EXHIBIT 99.3
COLLECTION OF FINE PROPERTIES
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To Collection of Fine Properties, Inc.:
We have audited the accompanying consolidated balance sheet of Collection of
Fine Properties, Inc. as of December 31, 1997 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Collection of Fine
Properties, Inc. as of December 31, 1997 and the results of their operations and
their cash flows for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
MORRISON, BROWN, ARGIZ AND COMPANY
Denver, Colorado
January 23, 1998
INDEPENDENT AUDITOR'S REPORT
To Collection of Fine Properties, Inc.:
We have audited the accompanying consolidated balance sheet of Collection of
Fine Properties, Inc. as of May 26, 1998, and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
period from January 1, 1998 through May 26, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Collection of Fine
Properties, Inc. as of May 26, 1998, and the results of their operations and
their cash flows for the period from January 1, 1998 through May 26, 1998, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
December 31, May 26,
ASSETS 1997 1998
------------ ---------
CURRENT ASSETS:
Cash and cash equivalents $2,713 $ 275
Accounts receivable 67 21
Receivables from affiliates and stockholders 634 431
Prepaid expenses and other current assets 434 221
------ -------
Total current assets 3,848 948
PROPERTY AND EQUIPMENT, net 1,964 487
OTHER ASSETS 54 52
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Total assets $5,866 $1,487
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ 97 $ -
Current portion of long-term debt 28 51
Current portion of capital lease obligations 55 56
Customer deposits and deferred revenue 3,336 447
Payable to affiliates 28 430
Accounts payable and accrued liabilities 1,175 262
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Total current liabilities 4,719 1,246
LONG-TERM DEBT, net of current maturities 299 194
CAPITAL LEASE OBLIGATIONS, net of current maturities 15 5
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, no par value, 10,000 shares
authorized, issued and outstanding 788 788
Retained earnings (deficit) 45 (746)
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Total stockholders' equity 833 42
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Total liabilities and stockholders' equity $5,866 $1,487
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The accompanying notes are an integral part of these
consolidated financial statements.
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
January 1
Year Ended Through
December 31, May 26,
1997 1998
------------ -----------
REVENUES:
Property rental fees $3,513 $2,427
Service fee 243 84
Other 547 418
------ ------
Total revenues 4,303 2,929
OPERATING EXPENSES 2,830 1,397
GENERAL AND ADMINISTRATIVE
EXPENSES 893 331
------ ------
Income from operations 580 1,201
OTHER INCOME:
Interest income, net 58 32
Other 75 26
------ ------
NET INCOME $ 713 $1,259
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The accompanying notes are an integral part of these consolidated
financial statements.
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
Common Stock Retained
------------ Earnings
Shares Amount (Deficit) Total
------ ------ --------- -----
BALANCE, December 31, 1996 10,000 $788 $ (368) $ 420
Net income - - 713 713
Distributions - - (300) (300)
------ ---- ------- ----
BALANCE, December 31, 1997 10,000 788 45 833
Net income - - 1,259 1,259
Distributions, net - - (2,050) (2,050)
------ ---- ------- -----
BALANCE, May 26, 1998 10,000 $788 $ (746) $ 42
====== ==== ====== ======
The accompanying notes are an integral part of these
consolidated financial statements.
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year January 1
Ended Through
December 31, May 26,
1997 1998
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 713 $ 1,259
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization 307 114
Changes in operating assets and liabilities-
Accounts receivable 33 46
Prepaid expenses and other assets (122) 213
Customer deposits and deferred revenue 49 (2,889)
Payables to affiliates (13) 402
Accounts payable and accrued expenses 237 (913)
-------- --------
Net cash provided by (used in) operating activities 1,204 (1,768)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (284) (31)
Proceeds from sale of property and equipment 8 -
Other assets 37 2
Sales of marketable securities 103 -
-------- --------
Net cash used in investing activities (136) (29)
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
COLLECTION OF FINE PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
Period
Year January 1
Ended Through
December 31, May 26
1997 1998
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit $ 752 $ -
Repayments on line of credit (655) (97)
Proceeds from long-term debt - 269
Payments on long-term debt (344) (97)
Receivables from affiliates and stockholders, net (421) 366
Payments on capital leases (51) (9)
Distributions to stockholders (300) (1,073)
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Net cash used in financing activities (1,019) (641)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 49 (2,438)
CASH AND CASH EQUIVALENTS, beginning of period 2,664 2,713
------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,713 $ 275
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 79 $ 15
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Net assets retained by stockholders $ - $ 1,394
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Debt assumed by stockholders $ - $ 254
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Accrued contributions from stockholders $ - $ 163
========= =======
Acquisition of assets under capitalized leases $ 86 $ -
======= =========
The accompanying notes are an integral part of these consolidated
financial statements.
COLLECTION OF FINE PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Collection of Fine Properties, Inc. and its subsidiary Peak Ski Rental, Ltd.
("Subsidiary," collectively the "Company"), a Colorado S Corporation, provides
vacation property rental and management services for properties owned by third
parties and located in the Breckenridge, Colorado area. The properties are
primarily condominium rental units which are owned by third parties. The Company
manages approximately 470 rental units. The Company's subsidiary is engaged in
the rental of ski equipment.
On May 26, 1998, ResortQuest International, Inc. ("ResortQuest") consummated its
initial public offering and acquired all of the outstanding stock of the Company
in exchange for cash and shares of ResortQuest common stock (the "Combination").
In connection with the Combination, an owner has agreed to reductions in salary
and benefits which would have reduced general and administrative expenses by
approximately $94,000 and $0 for the year ended December 31, 1997 and the period
from January 1, 1998 through May 26, 1998, respectively. Certain stockholders
retained non-operating assets and assumed certain liabilities that were excluded
from the Combination and the purchase price for the Company was adjusted by
certain working capital adjustments of approximately $163,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Collection of Fine
Properties, Inc. and Peak Ski Rental, Ltd. All significant intercompany accounts
and transactions have been eliminated.
Revenue Recognition
The Company records property rental and management fees on the accrual basis of
accounting ratably over the term of guest stays, as earned. Certain other linen
and maintenance fees are charged periodically. The Company provides all
marketing, management, housekeeping and minor maintenance.
The Company requires a non-refundable deposit equal to 100% of the rental amount
60 days prior to the actual stay, recorded as Customer Deposits within the
accompanying consolidated balance sheets. Revenue from cancellations is
recognized when received.
Operating Expenses
Operating expenses include travel agent commissions, salaries, communications,
advertising, credit card fees and other costs associated with managing
properties.
Cash and Cash Equivalents
The Company considers all short-term investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories consist of ski lift tickets, merchandise, uniforms, supplies and
parts used for the repair and service of the owners' units. Inventories are
stated at cost, determined on a first-in, first-out method. Inventories are
included in prepaid expenses and other current assets on the balance sheets.
Property and Equipment
Property and equipment are recorded at cost.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of operations.
Income Taxes
The Company has S Corporation status as defined by the Internal Revenue Code.
Under S Corporation status, the stockholders report their shares of the
Company's taxable earnings or losses in their personal tax returns.
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Management 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 disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods. The
actual outcome of these estimates could differ from the estimates made in the
preparation of the financial statements.
Concentration of Credit Risk
At December 31, 1997 and May 26, 1998, the Company had cash deposits in a
financial institution of approximately $2,341,000 and $95,000, respectively, in
excess of the federal insured limit of $100,000. The Company is economically
dependent upon the tourism trade and changes in weather conditions in the
Breckenridge, Colorado area. The operations are seasonal, with peaks during the
first and fourth quarters of the year.
Reclassification
Certain items in the 1997 financial statements have been reclassified to conform
with the 1998 presentation.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure regarding the fair value of
financial instruments for which it is practical to estimate that value. The
carrying value of cash and cash equivalents, approximates the fair value due to
the short-term nature of these instruments. The fair value of the Company's
long-term debt is estimated to approximate carrying value as the pricing and
terms are indicative of current rates and credit risk.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Inventories consisted of the following at December 31, 1997 (in thousands):
December 31,
1997
-----------------
Merchandise $ 35
Parts and supplies 31
Uniforms 13
Ski lift tickets 78
-----
$157
No inventory existed at May 26, 1998.
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Property and equipment consisted of the following (in thousands):
Estimated
Useful
Lives in December 31, May 26,
Years 1997 1998
----------- ------------ -------
Buildings 31 - 39 $ 1,230 $ -
Property held for investment 31 - 39 332 -
Furniture and equipment 3 - 7 806 818
Transportation equipment 5 203 203
Equipment under capital leases lease term 242 242
Leasehold improvements 39 59 77
Linens 4 259 260
-------- ------
3,131 1,600
Less accumulated depreciation and amortization (1,167) (1,113)
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Property and equipment, net $ 1,964 $ 487
Accounts payable and accrued liabilities consisted of the following (in
thousands):
December 31, May 26,
1997 1998
------------ --------
Trade payable $ 915 $188
Payroll and payroll taxes 111 71
Sales tax 149 3
------ ----
Total accounts payable and accrued liabilities $1,175 $262
===== ===
4. PROPERTY HELD UNDER CAPITAL LEASES:
The Company is subject to leases for telephone and computer equipment under
arrangements, which are accounted for as capital leases. The leases are
amortized over an estimated useful life of five years. Amortization on equipment
under capital leases for the year ended December 31, 1997 and the period from
January 1, 1998 through May 26, 1998 was approximately $49,000 and $9,000,
respectively.
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5. RELATED PARTIES:
The related party balances consisted of the following (in thousands):
December 31, May 26,
1997 1998
-------------- -------
Receivable from affiliates $583 $230
Receivable from stockholders 51 201
---- ----
$634 $431
=== ===
Payable to affiliates
$ 28 $162
==== ===
Related party receivables are unsecured, non-interest bearing and are expected
to be collected in the subsequent year. During the year ended December 31, 1997,
the Company received expense reimbursements from a related party of
approximately $75,000.
The Company has a mortgage note payable with an affiliate (Note 7).
6. LINE OF CREDIT:
The Company has a $750,000 line of credit from a bank. During the year ended
1997, the maximum balance outstanding under the line of credit was approximately
$502,000 and the minimum was zero. The line is secured by certain real estate,
furniture, fixtures, equipment and inventory. The principal shareholders of the
Company are additional parties to the note. The interest charged is the New York
prime rate, which was 8.5% at December 31, 1997 and May 26, 1998, respectively.
These interest rates approximate the weighted average rates during the
respective years.
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7. LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
December 31, May 26,
1997 1998
------------ --------
Mortgage note, payable in monthly principal installments of $.5 plus
interest at the prime rate (8.5% at December 31, 1997 and May 26,
1998). The note is secured by property and matures
July, 2000, at which time a balloon payment is due. Certain
shareholders are guarantors of the note. $125 $ -
Mortgage note, payable in monthly installments of $.6 including
interest at the prime rate (8.5% at December 31, 1997
and May 26, 1998). The note is secured by property and
matures January, 2003, at which time a balloon payment is due. 71 -
Mortgage note, payable in monthly installments of $.5 to a related party
including interest at 8%. The note is secured by property and matures
through November, 2023. 62 -
Mortgage note, payable in monthly installment including
interest at the prime rate (8.5% at May 26, 1998). The note is secured
by property and matures March, 2001. - 184
Loan payable for purchase of vehicles, payments of $2.1, including
principal and interest 69 61
--- ---
$327 $ 245
==== =====
The aggregate maturities of long-term debt are as follows (in thousands):
Year ending December 31,
1998 $ 28
1999 30
2000 140
2001 5
2002 3
Thereafter 121
-----
327
Less current maturities (28)
-----
$299
====
Subsequent to May 26, 1998 all outstanding debt was retired.
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8. BENEFIT PLAN:
The Company instituted a 401(k) Profit Sharing Plan during September, 1996.
Employer contributions to the plan for the year ended December 31, 1997, and the
period January 1, 1998 through May 26, 1998, were approximately $20,000 and
$9,000, respectively.
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