -------- ----- ----------- Six months ending December 31, 2002 $ 6,983,000 $ 1,105,682 $ 8,088,682 5.859% - 5.876% Year ending December 31, 2003 11,524,000 1,653,145 13,177,145 5.858% - 5.878% 2004 9,458,000 1,041,883 10,499,883 5.871% - 5.910% 2005 7,875,000 539,350 8,414,350 5.927% - 6.257% 2006 2,810,000 206,986 3,016,986 6.414% - 7.009% 2007 903,000 103,979 1,006,979 7.007% - 7.211% 2008 635,000 46,443 681,443 7.245% - 7.580% 2009 341,000 12,229 353,229 7.58% ----------------- ------------------ ----------------- $40,529,000 $ 4,709,697 $45,238,697 ================= ================== =================
6. Related party transactions: The terms of the Limited Partnership Agreement provide that the General Partner and/or Affiliates are entitled to receive certain fees for equipment management and resale and for management of the Partnership. The Limited Partnership Agreement allows for the reimbursement of costs incurred by the General Partner in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. The General Partner is not reimbursed for services where it is entitled to receive a separate fee as compensation for such services, such as acquisition and management of equipment. Reimbursable costs incurred by the General Partner are allocated to the Partnership based upon actual time incurred by employees working on Partnership business and an allocation of rent and other costs based on utilization studies. 10 ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) 6. Related party transactions (continued): Substantially all employees of the General Partner record time incurred in performing administrative services on behalf of all of the Partnerships serviced by the General Partner. The General Partner believes that the costs reimbursed are the lower of (i) actual costs incurred on behalf of the Partnership or (ii) the amount the Partnership would be required to pay independent parties for comparable administrative services in the same geographic location and are reimbursable in accordance with the Limited Partnership Agreement. The General Partner and/or Affiliates earned fees, commissions and reimbursements, pursuant to the Limited Partnership Agreement during the six month periods ended June 30, 2001 and 2000 as follows:
2002 2001 ---- ---- Incentive management fees and equipment management fees $ 491,462 $ 689,171 Administrative costs reimbursed to General Partner 672,409 492,543 ----------------- ------------------ $ 1,163,871 $ 1,181,714 ================= ==================
7. Partner's capital: As of June 30, 2002, 14,996,050 Units ($149,960,500) were issued and outstanding. First, Distributions of Cash from Operations shall be 88.5% to the Limited Partners, 7.5% to the General Partner and 4% to the General Partner 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 Limited Partnership Agreement. Second, 85% to the Limited Partners, 7.5% to the General Partner and 7.5% to the General Partner or its affiliate designated as the recipient of the Incentive Management Fee. Available Cash from Sales or Refinancing, as defined in the Limited Partnership Agreement, shall be distributed as follows: First, Distributions of Sales or Refinancings shall be 92.5% to the Limited Partners and 7.5% to the General Partner, 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 the General Partner and 7.5% to the General Partner or its affiliate designated as the recipient of the Incentive Management Fee. 11 ATEL CAPITAL EQUIPMENT FUND VII, L.P. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2002 (Unaudited) 8. Line of credit: The Partnership participates with the General Partner and certain of its affiliates in a $43,654,928 revolving line of credit with a financial institution that includes certain financial covenants. The line of credit expires on June 28, 2004. As of June 30, 2002, borrowings under the facility were as follows:
Amount borrowed by the Partnership under the acquisition facility $ 7,000,000 Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition facility 16,000,000 ------------------ Total borrowings under the acquisition facility 23,000,000 Amounts borrowed by the General Partner and its sister corporation under the warehouse facility - ------------------ Total outstanding balance $ 23,000,000 ================== Total available under the line of credit $ 43,654,928 Total outstanding balance (23,000,000) ------------------ Remaining availability $ 20,654,928 ==================
9. Commitments: As of June 30, 2002, the Partnership had no outstanding commitments to purchase lease equipment. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and Liquidity During the first and second quarters of 2002, the Partnership's primary activity was engaging in equipment leasing activities. The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from leases exceed expenses, and decreasing as lease assets are acquired, as distributions are made to the limited partners and to the extent expenses exceed cash flows from leases. As another source of liquidity, the Partnership has contractual obligations with a diversified group of lessees for fixed lease terms at fixed rental amounts. As the initial lease terms expire the Partnership will re-lease or sell the equipment. The future liquidity beyond the contractual minimum rentals will depend on the General Partner's success in re-leasing or selling the equipment as it comes off lease. The Partnership participates with the General Partner and certain of its affiliates in a $43,654,928 revolving line of credit with a financial institution that includes certain financial covenants. The line of credit expires on June 28, 2004. As of June 30, 2002, borrowings under the facility were as follows:
Amount borrowed by the Partnership under the acquisition facility $ 7,000,000 Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition facility 16,000,000 ------------------ Total borrowings under the acquisition facility 23,000,000 Amounts borrowed by the General Partner and its sister corporation under the warehouse facility - ------------------ Total outstanding balance $ 23,000,000 ================== Total available under the line of credit $ 43,654,928 Total outstanding balance (23,000,000) ------------------ Remaining availability $ 20,654,928 ==================
The Partnership anticipates reinvesting a portion of lease payments from assets owned in new leasing transactions. Such reinvestment will occur only after the payment of all obligations, including debt service (both principal and interest), the payment of management fees to the General Partner and providing for cash distributions to the Limited Partners. The Partnership currently has available adequate reserves to meet contingencies, 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. The General Partner envisions no such requirements for operating purposes. No commitments of capital have been or are expected to be made other than for the acquisition of additional equipment. There were no such commitments as of June 30, 2002. If inflation in the general economy becomes significant, it may affect the Partnership inasmuch 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. 13 If interest rates increase significantly, 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. Cash Flows, 2002 vs. 2001: During the first half of 2002 and 2001, the Partnership's primary sources of liquidity was rents from assets on operating leases. Cash from operating activities was almost entirely from operating lease rents in both 2002 and in 2001 for both the three and six month periods. Sources of cash from investing activities consisted of proceeds from sales of assets and direct financing lease rents. Proceeds from sales of lease assets increased significantly compared to 2001. In 2002 and 2001, cash was used in investing activities to purchase assets on operating and direct financing leases and to pay initial direct costs to the General Partner. In 2002 and 2001, cash from financing sources consisted of proceeds of long-term debt and borrowings under the line of credit. In both 2002 and 2001, proceeds of long-term debt were used to repay amounts due on the line of credit. Repayments of long-term debt have changed as a result of scheduled payments. Distributions to partners did not change significantly compared to 2001. Results of operations, 2002 vs. 2001: Operations in 2002 resulted in a net loss of $828,365 (six months) and $1,047,882 (three months). Operations in 2001 resulted in a net income of $1,585,984 (six months) and $775,805 (three months). The losses in 2002 were directly related to the losses incurred in sales of lease assets in the second quarter of 2002. The Partnership's primary source of revenues is from operating leases. This is expected to remain true in future periods. Operating lease revenues for the six month periods decreased from $$16,333,829 in 2001 to $12,543,651 in 2002. For the three month periods, they decreased from $8,040,945 in 2001 to $5,832,667 in 2002. The decreases were the result of asset sales in 2001 and in 2002. Depreciation expense is the single largest expense of the Partnership and is expected to remain so in future periods. As lease assets have been sol over the last year, operating lease revenues have declined. This has also led to decreases in depreciation expense. Total debt has remained almost constant compared to June 30, 2001. However, more of the debt is being carried on the receivables funding facility. This has helped to reduce average interest rates and interest expense as the effective rates on the facility are lower than on the Partnership's other borrowings. For the six month periods, interest decreased by $422,103. For the three month period, the decrease was $201,226. PART II. OTHER INFORMATION Item 1. Legal Proceedings. No material legal proceedings are currently pending against the Partnership or against any of its assets. The following is a discussion of legal matters involving the Partnership but which do not represent claims against the Partnership or its assets. 14 Applied Magnetics Corporation: In January 2000, Applied Magnetics Corporation filed for protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. The Partnership had assets with a total net book value of $8,048,095 leased to Applied Magnetics Corporation at the bankruptcy filing date. On January 31, 2000, the General Partner was appointed to the Official Committee of Unsecured Creditors and currently serves as the Chairperson of the Committee. Procedures were quickly undertaken for the liquidation of the Partnership's leased equipment, which proceeds resulted in recoveries of $1,773,798 or 21.7% of original equipment cost. As of November 1, 2000, liquidation of the assets was completed. The debtor filed a Plan of Reorganization (the "Plan"), which was approved by a vote of the creditors of the debtor in October 2001. The Plan provided that the Debtor change its name to "Integrated Micro-Technology", and enter into a new line of business, the manufacture and production of "micro-machines". As part of the Plan, the Partnership, along with the other unsecured creditors, receives a proportionate share of their unsecured claims, in the form of ownership shares and warrants in the newly formed business. The success of this new business plan is highly uncertain. On February 13, 2002, the reorganized Debtor filed a notice of objection to the Funds claim due to duplication and an improper liquidated damages provision, which the Funds intend to dispute. The Partnership anticipates additional amounts may be recoverable through its equity interests in the reorganized lessee's business, however, any recoveries above the amounts received upon liquidation of the Partnership's equipment are highly uncertain and speculative. Pioneer Companies, Inc.: On July 31, 2001, petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code were filed by the Pioneer Companies, Inc., et al. The Partnership's Proof of Claim was timely filed on October 14, 2001, with the Bankruptcy Clerk in Houston. The Partnership is the successor in interest to First Union Rail Corporation (FURC) under four (4) tank car lease schedules for 36 tank cars with Pioneer Chlor-Alkali Company, Inc. n/k/a Pioneer Americas, Inc. (together, the "Lease"). FURC manages the Lease for the Partnership. The Order Confirming Debtor's Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code ("Plan") was entered on November 28, 2001. The Effective Date, as defined in the Plan, was December 31, 2001. Pursuant to Schedules 6.1(a)(x) and 6.1(a)(y) of the Plan, the Lease was rejected by the debtor. Although the equipment was to be returned to FURC by December 31, 2001, the debtor has continued to use and pay for the equipment under the lease on a month-to-month basis. A letter agreement has been forwarded to executed by the debtor to formalize an understanding for debtor's continued use of the equipment under the terms of the Lease at least until March 31, 2002 on a month-to-month basis until the cars are returned. The debtor has also objected to the Fund's claim, which objection is being disputed by the Fund. The full extent of any recovery is not known at this time. Item 2. Changes In Securities. Inapplicable. Item 3. Defaults Upon Senior Securities. Inapplicable. Item 4. Submission Of Matters To A Vote Of Security Holders. Inapplicable. 15 Item 5. Other Information. Inapplicable. Item 6. Exhibits And Reports On Form 8-K. (a)Documents filed as a part of this report 1. Financial Statements Included in Part I of this report: Balance Sheets, June 30, 2002 and December 31, 2001. Statement of changes in partners' capital for the six months ended June 30, 2002. Statements of operations for the six and three month periods ended June 30, 2002 and 2001. Statement of cash flows for the six and three month periods ended June 30, 2002 and 2001. Notes to the Financial Statements. 2. Financial Statement Schedules 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 inapplicable, and therefore have been omitted. (b) Report on Form 8-K None 16 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report on Form 10QSB of ATEL Capital Equipment Fund VII, LP, (the "Partnership") for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, I, Dean L. Cash, Chief Executive Officer of ATEL Financial Services, LLC, general partner of the Partnership, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 ; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ DEAN L. CASH ------------------------------------ Dean L. Cash President and Chief Executive Officer of General Partner August 14, 2002 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly report on Form 10QSB of ATEL Capital Equipment Fund VII, LP, (the "Partnership") for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), and pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, I, Paritosh K. Choksi, Chief Financial Officer of ATEL Financial Services, LLC, general partner of the Partnership, hereby certify that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 ; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ PARITOSH K. CHOKSI ------------------------------------ Paritosh K. Choksi Executive Vice President of General Partner, Principal financial officer of registrant August 14, 2002 17 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: August 14, 2002 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 General Partner By: /s/ PARITOSH K. CHOKSI ------------------------------------- Paritosh K. Choksi Executive Vice President of General Partner, Principal financial officer of registrant By: /s/ DONALD E. CARPENTER -------------------------------------- Donald E. Carpenter Principal accounting officer of registrant 18