EXHIBIT 99.7
BRINDLEY & BRINDLEY
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND MAY 26, 1998
TOGETHER WITH REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Brindley & Brindley Realty and Development, Inc.
and B&B On The Beach, Inc.:
We have audited the accompanying combined balance sheets of Brindley & Brindley
consisting of Brindley & Brindley Realty and Development, Inc., and B&B On The
Beach, Inc., both North Carolina corporations, as of December 31, 1997 and May
26, 1998, and the related combined statements of operations, changes in
stockholders' equity (deficit) and cash flows for the year ended December 31,
1997 and for the period from January 1, 1998 through May 26, 1998. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
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 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, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Brindley &
Brindley, as of December 31, 1997 and May 26, 1998, and the results of their
operations and their cash flows for the year ended December 31, 1997 and for 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
BRINDLEY & BRINDLEY
COMBINED 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 $ 24 $ 685
Cash held in trust 3,895 1,880
Accounts receivable 62 48
Prepaid expenses and other current assets 37 135
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Total current assets 4,018 2,748
PROPERTY AND EQUIPMENT, net 125 148
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Total assets $ 4,143 $ 2,896
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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CURRENT LIABILITIES:
Current portion of long-term debt $ 19 $ 19
Customer deposits and deferred revenue 3,895 3,909
Accounts payable and accrued liabilities 108 129
Distribution payable to stockholders - 453
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Total current liabilities 4,022 4,510
LONG-TERM DEBT, net of current maturities 22 22
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $1 par; 200,000 shares authorized;
200 shares outstanding - -
Retained earnings (deficit) 99 (1,636)
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Total stockholders' equity (deficit) 99 (1,636)
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Total liabilities and stockholders' equity (deficit) $ 4,143 $ 2,896
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The accompanying notes are an integral part of these financial statements.
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF OPERATIONS
(In thousands)
January 1
Year Ended Through
December 31, May 26,
1997 1998
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REVENUES:
Property rental fees $2,642 $ 261
Service fees 978 238
Real estate commissions, net 401 136
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Total revenues 4,021 635
OPERATING EXPENSES 3,028 1,327
GENERAL AND ADMINISTRATIVE EXPENSES 482 262
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Income from operations 511 (954)
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OTHER INCOME:
Interest income, net 42 27
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NET INCOME (LOSS) $ 553 $ (927)
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The accompanying notes are an integral part of these financial statements.
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
Common Stock Retained
-------------------- Earnings
Shares Amount (Deficit) Total
------ ------ --------- -----
BALANCE, December 31, 1996 200 $ - $ 73 $ 73
Net income - - 553 553
Distributions - - (527) (527)
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BALANCE, December 31, 1997 200 - 99 99
Net loss - - (927) (927)
Distributions - - (808) (808)
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BALANCE, May 26, 1998 200 $ - $(1,636) $(1,636)
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The accompanying notes are an integral part of these financial statements.
BRINDLEY & BRINDLEY
COMBINED STATEMENTS OF CASH FLOWS
(In thousands)
Year January
Ended Through
December 31, May 26,
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 553 $ (927)
Adjustments to reconcile net income to net cash
provided by operating activities-
Depreciation 87 25
Changes in operating assets and liabilities-
Accounts receivable (33) 14
Cash held in escrow - 2,015
Prepaid expenses and other current assets (30) (98)
Accounts payable and accrued liabilities 4 21
Customer deposits and deferred revenue - 14
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Net cash provided by operating activities 581 1,064
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (83) (48)
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Net cash used in investing activities (83) (48)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 19 -
Distributions to stockholders (527) (355)
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Net cash used in financing activities (508) (355)
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (10) 661
CASH AND CASH EQUIVALENTS, beginning of period 34 24
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CASH AND CASH EQUIVALENTS, end of period $ 24 $ 685
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 3 $ 7
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
INFORMATION:
Accrued distribution to stockholders $ - $ 453
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The accompanying notes are an integral part of these financial statements.
BRINDLEY & BRINDLEY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Brindley & Brindley Realty and Development, Inc. and B&B On The Beach, Inc.
(collectively "Brindley & Brindley" or the "Company") both North Carolina
companies, are leading providers of beach vacation property rentals, management
services and sales in the Outer Banks of North Carolina. Brindley & Brindley
manages approximately 450 rental homes. 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 allow property
owners to terminate the contract at any time. Brindley & Brindley's operations
are seasonal, with peaks during the second and third 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 and certain key employees have
agreed to reductions in salary and benefits which would have reduced general and
administrative expenses by approximately $69,000 and $34,000 for the year ended
December 31, 1997 and 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
Combinations and the purchase price for the Company was adjusted by certain
working capital adjustments of approximately $453,000.
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 an advance
rent equal to 50% of the rental fee at the time reservations are booked and the
remaining 50% of the rental fee 30 days prior to the expected arrival date.
These advance rents 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, reservations and pool/spa services.
Commissions on real estate sales are recognized at closing and are recorded net
of the related commission expense. The Company recognized commission revenues of
$1,189,000 and $374,000, and commission expense of $788,000 and $238,000 for the
year ended December 31, 1997 and the period from January 1, 1998 through May 26,
1998, respectively.
Operating Expenses
Operating expenses include rental agent commissions, employees salaries,
marketing and advertising expense, and other costs associated with property
sales, rental and management.
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 combined statements 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 shares 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 Corolla, North Carolina area and
are subject to significant changes due to 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 December 31, May 26,
In Years 1997 1998
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Buildings and improvements 5-40 $ 7 $ 7
Office equipment and vehicles 3-7 338 386
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345 393
Less - Accumulated depreciation (220) (245)
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Property and equipment, net $ 125 $148
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Accounts payable and accrued liabilities consisted of the following (in
thousands):
December 31, May 26,
1997 1998
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Accrued compensation and benefits $ 28 $ 54
Accounts payable and other accrued liabilities 80 75
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Total accounts payable and accrued liabilities $108 $129
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At May 26,1998, maturities of long-term debt were as follows (in thousands):
Remainder of 1998 $19
1999 8
2000 9
2001 5
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$41
---
---
In conjunction with the Combination, all outstanding debt was extinguished.
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4. 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 combined financial position
or combined 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 combined financial statements.
Benefit Plans
The Company's 401(k) retirement plan is available to substantially all of the
Company's full-time salaried employees. The Company's contribution to the plan
is based upon a percentage of employee contributions. The cost of this plan to
the Company was approximately $14,000 for the year ended December 31, 1997 and
$5,000 for the period from January 1, 1998 through May 26, 1998.
5. RELATED PARTIES:
During 1997, the Company paid approximately $104,000 or approximately $8,700 per
month to one of the owners for rent of the office building and local warehouse
pursuant to two oral agreements, each on a month-to-month basis. Brindley &
Brindley entered into two written lease agreements with the Brindleys for these
facilities that commenced on January 1, 1998. The terms of these leases expire
December 31, 2002, with options to extend for two 5-year periods at the end of
the lease periods and provide for aggregate annual rental payments of
approximately $134,000. For the period from January 1, 1998 through May 26,
1998, the Company paid approximately $57,000 under these agreements.
The Company received real estate sales commissions of $70,000 and $2,000 from
Outer Banks Ventures, Inc., an affiliate for the year ended December 31, 1997
and for the period from January 1, 1998 through May 26, 1998, respectively.
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