-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UgO6mqAKMAWV7bU1QOfwNJHqrE54XobltbHj762VQPunPAEKLA4kLmrjvbiGTCfQ jSg1IGNjmy2dCXzqHRQj3g== 0000318835-05-000002.txt : 20050330 0000318835-05-000002.hdr.sgml : 20050330 20050330173041 ACCESSION NUMBER: 0000318835-05-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050330 DATE AS OF CHANGE: 20050330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DSI REALTY INCOME FUND VII CENTRAL INDEX KEY: 0000719581 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 953871044 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 002-83291 FILM NUMBER: 05715451 BUSINESS ADDRESS: STREET 1: PO BOX 357 CITY: LONG BEACH STATE: CA ZIP: 90801 BUSINESS PHONE: 3105957711 MAIL ADDRESS: STREET 1: PO BOX 357 CITY: LONG BEACH STATE: CA ZIP: 90801 10-K 1 dsi07k04.txt DSI REALTY INCOME FUND VII SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 2O549 FORM 1O-K (Mark One) / x /Annual Report Pursuant to Section 13 or 15 (d) of the Securities and Exchange Act of 1934 [Fee required] for the fiscal year ended December 31, 2004. or / /Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No fee required] for the transition period from _____________ to _____________. Commission File No. 2-83291. DSI REALTY INCOME FUND VII, a California Limited Partnership (Exact name of registrant as specified in governing instruments) _________California___________________________95-3871044_____ (State of other jurisdiction of (I.R.S. Employer incorporation or organization identification number 6700 E. Pacific Coast Hwy., Long Beach, California 9O8O3 (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code-(562)493-8881 Securities registered pursuant to Section 12(b) of the Act: none. Securities registered pursuant to Section 12(g) of the Act: Units of Limited Partnership Interests (Class of Securities Registered) Indicate by check mark, whether the registrant (l) 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 9O days. Yes_X____. No______. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/ The Registrant is a limited partnership and there is no voting stock. All units of limited partnership sold to date are owned by non-affiliates of the registrant. All such units were sold at $5OO.OO per unit. DOCUMENTS INCORPORATED BY REFERENCE Item 8. Registrant's Financial Statements for its fiscal year ended December 31, 2004, incorporated by reference to Form 10-K, Part II. Item 11. Registrant's Financial Statements for its fiscal year ended December 31, 2004, incorporated by reference to Form 10-K, Part III. Item 12. Registration Statement on Form S-11, previously filed with the Securities and Exchange Commission pursuant to Securities Act of 1933, as amended, incorporated by reference to Form 10-K Part III. Item 13. Registrant's Financial Statements for its fiscal year ended December 31, 2004, incorporated by reference to Form 10-K, Part III. PART I Item l. BUSINESS Registrant, DSI Realty Income Fund VII (the "Partnership") is a publicly-held limited partnership organized under the California Uniform Limited Partnership Act pursuant to a Certificate and Agreement of Limited Partnership (hereinafter referred to as "Agreement") dated August 1, 1983. The General Partners are DSI Properties, Inc., a California corporation, Diversified Investors Agency, a general partnership, whose current partners are Robert J. Conway and Joseph W. Conway, brothers. The General Partners are affiliates of Diversified Securities, Inc., a wholly-owned subsidiary of DSI Financial, Inc. The General Partners provide similar services to other partnerships. Through its public offering of Limited Partnership Units, Registrant sold twenty-four thousand (24,000) units of limited partnership interests aggregating Twelve Million Dollars ($12,000,000). The General Partners have retained a one percent (l%) interest in all profits, losses and distributions (subject to certain conditions) without making any capital contribution to the Partnership. The General Partners are not required to make any capital contributions to the Partnership in the future. Registrant is engaged in the business of investing in and operating mini-storage facilities with the primary objectives of generating, for its partners, cash flow, capital appreciation of its properties, and obtaining federal income tax deductions so that during the early years of operations, all or a portion of such distributable cash may not represent taxable income to its partners. Funds obtained by Registrant during the public offering period of its units were used to acquire six mini-storage facilities. Registrant does not intend to sell additional limited partnership units. The term of the Partnership is fifty years but it is anticipated that Registrant will sell and/or refinance its properties prior to the termination of the Partnership. The Partnership is intended to be self-liquidating and it is not intended that proceeds from the sale or refinancing of its operating properties will be reinvested. Registrant has no full time employees but shares one or more employees with other publicly-held limited partnerships sponsored by the General Partners. The General Partners are vested with authority as to the general management and supervision of the business and affairs of Registrant. Limited Partners have no right to participate in the management or conduct of such business and affairs. An independent management company has been retained to provide day-to-day management services with respect to all of the Partnership's investment properties. The average occupancy level for each of the Partnership's six properties for the years ended December 31, 2004 and December 31, 2003 were as follows: Location of Property Average Occupancy Average Occupancy Level for the Level for the Year Ended Year Ended Dec. 31, 2004 Dec. 31, 2003 Chico, California 84% 85% Fairfield, California 85% 88% Ft. Collins, Colorado 83% 82% LaVerne, California 86% 88% Littleton, Colorado 77% 78% Riverside, California 87% 89% The business in which the Partnership is engaged is highly competitive. Each of its mini-storage facilities is located in or near a major urban area, and accordingly, competes with a significant number of individuals and organizations with respect to both the purchase and sale of its properties and for rentals. Generally, Registrant's business is not affected by the change in seasons. Item 2. PROPERTIES Registrant owns a fee interest in six mini-storage facilities, none of which are subject to long-term indebtedness. Additional information is set forth in Registrant's letter to its Limited Partners regarding the Annual Report, attached hereto as Exhibit 2, and incorporated by this reference. The following table sets forth information as of December 31, 2004 regarding properties owned by the Partnership. Location Size of Net Rentable No. of Completion Parcel Area Rental Units Date Chico, CA 1.97 acres 39,580 366 9/05/84 Fairfield, CA 2.29 acres 40,668 442 8/31/84 Ft.Collins, CO 2.49 acres 57,284 603 3/27/85 LaVerne, CA 2.78 acres 50,652 523 8/21/84 Riverside, CA 2.92 acres 60,011 567 12/12/84 Littleton, CO 3.071 acres 43,380 404 11/01/85 Item 3. LEGAL PROCEEDINGS Registrant is not a party to any material pending legal proceedings. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Registrant, a publicly-held limited partnership, sold 24,000 limited partnership units during its offering and currently has 878 limited partners of record. There is no intention to sell additional limited partnership units nor is there a market for these units. Average cash distributions of $13.25 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2004 and $11.35 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2003 and $13.85 per Limited Partnership Unit were declared and paid each quarter for the year ended December 31, 2002. Item 6. SELECTED FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, 2002, 2001, and 2000 -------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- TOTAL REVENUES AND OTHER INCOME $2,515,273 $2,577,993 $2,614,292 $2,597,851 $2,351,050 TOTAL EXPENSES 1,266,869 1,286,265 1,320,183 1,210,651 1,237,093 ---------- ---------- ---------- ---------- ---------- NET INCOME $1,248,404 $1,291,728 $1,294,109 $1,387,200 $1,113,957 ========== ========== ========== ========== ========== TOTAL ASSETS $2,952,694 $2,833,436 $2,650,108 $2,696,934 $2,603,230 ========== ========== ========== ========== ========== CASH FLOWS FROM (USED IN): OPERATING $1,249,363 $1,277,393 $1,310,542 $1,344,360 $1,231,203 INVESTING (23,858) - - - (5,388) FINANCING (1,284,378) (1,100,643) (1,343,293) (1,282,481) (1,281,976) NET INCOME PER LIMITED PARTNERSHIP UNIT $ 51.50 $ 53.28 $ 53.38 $ 57.22 $ 45.95 ========== ========== ========== ========== ========== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ 52.98 $ 45.40 $ 55.41 $ 52.90 $ 52.88 ========== ========== ========== ========== ========== Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Critical Accounting Policies Revenue recognition - Rental revenue is recognized using the accrual method based on contractual amounts provided for in the lease agreements, which approximates recognition on a straight-line basis. The term of the lease agreements is usually less than one year. RESULTS OF OPERATIONS 2004 COMPARED TO 2003 Total revenues decreased from $2,577,321 in 2003 to $2,514,629 in 2004, while total expenses decreased from $1,286,265 to $1,266,869 and other income decreased from $672 to $644 resulting in a decrease in net income from $1,291,728 to $1,248,404. Rental revenues decreased primarily as a result of lower occupancy rates. Occupancy levels for the Partnership's six mini-storage facilities averaged 83.5% for the year ended December 31, 2004 and 86.3% for the year ended December 31, 2003. The Partnership continued its advertising campaign to attract and keep new tenants in its various mini-storage facilities. The approximate $33,100 (4.2%) increase in operating expenses was due primarily to increases in purchase of locks, real estate tax and salaries and wages expenses, partially offset by a decrease in advertising expense. General and administrative expenses decreased approximately $48,500 (19.6%) primarily as a result of decreases in legal and professional fees and equipment and computer lease expenses, partially offset by an increase in office supplies and printing expense. The decrease in legal expense and professional expense is related to unsuccessful legal challenges by two dissident Limited Partners to a proposed amendment to the Partnership Agreement (see paragraph below). The General Partners' incentive management fee which is based on cash available for dis- tribution, decreased as a result of the decrease in net cash provided by operating activities reduced by additions to property. Property management fees remained relatively constant. 2003 COMPARED TO 2002 Total revenues decreased from $2,613,254 in 2002 to $2,577,321 in 2003, while total expenses decreased from $1,320,183 to $1,286,265 and other income decreased from $1,038 to $672 resulting in a decrease in net income from $1,294,109 to $1,291,728. Rental revenue remained relatively constant. Occupancy levels for the Partnership's six mini-storage facilities averaged 86.3% for the year ended December 31, 2003 and 86.2% for the year ended December 31, 2002. The Partnership continued its advertising campaign to attract and keep new tenants in its various mini-storage facilities. The approximate $57,200 (6.8%) decrease in operating expenses was due primarily to decreases in yellow pages advertising costs, maintenance and repair and workers compensation insurance expenses, partially offset by an increase in salaries and wages expense. General and administrative expenses increased approximately $37,600 (17.9%) primarily as a result of increases in legal and professional fees, partially offset by decreases in equipment and computer lease and office supplies expenses. Legal expense increased as a result of legal challenges by dissident Limited Partners to a proposed amendment to the Partnership Agreement. General Partners' incentive management fee, which is based on cash available for distribution, decreased approximately $12,800 (9.1%). Property management fees, which are based on revenue, remained relatively constant. Operating expenses consists mainly of expenses such as yellow pages and other advertising, utilities, repairs and maintenance, real estate taxes, salaries and wages and their related expenses. General and administrative expenses consist mainly of expenses such as legal and professional, office supplies accounting services and computer expenses. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities increased approximately $129,400 (10.1%) in 2004 compared to 2003 primarily due to the increase in customer deposits and other liabilities. Net cash provided by operating activities decreased approximately $33,800 (2.5%) in 2002 compared to 2001 primarily due to the decrease in net income, partially offset by an increase in incentive management fee payable to general partners and a decrease in other assets. Cash used in financing activities, as set forth in the statements of cash flows, has consisted solely of cash distributions to partners. Special distributions of 2.5%, 1.0%, and 3.0% of capital contributed by Limited Part- ners, were declared and paid on December 15, 2004, 2003, and 2002, respectively. Cash used in investing activities, as set forth in the statement of cash flows, has consisted solely of acquisitions of equipment for the Partnership's mini storage properties in 2004. The Partnership has no material commitments for capital expenditures. In 2003, the Limited Partners approved an amendment to the Partnership Agreement granting the General Partners ten days to review certain types of transfers during which the General Partners may match, exceed or approve the proposed transfers. The Court rejected all preliminary attempts to halt the implementation of the amendment. Subsequently, the two dissident Limited Partners who initiated the legal proceedings decided not to pursue the matter any further. The General Partners plan to continue their policy of funding the continuing improvement and maintenance of Partnership properties with cash generated from operations. The Partnership anticipates that cash flows generated from operations of the Partnership's rental real estate operations will be sufficient to cover operating expenses and distributions for the next twelve months and beyond. The General Partners are not aware of any environmental problems which could have an adverse material effect upon the financial position of the Part- nership. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Summarized quarterly financial data for the years ended December 31, 2004 and 2003 was as follows: 2004 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 Total revenues $642,833 $633,029 $635,270 $603,497 Net income 327,568 287,364 312,327 321,145 Net income per limited partnership unit $ 13.51 $ 11.85 $ 12.88 $ 13.26 Weighted average number of limited partnership units outstanding 24,000 24,000 24,000 24,000 2003 QUARTER ENDED ------------------ March 31 June 30 September 30 December 31 Total revenues $650,704 $648,778 $652,525 $625,314 Net income 338,859 323,617 290,895 338,357 Net income per limited partnership unit $ 13.98 $ 13.35 $ 12.00 $ 13.95 Weighted average number of limited partnership units outstanding 24,000 24,000 24,000 24,000 Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Attached hereto as Exhibit l is the information required to be set forth as Item 8, Part II hereof. See the financial statements. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Item 9a. CONTROLS AND PROCEDURES The Partnership evaluated the effectiveness of its disclosure controls and procedures. This evaluation was performed by the Partnership's Controller with the assistance of the Partnership's President and the Chief Executive Officer. These disclosure controls and procedures are designed to ensure that the information required to be disclosed by the Parnership in its periodic reports filed with the Securities and Exchange Commission (the "Commission") is recorded, processed summarized and reported, within the time periods specified by the Commission's rules and forms, and that the information is communicated to the certifying officers on a timely basis. Based on this evaluation, the Partnership concluded that its disclosure controls and procedures were effective. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT'S GENERAL PARTNER The General Partners of Registrant are the same as when the Partnership was formed, i.e., DSI Properties, Inc., a California corporation, and Diversified Investors Agency. As of December 31, 2004, Messrs. Robert J. Conway and Joseph W. Conway, each of whom own approximately 48.4% of the issued and outstanding capital stock of DSI Financial, Inc., a California corporation, together with Mr. Joseph W. Stok, currently comprise the entire Board of Directors of DSI Properties, Inc. Mr. Robert J. Conway is 71 years of age and is a licensed California real estate broker, and since 1965 has been President and a member of the Board of Directors of Diversified Securities, Inc., and since 1973 President, Chief Financial Officer and a member of the Board of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Science Degree from Marquette University with majors in Corporate Finance and Real Estate. Mr. Joseph W. Conway is age 76 and has been Executive Vice President, Treasurer and a member of the Board of Directors of Diversified Securities, Inc. since 1965 and since 1973 the Vice President, Treasurer and member of the Board of Directors of DSI Properties, Inc. Mr. Conway received a Bachelor of Arts Degree from Loras College with a major in Accounting. Mr. Joseph W. Stok is age 82 and has been a member of the Board of Directors of DSI Properties, Inc. since 1994, a Vice President of Diversified Securities, Inc. since 1973, and an Account Executive with Diversified Securities, Inc. since 1967. Item 11. EXECUTIVE COMPENSATION (MANAGEMENT REMUNERATION AND TRANSACTIONS) The information required to be furnished in Item 11 of Part III is contained in Registrant's Financial Statements for its fiscal year ended December 31, 2004, which together with the report of its independent auditors, Deloitte & Touche LLP, is attached hereto as Exhibit 1 and incorporated herein by this reference. In addition to such information: (a) No annuity, pension or retirement benefits are proposed to be paid by Registrant to any of the General Partners or to any officer or director of the corporate General Partner; (b) No standard or other arrangement exists by which directors of the Registrant are compensated; (c) The Registrant has not granted any option to purchase any of its securities; and (d) The Registrant has no plan, nor does the Registrant presently propose a plan, which will result in any remuneration being paid to any officer or director upon termination of employment. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of December 31, 2004, no person of record owned more than 5% of the limited partnership units of Registrant, nor was any person known by Registrant to own of record and beneficially, or beneficially only, more than 5% thereof. The balance of the information required to be furnished in Item 12 of Part III is contained in Registrant's Registration Statement on Form S-11, previously filed pursuant to the Securities Act of 1933, as amended, and which is incorporated herein by this reference. The only change to the information contained in said Registration Statement on Form S-11 is the fact that Messrs. Benes and Blakley have retired and Messrs. Robert J. Conway and Joseph W. Conway equity interest in DSI Financial, Inc., parent of DSI Properties, Inc., has increased. Please see information contained in Item 10 hereinabove. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required to be furnished in Item 13 of Part III is contained in Registrant's Financial Statements for its fiscal year ended December 31, 2004, attached hereto as Exhibit l and incorporated herein by this reference. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Audit Fees The aggregate fees for professional services rendered by Deloitte & Touche LLP for the audit of the Partnership's annual financial statements and for re- view of the financial statements included in the Partnership's Quarterly Reports on Form 10-Q for 2004 were $26,920 and for 2003 were $25,600. Tax Fees The aggregate fees for professional services rendered by Deloitee & Touche LLP for tax compliance, tax advice and tax planning for 2004 were $20,900 and for 2003 were $19,500. Most of the fees related to preparation of the Partner- ship's tax returns. PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(l) Attached hereto and incorporated herein by this reference as Exhibit l are Registrant's Financial Statements and Supplemental Schedule for its fiscal year ended December 31, 2004, together with the reports of its independent auditors, Deloitte & Touche LLP. See Index to Financial Statements and Supplemental Schedule. (a)(2) Attached hereto and incorporated herein by this reference as Exhibit 2 is Registrant's letter to its Limited Partners regarding its Annual Report for its fiscal year ended December 31, 2004. (b) No reports on Form 8K were filed during the fiscal year ended December 31, 2004. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DSI REALTY INCOME FUND VII by: DSI Properties, Inc., a California corporation, as General Partner By_____________________________ Dated: March 31, 2005 ROBERT J. CONWAY, President (Chief Executive Officer, Chief Financial Officer, and Director) By____________________________ Dated: March 31, 2005 JOSEPH W. CONWAY (Executive Vice President and Director) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the date indicated. DSI REALTY INCOME FUND VII by: DSI Properties, Inc., a California corporation, as General Partner By:__________________________ Dated: March 31, 2005 ROBERT J. CONWAY, President, Chief Executive Officer, Chief Financial Officer, and Director By___________________________ Dated: March 31, 2005 JOSEPH W. CONWAY (Executive Vice President and Director) DSI REALTY INCOME FUND VII CROSS REFERENCE SHEET FORM 1O-K ITEMS TO ANNUAL REPORT PART I, Item 3. There are no legal proceedings pending or threatened. PART I, Item 4. Not applicable. PART II, Item 5. Not applicable. PART II, Item 6. The information required is contained in Registrant's Financial Statements for its fiscal year ended December 31, 2004, attached as Exhibit l to Form 10-K. PART II, Item 8. See Exhibit l to Form 10-K filed herewith. PART II, Item 9. Not applicable. EXHIBIT l DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) SELECTED FINANCIAL DATA FIVE YEARS ENDED DECEMBER 31, 2004 - ----------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- TOTAL REVENUES AND OTHER INCOME $2,515,273 $2,577,993 $2,614,292 $2,597,851 $2,351,050 TOTAL EXPENSES 1,266,869 1,286,265 1,320,183 1,210,651 1,237,093 ---------- ---------- ---------- ---------- ---------- NET INCOME $1,248,404 $1,291,728 $1,294,109 $1,387,200 $1,113,957 ========== ========== ========== ========== ========== TOTAL ASSETS $2,952,694 $2,833,436 $2,650,108 $2,696,934 $2,603,230 ========== ========== ========== ========== ========== CASH FLOWS FROM (USED IN): OPERATING $1,249,363 $1,277,393 $1,310,542 $1,344,360 $1,231,203 INVESTING (23,858) - - - (5,388) FINANCING (1,284,378) (1,100,643) (1,343,293) (1,282,481) (1,281,976) NET INCOME PER LIMITED PARTNERSHIP UNIT $ 51.50 $ 53.28 $ 53.38 $ 57.22 $ 45.95 ========== ========== ========== ========== ========== CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT $ 52.98 $ 45.40 $ 55.41 $ 52.90 $ 52.88 ========== ========== ========== ========== ========== The following are reconciliations between the operating results and partners' equity per the financial statements and the Partnership's income tax return for the year ended December 31, 2004. Net Partners' Income Equity Per financial statements $ 1,248,404 $ 2,192,488 Excess tax depreciation (74,819) (153,265) Accrued property taxes (3,891) (101,259) Deferred rental revenues 85,723 Accrued expenses 9,800 9,800 Accrued incentive management fees 221,117 Fixed asset adjustment (11,450) 206,824 Excess book distribution 242,415 Tax expense adjustment (11,648) ----------- ----------- Per Partnership income tax return $ 1,156,396 $ 2,703,843 =========== =========== Net taxable income per limited partnership unit $ 47.70 =========== DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE Page FINANCIAL STATEMENTS: Report of Independent Registered Public Accounting firm F-1 Balance Sheets as of December 31, 2004 and 2003 F-2 Statements of Income for each of the Three Years Ended December 31, 2004 F-3 Statements of Changes in Partners' Equity (Deficit)for each of the Three Years Ended December 31, 2004 F-4 Statements of Cash Flows for each of the Three Years Ended December 31, 2004 F-5 Notes to Financial Statements F-6 SUPPLEMENTAL SCHEDULE: Schedule III - Real Estate and Accumulated Depreciation F-9 NOTE: Financial statements and schedules not listed above are omitted because of the absence of conditions under which they are required or because the information is included in the financial statements named above, or in the notes thereto. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Partners of DSI Realty Income Fund VII: We have audited the accompanying balance sheets of DSI Realty Income Fund VII, a California limited partnership (the "Partnership") as of December 31, 2004 and 2003, and the related statements of income, changes in partners' equity (deficit), and cash flows for each of the three years ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and signi- ficant estimates made by management, as well as evlauating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of DSI Realty Income Fund VII at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Deloitte & Touche LLP March 14, 2005 DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) BALANCE SHEETS DECEMBER 31, 2004 AND 2003 - -------------------------------------------------------------------------------- ASSETS 2004 2003 CASH AND CASH EQUIVALENTS $ 616,045 $ 674,918 PROPERTY, net (Note 3) 2,268,876 2,089,800 OTHER ASSETS 67,773 68,718 ----------- ----------- TOTAL $ 2,952,694 $2,833,436 =========== =========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES: Distribution due partners (Note 4) $ 242,424 $ 242,424 Incentive management fee payable to general partners (Note 4) 250,403 254,576 Property management fees payable 13,066 10,253 Customer deposits and other liabilities 107,959 97,721 Capital lease obligations (Note 3) 146,354 ----------- ----------- Total liabilities 760,206 604,974 ----------- ----------- PARTNERS' EQUITY (DEFICIT)(Notes 4): General partners (85,844) (85,484) Limited partners (24,000 limited partnership units outstanding at December 31, 2004 and 2003) 2,278,332 2,313,946 ------------ ----------- Total partners' equity 2,192,488 2,228,462 ------------ ----------- TOTAL $ 2,952,694 $ 2,833,436 ============ =========== See accompanying notes to financial statements. DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) STATEMENTS OF INCOME THREE YEARS ENDED DECEMBER 31, 2004 - -------------------------------------------------------------------------------- 2004 2003 2002 REVENUES: Rental $2,514,629 $2,577,321 $2,613,254 ---------- ---------- ---------- EXPENSES: Depreciation 2,386 - - Operating 814,977 781,921 839,143 General and administrative 199,484 248,000 210,413 General partners' incentive management fee (Note 4) 120,973 127,790 140,588 Property management fee 129,049 128,554 130,039 ---------- ---------- ---------- Total expenses 1,266,869 1,286,265 1,320,183 ---------- ---------- ---------- OPERATING INCOME 1,247,760 1,291,056 1,293,071 OTHER INCOME- Interest income 644 672 1,038 ---------- ---------- ---------- NET INCOME $1,248,404 $1,291,728 $1,294,109 ========== ========== ========== NET INCOME ALLOCATED TO (Note 4): Limited partners $1,235,920 $1,278,811 $1,281,168 General partners 12,484 12,917 12,941 ---------- ---------- ---------- TOTAL $1,248,404 $1,291,728 $1,294,109 ========== ========== ========== NET INCOME ALLOCATED TO LIMITED PARTNERS PER LIMITED PARTNERSHIP UNIT (Notes 2 and 4) $ 51.50 $ 53.28 $ 53.38 ========== ========== ========== See accompanying notes to financial statements. DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) STATEMENTS OF CHANGES IN PARTNERS' EQUITY THREE YEARS ENDED DECEMBER 31, 2004 - -------------------------------------------------------------------------------- General Limited Partners Partners Total BALANCE, JANUARY 1, 2002 $(86,903) $ 2,173,464 $ 2,086,561 Net income 12,941 1,281,168 1,294,109 Distributions (13,433) (1,329,860) (1,343,293) -------- ----------- ----------- BALANCE, DECEMBER 31, 2002 $(87,395) $ 2,124,772 $ 2,037,377 Net income 12,917 1,278,811 1,291,728 Distributions (11,006) (1,089,637) (1,100,643) -------- ----------- ----------- BALANCE, DECEMBER 31, 2003 $(85,484) $ 2,313,946 $ 2,228,462 Net income 12,484 1,235,920 1,248,404 Distributions (12,844) (1,271,534) (1,284,378) -------- ----------- ----------- BALANCE, DECEMBER 31, 2004 $(85,844) $ 2,278,332 $ 2,192,488 ========= =========== =========== See accompanying notes to financial statements. DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) STATEMENTS OF CASH FLOWS THREE YEARS ENDED DECEMBER 31, 2004 - -------------------------------------------------------------------------------- 2004 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,248,404 $ 1,291,728 $ 1,294,109 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,386 Changes in assets and liabilities: Other assets 945 (6,380) 14,075 Incentive management fee payable to general partners (4,173) (7,932) 27,093 Property management fees payable 2,813 175 (850) Customer deposits and other liabilities 10,238 (23,885) Capital lease obligations (11,250) ----------- ----------- ----------- Net cash provided by operating activities 1,249,363 1,277,591 1,310,542 CASH FLOWS USED IN INVESTING ACTIVITIES- Additions to property (23,858) CASH FLOWS USED IN FINANCING ACTIVITIES - Distributions to partners (1,284,378) (1,100,643) (1,343,293) ----------- ----------- ------------ NET (DECREASE)INCREASE IN CASH AND CASH EQUIVALENTS (58,873) 176,948 (32,751) CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 674,918 497,970 530,721 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 616,045 $ 674,918 $ 497,970 =========== =========== ============ NON CASH INVESTING ACTIVITIES Acquisition of trucks utilizing capital leases $157,604 See accompanying notes to financial statements. DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) NOTES TO FINANCIAL STATEMENTS THREE YEARS ENDED DECEMBER 31, 2004 1. GENERAL DSI Realty Income Fund VII, a California Real Estate Limited Partnership (the "Partnership"), has two general partners (DSI Properties, Inc. and Diversified Investors Agency) and limited partners owning 24,000 limited partnership units which were purchased for $500 a unit. The general partners have made no capital contributions to the Partnership and are not required to make any capital contributions in the future. The Partnership has a maximum life of 50 years and was formed on August 1, 1983 under the California Uniform Limited Partnership Act for the primary purpose of acquiring and operating real estate. The Partnership has acquired six mini-storage facilities located in Chico, Fairfield, La Verne, and Riverside, California and Ft. Collins and Littleton, Colorado. All facilities were purchased from Dahn Corporation ("Dahn"). Dahn is not affiliated with the Partnership. Dahn is affiliated with other partnerships in which DSI Properties, Inc. is a general partner. The mini-storage facilities are operated for the Partnership by Dahn under various agreements that are subject to renewal annually. Under the terms of the agreements, the Partnership is required to pay Dahn a property management fee equal to 5% of gross revenue from operations, defined as the entire amount of all receipts from the rent- ing or leasing of storage compartments and sale of locks. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents - The Partnership classifies its short-term investments purchased with an original maturity of three months or less as cash and cash equivalents. Property and Depreciation - Property was recorded at cost and is composed primarily of mini-storage facilities. The facilities' buildings are fully depreciated. Building improvements are depreciated over a five year period. Property under capital leases is amortized over the lives of the the respective leases or the estimated useful lives of the assets. Income Taxes - No provision has been made for income taxes in the accompanying financial statements. The taxable income or loss of the Partnership is allocated to each partner in accordance with the terms of the Agreement of Limited Partnership. Each partner's tax status, in turn, determines the appropriate income tax for its allocated share of the Partnership's taxable income or loss. The net difference between the basis of the Partnership's assets and liabilities for federal income tax purposes and as reported for financial statement purpose is $92,008. Revenues - Rental revenue is recognized using the accrual method based on contractual amounts provided for in the lease agreements, which approximates recognition on a straight line basis. The term of the lease agreements are usually less than one year. Net Income per Limited Partnership Unit - Net income per limited partnership unit is computed by dividing net income allocated to the limited partners by the weighted average number of limited partnership units outstanding during each year. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Partnership's management to make estimates and assumptions that affect the reported amounts of 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. Impairment of Long-Lived Assets - The Partnership regularly reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected undiscounted future cash flow is less than the carrying amount of the asset, the Partnership would recognize an impairment loss to the extent the carrying value exceeded the fair market value of the property. No impairment losses were required in 2004, 2003 and 2002. Fair Value of Financial Instruments - The Partnership's financial instruments consist primarily of cash and cash equivalents, receivables, accounts payable and accrued liabilities. The carrying values of all financial instruments are representative of their fair values due to their short-term maturities. Concentrations of Credit Risk - Financial instruments that potentially subject the Partnership to concentrations of credit risk consist primarily of cash and cash equivalents and rent receivables. The Partnership places its cash and cash equivalents with high credit quality institutions. 3. PROPERTY The total cost of property and accumulated depreciation is as follows as of December 31: 2004 2003 Land $ 2,089,800 $ 2,089,800 Buildings and improvements 7,770,140 7,746,282 ----------- ----------- Total 9,859,940 9,836,082 Less accumulated depreciation (7,748,668) (7,746,282) ----------- ----------- Total $ 2,111,272 $ 2,089,800 Rental trucks under capital leases 157,604 ----------- ----------- Property-net $ 2,268,876 $ 2,089,800 =========== =========== The rental trucks under capital leases were not placed into service until January 2005 and therefore no depreciation expense was recorded during 2004. The Partnership leases certain vehicles under agreements that meet the criteria for classification as capital leases which expire in 2008. Future minimum lease payments under these capital leases at December 31, 2004 are summarized as follows: 2005 $40,500 2006 40,500 2007 40,500 2008 40,500 ------- Total future minimum payment obligations 162,000 Less interest portion 15,646 ------- Present value of net minimum lease payments $146,354 ======= 4. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNER MANAGEMENT FEES Under the Agreement of Limited Partnership, the general partners are to be allocated 1% of the net profits or losses from operations and the limited partners are to be allocated the balance of the net profits or losses from operations in proportion to their limited partnership interests. The general partners are also entitled to receive a percentage, based on a predetermined formula, of any cash distribution from the sale, other disposition, or refinancing of a real estate project. In addition, the general partners are entitled to receive an incentive management fee for supervising the operations of the Partnership. The fee is to be paid in an amount equal to 9% per annum of the cash available for distribution on a cumulative basis, calculated as cash generated from operations less capital expenditures. 5. BUSINESS SEGMENT INFORMATION The following disclosure about segment reporting of the Partnership is made in accordance with the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The Partner- ship operates in a single segment; storage facility operations, under which the Partnership rents its storage facilities to its customers on a need basis and charges rent on a predetermined rate. DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) REAL ESTATE AND ACCUMULATED DEPRECIATION - --------------------------------------------------------------------------------
Costs Capitalized Initial Cost to Subsequent to Gross Amount at Which Carried Partnership Acquisition at Close of Period ------------------- ----------------- ----------------------------- Buildings Buildings Date and Improve- Carrying and Accum. of Date Description Encumbrances Land Improvements ments Costs Land Improvements Total Deprec. Const. Acq. Life MINI-U-STORAGE Chico, CA None $209,700 $ 932,373 $ 9,702 $209,700 $ 942,075 $1,151,775 939,346 09/84 12/83 15 Yrs Fairfield, CO None 264,500 1,267,896 15,666 264,500 1,283,562 1,548,062 1,281,206 08/84 01/84 15 Yrs Fort Collins, CO None 375,100 1,396,960 13,128 375,100 1,410,088 1,785,188 1,406,054 12/84 05/84 15 Yrs Riverside, CA None 356,000 1,391,210 19,029 356,000 1,410,239 1,766,239 1,405,971 12/84 06/84 15 Yrs La Verne, CA None 453,250 1,243,974 15,874 453,250 1,259,848 1,713,098 1,255,604 03/85 08/84 15 Yrs Littleton, CO None 431,250 1,423,811 40,517 431,250 1,464,328 1,895,578 1,460,487 10/85 05/85 15 Yrs -------- ---------- ------- -------- ---------- ---------- ---------- $2,089,800 $7,656,224 $113,916 $2,089,800 $7,770,140 $ 9,859,940 $7,748,668 ========== ========== ======== ========== ========== =========== ==========
Real Estate Accumulated at Cost Depreciation Balance, January 1, 2002 $ 9,836,082 $7,746,282 Additions - - ----------- ---------- Balance, December 31, 2002 $ 9,836,082 $7,746,282 Additions - - ----------- ---------- Balance, December 31, 2003 $ 9,836,082 $7,746,282 Additions 23,858 2,386 ----------- ---------- Balance, December 31, 2004 $ 9,859,940 $7,748,668 =========== ========== EXHIBIT 2 March 14, 2005 ANNUAL REPORT TO LIMITED PARTNERS OF DSI REALTY INCOME FUND VII Dear Limited Partner: This report contains the Partnership's balance sheets as of December 31, 2004 and 2003, and the related statements of income, changes in partners' equity and cash flows for each of the three years ended December 31, 2004 accompanied by an independent auditors' report. The Partnership owns six mini- storage facilities. The Partnership's properties were each purchased for all cash and funded solely from subscriptions for limited partnership interests without the use of mortgage financing. Your attention is directed to the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations for the General Partners' discussion and analysis of the financial statements and operations of the Partnership. Average occupancy levels for each of the Partnership's six properties for the years ended December 31, 2004 and December 31, 2003 were as follows: Location of Property Average Occupancy Average Occupancy Levels for the Levels for the Year Ended Year Ended Dec. 31, 2004 Dec. 31, 2003 Chico, California 84% 85% Fairfield, California 85% 88% Ft. Collins, Colorado 83% 82% LaVerne, California 86% 88% Littleton, Colorado 77% 78% Riverside, California 87% 89% We will keep you informed of the activities of DSI Realty Income Fund VII as they develop. If you have any questions, please contact us at your convenience at (562) 493-3022. If you would like a copy of the Partnership's Annual Report on Form 10-K for the year ended December 31, 2004 which was filed with the Securities and Exchange Commission (which report includes the enclosed Financial Statements), we will forward a copy of the report to you upon written request. Very truly yours, DSI REALTY INCOME FUND VII By: DSI Properties, Inc. By___________________________ ROBERT J. CONWAY, President CERTIFICATIONS I, Robert J. Conway, certify that: 1. I have reviewed this annual report on Form 10-K of DSI Realty Income Fund VII; 2. Based on my knowledge, this annual 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 cover- ed by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our super- vision, 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 annual 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 (the registrant's fourth fiscal quarter in the case of our annual report) 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 officers and I have disclosed based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant's ability to record, pro- cess, 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 in- ternal controls over financial reporting. Date: March 14, 2005 Robert J. Conway Chief Executive Officer CERTIFICATIONS I, Richard P. Conway, certify that: 1. I have reviewed this annual report on Form 10-K of DSI Realty Income Fund VII; 2. Based on my knowledge, this annual 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 cover- ed by this annual report. 3. Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our super- vision, 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 annual 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 (the registrant's fourth fiscal quarter in the case of our annual report) 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 officers and I have disclosed based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect the registrant's ability to record, pro- cess, 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 in- ternal controls over financial reporting. Date: March 14, 2005 Richard P. Conway Vice President CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of DSI Realty Income Fund VII (the "Partnership") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert J. Conway, Chief Executive Officer of the Partnership, 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 result of operations of the Partnership. Robert J. Conway Chief Executive Officer March 14, 2005 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of DSI Realty Income Fund VII (the "Partnership") on Form 10-K for the period ending December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Conway, Chief Executive Officer of the Partnership, 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 result of operations of the Partnership. Richard P. Conway Vice President March 14, 2005 -----END PRIVACY-ENHANCED MESSAGE-----