UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ----------------------------------- OR [ ] 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 0-14377 ----------------------------- Krupp Realty Limited Partnership-VII - ------------------------------------------------------------------------------- Massachusetts 04-2842924 - ------------------------------------------------------- ----------------------- (State or other jurisdiction of (IRS employer incorporation or organization identification no.) One Beacon Street, Boston, Massachusetts 02108 - ----------------------------------------------------- ------------------------- (Address of principal executive (Zip code) offices) (617) 523-7722 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The total number of pages in this document is 10. Item 1. FINANCIAL STATEMENTS This form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Liquidation) ASSETS (Unaudited) June 30, December 31, 2002 2001 ------------ ------------ Cash and cash equivalents $ 1,334,793 $ 8,968,487 Due from affiliates 30,617 28,737 Prepaid expenses and other assets 47,420 48,499 ------------ ------------ Total assets $ 1,412,830 $ 9,045,723 ============ ============ LIABILITIES AND PARTNERS' EQUITY Liabilities: Accrued expenses and other liabilities $ 71,638 $ 103,342 ------------ ------------ Total liabilities 71,638 103,342 Partners' equity (Note 2): Investor Limited Partners (27,184 units outstanding) 1,327,780 8,852,957 Original Limited Partner - - General Partners 13,412 89,424 ------------ ------------ Total partners' equity 1,341,192 8,942,381 ------------ ------------ Total liabilities and partners' equity $ 1,412,830 $ 9,045,723 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 2 KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Liquidation) (Unaudited) For the Three Months For the Six Months Ended Ended June 30, June 30, ------------------------ ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Revenue: Rental $ 1,486 $ 1,051,531 $ 3,042 $ 2,109,834 Interest income 5,986 2,225 43,989 5,594 ----------- ----------- ----------- ----------- Total revenue 7,472 1,053,756 47,031 2,115,428 Expenses: Operating (Note 3) (3,447) 287,630 3,846 587,155 Maintenance (211) 102,575 985 190,022 Real estate taxes - 118,951 - 226,954 General and administrative(Note 3) 22,829 58,759 23,134 158,578 Management fees(Note 3) - 45,189 7,794 92,301 Depreciation and amortization - 344,409 - 684,810 Interest - 218,010 - 459,119 ----------- ----------- ----------- ----------- Total expenses 19,171 1,175,523 35,759 2,398,939 ----------- ----------- ----------- ----------- Net Income (loss) $ (11,699) $ (121,767) $ 11,272 $ (283,511) =========== =========== =========== =========== Allocation of net income (loss) (Note 2): Investor Limited Partners (27,184 units outstanding): Net Income (loss) $ (11,582) $ (120,549) $ 11,159 $ (280,676) =========== =========== =========== =========== Investor Limited Partners, Per Unit: Net Income (loss) $ (0.42) $ (4.43) $ 0.41 $ (10.33) =========== =========== =========== =========== Original Limited Partner: Net Income $ - $ - $ - $ - =========== =========== =========== =========== General Partners: Net Income (loss) $ (117) $ (1,218) $ 113 $ (2,835) =========== =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 3 KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Liquidation) (Unaudited) For the Six Months Ended June 30, --------------------------- 2002 2001 ------------ ------------ Cash flows from operating activities: Net income (loss) $ 11,272 $ (283,511) Adjustment to reconcile net loss to net cash provided by operating activities: Depreciation and amortization - 684,810 Changes in assets and liabilities: Increase in restricted cash for tenant security deposits - (222) (Increase) decrease in prepaid expenses and other assets (801) 134,660 Decrease in accrued expenses and other liabilities (31,704) (98,749) ------------ ------------ Net cash (used in) provided by operating activities (21,233) 436,988 ------------ ------------ Cash flows from investing activities: Deposits to replacement reserve escrow - (21,000) Fixed asset additions - (292,716) Increase in accrued expenses and other liabilities related to fixed assets additions - 2,346 ------------ ------------ Net cash used in investing activities - (311,370) ------------ ------------ Cash flows from financing activities: Principal payments on mortgage notes payable - (59,896) Distributions (7,612,461) (275,938) ------------ ------------ Net cash used in financing activities (7,612,461) (335,834) ------------ ------------ Net decrease in cash and cash equivalents (7,633,694) (210,216) Cash and cash equivalents, beginning of period 8,968,487 456,851 ------------ ------------ Cash and cash equivalents, end of period $ 1,334,793 $ 246,635 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 4 KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Liquidation) (1) Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in this report on form 10-Q pursuant to the Rules and Regulations of the Securities and Exchange Commission. In the opinion of the General Partners of Krupp Realty Limited Partnership-VII and Subsidiaries (the "Partnership"), the disclosures contained in this report are adequate to make the information presented not misleading. See notes to the Consolidated Financial Statements included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2001 for additional information relevant to significant accounting policies followed by the Partnership. In the opinion of the General Partners of the Partnership, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Partnership's consolidated financial position as of June 30, 2002, its results of operation for the three and six months ended June 30, 2002 and 2001, and its cash flows for the six months ended June 30, 2002 and 2001. During 2001, the Partnership sold its remaining real estate investments, and its intention is to liquidate the Partnership's remaining assets, distribute its remaining cash and dissolve the Partnership in 2002. The results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the results which may be expected for the full year. See Management's Discussion and Analysis of Financial Condition and Results of Operations included in this report. (2) Changes in Partners' Equity A summary of changes in Partners' equity for the six months ended June 30, 2002 is as follows: Investor Original Total Limited Limited General Partners' Partners Partner Partners Equity ----------- ----------- ----------- ----------- Balance at December 31, 2001 $ 8,852,957 $ - $ 89,424 $ 8,942,381 Net Income 11,159 - 113 11,272 Distributions (7,536,336) - (76,125) (7,612,461) ----------- ----------- ----------- ----------- Balance at June 30, 2002 $ 1,327,780 $ - $ 13,412 $ 1,341,192 =========== =========== =========== =========== 5 KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (In Liquidation), Continued (3) Related Party Transactions During 2001, the Partnership paid property management fees to an affiliate of the General Partners for management services. Pursuant to the management agreements, management fees are payable monthly at a rate of 5% of gross receipts from residential properties under management. The Partnership also reimburses affiliates of the General Partners for certain expenses incurred in connection with the operation of the Partnership and its properties, including administrative expenses. Amounts accrued or paid to the General Partners' affiliates were as follows: For the Three Months For the Six Months Ended Ended June 30, June 30, ------------------------ ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Property management fees $ - $ 45,189 $ 7,794 $ 92,301 Expenses reimbursement - 67,900 175 185,587 ----------- ----------- ----------- ----------- Charged to operations $ - $ 113,089 $ 7,969 $ 277,888 =========== =========== =========== =========== Expense reimbursements due from affiliates of $30,617 and $28,737 were included in due from affiliates at June 30, 2002 and December 31, 2001, respectively. 6 KRUPP REALTY LIMITED PARTNERSHIP - VII AND SUBSIDIARIES Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements including those concerning management's expectations regarding the future financial performance and future events. These forward-looking statements involve significant risk and uncertainties, including those described herein. Actual results may differ materially from those anticipated by such forward-looking statements. Liquidity and Capital Resources On November 20, 2001, the Partnership sold Windsor Apartments, a 300-unit multi-family apartment community to an unaffiliated third party. The Partnership received $12,235,336, net of closing costs of $80,518 and payoff of mortgage payable and accrued interest of $4,971,598. On August 29, 2001, the Partnership sold Courtyards Village, a 224-unit multi-family apartment complex to an unaffiliated third party. The Partnership received $7,608,399 for the sale, net of closing costs of $83,648 and debt of $5,075,953 assumed by the buyer, and repaid the mortgage note payable and accrued interest of $30,106. As of June 30, 2002 and December 31, 2001, the Partnership has no investment in any multi-family apartment communities. Operations The following discussion relates to the operations of the Partnership and its properties (Courtyards Village and Windsor Apartments) for the three and six months ended June 30, 2002 and 2001. Net income increased during the three and six months ended June 30, 2002 when compared to same period in 2001 due to sale of the Partnership's remaining real estate assets in August and November of 2001. Total revenue for the six months ended June 30, 2002 decreased when compared to the six months ended June 30, 2001 as a result of the sale of the Partnerships' properties. Interest income earned increased substantially from the cash proceeds received from the sale of the Partnership's real estate properties. Total expenses for the quarter ended June 30, 2002 decreased significantly when compared to the same period in 2001 since the Partnership no longer has ownership in any real estate properties as of December 31, 2001. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Partnership's future earnings, cash flows and fair values relevant to financial instruments are dependent upon prevalent market rates. Market risk is the risk of loss from adverse changes in market prices and interest rates. The Partnership manages its market risk by matching projected cash inflows from operating activities, investing activities and financing activities with projected cash outflows to fund distributions and other cash requirements. A detailed analysis of quantitative and qualitative market risk exposures was provided in the Partnership's Annual Report on Form 10-K for the year ended December 31, 2001. There have been no material changes in market risk subsequent to that date. All of the Partnership's mortgage debt was repaid as of June 30, 2002 and December 31, 2001. 7 PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other information None Item 6. Exhibits and Reports on Form 8-K None 8 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Krupp Realty Limited Partnership-VII ---------------------------------------- (Registrant) BY: /s/ David C. Quade ---------------------------------------- David C. Quade Treasurer (Principal Financial and Accounting Officer) of The Krupp Corporation, a General Partner DATE: August 14, 2002 9 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Krupp Realty Limited Partnership-VII (the "Partnership") on Form 10-Q for the period ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David C. Quade, Principal Financial and Accounting Officer of The Krupp Corporation, a General Partner of the Partnership, certify, pursuant to U.S.C. ss. 1350 as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition of the Partnership as of June 30, 2002 and the results of operations of the Partnership for the three month period then ended. \s\ David C. Quade - ------------------------------------------ David C. Quade Principal Financial and Accounting Officer 10