10-Q 1 dsi007-308.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q /X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended: March 31, 2008. ________________ /__/ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to ________________. Commission File Number: 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 or organization) Identification No.) 6700 E. Pacific Coast Hwy, Long Beach, California 90803 __________________________________________________________________ (Address of principal executive offices) (Zip Code) (562)493-8881 __________________________________________________________________ (Registrant's telephone number, including area code) 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 [ ] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The issuer is a limited partnership. All 24,000 limited partnership units originally sold for $500 per unit. There is no trading market for the limited partnership units. PART I - FINANCIAL INFORMATION Item 1. Financial Statements. DSI REALTY INCOME FUND VII (A Limited Partnership) BALANCE SHEETS (UNAUDITED) MARCH 31, 2008 AND DECEMBER 31, 2007 March 31, December 31, 2008 2007 ASSETS CASH AND CASH EQUIVALENTS $ 742,160 $ 760,743 PROPERTY, Net 2,146,901 2,159,537 OTHER ASSETS 224,682 159,060 ---------- ---------- TOTAL $3,113,743 $3,079,340 ========== ========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES Distribution to Partners $ 242,424 $ 242,424 Incentive management fee payable to general partners 243,680 218,069 Property management fee payable 15,339 14,890 Customer deposits and other liabilities 113,103 136,647 Capital lease obligation 36,494 47,090 ---------- ---------- Total liabilities 651,039 659,120 ---------- ---------- PARTNERS' EQUITY (DEFICIT): General Partners (83,142) (83,567) Limited Partners (24,000 limited partnership units outstanding at March 31, 2008 and December 31, 2007) 2,545,846 2,503,787 ---------- ---------- Total partners' equity 2,462,704 2,420,220 ---------- ---------- TOTAL $3,113,743 $3,079,340 ========== ========== See accompanying notes to financial statements (unaudited). STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 March 31, March 31, 2008 2007 REVENUES: Rental $ 640,823 $ 630,611 Ancillary operating revenue 50,133 46,729 Interest and other income 143 162 ---------- ---------- Total revenues 691,099 677,502 EXPENSES: Operating 321,983 301,402 General and administrative 84,208 86,593 ---------- ---------- Total expenses 406,191 387,995 ---------- ---------- NET INCOME $ 284,908 $ 289,507 ========== ========== AGGREGATE NET INCOME ALLOCATED TO: Limited Partners $ 282,059 $ 286,612 General Partners 2,849 2,895 ---------- ---------- TOTAL $ 284,908 $ 289,507 ========== ========== NET INCOME PER LIMITED PARTNERSHIP UNIT $ 11.75 $ 11.94 ========== ========== 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 THREE MONTHS ENDED MARCH 31, 2008 GENERAL LIMITED PARTNERS PARTNERS TOTAL BALANCE AT JANUARY 1, 2008 ($83,567) $2,503,787 $2,420,220 NET INCOME 2,849 282,059 284,908 DISTRIBUTIONS (2,424) (240,000) (242,424) -------- ---------- ---------- BALANCE AT MARCH 31, 2008 ($83,142) $2,545,846 $2,462,704 ======== ========== ========== See accompanying notes to financial statements (unaudited). STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 March 31, March 31, 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 284,908 $ 289,507 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 12,636 11,694 Changes in assets and liabilities: Increase in other assets (65,622) (18,575) Decrease in liabilities (8,081) (6,291) -------- -------- Net cash provided by operating activities 223,841 276,335 CASH FLOWS FROM FINANCING ACTIVITIES - Distributions to partners (242,424) (242,424) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (18,583) 33,911 CASH AND CASH EQUIVALENTS: At beginning of period 760,743 715,368 --------- --------- At end of period $ 742,160 $ 749,279 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - Cash paid for interest $ 655 $ 1,270 ========= ========= 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. 2. PROPERTY Properties owned by the Partnership are all mini-storage facilities. Depreciation was calculated using the straight line method over the estimated useful life of 15 years. Property under capital leases is amortized over the lives of the respective leases. The total cost of property and accumulated depreciation is as follows: March 31, 2008 December 31, 2007 Land $ 2,089,800 $ 2,089,800 Buildings and improvements 7,792,522 7,794,172 Rental trucks under capital leases 175,116 175,116 ------------ ------------ Total 10,057,438 10,059,088 Less: Accumulated Depreciation ( 7,910,537) ( 7,899,551) ------------ ------------ Property - Net $ 2,146,901 $ 2,159,537 ============ ============ 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 $35,399 and $33,882, for the three month period ended March 31, 2008 and 2007, respectively. Amounts payable to Dahn at March 31, 2008 and December 31, 2007, were $15,339 and $14,890, 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 March 31, 2008. 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 March 31, 2008 and 2007, total revenues increased 2.0% from $677,502 to $691,099 and total expenses increased 4.7% from $387,995 to $406,191. As a result, net income decreased 1.6% from $289,507 for the three-month period ended March 31, 2007, to $284,908 for the same period in 2008. Occupancy levels for the Partnership's six mini- storage facilities averaged 81.9% for the three month period ended March 31, 2008, and 79.1% for the same period in 2007. Rental revenue increased primarily as a result of higher occupancy rates. The Partnership is continu- ing its marketing effort to attract and keep new tenants in its various mini- storage facilities. Operating expenses increased approximately $20,600 (6.8%) primarily as a result of increases in advertising and salaries and wages expenses, partially offset by a decrease in repair and maintenance expense. General and administrative expenses decreased approximately $2,400 (2.8%) primarily as a result of a decrease in incentive management fee 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. 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-KSB filed on April 15, 2008. 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 (a) Exhibits 31.1 Rule 13a-14(a)/15d-14(a) Certifications of Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certifications of Principal Financial Officer 32.1 Section 1350 Certifications by Principal Executive Officer and Principal Financial Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DSI REALTY INCOME FUND VII, a California Limited Partnership by: DSI Properties, Inc., a By: Diversified Investors Agency California corporation, a general partnership, as General Partner as General Partner /s/ ROBERT J. CONWAY /s/ ROBERT J. CONWAY By_____________________________ By_____________________________ Dated: May 15, 2008 Dated: May 15, 2008 ROBERT J. CONWAY, President, ROBERT J. CONWAY, Chief Executive Officer, Chief General Partner Financial Officer, and Director /s/ JOSEPH W. CONWAY /s/ JOSEPH W. CONWAY By_____________________________ By_____________________________ Dated: May 15, 2008 Dated: May 15, 2008 JOSEPH W. CONWAY, Executive JOSEPH W. CONWAY, Vice President and Director General Partner EXHIBIT 31.1 RULE 13A-14(A)/15D-14(A) CERTIFICATION BY CHIEF EXECUTIVE OFFICER 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 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 adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal controls over financial reporting. Date: May 15, 2008 /s/ ROBERT J. CONWAY By_____________________________ ROBERT J. CONWAY, President, Chief Executive Officer, Chief Financial Officer, and Director EXHIBIT 31.2 RULE 13A-14(A)/15D-14(A) CERTIFICATION BY PRINCIPAL FINANCIAL OFFICER 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 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 adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's in- ternal controls over financial reporting. Date: May 15, 2008 /s/ RICHARD P. CONWAY By_____________________________ RICHARD P. CONWAY, SR. VICE PRESIDENT (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 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 March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert J. Conway, Chief Executive Officer 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. /s/ ROBERT J. CONWAY By_____________________________ ROBERT J. CONWAY, Chief Executive Officer May 15, 2008 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 March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Richard P. Conway, Senior 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. /s/ RICHARD P. CONWAY By_____________________________ Richard P. Conway Senior Vice President (Principal Financial and Accounting Officer) May 15, 2008