Northland Cable Properties Seven Limited Partnership 10-Q 2005 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 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	98101
(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.

Yesþ Noo

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

Yeso Noþ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yeso Noþ

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)

	September 30,			December 31,
	2005			2004
ASSETS
Cash	$	702,517		$	65,547
Accounts receivable, net		188,782			341,965
Due from affiliates		128,054			111,960
Prepaid expenses		99,081			134,282
System sale receivable		1,646,706			411,600
Property and equipment, net of accumulated depreciation of $10,090,261 and $17,294,389 respectively		6,731,248			10,591,016
Franchise agreements, net of accumulated amortization of $9,995,974 and $10,321,249, respectively		9,606,966			9,607,185
Loan fees and other intangibles, net of accumulated amortization of $720,114 and $852,973, respectively		133,836			586,327
Total assets	$	19,237,190		$	21,849,882
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued expenses	$	839,171		$	1,262,921
Due to Managing General Partner and affiliates		64,282			69,425
Deposits		16,360			20,852
Subscriber prepayments		200,794			346,281
Notes payable		3,883,644			18,275,000
Total liabilities		5,004,251			19,974,479
Partners’ capital (deficit):
General Partners:
Contributed capital, net		(25,367	)		(25,367	)
Accumulated deficit		(44,772	)		(168,347	)
		(70,139	)		(193,714	)
Limited Partners:
Contributed capital, net		18,735,576			18,735,576
Accumulated deficit		(4,432,498	)		(16,666,459	)
		14,303,078			2,069,117
Total partners’ capital		14,232,939			1,875,403
Total liabilities and partners’ capital	$	19,237,190		$	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 nine months ended September 30,
	2005			2004
Service revenues	$	6,298,226		$	6,507,780
Expenses:
Cable system operations (including $98,829 and $101,779 to affiliates in 2005 and 2004, respectively), excluding depreciation and amortization shown below		587,923			579,348
General and administrative (including $654,324 and $643,178 to affiliates in 2005 and 2004, respectively)		1,656,646			1,628,567
Programming (including $1,788 and $2,162 to affiliates in 2005 and 2004, respectively)		2,052,218			1,992,289
Depreciation and amortization		1,177,103			1,141,961
(Gain) loss on disposal of assets		(36,692	)		12,296
		5,437,198			5,354,461
Income from operations		861,028			1,153,319
Other income (expense):
Interest expense and amortization of loan fees		(258,308	)		(317,177	)
Interest income and other, net		858			4,279
		(257,450	)		(312,898	)
Income from continuing operations		603,578			840,421
Discontinued operations (note 3)
Income (loss) from operations of Brenham and Bay City systems, net (including gain on sale of systems of $12,388,296 in 2005)		12,066,929			(50,300	)
Loss on sale of Washington Systems		(312,971	)		—
Net income	$	12,357,536		$	790,121
Allocation of net income:
General Partners	$	123,575		$	7,901
Limited Partners	$	12,233,961		$	782,220
Income from continuing operations per limited partnership unit (49,656 units):	$	12		$	17
Income (loss) from discontinued operations per limited partnership unit (49,656 units):	$	234		$	(1	)
Net income per limited partnership unit:
(49,656 units)	$	246		$	16

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 September 30,
	2005			2004
Service revenues	$	2,063,527		$	2,141,149
Expenses:
Cable system operations (including $34,698 and $33,775 to affiliates in 2005 and 2004, respectively), excluding depreciation and amortization shown below		207,294			203,485
General and administrative (including $222,793 and $211,078 to affiliates in 2005 and 2004, respectively)		580,161			543,027
Programming (including $734 and $50 to affiliates in 2005 and 2004, respectively)		670,590			642,816
Depreciation and amortization		395,139			382,065
(Gain) loss on disposal of assets		(15,479	)		2,492
		1,837,705			1,773,885
Income from operations		225,822			367,264
Other income (expense):
Interest expense and amortization of loan fees		(92,952	)		(96,976	)
Interest income and other, net		590			755
		(92,362	)		(96,221	)
Income from continuing operations		133,460			271,043
Discontinued operations (note 3)
Income (loss) from operations of Brenham and Bay City systems, net (including gain on sale of systems of $5,134,467 in 2005)		4,904,574			(37,250	)
Loss on sale of Washington Systems		(312,971	)		—
Net income	$	4,725,063		$	233,793
Allocation of net income:
General Partners	$	47,251		$	2,338
Limited Partners	$	4,677,812		$	231,455
Income from continuing operations per limited partnership unit (49,656 units):	$	3		$	5
Income (loss) from discontinued operations per limited partnership unit (49,656 units):	$	92		$	(1	)
Net income per limited partnership unit:
(49,656 units)	$	94		$	5

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS — (UNAUDITED)

	For the nine months ended September 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	12,357,536		$	790,121
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		1,252,981			1,645,803
Loan fee amortization		88,421			105,094
(Gain) loss on sale of assets		(12,147,754	)		12,296
Other		26,645			29,817
(Increase) decrease in operating assets, net of systems sold:
Accounts receivable		101,502			89,451
Due from affiliates		(16,094	)		(31,623	)
Prepaid expenses		20,846			(164,180	)
Increase (decrease) in operating liabilities, net of systems sold:
Accounts payable and accrued expenses		(684,122	)		(20,911	)
Due to Managing General Partner and affiliates		(5,143	)		(41,474	)
Deposits		2,699			2,312
Subscriber prepayments		(17,703	)		(14,030	)
Net cash provided by operating activities		979,814			2,402,676
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,079,519	)		(1,144,517	)
Proceeds from sale of systems		15,214,680			708,894
Proceeds from related party insurance fund and sale of assets		50,413			1,600
Net cash provided by (used in) investing activities		14,185,574			(434,023	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings		(14,391,356	)		(2,418,750	)
Loan fees		(137,062	)		(3,652	)
Net cash used in financing activities		(14,528,418	)		(2,422,402	)
INCREASE (DECREASE) IN CASH		636,970			(453,749	)
CASH, beginning of period		65,547			758,694
CASH, end of period	$	702,517		$	304,945
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	1,197,552		$	936,745

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 September 30, 2005, its statements of operations for the nine and three months ended September 30, 2005 and 2004, and its statements of cash flows for the nine months ended September 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 (3 months)	$	9,560
2006		38,239
2007		38,239
2008		38,239
2009		9,559
	$	133,836

(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 $8,449,000 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 $7,122,000.

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. 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 proceeds, less $300,000 retained for capital spending purposes, were used to pay down amounts outstanding under the term loan agreement. The Partnership recorded a gain from the sale of the Brenham system of approximately $5,266,000.

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

	As of
	December 31, 2004
Cash	$	16,893
Accounts receivable		179,757
Prepaid expenses		54,039
Property and equipment (net of accumulated depreciation of $3,616,160 and $8,336,538)		3,695,924
Franchise agreements (net of accumulated amortization of $101)		189
Total assets	$	3,946,802
Accounts payable and accrued expenses	$	433,206
Deposits		6,552
Subscriber prepayments		176,969
Total liabilities	$	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 nine months ended September 30,
	2005			2004
Service revenues	$	2,750,502		$	3,968,210
Expenses:
Operating (including $35,270 and $30,260 received from affiliates in 2005 and 2004, respectively)		244,957			286,761
General and administrative (including $243,342 and $348,679 paid to affiliates in 2005 and 2004, respectively)		779,764			1,003,779
Programming (including $787 paid to affiliates and $286 received from affiliates in 2005 and 2004, respectively)		1,132,189			1,529,418
Depreciation and amortization		75,878			503,842
Gain on disposal of assets		(12,388,296	)		—
		(10,155,508	)		3,323,800
Income from operations		12,906,010			644,410
Other income (expense):
Interest expense and amortization of loan fees		(839,081	)		(694,710	)
Income (loss) from operations of Brenham and Bay City systems, net	$	12,066,929		$	(50,300	)

	For the three months ended September 30,
	2005			2004
Service revenues	$	193,680		$	1,302,305
Expenses:
Operating (including $8,982 and $12,051 received from affiliates in 2005 and 2004, respectively)		55,496			93,535
General and administrative (including $14,215 and $114,366 paid to affiliates in 2005 and 2004, respectively)		147,469			329,855
Programming (including $204 and $217 received from affiliates in 2005 and 2004, respectively)		82,614			504,743
Depreciation and amortization		—			168,866
Gain on disposal of assets		(5,134,467	)		—
		(4,848,888	)		1,096,999
Income from operations		5,042,568			205,306
Other income (expense):
Interest expense and amortization of loan fees		(137,994	)		(242,556	)
Income (loss) from operations of Brenham and Bay City systems, net	$	4,904,574		$	(37,250	)

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 $218,000 to its lender, as a result of the prepayment of the term loan with the Brenham and 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. Approximately $412,000 of the original escrow proceeds remained in escrow until such claims were resolved. The escrow proceeds in excess of the claims were released to the Partnership in March of 2004.

On August 26, 2005, the Partnership settled its ongoing litigation with the buyer of the Washington Systems. As a result of the settlement reached, the Partnership received approximately $128,400 of the escrow funds, approximately all of which was used to pay down amounts outstanding under the Partnership’s term loan agreement. The remaining escrow proceeds, approximately $283,200, were remitted to the buyer of the Washington Systems, and were allocated to discontinued operations as a loss from the sale of the Washington Systems in the Partnership’s statement of operations for the nine and three months ended September 30, 2005. The Partnership also recorded $35,736 in legal fees in connection with the settlement of this litigation.

The Partnership does not expect that the settlement of these claims, or the write off of the amounts remitted to the buyer of the Washington Systems, will have any further implication on the Partnership’s financial statements.

(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, and the settlement of the litigation with the buyer of the Washington Systems, are as follows:

2005	$	53,865
2006		943,495
2007		1,165,633
2008		1,387,554
2009		333,097
	$	3,883,644

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 September 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 $3,883,644 and applicable interest rates are as follows: $3,827,998 at a LIBOR based interest rate of 8.74% and $55,646 at a base rate based interest rate of 10.3%. These interest rates expire during the fourth quarter of 2005, at which time, new rates 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 — Nine Months Ended September 30, 2005 and 2004

Total basic subscribers attributable to continuing operations decreased from 14,121 as of December 31, 2004 to 13,447 as of September 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. In its efforts 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 $6,298,226 for the nine months ended September 30, 2005, representing a decrease of $209,554 or approximately 3% from the same period in 2004. Revenues from continuing operations for the nine months ended September 30, 2005 were comprised of the following sources:

• $4,571,942 (73%) from basic services

• $614,347 (10%) from expanded basic services

• $389,346 (6%) from premium services

• $199,354 (3%) from advertising

• $138,501 (2%) from high speed Internet services

• $118,981 (2%) from late fees

• $70,920 (1%) from digital services

• $194,835 (3%) from other sources

Average monthly revenue per subscriber increased $1.29 or approximately 3% from $49.15 for the nine months ended September 30, 2004 to $50.44 for the nine months ended September 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. This increase was partially offset by the aforementioned decrease in subscribers.

Cable system operations expenses attributable to continuing operations totaled $587,923 for the nine months ended September 30, 2005, an increase of $8,575 or approximately 1% over the same period in 2004. Such increase is primarily attributable to increased pole and site rental costs and increased system utility expenses in certain areas of the Partnership’s systems.

General and administrative expenses attributable to continuing operations totaled $1,656,646 for the nine months ended September 30, 2005, an increase of $28,079 or approximately 2% from the same period in 2004. This increase is primarily attributable to an increase in administrative salary costs, billing fees, and audit costs. These increases were offset by a decrease in revenue based expenses, such as franchise and management fees.

Programming expenses attributable to continuing operations totaled $2,052,218 for the nine months ended September 30, 2005, representing an increase of $59,929 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 and decreased advertising expenses.

Depreciation and amortization expense attributable to continuing operations for the nine months ended September 30, 2005 increased from $1,141,961 for the nine months ended September 30, 2004 to $1,177,103 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 $58,869, or approximately 19% from $317,177 for the nine months ended September 30, 2004, to $258,308 for the same period in 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 nine months 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 $218,000 to its lender, as a result of the prepayment of the term loan with the Brenham and 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 September 30, 2005 and 2004

Total basic subscribers attributable to continuing operations decreased from 13,774 as of June 30, 2005 to 13,447 as of September 30, 2005.

Revenues from continuing operations totaled $2,063,527 for the three months ended September 30, 2005, representing a decrease of $77,622 or approximately 4% from the same period in 2004. Revenues from continuing operations for the three months ended September 30, 2005 were comprised of the following sources:

• $1,515,989 (73%) from basic services

• $177,611 (9%) from expanded basic services

• $122,655 (6%) from premium services

• $66,082 (3%) from advertising

• $55,999 (3%) from high speed Internet services

• $40,800 (2%) from late fees

• $24,570 (1%) from digital services

• $59,821 (3%) from other sources

Average monthly revenue per subscriber increased $1.30 or approximately 3% from $49.56 for the three months ended September 30, 2004 to $50.86 for the three months ended September 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. This increase was partially offset by the aforementioned decrease in subscribers.

Cable system operations expenses attributable to continuing operations totaled $207,294 for the three months ended September 30, 2005, an increase of $3,809 or approximately 2% over the same period in 2004. Such increase is primarily attributable to increased operating salaries and employee benefit costs and increased system utility expenses, offset by decreased pole rental and system maintenance costs.

General and administrative expenses attributable to continuing operations totaled $580,161 for the three months ended September 30, 2005, an increase of $37,134 or approximately 7% from the same period in 2004. This increase is primarily attributable to an increase in administrative salary costs, billing fees, copying and printing charges and audit costs. These increases were offset by a decrease in revenue based expenses, such as franchise and management fees.

Programming expenses attributable to continuing operations totaled $670,590 for the three months ended September 30, 2005, representing an increase of $27,774 or approximately 4% 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 September 30, 2005 increased from $382,065 for the three months ended September 20, 2004 to $395,139 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 $4,024, or approximately 4% from $96,976 for the three months ended September 30, 2004 to $92,952 for the same period in 2005. This decrease is attributable to lower average outstanding indebtedness as a result of required principal repayments offset by higher interest rates during the third 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 $218,000 to its lender, as a result of the prepayment of the term loan with the

Brenham and 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 $979,814 for the nine months ended September 30, 2005. Adjustments to the $12,357,536 net income for the period to reconcile to net cash provided by operating activities consisted primarily of depreciation and amortization of $1,252,981 and loan fee amortization of $88,421, offset by a gain on the sale of assets of $12,147,754 and changes in other operating assets and liabilities of $598,015.

Net cash used in investing activities for the nine months ended September 30, 2005 consisted of $1,079,519 in capital expenditures, offset by proceeds from the sale of the Brenham and Bay City systems of $15,214,680 and the receipt of $50,413 in proceeds from a related party insurance fund and the disposal of assets.

Net cash used in financing activities for the nine months ended September 30, 2005, consisted of $14,391,356 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, and the settlement of the litigation with the buyer of the Washington Systems, are as follows:

2005	$	53,865
2006		943,495
2007		1,165,633
2008		1,387,554
2009		333,097
	$	3,883,644

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 September 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 $3,883,644 and applicable interest rates are as follows: $3,827,998 at a LIBOR based interest rate of 8.74% and $55,646 at a base rate based interest rate of 10.3%. These interest rates expire during the fourth quarter of 2005, at which time, new rates 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 $8,449,000 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 $7,122,000.

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. 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 proceeds, less $300,000 retained for capital spending purposes, were used to pay down amounts outstanding under the term loan agreement. The Partnership recorded a gain from the sale of the Brenham system of approximately $5,266,000.

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. Approximately $412,000 of the original escrow proceeds remained in escrow until such claims were resolved. The escrow proceeds in excess of the claims were released to the Partnership in March of 2004.

On August 26, 2005, the Partnership settled its ongoing litigation with the buyer of the Washington Systems. As a result of the settlement reached, the Partnership received approximately $128,400 of the escrow funds, approximately all of which was used to pay down amounts outstanding under the Partnership’s term loan agreement.

The remaining escrow proceeds, approximately $283,200, were remitted to the buyer of the Washington Systems, and were allocated to discontinued operations as a loss from the sale of the Washington Systems in the Partnership’s statement of operations for the nine and three months ended September 30, 2005. The Partnership also recorded $35,736 in legal fees in connection with the settlement of this litigation.

The Partnership does not expect that the settlement of these claims, or the write off the amounts remitted to the buyer of the Washington Systems, will have any further implication on the Partnership’s financial statements.

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 - 3		3 - 5		More than
	Total		1 year		years		years		5 years
Notes payable	$	3,883,644	$	761,486	$	2,442,172	$	679,986	$	—
Minimum operating lease payments		17,436		15,015		2,421		—		—
Total	$	3,901,080	$	776,501	$	2,444,593	$	679,986	$	—

(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 nine months of 2005, the Partnership paid $1,079,519 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 forecasts that the Partnership will spend approximately $620,000 on capital expenditures during the remainder of 2005. Planned expenditures include the continuation of a distribution plant upgrade and two-way activation in the Vidalia, Georgia system, the continued deployment of digital and high-speed Internet services in Sandersville, Georgia, and potential line extension opportunities.

Solicitation of Interest From Potential Purchasers

In previous filings, the Managing General Partner disclosed that it was working with a nationally recognized brokerage firm to solicit offers from potential purchasers for the sale of the Partnership’s assets for fair value.

Despite ongoing efforts, the Managing General Partner has been unable to secure any offers for the sale of the Partnership’s assets at this time. Management does not feel that the lack of viable purchase offers for the Partnership’s remaining cable systems reflect a lack of value in those systems or a concern over the operational capabilities of those systems. Instead, based on experience, many factors affect the market for cable television systems over time, including whether the various companies participating in the cable television industry are generally in an acquisition mode, the availability of financing through lenders or investors and the number of other systems that are either on the market or forecasted to soon be offered for sale.

It is Management’s experience, after many years in the cable television industry, that it is difficult to forecast the likelihood of receiving a solid purchase offer from a financially viable purchaser at any specific time. Notwithstanding, the Managing General Partner will continue its efforts to solicit offers from potential purchasers from time to time with the goal of securing more than one viable offer for the partnership’s cable systems, however, Management is unable at this time to forecast the ultimate outcome of these activities.

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 financial 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 $218,000 to its lender, as a result of the prepayment of the term loan with the Brenham and 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 $39,000.

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 September 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 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 November 14, 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 November 14, 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 November 14, 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 November 14, 2005 pursuant to section 906 of the Sarbanes-Oxley Act

(b)	Reports on Form 8-K
	Form 8-K filed on September 23, 2005 disclosing the settlement of the litigation with the buyer of the Washington Systems.

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. CLARKRichard I. Clark	Executive Vice President, Treasurer and Assistant Secretary	11-14-05
/S/ GARY S. JONESGary S. Jones	President	11-14-05