10-Q 1 dsivii-607.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 June 30, 2007. /___/ 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. DSI REALTY INCOME FUND VII (A Limited Partnership) BALANCE SHEETS(UNAUDITED) JUNE 30, 2007 AND DECEMBER 31, 2006 June 30, December 31, 2007 2006 ASSETS CASH AND CASH EQUIVALENTS $ 754,642 $ 715,368 PROPERTY, Net 2,188,105 2,211,491 OTHER ASSETS 184,336 152,948 ---------- ---------- TOTAL $3,127,083 $3,079,807 ========== ========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES Distribution to Partners $ 242,424 $ 242,424 Incentive management fee payable to general partners 251,422 234,821 Property management fee payable 15,630 14,812 Customer deposits and other liabilities 92,924 145,026 Capital lease obligation 71,209 87,926 ---------- ---------- Total liabilities 673,609 725,009 ---------- ---------- PARTNERS' EQUITY (DEFICIT): General Partners (83,234) (84,221) Limited Partners (24,000 limited partnership units outstanding at June 30, 2007 and December 31, 2006) 2,536,708 2,439,019 ---------- ---------- Total partners' equity 2,453,474 2,354,798 ---------- ---------- TOTAL $3,127,083 $3,079,807 ========== ========== See accompanying notes to financial statements (unaudited). STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006 June 30, June 30, 2007 2006 REVENUES: Rental $ 685,459 $ 719,919 ---------- ---------- EXPENSES: Operating 319,593 299,816 General and administrative 72,012 77,297 ---------- ---------- Total expenses 391,605 377,113 ---------- ---------- OPERATING INCOME 293,854 342,806 OTHER INCOME Interest 163 162 ---------- ---------- NET INCOME $ 294,017 $ 342,968 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited Partners $ 291,077 $ 339,538 General Partners 2,940 3,430 ---------- ---------- TOTAL $ 294,017 $ 342,968 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 12.13 $ 14.15 ========== ========== 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 SIX MONTHS ENDED JUNE 30, 2007 AND 2006 June 30, June 30, 2007 2006 REVENUES: Rental $1,362,799 $1,415,053 ---------- ---------- EXPENSES: Operating 620,995 594,266 General and administrative 158,605 159,161 ---------- ---------- Total expenses 779,600 753,427 ---------- ---------- OPERATING INCOME 583,199 661,626 OTHER INCOME Interest 325 324 ---------- ---------- NET INCOME $ 583,524 $ 661,950 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited Partners $ 577,689 $ 665,331 General Partners 5,835 6,619 ---------- ---------- TOTAL $ 583,524 $ 661,950 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 24.07 $ 27.72 ========== ========== 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 SIX MONTHS ENDED JUNE 30, 2007 GENERAL LIMITED PARTNERS PARTNERS TOTAL BALANCE AT JANUARY 1, 2007 ($84,221) $2,439,019 $2,354,798 NET INCOME 5,835 577,689 583,524 DISTRIBUTIONS (4,848) (480,000) (484,848) -------- ---------- ---------- BALANCE AT JUNE 30, 2007 ($83,234) $2,536,708 $2,453,474 ======== ========== ========== See accompanying notes to financial statements (unaudited). STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 June 30, June 30, 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 583,524 $ 661,950 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 23,386 22,359 Changes in assets and liabilities: Increase in other assets (31,388) 0 Increase in incentive management fee payable to general partners 16,601 32,899 Increase in property management fee payable 818 345 Decrease in customer deposits and other liabilities (52,102) (99,657) -------- -------- Net cash provided by operating activities 540,839 617,896 CASH FLOWS FROM FINANCING ACTIVITIES - Distributions to partners (484,848) (484,848) Payments on capital lease obligations (16,717) (18,945) -------- -------- Net cash used in financing activities (501,565) (503,793) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 39,274 114,103 CASH AND CASH EQUIVALENTS: At beginning of period 715,368 655,295 --------- --------- At end of period $ 754,642 $ 769,398 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for interest $ 2,035 $ 718 ========= ========= NONCASH FINANCING ACTIVIITES - Distribution due partners included in partners' equity $ 242,424 $ 242,424 ========= ========= See accompanying notes to financial statements (unaudited). DSI REALTY INCOME FUND VII (A 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 accompanying interim financial statements have been prepared by the Company's management in accordance with accounting principles generally accepted in the United States of America ("GAAP") and in conjunction with the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regu- lations. Accordingly, the interim financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying interim financial statements reflect all adjustments of a normal and recurring nature which are considered necessary for a fair presentation of the results for the interim periods presented. However, the results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's quarterly report on Form 10-K for the year ended December 31, 2006. 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: June 30, 2007 December 31, 2006 Land $ 2,089,800 $ 2,089,800 Buildings and improvements 7,792,522 7,792,522 Rental trucks under capital leases 175,116 175,116 ------------ ------------ Total 10,057,438 10,057,438 Less: Accumulated Depreciation ( 7,869,333) ( 7,845,947) ------------ ------------ Property - Net $ 2,188,105 $ 2,211,491 ============ ============ 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. 5. RELATED-PARTY TRANSACTIONS The Partnership has entered into a management agreement with Dahn to operate its mini-storage facilities. The management agreement provides for a management fee equal to 5% of gross revenue from operations, which is defined as the entire amount of all receipts from the renting or leasing of storage compartments and sale of locks. The management agreement is renewable annually. Dahn earned management fees equal to $33,882 and $34,757, for the three month periods ended June 30, 2007 and 2006, respectively, and $69,140 and $70,753 for the six month period ended June 30, 2007 and 2006, respectively. Amounts payable to Dahn at June 30, 2007 and December 31, 2006, were $15,630 and $14,812, respectively. In 2004, the Partnership entered into truck lease agreements with KMD Trucks, LLC ("KMD"). The president of Dahn, Brian Dahn, is also a member of KMD. Trucks are leased under 48-month leases with total monthly payments in the amount of $3,750. 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 June 30, 2007. The following is Management's discussion and analysis of the Partnership's financial condition and results of its operations. For the three-month periods ended June 30, 2007 and 2006, total revenues decreased 4.8% from $719,919 to $685,459 and total expenses increased 3.8% from $377,113 to $391,605 and other income increased from $162 to $163. As a result, net income decreased 14.3% from $342,968 for the three-month period ended June 30, 2006, to $294,017 for the same period in 2007. Rental revenue decreased primarily as a result of lower occupancy rates. Occupancy levels for the Partnership's six mini-storage facilities averaged 83.5% for the three-month period ended June 30, 2007 and 87.4% for the same period in 2006. The Partnership is continuing its marketing efforts to attract and keep new tenants in its various mini-storage facilities. Operating expenses increased approximately $19,800 (6.6%) primarily as a result of increases in repairs and maintenance, real estate tax and salaries and wages expenses. General and administrative expenses decreased approximately $5,300 (6.8%) primarily as a result of decreases in incentive management fees and legal and profes- sional expenses, partially offset by increases in administrative and state tax expenses. For the six-month periods ended June 30, 2007, and 2006, total revenues decreased 3.7% from $1,415,053 to $1,362,799 and total expenses increased 3.5% from $753,427 to $779,600 and other income increased from $324 to $325. As a result, net income decreased 11.8% from $661,950 for the six-month period ended June 30, 2006, to $583,524 for the same period in 2007. Rental revenue decreased primarily a result of lower occupancy rates. Occupancy levels for the Partnership's six mini-storage facilities average 81.3% for the six- month period ended June 30, 2007 and 84.4% for the same period in 2006. Operating expenses increased approximately $26,700 (4.5%) primarily as a result of increases in legal, maintenance and repair, real estate tax and salaries and wages expenses, partially offset by a decrease in advertising, property management fees and workers' compensation expenses. Property management fees, which are based on revenue, decreased as a result of the decrease in rental revenue. General and administrative expenses remained constant as a result of decreases in incentive management fees and legal and professional expenses was offset by increases in administrative and state tax expenses. 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. Quantitative and Qualitative Disclosures About Market Risk NONE Item 4. 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 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 informa- tion 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 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 30, 2007. 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 June 30, 2007. (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: August 14, 2007 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: August 14, 2007 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 report on Form 10-Q for the quarter ended June 30, 2007 of DSI Realty Income Fund VII; 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 cover- ed 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 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: August 14, 2007 Robert J. Conway Chief Executive Officer CERTIFICATIONS I, Richard P. Conway, certify that: 1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2007 of DSI Realty Income Fund VII; 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 cover- ed by this 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: August 14, 2007 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 June 30, 2007 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 August 14, 2007 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 June 30, 2007 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 August 14, 2007