EXHIBIT 99.9
RESORT PROPERTY MANAGEMENT, INC.
FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Resort Property Management, Inc.:
We have audited the accompanying balance sheet of Resort Property Management,
Inc. (a Utah corporation) as of September 30, 1997 and May 26, 1998, and the
related statements of operations, changes in stockholders' equity (deficit) and
cash flows for the year ended September 30, 1997 and for the period from October
1, 1997 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 Resort Property Management,
Inc., as of September 30, 1997 and May 26, 1998, and the results of its
operations and its cash flows for the year ended September 30, 1997 and for the
period from October 1, 1997 through May 26, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
July 15, 1998
RESORT PROPERTY MANAGEMENT, INC.
BALANCE SHEETS
(In thousands, except share data)
September 30, May 26,
1997 1998
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ASSETS
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CURRENT ASSETS:
Cash and cash equivalents $ 186 $ 9
Accounts receivable - 11
Due from property owners 60 44
Receivable from stockholders 10 102
Prepaid expenses and other current assets 22 6
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Total current assets 278 172
NOTE RECEIVABLE 54 -
PROPERTY AND EQUIPMENT, net 203 287
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Total assets $ 535 $ 459
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES:
Current portion of long-term debt $ 171 $ 33
Customers deposits and deferred revenue 233 66
Payable to property owners 36 -
Accounts payable and accrued liabilities 32 190
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Total current liabilities 472 289
DEFERRED TAXES 3 -
LONG-TERM DEBT, net of current portion 310 116
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Total liabilities 785 405
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, no par; 100,000 shares
authorized; 51,000 shares outstanding 26 26
Retained earnings (deficit) (276) 28
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Total stockholders' equity (deficit) (250) 54
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Total liabilities and stockholders'
equity (deficit) $ 535 $ 459
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The accompanying notes are an integral part of these financial statements.
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF OPERATIONS
(In thousands)
October 1,
1997
Through
September 30, May 26,
1997 1998
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REVENUES:
Property rental fees $1,930 $1,728
Service fees 365 325
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Total revenues 2,295 2,053
OPERATING EXPENSES 1,560 1,227
GENERAL AND ADMINISTRATIVE EXPENSES 627 494
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Income from operations 108 332
OTHER INCOME:
Interest income, net 7 18
Gain on sale of land 210 -
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Income before taxes 325 350
PROVISION FOR INCOME TAX 75 57
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NET INCOME $ 250 $ 293
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The accompanying notes are an integral part of these financial statements.
RESORT PROPERTY MANAGEMENT, INC.
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, September 30, 1996 51 $26 $(526) $(500)
Net income - - 250 250
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BALANCE, September 30, 1997 51 26 (276) (250)
Net income - - 293 293
Contribution - - 11 11
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BALANCE, May 26, 1998 51 $26 $ 28 $ 54
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The accompanying notes are an integral part of these financial statements.
RESORT PROPERTY MANAGEMENT, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
October 1,
1997
Through
September 30, May 26,
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 250 $ 293
Adjustments to reconcile net income
to net cash provided by operating
activities-
Depreciation 36 29
Gain on sale of land (210) -
Changes in operating assets and
liabilities-
Accounts receivable - (11)
Due from property owners, net (8) (20)
Prepaid expenses and other
current assets (3) 16
Customer deposits and deferred revenue (50) (167)
Deferred tax liability 3 (3)
Accounts payable and accrued liabilities 28 158
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Net cash provided by operating activities 46 295
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CASH FLOWS FROM INVESTING ACTIVITIES:
Note receivable (54) 54
Purchase of property and equipment (179) (113)
Proceeds from sale of office equipment,
vehicles and land 335 -
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Net cash provided by (used in) investing
activities 102 (59)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 493 -
Payments on long-term debt (451) (332)
Proceeds/payment on receivables from stockholders (10) (81)
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Net cash provided by (used in) financing
activities 32 (413)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 180 (177)
CASH AND CASH
EQUIVALENT, beginning of period 6 186
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CASH AND CASH EQUIVALENTS, end of period 186 9
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW:
Cash paid for interest $ 25 $ 2
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIES:
Accrued contributions from stockholders $ - $ 11
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The accompanying notes are an integral part of these financial statements.
RESORT PROPERTY MANAGEMENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Resort Property Management, Inc. (the "Company"), a Utah corporation, provides
property rentals and management services for properties owned by third parties
and located within the Park City, Utah region. The Company manages approximately
330 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 second quarter of the fiscal
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 and certain key employees have
agreed to reductions in salary and benefits which would have reduced general and
administrative expenses by approximately $186,000 for the year ended September
30, 1997 and $42,000 for the period from October 1, 1997 through May 26, 1998.
In addition, certain stockholders retain 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 $11,000.
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 30 days prior to the
expected arrival date. These deposits are non-refundable and are recorded as
customer deposits and deferred revenue in the accompanying combined 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 housekeeping, phone service and rentals.
Operating Expenses
Operating expenses include travel agent commissions, salaries, communications,
advertising, credit card fees and other costs associated with managing and
renting 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 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 accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109"). Under SFAS No. 109, the current provision for income taxes represents
actual or estimated amounts payable or refundable on tax returns filed or to be
filed for each year. Deferred tax assets and liabilities are recorded for the
estimated future tax effects of: (a) temporary differences between the tax bases
of assets and liabilities and amounts reported in the consolidated balance
sheets, and (b) operating loss and tax credit carryforwards. The overall change
in deferred tax assets and liabilities for the period measures the deferred tax
expense for the period. Effects of changes in enacted tax laws on deferred tax
assets and liabilities are reflected as adjustments to tax expense in the period
of enactment. The measurement of deferred tax assets may be reduced by a
valuation allowance based on judgemental assessment of available evidence if
deemed more likely than not that some or all of the deferred tax assets will not
be realized.
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 Park City, Utah area and are
subject to significant changes in weather conditions.
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3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Property and equipment consisted of the following (in thousands):
Estimated
Useful Lives September 30, May 26,
In Years 1997 1998
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Leasehold improvements 12 $ 21 $ 23
Office equipment and other 5 236 251
Vehicles 5 128 224
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385 498
Less - Accumulated depreciation (182) (211)
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Property and equipment, net $ 203 $ 287
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Maturities of long-term debt were as follows (in thousands):
September 30, May 26,
1997 1998
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1998 $171 $ 33
1999 17 17
2000 19 19
2001 21 21
Thereafter 253 59
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$481 $149
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In addition to the debt disclosed above, the Company has a revolving line of
credit with a bank. The line of credit has an interest rate of 10.25%, a maximum
limit of $250,000, expires in October 2016, and is secured by personal property
of the Company's owners. As of September 30, 1997, the line of credit was fully
drawn, and is included in long-term debt in the accompanying financial
statements. As of May 26, 1998, the line of credit had a zero balance.
In connection with the combination, all outstanding debt of the Company was
retired.
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4. INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
Period From
Year Ended October 1, 1997
September 30, 1997 Through May 26, 1998
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Current $ 6 $57
Deferred 69 -
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$ 75 $57
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The provision for income taxes differs from the amount computed by applying the
U.S. Federal income tax statutory rate of 34% for the following reasons:
Period From
Year Ended October 1, 1997
September 30, 1997 Through May 26, 1998
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U.S. corporate income tax provision
at statutory rate $111 $115
Tax effect of temporary differences - (65)
State tax expense - 7
Utilization of NOL carryforwards (36) -
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$ 75 $ 57
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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
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Company has not incurred significant claims or losses on any of its insurance
policies during the periods presented in the accompanying financial statements.
6. RELATED PARTIES:
The Company paid rental payments to the owners and related parties in exchange
for use of the housekeeping facility in the amount of approximately $18,000 and
$32,000 for the year ended September 30, 1997, and the period from October 1,
1997 through May 26, 1998, respectively.
The Company plans to enter a lease agreement with the owners in June 1998 for an
initial term of 10 years and two options to extend the lease for 5 additional
years. The lease agreement to be finalized prior to the Offering will have
estimated annual payments of $100,000, and annual increases of the Consumer
Price Index.
Leases
The Company has entered into various leases for housekeeping and laundry
facilities, and for their corporate office. The following is a schedule of
future minimum rental payments which are required under operating leases that
have lease terms in excess of one year at September 30, 1997 and May 26, 1998:
September 30, May 26,
1997 1998
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1998 $ 61,793 $17,668
1999 21,408 14,255
2000 14,517 4,200
2001 15,246 -
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$112,964 $36,123
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