10QSB

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QSB

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

For the quarterly period ended June 30, 2007

¨ 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   ¨    No  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  ¨    No   x

State the issuer’s revenues for the most recent fiscal year: $14,390,427

The number of Limited Partnership Units outstanding as of August 31, 2007 was 14,985,550

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

DOCUMENTS INCORPORATED BY REFERENCE

None

ATEL CAPITAL EQUIPMENT FUND VII, L. P.

Index

Part I. Financial Information
Item 1.	Financial Statements (unaudited)	3
	Balance Sheet, June 30, 2007.	3
	Statements of Operations for the three and six month periods ended June 30, 2007 and 2006.	4
	Statement of Changes in Partners’ Capital for the year ended December 31, 2006 and for the six month period ended June 30, 2007.	5
	Statements of Cash Flows for the three and six month periods ended June 30, 2007 and 2006.	6
	Notes to the Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Controls and Procedures	20
Part II. Other Information
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Submission of Matters to a Vote of Security Holders	21
Item 5.	Other Information	21
Item 6.	Exhibits	21

2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

BALANCE SHEET

JUNE 30, 2007

(in thousands)

(Unaudited)

ASSETS
Cash and cash equivalents	$	4,815
Accounts receivable, net of allowance for doubtful accounts of $514		658
Investments in equipment and leases, net of accumulated depreciation of $53,850		20,641
Other Assets		101
Total assets	$	26,215
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued liabilities:
General Partner	$	616
Other		394
Accrued interest payable		1
Non-recourse debt		70
Interest rate swap contracts		9
Unearned operating lease income		158
Total liabilities		1,248
Partners’ capital:
General Partner		—
Limited Partners		24,967
Total Partners’ capital		24,967
Total liabilities and Partners’ capital	$	26,215

See accompanying notes.

3

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF OPERATIONS

THREE AND SIX MONTH PERIODS ENDED

JUNE 30, 2007 AND 2006

(in thousands, except per unit data)

(Unaudited)

	Three months ended June 30,					Six months ended June 30,
	2007			2006		2007			2006
Revenues:
Leasing activities:
Operating leases	$	3,182		$	3,567	$	6,366		$	7,587
Direct financing leases		25			53		56			111
Gain on sales of assets		94			449		410			430
Interest income		63			13		167			30
Other		259			66		362			86
Total revenue		3,623			4,148		7,361			8,244
Expenses:
Depreciation of operating lease assets		1,357			2,189		2,768			4,520
Marine vessel maintenance and other operating costs		610			622		1,166			942
Interest expense		5			103		14			327
Cost reimbursements to General Partner		—			—		750			750
Equipment and incentive management fees to General Partner		172			86		233			178
Railcar and equipment maintenance		103			105		272			211
Professional fees		47			96		231			147
Insurance		60			59		121			117
Equipment storage		1			1		2			2
Franchise fees and state taxes		77			67		77			67
Amortization of initial direct costs		1			3		1			8
Provision for (reversal of) doubtful accounts		(1	)		12		(23	)		(5	)
Other		221			236		495			395
Total expenses		2,653			3,579		6,107			7,659
Income from operations		970			569		1,254			585
Other income, net		14			21		8			51
Net income	$	984		$	590	$	1,262		$	636
Net income:
General Partner	$	608		$	—	$	608		$	—
Limited Partners		376			590		654			636
	$	984		$	590	$	1,262		$	636
Net income per Limited Partnership Unit	$	0.03		$	0.04	$	0.04		$	0.04
Weighted average number of Units outstanding		14,985,550			14,995,550		14,985,550			14,995,550

See accompanying notes.

4

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE

SIX MONTH PERIOD ENDED

JUNE 30, 2007

(in thousands, except per unit data)

(Unaudited)

	Limited Partners					General Partner			Accumulated Other Comprehensive Loss			Total
	Units		Amount
Balance December 31, 2005	14,995,550		$	32,330		$	—		$	(90	)	$	32,240
Adjustment for portion of swap liability charged to interest expense	—			—			—			90			90
Rescissions and repurchases of capital contributions	(10,000	)		(26	)		—			—			(26	)
Net loss	—			(496	)		—			—			(496	)
Balance December 31, 2006	14,985,550			31,808			—			—			31,808
Distributions to Limited Partners ($0.50 per Unit)	—			(7,495	)		—			—			(7,495	)
Distributions to General Partner	—			—			(608	)		—			(608	)
Net income	—			654			608			—			1,262
Balance June 30, 2007	14,985,550		$	24,967		$	—		$	—		$	24,967

See accompanying notes.

5

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF CASH FLOWS

THREE AND SIX MONTH PERIODS ENDED

JUNE 30, 2007 AND 2006

(in thousands)

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
	2007			2006			2007			2006
Operating activities:
Net income	$	984		$	590		$	1,262		$	636
Adjustments to reconcile net income to cash provided by operating activities:
Gain on sales of assets		(94	)		(449	)		(410	)		(430	)
Depreciation of operating lease assets		1,357			2,189			2,768			4,520
Amortization of initial direct costs		1			3			1			8
Portion of swap liability charged to interest expense		1			8			—			90
Unrealized decrease in interest rate swap liability charged to other income net		(6	)		(17	)		(9	)		(41	)
Provision for (reversal of) doubtful accounts		(1	)		12			(23	)		(5	)
Changes in operating assets and liabilities:
Accounts receivable		(7	)		(35	)		241			6
Other assets		70			61			129			135
Accounts payable:
General Partner		(32	)		33			39			(344	)
Other		(332	)		(48	)		(710	)		51
Accrued interest payable		—			(10	)		—			(23	)
Unearned lease income		(218	)		28			(199	)		122
Net cash provided by operating activities		1,723			2,365			3,089			4,725
Investing activities:
Proceeds from sales of lease assets		632			1,442			2,335			1,854
Reduction of net investment in direct financing leases		95			190			172			360
Initial direct cost payments		—			—			—			(8	)
Improvements to operating leases		—			(536	)		—			(563	)
Net cash provided by investing activities		727			1,096			2,507			1,643
Financing activities:
Repayments of:
Receivables funding program obligation		—			(2,725	)		—			(3,580	)
Acquisition facility		—			(1,000	)		—			(3,500	)
Non-recourse debt		(22	)		(21	)		(45	)		(58	)
Distributions:
General Partner		(608	)		—			(608	)		—
Limited Partners		(7,495	)		—			(7,495	)		—
Net cash used in financing activities		(8,125	)		(3,746	)		(8,148	)		(7,138	)
Net increase in cash and cash equivalents		(5,675	)		(285	)		(2,552	)		(770	)
Cash and cash equivalents at beginning of period		10,490			1,831			7,367			2,316
Cash and cash equivalents at end of period	$	4,815		$	1,546		$	4,815		$	1,546
Supplemental disclosures of cash flow information:
Cash paid during the period for taxes	$	77		$	—		$	77		$	—
Cash paid during the period for interest	$	5		$	—		$	14		$	237

See accompanying notes

6

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

1. Organization and Limited Partnership matters:

ATEL Capital Equipment Fund VII, L.P. (the “Partnership”) 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 Limited Liability Company Units (“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 (leasing activities). As of November 27, 1998, the Partnership had received subscriptions for 15,000,000 ($150,000,000) Limited Partnership Units and the offering was terminated.

The Partnership’s principal objectives are to invest in a diversified portfolio of equipment that will (i) preserve, protect and return the Partnership’s invested capital; (ii) generate 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”), which ended December 31, 2004 and (iii) provide 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 Limited Partnership Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Partnership (footnote 4). AFS is required to maintain in the Partnership reasonable cash reserves for working capital, the repurchase of Units and contingencies.

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 instructions to Form 10-QSB and item 310 (b) of Regulation S-B. 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. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that effect reported amounts in the financial statements and accompanying notes. Therefore, actual results could differ from those estimates. Operating results for the six months ended June 30, 2007 are not necessarily indicative of the results for the year ending December 31, 2007. Certain prior year amounts have been reclassified to conform to the current year presentation. Footnote and tabular amounts are presented in thousands, except as to Units and per Unit data.

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.

Cash and cash equivalents:

Cash and cash equivalents include cash in banks and cash equivalent investments with original maturities of ninety days or less.

Credit risk:

Financial instruments that potentially subject the Partnership to concentrations of credit risk include cash and cash equivalents, direct finance lease receivables, notes receivable and accounts receivable. The Partnership places its cash deposits and temporary cash investments with creditworthy, high quality financial institutions. The concentration of such deposits and temporary cash investments is not deemed to create a significant risk to the Partnership. Accounts receivable represent amounts due from lessees in various industries, related to equipment on operating leases and direct financing leases.

7

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

Accounts receivable:

Accounts receivable represent the amounts billed under operating and direct finance lease contracts which are currently due to the Partnership. Allowances for doubtful accounts are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and invoiced amounts. Accounts receivable are charged off to the allowance on specific identification basis. Amounts recovered that were previously written-off are recorded as other income in the period received.

Direct financing leases and related revenue recognition:

Income from direct financing lease transactions is reported using the financing method of accounting, in which the Partnership’s investment in the leased property is reported as a receivable from the lessee to be recovered through future rentals. The interest income portion of each rental payment is calculated so as to generate a constant rate of return on the net receivable outstanding.

Allowances for losses on direct financing leases are typically established based on historical charge off and collection experience and the collectability of specifically identified lessees and billed and unbilled receivables. Direct financing leases are written-off to the allowance as they are deemed uncollectible.

Direct financing leases 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 credit worthiness of all direct finance lessees with payments outstanding less than 90 days. Based upon management’s judgment, direct finance lessees with balances less than 90 days delinquent may be placed in a 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 lease payments is probable.

Equipment on operating leases and related revenue recognition:

Equipment subject to operating leases is stated at cost. Depreciation is being recognized on a straight-line method over the terms of the related leases to the equipment’s estimated residual values at the end of the leases. Maintenance costs associated with the Fund’s portfolio of leased assets are expensed as incurred.

Operating lease revenue is recognized on a straight-line basis over the term of the underlying leases. The initial lease terms will vary as to the type of equipment subject to the leases, the needs of the lessees and the terms to be negotiated, but initial leases are generally from 36 to 120 months. The difference between rent received and rental revenue recognized is recorded as unearned operating lease income on the balance sheet.

Initial direct costs:

In prior years, the Partnership capitalized initial direct costs (“IDC”) associated with the origination and funding of lease assets as defined in SFAS No. 91 “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases.” IDC included both internal costs (e.g., labor and overhead) and external broker fees incurred with the acquisition. Remaining IDC is being amortized on a lease by lease basis based on actual lease term using a straight-line method for operating leases and the effective interest rate method for direct finance leases. Upon disposal of the underlying lease assets, both the initial direct costs and the associated accumulated amortization are relieved. Costs related to leases that were not consummated were not eligible for capitalization as initial direct costs. Such amounts were expensed as acquisition expense.

Asset valuation:

Recorded values of the Partnership’s asset portfolio are periodically reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” An impairment loss is measured and recognized only if the estimated undiscounted future cash flows of the asset are less than their 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. Impairment is measured as the difference between the fair value (as determined by a valuation method using discounted estimated future cash flows) of the asset and its carrying value on the measurement date.

8

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

Segment reporting:

The Partnership adopted the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” SFAS No. 131 establishes annual and interim standards for operating segments of a Partnership. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenue, and its major customers. 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.

The Partnership’s chief operating decision makers are the General Partner’s Chief Operating Officer and its Chief Executive Officer. The Partnership believes that its equipment leasing business operates as one reportable segment because: a) the Partnership measures profit and loss at the equipment portfolio level as a whole; b) the chief operating decision makers do not review information based on any operating segment other than the equipment leasing transaction portfolio; c) the Partnership does not maintain discrete financial information on any specific segment other than its equipment financing operations; d) the Partnership has not chosen to organize its business around different products and services other than equipment lease financing; and e) the Partnership has not chosen to organize its business around geographic areas.

Certain of the Partnership’s lessee customers 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.

Derivative financial instruments:

In June 1998, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which established new accounting and reporting standards for derivative instruments. SFAS No. 133 has been amended by SFAS No. 137, issued in June 1999, by SFAS No. 138, issued in June 2000 and by SFAS No. 149, issued in June 2003.

SFAS No. 133, as amended, requires the Partnership to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. It further provides criteria for derivative instruments to be designated as fair value, cash flow, or foreign currency hedges, and establishes accounting standards for reporting changes in the fair value of the derivative instruments. Upon adoption on January 1, 2001, the Partnership recorded its interest rate swap hedging instruments at fair value in the balance sheet, designated the interest rate swaps as cash flow hedges, and recognized the offsetting gains or losses as adjustments to be reported in net income or other comprehensive income, as appropriate. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in current earnings during the period of change. Such interest rate swaps are linked to and adjust effectively the interest rate sensitivity of specific long-term debt.

The effective portion of the change in fair value of the interest rate swaps is recorded in Accumulated Other Comprehensive Loss (“AOCL”) and the ineffective portion (if any) directly in earnings. Amounts in AOCL are reclassified into earnings in a manner consistent with the earnings pattern of the underlying hedged item (generally reflected in interest expense). If a hedged item is de-designated prior to maturity, previous adjustments to AOCL are recognized in earnings to match the earnings recognition pattern of the hedged item (e.g., level yield amortization if hedging an interest bearing instruments). Interest income or expense on most hedging derivatives used to manage interest rate exposure is recorded on an accrual basis as an adjustment to the yield of the link exposures over the periods covered by the contracts. This matches the income recognition treatment of the exposure (i.e., the liabilities, which are carried at historical cost, with interest recorded on an accrual basis).

Credit exposure from derivative financial instruments, which are assets, arises from the risk of a counterparty default on the derivative contract. The amount of the loss created by the default is the replacement cost or current positive fair value of the defaulted contract.

Unearned operating lease income:

The Partnership records prepayments on operating leases as a liability, unearned operating lease income. The liability is recorded when the prepayments are received and recognized as operating lease revenue ratably over the period to which the prepayments relate.

Income taxes:

Pursuant to the provisions of Section 701 of the Internal Revenue Code, a partnership is not subject to federal income taxes. Accordingly, the Partnership has provided current income and franchise taxes for only those states which levy taxes on partnerships.

9

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

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.

Other income, net:

Other income or loss, net consists of gains or losses on interest rate swap contracts and foreign currency transactions. For the three and six months ended June 30, 2007 the Partnership had other income of $14 thousand and $8 thousand, respectively. These amounts consisted of an $8 thousand foreign currency gain and $6 thousand of unrealized gains on interest rate swap contracts for the three months ended June 30, 2007; and a $1 thousand loss on foreign currency transactions and a $9 thousand gain on interest rate swap contracts for the six months ended June 30, 2007.

For the three and six months ended June 30, 2006 the Partnership had other income of $21 thousand and $51 thousand, respectively. These amounts were comprised of $17 thousand of unrealized gains on interest rate swap contracts and $4 thousand of foreign currency gain for the three months ended June 30, 2006; and $41 thousand of unrealized gains on interest rate swap contracts and $10 thousand of foreign currency gain for the six months ended June 30, 2006.

Recent accounting pronouncements:

In February 2007, the Financial Accounting Standards Board (FASB) issued Statement No.159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115”. This Statement permits entities to choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. This Statement is expected to expand the use of fair value measurement, which is consistent with the Board’s long-term measurement objectives for accounting for financial instruments. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007 (January 1, 2008). The standard is not applicable to direct financing and operating leases. The Company does not presently anticipate any significant impact on its consolidated financial position, results of operations or cash flows.

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards No. 157, “Fair Value Measurements” (FAS 157). This standard clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. As of June 30, 2007, the Fund does not believe the adoption of FAS 157 will impact the amounts reported in the financial statements, however, additional disclosures will be required about the inputs used to develop the measurements of fair value and the effect of certain of the measurements reported in the statement of operations for a fiscal period.

In September 2006, the Securities and Exchange Commission (“SEC”) released Staff Accounting Bulletin No. 108 (“SAB No. 108”), “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires an entity to quantify misstatements using a balance sheet and income statement approach and to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 is effective for fiscal years beginning after November 15, 2006. The Partnership adopted SAB 108 on January 1, 2007. The adoption of SAB 108 for the Partnership’s fiscal year 2007 has not had a significant effect on the Partnership’s 2007 financial position and results of operations.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes” (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on deregulation, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of FIN 48 on January 1, 2007. The adoption of FIN 48 did not have a significant effect on the Company’s financial position and results of operations for the quarter ended June 30, 2007.

10

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

3. Investment in equipment and leases, net:

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

	Balance December 31, 2006		Reclassifications & Additions / Dispositions			Depreciation/ Amortization Expense or Amortization of Leases			Balance June 30, 2007
Net investment in operating leases	$	24,169	$	(1,967	)	$	(2,766	)	$	19,436
Net investment in direct financing leases		1,325		(133	)		(172	)		1,020
Assets held for sale or lease, net		11		175			(2	)		184
Initial direct costs		2		—			(1	)		1
Total	$	25,507	$	(1,925	)	$	(2,941	)	$	20,641

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. As a result of those reviews, management determined that the fair values of certain assets declined in value to the extent that the carrying values had become impaired. The fair value of the assets was determined based on the sum of the discounted estimated future cash flows of the assets.

Impairment losses are recorded as an addition to accumulated depreciation of the impaired assets. Depreciation expense on property subject to operating leases and property held for lease or sale totaled $1.4 million and $2.2 million for the three months ended June 30, 2007 and 2006, respectively, and $2.8 million and $4.5 million for the six months ended June 30, 2007 and 2006, respectively. There were no impairment losses recorded for the same comparative periods.

Operating leases:

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

	Balance December 31, 2006			Additions			Reclassifications or Dispositions			Balance June 30, 2007
Transportation	$	69,499		$	—		$	(7,855	)	$	61,644
Marine vessels/barges		4,107			—			(368	)		3,739
Construction		1,226			—			(981	)		245
Mining equipment		4,223			—			—			4,223
Materials handling		1,146			—			—			1,146
Other		1,880			—			(449	)		1,431
		82,081			—			(9,653	)		72,428
Less accumulated depreciation		(57,912	)		(2,766	)		7,686			(52,992	)
Total	$	24,169		$	(2,766	)	$	(1,967	)	$	19,436

Direct financing leases:

As of June 30, 2007, investment in direct financing leases consists of various transportation, manufacturing and medical equipment. The following lists the components of the Partnership’s investment in direct financing leases as of June 30, 2007 (in thousands):

Total minimum lease payments receivable	$	518
Estimated residual values of leased equipment (unguaranteed)		615
Investment in direct financing leases		1,133
Less unearned income		(113	)
Net investment in direct financing leases	$	1,020

11

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

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

At June 30, 2007, the aggregate amounts of future minimum lease payments are as follows (in thousands):

	Operating Leases		Direct Financing Leases		Total
Six months ending December 31, 2007	$	2,722	$	239	$	2,961
Year ending December 31, 2008		4,046		228		4,274
2009		3,287		41		3,328
2010		1,237		10		1,247
2011		747		—		747
2012		537		—		537
Thereafter		140		—		140
	$	12,716	$	518	$	13,234

The Partnership utilizes a straight line depreciation method for equipment in all of the categories currently in its portfolio of lease transactions. The useful lives for investment in leases by category are as follows (in years):

Equipment category	Useful Life
Mining	30-40
Marine vessels	20-30
Manufacturing	10-20
Materials handling	7-10
Transportation	7-10
Office furniture	7-10
Office automation	3-5

4. Related party transactions:

The terms of the Limited 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 Limited 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. Reimbursable costs incurred by AFS are allocated to the Partnership based upon estimated time incurred by employees working on Partnership business and an allocation of rent and other costs based on utilization studies.

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

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 existing or new leases, number of investors or equity depending upon the type of cost incurred.

Incentive management fees are computed as 4.0% of distributions of cash from operations, as defined in the Limited Partnership Agreement and equipment management fees are computed as 3.5% of gross revenues from operating leases, as defined in the Limited Partnership Agreement plus 2% of gross revenues from full payout leases, as defined in the Limited Partnership Agreement.

12

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

4. Related party transactions (continued):

During the three and six months ended June 30, 2007 and 2006, AFS and/or affiliates earned fees, commissions and reimbursements, pursuant to the Limited Partnership Agreement as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Equipment and incentive management fees to General Partner	$	172	$	86	$	233	$	178
Cost reimbursements to General Partner		—		—		750		750
	$	172	$	86	$	983	$	928

The Partnership Agreement places an annual and a cumulative limit for cost reimbursements to AFS. The cumulative limit increases annually. Any reimbursable costs incurred by AFS during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though may be reimbursable in future years to the extent of the cumulative limit.

5. Non-recourse debt:

At June 30, 2007, non-recourse debt consists of a note payable to a financial institution. The note is due in monthly payments. Interest on the note is at a fixed rate of 7% per annum. The note is secured by assignments of lease payments and pledges of assets. At June 30, 2007, the carrying value of the pledged assets is $134 thousand. The note matures in 2008.

Future minimum payments of non recourse debt are as follows (in thousands):

	Principal		Interest		Total
Six months ending December 31, 2007	$	46	$	2	$	48
Year ending December 31, 2008		24		—		24
	$	70	$	2	$	72

6. Borrowing facility:

The Partnership participated with AFS and certain of its affiliates, as defined in the Operating Agreement, in a financing arrangement (the “Master Terms Agreement”) comprised of: (1) a working capital term loan facility to AFS, (2) an acquisition facility and (3) a warehouse facility to AFS, the Partnership and affiliates, and (4) a venture facility available to an affiliate. The Master Terms Agreement was with a group of financial institutions and included certain financial and non-financial covenants. The Master Terms Agreement totaled $75,000,000 and expired in June 2007. The Partnership was removed as a party to the Master Terms Agreement on January 31, 2007.

7. Receivables funding program:

In 1998, the Partnership entered into a $65 million receivables funding program (the “Program”) with a third party receivables financing company that issues commercial paper rated A1 by Standard and Poor’s and P1 by Moody’s Investor Services. Under the Program, the receivables financing company received a general lien against all of the otherwise unencumbered assets of the Partnership. The program provided for borrowing at a variable interest rate and required AFS, on behalf of the Partnership, to enter into interest rate swap agreements with certain counterparties (also rated A1/P1) to mitigate the interest rate risk associated with a variable rate note. The Program expired as to new borrowings in April 2002. The receivables funding program terminated in January 2007.

As of June 30, 2007, the Partnership receives or pays interest on a notional principal of approximately $1.1 million on the difference between nominal rates ranging from 5.79% to 7.58% and the variable rate under the Program of 5.76% at June 30, 2007. No actual borrowing or lending is involved. The termination of swaps was to coincide with the maturity of the debt. Through the swap agreements, the interest rates on the borrowings have been effectively fixed. 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. The interest rate swaps are carried at fair value on the balance sheet with unrealized gain/loss included in the statement of operations in other income or loss.

The interest rate swaps were originally designated as cash flow hedges of the interest payment on the long term debt. Effective January 1, 2005, the Partnership de-designated the original hedge relationships. Prior to this de-designation, changes in the fair value of the swaps were recognized in accumulated other comprehensive loss (“AOCL”). Subsequent to this de-designation, changes in fair value of the swaps generally were reflected in the statement of operations in other income, net. In addition, amounts remaining in AOCL subsequent to the de-designation of the swaps are to be reclassified into earnings in a manner consistent with the earnings pattern of the previously hedged expected interest payments. During the six months ended June 30, 2006, the entire amount of AOCL totaling $90 thousand was charged to earnings (included in interest expense).

13

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

7. Receivables funding program (continued):

During the three and six month periods ended June 30, 2007, the Partnership did not incur standby fee payments. During the three and six month periods ended June 30, 2006, the Partnership made standby fee payments of $2 thousand and $6 thousand, respectively.

Borrowings under the Program are as follows (in thousands):

Date Borrowed	Original Amount Borrowed		Balance June 30, 2007		Notional Balance June 30, 2007		Swap Value June 30, 2007			Payment Rate On Interest Swap Agreement
07/01/98	$	25,000,000	$	—	$	486	$	(1	)	6.16	%
04/16/99		9,000,000		—		—		—		*
01/26/00		11,700,000		—		540		(8	)	7.58	%
05/25/01		2,000,000		—		43		—		5.79	%
09/28/01		6,000,000		—		—		—		*
01/31/02		4,400,000		—		—		—		*
	$	58,100,000	$	—	$	1,069	$	(9	)

* Under the terms of the Program, no interest rate swap agreements were required for this borrowing.

8. Commitments:

At June 30, 2007, the Partnership had no commitments to purchase lease assets.

9. 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.

In the normal course of business, the Partnership enters into contracts of various types, including lease contracts, contracts for the sale or purchase of lease assets, management contracts, loan agreements, credit lines and other debt facilities. It is prevalent industry practice for most contracts of any significant value to include provisions that each of the contracting parties—in addition to assuming liability for breaches of the representations, warranties, and covenants that are part of the underlying contractual obligations—also assume an obligation to indemnify and hold the other contracting party harmless for such breaches, for harm caused by such party’s gross negligence and willful misconduct, including, in certain instances, certain costs and expenses arising from the contract.

The General Partner has substantial experience in managing similar leasing programs subject to similar contractual commitments in similar transactions, and the losses and claims arising from these commitments have been insignificant, if any. Generally, to the extent these contracts are performed in the ordinary course of business under the reasonable business judgment of the General Partner, no liability will arise as a result of these provisions. The General Partner has no reason to believe that the facts and circumstances relating to the Partnership’s contractual commitments differ from those it has entered into on behalf of the prior programs it has managed. 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.

14

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

10. Partners’ Capital:

As of June 30, 2007, 14,985,550 Units were issued and outstanding. The Partnership was authorized to issue up to 15,000,050 Units, including the 50 Units issued to the Initial Limited Partners, as defined.

As defined in the Operating 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. Distributions to Limited Partners were as follows (in thousands, except per unit data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2007		2006		2007		2006
Distributions declared	$	7,495	$	—	$	7,495	$	—
Weighted average number of Units outstanding		14,985,550		14,995,550		14,985,550		14,995,550
Weighted average distributions per Unit	$	0.50	$	—	$	0.50	$	—

15

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-QSB, 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, economic recession and changes in general economic conditions, including, fluctuations in demand for equipment, lease rates, and interest rates, may result in delays in investment and reinvestment, 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-QSB. 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-QSB or to reflect the occurrence of unanticipated events, other than as required by law.

Capital Resources and Liquidity

The liquidity of the Partnership will vary in the future, increasing to the extent cash flows from leases and proceeds of asset sales 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 and proceeds from asset sales.

As another source of liquidity, the Partnership has and is expected to continue having contractual obligations with a diversified group of lessees for fixed lease terms at fixed rental amounts. As initial lease terms expire, the Partnership re-leases or sells the equipment. The future liquidity beyond the contractual minimum rentals will depend on the Partnership’s success in re-leasing or selling the equipment as it comes off lease.

Throughout the Reinvestment Period, the Partnership invested a portion of lease payments from assets owned in new leasing transactions. Such reinvestment occurred only after the payment of all current obligations, including debt service (both principal and interest), the payment of management fees to AFS and providing for cash distributions to the Limited Partners.

The Partnership participated with AFS and certain of its affiliates, as defined in the Operating Agreement, in a financing arrangement (the “Master Terms Agreement”). The Master Terms Agreement was comprised of: (1) a working capital term loan facility to AFS, (2) an acquisition facility and (3) a warehouse facility to AFS, the Partnership and affiliates, and (4) a venture facility available to an affiliate. The Master Terms Agreement was with a group of financial institutions and included certain financial and non-financial covenants. The Master Terms Agreement totaled $75 million and expired in June 2007. The availability of borrowings to the Partnership under the Master Terms Agreement was reduced by the amount outstanding on any of the above mentioned facilities. The Partnership was removed as a party to the Master Terms Agreement on January 31, 2007.

As of June 30, 2007, the borrowings under the facility were as follows (in thousands):

Total available under the financing facility	$	65,000
Amount borrowed by the Partnership under the acquisition facility		—
Amounts borrowed by affiliated partnerships and limited liability companies under the acquisition and warehouse facilities		(13,500	)
Total remaining available under the acquisition and warehouse facilities	$	51,500

The Partnership currently 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.

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.

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.

In 1998, the Partnership established a $65 million receivables funding program with a receivables financing Partnership that issues commercial paper rated A1 from Standard and Poor’s and P1 from Moody’s Investor Services. In this receivables funding program, the lenders received liens against the Partnership’s assets. The lender was in a first position against certain specified assets and was in either a subordinated or shared position against the remaining assets. The program provided for borrowing at a variable interest rate and required AFS, on behalf of the Partnership, to enter into interest rate swap agreements with certain hedge counterparties (also rated A1/P1) to mitigate the interest rate risk associated with a variable interest rate note. The receivables funding program allowed the Partnership to have a more cost effective means of obtaining debt financing than available for individual, non-recourse debt transactions. The receivables funding program expired as to new borrowings in April 2002 and fully terminated in January 2007.

16

Prior to the program’s termination in January 2007, the Partnership was required to make payments of standby fees in order to maintain the availability of the program. These fees were included in interest expense in the Company’s statement of operations. The Company made standby fee payments of $4 thousand during the first six months of 2006. There were no standby fee payments in 2007.

Finally, the Partnership has access to certain sources of non-recourse debt financing, which the Partnership uses on a transaction basis as a means of mitigating credit risk. The non-recourse debt financing in non-committed and consists of a note payable to a financial institution. The note is due in monthly payments. Interest on the note is at a fixed rate of 7% per annum. The note is secured by assignments of lease payments and pledges of assets.

The Operating Agreement limits such borrowings to 50% of the total cost of equipment, in aggregate.

The Partnership commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1997.

At June 30, 2007, the Partnership had no commitments to purchase leased assets.

Cash Flows

The three months ended June 30, 2007 versus the three months ended June 30, 2006

Operating Activities

During the three months ended June 30, 2007 and 2006, the primary source of cash from operations was rents from operating leases. In addition, the Partnership’s cash flows were impacted by changes in certain assets and liabilities. Cash provided by operating activities totaled $1.7 million and $2.4 million for the three months ended June 30, 2007 and 2006, respectively, a decrease of $642 thousand. The decrease was primarily a result of increased payments made against accounts payable and accrued liabilities, increased levels of unearned income and the quarter over quarter change in operating results, adjusted for non-cash revenue and expense such as gains on sales of assets and depreciation expense.

The increase in payments made against the Partnership’s payables reduced cash flow by $349 thousand during the second quarter of 2007 when compared to the same period in 2006. The increase in payments was driven by the timing of inestimable third party invoices received, and either paid or accrued, during the comparative periods. Similarly, the increase in unearned rents received during the same comparative periods reduced cash flow by $246 thousand. Further reducing cash flow by $94 thousand was the change in quarter over quarter operating results, adjusted for non-cash items - operating results declined primarily due to a decrease in operating lease revenue offset by an increase in other revenue and a decline in interest expense.

Investing Activities

During the three months ended June 30, 2007 and 2006, the main sources of cash from investing activities consisted of proceeds from sales of lease assets and payments received on the Partnership’s portfolio of direct financing leases. Proceeds from sales of lease assets are not expected to be consistent from one period to another. Sales of assets are not scheduled and are created by opportunities within the marketplace. Cash provided by investing activities totaled $727 thousand and $1.1 million for the three months ended June 30, 2007 and 2006, respectively. The decline in cash flow reflects an $810 thousand decline in proceeds from sales of lease assets and a $95 thousand decrease in payments received on the Partnership’s investment in direct financing leases caused by the declining balance of the direct finance lease portfolio. The aforementioned decreases in cash flow were offset by a $536 thousand increase resulting from a decline in capitalized costs of improving existing railcars.

Financing Activities

During the three months ended June 30, 2007 and 2006, cash was used to repay a majority of the Partnership’s debt. In addition, during the second quarter of 2007, the Partnership resumed paying distributions to the General Partner and Limited Partners. There were no such distributions during the second quarter of 2006. Cash used in financing activities totaled $8.1 million and $3.7 million for the three months ended June 30, 2007 and 2006, respectively. The $4.4 million quarter over quarter increase in cash used was comprised of an $8.1 million increase in distributions paid to the General Partner and Limited Partners offset by a $3.7 decline in cash used to repay debt as the majority of the Partnership’s borrowings had been repaid as of December 31, 2006.

The six months ended June 30, 2007 versus the six months ended June 30, 2006

During the six months ended June 30, 2007 and 2006, the primary source of cash from operations was rents from operating leases. In addition, the Partnership’s cash flows were impacted by changes in certain assets and liabilities. Cash provided by operating activities totaled $3.1 million and $4.7 million for the six months ended June 30, 2007 and 2006, respectively. The $1.6 million decrease was primarily a result of (1) a decrease in year over year operating results, adjusted for non-cash revenue and expense such as gains on sales of assets and depreciation expense, (2) increased payments made against accounts payable and (3) increased unearned lease income offset, in part, by increased payments received on accounts receivable.

17

The decrease in year over year operating results, adjusted for non-cash items, reduced cash flow by $1.2 million. Operating results decreased primarily due to a decline in operating lease revenue. The increases in payments made against the Partnership’s payables and unearned rents received further reduced cash flow by $378 thousand and $321 thousand, respectively. Offsetting these aforementioned decreases in cash was an increase of $235 thousand resulting from a year over year increase in payments received on accounts receivable.

Investing Activities

During the six months ended June 30, 2007 and 2006, the main sources of cash from investing activities consisted of proceeds from sales of lease assets and payments received on the Partnership’s portfolio of direct financing leases. Cash provided by investing activities totaled $2.5 million and $1.6 million for the six months ended June 30, 2007 and 2006, respectively. The year over year increase in cash flow reflects a $563 thousand decline in capitalized costs of improving existing railcars and a $481 thousand increase in proceeds from sales of lease assets offset, in part, by a $188 thousand decrease in payments received on the Partnership’s investment in direct financing leases. The increase in proceeds from sales of lease assets reflects a year over year increase in sales of terminating lease assets while the decrease in payments received on direct finance leases reflects the declining balance of the Partnership’s direct finance lease portfolio due mainly to run-off and dispositions.

Financing Activities

During the six months ended June 30, 2007 and 2006, cash was used to repay a majority of the Partnership’s debt. In addition, during the first six months of 2007, the Partnership resumed paying distributions to the General Partner and Limited Partners. There were no such distributions during the first half of 2006. Cash used in financing activities totaled $8.1 million and $7.1 million for the six months ended June 30, 2007 and 2006, respectively. The $1.0 million increase in cash used was comprised of an $8.1 million of distributions paid to the General Partner and Limited Partners during the first six months of 2007 offset by a $7.1 quarter over quarter decline in cash used to repay debt as the majority of the Partnership’s borrowings had been repaid by year-end 2006.

Results of Operations

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 existing or new leases, number of investors or equity depending upon the type of cost incurred.

The three months ended June 30, 2007 versus the three months ended June 30, 2006

The Partnership had net income of $984 thousand and $590 for the three months ended June 30, 2007 and 2006, respectively. The change in operating results reflects a decline of $926 thousand in total expense offset, in part, by decreases of $525 thousand in total revenues and $7 thousand in other income.

Revenues

Total revenues were $3.6 million and $4.1 million for the three months ended 30, 2007 and 2006, respectively. The net decline in total revenues was primarily a result of decreases in operating lease revenue and gains recognized on sales of lease assets partially offset by an increase in other revenue. Revenues from operating leases declined by $385 thousand during the three months ended June 30, 2007, when compared to the same period in 2006, due to continued run-off and sales of terminating leases. The decline in revenues from lease assets is expected to continue and is consistent with a Fund that is in the liquidation phase of its life cycle. Total revenues further declined due to a $355 thousand unfavorable change in gains recognized on the sale of equipment. The Partnership recorded net gains on sales of lease assets totaling $94 thousand and $449 thousand for the three months ended June 30, 2007 and 2006, respectively. The aforementioned decreases in revenue were partially offset by a $193 thousand increase in other revenue resulting from the reimbursement of maintenance costs.

Expenses

Total expenses were $2.7 million and $3.6 million for the three months ended June 30, 2007 and 2006, respectively. The decrease in total expenses was primarily due to declines in depreciation and interest expense.

Depreciation expense totaled $1.4 million and $2.2 million for the second quarter of 2007 and 2006, respectively. The $832 thousand decrease in depreciation expense was primarily due to the run-off of the Company’s lease portfolio, and is consistent with lower operating lease revenue. Similarly, interest expense decreased by $98 thousand during the second quarter of 2007 when compared to the same period in 2006 as the Company paid down approximately $3.1 million of debt since June 30, 2006. As of June 30, 2007, the Partnership had no more than $70 thousand of outstanding debt.

Other

The Partnership recorded other income of $14 thousand and $21 thousand for the three months ended June 30, 2007 and 2006, respectively. Other income for the second quarter of 2007 consisted of $8 thousand of foreign currency gain and $6 thousand of unrealized gains on interest rate swap contracts, while other income for the second quarter of 2006 was comprised of $17 thousand of unrealized gains on interest rate swap contracts and $4 thousand of foreign currency gain.

18

The six months ended June 30, 2007 versus the six months ended June 2006

The Partnership had net income of $1.3 million and $636 thousand for the six months ended June 30, 2007 and 2006, respectively. The change in operating results reflects a decline of $1.6 million in operating expenses offset, in part, by decreases of $883 thousand and $43 thousand in total revenues and other income, respectively.

Revenues

Total revenues were $7.4 million and $8.2 million for the six months ended June 30, 2007 and 2006, respectively. The decrease was primarily due to a $1.2 million decline in operating lease revenue offset, in part, by a $276 thousand increase in other revenue. Revenues from operating leases declined due to continued run-off of the Partnership’s lease portfolio as well as increased sales of terminating leases. Other revenue increased due to the reimbursement of maintenance costs.

Expenses

Total expenses were $6.1 million and $7.7 million for the six months ended June 30, 2007 and 2006, respectively. The decrease in total expenses was primarily due to declines in depreciation and interest expense, partially offset by an increase in vessel maintenance expense, professional fees and other expense.

Depreciation expense totaled $2.8 million and $4.5 million for the second quarter of 2007 and 2006, respectively. The $1.7 million decrease in depreciation expense was primarily due to the run-off and dispositions of the Partnership’s lease portfolio, and is consistent with lower operating lease revenue. Similarly, interest expense decreased by $313 thousand during the first quarter of 2007 when compared to the same period in 2006 as the Partnership paid down approximately $3.1 million of debt since June 30, 2006.

The decreases in depreciation and interest expense were partially offset by the year over year increase in vessel maintenance expense totaling $224 thousand and increases in professional fees and other expenses totaling $184 thousand. The increase in vessel maintenance expense was primarily driven by the timing of repairs required on the Partnership’s existing marine vessels, while the increase in professional fees and other expenses reflects consulting costs associated with the restatement and audit of the Partnership’s prior year financial statements.

Other

The Partnership recorded other income of $8 thousand and $51 thousand for the six months ended June 30, 2007 and 2006, respectively. Other income for the first half of 2007 consisted of $1 thousand of foreign currency loss and $9 thousand of unrealized gains on interest rate swap contracts, while other income for the first half of 2006 was comprised of $41 thousand of unrealized gains on interest rate swap contracts and $10 thousand of foreign currency gain.

19

Item 3. Controls and procedures.

Evaluation of disclosure controls and procedures

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

The Partnership does not control the financial reporting process, and is dependent on the General Partner, who is responsible for providing the Partnership with financial statements in accordance with generally accepted accounting principles. The General Partner’s disclosure controls and procedures over the timeliness of the financial statement close process were determined to be ineffective and constitute a material weakness in internal control over financial reporting.

Changes in internal control

The General Partner has reviewed the above noted material weakness and believes that the following corrective actions taken as a whole will address the material weakness in its disclosure controls and procedures described above.

• We have aggressively recruited experienced professionals to augment and upgrade our financial staff to address issues of timeliness in financial reporting even during periods when we are preparing filings for the Securities and Exchange Commission. Although we believe that this corrective step will enable management to conclude that the internal controls over our financial reporting are effective when the staff is trained and the current surge of regulatory reports have been completed, we cannot assure with certainty that these steps will be sufficient.

The General Partner believes that the following corrective actions taken as a whole have addressed, and mitigated, one of the material weaknesses noted in its disclosure controls and procedures listed in its previously filed Form 10-QSB as of its fiscal quarter ended March 31, 2007:

• With regard to identifying and estimating liabilities in the correct periods, the General Partner has performed a detailed review to identify and record the liabilities, in the correct period. A standardized quarterly review process has been implemented to ensure the identification and estimation of the liabilities.

Except for the preceding items, no change in our internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Securities Exchange Act of 1934) occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

20

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

Not applicable.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Submission Of Matters To A Vote Of Security Holders.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

Documents filed as a part of this report

1. 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 not applicable, and therefore have been omitted.

2. Other Exhibits

31.1	Certification of Dean L. Cash
31.2	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

21

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: September 26, 2007

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
	Principal Financial Officer of Registrant

22

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Dean L. Cash, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of ATEL Capital Equipment Fund VII, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 26, 2007

/s/ Dean L. Cash

Dean L. Cash

President and Chief Executive Officer of

General Partner

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Paritosh K. Choksi, certify that:

1. I have reviewed this quarterly report on Form 10-QSB of ATEL Capital Equipment Fund VII, L.P.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 26, 2007

/s/ Paritosh K. Choksi

Paritosh K. Choksi

Principal Financial Officer of Registrant,

Executive Vice President of General Partner

EX-32.1

Exhibit 32.1

CERTIFICATION

I, Dean L. Cash, Chief Executive Officer of ATEL Financial Services, LLC, General Partner of ATEL Capital Equipment Fund VII, L.P. (the “Partnership”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Quarterly Report on Form 10-QSB of the Partnership for the quarter ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: September 26, 2007

/s/ Dean L. Cash

Dean L. Cash

President and Chief Executive

Officer of General Partner

A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION

I, Paritosh K. Choksi, Executive Vice President of ATEL Financial Services, LLC, General Partner of ATEL Capital Equipment Fund VII, L.P. (the “Partnership”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Quarterly Report on Form 10-QSB of the Partnership for the quarter ended June 30, 2007 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: September 26, 2007

/s/ Paritosh K. Choksi

Paritosh K. Choksi

Executive Vice President of General Partner,

Principal Financial Officer of Registrant

A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the Securities and Exchange Commission or its staff upon request.