ROLLING RIDGE, LLC
(A Limited Liability Company)
Audited
Financial Statements
December 31, 1996
TABLE OF CONTENTS
Page
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Independent Auditor's Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Members' Equity 4
Statement of Cash Flows 5
Notes of Financial Statement 6
[James L. Zimmerman Letterhead]
INDEPENDENT AUDITOR'S REPORT
To The Members
Rolling Ridge, LLC
I have audited the accompanying balance sheet of Rolling Ridge, LLC (a
California limited liability company) as of December 31, 1996, and the related
statements of operations, members' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Rolling Ridge, LLC as of December
31, 1996, and the results of its operations, changes in members' equity and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ James L. Zimmerman
March 24, 1997
[Letterhead of James L. Zimmerman]
ROLLING RIDGE, LLC
(a limited liability company)
Balance Sheet
December 31, 1996
ASSETS
------
Land and buildings (including land of $1,113,241)
at cost, less accumulated depreciation of $1,426,533 - Note 1 $5,160,692
Cash - Restricted for replacement reserve 7,377
Accounts receivable tenants 6,188
Debt financing costs, less accumulated amortization of $4,680 98,165
-----------
$5,272,422
===========
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
Liabilities
Mortgage payable - Note 2 $4,925,000
Bank overdraft 45,841
Accounts payable 17,019
Prepaid rents 1,073
Tenants security deposits payable 64,863
----------
Total liabilities 5,053,796
----------
Members' equity 218,626
----------
$5,272,422
==========
See Accompanying Notes to Financial Statements
ROLLING RIDGE, LLC
(a limited liability company)
Statement Of Operations
Period Period
January 1 to August 3 to Year Ended
August 2, December 31, December 31,
1996 1996 1996
------------- ------------ ------------
Revenue:
Net rentals $ 516,583 $ 362,440 $ 879,023
Other income 25,562 12,789 38,351
--------- --------- ---------
Total revenues 542,145 375,229 917,374
--------- --------- ---------
Cost of operations:
Payroll and related 43,868 31,309 75,177
Management fees 21,639 15,007 36,646
Advertising and promotion 9,062 7,206 16,268
Other administrative expenses 5,724 5,356 11,080
Debt administration and closing costs 32,679 32,679
Repairs and maintenance 73,555 46,659 120,214
Utilities 35,225 23,563 58,788
Insurance 5,200 5,907 11,107
Property taxes 71,919 72,035 143,954
Interest expense 220,391 184,586 404,977
--------- --------- ---------
Total cost of operations 519,262 391,628 910,890
--------- --------- ---------
Income (loss) before depreciation and
amortization 22,883 (16,399) 6,484
Depreciation and amortization 116,064 87,580 203,644
--------- --------- ---------
Loss before extraordinary items (93,181) (103,979) (197,160)
Extraordinary item - Note 3 1,510,000 ------ 1,510,000
---------- ---------- ----------
Net income (loss) $1,416,819 ($103,979) $1,312,840
========== ========== ==========
See Accompanying Notes to Financial Statements
ROLLING RIDGE, LLC
(a limited liability company)
Statement Of Members' Equity
For The Year Ended December 31, 1996
Balance (deficit) at beginning of year $(1,189,612)
Contributions 150,000
Withdrawals (54,604)
Net income 1,312,840
-----------
Balance at end of year $ 218,626
===========
See Accompanying Notes to Financial Statements
ROLLING RIDGE, LLC
(a limited liability company)
Statement Of Cash Flows
For The Year Ended December 31, 1996
Cash flows from operating activities: $1,312,840
Net income
Adjustments to reconcile net income to net cash provided by
(applied to) operating activities: $203,644
Depreciation and amortization
(Increase) decrease in:
Accounts receivable 332
Debt financing costs (102,845)
Increase (decrease) in:
Bank overdraft 45,841
Accounts payable (946)
Prepaid rents 592
Tenants security deposits (4,254)
---------
Net adjustments 142,364
----------
Total from operating activities 1,455,204
---------
Cash flows from investing activities:
Deposits to replacement reserves (7,332)
Cash flows from financing activities:
Proceeds from new mortgage payable 4,925,000
Retirement of old mortgage payable (6,500,000)
Member contributions 150,000
Member withdrawals (54,603)
-----------
Net cash flows from financing activities (1,479,603)
-----------
Net decrease in cash (31,731)
Beginning cash balance 31,731
-----------
Ending cash balance $ 0
===========
Supplemental disclosure:
Cash paid during year for interest $ 404,977
==========
See Accompanying Notes to Financial Statements
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statement
December 31, 1996
1. Organization and SummarY of Significant Accounting Policies
Organization
Rolling Ridge, LLC, a California limited liability company, was formed on
June 6, 1996 as the successor entity to Rolling Ridge Partners, (Duane R.
Raab, Ralph E. Haun, and Diane E. Haun) a California general partnership,
which developed and constructed the 110-unit multi-family residential
rental project located in Chino Hills, County of San Bernardino,
California, known as Rolling Ridge Apartment. The effective commencement
date of Rolling Ridge, LLC is August 2, 1996, the date the partners
refinanced the original loan on the property. Rolling Ridge, LLC has a
limited life and will be dissolved by January 1, 2036.
Basis of Accounting
The company's books are maintained on the modified cash basis of
accounting. These financial statements are prepared on the accrual basis of
accounting.
Rental Income
Rental income is recognized for apartment rentals as they accrue. Advance
receipts of rental income is deferred and classified as liabilities until
earned. All apartment leases are operating leases.
Land and Buildings
Land and buildings contributed to the LLC by the predecessor partners have
been recorded at their historical cost basis to the partners, which
approximates the fair market value of the apartment complex per an
appraisal as of August 2, 1996. Depreciation is computed using the
straight-line method over an estimated useful life of 27.5 years.
Income Taxes
The company is not a taxpaying entity for federal and state income tax
purposes, and thus no income tax expense has been recorded in the
statements. Income of the company is taxed to the members in their
individual returns.
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statements
December 31, 1996
2. Mortgage Payable
The mortgage payable to American Tax-Exempt Bond Trust in the amount
of $4,925,000 as provided through the issuance and sale of Multifamily
Housing Revenue Bonds 1996 Series A (Rolling Ridge Apartments) issued
by the County of San Bernardino, California. The note bears interest
at an annual rate of 9.0%, payable monthly. The terms of the note
provide for the payment of interest only until maturity, July 1, 2026,
at which time the entire principal balance is due.
The note also provides for contingent interest equal to 30% of net
property cash flow after payment of the base interest, and 25% of net
sales or repayment proceeds (which may in certain circumstances when
no sale proceeds are received, including but not limited to
refinancing, be measured by fair market value) over repayment of
outstanding principal until the borrower has paid interest at a simple
annual rate of 16% over the term of the note, after which no further
contingent interest payments will be required. Since there was a
negative cash flow for the periods from August 3 to December 31, 1996,
no contingent interest was paid or is payable.
The company is required to make monthly deposits in escrow in an
amount equal to one-twelfth of the estimated annual real property
taxes and insurance premiums for the property. In addition, the
company is required to establish and maintain a replacement reserve
escrow account and make monthly deposits of $1,833 into this account.
3. Extraordinarv Item
The company has recognized forgiveness of debt during the year of
$1,510,000 as a result of the refinancing of its original mortgage
payable. Under the terms of a settlement agreement with the Federal
Deposit Insurance Corporation (which succeeded the Resolution Trust
Corporation as successor to Mercury Federal Savings & Loan
Association) the prior mortgage (bonds) in the amount of $6,500,000
were mandatorily redeemed concurrently with the issuance of the County
of San Bernardino, California Multifamily Housing Revenue Refunding
ROLLING RIDGE, LLC
(a limited liability company)
Notes to Financial Statements
December 31, 1996
Bonds, 1996 Series A (Rolling Ridge Apartments) in the amount of
$4,925,000. The gain on the forgiveness of indebtedness was determined
as follows:
Mortgage payable balance at August 2, 1996 $ 6,500,000
Net amount paid to FDIC 4,990,000
-----------
Amount forgiven $ 1,510,000
===========
While the company and its members will not pay income taxes on the
gain resulting from the forgiveness, there are tax attribute
adjustments to the individual members. The tax basis of the
depreciable property to the members will be reduced by the $1,510,000
gain.