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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 June 30, 2004 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: 0-16718 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 
  N/A 
  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




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TABLE OF CONTENTS  PART 1  FINANCIAL INFORMATIONITEM 1. Financial StatementsCONDENSED BALANCE SHEETSCONDENSED STATEMENTS OF OPERATIONSSTATEMENTS OF OPERATIONSCONDENSED STATEMENTS OF CASH FLOWSNOTES TO UNAUDITED CONDENSED 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) June 30,
    
    December 31,2004
    
    2003ASSETSCash
    
    $
    770,640
    
    
    $
    758,694Accounts receivable
    
    
    373,531
    
    
    
    450,978Due from affiliates
    
    
    117,525
    
    
    
    67,242Prepaid expenses
    
    
    184,443
    
    
    
    107,780System sale receivable
    
    
    411,600
    
    
    
    1,120,494Property and equipment, net of accumulated
depreciation of $16,239,045 and $15,210,270,
respectively
    
    
    11,029,259
    
    
    
    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 $785,047 and $714,987, respectively
    
    
    654,028
    
    
    
    720,436Total assets
    
    $
    23,148,211
    
    
    $
    24,210,679LIABILITIES AND PARTNERS CAPITALAccounts payable and accrued expenses
    
    $
    1,155,123
    
    
    $
    1,198,834Due to Managing General Partner and affiliates
    
    
    63,996
    
    
    
    51,793Deposits
    
    
    20,157
    
    
    
    18,210Subscriber prepayments
    
    
    381,394
    
    
    
    358,129Notes payable
    
    
    19,887,500
    
    
    
    21,500,000Total liabilities
    
    
    21,508,170
    
    
    
    23,126,966Partners capital:General Partners:Contributed capital, net
    
    
    (25,367
    )
    
    
    (25,367
    )Accumulated deficit
    
    
    (170,701
    )
    
    
    (176,264
    )(196,068
    )
    
    
    (201,631
    )Limited Partners:Contributed capital, net
    
    
    18,735,576
    
    
    
    18,735,576Accumulated deficit
    
    
    (16,899,467
    )
    
    
    (17,450,232
    )1,836,109
    
    
    
    1,285,344Total partners capital
    
    
    1,640,041
    
    
    
    1,083,713Total liabilities and partners capital
    
    $
    23,148,211
    
    
    $
    24,210,679
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS  (UNAUDITED) For the three months ended June 30,2004
    
    2003Service revenues
    
    $
    3,528,680
    
    
    $
    3,547,096Expenses:Cable system operations (including
$24,204 and $35,404 to affiliates in
2004 and 2003, respectively), excluding
depreciation and amortization shown below
    
    
    279,702
    
    
    
    279,647General and administrative (including
$337,112 and $362,403 to affiliates
in 2004 and 2003, respectively)
    
    
    884,064
    
    
    
    868,484Programming (including $0 and
$9,556 to affiliates in 2004 and 2003,
respectively)
    
    
    1,179,389
    
    
    
    1,204,198Depreciation and amortization
    
    
    549,687
    
    
    
    536,324Loss on disposal of assets
    
    
    4,757
    
    
    
    2,4372,897,599
    
    
    
    2,891,090Income from operations
    
    
    631,080
    
    
    
    656,006Other income (expense):Interest expense and amortization of loan fees
    
    
    (330,698
    )
    
    
    (400,360
    )Interest income and other, net
    
    
    (274
    )
    
    
    446(330,972
    )
    
    
    (399,914
    )Net income
    
    
    300,109
    
    
    
    256,092Allocation of net income:General Partners
    
    $
    3,001
    
    
    $
    2,561Limited Partners
    
    $
    297,108
    
    
    $
    253,531Net income per limited partnership unit:(49,656 units)
    
    $
    6
    
    
    $
    5
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS  (UNAUDITED) For the six months ended June 30,2004
    
    2003Service revenues
    
    $
    7,032,533
    
    
    $
    7,000,958Expenses:Cable system operations (including
$49,796 and $72,616 to affiliates in
2004 and 2003, respectively), excluding
depreciation and amortization shown below
    
    
    569,089
    
    
    
    540,477General and administrative (including
$666,415 and $726,884 to affiliates
in 2004 and 2003, respectively)
    
    
    1,759,462
    
    
    
    1,660,282Programming (including $1,988 and
$18,923 to affiliates in 2004 and 2003,
respectively)
    
    
    2,374,147
    
    
    
    2,404,409Depreciation and amortization
    
    
    1,094,873
    
    
    
    1,072,048Loss on disposal of assets
    
    
    9,804
    
    
    
    16,7325,807,375
    
    
    
    5,693,948Income from operations
    
    
    1,225,158
    
    
    
    1,307,010Other income (expense):Interest expense and loan fees
    
    
    (672,354
    )
    
    
    (834,755
    )Interest income and other, net
    
    
    3,524
    
    
    
    1,223(668,830
    )
    
    
    (833,532
    )Income from continuing operations
    
    $
    556,328
    
    
    $
    473,478Discontinued 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
    
    $
    556,328
    
    
    $
    14,238,432Allocation of net income:General Partners
    
    $
    5,563
    
    
    $
    142,384Limited Partners
    
    $
    550,765
    
    
    $
    14,096,048Income from continuing operations per limited
partnership unit (49,656 units):
    
    $
    11
    
    
    $
    10Income from discontinued operations per limited
partnership unit (49,656 units):
    
    $
    
    
    
    $
    277Net income per limited partnership unit:(49,656 units)
    
    $
    11
    
    
    $
    287
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS  (UNAUDITED) For the six months ended June 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    556,328
    
    
    $
    14,238,432Adjustments to reconcile net income to
cash provided by operating activities:Depreciation and amortization
    
    
    1,094,873
    
    
    
    1,255,978Loan fee amortization
    
    
    70,060
    
    
    
    401,705Loss (gain) on sale of assets
    
    
    9,803
    
    
    
    (14,096,562
    )Other
    
    
    13,237
    
    
    
    (Increase) decrease in operating assets:Accounts receivable
    
    
    77,447
    
    
    
    (72,753
    )Due from affiliates
    
    
    (50,283
    )
    
    
    30,626Prepaid expenses
    
    
    (76,663
    )
    
    
    (140,094
    )Increase (decrease) in operating liabilitiesAccounts payable and accrued expenses
    
    
    (43,711
    )
    
    
    (1,006,798
    )Due to Managing General Partner and affiliates
    
    
    12,203
    
    
    
    43,459Deposits
    
    
    1,947
    
    
    
    2,450Subscriber prepayments
    
    
    23,265
    
    
    
    13,936Net cash provided by operating activities
    
    
    1,688,506
    
    
    
    670,379CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (770,302
    )
    
    
    (466,852
    )Proceeds from sale of systems
    
    
    708,894
    
    
    
    19,281,427Proceeds from sale of assets
    
    
    1,000
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (60,408
    )
    
    
    18,814,575CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on borrowings
    
    
    (1,612,500
    )
    
    
    (19,730,719
    )Loan fees
    
    
    (3,652
    )
    
    
    (317,891
    )Net cash used in financing activities
    
    
    (1,616,152
    )
    
    
    (20,048,610
    )INCREASE (DECREASE) IN CASH
    
    
    11,946
    
    
    
    (563,656
    )CASH, beginning of period
    
    
    758,694
    
    
    
    677,536CASH, end of period
    
    $
    770,640
    
    
    $
    113,880SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    644,550
    
    
    $
    1,040,649
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (1) Basis of Presentation These unaudited financial
statements are prepared 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 June 30, 2004, its statements of operations for the six and three months
ended June 30, 2004 and 2003, and its statements of cash flows for the six
months ended June 30, 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. (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 franchise agreements 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 (6 months)
    
    $
    73,0002005
    
    
    140,0002006
    
    
    140,0002007
    
    
    139,0002008
    
    
    139,000Thereafter
    
    
    23,000$
    654,000




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(3) System Sales On March 11, 2003, the Partnership sold the operating assets and franchise
rights of its 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 net 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, $411,600 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 six months endedJune 30, 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 sale
of systems
    
    
    (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.




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(4) 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 of 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 (6 months)
    
    $
    1,612,5002005
    
    
    3,440,0002006
    
    
    3,655,0002007
    
    
    4,515,0002008
    
    
    5,375,0002009
    
    
    1,290,000Total
    
    $
    19,887,500
 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 June 30, 2004, the Partnership was in compliance with these 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 June 30, 2004, the Refinanced Credit Facility had an
outstanding balance of $19,887,500, and applicable interest rates are as
follows; $16,500,000 at a LIBOR based interest rate of 5.68% and $3,387,500 at
a LIBOR based interest rate of 6.09%. These interest rates expire during the
third 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.




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PART I (continued) 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Continuing Operations Results of Continuing Operations  Six Months Ended June 30, 2004 and 2003 Revenues from continuing operations totaled $7,032,533 for the six months ended
June 30, 2004, representing a slight increase over the same period in 2003. Of
these revenues, $4,905,967 (70%) was derived from basic services, $465,461 (7%)
from premium services, $798,886 (11%) from expanded basic services, $84,021
(1%) from digital services, $393,644 (6%) from advertising, $32,969 from
high-speed Internet services, $124,930 (2%) from late fees, and
$226,655 (3%)
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
$569,089 for the six months ended June 30, 2004, an increase of $28,612 or
approximately 5% 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, offset by decreased regional management
costs. General and administrative expenses attributable to continuing operations
totaled $1,759,462 for the six months ended June 30, 2004, an increase of
$99,180 or approximately 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 $2,374,147
for the six months ended June 30, 2004, representing a slight
decrease from 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 six months ended June 30, 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 $162,401, or 19% from $834,755 to $672,354
for the six months ended June 30, 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. Results of Continuing Operations  Three Months Ended June 30, 2004 and 2003 Revenues from continuing operations totaled $3,528,680 for the three months
ended June 30, 2004, representing a slight decrease over the same period in
2003. Of these revenues, $2,463,693 (70%) was derived from basic services,
$231,143 (7%) from premium services, $404,626 (11%) from expanded basic
services, $40,556 (1%) from digital services, $195,670 (6%) from advertising,
$21,887 from high-speed Internet services, $63,890 (2%) from late fees,
and $106,915 (3%) from other sources. This slight decrease in revenues is
attributable to decreased premium and advertising revenue, offset by 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. Cable system operating expenses attributable to continuing operations totaled
$279,702 for the three months ended June 30, 2004, remaining relatively
constant with the same period in 2003. This is primarily attributable to
increased operating salaries and employee benefit costs and increased pole and
site rental costs, offset by a decrease in regional management costs.




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General and administrative expenses attributable to continuing operations
totaled $884,064 for the three months ended June 30, 2004, remaining relatively
constant with the same period in 2003. This 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, offset by decreased bad debt expenses, marketing costs and
billing expenses. Programming expenses attributable to continuing operations totaled $1,179,390
for the three months ended June 30, 2004, representing a
decrease of $24,809,
or approximately 2% 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 June 30, 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 $69,661, or 17% from $400,360 to $330,699
for the three months ended June 30, 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. 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 $1,688,506 for the six
months ended June 30, 2004. Adjustments to the $556,328 net income for the
period to reconcile to net cash provided by operating activities consisted
primarily of depreciation and amortization of $1,094,873 and loan fee
amortization of $70,060, offset by increases in operating assets of $49,499
and decreases in operating liabilities of $6,296. Net cash used in investing activities consisted primarily of proceeds
from the sale of the Washington Systems of $708,894, offset by $770,302 in
capital expenditures for the six months ended June 30 2004. Net cash used in financing activities for the three months ended June 30,
2004, consisted of $1,612,500 in scheduled principal payments on long-term
debt, and additional loan fee payments of $3,652 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:




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PrincipalPayments2004 (9 months)
    
    $
    1,612,5002005
    
    
    3,440,0002006
    
    
    3,655,0002007
    
    
    4,515,0002008
    
    
    5,375,0002009
    
    
    1,290,000Total
    
    $
    19,887,500
 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 June 30, 2004, the Partnership was in compliance with these 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 June 30, 2004, the Refinanced Credit Facility had an
outstanding balance of $19,887,500, and applicable interest rates are as
follows; $16,500,000 at a LIBOR based interest rate of 5.68% and $3,387,500 at
a LIBOR based interest rate of 6.09%. These interest rates expire during the
third 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. System Sale On March 11, 2003, the Partnership sold the operating assets and franchise
rights of its 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 net 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
$411,600 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.




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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 six months endedJune 30, 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 sale
of systems
    
    
    (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 June
30, 2004, and the anticipated effect of these obligations on the Partnerships
liquidity for the remainder of 2004 and in future years:




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Payments Due By PeriodLess than 1
    
    1  3
    
    3  5
    
    More thanTotal
    
    year
    
    years
    
    years
    
    5 yearsNotes payable
    
    $
    19,887,500
    
    
    $
    3,332,500
    
    
    $
    7,632,500
    
    
    $
    8,922,500
    
    
    $
    Minimum operating lease payments
    
    
    58,506
    
    
    
    19,056
    
    
    
    39,450
    
    
    
    
    
    
    
    Total
    
    $
    19,946,006
    
    
    $
    3,351,556
    
    
    $
    7,671,950
    
    
    $
    8,922,500
    
    
    $
    
  (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 six months of 2004, the Partnership incurred approximately
$770,000 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 $725,000 in capital expenditures
during the remainder of 2004. Planned expenditures include the continuation of
distribution plant upgrades in Toccoa, Georgia, potential line extension
opportunities and deployment of high-speed Internet services in Bay City and
Brenham, Texas and Toccoa and Vidalia, 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 May
2004, as anticipated, the Partnership received several offers from interested
purchasers. The Partnership is now working to negotiate purchase and sale
agreements and hopes to complete this process during the third
quarter of 2004, however no assurances can be given as to the likelihood that any sale or
sales will ultimately be consummated. 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 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.




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##### Table of Contents



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 franchise agreements 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
franchise agreements have indefinite lives because the franchise agreements 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 franchise agreements are not material in relation to the
carrying value of the franchise agreements. While the franchise agreements 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.




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##### 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 June 30, 2004 and 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 $199,000. 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
during the quarter ended June 30, 2004 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.




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##### 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 August 16, 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 August 16,
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 August 16, 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 August 16, 2004 pursuant to section 906 of the
Sarbanes-Oxley Act  (b)
    
    Reports on Form 8-KForm 8-K filed on June 22, 2004 disclosing letter to limited partners
regarding efforts in soliciting purchase offers from qualified buyers.




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##### 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
    
    8-16-04/s/ GARY S. JONES
Gary S. Jones
    
    President
    
    8-16-04