##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q x
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2004 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 
 Washington
    
    91-1366564(State of Organization)
    
    (I.R.S. Employer Identification No.)
 101 Stewart Street, Seattle, Washington
    
    98065(Address of Principal Executive Offices)
    
    (Zip Code)
 (206) 621-1351
(Registrants telephone number, including area code)
 N/A
(Former name, former address and former fiscal year, if changed since last report)
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has subject to such
filing requirements for the past 90 days. Yes x No o Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes o No x




---



TABLE OF CONTENTS  PART 1  FINANCIAL INFORMATIONITEM 1. Financial StatementsITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Continuing OperationsITEM 3. Quantitative and Qualitative Disclosures About Market RiskITEM 4. Controls and proceduresPART II  OTHER INFORMATIONITEM 1 Legal proceedingsITEM 2 Changes in securitiesITEM 3 Defaults upon senior securitiesITEM 4 Submission of matters to a vote of security holdersITEM 5 Other informationITEM 6 Exhibits and Reports on Form 8-KSIGNATURESEXHIBIT 31.(A)EXHIBIT 31.(B)EXHIBIT 32.(A)EXHIBIT 32.(B)    Table of Contents  
 PART 1  FINANCIAL INFORMATION 
 ITEM 1. Financial Statements NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS  (UNAUDITED) March 31,
    
    December 31,2004
    
    2003ASSETSCash
    
    $
    927,237
    
    
    $
    758,694Accounts receivable
    
    
    314,500
    
    
    
    450,978Due from affiliates
    
    
    170,292
    
    
    
    67,242Prepaid expenses
    
    
    246,417
    
    
    
    107,780System sale receivable
    
    
    411,600
    
    
    
    1,120,494Property and equipment, net of accumulated
depreciation of $15,745,011 and $15,210,270,
respectively
    
    
    11,207,030
    
    
    
    11,377,870Franchise agreements, net of accumulated
amortization of $10,321,249
    
    
    9,607,185
    
    
    
    9,607,185Loan fees and other intangibles, net of accumulated
amortization of $749,897 and $714,987, respectively
    
    
    686,714
    
    
    
    720,436Total assets
    
    $
    23,570,975
    
    
    $
    24,210,679LIABILITIES AND PARTNERS CAPITAL (DEFICIT)Accounts payable and accrued expenses
    
    $
    1,075,122
    
    
    $
    1,198,834Due to Managing General Partner and affiliates
    
    
    11,912
    
    
    
    51,793Deposits
    
    
    20,215
    
    
    
    18,210Subscriber prepayments
    
    
    430,044
    
    
    
    358,129Notes payable
    
    
    20,693,750
    
    
    
    21,500,000Total liabilities
    
    
    22,231,043
    
    
    
    23,126,966Partners capital (deficit):General Partners:Contributed capital, net
    
    
    (25,367
    )
    
    
    (25,367
    )Accumulated deficit
    
    
    (173,702
    )
    
    
    (176,264
    )(199,069
    )
    
    
    (201,631
    )Limited Partners:Contributed capital, net
    
    
    18,735,576
    
    
    
    18,735,576Accumulated deficit
    
    
    (17,196,575
    )
    
    
    (17,450,232
    )1,539,001
    
    
    
    1,285,344Total partners capital (deficit)
    
    
    1,339,932
    
    
    
    1,083,713Total liabilities and partners capital (deficit)
    
    $
    23,570,975
    
    
    $
    24,210,679
 The accompanying notes are an integral part of these statements.




---



##### Table of Contents



NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS  (UNAUDITED) For the three months ended March 31,2004
    
    2003Service revenues
    
    $
    3,503,853
    
    
    $
    3,453,863Expenses:Cable system operations (including
$25,591 and $37,213 to affiliates in
2004 and 2003, respectively), excluding
depreciation and amortization shown below
    
    
    289,387
    
    
    
    260,830General and administrative (including
$329,302 and $364,480 to affiliates
in 2004 and 2003, respectively)
    
    
    875,398
    
    
    
    791,798Programming (including $2,061 and
$10,490 to affiliates in 2004 and 2003,
respectively)
    
    
    1,194,758
    
    
    
    1,200,211Depreciation and amortization
    
    
    545,186
    
    
    
    535,724Loss on disposal of assets
    
    
    5,047
    
    
    
    14,2952,909,776
    
    
    
    2,802,858Income from operations
    
    
    594,077
    
    
    
    651,005Other income (expense):Interest expense and amortization of loan fees
    
    
    (341,656
    )
    
    
    (434,395
    )Interest income and other, net
    
    
    3,798
    
    
    
    775(337,858
    )
    
    
    (433,620
    )Income from continuing operations
    
    $
    256,219
    
    
    $
    217,385Discontinued operations (note 3)Income from operations of Washington
systems, net (including gain on sale of
systems of $14,113,294 in 2003)
    
    
    
    
    
    
    13,764,954Net income
    
    
    256,219
    
    
    
    13,982,339Allocation of net income:General Partners
    
    $
    2,562
    
    
    $
    139,823Limited Partners
    
    $
    253,657
    
    
    $
    13,842,516Income from continuing operations per limited
partnership unit (49,656 units):
    
    $
    5
    
    
    $
    4Income from discontinued operations per limited
partnership unit (49,656 units):
    
    $
    
    
    
    $
    277Net income per limited partnership unit:(49,656 units)
    
    $
    5
    
    
    $
    281
 The accompanying notes are an integral part of these statements.




---



##### Table of Contents



NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS  (UNAUDITED) For the three months ended March 31,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    256,219
    
    
    $
    13,982,339Adjustments to reconcile net income to
cash provided by operating activities:Depreciation and amortization
    
    
    545,186
    
    
    
    719,654Loan fee amortization
    
    
    34,910
    
    
    
    271,832Loss (gain) on sale of assets
    
    
    5,047
    
    
    
    (14,098,999
    )Other
    
    
    3,501
    
    
    
    (Increase) decrease in operating assets:Accounts receivable
    
    
    136,478
    
    
    
    (93,425
    )Due from affiliates
    
    
    (103,050
    )
    
    
    26,625Prepaid expenses
    
    
    (138,637
    )
    
    
    (54,097
    )Increase (decrease) in operating liabilitiesAccounts payable and accrued expenses
    
    
    (123,712
    )
    
    
    (828,924
    )Due to Managing General Partner and affiliates
    
    
    (39,881
    )
    
    
    188,247Deposits
    
    
    2,005
    
    
    
    2,925Subscriber prepayments
    
    
    71,915
    
    
    
    22,448Net cash provided by operating activities
    
    
    649,981
    
    
    
    138,625CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (383,894
    )
    
    
    (232,545
    )Proceeds from sale of systems
    
    
    708,894
    
    
    
    19,281,427Proceeds from sale of assets
    
    
    1,000
    
    
    
    Net cash provided by investing activities
    
    
    326,000
    
    
    
    19,048,882CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on borrowings
    
    
    (806,250
    )
    
    
    (19,221,761
    )Loan fees
    
    
    (1,188
    )
    
    
    Net cash used in financing activities
    
    
    (807,438
    )
    
    
    (19,221,761
    )INCREASE (DECREASE) IN CASH
    
    
    168,543
    
    
    
    (34,254
    )CASH, beginning of period
    
    
    758,694
    
    
    
    677,536CASH, end of period
    
    $
    927,237
    
    
    $
    643,282SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    353,647
    
    
    $
    767,131
 The accompanying notes are an integral part of these statements.




---



##### Table of Contents



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 March 31, 2004, its statements of operations for the three months ended
March 31, 2004 and 2003, and its statements of cash flows for the three months
ended March 31, 2004 and 2003. 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, 2003. On March 11, 2003, the Partnership sold the operating assets and franchise
rights of its cable systems in and around Sequim and Camano Island, Washington
(the Washington Systems), which served approximately 10,300 subscribers. This
filing and the accompanying financial statements present the results of
operations and the sale of the Washington Systems as discontinued operations. Certain prior period amounts have been reclassified to conform to the current
period presentation. This includes reclassification of unrealized gains and
losses on interest rate swap agreements, which were previously classified in a
separate financial statement caption within other income (expense), to the
interest expense financial statement caption.  (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: 2004 (9 months)
    
    $
    106,0002005
    
    
    140,0002006
    
    
    140,0002007
    
    
    139,0002008
    
    
    139,000Thereafter
    
    
    23,000$
    687,000




---



##### Table of Contents



System Sales 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). The Washington Systems were sold
at a price of approximately $20,340,000 of which the Partnership received
approximately $19,280,000 at closing. Substantially all of the proceeds were
used to pay down amounts outstanding under the Partnerships credit agreement.
The sales price was adjusted at closing for the proration of certain revenues
and expenses and approximately $1,060,000 was to be held in escrow and released
to the Partnership one year from the closing of the transaction, subject to
general representations and warranties. In March of 2004, the Partnership
received notice from the buyer of the Washington Systems of certain claims,
which were made under the holdback agreement provisions of the purchase and
sale agreement. Management believes that such claims are unsubstantiated and
intends to vigorously contest such claims. However, approximately $412,000 of
the original escrow proceeds will remain in escrow until such claims are
resolved. The Partnership has filed a lawsuit against the buyer of the
Washington Systems for recovery of the remaining escrow proceeds and
unspecified damages. The escrow proceeds in excess of the claims were released
to the Partnership in March of 2004. The revenue, expenses and other items attributable to the operations of the
Washington Systems for the period from January 1, 2003 to March 11, 2003 (the
date of the sale of the Washington Systems) have been reported as discontinued
operations in the accompanying statements of operations, and include the
following: For the three months endedMarch 31, 2003Service revenues
    
    $
    1,129,917Expenses (income):Operating (including $13,642, net paid to affiliates)
    
    
    143,762General and administrative (including $144,476, net paid to affiliates)
    
    
    270,781Programming (including $32,896, net paid to affiliates)
    
    
    388,367Depreciation and amortization
    
    
    183,930Gain on disposal of assets
    
    
    (14,113,294
    )Total operating expenses (income), net
    
    
    (13,126,454
    )Income from operations
    
    
    14,256,371Other expense:Interest expense and amortization of loan fees
    
    
    (491,417
    )Income from operations of Washington Systems
    
    
    13,764,954
 In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable to the
Partnerships credit facility and approximately $18,713,000 in principal
payments, which were applied to the credit facility as a result of the sale of
the Washington Systems.




---



##### Table of Contents



(3)
    
    Notes Payable On November 6, 2003, the Partnership refinanced its existing credit facility
(the Refinanced Credit Facility). The Refinanced Credit Facility establishes
a term loan in the amount of $21,500,000, the proceeds from which were used to
repay the Partnerships existing credit facilities, to provide working capital
and for other general purposes. The Refinanced Credit Facility matures on March
31, 2009 and requires the Partnership to make quarterly principal payments
beginning March 31, 2004. Remaining annual maturities of the Refinanced Credit
Facility are as follows: PrincipalPayments2004 (9 months)
    
    $
    2,418,7502005
    
    
    3,440,0002006
    
    
    3,655,0002007
    
    
    4,515,0002008
    
    
    5,375,0002009
    
    
    1,290,000Total
    
    $
    20,693,750
 The interest rate per annum applicable to 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. 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. The Refinanced Credit Facility contains a number of covenants, which among
other things, require the Partnership to comply with specified financial
ratios, including maintenance, as tested on a quarterly basis, of: (A) a
Maximum Total Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as
defined)) of not more than 4.75 to 1.00 initially, decreasing over time to 3.50
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 initially,
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 initially, increasing over time to 1.10 to 1.00; and (D)
Maximum Capital Expenditures of not more than $2,500,000 in each fiscal year.
As of March 31, 2004, the Partnership was in compliance with the covenants
required by the Refinanced Credit Facility. In addition, in the event the Partnership prepays the Refinanced Credit
Facility in excess of $5,375,000 prior to the third anniversary of the closing
of the refinancing transaction, the Partnership would be required to pay a
Prepayment Fee to the lender, as defined by the terms of the Refinanced Credit
Facility. As of the date of this filing, the Refinanced Credit Facility had an
outstanding balance of $20,693,750, and applicable interest rates are as
follows; $16,500,000 at a LIBOR based interest rate of 5.63% and $4,193,750 at
a LIBOR based interest rate of 5.61%. These interest rates expire during the
second quarter of 2004, at which time, new rates will be established. These
rates also include a margin to be paid to the Partnerships lender based on
overall leverage, and may increase or decrease as the Partnerships leverage
fluctuates.




---



##### Table of Contents



PART I (continued) 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Continuing Operations Results of Continuing Operations  Three Months Ended March 31, 2004 and 2003 Revenues from continuing operations totaled $3,503,853 for the three months
ended March 31, 2004, representing a slight increase over the same period in
2003. Of these revenues, $2,442,274 (70%) was derived from basic services,
$247,223 (7%) from premium services, $394,260 (11%) from expanded basic
services, $43,166 (1%) from digital services, $197,974 (6%) from advertising,
$11,083 (1%) from high-speed Internet services, $61,041 (2%) from late fees,
and $106,832 (2%) from other sources. This slight increase in revenues is
attributable to rate increases implemented throughout the Partnerships systems
during the first quarter of 2004, and increased revenue from the Partnerships
high-speed Internet product offering, offset by decreased premium and
advertising revenue. Cable system operating expenses attributable to continuing operations totaled
$289,387 for the three months ended March 31, 2004, an increase of $28,557 or
approximately 10.9% over the same period in 2003. Such increase is primarily
attributable to increased operating salaries and employee benefit costs and
increased pole and site rental costs. General and administrative expenses attributable to continuing operations
totaled $875,398 for the three months ended March 31, 2004, an increase of
$83,600 or approximately 10.6% over the same period in 2003. This increase is
primarily attributable to increases in salary and employee benefit costs,
increased franchise fees related to certain of the Partnerships systems and
increased administrative overhead costs. Programming expenses attributable to continuing operations totaled $1,194,758
for the three months ended March 31, 2004, representing a slight decrease over
the same period in 2003. Such decrease is primarily attributable to a decrease
in premium programming costs, which is a result of decreased subscribers
receiving this level of service, and decreased advertising costs, offset by an
increase in the costs associated with the Partnerships high-speed Internet
product. Depreciation and amortization expense attributable to continuing operations for
the three months ended March 31, 2004 increased slightly over the same period
in 2003. Such increase is primarily attributable to depreciation of recent
purchases related to the upgrade of plant and equipment, offset by certain
assets becoming fully depreciated. Interest expense and amortization of loan fees allocated to continuing
operations decreased approximately $92,739, or 21.3% from $434,395 to $341,656
for the three months ended March 31, 2004. This decrease is attributable to
lower average outstanding indebtedness as a result of required principal
repayments and lower interest rates during 2004 as compared to 2003. In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable to the
Partnerships credit facility and approximately $18,713,000 in principal
payments, which were applied to the credit facility as a result of the sale of
the Washington Systems. Liquidity and Capital Resources The Partnerships primary source of liquidity is cash flow provided by
operations. 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 $649,981 for the three
months ended March 31, 2004. Adjustments to the $256,219 net income for the
period to reconcile to net cash provided by operating activities consisted
primarily of depreciation and amortization of $545,186 and loan fee
amortization of $34,910, offset by increases in operating assets of $105,209
and decreases in operating liabilities of $89,673. Net cash provided by investing activities consisted primarily of proceeds
from the sale of the Washington Systems of $708,894, offset by $383,894 in
capital expenditures for the three months ended March 31 2004.




---



##### Table of Contents



Net cash used in financing activities for the three months ended March 31,
2004, consisted of $806,250 in scheduled principal payments on long-term
debt, and additional loan fee payments of $1,188 related to the refinance
transaction, which occurred during the fourth quarter of 2003. Notes Payable On November 6, 2003, the Partnership refinanced its existing credit facility
(the Refinanced Credit Facility). The Refinanced Credit Facility establishes
a term loan in the amount of $21,500,000, the proceeds from which were used to
repay the Partnerships existing credit facilities, to provide working capital
and for other general purposes. The Refinanced Credit Facility matures on March
31, 2009 and requires the Partnership to make quarterly principal payments
beginning March 31, 2004. Remaining annual maturities of the Refinanced Credit
Facility are as follows: PrincipalPayments2004 (9 months)
    
    $
    2,418,7502005
    
    
    3,440,0002006
    
    
    3,655,0002007
    
    
    4,515,0002008
    
    
    5,375,0002009
    
    
    1,290,000Total
    
    $
    20,693,750
 The interest rate per annum applicable to 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. 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. The Refinanced Credit Facility contains a number of covenants, which among
other things, require the Partnership to comply with specified financial
ratios, including maintenance, as tested on a quarterly basis, of: (A) a
Maximum Total Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as
defined)) of not more than 4.75 to 1.00 initially, decreasing over time to 3.50
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 initially,
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 initially, increasing over time to 1.10 to 1.00; and (D)
Maximum Capital Expenditures of not more than $850,000 in the fourth quarter of
2003, and $2,500,000 in each subsequent fiscal year. As of March 31, 2004, the
Partnership was in compliance with the covenants required by the Refinanced
Credit Facility. In addition, in the event the Partnership prepays the Refinanced Credit
Facility in excess of $5,375,000 prior to the third anniversary of the closing
of the refinancing transaction, the Partnership would be required to pay a
Prepayment Fee to the lender, as defined by the terms of the Refinanced Credit
Facility. As of the date of this filing, the Refinanced Credit Facility had an
outstanding balance of $20,693,750, and applicable interest rates are as
follows; $16,500,000 at a LIBOR based interest rate of 5.63% and $4,193,750 at
a LIBOR based interest rate of 5.61%. These interest rates expire during the
second quarter of 2004, at which time, new rates will be established. These
rates also include a margin to be paid to the Partnerships lender based on
overall leverage, and may increase or decrease as the Partnerships leverage
fluctuates.




---



##### Table of Contents



System Sale 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). The Washington Systems were sold
at a price of approximately $20,340,000 of which the Partnership received
approximately $19,280,000 at closing. Substantially all of the proceeds were
used to pay down amounts outstanding under the Partnerships credit agreement.
The sales price was adjusted at closing for the proration of certain revenues
and expenses and approximately $1,060,000 was to be held in escrow and released
to the Partnership one year from the closing of the transaction, subject to
general representations and warranties. In March of 2004, the Partnership
received notice from the buyer of the Washington Systems of certain claims,
which were made under the holdback agreement provisions of the purchase and
sale agreement. Management believes that such claims are unsubstantiated and
intends to vigorously contest such claims. However, approximately $412,000 of
the original escrow proceeds will remain in escrow until such claims are
resolved. The Partnership has filed a lawsuit against the buyer of the
Washington Systems for recovery of the remaining escrow proceeds and
unspecified damages. The escrow proceeds in excess of the claims were released
to the Partnership in March of 2004. The sale was made pursuant to an offer by Wave Division Networks, LLC, which
was formalized in a Purchase and Sale Agreement dated October 28, 2002. Based
on the offer made by Wave Division Networks, LLC, management determined that
acceptance would be in the best economic interest of the Partnership, and that
the sale was not a result of declining or deteriorating operations nor was it
necessary to create liquidity or reduce outstanding debt. It is the opinion of
management that the Partnership could have continued existing operations and
met all obligations as they became due. The revenue, expenses and other items attributable to the operations of the
Washington Systems for the period from January 1, 2003 to March 11, 2003 (the
date of the sale of the Washington Systems) have been reported as discontinued
operations in the accompanying statements of operations, and include the
following: For the three months endedMarch 31, 2003Service revenues
    
    $
    1,129,917Expenses (income):Operating (including $13,642, net paid to affiliates)
    
    
    143,762General and administrative (including $144,476, net paid to affiliates)
    
    
    270,781Programming (including $32,896, net paid to affiliates)
    
    
    388,367Depreciation and amortization
    
    
    183,930Gain on disposal of assets
    
    
    (14,113,294
    )Total operating expenses (income), net
    
    
    (13,126,454
    )Income from operations
    
    
    14,256,371Other expense:Interest expense and amortization of loan fees
    
    
    (491,417
    )Income from operations of Washington Systems
    
    
    13,764,954
 In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable to the
Partnerships credit facility and approximately $18,713,000 in principal
payments, which were applied to the credit facility as a result of the sale of
the Washington Systems. Obligations and Commitments In addition to working capital needs for ongoing operations, the Partnership
has capital requirements for (i) annual maturities related to the Refinanced
Credit Facility and (ii) required minimum operating lease payments. The
following table summarizes the Partnerships contractual obligations as of
March 31, 2004, and the anticipated effect of these obligations on the
Partnerships liquidity for the remainder of 2004 and in future years:




---



##### Table of Contents



Payments Due By PeriodLess than
    
    1 - 3
    
    3 - 5
    
    More thanTotal
    
    1 year
    
    years
    
    years
    
    5 yearsNotes payable
    
    $
    20,693,750
    
    
    $
    3,278,750
    
    
    $
    12,953,750
    
    
    $
    4,461,250
    
    
    $
    Minimum operating lease payments
    
    
    83,280
    
    
    
    33,630
    
    
    
    49,650
    
    
    
    
    
    
    
    Total
    
    $
    20,777,030
    
    
    $
    3,312,380
    
    
    $
    13,003,400
    
    
    $
    4,461,250
    
    
    $
    
  (a)
    
    These contractual obligations do not include accounts payable and
accrued liabilities, which are expected to be paid in 2004.(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. Capital Expenditures During the first three months of 2004, the Partnership incurred approximately
$384,000 in capital expenditures. These expenditures included the initial
phases of two-way plant upgrades in Bay City and Brenham, Texas, which will
allow high-speed Internet services to be launched in these systems. In
addition, maintenance of existing plant equipment for all systems, including
cable line drops, is an ongoing expenditure. The Company plans to invest approximately $1.3 million in capital expenditures
during the remainder of 2004. Planned expenditures include the continuation of
distribution plant upgrades in both Toccoa and Royston, Georgia, potential line
extension opportunities and deployment of high-speed Internet services in Bay
City and Brenham, Texas and Toccoa and Royston, Georgia. Solicitation of Interest From Potential Purchasers The Managing General Partner has been working with a nationally recognized
brokerage firm to solicit interest from potential buyers for the Partnerships
cable systems. In September 2003, the broker contacted numerous potential
purchasers and solicited their respective expressions of interest. In response
to that solicitation, several qualified purchasers have expressed various
degrees of interest in purchasing one or more of the cable systems owned by the
Partnership. The General Partner is working to further clarify the level of
interest of each interested party, with a goal of determining which of those
parties is sufficiently committed to a possible purchase of the systems. The
General Partner has offered such parties a due diligence review period, which
concluded in April of 2004, and anticipates that formal bids will be solicited
and received once this process is complete in May of 2004. Any bids received
will then be evaluated. 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, which have been chosen
among alternatives, 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




---



##### Table of Contents



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.




---



##### Table of Contents



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 $207,000. 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 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




---



##### Table of Contents



PART II  OTHER INFORMATION 
 ITEM 1 Legal proceedings The Partnership has filed a lawsuit against the buyer of the Washington Systems
for recovery of the remaining escrow proceeds and unspecified damages. 
 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  (a)
    
    Exhibit Index 31
    
    
    (a).
    
    Certification of Chief Executive Officer of
Northland Communications Corporation, the Managing General
Partner, dated May 17, 2004 pursuant to section 302 of the
Sarbanes-Oxley Act31
    
    
    (b).
    
    Certification of President (Principal Financial
and Accounting Officer) of Northland Communications
Corporation, the Managing General Partner, dated May 17, 2004
pursuant to section 302 of the Sarbanes-Oxley Act32
    
    
    (a).
    
    Certification of Chief Executive Officer of
Northland Communications Corporation, the Managing General
Partner, dated May 17, 2004 pursuant to section 906 of the
Sarbanes-Oxley Act32
    
    
    (b).
    
    Certification of President (Principal
Financial and Accounting Officer) of Northland
Communications Corporation, the Managing General Partner,
dated May 17, 2004 pursuant to section 906 of the
Sarbanes-Oxley Act
  (b)
    
    Reports on Form 8-KForm 8-K filed on January 26, 2004 updating the current status of the
Managing General Partners efforts to solicit interest from potential
buyers.Form 8-K filed March 5, 2004 to make financial statements public
information.




---



##### Table of Contents



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,
General Partner SIGNATURES
    
    CAPACITIES
    
    DATE/s/ RICHARD I. CLARK

Richard I. Clark
    
    Executive Vice President, Treasurer and
Assistant Secretary
    
    5-17-04/s/ GARY S. JONES

Gary S. Jones
    
    President
    
    5-17-04