10-Q 1 dsivii-906.txt 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 September 30, 2006 /___/ Transition report pursuant to Section 13 or 15(d) of the Securities Act of 1934 for the transition period from ______________ to ________________. Commission File Number 2-83291 DSI REALTY INCOME FUND VII, A California Limited Partnership (Exact name of registrant as specified in its charter) California_______________________________________95-3871044 (State or other jurisdiction of (I.R.S. Employer incorporation) Identification No.) 6700 E. Pacific Coast Hwy, Long Beach, California 90803 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code-(562)493-8881 _________________________________________________________________ Former name, former address and former fiscal year, if changed since last report. Indicate by 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__. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. BALANCE SHEETS(UNAUDITED) SEPTEMBER 30, 2006 AND DECEMBER 31, 2005 September 30, December 31, 2006 2005 ASSETS CASH AND CASH EQUIVALENTS $ 902,985 $ 655,295 PROPERTY, Net 2,216,004 2,246,183 OTHER ASSETS 64,023 64,023 ---------- ---------- TOTAL $3,183,012 $2,965,501 ========== ========== LIABILITIES AND PARTNERS' EQUITY LIABILITIES Distribution to Partners $ 242,424 $ 242,424 Capital lease obligation 97,751 126,386 Other liabilities 386,797 390,213 ---------- ---------- Total liabilities 726,972 759,023 ---------- ---------- PARTNERS' EQUITY (DEFICIT): General Partners (83,208) (85,704) Limited Partners 2,539,248 2,292,182 ---------- ---------- Total partners' equity 2,456,040 2,206,478 ---------- ---------- TOTAL $3,183,012 $2,965,501 ========== ========== See accompanying notes to financial statements(unaudited). STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 September 30, September 30, 2006 2005 REVENUES: Rental $ 693,176 $ 694,711 ---------- ---------- EXPENSES: Operating 335,190 312,440 General and administrative 43,264 52,499 ---------- ---------- Total expenses 378,454 364,939 ---------- ---------- OPERATING INCOME 314,722 329,772 OTHER INCOME Interest 162 163 ---------- ---------- NET INCOME $ 314,884 $ 329,935 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited Partners $ 311,735 $ 326,636 General Partners 3,149 3,299 ---------- ---------- TOTAL $ 314,884 $ 329,935 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 12.99 $ 13.61 ========== ========== LIMITED PARTNERSHIP UNITS USED IN PER UNIT CALCULATION 24,000 24,000 ====== ====== See accompanying notes to financial statements(unaudited). STATEMENTS OF INCOME (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 September 30, September 30, 2006 2005 REVENUES: Rental $2,108,229 $2,003,498 ---------- ---------- EXPENSES: Operating 929,456 891,629 General and administrative 202,425 189,970 ---------- ---------- Total expenses 1,131,881 1,081,599 ---------- ---------- OPERATING INCOME 976,348 921,899 OTHER INCOME Interest 486 483 ---------- ---------- NET INCOME $ 976,834 $ 922,382 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited Partners $ 967,066 $ 913,159 General Partners 9,768 9,223 ---------- ---------- TOTAL $ 976,834 $ 922,382 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $40.29 $38.05 ====== ====== LIMITED PARTNERSHIP UNITS USED IN PER UNIT CALCULATION 24,000 24,000 ====== ====== See accompanying notes to financial statements (unaudited) STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)(UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 GENERAL LIMITED PARTNERS PARTNERS TOTAL BALANCE AT JANUARY 1, 2006 ($85,704) $2,292,182 $2,206,478 NET INCOME 9,768 967,066 976,834 DISTRIBUTIONS (7,272) (720,000) (727,272) -------- ---------- ---------- BALANCE AT SEPTEMBER 30, 2006 ($83,208) $2,539,248 $2,456,040 ======== ========== ========== See accompanying notes to financial statements(unaudited). STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 September 30, September 30, 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 976,834 $ 922,382 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 30,179 23,640 Changes in assets and liabilities: Increase in other assets 0 (21,351) Decrease in other liabilities (3,416) (21,586) --------- -------- Net cash provided by operating activities 1,003,597 903,085 --------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (727,272) (727,272) Payments on capital lease obligations (28,635) -------- -------- Net cash used in financing activities (755,907) (727,272) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 247,690 175,813 CASH AND CASH EQUIVALENTS: At beginning of period 655,295 616,045 --------- --------- At end of period $ 902,985 $ 791,858 ========= ========= See accompanying notes to financial statements(unaudited). DSI REALTY INCOME FUND VII (A California Real Estate Limited Partnership) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. GENERAL DSI Realty Income Fund VII (the "Partnership"), has two general partners (DSI Properties, Inc. and Diversified Investors Agency) and limited partners owning 24,000 limited partnership units. The Partnership was formed 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. The accompanying financial information is unaudited. Such financial information includes all adjustments, which are considered necessary by the Partnership's management for a fair presentation of the results for the periods indicated. 2. PROPERTY Properties owned by the Partnership are all mini-storage facilities. Depreciation is calculated using the straight line method over the estimated useful life of 15 years. The total cost of property and accumulated depreciation is as follows: September 30, 2006 December 31, 2005 Land $ 2,089,800 $ 2,089,800 Buildings and improvements 7,780,448 7,780,448 Rental trucks under capital leases 175,116 175,116 ------------ ------------ Total 10,045,364 10,045,364 Less: Accumulated Depreciation ( 7,829,360) ( 7,799,181) ------------ ------------ Property - Net $ 2,216,004 $ 2,246,183 ============ ============ 3. NET INCOME PER LIMITED PARTNERSHIP UNIT Net income per limited partnership unit is calculated by dividing the net income allocated to the limited partners by the number of limited partnership units outstanding during the period. 4. ALLOCATION OF PROFITS AND LOSSES AND GENERAL PARTNERS' INCENTIVE MANAGEMENT FEE 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 the 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. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. We are pleased to enclose the Partnership's unaudited financial statements for the period ended September 30, 2006. The following is Management's discussion and analysis of the Partnership's financial condition and results of its operations. For the three-month period ended September 30, 2006, and 2005, total revenues decreased 0.2% from $694,711 to $693,176 and total expenses increased 3.7% from $364,939 to $378,454 and other income decreased from $163 to $162. As a result, net income decreased 4.6% from $329,935 for the three-month period ended September 30, 2005, to $314,884 for the same period in 2006. Rental revenue remained constant as higher unit rental rates was offset by lower occupancy rates. Occupancy levels for the Partnership's six mini-storage facilities averaged 85.4% for the three-month period ended September 30, 2006 and 88.1% for the same period in 2005. The Partnership is continuing its marketing efforts to attract and keep new tenants in its various mini-storage facilities. Operating expenses increased approximately $22,800 (7.3%) pri- marily as a result of increases in advertising and salaries and wages expenses, partially offset by decreases in maintenance and repair, office supplies and truck maintenance expenses. General and administrative expenses decreased approximately $9,200 (17.6%) primarily as a result of decreases in legal and professional and equipment and computer lease expenses. For the nine-month periods ended September 30, 2006, and 2005, total revenues increased 5.2% from $2,003,498 to $2,108,229 and total expenses increased 4.6% from $1,081,599 to $1,131,881 and other income increased from $483 to $486. As a result, net income increased 5.9% from $922,382 for the nine months ended September 30, 2005,to $976,834 for the same period in 2006. Rental revenue increased as a result of higher occupancy and unit rental rates. Operating expenses increased approximately $37,800 (4.2%) primarily as a result of increases in advertising, property management fee, salaries and wages, depreciation and bank and credit card fee expenses, partially off-set by a decrease in the purchase of locks and packing materials, office supplies and truck maintenance expenses. Property management fees, which are based on revenue, increased as a result of the increase in rental revenue. General and administrative expenses increased approximately $12,500 (6.5%) primarily as a result of increases in incentive management fees and legal and professional expenses, partially offset by a decrease in equipment and computer lease expense. The General Partners will continue their policy of funding improvements and maintenance of Partnership properties with cash generated from operations. The Partnership's financial resources appear to be adequate to meet its needs. The General Partners anticipate distributions to the Limited Partners to remain at the current level for the foreseeable future. Item 3. Quantative and Qualitative Disclosures About Market Risk NONE Item 4. CONTROLS AND PROCEDURES Within 90 days prior to the date of this report, 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 Partnership 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 con- cluded 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 II - OTHER INFORMATION Item 1. Legal Proceedings Registrant is not a party to any material pending legal proceedings. Item 1A. Risk Factors Please refer to the risk factors disclosed by the partnership in response to Item 1A, part I of the Form 10-K filed on March 27, 2006. There has been no material change to the risk factors disclosed therein. 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 and Reports on Form 8K. (a) Attached hereto as Exhibit "20" is Registrant's Quarterly Report to Limited Partners for the period ended September 30, 2006. (b) Registrant did not file any reports on Form 8-K for the period reported upon. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: October 31, 2006 DSI REALTY INCOME FUND VII A California Limited Partnership (Registrant) By____\s\ Robert J. Conway_____ DSI Properties, Inc., as General Partner by ROBERT J. CONWAY, President and Chief Financial Officer SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: October 31, 2006 DSI REALTY INCOME FUND VII A California Limited Partnership (Registrant) By__\s\ Robert J. Conway________ DSI Properties, Inc., as General Partner by ROBERT J. CONWAY, President and Chief Financial Officer CERTIFICATIONS I, Robert J. Conway, certify that: 1. I have reviewed this quarterly report on Form 10-Q of DSI Realty Income Fund VII; 2. Based on my knowledge, this quarterly 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 quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 and general partners (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 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: October 31, 2006 Robert J. Conway Chief Executive Officer CERTIFICATIONS I, Richard P. Conway, certify that: 1. I have reviewed this quarterly report on Form 10-Q of DSI Realty Income Fund VII; 2. Based on my knowledge, this quarterly 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 quarterly report. 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 and general partners (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 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: October 31, 2006 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 Quarterly Report of DSI Realty Income Fund VII (the "Partnership") on Form 10-Q for the period ending September 30, 2006 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 October 31, 2006 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of DSI Realty Income Fund VII (the "Partnership") on Form 10-Q for the period ending September 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Conway, Vice President of the Corporate General Partner, 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 October 31, 2006