THE MAURY PEOPLE, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Maury People, Inc.:
We have audited the accompanying balance sheets of The Maury People, Inc. (a
Massachusetts corporation) as of December 31, 1997 and May 26, 1998, and the
related statements of operations, changes in stockholders' equity and cash flows
for the year ended December 31, 1997 and the period from January 1, 1998 through
May 26, 1998. These financial statements are the responsibility of the Company'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 The Maury People, Inc., as of
December 31, 1997 and May 26, 1998, and the results of its operations and its
cash flows for the year ended December 31, 1997 and the period from January 1,
1998 through May 26, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 24, 1998
THE MAURY PEOPLE, INC.
BALANCE SHEETS
(In thousands, except share data)
December 31, May 26,
1997 1998
------------ -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $297 $535
Cash held in escrow 553 76
Accounts receivable -- 50
Prepaid expenses and other current assets 19 --
---- ----
Total current assets 869 661
PROPERTY AND EQUIPMENT, net 99 87
---- ----
Total assets $968 $748
==== ====
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Escrow deposits on real estate sales $553 $ 73
Payable to property owners 103 257
Accounts payable and accrued liabilities 224 282
---- ----
Total current liabilities 880 612
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, no par; 1,000 shares authorized; 200 shares issued
and outstanding 1 1
Retained earnings 87 135
---- ----
Total stockholders' equity 88 136
---- ----
Total liabilities and stockholders' equity $968 $748
==== ====
The accompanying notes are an integral part of these financial statements.
THE MAURY PEOPLE, INC.
STATEMENTS OF OPERATIONS
(In thousands)
January 1
Year ended Through
December 31, May 26,
1997 1998
------------ ---------
REVENUES:
Real estate commissions, net $ 829 $ 259
Property rental fees, net 354 180
------ ------
Total revenues 1,183 439
OPERATING EXPENSES 211 89
GENERAL AND
ADMINISTRATIVE EXPENSES 682 251
------ ------
Income from operations 290 99
OTHER INCOME:
Interest income, net 28 5
------ ------
NET INCOME $ 318 $ 104
====== ======
The accompanying notes are an integral part of these financial statements.
THE MAURY PEOPLE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share data)
Common Stock
------------ Retained
Shares Amount Earnings Total
------ ------ -------- -----
BALANCE, December 31, 1996 $ 200 $ 1 $ (84) $ (83)
Net income -- -- 318 318
Distributions -- -- (147) (147)
----- ----- ----- -----
BALANCE, December 31, 1997 200 1 87 88
Net income -- -- 104 104
Contributions -- -- 136 136
Distributions -- -- (192) (192)
----- ----- ----- -----
BALANCE May 26, 1998 $ 200 $ 1 $ 135 $ 136
===== ===== ===== =====
The accompanying notes are an integral part of these financial statements.
THE MAURY PEOPLE, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
January 1
Year ended Through
December 31, May 26,
1997 1998
------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 318 $ 104
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 28 12
Changes in operating assets and liabilities-
Cash held in escrow (184) 477
Accounts receivable -- (50)
Escrow deposits on real estate sales 184 (480)
Prepaid expenses and other current assets (6) 19
Payable to property owners 32 154
Accounts payable and accrued liabilities 1 54
----- -----
Net cash provided by operating activities 373 290
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (77) --
----- -----
Net cash used in investing activities (77) --
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 50 --
Payments on note payable (50) --
Distributions to stockholders (147) (188)
Contributions -- 136
----- -----
Net cash used in financing activities (147) (52)
----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS 149 238
CASH AND CASH EQUIVALENTS, beginning of period 148 297
----- -----
CASH AND CASH EQUIVALENTS, end of period $ 297 $ 535
===== =====
SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholder $ -- $ 4
===== =====
The accompanying notes are an integral part of these financial statements.
THE MAURY PEOPLE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
The Maury People, Inc. (the "Company") is a Massachusetts corporation which
provides vacation property rentals and sales on the island of Nantucket off the
coast of Massachusetts. The Company provides non-exclusive rental services for
approximately 1,200 rental units. The Company's property rental operations are
seasonal, with peaks during the first and fourth quarters of the year.
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, the owner agreed to reductions in salary and
benefits which would have reduced general and administrative expenses by
approximately $142,000 and $0 for the year ended December 31, 1997 and the
period January 1, 1998 through May 26, 1998. In addition, the stockholder
retained non-operating assets and assumed or retired certain liabilities that
were excluded from the Combinations and the purchase price for the Company was
adjusted for certain working capital adjustments of approximately $4,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
The Company records property rental fees upon the receipt of customer deposits.
The Company requires a deposit equal to 100% of the rental fee 45 days prior to
the expected arrival date. Since these deposits are non-refundable, the Company
records its fees and a payable to property owners in the accompanying financial
statements. The Company records revenue for cancellations as they occur.
Commissions on real estate sales are recognized at closing and are recorded net
of the related commission expense to unaffiliated brokers. The Company
recognized commission revenues of $1,949,000 and $752,000 and commission expense
of $1,120,000 and $493,000 to affiliated brokers for the year ended December 31,
1997 and the period January 1, 1998 through May 26, 1998.
Operating Expenses
Operating expenses include agent commissions, salaries, communications,
advertising, and other costs associated with managing and selling properties.
Cash and Cash Equivalents
For the purposes of the balance sheets and statements of cash flows, the Company
considers all investments with original maturities of three months or less to be
cash equivalents.
Property and Equipment
Property and equipment are stated at cost, and depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
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 statement of operations.
Income Taxes
The Company has elected S Corporation status as defined by the Internal Revenue
Code and state tax statutes, whereby the Company is not subject to taxation for
federal or state purposes. Under S Corporation status, the stockholders report
their share of the Company's taxable earnings or losses in their personal tax
returns.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates and assumptions by
management in determining 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 period. Actual results could differ from those estimates.
Concentration of Risk
The Company's operations are exclusively on Nantucket Island.
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3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
Estimated
Useful Lives December 31, May 26,
In Years 1997 1998
------------ ------------ -------
Leasehold improvements 10 $ 56 $ 56
Office equipment 5 152 152
------ -----
208 208
Less - Accumulated depreciation (109) (121)
------ -----
Property and equipment, net $ 99 $ 87
====== ======
Accounts payable and accrued liabilities consisted of the following (in
thousands):
December 31, May 26,
1997 1998
------------ -------
Accrued rental commissions $ 66 $ 13
Accrued sales commissions 51 --
Security deposits -- 166
Accounts payable and other accrued liabilities 107 99
---- ----
Total accounts payable and accrued liabilities $224 $278
==== ====
4. COMMITMENTS AND CONTINGENCIES
Lease Obligation
The Company leases equipment and office space under noncancelable operating
leases expiring at various times through 2004. Rental expense was approximately
$166,000 and $70,000 for the year ended December 31, 1997 and the period January
1, 1998 through May 26, 1998, respectively.
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The minimum future rental payments under noncancelable operating leases are as
follows (exclusive of certain pass through expenses such as real estate taxes
and common area maintenance expenses and exclusive of Consumer Price Index
adjustments):
Remainder of 1998 $ 96
1999 204
2000 197
2001 195
2002 188
Thereafter 232
------
$1,112
======
Litigation
The Company is involved in certain legal actions arising in the ordinary course
of business. Management does not believe that the outcome of such legal actions
will have a material adverse effect on the Company's financial position or
results of operations.
Insurance
The Company carries a broad range of insurance coverage, including multiperil,
workers' compensation and an error and omissions policy. The Company has not
incurred significant claims or losses on any of its insurance policies during
the periods presented in the accompanying financial statements.
5. RELATED PARTIES:
At present, the Company intends to transfer its offices to facilities owned by a
trust of which the owner is the primary beneficiary upon expiration of its
existing lease on March 31, 1999. The new lease term extends through March 2004,
with a five year extension option. Annual rent payments begin at $185,400 and
increase based on increases in the Consumer Price Index subject to a 6% annual
ceiling on increases.
6. NOTE PAYABLE:
During 1997, the Company had a $50,000 note payable to a bank, due in one
payment consisting of principal and interest. The note bore interest at 6.35%.
The note was secured by a security interest in a deposit account . The note was
paid in full during 1997.
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7. BENEFIT PLAN:
For all eligible employees, the Company sponsors a defined benefit pension plan.
Plan benefits are based on years of service and compensation. The Company's
funding policy is to make contributions at a minimum in accordance with the
requirements of applicable laws and regulations, but no more than the amount
deductible for income tax purposes. The components of net pension expense for
the Company's retirement plan, based upon the latest actuarial valuation
available, for the year ended December 31, 1997 are presented below:
Service cost $ 1,459
Interest cost 39,420
Actual return on plan assets (95,338)
Net amortization and deferral 75,875
--------
Net periodic pension expense $ 21,416
========
The funded status of the Company's retirement plan and amounts included in the
Company's balance sheet at December 31, 1997 are set forth in the following
table:
Actuarial present value of benefit obligations:
Accumulated benefit obligation $ 602,557
=========
Projected benefit obligation $ 602,557
Plan assets at fair value 635,448
---------
Plan assets in excess of projected benefit obligations 32,891
Unrecognized net gain (70,894)
Unrecognized net transition obligation 38,637
---------
Prepaid pension asset $ 634
=========
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 7.0%. The expected long-term rate
of return on assets was 5.0%.
In connection with the Combination, the Plan's sponsorship was transferred to
the stockholder.
Therefore, subsequent to the date of these financial statements, the Company is
no longer responsible for the sponsorship of the Plan or any related liability.
The net periodic pension expense for the period from January 1, 1998 through May
26, 1998 was immaterial.
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