10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 2002 Commission File Number 0-20126 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Massachusetts 04-3035851 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) World Trade Center East Two Seaport Lane, 16/th/ Floor Boston, Massachusetts 02210 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 261-9000 ============================================================================== 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 twelve (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 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2002 PART I FINANCIAL INFORMATION COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF NET ASSETS IN LIQUIDATION

(See accompanying notes to unaudited financial statements) 3 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP STATEMENTS OF CHANGES OF NET ASSETS IN LIQUIDATION (Unaudited)

(See accompanying notes to unaudited financial statements) 4 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP

(See accompanying notes to unaudited financial statements) 5 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP SUMMARIZED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 2001 ------------------- Net cash used for operating activities $ (11,900) ----------- Cash flows from investing activities: Investment in joint venture (44,686) Net proceeds from sale of investments 3,685,546 Deferred disposition fees 42,548 ----------- Net cash provided by investing activities 3,683,408 ----------- Cash flows from financing activity: Distributions to partners (5,115,421) ----------- Net decrease in cash and cash equivalents (1,443,913) Cash and cash equivalents: Beginning of period 2,215,637 ---------- End of period $ 771,724 =========== (See accompanying notes to unaudited financial statements) 6 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the Partnership's financial position as of September 30, 2002 and December 31, 2001 and its changes of net assets in liquidation and the results of its operations for the three and nine month periods ended September 30, 2002 and 2001, respectively, and its cash flows for the nine months ended September 30, 2001. These adjustments are of a normal recurring nature. See notes to financial statements included in the Partnership's 2001 Annual Report on Form 10-K for additional information relating to the Partnership's financial statements. Note 1 - Organization and Business Copley Pension Properties VII; A Real Estate Limited Partnership (the "Partnership") is a Massachusetts limited partnership organized for the purpose of investing primarily in newly constructed and existing income producing real properties. It primarily serves as an investment for qualified pension and profit sharing plans and other entities intended to be exempt from federal income tax. The Partnership commenced operations in March 1989 and had disposed of all its real estate investments as of December 31, 2001. The Partnership sold its last remaining asset in April 2001. On December 31, 2001, the Partnership adopted a plan of liquidation and intends to liquidate and dissolve in 2002. In connection with its adoption of a plan of liquidation on December 31, 2001, the Partnership also adopted the liquidation basis of accounting which, among other things, requires that assets and liabilities be stated at their estimated net realizable value and that estimated costs of liquidating the Partnership be provided to the extent that they are reasonably determinable. Note 2 - Real Estate Joint Ventures On February 26, 2001, the Prentiss Copystar joint venture investment in which the Partnership and an affiliate were entitled to 31% and 69%, respectively, of the operating activity, sold its property to an unaffiliated third party for gross proceeds of $4,575,000, of which the Partnership's share was $1,418,250. The Partnership received its 31% share of the net proceeds, $1,364,298 after closing costs, and recognized a gain on the sale of $321,632 ($7.57 per limited partnership unit) on the sale. A disposition fee of $42,548 was accrued but not paid to AEW Real Estate Advisors, Inc. In accordance with the Partnership agreement, this fee was reversed during the second quarter of 2001. On March 29, 2001, the Partnership made a capital distribution of $1,178,128 ($28.00 per limited partnership unit) from the proceeds of the sale. 7 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP The following summarized financial information is presented in the aggregate for the Prentiss Copystar joint venture: Assets and Liabilities ----------------------- September 30, 2002 December 31, 2001 ------------------ ------------------ Assets Other $ - $ 9,500 ------------- ------------- - 9,500 Liabilities - 9,500 ------------- ------------- Net assets $ - $ 0 ============= ============= Results of Operations Nine Months Ended September 30, 2002 2001 ----------- ----------- Revenue Rental income $ - $ 87,305 ------------ ------------ - 87,305 ------------ ------------ Expenses Operating expenses - 51,177 Depreciation and amortization - 12,151 ------------ ------------ - 63,328 ------------ ------------ Net income $ - $ 23,977 ============ ============ Liabilities and expenses exclude amounts owed and attributable to the Partnership and its affiliate on behalf of their various financing arrangements with the joint venture. 8 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP Note 3 - Property On April 6, 2001, the Partnership sold its Drilex investment to an unaffiliated third party for gross proceeds of $2,500,000. The Partnership received net proceeds of $2,361,968 and recognized a gain of $68,290 ($1.61 per Unit) on the sale. On April 26, 2001, the Partnership made a capital distribution of $2,272,104 ($54.00 per Unit) from the proceeds of the sale. Note 4 - Accrued expenses for liquidation Accrued expenses for liquidation as of June 30, 2002 include estimates of costs to be incurred in carrying out the dissolution and liquidation of the Partnership. These costs include estimates of legal fees, accounting fees, tax preparation fees, filing fees and other professional services. During the three and nine month periods ended September 30, 2002, the Partnership incurred $30,228 and $52,310, respectively, of such expenses. The actual costs could vary from the related provisions due to the uncertainty related to the length of time required to complete the liquidation and dissolution of the Partnership. The accrued expenses do not take into consideration possible litigation arising from the customary representations and warranties made as part of each sale. Such costs are unknown and are not estimable at this time. 9 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP Management's Discussion and Analysis of Financial Condition and Results of Operations Accounting Policies Revenue recognition The Partnership recognizes rental revenue on a straight-line basis over the lease terms. The Partnership accounts for its investments in joint ventures using the equity method of accounting. Under the equity method of accounting, the net equity investment of the Partnership is reflected on the balance sheets, and the Partnership's share of net income or loss from the joint ventures is included in the statements of operations. The Partnership records real estate sales at the time a sale is consummated. A sale is consummated when the parties are bound by the terms of a contract, all consideration has been exchanged, all conditions precedent to closing have been met, and title has passed from seller to buyer. Liquidation Basis of Accounting The Partnership adopted a plan of liquidation on December 31, 2001, and, as a result, the Partnership also adopted the liquidation basis of accounting which, among other things, requires that assets and liabilities be stated at their estimated net realizable value and that estimated costs of liquidating the Partnership be provided to the extent that they are reasonably determinable. Accrued expenses for liquidation as of December 31, 2001 include estimates of costs to be incurred in carrying out the dissolution and liquidation of the Partnership. These costs include estimates of legal fees, accounting fees, tax preparation and filing fees and other professional services. The actual costs could vary from the related provisions due to the uncertainty related to the length of time required to complete the liquidation and dissolution of the Partnership. The accrued expenses do not take into consideration possible litigation arising from the customary representations and warranties made as part of each sale. Such costs, if any, are unknown and are not estimable at this time. Similarly, there can be no assurance as to the timing of a distribution of the Partnership's assets or the amount of assets that will be distributed to the Partnership's Unit holders. Liquidity and Capital Resources The Partnership's offering of units of limited partnership interest was completed as of September 30, 1990. A total of 42,076 units were sold. The Partnership received proceeds of $36,522,542, net of selling commissions and other offering costs, which have been used for investment in real estate and the payment of related acquisition costs, or retained as working capital reserves. The Partnership made seven real estate investments, one of which was sold in each of 1991, 1994, 1998, 1999 and 2000 and two of which were sold in 2001. Through September 30, 2002, capital of $39,677,668 ($943.00 per limited partnership unit) has been returned to the limited partners; $36,091,951 as a result of sales, $3,249,109 in 1996 as a result of a discretionary reduction of cash reserves and $621,883 as a result of a distribution of original working capital. As a result of sales and similar transactions, the adjusted capital contribution was reduced to $57.00 per limited partnership unit. 10 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP At September 30, 2002, the Partnership had $616,811 in cash and cash equivalents, which is being retained as a reserve in connection with the liquidation of the Partnership. There have been no distributions of cash from operations since the second quarter of 2000 due to Prentiss Copystar's vacancy from September 1999 to August 2000 and its subsequent sale in February 2001 and insufficient cash flow from Drilex and the subsequent sale of Drilex in April 2001. However, a capital distribution of original working capital previously held in reserves was made on April 26, 2001 in the amount of $27.00 per Unit and a distribution of operational cash previously held in reserves was made on July 26, 2001 in the amount of $12.45 per Unit. Results of Operations Form of Real Estate Investment The Drilex investment was a wholly-owned property and was sold on April 6, 2001. The Prentiss Copystar real estate investment was structured as a joint venture. Prentiss Copystar was sold on February 26, 2001. Operating Factors As mentioned above, the Prentiss Copystar joint venture investment in which the Partnership and an affiliate were entitled to 31% and 69% of the operating activity, respectively, sold its property on February 26, 2001. The Partnership recognized its 31% share of the gain of $321,632. At the time of the sale, Prentiss Copystar was 100% leased. As mentioned above, the Drilex property was sold on April 6, 2001 and the Partnership recognized a gain of $68,290. The property was 100% leased at the time of sale. Investment Results The investment results for the three and nine month periods ended June 30, 2002 and 2001 are not comparable due to the sale of the Partnership's last two remaining properties in 2001, as discussed above. Portfolio Expenses The Partnership management fee is 9% of distributable cash flow from operations after any increase or decrease in working capital reserves as determined by the managing general partner. The Partnership incurred management fees during the nine month period ended September 30, 2001 related to the distribution of operational cash previously held in reserves, as discussed above. No management fees have been incurred during 2002. General and administrative expenses primarily consist of real estate appraisal, printing, legal, accounting and investor servicing fees. General and administrative expenses were $44,590 and $121,212, respectively, for the three and nine month periods ended September 30, 2001. Costs to dissolve and liquidate the Partnership include legal fees, accounting fees, tax preparation fees, filing fees and other professional services. During the three and nine month periods ended September 30, 2002, the Partnership incurred $30,228 and $52,310, respectively, of such expenses. Controls and Procedures Based on the Partnership's evaluation within 90 days of the filing of this Form 10-Q, the Partnership's director has concluded that the Partnership's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Partnership files or submits 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. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect those controls subsequent to the date of their evaluation. 11 COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2002 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Reports on Form 8-K: No Current Reports on Form 8-K were filed during the quarter ended September 30, 2002. b) Exhibit 99.1: Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed herein. 12 Exhibit Index Exhibit Page Number Exhibit Number ------ ------- ------ 99.1 Certification pursuant to Section 17,18 906 of the Sarbanes-Oxley Act of 2002. 13 SIGNATURES 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. COPLEY PENSION PROPERTIES VII; A REAL ESTATE LIMITED PARTNERSHIP (Registrant) November 14, 2002 /s/ Alison L. Husid ------------------------------- Alison L. Husid President, Chief Executive Officer And Director of Managing General Partner, Seventh Copley Corp. November 14, 2002 /s/ Jonathan Martin -------------------------------- Jonathan Martin Principal Financial and Accounting Officer of Managing General Partner, Seventh Copley Corp. 14 CERTIFICATIONS I, Alison L. Husid, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Copley Pension Properties VII; A Real Estate Limited Partnership; 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 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 functions): 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 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. Dated: November 14, 2002 /s/ Alison L. Husid ------------------------------------- Alison L. Husid President and Chief Executive Officer of the Managing General Partner, Seventh Copley Corp. 15 CERTIFICATIONS I, Jonathan Martin, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Copley Pension Properties VII; A Real Estate Limited Partnership; 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 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 functions): 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 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. Dated: November 14, 2002 /s/ Jonathan Martin ------------------------------------- Jonathan Martin Treasurer and Chief Financial Officer of the Managing General Partner, Seventh Copley Corp. 16

COPLEY PENSION PROPERTIES VII 10-Q