FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
QOCC-1 ASSOCIATES
DECEMBER 31, 1995
QOCC-1 Associates
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 3
FINANCIAL STATEMENTS:
BALANCE SHEET 4
STATEMENT OF INCOME 5
STATEMENT OF PARTNERS' EQUITY 6
STATEMENT OF CASH FLOWS 7
NOTES TO FINANCIAL STATEMENTS 8
2
INDEPENDENT AUDITORS' REPORT
To the Partners
QOCC-1 Associates
We have audited the accompanying balance sheet of QOCC-1 Associates
as of December 31, 1995, and the related statements of income, partners'
equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit
provides 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 QOCC-1
Associates as of December 31, 1995, and the results of its operations and
its cash flows for the year then ended, in conformity with generally
accepted accounting principles.
REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
January 10, 1996
3
QOCC-1 Associates
BALANCE SHEET
December 31, 1995
ASSETS
RENTAL PROPERTY
Land $3,670,000
Land improvements 35,425
Building 11,461,343
Building improvements 32,622
-----------
15,199,390
Less accumulated depreciation 2,555,027
-----------
12,644,363
-----------
OTHER ASSETS
Cash and cash equivalents 518,071
Accounts receivable - other 2,186
Prepaid taxes and insurance 94,677
Prepaid leasing commissions 388,442
Deferred rent 1,177,734
Leasing costs, less accumulated
amortization of $400,701 1,752,087
-----------
3,933,197
-----------
$16,577,560
===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $19,565
Prepaid rent and security deposit 446,178
-----------
465,743
COMMITMENT -
PARTNERS' EQUITY 16,111,817
-----------
$16,577,560
===========
See notes to financial statements
4
QOCC-1 Associates
STATEMENT OF INCOME
Year ended December 31, 1995
Revenue
Rental income - base $2,691,797
Rental income - escalations 25,100
Interest income 1,975
Other revenue 279
-----------
Total revenue 2,719,151
Expenses
Accounting $7,800
Advertising and promotion 441
Commissions 103,584
Depreciation and amortization 553,531
Insurance 5,392
Management fees 49,200
Personnel services 66,996
Repairs and maintenance 196,099
Supplies 4,099
Taxes 185,376
Travel 506
Utilities 7,436
-----------
Total expenses 1,180,460
-----------
NET INCOME $1,538,691
===========
See notes to financial statements
5
QOCC-1 Associates
STATEMENT OF PARTNERS' EQUITY
Year ended December 31, 1995
Equity at Equity at
January Net Distri- December
1, 1995 Income butions 31, 1995
------- ------ ------- --------
JH Quince
Orchard Partners $15,829,964 $1,510,397 $(1,590,065) $15,750,296
Quad
Properties, Inc. 373,162 28,294 (39,935) 361,521
----------- ---------- ----------- -----------
$16,203,126 $1,538,691 $(1,630,000) $16,111,817
=========== ========== =========== ===========
See notes to financial statements
6
QOCC-1 Associates
STATEMENT OF CASH FLOWS
Year ended December 31, 1995
Cash flows from operating activities
Net income $1,538,691
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 553,531
Decrease in accounts receivable - other 1,546
Increase in accounts receivable - rent concessions (586,098)
Increase in prepaid taxes and insurance (4,051)
Increase in accounts payable and accrued expenses 3,263
Decrease in prepaid leasing commissions 103,584
Increase in prepaid rent and security deposit 33,296
----------
Net cash provided by operating activities 1,643,762
----------
Cash flows from financing activities
Distributions to partners (1,630,000)
----------
Net cash used in financing activities (1,630,000)
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 13,762
Cash and cash equivalents, beginning 504,309
----------
Cash and cash equivalents, end $518,071
==========
See notes to financial statements
7
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The partnership was organized on December 27, 1988 as a general
partnership under the laws of the State of Maryland for the purpose of
operating an office building with approximately 99,782 of net rentable
square feet in Gaithersburg, Maryland. The building was acquired in
December, 1988. The partnership conducts its rental operations under a
lease agreement with one tenant.
Use of Estimates
----------------
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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Rental Property
---------------
Rental property is carried at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives by
use of the straight-line method.
Cash Equivalents
----------------
For purposes of the statement of cash flows, the partnership considers
all highly liquid investments with original maturities of 90 days or
less to be cash equivalents. The fair value of cash equivalents
approximates its carrying amount.
Rental Income
-------------
Rental income is recognized as rentals become due. For
instances in which rent concession periods are involved, rental income
is recognized using the straight-line method over the term of the lease,
which includes the rent concession period. The amount applicable to the
rent concession is recorded as a deferred asset against which future
collections are applied. Rental payments received in advance are
deferred until earned. The lease between the partnership and the tenant
of the property is an operating lease.
8
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (Continued)
Income Taxes
------------
No provision or benefit for income taxes has been included in these
financial statements since taxable income or loss passes through to, and
is reportable by, the partners individually.
Prepaid Leasing Commissions
---------------------------
Prepaid leasing commissions are charged to operations using the straight-
line method over seventy-six months.
Leasing Costs
-------------
Leasing costs were incurred to obtain a new tenant for the office
building and improve the rental space. These costs are being written
off using the straight-line method over the ten-year term of the lease.
NOTE B - RENTAL INCOME UNDER OPERATING LEASE
The partnership has leased the office building to a new tenant effective
March 1994 under a ten-year term with a five-year renewal option at the
discretion of the lessee. The tenant may terminate the lease after the
76th calendar month of the term by notifying the landlord as outlined in
the lease agreement. Rental income consists of fixed base rent and
variable lease escalation reimbursements, calculated annually.
Future minimum base rental payments due under the noncancelable
operating lease are as follows:
Year Ending
December 31, Amount
------------ ------
1996 $2,592,126
1997 2,656,929
1998 2,723,352
1999 2,791,436
2000 2,861,222
Thereafter 9,535,611
-----------
$23,160,745
===========
9
QOCC-1 Associates
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
NOTE C - RELATED PARTY TRANSACTION
During 1995, the partnership incurred charges of approximately $120,295
for management fees, personnel services and reimbursable maintenance
expenses provided by affiliates of one of the partners.
NOTE D - COMMITMENT
The partnership has entered into a lease commission agreement with Carey
Winston. The agreement provides for $546,696 of commissions to be paid
for the first 76 months of the tenant's lease, which began March 1994.
If the tenant does not exercise its option to terminate the lease after
the 76th month, additional commissions in the amount of $376,198 for the
remaining 44 months of the tenant's lease will be due at that time.
NOTE E - CONCENTRATION OF CREDIT RISK
The partnership maintains its cash balances in two banks. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000
by each bank. As of December 31, 1995, the uninsured portion of the
cash balances held at the banks was $293,643.
10