Item 1. BUSINESS
Fidelity Leasing Income Fund VII, L.P. (the "Fund"), a Delaware limited partnership, was organized in 1989 and acquires computer equipment, including printers, tape and disk storage devices, data communications equipment, com- puter terminals, technical workstations, networking equipment, as well as other electronic equipment that is leased to third parties on a short-term basis. The Fund's principal objective is to generate leasing revenues for distri- bution. The Fund manages the equipment, releasing or disposing of equipment as it comes off lease in order to achieve its principal objective. The Fund does not borrow funds to purchase equipment.
The Fund generally acquires equipment subject to a lease. Purchases of equipment for lease are typically made through equipment leasing brokers, under a sale-leaseback arrangement directly from lessees owning equipment or from the manufacturer either pursuant to a purchase agreement relating to significant quantities of equipment or on an ad hoc basis to meet the needs of a particular lessee.
A brief description of the types of equipment in which the Fund has invested as of December 31, 2002, together with information concerning the users of such equipment is contained in Item 2, following.
The Fund does not have any employees. All persons who work on the Fund are employees of the General Partner.
Item 2.
Item 2. PROPERTIES
The following schedules detail the type, aggregate purchase price and percentage of the various types of equipment acquired and leased by the Fund under the operating and direct financing methods as of December 31, 2002:
Operating Leases: Purchase Price Percentage of Type of Equipment of Equipment Total Equipment
PCB Assembly Equipment $485,295 100.00% ________ ______ Totals $485,295 100.00% ======== ======
Direct Financing Leases: Purchase Price Percentage of Type of Equipment of Equipment Total Equipment
Disk Storage Systems $701,780 86.66% Personal Computers 60,025 7.41 Other 48,021 5.93 ________ ______ Totals $809,826 100.00% ======== ======
Item 2. PROPERTIES (Continued)
The following schedules detail the type of business, aggregate purchase price and percentage of equipment usage by industrial classification for equip- ment leased by the Fund under the operating and direct financing methods as of December 31, 2002:
Operating Leases: Purchase Price Percentage of Type of Business of Equipment Total Equipment
Retailing/Consumer Goods $395,493 81.50% Manufacturing/Refining 89,802 18.50 ________ ______ Totals $485,295 100.00% ======== ======
Direct Financing Leases: Purchase Price Percentage of Type of Business of Equipment Total Equipment
Computers/Data Processing $652,894 80.62% Retailing/Consumer Goods 65,807 8.13 Education 34,736 4.29 Manufacturing/Refining 33,468 4.13 Diversified Financial/Banking 14,150 1.75 Professional Services 8,771 1.08 ________ ______ Totals $809,826 100.00% ======== ======
Average Initial Term of Leases (in months): 40
Item 3.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Fund's limited partnership units are not publicly traded. There is no market for the Fund's limited partnership units and it is unlikely that any will develop.
(b) Number of Equity Security Holders:
Number of Partners Title of Class as of December 31, 2002
Limited Partnership Interests 2,335 General Partnership Interest 1
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fidelity Leasing Income Fund VII, L.P. had revenues of $604,966, $812,406 and $1,814,779 for the years ended December 31, 2002, 2001 and 2000, respectively. Earned income from direct financing leases and rental income from the leasing of equipment accounted for 73%, 81% and 87% of total revenues in 2002, 2001 and 2000, respectively. The decrease in revenues in 2002 and 2001 was attributable to the decrease in earned income on direct financing leases. The decrease in this account during these years resulted from the normal amortization of unearned income using the interest method. Additionally, during 2002, this account decreased because of the termination of certain direct financing leases. The increase in rental income in 2002 and the decrease in rental income in 2001 also affected the decrease in total re- venues during these years. In 2002, rental income increased by approximately $160,000 because of equipment purchased in December 2001 for which a full year of rents was earned in 2002 and only a partial year was earned in 2001. This increase was reduced by a $68,000 decrease in rentals resulting from equipment under operating leases that terminated and was sold during 2002 and 2001. The decrease in total revenues in 2001 was primarily attributable to the decrease in rental income of approximately $916,000. This account decreased in 2001 because of equipment under operating leases that terminated and was sold. The Fund recorded a net gain on sale of equipment of $14,854, $31,696 and $90,945 in 2002, 2001 and 2000, respectively. The decrease in this account also contributed to the decrease in total revenues in 2002 and 2001. However, the increase in interest income during the years ended December 31, 2002 and 2001 reduced the amount of the decrease in total revenues during these years. Interest income increased as a result of higher cash balances available for investment by the Fund during these years. Furthermore, the fluctuation in other income impacted the amount of the overall decrease in revenues during the twelve months ended December 31, 2002 and 2001. Other income increased in 2002 because of the net effect of the $13,000 increase in late charges collected on delinquent rentals received and the $10,000 decrease in transfer fees recognized on investor account transfers in 2002. Other income decreased in 2001 because of the decrease of $28,000 in late charges collected on delinquent rentals received and the decrease of $8,000 in transfer fees recorded for investor account transfers in 2001.
Expenses were $637,161, $461,934 and $1,175,504 for the twelve months ended December 31, 2002, 2001 and 2000, respectively. Depreciation expense comprised 28%, 20% and 67% of total expenses in 2002, 2001 and 2000, respect- tively. The increase in expenses in 2002 and the decrease in expenses in 2001 was primarily related to the change in depreciation expense. Depreciation expense increased in 2002 due to equipment purchased in late 2001 for which one month of depreciation was taken in 2001 and a full year of depreciation was taken in 2002. The decrease in depreciation expense in 2001 was caused by equipment that came off lease or terminated and was sold in 2001. There was no write down of equipment to net realizable value for the years ended December 31, 2002 and 2001. In 2000, approximately $6,000 was charged to write-down of equipment to net realizable value. The decrease in this account contributed to the decrease in total expenses in 2001. Currently, the Fund's practice is to review the recoverability of its undepreciated costs of rental equipment quarterly. The Fund's policy, as part of this review, is to analyze such factors as releasing of equipment, technological developments and infor- mation provided in third party publications. In accordance with accounting principles generally accepted in the United States of America, the Fund writes down its rental equipment to its estimated net realizable value when the
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
amounts are reasonably estimated and only recognizes gains, if any, upon actual sale of its rental equipment. Any future losses are dependent upon unanticipated technological developments affecting the types of equipment in the portfolio in subsequent years. The increase in general and administrative expense contributed to the overall increase in expenses in 2002 and reduced the overall decrease in expenses in 2001. This account increased because of the increase in various expenses incurred to operate the Fund on a daily basis. Additionally, the increase in general and administrative expense to related party in 2002 also contributed to the overall increase in expenses in 2002. The increase in this account resulted from an increase in the expenses charged by the General Partner or its parent company for services and materials provided to the Fund during the year ended December 31, 2002. Furthermore, management fee to related party increased in 2002 and decreased in 2001 as a result of the change in rental income recognized on equipment under operating leases. The variation in this account during the twelve months ended December 31, 2002 and 2001 contributed to the increase in total expenses in 2002 and to the decrease in total expenses in 2001.
The Fund's net income (loss) was ($32,195), $350,472 and $639,275 for the years ended December 31, 2002, 2001 and 2000, respectively. The earnings (loss) per equivalent limited partnership unit, after earnings (loss) allocated to the General Partner, were ($1.31), $11.68 and $21.91 based on a weighted average number of equivalent limited partnership units outstanding of 24,334, 28,684 and 28,884 for the years ended December 31, 2002, 2001 and 2000, respectively.
The Fund generated cash from operations of $129,488, $411,349 and $1,343,483 for the purpose of determining cash available for distribution during the years ended December 31, 2002, 2001 and 2000, respectively. The Fund distributed $2,850,000, $450,000 and $450,000 to partners during each of the periods from April 1 through December 31, 2002, 2001 and 2000, respect- tively. The Fund distributed $1,050,000, $1,100,016 and $150,000 to partners during the first quarter of 2003, 2002 and 2001, respectively. For financial statement purposes, the Fund records cash distributions to partners on a cash basis in the period in which they are paid.
Analysis of Financial Condition
The Fund is currently in the process of dissolution. As provided in the Restated Limited Partnership Agreement, the assets of the Fund shall be liquidated as promptly as is consistent with obtaining their fair value. During this time, the Fund will continue to look for opportunities to purchase equipment under operating leases or invest in direct financing leases for lease terms consistent with the plan of dissolution. During the years ended December 31, 2002 and 2001, the Fund purchased $198,663 and $395,493, respectively, of equipment subject to leases. There was no equipment purchased in 2000. Addi- tionally, the Fund invested $48,021, $911,086 and $3,369,964 in equipment under direct financing leases during the twelve months ended December 31, 2002, 2001 and 2000, respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Analysis of Financial Condition
The cash position of the Fund is reviewed daily and cash is invested on a short-term basis.
The Fund's cash from operations is expected to continue to be adequate to cover all operating expenses and contingencies during the next fiscal year.
Recent Accounting Pronouncements
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Management expects to adopt SFAS No. 143 on January 1, 2003 and is currently determining the impact of this standard on its financial statements.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64 and Amendment of FASB Statement No. 13, and Technical Corrections" was issued. SFAS No. 145 eliminates extraordinary accounting treatment for re- porting gain or loss on debt extinguishment, and amends other existing pro- nouncements to make technical corrections, clarify meanings or describe their applicability under changed conditions. The adoption of SFAS No. 145 did not have a material effect on the Fund's financial position, results of operations or cash flows.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this Item is submitted as a separate section of this report commencing on page.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partner of the Fund is LEAF Financial Corporation (LEAF). LEAF is a wholly owned subsidiary of Resource Leasing, Inc. which is a wholly owned subsidiary of Resource America, Inc. (Resource America). The Directors and Executive Officers of LEAF are:
CRIT S. DEMENT, age 50, Chairman of the Board of Directors and Chief Executive Officer of LEAF since February 2002. Chairman of the Board of Directors, President and Chief Executive Officer of LEAF from November 2001 to February 2002. President of Fidelity Leasing, Inc. and its successor, the Technology Finance Group of CitiCapital Vendor Finance from 1998 to 2001. Vice President of Marketing for Tokai Financial Services from 1987 through 1996.
CARLOS C. CAMPBELL, age 65, Director of LEAF since May 2002. President of C.C. Campbell and Company (a management consulting firm) since 1985. Director of PICO Holdings, Inc. (a publicly traded diversified holding company) since 1998.
EDWARD E. COHEN, age 64, Director of LEAF since November 2001. Chairman of the Board of Resource America since 1990. President of Resource America since 2000 and Chief Executive Officer of Resource America since 1988. Chairman of the Managing Board of Directors of Atlas Pipeline Partners GP, LLC (a wholly owned subsidiary of Resource America that is the general partner of a publicly traded limited partnership that owns and operates natural gas pipelines) since its formation in 1999. Chairman of the Board of Directors of Brandywine Construction & Management, Inc. (a property management company) since 1994. Mr. Cohen is the father of Jonathan Z. Cohen.
JONATHAN Z. COHEN, age 32, Director of LEAF since November 2001. Chief Operating Officer and a Director of Resource America since 2002. Execu- tive Vice President of Resource America since 2001. Senior Vice Presi- dent of Resource America from 1999 to 2001. Vice President of Resource America from 1998 to 1999. Vice Chairman of the Managing Board of Atlas Pipeline Partners GP, LLC since its formation in 1999. Trustee and Secretary of RAIT Investment Trust (a publicly traded real estate invest- ment trust) since 1997. Mr. Cohen is the son of Edward E. Cohen.
MILES HERMAN, age 43, President, Chief Operating Officer and a Director of LEAF since February 2002. Vice President and a Director of LEAF from November 2001 to February 2002. Held various senior operational offices with Fidelity Leasing, Inc. and its successor from 1998 to 2001. Held several management positions in sales, marketing and operations at Tokai Financial Services from 1983 to 1998.
FREDDIE M. KOTEK, age 47, Director of LEAF since 1996. Senior Vice President of Resource America since 1995. President of Resource Leasing, Inc. since 1996.
LINDA RICHARDSON, age 55, Director of LEAF since August 2002. President and Chief Executive Officer of Richardson (a sales training and consulting firm) since 1988. A director of the Pennsylvania Academy of the Fine Arts.
MARIANNE T. SCHUSTER, age 44, Vice President of Accounting of LEAF since 1984.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The following table sets forth information relating to the aggregate compensation earned by the General Partner of the Fund during the year ended December 31, 2002:
Name of Individual or Capacities in Number in Group Which Served Compensation
LEAF Financial Corporation General Partner $89,494(1) ======= (1) This amount does not include the General Partner's share of cash distributions made to all partners.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Based upon a review of Schedule 13D as filed with the Securities and Exchange Commission, the table set forth below outlines the persons or groups known to the Fund that own more than 5% of the Fund's outstanding securities either beneficially or of record.
Name of Individual Number of or Group Units Owned
James S. and Danea T. Riley 5,675.81 (1)
Odd Lot Liquidity Fund, LLC 5,675.81 (2)
Sierra Fund 4, LLC 5,675.81 (3)
(1) Amount represents beneficial ownership interest through ownership of Odd Lot Liquidity Fund, LLC and Sierra Fund 4, LLC which own 3,031.25 units and 2,644.56 units, respectively, of the outstanding limited partnership units of the Fund.
(2) Amount represents direct ownership by Odd Lot Liquidity Fund, LLC of 3,031.25 units and beneficial ownership of 2,644.56 units by virtue of group membership and affiliate status with Sierra Fund 4, LLC.
(3) Amount represents direct ownership by Sierra Fund 4, LLC of 2,644.56 units and beneficial ownership of 3,301.25 units by virtue of group membership and affiliate status with Odd Lot Liquidity Fund, LLC.
(b) In 1989, the General Partner contributed $1,000 to the capital of the Fund but it does not own any of the Fund's outstanding securities. No individual director or officer of LEAF Financial Corporation nor such directors or officers as a group, owns more than one percent of the Fund's outstanding securities. The General Partner owns a general partnership interest which entitles it to receive 1% of cash distri- butions until the Limited Partners have received an amount equal to the purchase price of their units plus a 12% compounded priority return; thereafter 10%. The General Partner will also share in net income equal to the greater of its cash distributions or 1% of net income or to the extent there are losses, 1% of such losses.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Continued)
(c) There are no arrangements known to the Fund that would, at any subsequent date, result in a change in control of the Fund.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 2002, the Fund was charged $89,494 of management fees by the General Partner. The General Partner will continue to receive 5% or 2% of rental payments on equipment under operating and full pay-out leases, respectively, for administrative and management services performed on behalf of the Fund. Full pay-out leases are noncancellable leases for which rental payments due during the initial term of the leases are at least sufficient to recover the purchase price of the equipment, including acquisition fees. All of the direct financing leases in which the Fund has invested meet the criteria for a full pay-out lease and pay a 2% management fee to the General Partner. This management fee is paid monthly only if and when the Limited Partners have received distributions for the period from January 1, 1991 through the end of the most recent quarter equal to a return for such period at a rate of 12% per year on the aggregate amount paid for their units.
The General Partner may also receive up to 3% of the proceeds from the sale of the Fund's equipment for services and activities to be performed in connection with the disposition of equipment. The payment of this sales fee is deferred until the Limited Partners have received cash distributions equal to the purchase price of their units plus a 12% cumulative compounded priority return. Based on current estimates, it is not expected that the Fund will be required to pay this sales fee to the General Partner.
The General Partner also receives 1% of cash distributions until the Limited Partners have received an amount equal to the purchase price of their units plus a 12% cumulative compounded priority return. Thereafter, the General Partner will receive 10% of cash distributions. During the year ended December 31, 2002, the General Partner received $39,500 of cash distributions.
The Fund incurred $180,434 of reimbursable costs to the General Partner and its parent company for services and materials provided in connection with the administration of the Fund during 2002.
Item 14.
Item 14. CONTROLS AND PROCEDURES
The Fund's Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded, based on an evaluation conducted within 90 days prior to the filing date of this Annual Report on Form 10-K, that the Fund's disclosure controls and procedures have functioned effectively so as to provide those officers the information necessary to evaluate whether:
(i) this Annual Report on Form 10-K contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Annual Report on Form 10-K, and
Item 14. CONTROLS AND PROCEDURES (Continued)
(ii) the financial statements, and other financial information included in this Annual Report on Form 10-K, fairly present in all material respects the financial condition, results of operations and cash flows of the Fund as of, and for, the periods presented in this Annual Report on Form 10-K.
There have been no significant changes in the Fund's internal controls or in other factors since the date of the Chief Executive Officer's and Chief Financial Officer's evaluation that could significantly affect internal con- trols, including any corrective actions with regard to significant deficien- cies and material weaknesses.
PART IV
Item 15.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted as a separate section of this report commencing on page.
(a) (3) and (c) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
Exhibit Numbers Description Page Number
3(a) & (4) Amended and Restated Agreement * of Limited Partnership
(9) not applicable
(10) not applicable
(11) not applicable
(12) not applicable
(13) not applicable
(18) not applicable
(19) not applicable
(22) not applicable
(23) not applicable
(24) not applicable
(25) not applicable
(28) not applicable
99.1 Certification pursuant to 18 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification pursuant to 18 19 U.S.C., Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Incorporated by reference.
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.
FIDELITY LEASING INCOME FUND VII, L.P. A Delaware limited partnership
By: LEAF FINANCIAL CORPORATION
/s/ Crit S. DeMent By: ___________________________ Crit S. DeMent, Chairman
Dated March 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report has been signed below by the following persons, on behalf of the Registrant and in the capacities and on the date indicated:
Signature Title Date
/s/ Crit S. DeMent ____________________________ Chairman of the Board of Directors 3-31-03 Crit S. DeMent of LEAF Financial Corporation (Principal Executive Officer)
/s/ Miles Herman ____________________________ President and Director of 3-31-03 Miles Herman LEAF Financial Corporation
/s/ Jonathan Z. Cohen ____________________________ Director of LEAF Financial Corporation 3-31-03 Jonathan Z. Cohen
/s/ Freddie M. Kotek ____________________________ Director of LEAF Financial Corporation 3-31-03 Freddie M. Kotek
/s/ Marianne T. Schuster ____________________________ Vice President of Accounting of 3-31-03 Marianne T. Schuster LEAF Financial Corporation (Principal Financial Officer)
CERTIFICATIONS
I, Crit DeMent, certify that:
1. I have reviewed this annual report on Form 10-K of Fidelity Leasing Income Fund VII, L.P.;
2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particu- larly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effect- tiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
CERTIFICATIONS (continued)
Date: March 31, 2003
/s/ Crit DeMent ____________________________ Crit S. DeMent Chairman of the Board of Directors of LEAF Financial Corporation, The General Partner (Principal Executive Officer)
CERTIFICATIONS
I, Marianne T. Schuster, certify that:
1. I have reviewed this annual report on Form 10-K of Fidelity Leasing Income Fund VII, L.P.;
2. Based on my knowledge, this annual report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this 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-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particu- larly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effect- tiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
CERTIFICATIONS (continued)
Date: March 31, 2003
/s/ Marianne T. Schuster ____________________________ Marianne T. Schuster Vice President of Accounting of LEAF Financial Corporation, The General Partner (Principal Financial Officer)
Exhibit 99.1
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 Fidelity Leasing Income Fund VII, L.P. (the "Fund") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Crit S. DeMent, Principal Executive Officer of LEAF Financial Corporation, the General Partner of the Fund, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of opera- tions of the Fund.
/s/ Crit S. DeMent ________________________ Crit S. DeMent Principal Executive Officer of LEAF Financial Corporation March 31, 2003
Exhibit 99.2
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 Fidelity Leasing Income Fund VII, L.P. (the "Fund") on Form 10-K for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Marianne T. Schuster, Principal Financial Officer of LEAF Financial Corpora- tion, the General Partner of the Fund, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of opera- tions of the Fund.
/s/ Marianne T. Schuster ________________________ Marianne T. Schuster Principal Financial Officer of LEAF Financial Corporation March 31, 2003
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Pages
Report of Independent Certified Public Accountants
Balance Sheets as of December 31, 2002 and 2001
Statements of Operations for the years ended December 31, 2002, 2001 and 2000
Statements of Partners' Capital for the years ended December 31, 2002, 2001 and 2000
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000
Notes to Financial Statements -
All schedules have been omitted because the required information is not applicable or is included in the Financial Statements or Notes thereto.
Report of Independent Certified Public Accountants
The Partners Fidelity Leasing Income Fund VII, L.P.
We have audited the accompanying balance sheets of Fidelity Leasing Income Fund VII, L.P. as of December 31, 2002 and 2001, and the related state- ments of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the finan- cial statements are free of material misstatement. An audit includes examin- ing, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting princi- ples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fidelity Leasing Income Fund VII, L.P. as of December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.
Grant Thornton LLP Philadelphia, Pennsylvania February 7, 2003
FIDELITY LEASING INCOME FUND VII, L.P.
BALANCE SHEETS
The accompanying notes are an integral part of these financial statements.
FIDELITY LEASING INCOME FUND VII, L.P.
The accompanying notes are an integral part of these financial statements.
FIDELITY LEASING INCOME FUND VII, L.P.
The accompanying notes are an integral part of this financial statement.
FIDELITY LEASING INCOME FUND VII, L.P.
The accompanying notes are an integral part of these financial statements.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Fidelity Leasing Income Fund VII, L.P. (the Fund) was formed in November 1989. The General Partner of the Fund is LEAF Financial Corporation (LEAF). LEAF is a wholly owned subsidiary of Resource Leasing, Inc., which is a wholly owned subsidiary of Resource America, Inc. (Resource America). The Fund is managed by the General Partner. The Fund's limited partnership interests are not publicly traded. There is no market for the Fund's limited partnership interests and it is unlikely that any will develop. The Fund acquires computer equipment including printers, tape storage devices, data communications equip- ment, computer terminals, technical workstations and networking equipment, as well as other electronic equipment. This equipment is leased to third parties throughout the United States on a short-term basis.
The Fund is currently in the process of dissolution. As provided in the Restated Limited Partnership Agreement, the assets of the Fund shall be liqui- dated as promptly as is consistent with obtaining their fair value.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Concentration of Credit Risk
Financial instruments that potentially subject the Fund to concentra- tions of credit risk consist principally of temporary cash investments. The Fund places its temporary investments in money market savings accounts.
Concentrations of credit risk with respect to accounts receivables are due to the limited dispersion of the Fund's lessees over different industries and geographies.
Impairment or Disposal of Long-Lived Assets
The Fund adopted Statement of Financial Accounting Standard (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", on January 1, 2002. SFAS No. 144 retains the existing requirements to recognize and measure the impairment of long-lived assets to be held and used or to be disposed by sale. SFAS No. 144 changes the requirements relating to reporting the effects of a disposal or discontinuation of a business segment.
The Fund reviews its assets to determine if it has any long-lived assets that are carried on the books for an amount that may not be recoverable. If it is determined that an asset's estimated future cash flows will not be suf- ficient to recover its carrying amount, an impairment charge will be recorded. The adoption of SFAS No. 144 did not have any material effect on the Fund's financial position, results of operations or cash flows.
Equipment Held for Sale or Lease
Equipment held for sale or lease is carried at its estimated net realiz- able value.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounting for Leases
The Fund's leasing operations consist of both direct financing and operating leases. Under the direct financing method of accounting for leases, income (the excess of the aggregate future rentals and estimated unguaranteed residuals upon expiration of the lease over the related equipment cost) is recognized over the life of the lease using the interest method.
Under the operating method of accounting for leases, the cost of the leased equipment is recorded as an asset and depreciated on a straight-line basis over its estimated useful life, up to seven years. Acquisition fees associated with lease placements are allocated to equipment when purchased and depreciated as part of equipment cost. Rental income consists primarily of monthly periodic rentals due under the terms of the leases. Generally, during the remaining terms of existing operating leases, the Fund will not recover all of the undepreciated cost and related expenses of its rental equipment and is prepared to remarket the equipment in future years. Upon sale or other disposition of assets, the cost and related accumulated de- preciation are removed from the accounts and the resulting gain or loss, if any, is reflected in income.
Income Taxes
Federal and State income tax regulations provide that taxes on the income or benefits from losses of the Fund are reportable by the partners in their individual income tax returns. Accordingly, no provision for such taxes has been made in the accompanying financial statements.
Statements of Cash Flows
For purposes of the statements of cash flows, the Fund considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Net Income per Equivalent Limited Partnership Unit
Net income per equivalent limited partnership unit is computed by dividing net income allocated to limited partners by the weighted average number of equivalent limited partnership units outstanding during the year. The weighted average number of equivalent units outstanding during the year is computed based on the weighted average monthly limited partners' capital account balances, converted into equivalent units at $500 per unit.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations" was issued. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Management expects to adopt SFAS No. 143 on January 1, 2003 and is currently determining the impact of this standard on its financial statements.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64 and Amendment of FASB Statement No. 13, and Technical Corrections" was issued. SFAS No. 145 eliminates extraordinary accounting treatment for re- porting gain or loss on debt extinguishment, and amends other existing pro- nouncements to make technical corrections, clarify meanings or describe their applicability under changed conditions. The adoption of SFAS No. 145 did not have a material effect on the Fund's financial position, results of operations or cash flows.
3. ALLOCATION OF PARTNERSHIP INCOME, LOSS AND CASH DISTRIBUTIONS
Cash distributions, if any, are made monthly as follows: 99% to the Limited Partners and 1% to the General Partner, until the Limited Partners have received an amount equal to the purchase price of their units, plus a 12% compounded priority return (an amount equal to 12% compounded annually on the portion of the purchase price not previously distributed); thereafter, 90% to the Limited Partners and 10% to the General Partner.
Net Losses are allocated 99% to the Limited Partners and 1% to the General Partner. The General Partner is allocated Net Income equal to its cash distributions, but not less than 1% of Net Income, with the balance allocated to the Limited Partners.
Net Income (Losses) allocated to the Limited Partners are allocated to individual limited partners based on the ratio of the daily weighted average partner's net capital account balance (after deducting related commission expense) to the total daily weighted average of the Limited Partners' net capital account balances.
4. EQUIPMENT LEASED
The Fund's direct financing leases are for initial lease terms ranging from 24 to 60 months. Unguaranteed residuals for direct financing leases represent the estimated amounts recoverable at lease termination from lease extensions or disposition of the equipment. The Fund reviews these residual values quarterly. If the equipment's fair market value is below the estimated residual value, an adjustment is made.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
4. EQUIPMENT LEASED (Continued)
The approximate net investment in direct financing leases as of December 31, 2002 is as follows:
Minimum lease payments to be received $160,000 Unguaranteed residuals 8,000 Unearned rental income (8,000) Unearned residual income (1,000) ________ $159,000 ========
Equipment on lease consists of equipment under operating leases. The lessees have agreements with the manufacturer to provide maintenance for the leased equipment. The Fund's operating leases are for initial lease terms ranging from 58 to 59 months.
In accordance with accounting principles generally accepted in the United States of America, the Fund writes down its rental equipment to its estimated net realizable value when the amounts are reasonably estimated and only recog- nizes gains upon actual sale of its rental equipment. As a result, there was no charge to write-down of equipment to net realizable value for the years ended December 31, 2002 and 2001. For the year ended December 31, 2000, approximately $6,000 was charged to write-down of equipment to net realizable value. Any future losses are dependent upon unanticipated technological developments affecting the equipment in subsequent years.
The future approximate minimum rentals to be received on noncancellable direct financing and operating leases as of December 31 are as follows:
Direct Financing Operating
2003 $129,000 $129,000 2004 21,000 - 2005 10,000 - _______ ________ $160,000 $129,000 ======== ========
5. RELATED PARTY TRANSACTIONS
The General Partner receives 5% or 2% of rental payments on equipment under operating leases and full pay-out leases, respectively, for administra- tive and management services performed on behalf of the Fund. Full pay-out leases are noncancellable leases for which rental payments during the initial term are at least sufficient to recover the purchase price of the equipment, including acquisition fees. This management fee is paid monthly only if and when the Limited Partners have received distributions for the period from January 1, 1991 through the end of the most recent quarter equal to a return for such period at a rate of 12% per year on the aggregate amount paid for their units.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
5. RELATED PARTY TRANSACTIONS (Continued)
The General Partner may also receive up to 3% of the proceeds from the sale of the Fund's equipment for services and activities to be performed in connection with the disposition of equipment. The payment of this sales fee is deferred until the Limited Partners have received cash distributions equal to the purchase price of their units plus a 12% cumulative compounded priority return. Based on current estimates, it is not expected that the Fund will be required to pay this sales fee to the General Partner.
Additionally, the General Partner and its parent company are reimbursed by the Fund for certain costs of services and materials used by or for the Fund except those items covered by the above-mentioned fees. The following is a summary of fees and costs charged by the General Partner or its parent company during the years ended December 31:
2002 2001 2000
Management fee $ 89,494 $ 85,279 $108,457 Reimbursable costs 180,434 168,720 171,465
During 2001, the Fund transferred its checking and investment accounts from Hudson United Bank to The Bancorp.com, Inc. (TBI). The son and the spouse of the Chairman of Resource America, Inc. are the Chairman and Chief Executive Officer, respectively, of TBI. The Fund maintains a normal banking relation- ship with TBI.
Amounts due from related parties at December 31, 2002 and 2001 represent monies due to the Fund from the General Partner and/or other affiliated funds for rentals and sales proceeds collected and not yet remitted to the Fund.
Amounts due to related parties at December 31, 2002 and 2001 represent monies due to the General Partner for the fees and costs mentioned above, as well as, rentals and sales proceeds collected by the Fund on behalf of other affiliated funds.
6. MAJOR CUSTOMERS
For the year ended December 31, 2002, one customer accounted for approximately 86% of the Fund's rental income. For the year ended December 31, 2001, three customers accounted for approximately 57%, 16% and 13% of the Fund's rental income. For the year ended December 31, 2000, one customer accounted for approximately 48% of the Fund's rental income and two customers accounted for approximately 11% each of the Fund's rental income.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
7. CASH DISTRIBUTIONS
Below is a summary of the cash distributions paid to partners during the years ended December 31:
In addition, the General Partner declared and paid one cash distri- butions of $50,000 in January 2003 and one cash distribution of $1,000,000 in February 2003 for the months ended November 30 and December 31, 2002, respectively, to all admitted partners as of November 30 and December 31, 2002.
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
The following table summarizes the results of operations on a quarterly basis during 2002 and 2001:
FIDELITY LEASING INCOME FUND VII, L.P.
NOTES TO FINANCIAL STATEMENTS (Continued)
8. SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (Continued)