<PAGE>
EXHIBIT 99.1
[LETTERHEAD Gonzalez Macin y Cia., S. C.]
--------------------------------------------------------------------------------
BOARD OF DIRECTORS AND SHAREHOLDERS
QUALTON HOTELS & RESORTS CORPORATION
MEXICO CITY, MEXICO
WE HAVE AUDITED THE ACCOMPANYING BALANCE SHEETS OF QUALTON HOTELS & RESORTS
CORPORATION AS OF DECEMBER 31, 1999 AND 1998 AND THE RELATED STATEMENTS OF
OPERATIONS, SHAREHOLDERS' EQUITY AND CASH FLOWS FOR THE YEARS THEN ENDED. AS
DESCRIBED IN NOTE 1 OF NOTES TO FINANCIAL STATEMENTS, THE ACCOMPANYING FINANCIAL
STATEMENTS HAVE BEEN PREPARED ON THE BASIS OF ACCOUNTING PRINCIPLES GENERALLY
ACCEPTED IN THE UNITED STATES, EXPRESSED IN UNITED STATES DOLLARS. 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, IN THE UNITED STATES AND MEXICO. 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 AUDITS PROVIDE A
REASONABLE BASIS FOR OUR OPINION.
IN OUR OPINION, BASED ON OUR AUDITS, THE 1999 AND 1998 FINANCIAL STATEMENTS
REFERRED TO ABOVE PRESENT FAIRLY, IN ALL MATERIAL RESPECTS, THE FINANCIAL
POSITION OF QUALTON HOTELS & RESORTS CORPORATION AS OF DECEMBER 31, 1999 AND
1998 AND THE RESULTS OF ITS OPERATIONS AND ITS CASH FLOWS FOR THE YEARS THEN
ENDED IN CONFORMITY WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
C.P. GUILLERMO GONZALEZ MACIN
MEXICO, D.F.
AUGUST 15, 2000
<PAGE>
QUALTON HOTELS & RESORTS CORPORATION
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1999 1998 1999
--------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS LIABILITIES
Current Assets Current Liabilities
Bank and Cash Equivalents 1,208,590 322,632 Accounts Payable (note 8) 1,945,411 2,651,078
Accounts Receivable (note 4) 2,945,508 3,684,729 Other Creditors 36,334 79,109
Trade (note 5) 773,266 560,254 Bank Interest 0 0
Affiliated Companies 0 1,659,253 Retained Taxes (note 9) 1,808,404 3,514,533
Others Accounts Receivable 10,183 5,449 Accrued Expenses 7,217 11,449
Inventories (note 6) 437,248 539,398 Affiliated Companies 1,534,492 1,958,912
Prepaid Expenses 657,484 1,691,056 --------- ----------
Miscellaneous 802 0
--------- --------- Total Current Liabilities 5,331,858 8,215,081
Total Current Assets 6,033,081 8,462,771
Others 78,913 44,817
Long Term Liabilities 1,507,071 1,938,568
--------- ----------
Net Fixed Assets
Total Others 1,585,984 1,983,385
Property and Equipment Net (note 7) 830,644 798,120
TOTAL LIABILITIES 6,917,842 10,198,466
========= ==========
Others 1,972 2,188
Equity investments 17,630 17,630
--------- ---------
SHAREHOLDERS' EQUITY
Total Others 19,602 19,818
Capital Stock (note 10) 123,638 123,987
Legal Reserve Account 5,181 5,181
Retained Earnings
Current Year
(15,924) (883,591)
Retained Earnings
Previous Year (note 11) (147,410) (163,334)
--------- ----------
TOTAL SHAREHOLDERS' EQUITY (34,515) (917,757)
========= ==========
TOTAL LIABILITIES AND
TOTAL ASSETS 6,883,327 9,280,709 SHAREHOLDERS' EQUITY 6,883,327 9,280,709
========= ========= =========== ==========
</TABLE>
Read the accompanying notes to financial statements,
which are integral part of this financial statement.
<PAGE>
QUALTON HOTELS & RESORTS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
REVENUES 1998 1999
---------- ----------
<S> <C> <C>
All Inclusive Room and Food and Beverage 9,513,411 16,109,292
Food & Beverage - Additional Sales 478,548 281,868
Other Operating Departments 1,699,540 1,283,900
Maintenance Fees 16,095 29,024
Spa 51,377 256,265
Other Revenues 1,358,153 125,777
---------- ----------
Total Revenues 13,117,124 18,086,126
COSTS AND EXPENSES
Cost of Services 1,779,152 2,703,716
---------- ----------
Gross Profit 11,337,972 15,382,410
OPERATING EXPENSES
Rooms 422,509 547,168
Food & Beverage 261,332 434,037
Payroll & Related Items 3,287,064 4,546,382
Advertising & Promotion 905,625 1,382,146
2% Fees 0 0
Maintenance 876,198 1,261,934
Utilities 755,165 915,271
General & Administration 1,402,913 1,510,685
3% Fees 0 0
Administrative Services 0 0
Entertainment 211,326 235,298
Spa 64,972 109,261
Other 324,148 314,275
---------- ----------
TOTAL EXPENSES 8,511,252 11,256,457
GROSS OPERATING PROFIT 2,826,720 4,125,953
OPERATING FIXED CHARGES
Base Management Fee 131,913 413,265
Translation Gain (Loss) Expenses (170,372) 285,060
---------- ----------
TOTAL FIXED CHARGES (38,459) 698,325
OTHER EXPENSES
Building/Land Lease Vallarta 987,826 1,399,963
Building/Land Lease Acapulco 1,211,797 1,242,348
Building/Land Lease Ixtapa 109,308 329,721
Other 320,353 1,170,523
---------- ----------
Total Other 2,629,284 4,142,555
EBITDA
Interest Expense 491 (6,091)
Depreciation & Amortization 146,920 174,755
---------- ----------
INCOME (LOSS) BEFORE TAXES 88,484 (883,591)
Asset Tax 0 0
Deferred Income Tax 104,408 0
---------- ----------
NET INCOME (LOSS) (15,924) (883,591)
PER SHARE INFORMATION
Weighted average shares outstanding - basic and fully diluted 1,000 1,000
---------- ----------
Net (loss) per share - basic and fully diluted (15.92) (883.59)
---------- ----------
</TABLE>
READ THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS,
WHICH ARE INTEGRAL PART OF THIS FINANCIAL STATEMENT.
<PAGE>
QUALTON HOTELS & RESORTS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 31, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
RETAINED RETAINED
CAPITAL LEGAL RESERVE EARNINGS EARNINGS
STOCK ACCOUNT CURRENT YEAR PREVIOUS YEAR TOTAL
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 24,133 - (57,242) (90,168) (123,277)
==============================================================================
Capital Stock 99,505 99,505
Legal Reserve 5,181 5,181
Application of net loss 1997 57,242 (57,242) -
Net loss (15,924) (15,924)
------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 123,638 5,181 (15,924) (147,410) (34,515)
==============================================================================
Add (deduct):
Capital Stock 349 349
Application of net loss 1998 15,924 (15,924) -
Net loss (883,591) (883,591)
------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 123,987 5,181 (883,591) (163,334) (917,757)
==============================================================================
</TABLE>
READ THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS,
WHICH ARE INTEGRAL PART OF THIS FINANCIAL STATEMENT.
<PAGE>
QUALTON HOTELS & RESORTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Sources of cash:
Interest
Other
Uses of cash:
Interest
Operating expenses 1,006,249 (918,831)
--------- ---------
Cash (used-in) provided by operating activities 1,006,249 (918,831)
Cash flows from investing activities:
Source of cash:
Property and equipment net (226,200) 32,524
Investment in Securities (10,965)
Cash provided by (used in) investing activities
--------- ---------
(237,165) 32,524
Cash flows from financing activities:
Source of cash:
Capital stock 99,505 349
Legal Reserve Account 5,181
Use of cash:
Payments of:
Related party
Notes payable, governmental agencies
--------- ---------
Cash provided by (used-in) financing activities 104,686 349
Effect of exchange rates on cash and equivalents
(Decrease) increase in cash 873,770 (885,958)
Cash, beginning 334,820 1,208,590
--------- ---------
Cash, ending 1,208,590 322,632
========= =========
</TABLE>
READ THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS,
WHICH ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
<PAGE>
QUALTON HOTELS & RESORTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Reconciliation of net loss to cash (used-in)
provided by operating activities:
Net loss (15,924) (883,591)
Adjustment to reconcile net loss to cash
(used-in) provided by operating activities:
Changes in assets and liabilities:
Accounts receivable (590,130) (739,221)
Trade (773,266) 213,012
Affilliate companies 1,512,897 (1,659,253)
Other accounts receivable (10,183) 4,734
Inventories (371,793) (102,150)
Prepaid expenses (596,525) (1,033,572)
Miscellaneous (802) 802
Others (1,972) (216)
Accounts payable (2,035,273) 705,667
Others creditor 36,334 42,775
Retained Taxes 821,358 1,706,129
Accrued expenses (36,145) 4,232
Affilliated companies 1,481,689 424,420
Others 78,913 (34,096)
Long term liabilities 1,507,071 431,497
--------- ---------
Total adjustments 1,022,173 (35,240)
Cash provided by (used-in) operating activities 1,006,249 (918,831)
========= =========
</TABLE>
READ THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS,
WHICH ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
<PAGE>
QUALTON HOTELS & RESORTS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1999
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING:
The Company prepares its financial statements in accordance with generally
accepted accounting principles in the United States, expressed in United States
Dollars. This basis of accounting involves the application of accrual
accounting; consequently, revenues and gains are recognized when earned, and
expenses and losses are recognized when incurred. Financial statement items are
recorded at historical cost and may not necessarily represent current values.
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 disclosure 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial instruments, which include cash, due from affiliates, accounts
payable, accrued liabilities and due to affiliates are reflected in the
financial statement at fair values. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities, debt is stated at their fair values.
FOREIGN CURRENCY TRANSLATION:
Local currency is the functional currency for the Company. Assets and
liabilities are translated using the exchange rates in effect at the balance
sheet date. Income and expenses are translated at the average exchange rates
during the year.
NOTE 2. CORPORATE PURPOSE AND INCORPORATION
The Company was incorporated under the laws of the Republic of the Marshall
Islands on September 4, 1996. The purpose of the Company is to engage in any
lawful act or activity for which corporations may now or hereafter be organized
under the Marshall Islands Business Corporations Act. The Company owns 99% of
the issued and outstanding shares of capital stock of Hotelera Qualton, S.A. de
C.V.
A) HOTELERA QUALTON
<PAGE>
Hotelera Qualton was incorporated under the laws of Mexico on September 18,
1992. The Company's main corporate purpose is to process, consult, manage,
build, purchase, sell, lease and perform any other kind of legal permissible and
lawful transactions related to all kinds of hotels, restaurants, bars,
apartments or any other kind of tourism complexes and, in general, all matters
related to promoting tourism.
Hotelera Qualton owns 99.9% of the equity in two affiliated companies, as
follows:
1) IMPULSORA TURISTICA DE ACAPULCO, S.A. DE C.V.:
Impulsora Turistica de Acapulco, S.A. de C.V., was incorporated under the laws
of Mexico on August 28, 1996, commencing operations as of December of that same
year, with a 99-year life, with its main corporate purpose to manage, consult,
build, exploit, purchase, sell and lease all kinds of hotels and tourism
complexes and real estate property, and, in general, all matters related to the
promotion of tourism.
2) IMPULSORA TURISTICA DE IXTAPA, S.A. DE C.V.:
Impulsora Turistica de Ixtapa, S.A. de C.V., was incorporated under the laws of
Mexico on August 20, 1998, with its main corporate purpose to process, consult,
manage, build, exploit, purchase, sell, lease, sublet and perform any other kind
of lawful legal transactions related to all kinds of hotels, motels,
restaurants, bars, apartments and, in general, all matters related to the
promotion of tourism.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary is presented below of the more significant accounting policies used in
preparing these financial statements:
A) MONETARY UNIT
The attached financial statements and their respective notes are expressed in
United States Dollars.
B) INVENTORIES AND SALE COSTS.
Inventories are stated at replacement cost and sales costs are determined using
an average cost method.
C) CARRYING VALUE OF FIXED ASSET INVESTMENTS.
The carrying value of these investments is their acquisition cost. The estimate
for depreciation is accumulated by means of periodic charges to the fiscal year
results, calculated using the straight-line method over the related estimated
useful lives as of the year of acquisition.
D) INTEGRAL COST OF FINANCING.
This item includes interest payable and receivable.
E) SECURITY INVESTMENTS.
<PAGE>
Investments in negotiable securities are expressed at acquisition cost, which is
similar to their market value.
F) PROPERTIES AND EQUIPMENT.
Properties and equipment are initially registered at acquisition cost.
Expenditures for maintenance and repairs are charged to operating expenses as
they arise during the year.
G) DEPRECIATION AND AMORTIZATION.
Depreciation and amortization are calculated using the straight-line method over
the estimated useful life of the assets, applying the following rates.
<TABLE>
<CAPTION>
ANNUAL %
----------
<S> <C>
Furniture and Equipment 10
Office Equipment 10
Telephony Equipment 10
Computer Equipment 25 and 30
Transportation Equipment 25
Installation Expenses 5
</TABLE>
H) EQUITY INVESTMENTS.
Equity investments in affiliated companies are registered at acquisition cost.
NOTE 4. ACCOUNTS RECEIVABLE.
The balances of accounts receivable of the Company at December 31, 1999 and 1998
are composed of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Central Office Clients 0 213,878
Mexico Office Clients 0 287,699
Condominio Humboldt 1,505,000 1,720,000
Accounts Receivable 1,472,535 529,898
Officers and Employees 9,778 9,334
Deliveries to be Confirmed 42,664 17,350
Payments in Advance to Suppliers 123,392 32,758
Agencies 743,060 348,068
Credit Cards 21,173 11,304
Estimate of Doubtful (232,873) (224,781)
Accounts Receivable
TOTAL 3,684,729 2,945,508
========= =========
</TABLE>
<PAGE>
NOTE 5. TRADE
The Company's trade balances at December 31, 1999 and 1998 are composed of the
following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Clients 553,478 761,595
Various Debtors 6,776 11,671
TOTAL 560,254 773,266
======= =======
</TABLE>
NOTE 6. INVENTORIES
The balances of the Company's inventories at December 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Food 148,213 113,895
Beverages 78,496 44,681
Supplies 68,841 37,080
Stationery 38,646 27,088
Maintenance 81,425 64,587
Logo Shop 86,078 102,076
Operating Equipment 37,699 47,841
TOTAL 539,398 437,248
======= =======
</TABLE>
NOTE 7. NET FIXED ASSETS
The balances of the Company's net fixed assets at December 31, 1999 and 1998 are
composed of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Transportation Equipment 167,432 146,289
Computer Equipment 136,139 139,040
Office Equipment 38,231 30,154
Telephony Equipment 113,946 113,946
Furniture and Equipment 342,372 401,215
TOTAL 798,120 830,644
======= =======
</TABLE>
<PAGE>
NOTE 8. ACCOUNTS PAYABLE
The balances of the Company's accounts payable at December 31, 1999 and 1998 are
composed of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Suppliers 1,384,183 868,591
Various Creditors 243,053 355,192
Tropical Club de Ixtapa 39,966 65,245
I.T.O. 47,585 45,931
Deposits for Reservations 732,700 457,349
Employee Profit Sharing 96,894 93,527
Other Accounts Payable 106,697 59,576
TOTAL 2,651,078 1,945,411
========= =========
</TABLE>
NOTE 9. TAXES PAYABLE
The balances of the Company's taxes payable at December 31, 1999 and 1998 are
composed of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
2% Payroll Tax 46,338 39,540
2% Pension Benefit Plan (S.A.R.) 11,589 8,852
5% Infonavit 23,728 20,162
Mexican Social Security Institute 14,387 17,282
Employee Revenue Tax (I.S.P.T.) 526,895 393,876
VAT (I.V.A.) Withheld on Professional Fees 5,063 0
VAT (I.V.A.) Withheld on Leases 643 0
10% Withholding on Professional Fees 24,773 13,135
10% Withholding on Leases 6,619 4,386
Income Tax (I.S.R.) 238,159 229,883
VAT (I.V.A.) Payable 2,592,258 1,058,044
Taxes Agreed Payable 24,081 23,244
TOTAL 3,514,533 1,808,404
========= =========
</TABLE>
<PAGE>
NOTE 10. CAPITAL STOCK
The balances of the Company's capital stock at December 31, 1999 and 1998 are
composed of the following:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Subscribed Capital 27,566 27,566
Variable Capital 96,421 96,072
TOTAL 123,987 123,638
======= =======
</TABLE>
NOTE 11. TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The Commercial Companies Law establishes that the loss of two thirds of capital
stock or more is a cause for dissolution of the Company in the event that any
creditor or stockholder takes such action.
