Item 1. Business
General
The Company, a Delaware corporation with a principal place of business at 300 Atlantic Street, Stamford, Connecticut 06901, was formed in January 1994 as a wholly-owned subsidiary of Fuel-Tech N.V. ("Fuel Tech") to further develop and commercialize platinum fuel catalysts ("PFCs"). Fuel Tech saw market opportunities develop after the passage of the Clean Air Act Amendments of 1990 ("CAAA") and in 1992 Fuel Tech focused its research and development efforts on the PFCs as an integral part of a diesel engine emission control program. The rights to the PFCs were transferred by license agreements to the Company by Fuel Tech and Platinum Plus, Inc. (an affiliate of Fuel Tech), effective October 28, 1994 (together, "the License Agreements"). In December 1995, Fuel Tech caused 1,810,853 (72.0%) of the Company's 2,516,666 outstanding shares of Common Stock, $0.05 par value (the "Common Stock") to be publicly sold in a rights offering to Fuel Tech stockholders. Fuel Tech retains the balance of the Common Stock.
Further information required by this item is set forth (a) on the inside front cover of the Company's Annual Report to Stockholders for the year ended December 31, 1996, exhibit 19 to this Report on Form 10-K (the "Annual Report"), under the captions "Platinum Fuel Catalyst (PFC)" and "NOx Control Products," and (b) on page 1 and 2 of the Annual Report under the caption "Chairman's Letter" and is incorporated by reference herein.
Regulations Both federal and state environmental regulations in recent years have demanded reduced emission levels from engines. Smog is a problem in a number of industrialized areas and is caused by pollutants from engines, principally NOx and volatile organic compounds. Particulate emissions have consistently been linked to respiratory ailments. To address these pollution concerns, CAAA require states to reduce NOx emissions in these areas from both stationary sources, such as compressor engines and turbines, and mobile sources, such as automobiles, buses and trucks. Specific regulations under Title II of the CAAA-Provisions Relating to Mobile Sources pertain to the control of NOx and particulates from diesel engines. These regulations also limit the sulfur content of diesel fuel and establish new registration requirements for fuels and fuel additives. Existing urban buses in major metropolitan areas were required to reduce particulate emissions as of January 1995, and beginning in 1998 there will be new NOx level standards in place for urban buses and new diesel engines. In July 1995, the Environmental Protection Agency (the "EPA"), California Air Resources Board and major diesel engine manufacturers signed a Statement of Principles directed towards the development of new low NOx engines by 2004. Under the CAAA there are so far only retrofit regulations for particulate emissions from urban buses. EPA has, however, recently proposed further tightening of ambient levels of ozone and particulates.
Products and Markets Information required by this item (a) for the Company's PFC products is set forth in the text from page 3 through page 4 of the Annual Report under the caption "Platinum Fuel Catalysts" and the subcaptions "Platinum Plus - Europe and Asia," "Platinum Plus - The Americas," "PFCs for Particulate Traps and Catalytic Oxidizers," "Premium Diesel," "Total Market for PFCs," and "Health Effects and the Use of Metallic Additives," and (b) for the Company's NOx control products in the text from page 4 through page 5 of the Annual Report under the caption "NOx Reduction Systems and Additives" and the subcaptions "NOx Reduction for Heavy-Duty Diesel Engines," "Retrofit NOx Reduction for Heavy-Duty Diesel-Engines" and "Market for NOx Reduction Systems and Additives," and (c) with respect to marketing strategy generally, in the text of the second paragraph under the caption "Business Structure" on page 5 of the Annual Report, all of which information is incorporated by reference herein.
Sources of Supply
Information required by this item is set forth in the first paragraph of text in the Annual Report on page 5 under the caption "Business Structure" and is incorporated by reference herein.
Research and Development
The Company employs six individuals, including three executive officers, in engineering and product development as of the date of this report. During the years ended December 31, 1996, 1995, and 1994, the Company's research and development expenses exclusive of patent costs totaled approximately $1,747,000, $796,000, and $441,000 respectively. The Company expenses all development costs as incurred.
Protection of Proprietary Information
Under the license agreement with Fuel Tech, the Company holds the rights to a number of patents and patent applications pending. There can be no assurance that pending patent applications will be approved or that the issued patents or pending applications will not be challenged or circumvented by competitors. Certain critical technology incorporated in the Company's products is protected by trademark and trade secret laws and confidentiality and licensing agreements. There can be no assurance that such protection will prove adequate or that the Company will have adequate remedies for disclosure of its trade secrets or violations of its intellectual property rights.
Insurance The Company maintains coverage for the customary risks inherent in its operations. Although the Company believes its insurance policies to be adequate in the amount and coverage for its current operations, no assurance can be given that this coverage will, in fact, be or will continue to be available in adequate amounts or at a reasonable cost or that such insurance will be adequate to cover any future claims against the Company.
Employees The Company has nine full-time employees. In addition, two executive officers of Fuel Tech provide management, administrative, financial, and legal services for the Company pursuant to a Management and Services Agreement between Fuel Tech and the Company on an as-needed basis. The Company also retains three outside technical consultants on specific projects related to platinum, engines, and NOx reduction.
Risk Factors of the Business Investors in the Company should be mindful of the following risk factors relative to the Company's business.
Competition Competition in the diesel fuel additive market will come from other large additive suppliers. The Company is not currently in competition with other fuel additive manufactures. When active marketing of the Company's PFCs is in progress, the Company anticipates competing on the basis of price, proprietary technology, effectiveness and ease of use of the PFCs and in efficiency of distribution. To the Company's knowledge, it does not compete against any major gasoline companies in the PFC market. While the company intends to seek collaborative arrangements with additive suppliers and oil companies, there are no assurances that these arrangements can be negotiated. Competition may also come from alternative fuels including methanol and natural gas as well as from mechanized adjustments to engines, new injector designs and engine rebuilds. While the Company believes its patent position produces a strong competitive barrier to entry, other platinum-based compounds could be developed outside the Company's issued patents. To this end the Company is seeking collaborative arrangement with specific platinum manufacturers.
Competition in the NOx control market will come from other suppliers of reagent-based post-combustion NOx control systems including large, well-established catalyst and engine manufacturing companies. The Company has formed certain alliances to support its efforts to commercialize NOx control products but there are no assurances that these alliances will be sufficient or be maintained.
Lack of a Viable Product; Need for Additional Research and Development
The Company was incorporated in January 1994 and, to date, has engaged solely in research and development related to its PFC process and NOx reduction technologies. The Company's PFC process will require substantial additional research, development and testing in order to determine its commercial viability. The Company has not proven its PFC technology other than in a limited number of trials and demonstrations. If the Company successfully field tests its PFC technology, the commercialization of the technology will require significant additional time and expenditures. The commercialization of the technology will depend on the Company's success in achieving cost effective production of the PFCs, maintaining registration status with the EPA and other regulatory bodies, and on forming strategic alliances for marketing and distribution of PFCs. The accomplishment of some or all of these objectives may be delayed or may never occur. If the accomplishment of any of these objectives is delayed, the Company may require additional capital to continue the development and commercialization of the PFC technology, and there can be no assurance that such capital will be available.
No Revenues to Date; Continuing Operating Losses The Company has had no revenues through December 31, 1996. The Company expects to continue to incur operating losses through at least 1997. There can be no assurance that the Company will achieve or sustain significant revenues or profitability in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
No Assurances of Additional Funding The Company may in the future seek additional funding in the form of a public or private offering of additional shares of the Company's Common Shares. Any offering of the Company's Common Shares may result in immediate and significant dilution to the stockholders of the Company. The ability of the Company to consummate a public offering or to obtain other financing will depend on the status of the Company's research and development and marketing programs and clinical trials, as well as conditions then prevailing in the relevant capital markets. There can be no assurance that such funding will be available when needed or on terms acceptable to the Company. In the event that the Company is unable to raise additional funds, the Company may be required to delay, scale back or severely curtail its development efforts or otherwise impede its ongoing clinical trials, which could have a material adverse effect on the Company's business, operating results, financial condition and long-term prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Limited Marketing Experience The Company intends to enter into strategic alliances with marketing partners. In addition to its supply agreement with Holt Lloyd International Ltd., it is currently engaged in cooperative development and test programs with potential marketing partners and is in discussion with others with a view towards conducting similar programs. The Company is targeting to have one or more additional strategic alliance agreements for marketing purposes concluded within 1997; however, there can be no assurance that the Company will successfully implement its sales and marketing plan.
Possible Volatility of Stock Price There has been significant volatility in the market prices of publicly-traded shares of emerging growth technology companies. Factors such as announcements of technical developments, establishment of strategic alliances, changes in governmental regulation, and developments in patent or proprietary rights may have a significant effect on the market price of the Company's Common Shares.
Relationship with Fuel Tech; Conflicts of Interest Directors and officers of Fuel Tech and its subsidiaries who are also directors and officers of the Company, and Fuel Tech as the Company's largest stockholder, are in positions involving the possibility of conflicts of interest with respect to transactions concerning the Company. The Company currently has only one independent director, but may seek some in the future. See Item 13, "Certain Relationships and Related Transactions".
Lack of Diversification The Company is engaged in only one principal business, involving the development and commercialization of technology to control emissions from internal combustion engines through the manufacturing and marketing of its PFCs and by other products, such as emulsions and urea SCR systems. The Company does not expect to have any material sources of revenues from other than the PFCs in the foreseeable future. An adverse development in the Company's business as a result of competition, technological change, government regulation, or any other factor could have a significantly greater impact than if the Company maintained diverse operations.
Expansion into New Markets The Company's strategy is to expand beyond PFCs to other types of emission control products for combustion engines, particularly for NOx control. There can be no assurance that the Company will be successful in manufacturing its PFCs cost-effectively or meet the future demand for emission-reducing fuel additives or NOx control products. Failure to gain market acceptance (either in the engineering or regulatory communities or in the general public) would have a material adverse effect on the Company's business, operating results and financial condition. See "Business --- Markets."
Dependence upon Third Party Technology While the PFCs may be used alone for moderate levels of emission control, it is expected that the product will be integrated into other systems using third party technology to achieve higher levels of control. The adoption of the use of PFCs in such systems will depend on the effectiveness of third party technology, the ability of third parties to market their products, and the compatibility of the PFCs and NOx control products with their systems. Failure of these third party systems to gain market acceptance or failure of the PFCs and NOx control products to prove compatible and effective with third party systems could have an adverse effect on the Company's business, operating results, and financial condition. See "Business --- Markets."
Uncertainty of Market Acceptance The commercial success of the Company's products will depend upon acceptance by the fuel additive, oil and engine industries, and acceptance by governmental regulatory bodies. This market acceptance will in turn depend upon competitive developments and the Company's ability to demonstrate the efficacy, cost-effectiveness, safety and ease of use of PFCs and NOx control products of the Company. The failure by the Company to receive market acceptance for PFCs and NOx control products would have an adverse effect on the Company's business, operating results and financial condition. See "Business --- Markets."
No Assurance of Necessary Regulatory Approvals The Company's products and manufacturing activities are subject to governmental regulation, principally by the EPA and corresponding foreign and state agencies. The EPA administers the CAAA. The Company is subject to the standards and procedures contained in such act and the regulations promulgated thereunder, as well as similar standards, procedures, and regulations of international regulatory authorities, and is subject to inspection by the EPA and other regulatory bodies for compliance with such standards, procedures, and regulations. Failure to receive appropriate approvals or to comply with EPA and similar foreign regulations could result in civil monetary or criminal sanctions, restrictions on or injunction against marketing of the Company's products as well as seizure or recall of the Company's products, or other regulatory actions. PFCs received registration from the EPA to be used as an aftermarket treatment of individual vehicles and in bulk fuel supplies for diesel. CDT has recently received registration status under EPA fuel additive regulations for three additional PFCs with the original PFCs. CDT currently has until May 1997 to submit information regarding the potential health impacts of additive emissions under Federal regulations issued in May 1994 pertaining to all fuel and fuel additives. The Company has received assurance from the U.K. Government that the PFCs are not allergenic and emissions would be below levels causing human toxicity. See "Business --- General."
No Assurance of Protection of Patents and Proprietary Rights The Company holds licenses to a number of patents and has patent applications pending. There can be no assurance that pending patent applications will be approved or that the issued patents or pending applications will not be challenged or circumvented by competitors. Certain critical technology incorporated in the Company's products is protected by trademark and trade secret laws and confidentiality and licensing agreements. There can be no assurance that such protection will prove adequate or that the Company will have adequate remedies for disclosure of its trade secrets or violations of its intellectual property rights. See "Business --- Patents; Protection of Proprietary Information."
Platinum Price Volatility The cost of platinum will have a direct impact on the future pricing and profitability of PFCs. Although the Company intends to minimize this risk through various purchasing and hedging strategies, there can be no assurance that the Company will be able to do so. A significant increase in the price of platinum could have a material adverse effect on the Company's business, operating results and financial condition.
Dependence on Attracting and Retaining Personnel The success of the Company will depend, in large part, on the Company's ability (i) to retain current key personnel, (ii) to attract and retain additional qualified management, scientific and manufacturing personnel, and (iii) to develop and maintain relationships with research institutions and other outside consultants and luminaries. The loss of key personnel or the inability of the Company to hire or retain qualified personnel, or the failure to assimilate effectively such personnel could have a material adverse effect on the Company's business, operating results and financial condition. See "Business - --- Employees."
No Dividends The Company has to date not paid dividends on its Common Stock and does not intend to pay any dividends to its stockholders in the foreseeable future. The Company currently intends to reinvest earnings, if any, in the development and expansion of its business. See Item 5, "Market for Registrant's Common Equity and Related Stockholder Matters."
Item 2.

Item 2. Properties
Facilities The Company has leased for administrative purposes 2,900 square feet of office space at 300 Atlantic Street, Stamford, Connecticut effective February 1, 1996 through February 28, 1999. Annual base rent under this lease is $65,250.
Patents and Licenses The Company's technology is comprised of patents, patent applications, trade or service marks, data and know-how. This technology is held under two license agreements effective as of October 28, 1994 from Fuel Tech, for use outside the U.S., and from Platinum Plus, Inc., a subsidiary of Fuel Tech, Inc., which is a direct subsidiary of Fuel Tech, for use in the U.S. These agreements, which expire in 2008, each provide the Company with an exclusive license, including the right to sublicense the technology. They provide for running royalties commencing in 1998 of 2.5% of gross revenues derived from the PFCs. The Company may at any time purchase legal title to the technology and terminate the agreements by payment of the aggregate amount of $12,000,000 to the licensors. The agreements require the Company to maintain the technology at its expense. Neither party to either agreement may promote or sell within the defined territory of each agreement any other metallic fuel additive competitive with the defined technology. Either party to either agreement may terminate such agreement upon a material breach of the other party which remains uncured for 45 days after notice. A material breach of the Company would include failure to render payments when due or the bankruptcy or insolvency of the Company.
The Company has, under its exclusive license from Fuel Tech, nine U.S. and sixteen foreign patents for PFCs. Fourteen patent applications are also pending in the U.S. and sixty foreign applications are pending, including five applications filed under the patent cooperation treaty. The key aspect of these patents, which were filed for diesel and gasoline applications and have claims concerning platinum group metals compositions, manufacturing methods and applications, is the protection of the platinum group metal compounds which are soluble and stable in the fuel and actively catalyze the combustion of the fuel.
Item 3.

Item 3. Legal Proceedings The Company is not involved in legal proceedings.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter of 1996, no matters were submitted to a vote of the Company's security holders.
Part II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Information required by this Item is set forth under the caption "Stockholder Information" on the inside back cover of the Annual Report and is incorporated by reference herein. The Company's Common Stock became first publicly traded on December 26, 1995.
Item 6.

Item 6. Selected Financial Data
Information required by this Item is set forth under the caption "Selected Financial Data" on page 8 of the Annual Report and is incorporated by reference herein.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Information required by this Item is set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 6 of the Annual Report and is incorporated by reference herein.
Item 8.

Item 8. Financial Statements
Information required by this Item is set forth on pages 9 through 18 of the Annual Report and is incorporated by reference herein.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the Company will be set forth under the captions "Election of Directors," and "Directors and Executive Officers of the Company" in the Company's proxy statement related to the 1997 annual meeting of stockholders (the "Proxy Statement") and is incorporated by reference herein.
Item 11.

Item 11. Executive Compensation
Information required by this item will be set forth under the caption "Executive Compensation" in the Proxy Statement and is incorporated by reference herein excluding, however, the information under the captions "Report of the Board of Directors on Executive Compensation" and "Performance Graph" which is not incorporated by reference.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this item will be set forth under the caption "Principal Stockholders and Stock Ownership of Management" in the Proxy Statement and is incorporated by reference herein.
Item 13.

Item 13. Certain Relationships and Related Transactions
Information required by this item will be set forth under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions" in the Proxy Statement and is incorporated by reference herein.
Part IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a). (1) Financial Statements The Financial Statements required by Part II, Item 8 of Form 10-K are included in the Annual Report, pages 9 through 18 and are incorporated by reference herein.
(2) Financial Statement Schedules Schedules have been omitted because of the absence of the conditions under which they are required or because the required information where material is shown in the Financial Statements or the notes thereto.
(3) Exhibits
* Previously filed as Exhibit to Registration Statement on Form S-1 of August 16, 1995, No. 33-95840 and incorporated by reference herein. ** Filed herewith. *** Previously filed as an Exhibit to Form 10-K for the year ended December 31, 1995, and incorporated by reference herein. **** Previously filed as an Exhibit to Form 10-Q for the quarter ended September 30, 1996, and incorporated by reference herein.
(b). Reports on Form 8-K
No reports on Form 8-K were filed by the Company for the fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Clean Diesel Technologies, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CLEAN DIESEL TECHNOLOGIES, INC.
March 28, 1997 By: /s/ Jeremy D. Peter-Hoblyn ------------------ -------------------------- Date Jeremy D. Peter-Hoblyn Chief Executive Officer, President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed below by the following persons on behalf of Clean Diesel Technologies, Inc. and in the capacities and on the dates indicated.


Item 1. Business
General Development of Business
ICON Cash Flow Partners L.P. Seven (the "Partnership"), was formed on May 23, 1995 as a Delaware limited partnership. The Partnership commenced business operations on its initial closing date, January 19, 1996 with the admission of 26,367.95 limited partnership units at $100 per unit representing $2,636,795 of capital contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 additional units were admitted representing $24,917,252 of capital contributions bringing the total admission to 275,540.47 units totaling $27,554,047 in capital contributions.
Narrative Description of Business
The Partnership is an equipment leasing income fund. The principal investment objective of the Partnership is to obtain the maximum economic return from its investments for the benefit of its limited partners. To achieve this objective, the Partnership intends to: (1) acquire a diversified portfolio of short-term, high-yield investments; (2) make monthly cash distributions to its limited partners from cash from operations, commencing with each limited partner's admission to the Partnership, continuing through the reinvestment period, which period will end no later than the eighth anniversary of the final closing date; (3) re-invest substantially all undistributed cash from operations and cash from sales in additional equipment and financing transactions during the reinvestment period; and (4) sell the Partnership's investments and distribute the cash from sales of such investments to its limited partners within six to thirty-six months after the end of the reinvestment period. In addition to acquiring equipment and entering into leases, the Partnership will (1) acquire equipment already subject to leases originated by affiliates and non-affiliated lessors and (2) enter into financing transactions, which are (i) secured by the equipment financed and lease revenues therefrom (if any) and additional collateral as deemed necessary by the credit review committee of the General Partner, and (ii) evidenced by the irrevocable obligation of the lessees.
The equipment leasing industry is highly competitive. In initiating its leasing transactions, the Partnership will compete with leasing companies, manufacturers that lease their products directly, equipment brokers and dealers and financial institutions, including commercial banks and insurance companies. Many competitors are larger than the Partnership and have access to more favorable financing. Competitive factors in the equipment leasing business primarily involve pricing and other financial arrangements, equipment remarketing capabilities and servicing of customer lessees.
The Partnership has no direct employees. The General Partner has full and exclusive discretion in management and control of the Partnership.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
Lease and Financing Transactions
For the year ended December 31, 1996, the Partnership purchased and leased or financed $91,413,127 of equipment, with a weighted average initial transaction term of 70 months. Included in the summary of equipment cost by category below is 100% of the equipment cost acquired by a joint venture in which the partnership has a 99% interest. The partnership accounts for this investment by consolidating 100% of the assets and liabilities of the joint venture and reflecting as a liability the related minority interest. A summary of the portfolio equipment cost by category held at December 31, 1996 is as follows:
December 31, 1996 Category Cost Percent
Aircraft $ 52,403,337 57.3% Manufacturing & production 13,574,591 14.8 Computer systems 9,167,523 10.0 Telecommunications 5,266,424 5.8 Material handling 4,632,009 5.1 Office equipment 2,794,979 3.1 Restaurant 984,983 1.1 Furniture and fixtures 794,949 .9 Automotive 487,432 .5 Miscellaneous 392,811 .4 Medical 365,398 .4 Video production 221,530 .2 Retail systems 171,350 .2 Audio 155,811 .2 ------------- -----
$ 91,413,127 100.0% ============= =====
The Partnership has three leases which individually represent greater than 10% of the total portfolio equipment cost at December 31, 1996. The leases are with Federal Express (aircraft), Rowan Companies (manufacturing & production), and Continental Airlines, Inc. (aircraft) and they represented 44.8%, 13.5% and 12.5%, respectively, of the total portfolio equipment cost at December 31, 1996.
Item 2.

Item 2. Properties
The Partnership neither owns nor leases office space or equipment for the purpose of managing its day-to-day affairs. The General Partner has exclusive control over all aspects of the business of the Partnership, including providing any necessary office space. As such, the General Partner will be compensated for services related to the management and administration of the Partnership's business.
Item 3.

Item 3. Legal Proceedings
The Partnership is not a party to any pending legal proceedings.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 1996.
PART II
Item 5.

Item 5. Market for the Registrant's Securities and Related Security Holder Matters
The Partnership's limited partnership interest is not publicly traded nor is there currently a market for the Partnership's limited partnership units. It is unlikely that any such market will develop.
Number of Equity Security Holders Title of Class as of December 31, 1996 -------------- ------------------------------
Limited Partners 1,473 General Partner 1
Item 6.

Item 6. Selected Consolidated Financial and Operating Data
Year Ended December 31, 1996
Total revenue $ 1,564,069 ===========
Net income $ 405,451 ===========
Net income allocable to limited partners $ 401,396 ===========
Net income allocable to the General Partner $ 4,055 ===========
Weighted average limited partnership units outstanding 156,222
Net income per weighted average limited partnership unit $ 2.57 ===========
Distributions to limited partners $ 1,361,099 ===========
Distributions to the General Partner $ 13,749 ===========
No operating data is presented for 1995 and prior since the Partnership commenced operations on January 19, 1996, the initial closing date.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
The above selected financial data should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report.
Item 7.

Item 7. General Partner's Discussion and Analysis of Financial Condition and Results of Operations
ICON Cash Flow Partners L.P. Seven (the "Partnership") was formed on May 23, 1995 as a Delaware limited partnership with an initial capitalization of $2,000. The Partnership commenced business operations on its initial closing date, January 19, 1996 with the admission of 26,367.95 limited partnership units at $100 per unit representing $2,636,795 of capital contributions. Between January 19, 1996 and December 31, 1996, 249,172.52 additional units were admitted representing $24,917,252 of capital contributions bringing the total admission to 275,540.47 units totaling $27,554,047 in capital contributions.
The Partnership's portfolio consisted of net investments in finance leases, equity investment, leveraged leases and financings representing 42%, 26%, 21% and 11% of total investments at December 31, 1996, respectively.
Results of Operations for the Year Ended December 31, 1996
For the year ended December 31, 1996, the Partnership leased or financed equipment with an initial cost of $91,413,135 to 198 lessees or equipment users. On December 31, 1996, the Partnership and an affiliate, ICON Cash Flow Partners, L.P., Series E ("Series E"), formed a joint venture for the purpose of acquiring and managing an aircraft currently on lease to Continental Airlines, Inc. in the amount of $10,905,228 and is included in 1996 total acquisitions. The aircraft is a 1976 McDonnell Douglas DC-10-30. Series E and the Partnership contributed $15,955 (1%) and $1,579,514 (99%), respectively, to the joint venture. Profits, losses and disposition proceeds are allocated 99% to the Partnership and 1% to Series E and is reflected on the Balance Sheet as an "Investment in leveraged leases." The weighted average initial transaction term for 1996 was 70 months.
Since the Partnership commenced operations on January 19, 1996, a comparison of results of operations to prior periods is not presented.
Net income for the year ended December 31, 1996 was $405,451. The net income per weighted average limited partnership unit was $2.57, weighted from the date each unit was admitted to the Partnership.
Liquidity and Capital Resources
The Partnership's primary sources of funds in 1996 were capital contributions, net of offering expenses, of $23,834,251 from limited partners and cash provided by operations of $973,899. These funds were used to fund cash distributions and to purchase equipment. The Partnership intends to continue to purchase equipment and to fund cash distributions utilizing funds from capital contributions and cash provided by operations.
The Partnership had notes payable of $23,314,945 at December 31, 1996 as a result of borrowings secured by equipment. These are non-recourse notes which are being paid directly to the lenders by the lessees.
Cash distributions to the limited partners, which were paid monthly, totaled $1,361,099, of which $401,396 was investment income and $959,703 was a return of capital. The limited partner distribution per weighted average unit outstanding for December 31, 1996 was $8.71, of which $2.57 was investment income and $6.14 was a return of capital.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
On March 11, 1997, the Partnership and two affiliates, ICON Cash Flow Partners, L.P., Series D and ICON Cash Flow Partners L.P. Six, (collectively "the Members"), contributed and assigned $6,582,150, $8,671,773 and $6,712,631, respectively, in equipment lease and finance receivables and residuals to ICON Receivables 1997-A LLC ("1997-A"), a special purpose entity created by the Members. The Members received a 29.4%, 40.8% and 29.8% interest, respectively, in 1997-A based on the present value of their related contributions. 1997-A was formed for the purpose of originating new leases, managing existing contributed assets and, eventually, securitizing its portfolio. In order to fund the acquisition of new leases, 1997-A obtained a warehouse borrowing facility from Prudential Securities Credit Corporation (the "Facility"). Borrowings under the Facility are based on the present value of the new leases, provided that in the aggregate, the amount outstanding cannot exceed $20,000,000. Outstanding amounts under the Facility bear interest equal to Libor plus 1.5%. Collections of receivables from new leases are used to pay down the Facility, however, in the event of a default, all of 1997-A's assets are available to cure such default. The net proceeds from the expected securitization of these assets will be used to pay-off the remaining Facility balance and any remaining proceeds will be distributed to the Members in accordance with their membership interests. The Partnership will account for its investment in 1997-A under the equity method. The investment in 1997-A will be increased or decreased by its share of profit or losses and decreased by any distributions received by 1997-A.
As of December 31, 1996 there were no known trends or demands, commitments, events or uncertainties which are likely to have any material effect on liquidity. As cash is realized from operations, sales of equipment and borrowings, the Partnership will invest in equipment leases and financings where it deems it to be prudent while retaining sufficient cash to meet its reserve requirements and recurring obligations as they become due.
Accounting Developments
In June 1996 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125 establishes, among other things, criteria for determining whether a transfer of financial assets is a sale or a secured borrowing effective for all transfers occurring after December 31, 1996. The adoption of SFAS No. 125 is not expected to have a material impact on the Partnership's net income, partners' equity or total assets.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
Item 8.

Item 8. Financial Statements and Supplementary Data
Page Number
Independent Auditors' Report 10
Balance Sheets as of December 31, 1996 and 1995 11
Statements of Operations for the Year Ended December 31, 1996 and for the Period May 23, 1995 (date of inception) to December 31, 1995 12
Statements of Changes in Partners' Equity for the Year Ended December 31, 1996 and for the Period May 23, 1995 (date of inception) to December 31, 1995 13
Statements of Cash Flows for the Year Ended December 31, 1996 and for the Period May 23, 1995 (date of inception) to December 31, 1995 14-15
Notes to Financial Statements 16-22
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Financial Statements
December 31, 1996
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners ICON Cash Flow Partners L.P. Seven:
We have audited the accompanying balance sheets of ICON Cash Flow Partners L.P. Seven (a Delaware limited partnership) as of December 31, 1996 and 1995, and the related statements of operations, changes in partners' equity, and cash flows for the year ended December 31, 1996 and for the period May 23, 1995 (date of inception) to December 31, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ICON Cash Flow Partners L.P. Seven as of December 31, 1996 and 1995, and the results of its operations and its cash flows for the year ended December 31, 1996 and for the period May 23, 1995 (date of inception) to December 31, 1995, in conformity with generally accepted accounting principles.
March 7, 1997 New York, New York
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Balance Sheets
December 31,
See accompanying notes to financial statements.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Statements of Operations
For the Year Ended December 31, 1996 and for the Period May 23, 1995 (date of inception) to December 31, 1995
1996 1995 ---------- ----------
Revenues
Finance income .............................. $ 939,924 $ -- Income from leveraged leases, net ........... 366,790 -- Interest income and other ................... 257,355 -- ---------- ----------
Total revenues .............................. 1,564,069 -- ---------- ----------
Expenses
Interest .................................... 398,200 -- Management fees - General Partner ........... 264,784 -- Amortization of initial direct costs ........ 230,785 -- Administrative expense reimbursements - General Partner .......... 117,809 -- Provision for bad debt ...................... 75,000 -- General and administrative .................. 72,040 -- ---------- ----------
Total expenses .............................. 1,158,618 -- ---------- ----------
Net income ..................................... $ 405,451 $ -- ========== ==========
Net income allocable to: Limited partners ............................ $ 401,396 $ -- General Partner ............................. 4,055 -- ---------- ----------
$ 405,451 $ -- ========== ==========
Weighted average number of limited partnership units outstanding ............... 156,222 -- ========== ==========
Net income per weighted average limited partnership unit .................... $ 2.57 $ -- ========== ==========
See accompanying notes to financial statements.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Statements of Changes in Partners' Equity
For the Year Ended December 31, 1996 and for the Period May 23, 1995 (date of inception) to December 31, 1995
See accompanying notes to financial statements.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Statements of Cash Flows
For the Year Ended December 31, 1996 and for the Period May 23, 1995 (date of inception) to December 31, 1995
See accompanying notes to financial statements.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Statements of Cash Flows (continued)
Supplemental Disclosure of Cash Flow Information
For the year ended December 31, 1996, non-cash activities included the following:
Fair value of equipment and receivables purchased for debt and payables .............. $(59,189,952) Non-recourse notes payable assumed in purchase price ............................... 57,399,235 Accounts payable - equipment ................... 1,790,717
Principal and interest on direct finance receivables paid directly to lenders by lessees ........................ 3,625,762 Principal and interest on non-recourse financing paid directly to lenders by lessees ................................... (3,625,762)
$ -- ============
Interest expense of $398,200 for the year ended December 31, 1996 consisted of interest expense on non-recourse financing paid or accrued directly to lenders by lessees of $395,645 and other interest of $2,555.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements
December 31, 1996
1. Organization
ICON Cash Flow Partners L.P. Seven (the "Partnership") was formed on May 23, 1995 as a Delaware limited partnership with an initial capitalization of $2,000. It was formed to acquire various types of equipment, to lease such equipment to third parties and, to a lesser degree, to enter into secured financing transactions. The Partnership commenced business operations on its initial closing date, January 19, 1996, with the admission of 26,367.95 limited partnership units at $100 per unit representing $2,636,795 of capital contributions. As of December 31, 1996, 249,172.52 additional units had been admitted into the Partnership with aggregate gross proceeds of $24,917,252 bringing the total admission to 275,540.47 units totaling $27,554,047 in capital contributions.
The General Partner of the Partnership is ICON Capital Corp. (the "General Partner"), a Connecticut corporation. The General Partner will manage and control the business affairs of the Partnership's equipment, leases and financing transactions under a management agreement with the Partnership.
ICON Securities Corp., an affiliate of the General Partner, will receive an underwriting commission on the gross proceeds from sales of all units. The total underwriting compensation to be paid by the Partnership, including underwriting commissions, sales commissions, incentive fees, public offering expense reimbursements and due diligence activities will be limited to 13 1/2% of the gross proceeds received from the sale of the units. Such offering expenses aggregated $3,719,796 (including $1,515,472 paid to the General Partner or its affiliates (See Note 9)) and were charged directly to limited partners' equity.
Profits, losses, cash distributions and disposition proceeds will be allocated 99% to the limited partners and 1% to the General Partner until each limited partner has received cash distributions and disposition proceeds sufficient to reduce its adjusted capital contribution account to zero and receive, in addition, other distributions and allocations which would provide a 10% per annum cumulative return, compounded daily, on its outstanding adjusted capital contribution account. After such time, the distributions will be allocated 90% to the limited partners and 10% to the General Partner.
2. Significant Accounting Policies
Basis of Accounting and Presentation - The Partnership's records are maintained on the accrual basis. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Leases - The Partnership accounts for owned equipment leased to third parties as finance leases or leveraged leases. For finance leases, the Partnership records, at the inception of the lease, the total minimum lease payments receivable, the estimated unguaranteed residual values, the initial direct costs related to the leases and the related unearned income. Unearned income represents the difference between the sum of the minimum lease payments receivable plus the estimated unguaranteed residual minus the cost of the leased equipment. Unearned income is recognized as finance income over the terms of the related leases using the interest method. The Partnership's net investment in leveraged leases consists of minimum lease payments
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
receivable, the estimated unguaranteed residual values and the initial direct costs related to the leases, net of the unearned income and principal and interest on the related non-recourse debt. Unearned income is recognized as income from leveraged leases over the life of the lease at a constant rate of return on the positive net investment. Initial direct costs of finance leases and leverage leases are capitalized and are amortized over the terms of the related leases using the interest method. The Partnership's leases have terms ranging from two to five years. Each lease is expected to provide aggregate contractual rents that, along with residual proceeds, return the Partnership's cost of its investments along with investment income.
Investment in Financings - Investment in financings represent the gross receivables due from the financing of equipment plus the initial direct costs related thereto less the related unearned income. The unearned income is recognized as finance income, and the initial direct costs are amortized, over the terms of the receivables using the interest method. Financing transactions are supported by a written promissory note evidencing the obligation of the user to repay the principal, together with interest, which will be sufficient to return the Partnership's full cost associated with such financing transaction, together with some investment income. Furthermore, the repayment obligation is collateralized by a security interest in the tangible or intangible personal property.
Investment in Estimated Unguaranteed Residual Value - The Partnership purchased a 50% interest of an option to acquire equipment. The asset will be carried at cost until sale or release of the equipment, at which time a gain or loss will be recognized on the transaction.
Disclosures About Fair Value of Financial Instruments - Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments" requires disclosures about the fair value of financial instruments, except for lease related instruments. At December 31, 1996, the carrying value of the Partnership's financial assets other than lease related investments, approximates fair value.
Allowance for Doubtful Accounts - The Partnership records a provision for bad debts to provide for estimated credit losses in the portfolio. The allowance for doubtful accounts is based on an analysis of delinquency, an assessment of overall risk and a review of historical loss experience. The Partnership's write-off policy is based on an analysis of the aging of the Partnership's portfolio, a review of the non-performing receivables and leases, and prior collection experience. An account is fully reserved for or written off when the analysis indicates that the probability of collection of the account is remote.
Impairment of Estimated Residual Values - In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which is effective beginning in 1996.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
The Partnership's policy with respect to impairment of estimated residual values is to review, on a quarterly basis, the carrying value of its residuals on an individual asset basis to determine whether events or changes in circumstances indicate that the carrying value of an asset may not be recoverable and, therefore, an impairment loss should be recognized. The events or changes in circumstances which generally indicate that the residual value of an asset has been impaired are (i) the estimated fair value of the underlying equipment is less than the Partnership's carrying value or (ii) the lessee is experiencing financial difficulties and it does not appear likely that the estimated proceeds from disposition of the asset will be sufficient to satisfy the remaining obligation to the non-recourse lender and the Partnership's residual position. Generally in the latter situation, the residual position relates to equipment subject to third party non-recourse notes payable where the lessee remits their rental payments directly to the lender and the Partnership does not recover its residual until the non-recourse note obligation is repaid in full.
The Partnership measures its impairment loss as the amount by which the carrying amount of the residual value exceeds the estimated proceeds to be received by the Partnership from release or resale of the equipment. Generally, quoted market prices are used as the basis for measuring whether an impairment loss should be recognized.
As a result, the Partnership's policy with respect to measurement and recognition of an impairment loss associated with estimated residual values is consistent with the requirements of SFAS No. 121 and, therefore, the Partnership's adoption of this Statement in the first quarter of 1996 had no material effect on the financial statements.
Income Taxes - No provision for income taxes has been made as the liability for such taxes is that of each of the partners rather than the Partnership.
3. Residual Investment
On December 31, 1996, the Partnership purchased a 50% share of an option to acquire a 100% interest in a mobile offshore drilling rig, currently on lease with Rowan Companies Inc. The purchase price of the 50% investment was $12,325,000 and consisted of $100,000 in cash and $12,225,000 promissory note.
4. Net Investment in Leveraged Leases
On August 20, 1996, the partnership acquired, subject to a leveraged lease, the residual interest in an aircraft. The aircraft is a McDonnell Douglas DC-10-30F, built in 1986. It is on lease with Federal Express and has a remaining lease term of eight years. The purchase price was $40,973,585 consisting of $6,000,000 in cash and the assumption of non-recourse senior debt of $26,217,294 and non-recourse junior debt ("junior debt") of $8,756,291.
On December 31, 1996, the Partnership acquired, subject to a leveraged lease, an aircraft on lease with Continental Airlines, Inc. The aircraft is a 1976 McDonnell Douglas DC-10-30 and has a remaining lease term of six years. The purchase price was $11,320,923 consisting of $2,104,262 in cash and the assumption of non-recourse senior debt of $9,216,661.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
The net investment in the leveraged leases as of December 31, 1996 consisted of the following:
Non-cancelable minimum rents receivable (net of principal and interest on non-recourse debt) $ 912,334 Estimated unguaranteed residual values 24,818,000 Initial direct costs 1,493,850 Unearned income (17,243,551) ------------- $ 9,980,633
Unearned income is recognized from leveraged leases over the life of the lease at a constant rate of return on the positive net investment.
Non-cancelable minimum rents receivable relating to the leveraged leases at December 31, 1996 are $59,355,209 and are due as follows:
1997 $ 7,905,694 1998 7,742,360 1999 7,742,360 2000 8,022,359 2001 8,022,359 Thereafter 19,920,077 -----------
$59,355,209
Principal and interest on non-recourse debt assumed in the purchase of the leveraged leases is $58,442,875 at December 31, 1996 and matures as follows:
1997 $ 7,903,360 1998 7,742,360 1999 7,742,360 2000 7,742,359 2001 7,742,359 Thereafter 19,570,077 -----------
$58,442,875
Prior to the acquisition of the Federal Express transaction, the free cash flow, the rent in excess of the senior debt payments, was financed by an affiliated partnership, ICON Cash Flow Partners, L.P., Series D, (i.e., the junior debt). On January 29, 1997, the Partnership refinanced a portion of the junior debt with a third party.
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
5. Receivables Due in Installments
Non-cancelable minimum annual amounts due on finance leases and financings are as follows:
Finance Year Leases Financings Total
1997 $ 6,717,166 $1,605,580 $ 8,322,746 1998 5,448,549 1,573,995 7,022,544 1999 2,109,963 1,446,541 3,556,504 2000 1,331,567 1,219,017 2,550,584 2001 285,835 685,174 971,009 Thereafter 1,165 89,448 90,613 ------------ ---------- ------------
$ 15,894,245 $6,619,755 $ 22,514,000 ============ ========== ============
6. Allowance for Doubtful Accounts
The allowance for doubtful accounts related to the investments in finance leases and financings consisted of the following:
Finance Leases Financings Total
Balance at December 31, 1995 $ - $ - $ -
Charged to operations 65,000 10,000 75,000 ----------- ----------- ----------
Balance at December 31, 1996 $ 65,000 $ 10,000 $ 75,000 =========== =========== ==========
7. Notes Payable
Notes payable consists of notes payable non-recourse bearing interest at rates ranging from 6.5% to 9.4%, which are being paid directly to the lenders by the lessees, and notes payable recourse as they relate to the Partnership's acquisition of an offshore drilling rig (See Note 3). These notes mature as follows:
Notes Payable Notes Payable Year Non-Recourse Recourse Total
1997 $ 5,711,953 $ 2,150,000 $ 7,861,953 1998 3,467,450 2,250,000 5,717,450 1999 1,108,786 2,250,000 3,358,786 2000 762,877 5,575,000 6,337,877 2001 38,879 - 38,879 -------------- ------------ -----------
$ 11,089,945 $ 12,225,000 $23,314,945 ============== ============ ===========
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
8. Investment in Joint Ventures
The Partnership Agreement allows the Partnership to invest in joint ventures with other limited partnerships sponsored by the General Partner provided that the investment objectives of the joint ventures are consistent with that of the Partnership.
On December 31, 1996, the Partnership and an affiliate, ICON Cash Flow Partners, L.P. Series E ("Series E") formed ICON Cash Flow Partners L.L.C. III ("ICON Cash Flow LLC III"), for the purpose of acquiring and managing an aircraft currently on lease to Continental Airlines, Inc. The aircraft is a 1976 McDonnell Douglas DC-10-30. The Partnership and Series E contributed $1,579,514 (99%) and $15,955 (1%) of the cash required for such acquisition, respectively, to ICON Cash Flow LLC III. ICON Cash Flow LLC III acquired the aircraft, assuming $9,309,759 in non-recourse debt and utilizing contributions received from the Partnership and Series E. The purchase price of the transaction totaled $10,905,228. The lease is a leveraged lease and the lease term expires in March 2003. Profits, losses, excess cash and disposition proceeds are allocated 99% to the Partnership and 1% to Series E. The Partnership's financial statements include 100% of the assets and liabilities of ICON Cash Flow LLC III. Series E's investment in ICON Cash Flow LLC III has been reflected as "Minority interest in joint venture."
9. Related Party Transactions
Fees and other expenses paid or accrued by the Partnership to the General Partner or its affiliates for the year ended December 31, 1996 were as follows:
Underwriting commissions $ 551,081 Charged to Equity Organization and offering expenses 964,391 Charged to Equity Acquisition fees 2,737,818 Capitalized Management fees 264,784 Charged to operations Administrative expense reimbursements 117,809 Charged to operations
Total $ 4,635,883 =============
On December 31, 1996, the Partnership and an affiliate formed a joint venture for the purpose of acquiring and managing an aircraft. (See Note 7 for additional information relating to the joint venture.)
ICON Cash Flow Partners L. P. Seven (A Delaware Limited Partnership)
Notes to Financial Statements - Continued
10. Commitments and Contingencies
On March 11, 1997, the Partnership and two affiliates, ICON Cash Flow Partners, L.P., Series D and ICON Cash Flow Partners L.P. Six, (collectively "the Members"), contributed and assigned $6,582,150, $8,671,773 and $6,712,631, respectively, in equipment lease and finance receivables and residuals to ICON Receivables 1997-A LLC ("1997-A"), a special purpose entity created by the Members. The Members received a 29.4%, 40.8% and 29.8% interest, respectively, in 1997-A based on the present value of their related contributions. 1997-A was formed for the purpose of originating new leases, managing existing contributed assets and, eventually, securitizing its portfolio. In order to fund the acquisition of new leases, 1997-A obtained a warehouse borrowing facility from Prudential Securities Credit Corporation (the "Facility"). Borrowings under the Facility are based on the present value of the new leases, provided that in the aggregate, the amount outstanding cannot exceed $20,000,000. Outstanding amounts under the Facility bear interest equal to Libor plus 1.5%. Collections of receivables from new leases are used to pay down the Facility, however, in the event of a default, all of 1997-A's assets are available to cure such default. The net proceeds from the expected securitization of these assets will be used to pay-off the remaining Facility balance and the remaining proceeds will be distributed to the Members in accordance with their membership interests. The Partnership will account for its investment in 1997-A under the equity method. The investment in 1997-A will be increased or decreased by its share of profit or losses and decreased by any distributions received by 1997-A.
11. Tax Information (Unaudited)
The following table reconciles net income for financial reporting purposes to income for federal income tax purposes for the year ended December 31, 1996:
Net income per financial statements $ 405,451
Differences due to: Direct finance leases (258,725) Depreciation - Provision for losses - Loss on sale of equipment - Other - -----------
Partnership income for federal income tax purposes $ 146,726 ============
As of December 31, 1996, the partners' capital accounts included in the financial statements totaled $22,865,854 compared to the partners' capital accounts for federal income tax purposes of $26,326,924 (unaudited). The difference arises primarily from commissions reported as a reduction in the partners' capital accounts for financial reporting purposes but not for federal income tax purposes, and temporary differences related to direct finance leases, depreciation and provision for losses.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant's General Partner
The General Partner, a Connecticut corporation, was formed in 1985. The General Partner's principal offices are located at 600 Mamaroneck Avenue, Harrison, New York 10528-1632, and its telephone number is (914) 698-0600. The officers of the General Partner have extensive experience with transactions involving the acquisition, leasing, financing and disposition of equipment, including acquiring and disposing of equipment subject to operating leases and full payout leases.
The manager of the Partnership's business is the General Partner. The General Partner is engaged in a broad range of equipment leasing and financing activities. Through its sales representatives and through various broker relationships throughout the United States, the General Partner offers a broad range of equipment leasing services, including tax-oriented leasing and financing. In addition, the General Partner offers financial consulting and placement services for which fees are earned as a result of successful placements of various secured financings and mortgages.
The General Partner will perform certain functions relating to the management of the equipment of the Partnership. Such services include the collection of lease payments from the lessees of the equipment, releasing services in connection with equipment which is off-lease, inspections of the equipment, liaison with and general supervision of lessees to assure that the equipment is being properly operated and maintained, supervision of maintenance being performed by third parties, monitoring performance by the lessees of their obligations under the leases and the payment of operating expenses.
The officers and directors of the General Partner are as follows:
Beaufort J.B. Clarke President, Chief Executive Officer and Director
Thomas W. Martin Executive Vice President and Director
Paul B. Weiss Executive Vice President
Gary N. Silverhardt Vice President and Chief Financial Officer
Neil A. Roberts Director
Tim Spring Director
Beaufort J. B. Clarke, age 50, is President, Chief Executive Officer and Director of both the General Partner and the Dealer-Manager. Prior to his present position, Mr. Clarke was founder and the President and Chief Executive Officer of Griffin Equity Partners, Inc. Mr. Clarke formerly was an attorney with Shearman and Sterling and has over 20 years of senior management experience in the United States leasing industry.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
Item 10. Continued
Thomas W. Martin, age 42, is Executive Vice President of both the General Partner and the Dealer- Manager. Prior to his present position, Mr. Martin was the Executive Vice President and Chief Financial Officer of Griffin Equity Partners, Inc. Mr. Martin has over 12 years of senior management experience in the leasing business, particularly in the area of syndication.
Paul B. Weiss, age 36, is Executive Vice President of the General Partner. Mr. Weiss has been exclusively engaged in lease portfolio acquisitions since 1988 from his affiliations with Griffin Equity Partners (as Executive Vice President and co-founder in 1993); Gemini Financial Holdings (as Senior Vice President- Portfolio Acquisitions and a member of the executive committee from 1991-1993) and Pegasus Capital Corporation (as Vice President-Portfolio Acquisitions).
Gary N. Silverhardt, age 36, is Vice President and Chief Financial Officer of the General Partner. He joined the General Partner in 1989. Prior to joining the General Partner, Mr. Silverhardt was previously employed by Coopers & Lybrand from 1985 to 1989, most recently as an Audit Supervisor. Prior to 1985, Mr. Silverhardt was employed by Katz, Schneeberg & Co. from 1983 to 1985. Mr. Silverhardt received a B.S. degree from the State University of New York at New Paltz in 1983 and is a Certified Public Accountant.
Neil A. Roberts, age 47, has been the Managing Director of Summit Asset Management Limited, a subsidiary of The Summit Group PLC, since 1991. Mr. Roberts has over 25 years of experience in the leasing and finance business, including positions with Kleinwort Benson Group, the United Kingdom subsidiary of Hongkong and Shanghai Banking Corporation and Chemical Bank.
Timothy R. Spring, age 39, Commercial Director of Summit Asset Management Limited, a subsidiary of The Summit Group PLC, since 1991. Mr. Spring has over 13 years of leasing experience in the United Kingdom. He was formerly Lease Commercial Director at Kleinwort Benson Group, the United Kingdom subsidiary of Hongkong and Shanghai Banking Corporation and Chemical Bank.
Item 11.

Item 11. Executive Compensation
The Partnership has no directors or officers. The General Partner and its affiliates were paid or accrued the following compensation and reimbursement for costs and expenses for the years ended December, 31, 1996.
Entity Capacity Type of Compensation 1996 ------ -------- -------------------- ---- ICON Capital Corp. General Partner Organization and offering expenses $ 964,391 ICON Capital Corp. Manager Acquisition fees 2,737,818 ICON Capital Corp. General Partner Management fees 264,784 ICON Securities Corp.Dealer-Manager Underwriting commissions 551,081 ICON Capital Corp. General Partner Administrative expense reimbursements 117,809 -----------
$ 4,635,883 ===========
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) The Partnership is a limited partnership and therefore does not have voting shares of stock. No person of record owns, or is known by the Partnership to own beneficially, more than 5% of any class of securities of the Partnership.
(b) As of March 7, 1997, Directors and Officers of the General Partner do not own any equity securities of the Partnership.
(c) The General Partner owns the equity securities of the Partnership set forth in the following table:
Title Amount Beneficially Percent of Class Owned of Class
General Partner Represents initially a 1% and potentially a 100% Interest 10% interest in the Partnership's income, gain and loss deductions.
Item 13.

Item 13. Certain Relationships and Related Transactions
None other than those disclosed in Item 11 herein.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements - See Part II, Item 8 hereof.
2. Financial Statement Schedule - None.
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Financial Statements or Notes thereto.
3. Exhibits - The following exhibits are incorporated herein by reference:
(i) Amended and Restated Agreement of Limited Partnership (Incorporated by reference to Exhibit A to Amendment No. 2 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on December 12, 1986).
(ii) Certificate of Limited Partnership of the Partnership (Incorporated herein by reference to Exhibit 3.01 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on August 23, 1985 and to Exhibit 3.01 to Amendment No. 1 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on August 27, 1986).
(iii)Form of Management Agreement between the Partnership and Crossgate Leasing, Inc. (Incorporated herein by reference to Exhibit 10.01 to Amendment No. 1 to Form S-1 Registration Statement No. 2-99858 filed with the Securities and Exchange Commission on August 27, 1986).
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Partnership during the quarter ended December 31, 1996.
ICON Cash Flow Partners L.P. Seven (A Delaware Limited Partnership)
December 31, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ICON CASH FLOW PARTNERS L.P. Seven File No. 33-94458 (Registrant) By its General Partner, ICON Capital Corp.
Date: March 28, 1997 Beaufort J.B. Clarke --------------------------------------------- Beaufort J.B. Clarke President, Chief Executive Officer and Director
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 capacity and on the dates indicated.
ICON Capital Corp. sole General Partner of the Registrant
Date: March 28, 1997 Beaufort J.B. Clarke --------------------------------------------- Beaufort J.B. Clarke President, Chief Executive Officer and Director
Date: March 28, 1997 Thomas W. Martin --------------------------------------------- Thomas W. Martin Executive Vice President and Director
Date: March 28, 1997 Gary N. Silverhardt --------------------------------------------- Gary N. Silverhardt Vice President and Chief Financial Officer
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrant Which have not Registered Securities Pursuant to Section 12 of the Act
No annual report or proxy material has been sent to security holders. An annual report will be sent to the limited partners and a copy will be forwarded to the Commission.