Page 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
Commission file number: 0-7765
------
CROWELL & CO., INC.
- --------------------------------------------------------------------------------
(Name of small business issuer in its charter)
Georgia 58-1021933
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
610 Industrial Park Boulevard, Evans, GA 30809
- ---------------------------------------- -----
(Address of Principal executive offices) Zip Code
Issuer's telephone number including area code: (706) 855-1099
--------------
Securities registered pursuant to Section 12 (b) of the Act: None
----
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Without Par Value
-------------------------------
(Title of Class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Check if there is no disclosure of delinquent filers under Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year: $6,210,663.
The aggregate market value of the voting stock held by non-affiliates is unknown
to registrant. Registrant is unaware of any sales or purchases of its stock
during the 60 day period ending June 8, 1998.
The number of shares outstanding of issuer's common equity as of October 5,
1998, is 2,520,835.
The Index of Exhibits is on page 33.
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TABLE OF CONTENTS
PART 1 PAGE
ITEM 1 Description of Business........................................... 3
ITEM 2 Description of Properties......................................... 5
ITEM 3 Legal Proceedings................................................. 8
ITEM 4 Submission of Matters to a Vote of Security Holders............... 8
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters.......... 9
ITEM 6 Management's Discussion and Analysis or Plan of Operation......... 9
ITEM 7 Financial Statements.............................................. 12
ITEM 8 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.............................................. 26
PART III
ITEM 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................. 27
ITEM 10 Executive Compensation............................................ 28
ITEM 11 Security Ownership of Certain Beneficial Owners and Management.... 28
ITEM 12 Certain Relationships and Related Transactions.................... 30
ITEM 13 Exhibits List and Reports on Form 8-K............................. 31
Signatures........................................................ 33
Index of Exhibits................................................. 34
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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Crowell & Co., Inc., is a Georgia corporation ("Crowell") which was
incorporated in 1968. The offices of Crowell are located at 610 Industrial Park
Boulevard, Evans, Georgia, 30809. The telephone number is (706) 855-1099.
The principal business of Crowell and its subsidiary, Keystone Homes, Inc.
(together, the "Company"), is home-building and the development of residential
properties for resale. Crowell primarily develops residential properties.
Crowell's business plan is to acquire new properties for development in
profitable markets based on current and expected demand. Analysis and
acquisition of new properties are ongoing. On June 1, 1995, Crowell sold its
residential real estate brokerage division to Meybohm Realty, Inc. ("Meybohm").
Crowell retained its commercial brokerage division in the sale. Crowell sold its
computer division, United Data Systems ("UDS") to Chin Yu on December 16, 1996.
Crowell sold Petersburg Racquet Club, its pool and tennis facility to Craig S.
Jones on December 31, 1997. (See Dispositions of Assets on page 4.)
Crowell acquires and develops land for home-building primarily in Columbia
County, Georgia. Columbia County is in east central Georgia and is included in
the Augusta Metropolitan Statistical Area ("MSA"). This MSA contains Richmond,
Columbia, and McDuffie Counties in Georgia and Aiken and Edgefield Counties in
South Carolina. The population of this MSA was approximately 480,000 in 1997.
Columbia County had a population of approximately 88,000 in 1997. While Columbia
County is primarily a suburban and rural community, the industrial base is
growing as local political and business leaders have made intensive efforts to
lure new industries. Crowell believes Columbia County is highly desirable for
homebuyers for many reasons, including the county's high quality school system
and accessibility to employment, shopping, and entertainment.
Keystone (a wholly owned subsidiary of Crowell) builds single family homes
on a presold and speculative basis. Keystone builds in all of Crowell's
developments and in one of Home Sites, Ltd.'s (a Georgia limited partnership of
which Otis L. Crowell, President and Chairman of the Board, and majority
shareholder of Crowell, is the general partner) developments. Generally,
Keystone does not build outside of Crowell or Home Sites developments. The
revenues of Keystone constituted 84% of the total revenues of the Company for
the fiscal year ended December 31, 1997.
Keystone purchases developed lots for home construction from Home Sites,
Ltd. ("Home Sites"). For the year ended December 31, 1996, such purchases were
$79,500. Crowell also provides management services to Home Sites. For the year
ended December 31, 1996, management fees earned by the Company were $5,430.
Currently, Keystone's home prices (which include lot costs) range from
approximately $90,000 to $200,000. Square footage in these homes ranges from
1,200 to 3,200 square feet. Keystone builds single family detached homes.
Keystone uses either concrete slabs or flooring systems in the construction of
its homes and exterior materials may be brick, vinyl siding, or stucco.
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Keystone's backlog at December 31, 1997, was approximately $813,000.
Backlog represents the dollar amount of sales pending on signed contracts where
Keystone has not completed construction of the homes under contract.
Construction was approximately 80.1% complete on these contracts at December 31,
1997. Management believes all backlog at December 31, 1997, will be completed
during 1998.
All operations of the Company are domestic.
DISPOSITIONS OF ASSETS
On June 1, 1995, Crowell sold its residential real estate brokerage
division ("Division") to Meybohm. Crowell sold the Division in order to
concentrate managerial and financial resources on development and home-building.
The sales price of the Division was $100,000 in cash, plus payments based on
various percentages of former Crowell agent earnings, listings, and pending sale
contracts transferred from Crowell to Meybohm for one year from the date of
sale. In addition, the sales price included payments not to exceed $60,000 per
year for the right to exclusively market Crowell and related entities'
developments for a period of two years. The net book value of the division was
approximately $21,000 at the time of the sale. This amount is included as cost
in the $79,000 gain on the disposal of the Division. All other payments received
under the sales agreement are reflected in the loss from discontinued
operations. There was no material relationship between Crowell and Meybohm at
the time of the sale. No income tax was generated from the sale of the Division
because of the operating loss incurred by Crowell for 1995. Total revenue from
the residential brokerage division for the years ended December 31, 1995 and
1994, was $528,473 and $1,760,149, respectively.
On December 16, 1996 Crowell sold United Data Systems, Inc., ("UDS"), a
computer software company that developed software for use in the real estate
industry. The sales price of UDS was $200,000 which was received in the form of
$80,000 in cash and a note receivable of $120,000 which is secured by all sold
and future assets of UDS. The net book value of UDS was approximately $40,000.
Therefore, Crowell recognized a gain of approximately $160,000 on the sale. The
purchaser of UDS was Chin U. Yu ("Chin"). There was no substantial material
relationship between Crowell and Chin at the time of the sale. No income tax was
generated from the sale of UDS because of the operating loss incurred by Crowell
for 1997. Total revenue for UDS for the years ended December 31, 1997 and 1996
was $421,199 and $562,713, respectively.
On December 31, 1997, Crowell sold the real estate and business operation
known as Petersburg Racquet Club ("PRC") to Craig S. Jones, an individual. No
material relationship existed between Mr. Jones and Crowell before the sale. The
purchase price of PRC was approximately $818,000. This amount was received in
the form of approximately $100,000 in cash, the assumption of a mortgage loan on
PRC in the amount of approximately $576,000, the execution of a note secured by
a second mortgage on PRC in favor of Crowell in the amount of approximately
$129,000, the execution of a note in favor of Crowell in the amount of
approximately $7,000 and the obligation to pay Crowell the accounts receivable
of PRC at December 31, 1997, which
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are approximately $6,000, as they are received. The net book value of PRC at the
time of the sale was approximately $652,000.
COMPETITION
The Company competes with other individuals and entities involved in real
estate development and residential real estate construction, many of which have
greater capital resources than Crowell. Such competitors may have greater
diversity in terms of both the types of properties under development and
geographic locations of properties, and therefore, are better able to avoid
adverse developments in the single family residential development and
construction business in the MSA.
Crowell competes with several other developers in Columbia County. Lot
prices are determined by market conditions because Crowell does not have
sufficient market share to dictate price. Crowell competes by strategically
analyzing housing availability and demand throughout the MSA and acquiring
properties based on this analysis.
Because Keystone is the primary builder in several subdivisions developed
by Crowell and Home Sites, Keystone is not subject to the lot acquisition
problems that some of its competitors face. Therefore, Keystone is able to
concentrate on building efficiencies and customer needs. Keystone's home prices
are determined by market conditions and are affected by demand, land acquisition
costs, and the cost of labor and materials.
SOURCES AND AVAILABILITY OF RAW MATERIALS
There is an adequate supply of building materials available in the Augusta,
Georgia area. Major suppliers of the Company are Howard Lumber Company, Maner
Builders Supply Company, Hutto Plumbing, Inc., Looper Cabinet Company, Inc.,
Claussen Concrete, Wickes Lumber Company, American Carpet One, Augusta Lighting
and Design Center, Smith's Landscape Nursery, and D'Antignac & Merritt.
EMPLOYEES
As of December 31, 1997, the Company and its subsidiaries had eight (8)
full time employees. The Company has one (1) commercial real estate agent.
ITEM 2. DESCRIPTION OF PROPERTIES
At December 31, 1997, the principal properties held by the Company, all of
which are located in Columbia County, Georgia, unless otherwise noted, included:
<TABLE>
<CAPTION>
Mortgage Project/ Mortgage
Description Subdivision Name Location Existing Use Planned Use Balance
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9.4 acres undeveloped land None Fury's Ferry Rd None Commercial/ *
Shopping Ctr
1.41 acres undeveloped land None The Pass Rd None Commercial *
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27 developed lots Chaparral The Pass Rd Residential $ 100
18 developed lots Bakers Ferry The Pass Rd Residential 100,200
20.23 acres land under Cedar Rock The Pass Rd None Residential 739,500
development
Homes under construction Bakers Ferry The Pass Rd Sales 1,016,502
inventory
Homes under construction The Boulders The Pass Rd Sales 494,761
inventory
Completed homes Bridlewood Fury's Ferry Rd Sales 99,000
inventory
Completed homes Asbury Hill Richmond County Sales 66,400
inventory
Homes under construction Chaparral The Pass Sales 340,167
inventory
Rental Homes None Various Sales 60,434
inventory ----------
Total mortgage debt $2,967,064
==========
</TABLE>
- --------------
* Aggregate mortgage debt was $50,000 at December 31, 1997.
The Company holds title on the above properties in fee simple. All land is
properly zoned for its listed potential use. Management believes that Crowell
and Keystone are in compliance with all wetlands, setback, and zoning
regulations. Management believes that all properties are adequately insured.
The interest expense for the year ended December 31, 1997, on the mortgage
debt was approximately $220,000 (including capitalized interest and excluding
interest on the mortgage debt of Petersburg Racquet Club). A similar payment for
1998 can be expected although the amount will vary depending on several factors
including lot sales and interest rate changes. The principal outstanding is
reduced by a certain agreed-upon amount as each property is sold in order for
the lender to release its secured interest in the property being sold. The
interest rates on the mortgages range from 8.5% to 10.0%. The development loans
are renewed on an annual basis. (For additional information on the Company's
mortgage debt, see Item 6. Management's Discussion and Analysis or Plan of
Operation.)
The Company's investment in different types of real estate is not
restricted except where restricted by the Company's ability to obtain financing.
See Item 1 for a description of the Company's real estate development
activities.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of investment policies, financing policies
and policies with respect to certain other activities of the Company. Although
the Company has no formal written policies with respect to such activities, the
following discussion
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outlines the Company's objectives and informal policies with respect to these
activities, which have been determined by the Board of Directors of the Company
and may be changed from time to time at the discretion of the Board of Directors
without a vote of the shareholders of the Company.
Investment Policies. The Company's primary objective with regard to real
estate is to acquire raw land in the Augusta, Georgia area for the purpose of
developing the land into separate homesites and home-building, which homes are
built on a presold or speculative basis. (See Item 2. Description of
Properties.) However, future development or investment activities may not be
limited to this specific geographic area or to residential real estate. The
Company's policy is to develop or acquire raw land or developed residential lots
where management believes that opportunities exist for acceptable investment
returns. The Company may expand or develop existing properties or sell such
properties in whole or in part as determined by management.
The Company may also participate with other entities in property ownership,
through joint ventures or other types of co-ownership. The Company's equity
investments in such properties may be subject to existing mortgage financing and
other indebtedness which would have priority over the equity of the Company. The
Company may issue securities to persons in exchange for properties. The Company
also may invest in securities of entities engaged in real estate activities or
securities of other issuers, including for the purpose of exercising control
over such entities, although it has not done so in the past several years. The
Company may acquire all or substantially all of the securities or assets of
other entities where such investments would be consistent with the Company's
investment policies.
Financing Policies. The Company uses internally generated and borrowed
funds to purchase real estate. In reaching such financing decisions, management
considers traditional conventional mortgage debt-to-asset ratios. Borrowings may
be in the form of bank borrowings, publicly and privately placed debt
instruments, or purchase money obligations to the sellers of properties, any of
which indebtedness may be unsecured or may be secured by any or all of the
assets of the Company and may have full or limited recourse to all or any
portion of the assets of the Company. The Company has not established any limit
on the number of mortgages that may be placed on any single property or on its
portfolio as a whole, but mortgage financing instruments usually limit
additional indebtedness on such properties. To the extent that the Board of
Directors of the Company determines to sell additional capital, the Company may
raise such capital through equity offerings, debt financings or any other
method.
Policies with Respect to Other Activities. The Company has authority to
offer and sell shares of its capital stock or other securities and to repurchase
or otherwise reacquire its shares or any other securities and may engage in such
activities in the future, although it has no present intention of offering or
selling any securities. The Company has no material outstanding loans to other
entities or persons, including officers and directors. The Company may in the
future make loans to joint ventures in which it participates in order to meet
working capital needs of the venture. The Company has not engaged and does not
intend to engage in the future in trading, underwriting or agency distribution
or sale of securities of other issuers. Additionally, the Company has not
invested in the securities of other issuers for the purpose of
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exercising control in the past three years; however, the Company may make such
investments in the future. The Company intends to make investments in such a way
that it will not be treated as an investment company under the Investment
Company Act of 1940.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings except routine
litigation that is incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the quarter ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no public trading market for the securities of Crowell. As of
December 31, 1997, there were approximately 750 holders of record of Crowell's
Common Stock, without par value. No dividends have been paid on Crowell's Common
Stock for more than two years and it is anticipated that Crowell will not pay
dividends in the foreseeable future.
Crowell did not issue or sell any shares of Common Stock during 1997 that
were not registered under the Securities Act of 1933, as amended.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The primary objective of the Company's management is to maximize
shareholder wealth. The Company attempts to accomplish this objective by
increasing total revenues and controlling expenses. Management believes that
existing corporate structure is adequate to support increased sales. In
addition, management believes revenues can be increased most rapidly by
increasing home-building efforts.
The statements in this report regarding future sales, expenses, and other
items relating to the future of the Company constitute Forward Looking
Statements under the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from the Company's expectations as a result of a
number of factors, including the national and local economy, market conditions,
competition, real estate demand, availability of financing, interest rates, and
weather conditions.
On February 13, 1998, the Company filed a Preliminary Proxy Statement on
Schedule 14A with the Securities and Exchange Commission for the purpose of
eliminating the periodic reporting requirements under the Securities Exchange
Act of 1934 by a reverse common stock split. The reverse common stock split, if
consummated, will eliminate all common shareholders except the majority
stockholder.
RESULTS OF OPERATION
Management continually monitors inventory levels in relation to customer
demand in order to build the needed number of homes. Management believes that
housing inventory needs are dynamic and that a specific inventory level must be
matched with anticipated consumer demand. Therefore, there is no specific amount
of inventory which will always be the optimum.
Home sales decreased by $1,093,103 or 17.5%, and commercial brokerage
commissions decreased by $23,477 or 11.4% for the year ended December 31, 1997,
as compared to the year ended December 31, 1996. The decrease in home sales
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primarily resulted from selling fewer homes in 1997 than in 1996. The decrease
in commercial brokerage commissions resulted from the decrease in dollar amounts
of property brokered in 1997.
Gross profit percent on home sales decreased to 5.4% in 1997 from 8.5% in
1996. The decrease in gross profit percentage on home sales resulted primarily
from building homes on rougher lots in 1997 as compared to 1996.
Gross profit percent on commercial brokerage commissions increased from
31.0% in 1996 to 34.4% in 1997.
Gross profit on lot sales increased from 49.2% in 1996 to 52.1% in 1997.
Salaries decreased in 1997 as compared to 1996 by $110,837 or 21.0%,
because of employee attrition. Management believes salary expense will be less
in 1998 than in 1997 because of the loss of several employees during 1997. The
Company does not plan to replace employees lost through attrition.
Depreciation expense decreased by $814 or 4.3% in 1997 as compared to 1996
because several assets have been fully depreciated.
Taxes and licenses decreased by $1,815 or 6.1%, in 1997 as compared to
1996.
Building occupancy increased by $11,161 or 19.3% in 1997 as compared to
1996 because of an increase in maintenance costs.
Office expense decreased in 1997 by $3,170 or 3.5% as compared to 1996. The
decrease in office expenses in 1997 as compared to 1996 resulted primarily from
the decrease in the number of employees and the decrease in number of Company
operations.
Advertising and promotion increased by $2,049 or 12.7%, in 1997 as compared
to 1996.
Legal and accounting expenses increased by $1,681 or 6.5%, in 1997 as
compared to 1996. The decrease in legal and accounting fees resulted primarily
from the reduction in audit fees and less use of attorneys in 1997 as compared
to 1996.
Communications expenses decreased by $1,276 or 7.6%, in 1997 as compared to
1996 because of lower long distance rates.
Overall operating expenses decreased by $87,473 or 11.1% for 1997 as
compared to 1996. The overall decreases in 1997 as compared to 1996 resulted
primarily from decreases in salaries.
Interest income increased by $7,264 in 1997 as compared to 1996 because of
collections on a note receivable.
Interest expense from continuing operations decreased by $69,616 in 1997 as
compared to 1996 because of the decrease in housing inventory carried throughout
the year.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to sell land it presently owns to meet liquidity
needs as it has done in the past. Together with revenues from other sources,
such sales would be expected to generate sufficient cash to meet the Company's
liquidity requirements. At December 31, 1997, available cash and proceeds from
land, lot, and home sales were expected to be sufficient to meet the Company's
requirements until spring of 1998 when home sales typically improve and provide
cash for operations.
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The Company has obtained financing historically by borrowing from
conventional lending sources using land acquired for development as security for
loans.
Current and future liquidity needs are expected to be met by use of the
proceeds from lot and land sales and the proceeds from loans, using lands
purchased for development as collateral. Existing development loans and
commitments available to the Company have been made by various financial
institutions and are secured by the improved lots held for resale. (See Item 2.
Description of Properties.) The interest rates on the development loans are the
prime rates of the lenders (8.0% in December 1997) plus 1.0 to 1.5%. Payments of
interest are due monthly or quarterly and a portion of the principal is repaid
as each lot is sold. The existing loans terminate in the years ending December
31, 1998 and 1999, at which time all principal and accrued interest are payable.
There are no penalties for prepayment. Management expects to renew the
development loans at that time.
Residential home construction costs are financed through the use of
additional commitments using the improved lots as collateral. Lot acquisition
costs and home construction costs are financed by construction loans from a
number of conventional lending sources, generally lending 90 to 95% of the costs
of the home, secured by the lot and improvements, at rates of 9.25% to 9.75% as
of December 31, 1997. These loans are paid upon the sale of the home. These
loans are negotiated and closed on a project-by-project and lot-by-lot basis.
Financing arrangements for long-term needs have not been made because such
arrangements in the land development business are generally made on a
project-by-project basis. Debt service on existing loans (loan balances totaled
$2,967,064 as of December 31, 1997) and funds for operations are expected to be
met from the proceeds of lot sales, land sales, home sales and real estate
brokerage commissions. Notes maturing in 1998 total $2,227,564. The Company
historically has renewed these notes annually although there are no assurances
that such loans will be renewed by the financial institution. The notes will
eventually be repaid from proceeds of land, lot, and home sales. (See Item 7.
Financial Statements for additional details regarding notes payable.)
The Company's financial condition at December 31, 1997, has deteriorated as
compared to that of December 31, 1996. Stockholders' equity as of December 31,
1997, was $684,689 as compared to $741,869 at December 31, 1997.
Properties held for resale decreased from $3,493,117 at December 31, 1996
to $3,415,398 at December 31, 1997, a decrease of $77,719, or 2.2%, which
reflects the decrease in inventory to adjust to decreased sales. Properties held
for resale will increase and decrease as management determines and builds the
level of inventory needed to satisfy customer demand.
Cash increased by $130,170 or 208%, at December 31, 1997, from December 31,
1996 because of $100,000 collected on December 31, 1997, from payment on the
sale of Petersburg Racquet Club. (See Item 7. Financial Statements -
Consolidated Statements of Cash Flows.)
Receivables decreased from $161,907 at December 31, 1996, to $94,108 at
December 31, 1997, a decrease of $67,799 or 41.9%, because of collections on a
note receivable in connection with the sale of UDS.
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Other assets increased from $43,332 at December 31, 1996, to $60,750 at
December 31, 1997, an increase of $17,418 or 40.2%.
Notes payable decreased from $3,566,459 at December 31, 1996, to $2,967,064
at December 31, 1997, a decrease of $599,395 or 16.8%, because of the sale of
Petersburg Racquet Club. Notes payable will increase and decrease in direct
proportion to the level of housing inventory maintained by the Company.
Accounts payable and accrued liabilities increased from $71,544 at December
31, 1996, to $181,238 at December 31, 1997, an increase of $109,694 or 153.3%.
The Company has net operating loss carryforwards available of approximately
$1,945,000 to offset against future federal taxable income. The maximum value of
these carryforwards computed at maximum federal and state income tax rates is
approximately $760,000. This amount is not reflected in the financial
statements.
IMPACT OF INFLATION
Although inflationary pressures were moderate in 1997 and 1996, the Company
continues to seek ways to reduce the impact of inflation. To the extent
permitted by competition, the Company passes increased costs on to customers by
increasing sales prices of residential lots and homes.
SEASONALITY
The Company typically sells more homes during the second and third quarters
of the year than during the remainder of the year.
ITEM 7. FINANCIAL STATEMENTS
The following consolidated financial statements of Crowell & Co., Inc., and
subsidiaries are included herein:
Consolidated Balance Sheets - December 31, 1997 and 1996
Consolidated Statements of Operations - Years ended December 31, 1997
and 1996
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows - Years ended December 31, 1997
and 1996
Notes to Consolidated Financial Statements - Years ended December 31,
1997 and 1996
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Crowell & Co., Inc., and Subsidiaries
Augusta, Georgia
We have audited the accompanying consolidated balance sheets of Crowell &
Co., Inc., and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for the years then ended. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Crowell &
Co., Inc., and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
CHERRY, BEKAERT & HOLLAND, L. L. P.
Augusta, Georgia
August 21, 1998
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CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
----------- -----------
PROPERTIES HELD FOR RESALE
<S> <C> <C>
Homes under construction and for sale $ 2,173,005 $ 2,276,944
Developed residential land 1,176,494 1,016,939
Land held for future development 65,899 199,234
----------- -----------
3,415,398 3,493,117
----------- -----------
CASH AND CASH EQUIVALENTS, including escrow funds
of $2,634 and $6,434 in 1997 and 1996, respectively 192,664 62,494
----------- -----------
RECEIVABLES
Notes 93,522 126,316
Accounts and other 586 35,591
----------- -----------
94,108 161,907
----------- -----------
PROPERTY AND EQUIPMENT
Rental homes 90,000 90,000
Petersburg Racquet Club 0 1,059,993
Furniture, fixtures and equipment 97,763 146,903
----------- -----------
187,763 1,296,896
Less accumulated depreciation (87,692) (677,874)
----------- -----------
100,071 619,022
----------- -----------
OTHER ASSETS 60,750 43,332
----------- -----------
ASSETS OF BUSINESS TRANSFERRED UNDER
CONTRACTUAL ARRANGEMENT 606,000 --
----------- -----------
$ 4,468,991 $ 4,379,872
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
----------- -----------
<S> <C> <C>
NOTES PAYABLE TO BANKS $ 2,967,064 $ 3,566,459
----------- -----------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable 132,918 21,155
Accrued expenses 39,904 42,905
Customer deposits 8,416 7,484
----------- -----------
181,238 71,544
----------- -----------
OTHER LIABILITIES
Liabilities and deferred credit of business transferred
under contractual arrangement 606,000 --
Deferred gain on disposal of Petersburg Racquet Club 30,000 --
----------- -----------
TOTAL LIABILITIES $ 3,784,302 $ 3,638,003
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Capital stock:
Preferred, voting and non-participating, without par value;
10,000,000 shares authorized, 1,011,899 designated to
Series A and Series B
Series A preferred, 8% cumulative, stated value $1 per
share; callable at $1 per share plus accumulated
dividends, convertible into common stock at the rate of
1 share for 4 preferred shares; authorized 2,000,000
shares; issued and outstanding 525,000 shares;
accumulated dividends $147,000 ($0.28 per share) 525,000 525,000
Series B preferred, 8% cumulative, stated value $1 per
share; callable at $1 per share plus accumulated
dividends, convertible into common stock at the rate of
1 share for 4 preferred shares; authorized 486,899
shares; issued and outstanding 486,899 shares;
accumulated dividends $155,808 ($0.32 per share) 486,899 486,899
Common, without par value; 50,000,000 shares authorized;
2,520,835 shares issued and outstanding at December 31,
1997 and 1996 696,774 696,774
Additional paid-in capital Preferred stock - Series A 33,648 33,648
Accumulated deficit (1,057,632) (1,000,452)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 684,689 741,869
----------- -----------
$ 4,468,991 $ 4,379,872
=========== ===========
</TABLE>
<PAGE>
Page 16
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
-----------------------
1997 1996
----------- -----------
REVENUES
Home sales $ 5,160,165 $ 6,253,268
Brokerage commissions 182,778 206,255
Other income 138,420 89,798
Lot sales 388,300 254,900
Land sales 341,000 00
----------- -----------
6,210,663 6,804,221
----------- -----------
COST OF REVENUES
Homes 4,881,475 5,721,184
Agent commissions 119,921 142,395
Other 30,117 00
Lots 185,923 129,408
Land 133,335 00
----------- -----------
5,350,771 5,992,987
----------- -----------
OPERATING EXPENSES
Salaries 417,260 528,097
Depreciation 17,958 18,772
Taxes and license 28,103 29,918
Building occupancy 68,987 57,826
Advertising and promotion 18,155 16,106
Office expense 88,168 91,338
Legal and accounting 27,673 25,992
Communications 18,001 16,725
Completed home expenses 12,996 00
----------- -----------
697,301 784,774
----------- -----------
OPERATING INCOME 162,591 26,460
----------- -----------
FINANCIAL INCOME (EXPENSE)
Interest income 8,205 941
Interest expense (147,276) (216,892)
----------- -----------
(139,071) (215,951)
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 23,520 (189,491)
----------- -----------
DISCONTINUED OPERATIONS
Income from residential brokerage division 00 69,686
Income from computer division 00 3,306
Gain on disposal of computer division 00 159,927
Loss from Petersburg Racquet Club (80,700) (56,581)
----------- -----------
(80,700) 176,338
----------- -----------
NET LOSS $ (57,180) $ (13,153)
=========== ===========
(CONTINUED ON NEXT PAGE)
<PAGE>
Page 17
EARNINGS PER COMMON SHARE:
Weighted average number of common
shares outstanding 2,520,835 2,520,835
Basic earnings per share
Loss from continuing operations $ (.02) $ ( .11)
Income (loss) from discontinued operations (.03) .07
----------- -----------
NET LOSS PER COMMON SHARE $ (.05) $ (.04)
=========== ===========
See notes to consolidated financial statements.
<PAGE>
Page 18
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Capital Stock Issued Additional Paid-In Capital
-------------------- --------------------------
Total
Preferred Preferred Preferred Accumulated Stockholders'
Series A Series B Common Series A Deficit Equity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 525,000 $ 486,899 $ 696,776 $ 33,648 $ (987,299) $ 755,024
Purchase of Stock -- -- (2) -- -- (2)
Net loss -- -- -- -- (13,153) (13,153)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1996 $ 525,000 $ 486,899 $ 696,774 $ 33,648 $(1,000,452) $ 741,869
Net loss -- -- -- -- (57,180) (57,180)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1997 $ 525,000 $ 486,899 $ 696,774 $ 33,648 $(1,057,632) $ 684,689
=========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 19
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (57,180) $ (13,153)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 76,766 54,388
Gain on disposal of assets (15,139) (159,927)
Changes in assets and liabilities:
(Increase) decrease in:
Properties held for resale 77,719 436,080
Accounts and other receivables 35,005 60,719
Home sale notes receivable 6,316 24,450
Other assets (17,418) 10,184
Increase (decrease) in:
Accounts payable 111,763 (56,928)
Accrued expenses (3,001) (46,969)
Customer deposits 932 (22,886)
Deferred gain on disposal of Petersburg Racquet Club 30,000 --
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 245,763 285,958
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 100,000 80,000
Purchase of property and equipment (156,944) (329,579)
Collections on notes receivable 26,478 0
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (30,466) (249,579)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 4,190,611 4,679,657
Payments of bank loans and other debt (4,275,738) (4,922,106)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (85,127) (242,449)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 130,170 (206,070)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 62,494 268,564
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 192,664 $ 62,494
=========== ===========
SUPPLEMENTARY DISCLOSURES
Interest paid (net of amount capitalized) $ 146,932 $ 262,853
Note receivable from disposal of assets -- 120,000
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 20
CROWELL & CO., INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - DESCRIPTION OF BUSINESS
The principal operations of Crowell & Co., Inc., and its subsidiaries (the
"Company") are development of residential properties for resale, home-building,
and providing commercial real estate brokerage services. The Company acts as a
general contractor on all development and home-building.
Crowell & Co., Inc. ("Crowell"), the parent company, primarily develops
residential properties in the Augusta, Georgia, metropolitan statistical area.
Crowell also provides commercial real estate brokerage services.
Keystone Homes, Inc. ("Keystone"), a wholly owned subsidiary of Crowell,
builds single-family and multi-family homes on a presold and speculative basis
in the Augusta, Georgia, metropolitan statistical area.
The Company incurred a loss from continuing operations of $189,491 in 1996.
The Company sold two of its divisions during 1997 and 1996, and management has
initiated other internal changes which management believes will help return the
Company to profitability. However, the real estate market in the Augusta area is
subject to fluctuations beyond the Company's control. As discussed in Note 5,
the Company also has additional borrowing capacity under its financing
arrangements.
All operations of Crowell and its subsidiaries are domestic.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.
ACCOUNTING ESTIMATES
The preparation of the 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.
LOSS PER SHARE
The loss per common share is computed using the weighted average of the
number of shares outstanding during the years ended December 31, 1997 and 1996.
Because inclusion of convertible preferred stock would have an anti-dilutive
effect on the loss per common share, the convertible preferred stock is excluded
from the computation of the loss per common share assuming full dilution. The
preferred dividend accrued of $80,952 is subtracted from the income or loss for
continuing operations and net loss for the purposes of computing the loss per
common share
<PAGE>
Page 21
regardless of whether the preferred dividend is paid. At the option of the
holder, the preferred stock is convertible into common stock at one share for
every four shares owed for a total potential of 252,975 shares.
CASH AND CASH EQUIVALENTS
For the purpose of the Statements of Cash Flows, all highly liquid
instruments with an original maturity of three months or less are considered
cash equivalents.
RECEIVABLES
The Company uses the allowance method for recording bad debt.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense. Improvements that significantly increase the lives of assets
are capitalized and depreciated or amortized over their estimated useful lives.
Gains or losses on disposals are credited or charged to operations.
DEPRECIATION
Depreciation of property and equipment is computed on the straight-line and
declining-balance methods for both financial reporting and income tax purposes.
PROPERTIES HELD FOR RESALE
Properties held for resale are stated at the lower of cost or market using
the specific identification method. Certain property purchases and sales are
treated as cash transactions for the statements of cash flows.
CUSTOMER DEPOSITS
A portion of the Company's cash is reserved for the repayment of security
deposits, excess cash owed to property owners on property management accounts
and earnest money received on pending real estate sales contracts.
CAPITALIZED INTEREST
The Company capitalizes the portion of interest incurred during the
construction period for funds borrowed to develop properties and construct
residential homes. Such interest is charged to properties and expensed as a cost
of sale as properties are sold.
REVENUE RECOGNITION
The Company recognizes revenues on sales of residential lots, land, and
homes at the time of closing and receipt of cash.
The Company uses the completed contract method on Company-constructed
homes. This method is used because the typical home is completed in six months
or less and the financial position and results of operations do not vary
significantly from those which would result from the use of the percentage of
completion method. A contract is considered complete at the time of closing and
receipt of cash.
Contract costs include all direct materials and labor costs, allocated
common cost of land and development and those indirect costs related to contract
performance,
<PAGE>
Page 22
including interest on borrowings. General and administrative costs are charged
to expense as incurred.
The Company recognizes commissions earned on real estate brokerage
transactions at the time of closing.
RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with the financial
statement presentation used in 1997. These reclassifications had no effect on
net income.
CONCENTRATION OF RISK
The Company operates in the Augusta, Georgia, MSA. Therefore, the Company
can be adversely affected by local economic conditions. The Company had
approximately $21,000 in excess of federally insured amounts on deposit in one
bank.
NOTE 3 - NOTES RECEIVABLE
December 31,
------------
1997 1996
--------- ---------
Note receivable from an individual due in
quarterly installments with interest at 8.8%,
secured by all assets of UDS. (See Note 9) $ 93,522 $ 120,000
Various second mortgage notes receivable on
homes sold by Ivey at interest rates of 9.0%
to 11.0%, due at various dates through 1997 -- 6,315
Note receivable from an individual due on
December 31, 2002, interest receivable monthly,
beginning January 31, 1999, at 8.3%, secured by PRC 136,000 0
--------- ---------
Less allowance for doubtful accounts (136,000) 0
--------- ---------
$ 93,522 $ 126,315
========= =========
In the opinion of management, the fair value of the above financial
instruments does not materially differ from the face value.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company leased its office space from the majority stockholder. On June
1, 1989, the Company entered into three (3) operating lease agreements each with
a term of twenty (20) years. The leases provide that the Company pay all
property taxes, insurance and maintenance plus an annual rental. The Company is
no longer obligated on one lease because the majority stockholder sold the
building covered under the lease. The total minimum rental commitment at
December 31, 1997, under these leases is $1,098,000, which is due as follows:
Year ending December 31,
------------------------
1998 $ 81,600
1999 85,200
2000 85,200
2001 87,600
<PAGE>
Page 23
2002 90,000
Thereafter 668,400
----------
$1,098,000
==========
The total rental expense for these leases included in the consolidated
statements of income for the years ended December 31, 1997 and 1996, was
$127,200 and $122,400, respectively. The Company received rental income of
approximately $80,000 for two of the operating leases for both 1997 and 1996
which offset the rental expense.
The Company sold Petersburg Racquet Club ("PRC") on December 31, 1997. The
buyer of PRC assumed a note payable to the bank in the amount of approximately
$576,000. The Company remains as a secondary debtor on the assumed note.
Therefore, the Company has a contingent liability in the amount of the note
payable balance in the event that the buyer of PRC fails to make payment under
the note payable agreement.
NOTE 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---------- ----------
<S> <C> <C>
To banks
Secured by residential properties held for resale, maturing at
various dates through 1998, at interest rates from prime plus
1.0% to 1.5% (8.5% to 10.0% at December 31, 1997 and 1996) $2,906,630 $2,955,170
Secured by Petersburg Racquet Club property, maturing 2009, at an
interest rate of 7.5% at December 31, 1996 (see Note 4) -- 541,461
Secured by single-family homes held for resale and rental, maturing
at various dates through 1998, at interest rates of 9.0% to 11.0% 60,434 69,828
---------- ----------
$2,967,064 $3,566,459
========== ==========
</TABLE>
In the opinion of management, the fair value of the above financial
instruments does not materially differ from the face value.
Under provisions of financing arrangements outstanding at December 31,
1997, the Company has unused commitments for financing of approximately
$1,170,000. These additional amounts are available upon request and approval of
development progress and are subject to the same terms and obligations as those
existing on December 31, 1997. The majority stockholder has personally
guaranteed all bank loans. The president of Keystone has personally guaranteed
all of Keystone's bank loans which amounts to additional guarantees of
$2,077,264.
Maturities of debt are as follows:
Year ending December 31,
------------------------
1998 $ 2,227,564
1999 739,500
-----------
$ 2,967,064
===========
<PAGE>
Page 24
Capitalized interest (see NOTE 2) was approximately $76,000 and $78,000 for
the years ended December 31, 1997 and 1996, respectively. All other interest
incurred was recognized as financial expense in the consolidated statements of
income.
NOTE 6 - INCOME TAX MATTERS
For the years ended December 31, 1997 and 1996, Crowell filed consolidated
income tax returns with its subsidiary Keystone.
For the years ended December 31, 1997 and 1996, no income tax provision was
made because of the net losses the Company incurred. The Company reported
$136,000 in income on its income tax return that was not recorded in income for
financial reporting purposes. This income relates to the note receivable
received by the Company on the sale of PRC. (See NOTE 3 and NOTE 9.) The Company
used its net operating loss carryforward to eliminate the income tax liability
on this income.
Deferred tax assets and liabilities at December 31, 1997 and 1996, consist
of the following:
Years ended December 31,
------------------------
1997 1996
--------- ---------
Deferred tax assets
Federal and state net operating loss carryforwards $ 760,000 $ 800,000
Less valuation allowance (760,000) (800,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
Remaining net operating loss carryforwards of $1,945,020 expire in varying
amounts between December 31, 2002, and December 31, 2011, and are subject to
Internal Revenue Code Section 382 limitations relating to a corporation's
ability to use net operating loss carryforwards subsequent to a change in
ownership. An expiration schedule is as follows:
Year ending December 31
-----------------------
2002 $ 207,118
2003 597,531
2004 154,945
2005 294,482
2010 683,502
2011 7,442
-----------
$ 1,945,020
===========
NOTE 7 - INDUSTRY SEGMENT DATA
The Company conducts its operations in the principal industries of real
estate development and home-building.
The real estate development segment consists principally of the development
of residential properties for resale and construction of single-family and
multi-family housing.
The real estate brokerage segment consists of commission revenue and
related expenses for primarily commercial real estate sales.
<PAGE>
Page 25
Any significant intersegment revenues for the periods presented have been
eliminated. Various industry segment data is as follows:
Year ended December 31,
-----------------------
1997 1996
----------- -----------
Net sales
Real estate development $ 6,019,082 $ 6,597,966
Real estate brokerage 191,581 206,255
----------- -----------
Net sales $ 6,210,663 $ 6,804,221
=========== ===========
Operating income
Real estate development $ 122,767 $ (9,843)
Real estate brokerage 39,824 36,303
----------- -----------
Operating income $ 162,591 $ 26,460
=========== ===========
Capital expenditures
Real estate development $ 156,944 $ 324,215
Real estate brokerage -- --
----------- -----------
Net capital expenditures $ 156,944 $ 324,215
=========== ===========
Depreciation and amortization
Real estate development $ 17,958 $ 18,772
Real estate brokerage -- --
----------- -----------
Net depreciation and amortization $ 17,958 $ 18,772
=========== ===========
Assets employed
Real estate development $ 4,468,991 $ 4,379,872
Real estate brokerage -- --
----------- -----------
$ 4,468,991 $ 4,379,872
=========== ===========
NOTE 8 - RELATED PARTY TRANSACTIONS
Keystone purchases developed lots for home construction from Home Sites,
Ltd. ("Home Sites"), an entity related by common control. For the year ended
December 31, 1996 such purchases were $79,500. Crowell also provides management
services to Home Sites. For the year ended December 31, 1996 management fees
earned by the Company were $5,430.
The Company received $120,275 in real estate commissions from property sold
to Home Sites by an unrelated party for the year ended December 31, 1997. For
the year ended December 31, 1997, an officer of the Company purchased a home
from the Company. The sales price was $172,069. The cost of the home was
$161,918.
NOTE 9 - DISCONTINUED OPERATIONS
On December 16, 1996 Crowell sold United Data Systems, Inc., ("UDS"), a
computer software company. The sales price of UDS was $200,000 which was
received in the form of $80,000 in cash and a note receivable of $120,000 which
is secured by all sold and future assets of UDS. The net book value of UDS was
approximately $40,000. Therefore, a gain of approximately $160,000 was
recognized on the sale. The purchaser of UDS was Chin U. Yu ("Chin"). There was
no material relationship between Crowell and Chin at the time of the sale. No
income tax was incurred from the sale of UDS because of the operating loss
incurred by Crowell for 1997. Total revenue for UDS for the years ended December
31, 1996 was $562,713.
<PAGE>
Page 26
On December 31, 1997, Crowell sold the real estate and business operation
known as Petersburg Racquet Club ("PRC") to Craig S. Jones, an individual. No
material relationship existed between Mr. Jones and Crowell at the time of the
sale. The purchase price of PRC was approximately $818,000. This amount was
received in the form of approximately $100,000 in cash, the assumption of a
mortgage loan on PRC in the amount of approximately $576,000, the execution of a
note secured by a second mortgage on PRC in favor of Crowell in the amount of
approximately $129,000, the execution of a note in favor of Crowell in the
amount of approximately $7,000 and the obligation to pay Crowell the accounts
receivable of PRC at December 31, 1997, which were approximately $6,000, as they
were received. As a result of the Company remaining liable on the assumed
mortgage note, the Company has accounted for the PRC transaction following the
treatment set forth in the Securities Exchange Commission's Staff Accounting
Bulletins - Topic 5E (SAB Topic 5E) "Accounting for divestiture of a subsidiary
or other business operation". Accordingly, the assets of PRC at the sale date
have been recorded under the caption Assets of business transferred under
contractual arrangement with a corresponding amount recorded under Liabilities
and deferred credit of business transferred. The $166,000 gain on sale of PRC
has been separately deferred as a deferred gain of $30,000 and a reduction in
the notes receivable from Mr. Jones in the amount of $136,000. The Company will
continue to follow this accounting treatment until the amount of the outstanding
debt which Mr. Jones has assumed declines to a level which permits the Company
to record the transaction as a sale. Revenues from PRC for the years ended
December 31, 1997 and 1996, were $298,563 and $185,190, respectively.
NOTE 10 - OTHER MATTERS
On February 13, 1998, the Company filed a Preliminary Proxy Statement on
Schedule 14A with the Securities and Exchange Commission for the purpose of
eliminating the periodic reporting requirements under the Securities Exchange
Act of 1934 by a reverse common stock split. The reverse common stock split, if
consummated, will eliminate all common shareholders except the majority
stockholder.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Within the two year period ended December 31, 1997, there have been no
changes in independent certified public accountants or disagreements with
accountants on matters of accounting or financial disclosure.
The Company has not had an audit performed for the year ended December 31,
1997. The Company filed a proxy statement which requested a vote at a Special
Meeting of the stockholders that would eliminate the periodic reporting
requirements of the Securities Acts. This vote was delayed by the SEC when the
proxy statement and Schedule 13E-3 were under review. During this interim period
the 10-KSB became due. The Company has contacted its accountants and is in the
process of having an audit performed.
<PAGE>
Page 27
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Set forth below is certain information as of June 8, 1997, about each of
the directors and executive officers of Crowell.
Name Age Office
- ---- --- ------
Otis L. Crowell 63 Director, President and Chairman of the Board
O. Lamar Crowell, Jr. 32 Director and Vice President
Mark L. Gilliam 36 Director, Vice President, Secretary and Chief
Financial Officer
Mr. Crowell has served as President and as a Director of Crowell or its
predecessor since 1969, and Chairman of the Board of Crowell since March 1988.
Mr. Crowell, Jr., has served as Vice President and as a Director of Crowell
since July, 1996. Mr. Crowell, Jr., has served as President of Keystone Homes
since April 1995. For five years prior to his appointment as President of
Keystone, Mr. Crowell served as a manager with Crowell.
Mr. Gilliam has served as Vice President, Secretary and Chief Financial
Officer of Crowell since October 1992. From December 1987 to October 1992, Mr.
Gilliam practiced public accounting with the firms of Cherry, Bekaert & Holland
and Cleveland, Anderson & Company for three and two years, respectively.
The term of each officer and director is for one year and expires on the
third Wednesday in June; however, the term of each officer and director
continues until his successor is elected and qualified. There is no agreement or
understanding between any officer and director and any other person pursuant to
which any officer or director was selected as an officer or director. Mr.
Crowell, Jr., is the son of Mr. Crowell.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, and
regulations of the SEC thereunder require Crowell's executive officers and
directors and persons who own more than 10% of Crowell's Common Stock, as well
as certain affiliates of such persons, to file initial reports of ownership and
reports of changes in ownership with the SEC. Executive officers, directors and
persons owning more than 10% of Crowell's Common Stock are required by SEC
regulation to furnish Crowell with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it and
written representations that no other reports were required for those persons,
Crowell believes that during the fiscal year ended December 31, 1997, Crowell's
executive officers, directors and owners of more than 10% of its Common Stock
complied with all filing requirements.
<PAGE>
Page 28
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table summarizes by category, for the fiscal years ended
December 31, 1997, 1996, and 1995, the total compensation paid to the Chief
Executive Officer of the Company. No other executive officer of the Company
received salary and bonus for the fiscal year ended December 31, 1997, in an
amount in excess of $100,000:
Name and Year Ended
Principal Position December 31, Salary
- --------------------------------------------------------------------------------
Otis L. Crowell 1997 $ 120,000
President and 1996 120,000
Chief Executive Officer 1995 120,000
The directors of the Company are not compensated for services rendered in
such capacities.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of June 8, 1997, information with
respect to the beneficial ownership of shares of Common and Preferred Stock of
the Company by each person known to be the beneficial owner of more than 5% of
the outstanding shares of Common and Preferred stock and the holdings of
directors and executive officers individually and as a group. Beneficial
ownership as reported in the table has been determined in accordance with
Securities Exchange Commission ("SEC") regulations and includes shares of Common
Stock which may be acquired within 60 days upon the exercise of outstanding
stock options and the conversion of shares of Preferred Stock of the Company.
The named persons have sole voting and investment power with regard to the
shares shown as owned by such persons. Pursuant to SEC regulations, all shares
not currently outstanding which are subject to options or conversion privileges
exercisable within 60 days are deemed to be outstanding for the purpose of
computing the "Percent of Class" held by the holder thereof but are not deemed
to be outstanding for the purpose of computing the "Percent of Class" held by
any other shareholder of the Company.
<TABLE>
<CAPTION>
Common Stock Series A Preferred Series B Preferred Combined Voting
Beneficially Stock Beneficially Stock Beneficially Power (Common and
Owned (Percent Owned (Percent Owned (Percent Preferred Considered
Name and Address of Class)(1) of Class)(2) of Class)(3) as a Single Class)(4)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Florice Clark(5) 121,725 - 486,899 4.4%
3554 Old Ferry Road (4.6%) (100%)
Martinez, GA 30907
Otis L. Crowell*(5) 1,876,622 87,500 - 68.2%
<PAGE>
Page 29
3750 Evans to Locks Road (73.8%) (16.7%)
Augusta, GA 30907
Mark L. Gilliam* 1,250 - - +
3696 El Cordero Road +
Martinez, GA 30907
Robert M. Hunter(5) 70,000 280,000 - 2.5%
3801 High Hampton Drive (2.7%) (53.3%)
Martinez, GA 30907
Dennis Stanfield 161,436 - - 5.9%
P.O. Box 4501 (6.0%)
Martinez, GA 30907
Robert M. Hunter, Jr. 13,125 52,500 - +
3 Beech Lane + (10.0%)
Morristown, NJ 07960
Beverly H. Taylor 13,125 52,500 - +
688 Woodhall Abbey Court + (10.0%)
Martinez, GA 30907
Ben W. Hunter 13,125 52,500 - +
3109 West Road + (10.0%)
Martinez, GA 30907
All executive officers 1,877,872 - - 68.2%
and directors as a group (73.4%)
(2 persons)
</TABLE>
+ Less than 1.0%
* Executive officer or director
(1) Based on 2,520,835 shares of Common Stock outstanding on February 29, 1997.
(2) Based on 525,000 shares of Series A Preferred Stock outstanding on June 8,
1998. Holders of the Series A Preferred Stock vote on the basis of one vote
for each four shares of Series A Preferred Stock held with holders of
Common Stock and holders of Series B Preferred Stock, all voting as a
single class. The Series A Preferred Stock is not registered under Section
12 of the Securities Exchange Act of 1934, and in providing ownership
information the Company has relied on its stock transfer records, which may
not correspond to beneficial ownership. To the extent that the Company is
aware of beneficial ownership that is different from ownership as reflected
by the stock transfer records, such beneficial ownership information has
been provided.
(3) Based on 486,899 shares of Series B Preferred Stock outstanding on June 8,
1998. Holders of the Series A Preferred Stock vote on a one vote for each
four shares of Series B Preferred Stock held with holders of Common Stock
and holders of Series A Preferred Stock, all voting as a single class. The
Series B Preferred Stock is not registered under Section 12 of the
Securities Exchange Act of 1934, and in providing ownership information the
Company has relied on its stock transfer records, which may not correspond
to beneficial ownership. To the extent that the Company is aware of
beneficial ownership that is different from ownership as reflected by the
stock transfer records, such beneficial ownership information has been
provided.
<PAGE>
Page 30
(4) Based on one vote per share for Common Stock and one vote per four shares
for Series A and B Preferred Stock.
(5) The shares of Common Stock beneficially owned by the indicated persons
include shares which may be acquired upon the conversion of outstanding
shares of Series A or B Preferred Stock, as the case may be, as follows:
Ms. Clark - 121,725 shares; Mr. Crowell - 21,875 shares; and Mr. Robert M.
Hunter - 70,000 shares; Mr. Robert M. Hunter, Jr. - 13,125 shares; Ms.
Beverly H. Taylor - 13,125 shares; and Mr. Ben W. Hunter - 13,125 shares.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases its office space from Otis L. Crowell, who serves as the
President of Crowell. On June 1, 1989, Crowell entered into three (3) operating
lease agreements each with a term of twenty (20) years. The leases provide that
the Company will pay all property taxes, insurance and maintenance plus an
annual rental fee. The Company is no longer obligated on one lease because the
majority stockholder sold the building covered under the lease. The total
minimum rental commitment at December 31, 1997, under these leases is
$1,098,000, which is due as follows:
1998 $ 81,600
1999 85,200
2000 85,200
2001 87,600
2002 90,000
2003-2009 668,400
----------
$1,098,000
==========
The total rental expense for these leases included in the consolidated
statements of income for each year ended December 31, 1997 and 1996, was
$127,200 and $122,400, respectively. The Company received rental income of
approximately $80,000 for two of the operating leases for both 1997 and 1996
which offset the rental expense.
The Company sold Petersburg Racquet Club ("PRC) on December 31, 1997. The
buyer of PRC assumed a note payable to the bank in the amount of approximately
$576,000. The Company remains as a secondary debtor on the assumed note.
Therefore, the Company has a contingent liability in the amount of the note
payable balance in the event that the buyer of PRC fails to make payment under
the note payable agreement.
Keystone purchases developed lots for home construction from Home Sites.
For the year ended December 31, 1996, such purchases were $79,500. Crowell also
provides management services to Home Sites. For the year ended December 31,
1996, management fees earned by the Company were $5,430.
<PAGE>
Page 31
The Company received $120,275 in real estate commissions from property sold
to Home Sites by an unrelated party for the year ended December 31, 1997. The
President of Crowell received a real estate commission of $72,165 on this
transaction.
For the year ended December 31, 1997, an officer of the Company purchased a
home from the Company. The sales price was $172,069. The cost of the home was
$161,918.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed below are filed as part of or incorporated by reference
in this report. Where such filing is made by incorporation by reference to
a previously filed report or registration statement, such report or
registration statement is identified in parenthesis. (See the Index of
Exhibits included with the exhibits filed as part of this report.)
3(i) Restated Articles of Incorporation of the Company dated October 7,
1995, (Exhibit 3(i) to the Company's Registration Statement on Form
S-4, No. 33-70282, as declared effective by the SEC on January 14,
1995)
3(ii) Bylaws of the Company, as amended through March 15, 1995 (Exhibit 3.7
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1992, as amended by Form 8 dated April 14, 1995)
4.1 Specimen form of the Company's Common Stock Certificate (Exhibit 4.1
to the Company's Registration Statement on Form S-4, No. 33-70282, as
declared effective by the SEC on January 14, 1995)
4.2 Appendix A to the Company's Restated Articles of Incorporation
setting forth the rights, preferences, and limitations of holders of
the Company's Class A Preferred Stock (included in Exhibit 3(i))
4.3 Appendix B to the Company's Restated Articles of Incorporation
setting forth the rights, preferences, and limitations of holders of
the Company's Class B Preferred Stock (included in Exhibit 3(i))
10.1 Management Compensation Agreements
(a) Stock Option Agreement dated February 21, 1989, by and between
the Company (as successor to The Mid-South Corporation) and J. W.
Ivey, Jr. (Exhibit 10.2 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1992, as amended by Form 8
dated April 14, 1995)
10.2 Lease Agreement dated June 1, 1989, by and between Otis L. Crowell
and the Company regarding the premises located at 2848 Washington
Road, Augusta, Georgia (Exhibit 10.13 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1992, as amended by
Form 8 dated April 14, 1995)
<PAGE>
Page 32
10.3 Lease Agreement dated June 1, 1989, by and between Otis L. Crowell
and the Company regarding the premises located at 432 South Belair
Road, Martinez, Georgia (Exhibit 10.4 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1992, as amended by
Form 8 dated April 14, 1995)
10.4 Lease Agreement dated June 1, 1989, by and between Otis L. Crowell
and the Company regarding the premises located at 454 West Martintown
Road, North Augusta, South Carolina (Exhibit 10.5 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1992, as
amended by Form 8 dated April 14, 1995)
10.5 Agreement for Purchase and Sale of Real Property dated October 21,
1995, between the Company and Sovran Strategic Investments, L.P.
(Exhibit 10.5 to the Company's Registration Statement on Form S-4,
No. 33-70282, as declared effective by the SEC on January 14, 1995)
10.6 Agreement to purchase business dated May 9, 1995, between the Company
and Meybohm Realty, Inc. (Exhibit 10.6 to the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.)
10.7 Post Closing Agreement between the Company and Meybohm Realty, Inc.
(Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1995.)
10.8 Sub-Lease Agreement dated May 24, 1995, between the Company and
Meybohm Realty, Inc. (Exhibit 10.8 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1995.)
10.9 Sub-Lease Agreement dated June 29, 1995, between the Company and
Healthmaster Home Health Care, Inc. (Exhibit 10.9 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.)
10.10 Agreement to purchase business dated December 16, 1996, between the
Company and Chin U. Yu
10.11 Agreement to purchase business dated December 16, 1997, between the
Company and Craig S. Jones (filed herewith)
11 Computation of earnings per share
12 Subsidiaries
27 Financial Data Schedule
b) Reports on Form 8-K.
The Company filed one report on Form 8-K during the Quarter ended December
31, 1997.
Date of Report Item Reported
-------------- -------------
December 31, 1997 Sale of Petersburg Racquet Club
No financial statements were filed with this report.
<PAGE>
Page 33
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CROWELL & CO., INC.
DATE Oct 5, 1998 /s/ Otis L. Crowell
----------- ---------------
Otis L. Crowell, President
and Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
DATE Oct 5, 1998 /s/ Otis L. Crowell
----------- ---------------
Otis L. Crowell, President
and Chairman of the Board
DATE Oct 5, 1998 /s/ Mark L. Gilliam
----------- ---------------
Mark L. Gilliam, Director, Vice
President, Secretary and Chief
Financial Officer
DATE Oct 5, 1998 /s/ O. Lamar Crowell, Jr.
----------- ---------------------
O. Lamar Crowell, Jr., Director
<PAGE>
Page 34
INDEX OF EXHIBITS
10.11 Agreement to purchase business dated December 16, 1997, between the
Company and Craig S. Jones
11 Computation of earnings per share
12 Subsidiaries
27 Financial Data Schedule
Page 35
EXHIBIT 10.11
AGREEMENT TO PURCHASE BUSINESS DATED DECEMBER 16, 1996,
BETWEEN THE COMPANY AND CRAIG S. JONES
AGREEMENT TO PURCHASE BUSINESS
This Agreement ("Agreement") made this 16th day of December, 1997, between
Crowell & Co., Inc. ("Crowell"), a corporation organized and existing under the
laws of the State of Georgia, hereinafter referred to as "Seller," and Craig S.
Jones, an individual, hereinafter referred to as "Buyer."
The parties recite and declare:
WHEREAS, The Seller owns a tennis and pool facility known as Petersburg
Racquet Club ("PRC"), which operates as a division of Seller.
WHEREAS, Seller also maintains a commercial real estate brokerage business,
a land development business, Ivey Homes, Inc. and Keystone Homes, Inc. which are
not involved or contemplated by this Agreement.
WHEREAS, That the Agreement is specifically limited to the sale of the PRC
division of Seller.
SECTION ONE
DEFINITIONS
As used herein the following terms are defined as follows:
PETERSBURG RACQUET CLUB REAL ESTATE: The real estate denoted by the attached
plat (Buyer and Seller agree that time is of the essence in the execution of
this Agreement. Seller is presently having a plat prepared which should be
completed by December 19, 1997) which includes but is not limited to the pool,
the 8 hard courts, the 7 soft courts, the clubhouse, the two parking lots, and
the land adjacent to Courts 6 and 7 which may be used to construct two
additional tennis courts.
NET RECEIVABLES: All trade accounts receivable of PRC at the end of the day on
the date of closing.
TENNIS MAINTENANCE EQUIPMENT: All equipment existing and used exclusively for
the maintenance of the tennis courts and grounds of PRC and listed on Exhibit A.
OFFICE EQUIPMENT: All office equipment existing and used in the clubhouse
operations of PRC and listed on Exhibit A.
FURNITURE: All furniture existing and used in the clubhouse of PRC and listed on
Exhibit A.
POOL FURNITURE: All lawn furniture existing and used at PRC and listed on
Exhibit A.
INVENTORY: All tennis racquets, clothing, shoes, tennis accessories, concession
items, and various tennis accessories, stored in the clubhouse.
CROWELL DEVELOPMENTS: The subdivisions known as Bakers Ferry, The Boulders,
Cedar Rock, Chaparral, The Summit at Jones Creek, and the Village at Jones
Creek.
ENCUMBRANCES: The first mortgage on the PRC real estate with SouthTrust Bank and
all utility and governmental easements. The second mortgage described in Section
Four will also be an encumbrance upon the closing of the sales transaction as
described in this Agreement.
<PAGE>
Page 36
SECTION TWO
SALE OF BUSINESS
Seller desires to sell and Buyer desires to buy the assets of PRC for the
price and on the terms and conditions hereinafter set forth.
Crowell will sell to Buyer free and clear of all liabilities and
encumbrances (except as set forth in Section Four) all of the assets of PRC (the
"Assets"), which includes but is not limited to goodwill, the name Petersburg
Racquet Club, Petersburg Racquet Club real estate, net receivables, tennis
maintenance equipment, office equipment, furniture, pool furniture, and
inventory. Seller agrees to assign for the benefit of Buyer, any and all
contract rights related to PRC. There shall be no assumption of liabilities by
the Buyer except as set forth in Section Four.
SECTION THREE
PRC USE AGREEMENT FOR CROWELL
Buyer agrees to provide Seller with 7 memberships at PRC for Seller's own
use at no charge for initiation fees or dues to the member. Memberships granted
under this section shall be subject to normal rules regarding facility usage.
Buyer may not arbitrarily terminate memberships granted under this section. Any
membership terminated which has been granted under this section must be for the
cause of willful and gross violation of the normal rules regarding facility
usage. Seller may assign these memberships to anyone of its own choosing. Seller
agrees to provide buyer with a list of the memberships Seller has assigned.
Memberships under this agreement will pay for any charges that the members make
such as lessons, concessions, and merchandise purchases. Seller will have the
right to amend the list of the memberships upon written notice to Buyer.
Seller and its subsidiaries shall have the right to use the conference room
and deck of PRC for normal business meetings in which businesses Seller and its
subsidiaries are engaged upon reasonable notice to the Buyer. This right will
terminate on December 31, 2002.
SECTION FOUR
CONSIDERATION
In consideration for the transfer of the assets of PRC Buyer agrees to
compensate Seller in the amount of (1) $ 805,000.00 for the PRC real estate,
tennis maintenance equipment, office equipment, furniture and pool furniture;
and (2) a to be determined amount for inventory and net receivables as described
below as follows:
A) The sum of One Hundred Thousand Dollars ($100,000.00) on or before the
closing date of December 31, 1997.
B) Execute a Promissory note in favor of Seller for the sum of approximately
One Hundred Twenty five Thousand Dollars ($125,000.00) at an annual
interest rate of 8.25 percent secured by a security deed on the Petersburg
Racquet Club real estate and all personal property assets of PRC, evidenced
by a UCC filing. The note will accrue interest for the first year of the
note. At the end of the first year of the note, the accrued interest will
be added to the principal amount of the note, and thereafter interest only
will be paid monthly until December 31, 2002 when the note will become due.
The note will be due five years from the closing date of December 31, 1997
which is December 31, 2002. The note cannot be fully paid and the security
interest released until the assumed mortgage referenced in
<PAGE>
Page 37
Item C below is fully paid and/or satisfied or the Seller is released from
all liability on the assumed mortgage. The promissory note will be
personally guaranteed by the Buyer.
C) Assume the existing first mortgage with SouthTrust Bank on the Petersburg
Racquet Club real estate which amounts to approximately $580,000.00. The
total debt assumed and incurred in Items B and C will be $705,000.00.
(i.e., If the assumed loan balance is $575,000.00 then the promissory note
in Item B above will be $ 130,000.00.)
D) Eighty five percent of Net Receivables at the time of closing to be paid as
received by Buyer. Such payment on receipts will be due on Friday of the
following week of receipt of the receivable. Seller will provide Buyer with
a detailed listing of net receivables as soon as practicable after closing.
Seller will identify charges for past due membership dues on such list.
E) Inventory existing at the date of closing will be purchased at cost by a
method acceptable to both Buyer and Seller.
SECTION FIVE
EARNEST MONEY
In consideration for the execution of this agreement Buyer agrees to
deposit with William R. Coleman, escrow agent, the sum of twenty five thousand
dollars ($25,000.00). This money will be credited against money due at the time
of closing. In the event the Buyer is unable to close this transaction due to
Buyer's breach the Buyer will forfeit this amount. The earnest money will be
refundable if Buyer is unable to obtain financing for the purchase of PRC
through the assumption or the wraparound of the Seller's loan as referenced in
Section Four.
SECTION SIX
ALLOCATION OF PURCHASE PRICE
The purchase price as stated in the above Section Four will be allocated to
the various assets of the business at closing.
SECTION SEVEN
CLOSING
This consummation of the sale and purchase transaction contemplated by this
Agreement shall take place on or before December 31, 1997. At such time the
Seller will deliver to the Buyer a Bill of Sale, a General Warranty Deed, and
all other instruments as is required for the proper consummation of this
transaction. On such closing date, adjustments will be made for premiums on
insurance, taxes, membership dues, and any other items which require adjustment.
At closing, Seller shall deliver or cause to be delivered to Buyer, at
Seller's sole cost and expense, and in addition to the other documents provided
for herein, each of the following items:
A) A bill of sale duly executed by Seller, conveying to Buyer the personal
property assets
B) Such evidence or documents as may be reasonably required by the Title
Company and counsel to Buyer evidencing the status and capacity of Seller
and the authority of the person of persons who are executing the various
documents on behalf of the Seller in connection with the sale of the Assets
C) All Keys to all locks on the PRC real estate (to the extent that such are
available) and an accounting for keys in possession of others; all on-site
books and records pertaining to the Assets (but expressly excluding
information tax returns of Seller) and originals of all
<PAGE>
Page 38
documents in the possession of the Seller pertaining to members of PRC,
including, but not by way of limitation, all applications, correspondence
and credit reports relating to each such member;
D) A letter, executed by Seller, advising the PRC members of the sale of the
Assets to Buyer and directing that dues and other payments thereafter be
sent or delivered to Buyer, which letter may be delivered by Buyer to the
tenants or posted in a conspicuous place in PRC.
At closing, Seller shall pay the following costs of such closing: All fees
and costs for releasing all encumbrances, liens and security interest of record
which are not Encumbrances, surveyor's fees, transfer taxes levied on account of
the transfer of the PRC real estate from Seller to Buyer; and Seller's legal
fees incurred in connection with this transaction. At closing Buyer shall pay
the following costs of such closing: the premium for the Owner's Policy of Title
Insurance to be issued by Title Company in connection with this transaction; the
fees for recording the Deed: and Buyer's legal fees incurred in connection with
this transaction.
SECTION EIGHT
CROWELL DEVELOPMENTS
Buyer agrees to waive membership initiation fees to PRC for new homebuyers
in Crowell developments provided the new homebuyer joins PRC within 60 days
after the purchase of the new home.
SECTION NINE
RECORDS AND THE LIKE
All on site records, customers' lists, correspondence, all files and
advertising materials, and data relating to PRC are included in the sale. Seller
will retain original invoices for PRC related business transacted before the
date of closing. Buyer will have the right to inspect these invoices as it
reasonably relates to the conduct of Buyer's business.
SECTION TEN
ARBITRATION
All disputes arising under this Agreement or related to this sale (other
than claims in equity) shall be resolved by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
Arbitration shall be by a single arbitrator experienced in the matters at issue
and selected by the Seller and Buyer in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration shall
be held in such place in Augusta, Georgia, as may be specified by the arbitrator
(or any place agreed to by the Seller, the Buyer and the arbitrator). The
decision of the arbitrator shall be final and binding as to any matters
submitted under this Agreement; provided, however, if necessary, such decision
and satisfaction procedure may be enforced by either the Seller or the Buyer in
any court of record having jurisdiction over the subject matter or over any of
the parties to this Agreement. All costs and expenses incurred in connection
with any such arbitration proceeding (including reasonable attorneys fees) shall
be borne by the party against which the decision is rendered, or, if no decision
is rendered, such costs and expenses shall be borne equally by the Seller as one
party and the Buyer as the other party. If the arbitrator's decision is a
compromise, the determination of which party or parties bears the costs and
expenses incurred in connection with any such arbitration proceeding shall be
made by the arbitrator on the basis of the arbitrator's assessment of the
relative merits of the parties' positions.
<PAGE>
Page 39
SECTION ELEVEN
CONTINUATION OF BUSINESS RELATIONSHIP BEYOND AGREEMENTS
The parties recognize that in making this agreement the compatibility of
the organizations. It is the intent of both organizations that the business
relationship as formally outlined in the above agreement will continue beyond
the expiration of any agreements.
SECTION TWELVE
ADDITIONAL INDEBTEDNESS
The Buyer agrees not to incur additional indebtedness against the
Petersburg Racquet Club real estate and personal property assets than what is
set forth in Section Four of the Agreement, which is a total of $705,000.00,
without first obtaining the express written consent of Seller.
SECTION THIRTEEN
WOODED AREA BETWEEN LOWER HARD COURTS AND THE PASS
Seller agrees to maintain a natural screening buffer between The Pass and
the lower hard courts for as long as Seller owns that property. In the event
Seller sells this property Buyer shall have the first right of refusal to
purchase this property at the offered contractual price.
SECTION FOURTEEN
REPRESENTATIONS OF SELLER
Seller shall provide to Buyer, at Seller's expense prior to closing, a plat
of the PRC real estate. Seller represents to Buyer that:
A) Seller has marketable fee simple title to the PRC real estate subject only
to the Encumbrances. To Seller's knowledge there are no easements affecting
the PRC real estate which interfere with PRC's present operation.
B) The Assets will be maintained in at least as good a working order and
condition as of the date of this Agreement, normal wear and tear excepted.
C) To Seller's knowledge, the PRC real estate is properly zoned for its
present use.
D) Seller has no knowledge of (i) any condemnation proceedings having been
instituted or threatened against the PRC real estate or any portion
thereof, and (ii) pending public improvements in , about or outside the PRC
real estate which will in any manner affect access to the PRC real estate.
E) To the best of its knowledge, Seller has received no notice of any claim of
violation of any ordinance, rule, or regulation of any government with
jurisdiction, or any agency, body or subdivision thereof, affecting the
condition or operation of PRC.
F) To the best of its knowledge, Seller believes the PRC real estate has been
constructed and/or maintained without the use of asbestos or PCB's or other
hazardous substances, and no governmental authority has notified Seller of
the need to take corrective action regarding elimination or control of such
hazardous or dangerous substances on or about the PRC real estate.
G) To the best of its knowledge, Seller believes the PRC real estate is not
located in the 100 year flood plain; has adequate drainage and water run
off facilities; the parking areas are free from significant standing water
after a rainfall; and no fees, connection charges or
<PAGE>
Page 40
assessments are due or pending for the installation or operation of any
drainage, or water run off facilities related thereto.
H) To the best of its knowledge, Seller believes there are no structural
defects in any of the PRC improvements, including without limitation, any
structural defects in the foundations, exterior walls, and roofs.
I) To the best of its knowledge, Seller believes no portion of the PRC real
estate is affected by any special assessments, whether or not a lien
thereon, and there is no proceeding pending as of the date hereof for the
increase of the assessed valuation of any portion of the PRC real estate.
J) Each party executing and delivering this Agreement and all documents to be
executed and delivered on behalf of Seller in regard to the consummation of
the transaction contemplated hereby has due and proper authority to execute
and deliver same.
SECTION FIFTEEN
BINDING EFFECT
The parties agree that this Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Georgia.
Seller shall have the right upon reasonable notification, to review records
material to performance under this Agreement.
The parties agree that the failure of either party to insist upon strict
compliance with any of the provisions of this contract shall not be considered
to be a waiver of any subsequent default of the same or similar nature.
The parties agree that in the event any provisions have been deemed invalid
or unenforceable for any reason, all other provisions shall nevertheless remain
in full force and effect.
The parties agree that this Agreement will bind and inure to their heirs,
executors, administrators, successors, and assigns. Such assignment will not
relieve Buyer from personal obligation under the terms of this Agreement.
The parties agree that this Agreement shall be executed in triplicate and
each document shall be considered an original.
In witness whereof, the parties have executed this agreement on the 16th
day of December 1997.
Witness SELLER: Crowell & Co., Inc.
- --------------------------------- --------------------------------------
Otis L. Crowell
As it's President
BUYER: Craig S. Jones
- --------------------------------- --------------------------------------
NOTARY PUBLIC, Richmond County, Georgia
My Commission Expires:
Page 41
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CROWELL & CO., INC.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1996 1995
----------- -----------
<S> <C> <C>
NET LOSS $ (27,180) $ (13,153)
PREFERRED STOCK DIVIDENDS (80,952) 80,952
----------- -----------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (108,132) $ (94,105)
=========== ===========
EARNINGS PER COMMON SHARE:
Weighted average number of common shares outstanding 2,520,835 2,520,835
Primary earnings per share
loss from continuing operations $ (.02) $ (.11)
Income from discontinued operations (.03) .07
----------- -----------
NET LOSS PER COMMON SHARE $ (.05) $ (.04)
=========== ===========
</TABLE>
Page 42
EXHIBIT 12
SUBSIDIARIES
CROWELL & CO., INC.
Budget Storage Warehouse, Inc., a Georgia Corporation (inactive)
Ivey Homes, Inc., a Georgia Corporation (inactive)
Keystone Homes, Inc., a Georgia Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 192,664
<SECURITIES> 0
<RECEIVABLES> 94,108
<ALLOWANCES> 0
<INVENTORY> 3,415,398
<CURRENT-ASSETS> 0
<PP&E> 100,071
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,468,991
<CURRENT-LIABILITIES> 0
<BONDS> 2,967,064
696,774
0
<COMMON> 1,011,899
<OTHER-SE> (1,023,984)
<TOTAL-LIABILITY-AND-EQUITY> 4,468,991
<SALES> 5,160,165
<TOTAL-REVENUES> 6,210,663
<CGS> 4,881,475
<TOTAL-COSTS> 5,350,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147,276
<INCOME-PRETAX> 23,520
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,520
<DISCONTINUED> (80,700)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57,180)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
