10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2009

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

For the transition period from              to             

Commission File number 000-24175

ATEL Capital Equipment Fund VII, L.P.

(Exact name of registrant as specified in its charter)

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

600 California Street, 6th Floor, San Francisco, California 94108-2733

(Address of principal executive offices)

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

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

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

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

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

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

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

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

The number of Limited Partnership Units outstanding as of April 30, 2009 was 14,985,550.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ATEL CAPITAL EQUIPMENT FUND VII, L. P.

Index

Part I.	Financial Information	3
Item 1.	Financial Statements (Unaudited)	3
	Balance Sheets, March 31, 2009 and December 31, 2008	3
	Statements of Operations for the three months ended March 31, 2009 and 2008	4
	Statements of Changes in Partners’ Capital for the year ended December 31, 2008 and for the three months ended March 31, 2009	5
	Statements of Cash Flows for the three months ended March 31, 2009 and 2008	6
	Notes to the Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4.	Controls and Procedures	15
Part II.	Other Information	16
Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	16
Item 3.	Defaults Upon Senior Securities	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
Item 5.	Other Information	16
Item 6.	Exhibits	16

2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

BALANCE SHEETS

MARCH 31, 2009 AND DECEMBER 31, 2008

(In Thousands)

(Unaudited)

	March 31, 2009		December 31, 2008
ASSETS
Cash and cash equivalents	$	3,826	$	2,376
Accounts receivable, net of allowance for doubtful accounts of $0 as of March 31, 2009 and $4 as of December 31, 2008		1,053		2,343
Investments in equipment and leases, net of accumulated depreciation of $51,626 as of March 31, 2009 and $51,512 as of December 31, 2008		12,201		12,858
Other assets		73		63
Total assets	$	17,153	$	17,640
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued liabilities:
General Partner	$	480	$	425
Due to Affiliates		1		—
Other		509		443
Unearned operating lease income		228		228
Total liabilities		1,218		1,096
Partners’ capital:
General Partner		—		—
Limited Partners		15,935		16,544
Total Partners’ capital		15,935		16,544
Total liabilities and Partners’ capital	$	17,153	$	17,640

See accompanying notes.

3

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED

MARCH 31, 2009 AND 2008

(In Thousands Except Units and Per Unit Data)

(Unaudited)

	Three months ended March 31,
	2009			2008
Revenues:
Leasing activities:
Operating leases	$	2,046		$	1,600
Direct financing leases		88			19
Gain (loss) on sales of assets		20			(233	)
Interest income		—			18
Other		1			1
Total revenues		2,155			1,405
Expenses:
Depreciation of operating lease assets		582			823
Marine vessel maintenance and other operating costs		765			377
Interest expense		—			4
Cost reimbursements to General Partner		750			750
Provision for impairment loss		—			200
Equipment and incentive management fees to General Partner		78			73
Railcar and equipment maintenance		161			143
Professional fees		74			87
Insurance		89			11
Equipment storage		1			—
Franchise fees and state taxes		44			—
Reversal of provision for doubtful accounts		(4	)		(1	)
Other		224			146
Total operating expenses		2,764			2,613
Net loss	$	(609	)	$	(1,208	)
Net income (loss):
General Partner	$	—		$	152
Limited Partners		(609	)		(1,360	)
	$	(609	)	$	(1,208	)
Net loss per Limited Partnership Unit	$	(0.04	)	$	(0.09	)
Weighted average number of Units outstanding		14,985,550			14,985,550

See accompanying notes.

4

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL

FOR THE YEAR ENDED DECEMBER 31, 2008 AND

FOR THE THREE MONTHS ENDED

MARCH 31, 2009

(In Thousands Except Units and Per Unit Data)

(Unaudited)

	Limited Partners				General Partner
	Units	Amount						Total
Balance December 31, 2007	14,985,550	$	21,746		$	—		$	21,746
Distributions to Limited Partners ($0.42 per Unit)	—		(6,222	)		—			(6,222	)
Distributions to General Partner	—		—			(504	)		(504	)
Net income	—		1,020			504			1,524
Balance December 31, 2008	14,985,550		16,544			—			16,544
Net loss	—		(609	)		—			(609	)
Balance March 31, 2009	14,985,550	$	15,935		$	—		$	15,935

See accompanying notes.

5

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED

MARCH 31, 2009 AND 2008

(In Thousands)

(Unaudited)

	Three months ended March 31,
	2009			2008
Operating activities:
Net loss	$	(609	)	$	(1,208	)
Adjustments to reconcile net loss to cash provided by operating activities:
(Gain) loss on sales of assets		(20	)		233
Depreciation of operating lease assets		582			823
Amortization of unearned income on direct financing leases		(88	)		(19	)
Portion of swap liability charged to interest expense		—			(1	)
Change in fair value of interest rate swap contracts		—			(1	)
Reversal of provision for doubtful accounts		(4	)		(1	)
Provision for impairment loss		—			200
Changes in operating assets and liabilities:
Accounts receivable		1,294			1,261
Other assets		(10	)		22
Accounts payable:
General Partner		55			(23	)
Other		66			(417	)
Affiliates		1			(295	)
Unearned lease income		—			211
Net cash provided by operating activities		1,267			785
Investing activities:
Proceeds from sales of lease assets		108			243
Payments received on direct financing leases		100			120
Improvements to operating leases		(25	)		—
Net cash provided by investing activities		183			363
Financing activities:
Repayments of:
Non-recourse debt		—			(24	)
Distributions:
General Partner		—			(152	)
Limited Partners		—			(1,876	)
Net cash used in financing activities		—			(2,052	)
Net increase (decrease) in cash and cash equivalents		1,450			(904	)
Cash and cash equivalents at beginning of period		2,376			3,909
Cash and cash equivalents at end of period	$	3,826		$	3,005
Supplemental disclosures of cash flow information:
Cash paid during the period for interest	$	—		$	4

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 Units of Limited Partnership Interest (“Units”), at a price of $10 per Unit. On January 7, 1997, subscriptions for the minimum number of Units (120,000, $1.2 million) had been received (excluding subscriptions from Pennsylvania investors) and AFS requested that the subscriptions be released to the Partnership. On that date, the Partnership commenced operations in its primary business (acquiring equipment to engage in equipment leasing and sales activities). Gross contributions in the amount of $150 million (15,000,000 units) were received as of November 27, 1998, exclusive of $500 of Initial Partners’ capital investment and $100 of AFS’ capital investment. The offering was terminated on November 27, 1998. As of March 31, 2009, 14,985,550 Units were issued and outstanding.

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

Pursuant to the Partnership Agreement, AFS receives compensation and reimbursements for services rendered on behalf of the Partnership (Note 4). The Partnership is required to maintain reasonable cash reserves for working capital, the repurchase of Units and contingencies. The repurchase of Units is solely at the discretion of AFS.

As of March 31, 2009, the Partnership continues in the liquidation phase of its life cycle as defined in the Partnership Agreement.

These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission.

2. Summary of significant accounting policies:

Basis of presentation:

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 8 of Regulation S-X. 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 affect reported amounts in the financial statements and accompanying notes. Therefore, actual results could differ from those estimates. Operating results for the three months ended March 31, 2009 are not necessarily indicative of the results for the year ending December 31, 2009.

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on equity or net income.

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

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ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

Use of estimates:

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

Segment reporting:

The Partnership 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 primary geographic regions in which the Partnership sought leasing opportunities were North America and Europe. Currently, 100% of the Partnership’s operating revenues are from customers domiciled in North America.

Per Unit data:

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

Recent accounting pronouncements:

In April 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales. FSP No. 157-4 is effective for interim and annual periods ending after June 15, 2009 and will be adopted by the Partnership for its second quarter 2009 interim reporting period. The Partnership is currently evaluating the effect of adopting FSP No. 157-4 on its financial position, results of operations or cash flows.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (“the FSP”). The FSP requires disclosures about fair value of financial instruments whenever summarized financial information for interim reporting periods is presented. Entities shall disclose the methods and significant assumptions used to estimate the fair value of financial instruments and shall describe changes in methods and significant assumptions, if any, during the period. The FSP is effective for interim reporting periods ending after June 15, 2009. Accordingly, the FSP is effective for the Partnership’s second quarter 2009 interim reporting period and the relevant disclosures will be added at such time.

8

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

2. Summary of significant accounting policies (continued):

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”). SFAS 141R replaces SFAS 141 and establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. This standard is effective for fiscal years beginning after December 15, 2008. SFAS 141R will impact the Partnership only if it elects to enter into a business combination subsequent to December 31, 2008.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 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. The provisions of SFAS 157 were to be effective for fiscal years beginning after November 15, 2007. However, in February 2008, the FASB issued FSP No. FAS 157-2, which defers the effective date of SFAS 157 as it pertains to fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. On January 1, 2008, the Partnership adopted the provisions of SFAS 157 except as it applies to its investment in equipment and leases, and other nonfinancial assets and nonfinancial liabilities as noted in FSP No. 157-2. The deferred provisions of SFAS 157 were implemented effective January 1, 2009 without significant effect on the Partnership’s financial position, results of operations or cash flows.

3. Investment in equipment and leases, net:

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

	Balance December 31, 2008			Reclassifications & Additions / Dispositions			Depreciation/ Amortization Expense or Amortization of Leases			Balance March 31, 2009
Net investment in operating leases	$	12,356		$	(82	)	$	(579	)	$	11,695
Net investment in direct financing leases		630			—			(12	)		618
Assets held for sale or lease, net		156			3			(3	)		156
Impairment loss reserve		(284	)		16			—			(268	)
Total	$	12,858		$	(63	)	$	(594	)	$	12,201

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. 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 adjustment to the net investment in operating leases. At March 31, 2009 and December 31, 2008, the Company carried an impairment loss reserve totaling $268 thousand and $284 thousand, respectively. The reserve was related to refrigerated containers and was recorded in 2008.

Depreciation expense on property subject to operating leases and property held for lease or sale totaled $582 thousand and $823 thousand for the three months ended March 31, 2009 and 2008.

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

9

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

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

Operating leases:

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

	Balance December 31, 2008			Additions			Reclassifications or Dispositions			Balance March 31, 2009
Transportation	$	41,259		$	—		$	(572	)	$	40,687
Marine vessels/barges		16,471			25			—			16,496
Mining		4,222			—			—			4,222
Construction		1,047			—			—			1,047
Materials handling		83			—			—			83
Other		415			—			—			415
		63,497			25			(572	)		62,950
Less: accumulated depreciation		(51,141	)		(579	)		465			(51,255	)
Total	$	12,356		$	(554	)	$	(107	)	$	11,695

The average estimated residual value for assets on operating leases was 14% of the assets’ original cost at March 31, 2009 and December 31, 2008.

Direct financing leases:

As of March 31, 2009 and December 31, 2008, investment in direct financing leases consists of various transportation, ground support and manufacturing equipment. The following lists the components of the Partnership’s investment in direct financing leases as of March 31, 2009 and December 31, 2008 (in thousands):

	March 31, 2009			December 31, 2008
Total minimum lease payments receivable	$	1,548		$	1,647
Estimated residual values of leased equipment (unguaranteed)		75			75
Investment in direct financing leases		1,623			1,722
Less unearned income		(1,005	)		(1,092	)
Net investment in direct financing leases	$	618		$	630

At March 31, 2009, the aggregate amounts of future minimum lease payments are as follows (in thousands):

	Operating Leases		Direct Financing Leases		Total
Nine months ending December 31, 2009	$	1,637	$	299	$	1,936
Year ending December 31, 2010		1,499		368		1,867
2011		727		358		1,085
2012		536		358		894
2013		140		165		305
	$	4,539	$	1,548	$	6,087

10

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

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

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
Transportation, rail	30-35
Marine vessels	20-30
Material handling	7-10
Transportation, other	7-10
Construction	7-10

4. Related party transactions:

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

The Partnership Agreement allows for the reimbursement of costs incurred by AFS in providing administrative services to the Partnership. Administrative services provided include Partnership accounting, investor relations, legal counsel and lease and equipment documentation. AFS is not reimbursed for services whereby it is entitled to receive a separate fee as compensation for such services, such as disposition of equipment. 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”) and AFS is a wholly-owned subsidiary of ATEL Capital Group and performs services for the Partnership. Acquisition services, equipment management, lease administration and asset disposition services are performed by ALC; investor relations, communications services and general administrative services are performed by AFS.

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 total assets, number of investors or contributed capital based upon the type of cost incurred, subject to limitations as described below.

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

During the three months ended March 31, 2009 and 2008, AFS earned fees, commissions and reimbursements, pursuant to the Partnership Agreement as follows (in thousands):

	Three Months Ended March 31,
	2009		2008
Equipment and incentive management fees to General Partner	$	78	$	73
Cost reimbursements to General Partner and/or affiliates		750		750
	$	828	$	823

The Partnership Agreement places an annual limit and a cumulative limit for cost reimbursements to AFS and/or affiliates. Any reimbursable costs incurred by AFS and/or affiliates during the year exceeding the annual and/or cumulative limits cannot be reimbursed in the current year, though such costs may be reimbursable in future years to the extent of the cumulative limit. Accordingly, the Partnership has not recorded an obligation for such contingent reimbursement, which totaled approximately $310 thousand, as of March 31, 2009.

11

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

NOTES TO FINANCIAL STATEMENTS

5. Guarantees:

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

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

6. Partners’ Capital:

As of March 31, 2009 and December 31, 2008, 14,985,550 Units were issued and outstanding. The Partnership had been authorized to issue up to 15,000,050 Units, including the 50 Units issued to the Initial Limited Partners, as defined.

As defined in the Partnership Agreement, the Partnership’s Net Income, Net Losses, and Distributions are to be allocated 92.5% to the Limited Partners and 7.5% to AFS. Distributions to Limited Partners were as follows (in thousands, except per Unit data):

	Three Months Ended March 31,
	2009		2008
Distributions declared	$	—	$	1,876
Weighted average number of Units outstanding		14,985,550		14,985,550
Weighted average distributions per Unit	$	—	$	0.13

12

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

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

Overview

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

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

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

As of March 31, 2009, the Partnership continues in its liquidation phase. Accordingly, assets that mature will be returned to inventory and most likely will be subsequently sold, which will result in decreasing revenue as earning assets decrease. Periodic distributions are paid at the discretion of the General Partner.

Results of Operations

The three months ended March 31, 2009 versus the three months ended March 31, 2008

The Partnership had net losses of $609 thousand and $1.2 million for the first quarters of 2009 and 2008, respectively. The results for the first quarter of 2009 reflect increases in both total revenues and total operating expenses when compared to the prior year period.

Revenues

Total revenues for the first quarter of 2009 increased by $750 thousand, or 53%, as compared to the prior year period. The net increase in total revenues was primarily a result of increases in operating lease revenue, net gains recognized on sales of assets and revenues from direct financing leases.

During the first quarter of 2009, operating lease revenue increased by $446 thousand when compared to the prior year period. The increase was primarily due to higher revenues earned from increased utilization of the Partnership’s marine vessels, which were mostly in dry dock status during the first quarter of 2008, offset, in part, by continued run-off of the Partnership’s lease portfolio, and increased sales of terminating lease assets. Net gains on sales of assets increased by $253 thousand for the first quarter of 2009, as compared to the prior year period, primarily due to a stronger market demand for the containers sold during the first quarter of 2009 as compared to the prior year period.

13

Also during the first quarter of 2009, direct financing lease revenues increased by $69 thousand, when compared to the prior year period, primarily due to a higher negotiated rate on a lease that renewed in December 2008.

Expenses

Total expenses for the first quarter of 2009 increased by $151 thousand, or 6%, as compared to the prior year period. The net increase in expenses was primarily a result of increases in vessel maintenance and other operating costs, insurance fees, other expenses and franchise fees and taxes offset, in part, by decreases in depreciation expense and the provision for credit losses.

The increase in the cost of operating and maintaining the Partnership’s fleet of marine vessels totaled $388 thousand and was primarily due to a period over period increase in vessel activity; and the increase in insurance costs, totaling $78 thousand, was related to a period over period increase in insuring the marine vessels.

Moreover, other expense and franchise fees and taxes increased by $78 thousand and $44 thousand, respectively. The increase in other expense was mostly due to higher property taxes and management fees associated with the Partnership’s marine vessels; and the increase in franchise fees and taxes reflects a period over period increase in state franchise and income tax liability and estimated tax payments.

The aforementioned increases in expenses were partially offset by decreases in depreciation expense and the provision for credit losses totaling $241 thousand and $200 thousand, respectively. Depreciation expense declined mainly due to continued run-off of the lease asset portfolio and sales of terminating lease assets; and the provision for credit losses decreased as the Partnership had previously recorded a $200 thousand reserve related to impaired refrigerated containers during the first quarter of 2008.

Capital Resources and Liquidity

The liquidity of the Partnership varies, increasing to the extent cash flows from leases and proceeds from lease asset sales exceed expenses and decreasing as distributions are made to the Limited Partners and to the extent expenses exceed cash flows from leases and proceeds from asset sales.

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

The change in the Partnership’s cash flow for the three months ended March 31, 2009 when compared to the three months ended March 31, 2008 is as follows:

• Operating Activities

Cash provided by operating activities increased by $482 thousand, or 61%, for the first quarter of 2009 as compared to the prior year period. The net increase in cash flow was primarily attributable to a reduction in payments made against accounts payable offset, in part, by decreases in unearned lease income and net operating results, as adjusted for non-cash revenue and expense items such as gain on sales of assets and depreciation expense.

The period over period decrease in payments made against accounts payable improved cash flow by $857 thousand and was attributable to first quarter 2008 payments of year-end 2007 accruals related to vessel maintenance and management fees.

The aforementioned improvement in cash flow was partially offset by decreases in unearned lease income and net operating results, as adjusted for non-cash items, totaling $211 thousand and $165 thousand, respectively. The decrease in unearned lease income was attributable to the period over period decline in unearned rents received; and the decline in net operating results, as adjusted for non-cash items, was primarily due to increased operating expenses offset, in part, by the increase in operating lease revenue.

• Investing Activities

Cash provided by investing activities decreased by $180 thousand, or 50%, for the first quarter of 2009 as compared to the prior year period. The net reduction in cash was mainly due to a decline in proceeds from sales of lease assets resulting from a period over period decrease in sales of railcars. In addition, the Partnership capitalized approximately $25 thousand of marine vessel refurbishment costs during the first quarter of 2009. There were no such capitalized expenditures during the first quarter of 2008.

14

• Financing Activities

Net cash used in financing activities decreased by $2.1 million, or 100%, for the first quarter of 2009 as compared to the first quarter of 2008 primarily due to the timing of payments of distributions to the Limited Partners and the General Partner. The annual distribution for 2007 was paid during the first quarter of 2008.

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

The Partnership currently 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.

The Partnership commenced periodic distributions, based on cash flows from operations, beginning with the month of January 1997. At March 31, 2009, the Partnership had no commitments to purchase leased assets and pursuant to the Partnership Agreement, the Partnership will no longer purchase any new leased assets.

Item 4. Controls and procedures.

Evaluation of disclosure controls and procedures

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

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

Changes in internal control

There were no changes in the General Partner’s internal control over financial reporting, as it is applicable to the Partnership, during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the General Partner’s internal control over financial reporting, as it is applicable to the Partnership.

15

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

None.

Item 3. Defaults Upon Senior Securities.

None.

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

None.

Item 5. Other Information.

None.

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

16

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: May 13, 2009

ATEL CAPITAL EQUIPMENT FUND VII, L.P.

(Registrant)

By: ATEL Financial Services, LLC General Partner of Registrant

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

17

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dean L. Cash, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparations of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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(s) 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 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: May 13, 2009

/s/ Dean L. Cash

Dean L. Cash

President and Chief Executive Officer of

ATEL Financial Services, LLC (General Partner)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Paritosh K. Choksi, certify that:

1. I have reviewed this quarterly report on Form 10-Q 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparations of financial statements for external purposes in accordance with generally accepted accounting principles;

c) 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

d) 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(s) 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 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: May 13, 2009

/s/ Paritosh K. Choksi

Paritosh K. Choksi

Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (General Partner)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

§906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ATEL Capital Equipment Fund VII, L.P. (the “Partnership”) on Form 10-Q for the period ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dean L. Cash, President and Chief Executive Officer of ATEL Financial Services, LLC, General Partner of the Partnership, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, 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 Partnership.

Date: May 13, 2009

/s/ Dean L. Cash

Dean L. Cash

President and Chief Executive Officer of ATEL Financial Services, LLC (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 PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

§906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of ATEL Capital Equipment Fund VII, L.P. (the “Partnership”) on Form 10-Q for the period ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paritosh K. Choksi, Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC, General Partner of the Partnership, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, 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 Partnership.

Date: May 13, 2009

/s/ Paritosh K. Choksi

Paritosh K. Choksi

Executive Vice President and Chief Financial Officer and Chief Operating Officer of ATEL Financial Services, LLC (General Partner)

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.