EXHIBIT 99.6
HOUSTON & O'LEARY COMPANY
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Houston and O'Leary Company:
We have audited the accompanying balance sheets of Houston and O'Leary Company
(a Colorado corporation) as of December 31, 1997 and May 26, 1998, and the
related statements of operations, changes in stockholders' equity (deficit) 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Houston and O'Leary Company, 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 17, 1998
HOUSTON AND O'LEARY COMPANY
BALANCE SHEETS
(In thousands, except share data)
December 31, May 26,
1997 1998
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ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $259 $244
Accounts receivable 5 60
Receivables from stockholders 274 -
Prepaid expenses and other current assets 45 37
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Total current assets 583 341
PROPERTY AND EQUIPMENT, net 157 87
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Total assets $740 $428
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES:
Short-term debt $164 $ 90
Customer deposits and deferred revenue 255 159
Capital lease obligations 50 12
Accounts payable and accrued liabilities 86 170
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Total current liabilities 555 431
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1 par; 10,000 shares authorized;
200 shares outstanding - -
Retained earnings (deficit) 185 (3)
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Total stockholders' equity (deficit) 185 (3)
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Total liabilities and stockholders' equity (deficit) $740 $428
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The accompanying notes are an integral part of these financial statements.
HOUSTON AND O'LEARY COMPANY
STATEMENT OF OPERATIONS
(In thousands)
January 1
Year Ended Through
December 31, May 26,
1997 1998
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REVENUES:
Real estate commissions $1,170 $557
Property rental fees 298 90
Other 128 2
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Total revenues 1,596 649
OPERATING EXPENSES 494 224
GENERAL AND ADMINISTRATIVE EXPENSES 322 119
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Income from operations 780 306
OTHER INCOME (EXPENSE):
Interest expense, net (15) (4)
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NET INCOME $ 765 $302
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The accompanying notes are an integral part of these financial statements.
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
Common Stock
----------------------- Retained
Earnings
Shares Amount (Deficit) Total
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BALANCE, December 31, 1996 200 $ - $ 49 $ 49
Net income - - 765 765
Distributions - - (629) (629)
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BALANCE, December 31, 1997 200 - 185 185
Net income - - 302 302
Distributions - - (490) (490)
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BALANCE, May 26, 1998 200 $ - $ (3) $ (3)
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The accompanying notes are an integral part of these financial statements.
Page 1 of 2
HOUSTON AND O'LEARY COMPANY
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 $ 765 $ 302
Adjustments to reconcile net income to net cash provided by
operating activities-
Depreciation 48 7
Changes in operating assets and liabilities-
Accounts receivable - (55)
Receivable from stockholders 23 274
Prepaid expenses and other current assets - 8
Customer deposits and deferred revenue 21 (96)
Accounts payable and accrued liabilities (46) 81
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Net cash provided by operating activities 811 521
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (57) (3)
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Net cash provided by (used in) investing activities (57) (3)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term debt and capital lease obligations (43) (47)
Distributions to stockholders (629) (486)
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Net cash used in financing activities (672) (533)
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 82 (15)
CASH AND CASH EQUIVALENTS, beginning of period 177 259
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CASH AND CASH EQUIVALENTS, end of period $ 259 $ 244
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The accompanying notes are an integral part of these financial statements.
Page 2 of 2
HOUSTON AND O'LEARY COMPANY
STATEMENTS OF CASH FLOWS
(In thousands)
January 1
Year Ended Through
December 31, May 26,
1997 1998
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SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest $ 15 $ 6
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Distribution of property and equipment to stockholder $ - $ 66
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued distribution to stockholder $ - $ 3
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Assumption of debt by stockholder $ - $ 65
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The accompanying notes are an integral part of these financial statements.
HOUSTON AND O'LEARY COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Houston and O'Leary Company (the "Company"), a Colorado corporation, provides
luxury vacation property rentals and sales in Aspen, Colorado and provides
non-exclusive rental services for approximately 130 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.
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 addition, the stockholders and key management agreed to reductions in salary
and benefits which would have reduced general and administrative expenses by
$58,000 and $0 for the year ended December 31, 1997 and for the period from
January 1, 1998 through May 26, 1998, respectively. In addition, 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 $3,000.
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. 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.
Commissions on real estate sales are recognized at closing.
Operating Expenses
Operating expenses include broker commissions, salaries, communications,
advertising, credit card fees and other costs associated with rental and sales
of 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 in the Aspen, Colorado area and are
subject to significant changes due to weather conditions.
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3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
Estimated
Useful Lives December 31, May 26,
In Years 1997 1998
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Furniture, fixtures and equipment 5 $ 89 $ 92
Artwork - 20 20
Airplane 5 159 -
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268 112
Less - Accumulated depreciation (111) (25)
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Property and equipment, net $157 $ 87
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4. SHORT-TERM DEBT:
Short-term debt consisted of the following:
December 31, May 26,
1997 1998
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Term note payable to bank, interest at 1% over the prime
rate as disclosed in the Wall Street Journal; collateralized
by Alpine and guaranteed by shareholders; payable in
monthly installments of $1,059, including interest, through
March 5, 2000 at which time the remaining principal
becomes payable $ 65 $ -
Revolving note payable to bank 99 90
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$164 $ 90
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Under the revolving note payable to a bank, the bank will provide a revolving
line of credit up to $100,000 to finance the Company's working capital needs. At
December 31, 1997 and May 26, 1998, the Company had $99,000 and $90,000,
respectively, outstanding on the line of credit. Interest is payable monthly
based upon the prime rate (9.50% at December 31, 1997 and May 26, 1998). The
note is collateralized by the assets of the Company.
Subsequent to December 31, 1997, the term note payable to a bank was assigned
and assumed by one of the stockholders.
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5. 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 period presented in the
accompanying financial statements.