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 September 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 14. 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 ASSETS (Unaudited) September 30, December 31, 2002 2001 ------------ ------------ Cash and cash equivalents $ 1,351,426 $ 8,968,487 Due from affiliates - 28,737 Prepaid expenses and other assets - 48,499 ------------ ------------ Total assets $ 1,351,426 $ 9,045,723 ============ ============ LIABILITIES AND PARTNERS' EQUITY Liabilities: Accrued expenses and other liabilities $ - $ 103,342 ------------ ------------ Total liabilities - 103,342 Partners' equity (Note 2): Investor Limited Partners (27,184 units outstanding) 1,337,912 8,852,957 Original Limited Partner - - General Partners 13,514 89,424 ------------ ------------ Total partners' equity 1,351,426 8,942,381 ------------ ------------ Total liabilities and partners' equity $ 1,351,426 $ 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 (Unaudited) For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------------------ ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Revenue: Rental $ 30,175 $ 887,186 $ 33,217 $ 2,997,020 Interest income 5,918 24,992 49,907 30,586 ----------- ----------- ----------- ----------- Total revenue 36,093 912,178 83,124 3,027,606 Expenses: Operating (Note 3) 27,615 252,629 31,461 839,784 Maintenance 8,891 62,314 9,876 252,336 Real estate taxes - 93,898 - 320,852 General and administrative (Note 3) (10,647) 60,206 12,487 218,784 Management fees (Note 3) - 40,761 7,794 133,062 Depreciation and amortization - 266,738 - 951,548 Interest - 178,199 - 637,318 ----------- ----------- ----------- ----------- Total expenses 25,859 954,745 61,618 3,353,684 ----------- ----------- ----------- ----------- Income (loss) before gain on sale of property 10,234 (42,567) 21,506 (326,078) Gain on sale of property (Note 1) - 9,190,484 - 9,190,484 ----------- ----------- ----------- ----------- Net income $ 10,234 $ 9,147,917 $ 21,506 $ 8,864,406 =========== =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. Continued 3 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS, Continued (Unaudited) For the Three Months For the Nine Months Ended September 30, Ended September 30, ------------------------ ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Allocation of net income (Note 2): Investor Limited Partners (27,184 units outstanding): Income (loss) before gain on sale of Property $ 10,132 $ (42,141) 21,291 $ (322,817) Gain on sale of property - 9,098,579 - 9,098,579 ----------- ----------- ----------- ----------- Net income $ 10,132 $ 9,056,438 $ 21,291 $ 8,775,762 =========== =========== =========== =========== Investor Limited Partners Per Unit: Income (loss) before gain on sale of Property $ 0.37 $ (1.55) 0.78 $ (11.88) Gain on sale of property - 334.70 - 334.70 ----------- ----------- ----------- ----------- Net income $ 0.37 $ 333.15 $ 0.78 $ 322.82 =========== =========== =========== =========== Original Limited Partner: Income (loss) before gain on sale of Property $ - $ - $ - - Gain on sale of property - - - - ----------- ----------- ----------- ----------- Net income $ - $ - $ - $ - =========== =========== =========== =========== General Partners: Income (loss) before gain on sale of Property $ 102 $ (426) $ 215 $ (3,261) Gain on sale of property - 91,905 - 91,905 ----------- ----------- ----------- ----------- Net income $ 102 $ 91,479 $ 215 $ 88,644 =========== =========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements. 4 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, ---------------------------- 2002 2001 ------------ ------------ Cash flows from operating activities: Net income $ 21,506 $ 8,864,406 Adjustment to reconcile net loss to net cash provided by operating activities: Interest earned on replacement reserve escrow - - Depreciation and amortization - 951,548 Gain on sale of property - (9,190,484) Changes in assets and liabilities: Increase in restricted cash for tenant security deposits - (111) Decrease in prepaid expenses and other assets 77,236 126,384 Decrease in accrued expenses and other liabilities (103,342) (244,400) ------------ ------------ Net cash (used in) provided by operating activities (4,600) 507,343 ------------ ------------ Cash flows from investing activities: Deposits to replacement reserve escrow - (29,922) Withdrawals from replacement reserve escrow - 85,965 Fixed asset additions - (334,400) Proceeds from sale of property - 12,707,450 ------------ ------------ Net cash provided by investing activities - 12,429,093 ------------ ------------ Cash flows from financing activities: Principal payments on mortgage notes payable - (80,911) Repayment of mortgage note payable - (5,075,953) Distributions (7,612,461) (6,560,095) ------------ ------------ Net cash used in financing activities (7,612,461) (11,716,959) ------------ ------------ Net (decrease) increase in cash and cash equivalents (7,617,061) 1,219,477 Cash and cash equivalents, beginning of period 8,968,487 456,851 ------------ ------------ Cash and cash equivalents, end of period $ 1,351,426 $ 1,676,328 ============ ============ The accompanying notes are an integral part of the consolidated financial statements. 5 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Accounting Policies Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principals 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 September 30, 2002, its results of operation for the three and nine months ended September 30, 2002 and 2001, and its cash flows for the nine months ended September 30, 2002 and 2001. During 2001, the Partnership sold its remaining real estate investments and intends 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 nine months ended September 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 nine months ended September 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 21,291 - 215 21,506 Distributions (7,536,336) - (76,125) (7,612,461) ----------- ----------- ----------- ----------- Balance at September 30, 2002 $ 1,337,912 $ - $ 13,514 $ 1,351,426 =========== =========== =========== =========== Continued 6 KRUPP REALTY LIMITED PARTNERSHIP-VII AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (3) Related Party Transactions During 2001, the partnership paid 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 Nine Months Ended September 30, Ended September 30, ------------------------ ------------------------ 2002 2001 2002 2001 ----------- ----------- ----------- ----------- Property management fees$ - $ 40,761 $ 7,794 $ 133,062 Expenses reimbursement 83 69,735 258 255,322 ----------- ----------- ----------- ----------- Charged to operations $ 83 $ 110,496 $ 8,052 $ 388,384 =========== =========== =========== =========== Expense reimbursements due from affiliates of $0 and $28,737 was included in due from affiliates at September 30,2002 and December 31, 2001, respectively. 7 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 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. 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. As of 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 nine months ended September 30, 2002 and 2001. Net income decreased during the three and nine months ended September 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 nine months ended September 30, 2002 decreased when compared to the nine months ended September 30, 2001. 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 September 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. 8 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 debt payments, acquisitions, capital expenditures, distributions and other cash requirements. All of the Partnership's debt has a fixed interest rate, which minimizes the interest rate risk. 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 December 31, 2001. 9 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 10 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: November 14, 2002 11 Certifications I, Douglas Krupp, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Krupp Realty Limited Partnership - VII; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Douglas Krupp --------------------------- Douglas Krupp Principal Executive Officer 12 Certifications I, David C. Quade, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Krupp Realty Limited Partnership - VII; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 2. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 3. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 4. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 5. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ David C. Quade ------------------------ David C. Quade Principal Accounting Officer 13 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 September 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 September 30, 2002 and the results of operations of the Partnership for the three months period then ended. /s/ David C. Quade - ------------------------------------------- David C. Quade Principal Financial and Accounting Officer 14