EXHIBIT 99.10
TELLURIDE RESORT ACCOMMODATIONS, 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 Telluride Resort Accommodations, Inc.:
We have audited the accompanying balance sheet of Telluride Resort
Accommodations, Inc. (a Colorado corporation) as of December 31, 1997 and May
26, 1998, and the related statements of operations, changes in stockholders'
deficit and cash flows for the year ended December 31, 1997 and the period from
January 1, 1998 to 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 Telluride Resort
Accommodations, 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 to May 26, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
TELLURIDE RESORT ACCOMMODATIONS, INC.
BALANCE SHEETS
(In thousands, except share data)
December 31, May 26,
ASSETS 1997 1998
------ ------------- -----------
CURRENT ASSETS:
Cash and cash equivalents $2,103 $ 358
Accounts receivable 392 475
Due from property owners 152 -
Prepaid expenses and other current assets 12 34
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Total current assets 2,659 867
PROPERTY AND EQUIPMENT, net 62 109
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Total assets $2,721 $ 976
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ - $ 14
Line of credit 194 -
Customer deposits and deferred revenue 2,096 500
Payable to property owners 640 -
Payable to stockholders - 22
Accounts payable and accrued liabilities 209 297
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Total current liabilities 3,139 833
LONG-TERM DEBT - 34
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par; 1,000,000 shares authorized;
15,000 shares outstanding 216 216
Retained deficit (634) (107)
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Total stockholders' equity (deficit) (418) 109
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Total liabilities and stockholders' equity (deficit) $2,721 $ 976
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The accompanying notes are an integral part of these financial statements.
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF OPERATIONS
(In thousands)
January 1
Year Ended through
December 31, May 26,
1997 1998
------------- -------------
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REVENUES:
Property rental fees $ 3,204 $2,101
Service fees 1,109 648
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Total revenues 4,313 2,749
OPERATING EXPENSES 3,037 1,575
GENERAL AND ADMINISTRATIVE EXPENSES 1,030 458
------- -------
Income from operations 246 716
INTEREST INCOME, net 31 35
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NET INCOME $ 277 $ 751
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The accompanying notes are an integral part of these financial statements.
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
Common Stock Retained
----------------------- Earnings
Shares Amount (Deficit) Total
------ ------ --------- -----
BALANCE, December 31, 1996 15,000 $216 $(611) $(395)
Net income - - 277 277
Distributions - - (300) (300)
-------- ---- ------ -----
BALANCE, December 31, 1997 15,000 216 (634) (418)
Net income - - 751 751
Distributions - - (224) (224)
-------- ---- ------ ----
BALANCE, May 26, 1998 15,000 $216 $(107) $ 109
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The accompanying notes are an integral part of these financial statement.
TELLURIDE RESORT ACCOMMODATIONS, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
January 1
Year Ended through
December 31, May 26,
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 277 $ 751
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation 48 20
Changes in operating assets and liabilities-
Accounts receivable 35 (83)
Prepaid expenses and other current assets 15 (22)
Payable to property owners, net 19 (488)
Customer deposits and deferred revenue 28 (1,596)
Accounts payable and accrued liabilities 299 88
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Net cash provided by (used in) operating activities 721 (1,330)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (25) (67)
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Net cash used in investing activities (25) (67)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (payments on) line of credit 93 (194)
Proceeds from note payable - 54
Payments on note payable - (6)
Distributions to stockholders (300) (202)
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Net cash used in financing activities (207) (348)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 489 (1,745)
CASH AND CASH EQUIVALENTS, beginning of period 1,614 2,103
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CASH AND CASH EQUIVALENTS, end of period $ 2,103 $ 358
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholders $ - $ 22
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The accompanying notes are an integral part of these financial statements.
TELLURIDE RESORT ACCOMMODATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Telluride Resort Accommodations, Inc. (the "Company"), a Colorado corporation,
provides property rentals and management services in Telluride, Colorado and
manages approximately 450 total rental units. The Company provides its
management services to property owners pursuant to management contracts, which
are generally one year in length. The majority of such contracts contain
automatic renewal provisions but also allow property owners to terminate the
contract at any time. The Company's operations are seasonal, with a peak during
the first quarter 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").
Certain stockholders retained non-operating assets and assumed or retired
certain liabilities that were excluded from the Combination and the purchase
price for the Company was adjusted for certain working capital adjustments of
approximately $22,000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Revenue Recognition
The Company records property rental fees on the accrual basis of accounting,
ratably over the term of guest stays, as earned. During peak periods, the
Company requires a deposit equal to 100% of the rental fee 45 days prior to the
expected arrival date. These deposits are non-refundable and are recorded as
customer deposits and deferred revenue in the accompanying financial statements
until the guest stay commences. The Company records revenue for cancellations as
they occur.
Service fees are recorded for a variety of services and are recognized as the
service is provided, including spring and fall cleaning, unit maintenance and
housekeeping.
Operating Expenses
Operating expenses include travel agent commissions, salaries, maintenance,
housekeeping, communications, advertising, credit card fees and other costs
associated with management of the 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 life 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 tax 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 in the Telluride, Colorado area and are
subject to significant changes due to weather conditions.
3. PROPERTY PLANT AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
Estimated Useful Lives December 31, May 26,
In Years 1997 1998
---------------------- ------------ -----------
Furniture, fixtures and equipment 5 $ 580 $ 581
Leasehold improvement 5 79 131
Vehicles and other 5 65 79
----- ----
724 791
Less - Accumulated depreciation (662) (682)
----- ----
Property and equipment, net $ 62 $ 109
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4. DEBT:
The Company has a note payable to a bank with interest at 9% per annum, through
June 30, 2001. The note is secured by vehicles of the Company. Maturities of the
note are as follows:
Year Ended December 31,
1998 $ 8,000
1999 15,000
2000 16,000
2001 9,000
--------
48,000
Less current maturities 14,000
--------
$34,000
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5. LINES OF CREDIT:
The Company has lines of credit with a bank. The first line of credit matures
June 1998 and provides a revolving line of credit up to $200,000 to finance
working capital needs. At December 31, 1997 and May 26, 1998, the Company had
$194,000 and $0, respectively, outstanding on this line of credit. Interest is
payable monthly at 1.75% over the Wall Street Journal Base Rate (8.5% at
December 31, 1997). The second line of credit in the amount of $90,000, matures
August 31, 1998, and can be drawn upon only in the event that certain guaranteed
load factors aboard aircraft into the Telluride area are not met. Interest is
payable monthly at 2.00% over the Wall Street Journal Base Rate (8.5% at
December 31, 1997). There was no outstanding balance on this line of credit at
December 31, 1997 and May 26, 1998.
6. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is involved in various 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 general and
business auto liability, commercial property, workers' compensation and a
general umbrella policy. The Company has not incurred significant claims or
losses on any of its insurance policies during the periods presented in the
accompanying financial statement.
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Benefit Plans
The Company's 401(k) retirement plan is available to substantially all of the
Company's employees. The Plan allows the Company to make discretionary
contributions to the Plan. The Company has made no such contribution to the Plan
for the year ended December 31, 1997 or for the period from January 1, 1998
through May 26, 1998.
7. RELATED PARTIES:
The Company paid certain stockholders $32,000 and $0 in consulting fees for the
year ended December 31, 1997 and for the period from January 1 through May 26,
1998, respectively. In addition, the Company rented office space from
stockholders of approximately $36,000 and $20,000 for the year ended December
31, 1997 and for the period from January 1 through May 26, 1998, respectively.
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