Northland Cable Properties Seven Limited Partnership 10-Q/A 2005 Q2 Quarterly report (amended)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedJune 30, 2005

or

o 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:     0-16718

Northland Cable Properties Seven Limited Partnership

(Exact Name of Registrant as Specified in Charter)

Washington	91-1366564
(State of Organization)	(I.R.S. Employer Identification No.)

101 Stewart Street, Seattle, Washington	98065
(Address of Principal Executive Offices)	(Zip Code)

(206) 621-1351

(Registrant’s telephone number, including area code)

N/A

(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 subject to such filing requirements for the past 90 days.

Yes þ Noo

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes o Noþ

This Form 10-Q/A is being filed to include the balance sheets as of June 30, 2005 and December 31, 2004, which were unintentionally omitted in the previous filing for the quarter ended June 30, 2005.

TABLE OF CONTENTS

PART 1 — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations
	ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
	ITEM 4. Controls and Procedures
PART II — OTHER INFORMATION
	ITEM 1 Legal proceedings
	ITEM 2 Changes in securities
	ITEM 3 Defaults upon senior securities
	ITEM 4 Submission of matters to a vote of security holders
	ITEM 5 Other information
	ITEM 6 Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 31.(A)
EXHIBIT 31.(B)
EXHIBIT 32.(A)
EXHIBIT 32.(B)

PART 1 — FINANCIAL INFORMATION

ITEM 1. Financial Statements

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS — (UNAUDITED)

	June 30,			December 31,
	2005			2004
ASSETS
Cash	$	655,501		$	65,547
Accounts receivable, net		147,124			341,965
Due from affiliates		167,718			111,960
Prepaid expenses		159,826			134,282
System sale receivable		1,346,087			411,600
Property and equipment, net of accumulated depreciation of $9,664,293 and $17,294,389 respectively		6,773,619			10,591,016
Franchise agreements, net of accumulated amortization of $10,321,148 and $10,321,249, respectively		9,606,996			9,607,185
Loan fees and other intangibles, net of accumulated amortization of $808,372 and $852,973, respectively		362,990			586,327
Assets of discontinued operations		2,142,544			—
Total assets	$	21,362,405		$	21,849,882
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued expenses	$	1,081,413		$	1,262,921
Due to Managing General Partner and affiliates		70,614			69,425
Deposits		15,036			20,852
Subscriber prepayments		234,666			346,281
Notes payable		10,161,927			18,275,000
Liabilities of discontinued operations		290,873			—
Total liabilities		11,854,529			19,974,479
Partners’ capital (deficit):
General Partners:
Contributed capital, net		(25,367	)		(25,367	)
Accumulated deficit		(92,022	)		(168,347	)
		(117,389	)		(193,714	)
Limited Partners:
Contributed capital, net		18,735,576			18,735,576
Accumulated deficit		(9,110,311	)		(16,666,459	)
		9,625,265			2,069,117
Total partners’ capital		9,507,876			1,875,403
Total liabilities and partners’ capital	$	21,362,405		$	21,849,882

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF OPERATIONS — (UNAUDITED)

	For the six months ended June 30,
	2005			2004
Service revenues	$	4,234,699		$	4,366,625
Expenses:
Cable system operations (including $64,131and $68,004 to affiliates in 2005 and 2004, respectively), excluding depreciation and amortization shown below		380,629			375,864
General and administrative (including $431,531 and $432,100 to affiliates in 2005 and 2004, respectively)		1,076,485			1,085,545
Programming (including $1,054 and $2,112 to affiliates in 2005 and 2004, respectively)		1,381,628			1,349,472
Depreciation and amortization		781,964			759,897
(Gain) loss on disposal of assets		(21,213	)		9,804
		3,599,493			3,580,582
Income from operations		635,206			786,043
Other income (expense):
Interest expense and amortization of loan fees		(165,356	)		(219,570	)
Interest income and other, net		268			3,524
		(165,088	)		(216,046	)
Income from continuing operations		470,118			569,997
Discontinued operations (note 3)
Income (loss) from operations of Brenham and Bay City systems, net (including gain on sale of systems of $7,253,829 in 2005)		7,162,355			(13,669	)
Net income	$	7,632,473		$	556,328
Allocation of net income:
General Partners	$	76,325		$	5,563
Limited Partners	$	7,556,148		$	550,765
Income from continuing operations per limited partnership unit (49,656 units):	$	9		$	11
Income from discontinued operations per limited partnership unit (49,656 units):	$	143		$	(0	)
Net income per limited partnership unit: (49,656 units)	$	152		$	11

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF OPERATIONS — (UNAUDITED)

	For the three months ended June 30,
	2005			2004
Service revenues	$	2,121,584		$	2,187,309
Expenses:
Cable system operations (including $31,071 and $35,924 to affiliates in 2005 and 2004, respectively), excluding depreciation and amortization shown below		196,710			183,486
General and administrative (including $222,466 and $217,923 to affiliates in 2005 and 2004, respectively)		547,140			548,187
Programming (including $652 and $51 to affiliates in 2005 and 2004, respectively)		686,240			667,743
Depreciation and amortization		390,729			381,127
(Gain) loss on disposal of assets		3,029			4,757
		1,823,848			1,785,300
Income from operations		297,736			402,009
Other income (expense):
Interest expense and amortization of loan fees		(85,938	)		(103,658	)
Interest income and other, net		272			(274	)
		(85,666	)		(103,932	)
Income from continuing operations		212,070			298,077
Discontinued operations (note 3)
Income from operations of Brenham and Bay City systems, net (including gain on sale of systems of $7,254,239 in 2005)		7,174,896			2,032
Net income	$	7,386,966		$	300,109
Allocation of net income:
General Partners	$	73,870		$	3,001
Limited Partners	$	7,313,096		$	297,108
Income from continuing operations per limited partnership unit (49,656 units):	$	4		$	6
Income from discontinued operations per limited partnership unit (49,656 units):	$	143		$	0
Net income per limited partnership unit: (49,656 units)	$	147		$	6

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF CASH FLOWS — (UNAUDITED)

	For the six months ended June 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	7,632,473		$	556,328
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		857,842			1,094,873
Loan fee amortization		73,978			70,060
(Gain) loss on sale of assets		(7,275,042	)		9,803
Other		20,686			13,237
(Increase) decrease in operating assets:
Accounts receivable		41,613			77,447
Due from affiliates		(55,758	)		(50,283	)
Prepaid expenses		(78,259	)		(76,663	)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses		(196,504	)		(43,711	)
Due to Managing General Partner and affiliates		(6,691	)		12,203
Deposits		1,570			1,947
Subscriber prepayments		58,480			23,265
Net cash provided by operating activities		1,074,388			1,688,506
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(660,882	)		(770,302	)
Proceeds from sale of systems		8,448,517			708,894
Proceeds from related party insurance fund and sale of assets		24,992			1,000
Net cash provided by (used in) investing activities		7,812,627			(60,408	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings		(8,113,073	)		(1,612,500	)
Loan fees		(137,062	)		(3,652	)
Net cash used in financing activities		(8,250,135	)		(1,616,152	)
INCREASE IN CASH		636,880			11,946
CASH, beginning of period		65,547			758,694
CASH, end of period	$	702,427		$	770,640
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	864,773		$	644,550

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(1) Basis of Presentation

These unaudited financial statements are being filed in conformity with Rule 10-01 of Regulation S-X regarding interim financial statement disclosure and do not contain all of the necessary footnote disclosures required for a full presentation of the balance sheets, statements of operations and statements of cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, these statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Partnership’s financial position at June 30, 2005, its statements of operations for the six and three months ended June 30, 2005 and 2004, and its statements of cash flows for the six months ended June 30, 2005 and 2004. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. These financial statements and notes should be read in conjunction with the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2004.

On June 30, 2005 and August 1, 2005, the Partnership completed sales of the operating assets and franchise rights of its cable systems serving the communities of Bay City and Brenham, Texas, respectively. The Bay City and Brenham systems served approximately 4,250 and 3,300 subscribers, respectively. This filing and the accompanying financial statements present the results of operations and sale of the Bay City and Brenham systems as discontinued operations.

(2) Intangible Assets

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Partnership does not amortize goodwill or any other intangible assets determined to have indefinite lives. The Partnership has determined that its franchises meet the definition of indefinite lived assets. The Partnership tests these assets for impairment on an annual basis during the fourth quarter, or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value.

Loan fees are being amortized using the straight-line method, which approximates the effective interest rate method. Future amortization of loan fees is expected to be approximately as follows:

2005 (6 months)	$	48,399
2006		96,797
2007		96,797
2008		96,797
2009		24,200
	$	362,990

(3) System Sales

On June 30, 2005, the Partnership completed the sale of the operating assets and franchise rights of its cable systems in and around the community of Bay City, Texas to McDonald Investment Company, Inc., an unaffiliated third party. The Bay City system was sold at a price of approximately $9,345,000 of which the Partnership received approximately $8,324,000 at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $935,000 will be held in escrow and released to the Partnership eighteen months from the closing of the transaction subject to indemnification claims made, if any, by the buyer pursuant to the terms of the purchase and sale agreement. Substantially all of the proceeds were used to pay down amounts outstanding under the Partnership’s term loan agreement (note 4). The Partnership recorded a gain from the sale of the Bay City System of approximately $7,130,000.

On August 1, 2005, the Partnership completed the sale of the operating assets and franchise rights of its cable systems in and around the community of Brenham, Texas to Cequel III Communications I, LLC, an unaffiliated third party. The Brenham system was sold at a price of approximately $7,572,000 of which the Partnership received approximately $6,638,000 at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $850,000 will be held in escrow and released to the Partnership eighteen months from the closing of the transaction subject to indemnification claims made, if any, by the buyer pursuant to the terms of the purchase and sale agreement. The proceeds, less $300,000 retained for capital spending purposes, were used to pay down amounts outstanding under the term loan agreement. Under the terms

of an amendment to the term loan agreement, executed in August of 2005, the Partnership was allowed to retain $300,000 of these proceeds for capital spending purposes. The Partnership expects to record a gain from the sale of the Brenham system of approximately $5,600,000, during the third quarter of 2005.

The assets and liabilities attributable to the Brenham system as of June 30, 2005 and to the Brenham and Bay City systems as of December 31, 2004 consist of the following:

	As of		As of
	June 30, 2005		December 31, 2004
Cash	$	46,926	$	16,893
Accounts receivable		60,000		179,757
Prepaid expenses		50,942		54,039
Property and equipment (net of accumulated depreciation of $3,616,160 and $8,336,538)		1,984,487		3,695,924
Franchise agreements (net of accumulated amortization of $101)		189		189
Total assets	$	2,142,544	$	3,946,802
Accounts payable and accrued expenses	$	170,115	$	433,206
Deposits		5,956		6,552
Subscriber prepayments		114,802		176,969
Total liabilities	$	290,873	$	616,727

In addition, the revenue, expenses and other items attributable to the operations of the Brenham and Bay City systems during the periods presented in this filing have been reported as discontinued operations in the accompanying statements of operations, and include the following:

	For the six months ended June 30,
	2005			2004
Service revenues	$	2,556,822		$	2,665,908
Expenses:
Operating (including $26,288 and $18,209 received from affiliates in 2005 and 2004, respectively)		189,461			193,225
General and administrative (including $229,127 and $234,313 paid to affiliates in 2005 and 2004, respectively)		632,295			673,917
Programming (including $991 paid to affiliates and $69 received from affiliates in 2005 and 2004, respectively)		1,049,575			1,024,675
Depreciation and amortization		75,878			334,976
Gain on disposal of assets		(7,253,829	)		—
		(5,306,620	)		2,226,793
Income from operations		7,863,442			439,115
Other income (expense):
Interest expense and amortization of loan fees		(701,087	)		(452,784	)
Income (loss) from operations of Brenham and Bay City systems, net	$	7,162,355		$	(13,669	)

	For the three months ended June 30,
	2005			2004
Service revenues	$	1,275,042		$	1,341,371
Expenses:
Operating (including $12,658 and $11,720 received from affiliates in 2005 and 2004, respectively)		96,211			96,216
General and administrative (including $116,887 and $119,188 paid to affiliates in 2005 and 2004, respectively)		310,316			335,877
Programming (including $603 paid to affiliates and $69 Received from affiliates in 2005 and 2004, respectively)		524,154			511,646
Depreciation and amortization		—			168,560
Gain on disposal of assets		(7,254,239	)		—
		(6,323,558	)		1,112,299
Income from operations		7,598,600			229,072
Other income (expense):
Interest expense and amortization of loan fees		(423,704	)		(227,040	)
Income from operations of Brenham and Bay City systems, net	$	7,174,896		$	2,032

The Partnership allocated interest expense to discontinued operations using the historic weighted average interest rate applicable to the Partnership’s term loan and approximately $14,207,000 in expected principal payments, which were applied to the term loan upon closing of the transactions. In addition, the Partnership was required to pay a prepayment fee of approximately $125,000 to its lender, as a result of the prepayment of the term loan with the Bay City proceeds. This entire amount, which has been classified as interest expense, has been allocated to discontinued operations.

On March 11, 2003, the Partnership sold the operating assets and franchise rights of its cable systems in and around the communities of Sequim and Camano Island, Washington (the “Washington Systems”). In association with this transaction, approximately $1,060,000 was to be held in escrow and released to the Partnership one year from the closing of the transaction, subject to general representations and warranties. In March of 2004, the Partnership received notice from the buyer of the Washington Systems of certain claims, which were made under the holdback agreement provisions of the purchase and sale agreement. Management believes that such claims are unsubstantiated and intends to vigorously contest such claims. However, approximately $412,000 of the original escrow proceeds will remain in escrow until such claims are resolved. The escrow proceeds in excess of the claims were released to the Partnership in March of 2004. The Partnership has filed a lawsuit against the buyer of the Washington Systems for recovery of the remaining escrow proceeds and unspecified damages and a trial date has been set for September of 2005.

(4) Notes Payable

In August of 2005, as a result of the sale of the Brenham and Bay City systems, the Partnership further amended the terms and conditions of its term loan agreement. The terms of the amendment modify the principal repayment schedule, the interest rate margins and various covenants (described below), and allowed the Partnership to retain $300,000 of the proceeds from the sale of the Brenham system, to be used for capital spending purposes. The term loan is collateralized by a first lien position on all present and future assets of the Partnership and matures March 31, 2009.

The interest rate per annum applicable to the Partnership’s existing credit facility (the Refinanced Credit Facility) is a fluctuating rate of interest measured by reference to either: (i) the U.S. dollar prime commercial lending rate announced by the lender (Base Rate), plus a borrowing margin; or (ii) the London interbank offered rate (LIBOR), plus a borrowing margin. Under the amendment to the term loan agreement, the applicable borrowing margins vary, based on the Partnership’s leverage ratio, from 2.75% to 3.50% for Base Rate loans and from 3.75% to 4.50% for LIBOR loans.

Because the Partnership prepaid the Refinanced Credit Facility in excess of $5,375,000 prior to the third anniversary of the closing of the refinancing transaction, the Partnership was required to pay a prepayment fee to the lender, as defined by the terms of the Refinanced Credit Facility. The Partnership paid approximately $125,000 as a result of the prepayment of the term loan with the Bay City proceeds, and paid approximately $93,000 upon remitting the Brenham sale proceeds.

Annual maturities of the Refinanced Credit Facility after effecting for repayments associated with the sales of the Brenham and Bay City systems are as follows:

2005	$	111,292
2006		974,696
2007		1,204,180
2008		1,433,440
2009		344,115
	$	4,067,723

The amendment executed in August of 2005 also further modified the covenants, which require the Partnership to comply with specified financial ratios, including maintenance, as tested on a quarterly basis going forward after effecting for the sale of the Brenham and Bay City systems, of: (A) a Maximum Total Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as defined)) of not more than 2.25 to 1.00; (B) a Minimum Interest Coverage Ratio (the ratio of Annualized EBITDA (as defined) to aggregate Interest Expense for the immediately preceding four consecutive fiscal quarters) of not less than 2.50 to 1.00, increasing over time to 3.50 to 1.00; (C) a Minimum Total Debt Service Coverage Ratio (the ratio of Annualized EBITDA (as defined) to the Partnership’s debt service obligations for the following twelve months) of not less than 1.00 to 1.00, increasing over time to 1.10 to 1.00 (this covenant will not be measured during 2005 under the terms of the amendment to the term loan agreement); and (D) Maximum Capital Expenditures of not more than $2,500,000.

As of June 30, 2005, the Partnership was in compliance with the terms of the loan agreement.

As of the date of this filing, the balance under the credit facility is $4,067,723 at a LIBOR based interest rate of 7.83%. This interest rate expires during the third quarter of 2005, at which time, a new rate will be established.

PART I (continued)

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Continuing Operations

Results of Continuing Operations — Six Months Ended June 30, 2005 and 2004

Total basic subscribers attributable to continuing operations decreased from 14,121 as of December 31, 2004 to 13,774 as of June 30 2005. The loss in subscribers is a result of several factors including competition from Direct Broadcast Satellite (DBS) providers, availability of off-air signals in the Partnership’s markets and regional and local economic conditions. To reverse this customer trend, the Partnership is increasing its customer retention efforts and its emphasis on bundling its video and data products.

Revenues from continuing operations totaled $4,234,699 for the six months ended June 30, 2005, representing a decrease of $131,926 or approximately 3% from the same period in 2004. Revenues from continuing operations for the six months ended June 30, 2005 were comprised of the following sources:

• $3,055,951 (72%) from basic services

• $436,736 (10%) from expanded basic services

• $266,691 (6%) from premium services

• $133,272 (3%) from advertising

• $82,502 (2%) from high speed Internet services

• $78,181 (2%) from late fees

• $46,350 (1%) from digital services

• $135,016 (4%) from other sources

Average monthly revenue per subscriber increased $1.29 or approximately 3% from $48.95 for the six months ended June 30, 2004 to $50.24 for the six months ended June 30, 2005. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the second quarter of 2005 and increased penetration of new products, specifically, high-speed Internet services, and increased advertising revenue, offset by the aforementioned decrease in subscribers.

Cable system operations expenses attributable to continuing operations totaled $380,629 for the six months ended June 30, 2005, an increase of $4,765 or approximately 1% over the same period in 2004. Such increase is primarily attributable to increased pole and site rental costs in certain areas of the Partnership’s systems.

General and administrative expenses attributable to continuing operations totaled $1,076,485 for the six months ended June 30, 2005, a decrease of $9,060 or approximately 1% from the same period in 2004. This decrease is primarily attributable to decreases in revenue based fees such as franchise and management fees, offset by an increase in bad debt expenses and audit costs.

Programming expenses attributable to continuing operations totaled $1,381,628 for the six months ended June 30, 2005, representing an increase of $32,156 or approximately 2% over the same period in 2004. Such increase is primarily attributable to an increase in the costs associated with the Partnership’s high-speed Internet product and higher costs charged by various program suppliers, offset by the aforementioned decrease in subscribers.

Depreciation and amortization expense attributable to continuing operations for the six months ended June 30, 2005 increased from $759,897 for the six months ended June 20, 2004 to $781,964 for the same period in 2005. Such increase is primarily attributable to depreciation of recent purchases related to the upgrade of plant and equipment, offset by certain assets becoming fully depreciated.

Interest expense and amortization of loan fees allocated to continuing operations decreased approximately $54,214, or approximately 25% from $219,570 to $165,356 for the six months ended June 30, 2005. This decrease is attributable to lower average outstanding indebtedness as a result of required principal repayments offset by higher interest rates during the first quarter of 2005 as compared to 2004.

The Partnership allocated interest expense to discontinued operations using the historic weighted average interest rate applicable to the Partnership’s term loan and approximately $14,207,000 in expected principal payments, which were applied to the term loan upon closing of the transactions. In addition, the Partnership was required to pay a prepayment fee of approximately $125,000 to its lender, as a result of the prepayment of the term loan with the Bay City proceeds. This entire amount, which has been classified as interest expense, has been allocated to discontinued operations.

Results of Continuing Operations — Three Months Ended June 30, 2005 and 2004

Total basic subscribers attributable to continuing operations decreased from 14,272 as of March 31, 2005 to 13,774 as of June 30, 2005.

Revenues from continuing operations totaled $2,121,584 for the three months ended June 30, 2005, representing a decrease of $65,725 or approximately 3% from the same period in 2004. Revenues from continuing operations for the three months ended June 30, 2005 were comprised of the following sources:

• $1,560,794 (74%) from basic services

• $186,229 (9%) from expanded basic services

• $131,022 (6%) from premium services

• $69,730 (3%) from advertising

• $48,150 (2%) from high speed Internet services

• $39,146 (2%) from late fees

• $25,287 (1%) from digital services

• $61,226 (3%) from other sources

Average monthly revenue per subscriber increased $1.29 or approximately 3% from $49.58 for the three months ended June 30, 2004 to $50.87 for the three months ended June 30, 2005. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the second quarter of 2005 and increased penetration of new products, specifically, high-speed Internet services, and increased advertising revenue, offset by the aforementioned decrease in subscribers.

Cable system operations expenses attributable to continuing operations totaled $196,710 for the three months ended June 30, 2005, an increase of $13,224 or approximately 7% over the same period in 2004. Such increase is primarily attributable to increased operating salaries and employee benefit costs and increased system vehicle expenses.

General and administrative expenses attributable to continuing operations totaled $547,140 for the three months ended June 30, 2005, remaining relatively constant with the same period in 2004. Decreases in revenue based expenses such as management fees and franchise fees were offset by increases in billing service fees, audit fees and bad debt expenses.

Programming expenses attributable to continuing operations totaled $686,240 for the three months ended June 30, 2005, representing an increase of $18,497 or approximately 3% over the same period in 2004. Such increase is primarily attributable to an increase in the costs associated with the Partnership’s high-speed Internet product and higher costs charged by various program suppliers, offset by the aforementioned decrease in subscribers.

Depreciation and amortization expense attributable to continuing operations for the three months ended June 30, 2005 increased from $381,127 for the three months ended June 20, 2004 to $390,729 for the same period in 2005. Such increase is primarily attributable to depreciation of recent purchases related to the upgrade of plant and equipment, offset by certain assets becoming fully depreciated.

Interest expense and amortization of loan fees allocated to continuing operations decreased approximately $17,720, or approximately 17% from $103,658 to $85,938 for the three months ended June 30, 2005. This decrease is attributable to lower average outstanding indebtedness as a result of required principal repayments offset by higher interest rates during the first quarter of 2005 as compared to 2004.

The Partnership allocated interest expense to discontinued operations using the historic weighted average interest rate applicable to the Partnership’s term loan and approximately $14,207,000 in expected principal payments, which were applied to the term loan upon closing of the transactions. In addition, the Partnership was required to pay a prepayment fee of approximately $125,000 to its lender, as a result of the prepayment of the term loan with the Bay City proceeds. This entire amount, which has been classified as interest expense, has been allocated to discontinued operations.

Liquidity and Capital Resources

The Partnership’s primary source of liquidity is cash flow provided by operations and sales of systems. The Partnership generates cash through the monthly billing of subscribers for cable services. Losses from uncollectible accounts have not been material. Based on management’s analysis, the Partnership’s cash flow from operations and cash on hand will be sufficient to cover future operating costs, debt service, planned capital expenditures and working capital needs over the next twelve-month period.

Net cash provided by operating activities totaled $1,074,388 for the six months ended June 30, 2005. Adjustments to the $7,632,473 net income for the period to reconcile to net cash provided by operating activities consisted primarily of depreciation and amortization of $857,842 and loan fee amortization of $73,978, offset by a gain on the sale of assets of $7,275,042 and changes in other operating assets and liabilities of $235,549.

Net cash used in investing activities consisted of $660,882 in capital expenditures, offset by proceeds from the sale of the Bay City system of $8,448,517 and the receipt of $24,992 in proceeds from a related party insurance fund and the disposal of assets for the six months ended June 30, 2005.

Net cash used in financing activities for the six months ended June 30, 2005, consisted of $8,113,073 in principal payments on the Partnership’s term loan and $137,062 in additional loan fees.

Notes Payable

In August of 2005, as a result of the sale of the Brenham and Bay City systems, the Partnership further amended the terms and conditions of its term loan agreement. The terms of the amendment modify the principal repayment schedule, the interest rate margins and various covenants (described below), and allowed the Partnership to retain $300,000 of the proceeds from the sale of the Brenham system, to be used for capital spending purposes. The term loan is collateralized by a first lien position on all present and future assets of the Partnership and matures March 31, 2009.

The interest rate per annum applicable to the Partnership’s existing credit facility (the Refinanced Credit Facility) is a fluctuating rate of interest measured by reference to either: (i) the U.S. dollar prime commercial lending rate announced by the lender (Base Rate), plus a borrowing margin; or (ii) the London interbank offered rate (LIBOR), plus a borrowing margin. Under the amendment to the term loan agreement, the applicable borrowing margins vary, based on the Partnership’s leverage ratio, from 2.75% to 3.50% for Base Rate loans and from 3.75% to 4.50% for LIBOR loans.

Because the Partnership prepaid the Refinanced Credit Facility in excess of $5,375,000 prior to the third anniversary of the closing of the refinancing transaction, the Partnership was required to pay a prepayment fee to the lender, as defined by the terms of the Refinanced Credit Facility. The Partnership paid approximately $125,000 as a result of the prepayment of the term loan with the Bay City proceeds, and paid approximately $93,000 upon remitting the Brenham sale proceeds.

Annual maturities of the Refinanced Credit Facility after effecting for repayments associated with the sales of the Brenham and Bay City systems are as follows:

2005	$	111,292
2006		974,696
2007		1,204,180
2008		1,433,440
2009		344,115
	$	4,067,723

The amendment executed in August of 2005 also further modified the covenants, which require the Partnership to comply with specified financial ratios, including maintenance, as tested on a quarterly basis going forward after effecting for the sale of the Brenham and Bay City systems, of: (A) a Maximum Total Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as defined)) of not more than 2.25 to 1.00; (B) a Minimum Interest Coverage Ratio (the ratio of Annualized EBITDA (as defined) to aggregate Interest Expense for the immediately preceding four consecutive fiscal quarters) of not less than 2.50 to 1.00, increasing over time to 3.50 to 1.00; (C) a Minimum Total Debt Service Coverage Ratio (the ratio of Annualized EBITDA (as defined) to the Partnership’s debt service obligations for the following twelve months) of not less than 1.00 to 1.00, increasing over time to 1.10 to 1.00 (this covenant will not be measured during 2005 under the terms of the amendment to the term loan agreement); and (D) Maximum Capital Expenditures of not more than $2,500,000.

As of June 30, 2005, the Partnership was in compliance with the terms of the loan agreement.

As of the date of this filing, the balance under the credit facility is $4,067,723 at a LIBOR based interest rate of 7.83%. This interest rate expires during the third quarter of 2005, at which time, a new rate will be established.

System Sales

On June 30, 2005, the Partnership completed the sale of the operating assets and franchise rights of its cable systems in and around the community of Bay City, Texas to McDonald Investment Company, Inc., an unaffiliated third party. The Bay City system was sold at a price of approximately $9,345,000 of which the Partnership received approximately $8,324,000 at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $935,000 will be held in escrow and released to the Partnership eighteen months from the closing of the transaction subject to indemnification claims made, if any, by the buyer pursuant to the terms of the purchase and sale agreement. Substantially all of the proceeds were used to pay down amounts outstanding under the Partnership’s term loan agreement. The Partnership recorded a gain from the sale of the Bay City System of approximately $7,130,000.

On August 1, 2005, the Partnership completed the sale of the operating assets and franchise rights of its cable systems in and around the community of Brenham, Texas to Cequel III Communications I, LLC, an unaffiliated third party. The Brenham system was sold at a price of approximately $7,572,000 of which the Partnership received approximately $6,638,000 at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $850,000 will be held in escrow and released to the Partnership eighteen months from the closing of the transaction subject to indemnification claims made, if any, by the buyer pursuant to the terms of the purchase and sale agreement. The proceeds, less $300,000 retained for capital spending purposes, were used to pay down amounts outstanding under the term loan agreement. Under the terms of an amendment to the term loan agreement, executed in August of 2005, the Partnership was allowed to retain $300,000 of these proceeds for capital spending purposes. The Partnership expects to record a gain from the sale of the Brenham system of approximately $5,600,000, during the third quarter of 2005.

On March 11, 2003, the Partnership sold the operating assets and franchise rights of its cable systems in and around the communities of Sequim and Camano Island, Washington (the “Washington Systems”). In association with this transaction, approximately $1,060,000 was to be held in escrow and released to the Partnership one year from the closing of the transaction, subject to general representations and warranties. In March of 2004, the Partnership received notice from the buyer of the Washington Systems of certain claims, which were made under the holdback agreement provisions of the purchase and sale agreement. Management believes that such claims are unsubstantiated and intends to vigorously contest such claims. However, approximately $412,000 of the original escrow proceeds will remain in escrow until such claims are resolved. The escrow proceeds in excess of the claims were released to the Partnership in March of 2004. The Partnership has filed a lawsuit against the buyer of the Washington Systems for recovery of the remaining escrow proceeds and unspecified damages and a trial date has been set for September of 2005.

Obligations and Commitments

In addition to working capital needs for ongoing operations, the Partnership has capital requirements for annual maturities related to the Refinanced Credit Facility and required minimum operating lease payments. The following table summarizes the Partnership’s contractual obligations as of the date of this filing:

			Payments Due By Period
			Less than 1		1 — 3		3 — 5		More than
	Total		year		years		years		5 years
Notes payable	$	4,067,723	$	598,640	$	2,408,248	$	1,060,835	$	—
Minimum operating lease payments		23,310		18,090		5,220		—		—
Total	$	4,091,033	$	616,730	$	2,413,468	$	1,060,835	$	—

(a)	These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2005.
(b)	The Partnership also rents utility poles in its operations. Amounts due under these agreements are not included in the above minimum operating lease payments amounts as, generally, pole rentals are cancelable on short notice. The Partnership does however anticipate that such rentals will recur.
(c)	Note that obligations related to the Partnership’s notes payable exclude interest expense.

Capital Expenditures

During the first six months of 2005, the Partnership paid approximately $660,000 in capital expenditures. These expenditures included the continuation of distribution plant upgrades in both Toccoa and Royston, Georgia, and the continued deployment of high-speed Internet services in areas served by the Partnership’s systems.

Management has budgeted that the Partnership will spend approximately $900,000 on capital expenditures during the remainder of 2005. Planned expenditures include the continuation of distribution plant upgrades and two-way activation in all of the Georgia systems, the launch of digital and high-speed Internet services in Sandersville, Georgia, potential line extension opportunities and vehicle replacements.

Recently Issued Accounting Pronouncements

In November 2004, the EITF ratified its consensus on Issue No. 03-13, “Applying the Conditions in paragraph 42 of FASB Statement No. 144 in Determining Whether to Report Discontinued Operations” (“EITF 03-13”). EITF 03-13 relates to components of an enterprise that are either disposed of or classified as held for sale. EITF 03-13 allows significant events or circumstances that occur after the balance sheet date but before the issuance of financials statements to be taken into consideration in the evaluation of whether a component should be presented as discontinued or continuing operations, and modifies the assessment period guidance to allow for an assessment period of greater than one year. The implementation of EITF 03-13 did not have a material impact on the Partnership’s financial statements.

Critical Accounting Policies

This discussion and analysis of financial condition and results of operations is based on the Partnership’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following critical accounting policies require a more significant amount of management judgment than other accounting policies the Partnership employs.

Revenue Recognition- Cable television service revenue, including service and maintenance, is recognized in the month service is provided to customers. Advance payments on cable services to be rendered are recorded as subscriber prepayments. Revenues resulting from the sale of local spot advertising are recognized when the related advertisements or commercials appear before the public.

Property and Equipment— Property and equipment are recorded at cost. Costs of additions and substantial improvements, which include materials, labor, and other indirect costs associated with the construction of cable transmission and distribution facilities, are capitalized. Indirect costs include employee salaries and benefits, travel and other costs. These costs are estimated based on historical information and analysis. The Partnership periodically performs evaluations of these estimates as warranted by events or changes in circumstances.

In accordance with SFAS No. 51, “Financial Reporting by Cable Television Companies,” the Partnership also capitalizes costs associated with initial customer installations. The costs of disconnecting service or reconnecting service to previously installed locations is expensed in the period incurred. Costs for repairs and maintenance are also charged to operating expense, while equipment replacements, including the replacement of drops, are capitalized.

Intangible Assets— In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Partnership does not amortize goodwill or any other intangible assets determined to have indefinite lives. The Partnership has determined that its franchises meet the definition of indefinite lived assets. The Partnership tests these assets for impairment on an annual basis during the fourth quarter, or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value.

Management believes the franchises have indefinite lives because the franchises are expected to be used by the Partnership for the foreseeable future and effects of obsolescence, competition and other factors are minimal. In addition, the level of maintenance expenditures required to obtain the future cash flows expected from the franchises are not material in relation to the carrying value of the franchises. While the franchises have defined lives based on the franchising authority, renewals are routinely granted, and management expects them to continue to be granted. This expectation is supported by management’s experience with the Partnership’s franchising authorities and the franchising authorities of the Partnership’s affiliates.

Allocation of Interest Expense to Discontinued Operations— The Partnership allocated interest expense to discontinued operations using the historic weighted average interest rate applicable to the Partnership’s term loan and approximately $14,207,000 in expected principal payments, which were applied to the term loan upon closing of the transactions. In addition, the Partnership was required to pay a prepayment fee of approximately $125,000 to its lender, as a result of the prepayment of the term loan with the Bay City proceeds. This entire amount, which has been classified as interest expense, has been allocated to discontinued operations.

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

The Partnership is subject to market risks arising from changes in interest rates. The Partnership’s primary interest rate exposure results from changes in LIBOR or the prime rate, which are used to determine the interest rate applicable to the Partnership’s debt facilities. The Partnership has from time to time entered into interest rate swap agreements to partially hedge interest rate exposure. Interest rate swaps have the effect of converting the applicable variable rate obligations to fixed or other variable rate obligations. As of the date of this filing, the Partnership is not involved in any interest rate swap agreements. The potential loss over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate of all of the Partnership’s variable rate obligations would be approximately $41,000.

Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Litigation Reform Act of 1995: Statements contained or incorporated by reference in this document that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Reform Act of 1995. Forward-looking statements may be identified by use of forward-looking terminology such as “believe”, “intends”, “may”, “will”, “expect”, “estimate”, “anticipate”, “continue”, or similar terms, variations of those terms or the negative of those terms.

ITEM 4. Controls and Procedures

The Partnership maintains disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Chief Executive Officer and President (Principal Financial and Accounting Officer) of the Managing General Partner have evaluated these disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q and have determined that such disclosure controls and procedures are effective.

There has been no change in the Partnership’s internal controls over financial reporting during the quarter ended June 30, 2005 that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1Legal proceedings

The Partnership has filed a lawsuit against the buyer of the Washington Systems for recovery of the remaining escrow proceeds and unspecified damages and a trial date has been set for September of 2005.

In addition, The Partnership is party to ordinary and routine litigation proceedings that are incidental to the Partnership’s business. Management believes that the outcome of all pending legal proceedings will not, individually or in the aggregate, have a material adverse effect on the Partnership, its financial conditions, prospects or debt service abilities.

ITEM 2Changes in securities

     None

ITEM 3Defaults upon senior securities

     None

ITEM 4Submission of matters to a vote of security holders

     None

ITEM 5Other information

     None

ITEM 6Exhibits and Reports on Form 8-K

(a) Exhibit Index

31 (a).	Certification of Chief Executive Officer of Northland Communications Corporation, the Managing General Partner, dated August 15, 2005 pursuant to section 302 of the Sarbanes-Oxley Act
31 (b).	Certification of President (Principal Financial and Accounting Officer) of Northland Communications Corporation, the Managing General Partner, dated August 15, 2005 pursuant to section 302 of the Sarbanes-Oxley Act
32 (a).	Certification of Chief Executive Officer of Northland Communications Corporation, the Managing General Partner, dated August 15, 2005 pursuant to section 906 of the Sarbanes-Oxley Act
32 (b).	Certification of President (Principal Financial and Accounting Officer) of Northland Communications Corporation, the Managing General Partner, dated August 15, 2005 pursuant to section 906 of the Sarbanes-Oxley Act

(b)	Reports on Form 8-K
	Form 8-K filed on August 5, 2005 disclosing completion of sale of Brenham system
	Form 8-K filed on July 7, 2005 disclosing completion of sale of Bay City system

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP

BY: Northland Communications Corporation,
Managing General Partner

SIGNATURES	CAPACITIES	DATE
/S/ RICHARD I. CLARK	Executive Vice President, Treasurer and	8-17-05
Richard I. Clark	Assistant Secretary
/S/ GARY S. JONES	President	8-17-05
Gary S. Jones