Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (under Rule 14a- 6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Crowell & Co., Inc.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fees (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
CROWELL & CO., INC
610 INDUSTRIAL PARK BOULEVARD
EVANS, GEORGIA 30809
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 13, 1998
A Special Meeting of Shareholders of Crowell & Co., Inc., will be held at
the Holiday Inn, 2155 Gordon Highway, Augusta, Georgia, on Friday, March 13,
1998, at 9:00 A.M., local time, for the following purposes:
1. At the Special Meeting, shareholders of the Company will be asked to
consider and vote upon the Reverse Stock Split Proposal which, if adopted,
will move the Company from public company status subject to the reporting
requirements of the Securities Acts as administered by the Securities and
Exchange Commission to private company status not subject to the Securities
Acts. Shareholders also will be asked to vote on any other matters as may
properly come before the Special Meeting and any postponement or
adjournment thereof. Effective as of the approval of the Reverse Stock
Split Proposal, the Articles of Incorporation of the Company will be
amended to reflect the Reverse Stock Split. Certificates for all
outstanding shares of common stock shall be exchanged for the certificates
for the new shares and, if applicable, for cash in lieu of any fractional
new shares.
Information relating to the above matters is set forth in the attached
Proxy Statement. The close of business on January 31, 1998, has been set by the
directors as the record date for determination of shareholders eligible to
receive notice of and to vote at the meeting. Copies of the 1996 Annual Report,
the 10-QSB for the nine months ended September 30, 1997, and the 8-K for
December 31, 1997, are enclosed.
By Order of the Board of Directors,
Mark L. Gilliam
Secretary
Evans, Georgia
February 13, 1998
PLEASE READ THE ATTACHED PROXY STATEMENT AND THEN PROMPTLY COMPLETE, EXECUTE AND
RETURN THE ENCLOSED PROXY CARD. IF YOU ATTEND THE SPECIAL MEETING, YOU MAY
REVOKE THE PROXY AND VOTE IN PERSON IF YOU SO DESIRE.
<PAGE>
CROWELL & CO., INC.
PROXY STATEMENT
FEBRUARY 13, 1998
This Proxy Statement is furnished to the Shareholders of Crowell & Co.,
Inc. (the "Company"), in connection with the solicitation of proxies by the
Board of Directors of the Company to be voted at the Special Meeting of
Shareholders and at any adjournments thereof (the "Special Meeting"). The
Special Meeting will be held at the Holiday Inn, 2155 Gordon Highway, Augusta,
Georgia, on Friday, March 13, 1998, at 9:00 A.M. local time.
The approximate date on which this Proxy Statement and form of proxy card
are first being sent or given to Shareholders is February 25, 1998.
PURPOSE
At the Special Meeting, shareholders of the Company will be asked to
consider and vote upon the Reverse Stock Split Proposal which, if adopted, will
move the Company from public company status subject to the reporting
requirements of the Securities Acts as administered by the Securities and
Exchange Commission to private company status not subject to the Securities
Acts. Shareholders also will be asked to vote on any other matters as may
properly come before the Special Meeting and any postponement or adjournment
thereof. Effective as of the approval of the Reverse Stock Split Proposal, the
Articles of Incorporation of the Company will be amended to reflect the Reverse
Stock Split. Certificates for all outstanding shares of common stock shall be
exchanged for the certificates for the new shares and, if applicable, for cash
in lieu of any fractional new shares.
VOTING
GENERAL
The securities that can be voted at the Special Meeting consist of Common
Stock of the Company, without par value, with each share entitling its owner to
one vote on each matter submitted to the Shareholders and Preferred Stock,
stated value $1.00 per share, with every four shares entitling its owner to one
vote on each matter submitted to the Shareholders. The record date for
determining the holders of Common Stock and Preferred Stock who are entitled to
receive notice of and to vote at the Special Meeting is January 31, 1998. On the
record date, 2,520,835 shares of Common Stock and 1,011,899 shares of Preferred
Stock were outstanding and eligible to be voted at the Special Meeting.
QUORUM AND VOTE REQUIRED
The presence, in person or by proxy, of a majority of the outstanding
shares of Common and Preferred Stock of the Company is necessary to constitute a
quorum at
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<PAGE>
the Special Meeting. In counting the votes to determine whether a quorum exists
at the Special Meeting, the proposal receiving the greatest number of all votes
"for", "against", or "withheld" and abstentions (including instructions to
withhold authority to vote) will be used.
The Company believes that approximately 1,899,747 voting shares owned or
controlled on the record date by directors and executive officers of the
Company, constituting approximately 68.5% of the outstanding Common and
Preferred Stock (together the "Voting Stock"), will be voted in favor of the
proposal.
Adoption of the Reverse Stock Split Proposal requires the affirmative vote
of a majority of the outstanding shares of Company Voting Stock entitled to vote
at the Special Meeting. Otis L. Crowell, Chairman of the Board and President of
the Company, is the beneficial owner of, and has authority to vote 1,898,497
shares of Company Voting Stock, or 68.4 % of the shares of Company Voting Stock
which were issued and outstanding on the Record Date. Mr. Crowell plans to vote
all shares of Company Voting Stock over which he has voting authority to approve
the Reverse Stock Split Proposal. If Mr. Crowell votes all of his shares of
Company Voting Stock over which he has voting authority to approve the Reverse
Stock Split Proposal, the requisite vote for adoption of the Reverse Stock Split
will have been obtained.
The Company's principal executive offices are located at 610 Industrial
Park Boulevard, Evans, Georgia, 30809, and its telephone is 706-855-1099.
The date of this Proxy Statement is February 13, 1998.
PROXIES
Shareholders should specify their choices with regard to the proposal on
the enclosed proxy card. All properly executed proxies delivered by Shareholders
to the Company in time to be voted at the Special Meeting and not revoked will
be voted at the Special Meeting in accordance with directions given. IN THE
ABSENCE OF SUCH INSTRUCTIONS, THE SHARES REPRESENTED BY A SIGNED AND DATED PROXY
CARD WILL BE VOTED "FOR" THE PROPOSAL LISTED ON THE PROXY CARD AND DESCRIBED
HEREIN. If any other matters properly come before the Special Meeting, the
persons named as proxies will vote upon such matters according to their
judgment.
Any Shareholder delivering a proxy has the power to revoke it any time
before it is voted by giving written notice to the Secretary of the Company at
610 Industrial Park Boulevard, Evans, Georgia, 30809, by executing and
delivering to the Secretary a proxy card bearing a later date or by voting in
person at the Special Meeting.
In addition to soliciting proxies through the mail, the Company may solicit
proxies through its directors, officers and employees in person and by
telephone. Brokerage firms, nominees, custodians and fiduciaries also may be
requested to forward proxy material to the beneficial owners of shares held of
record by them. (All expenses incurred in connection with the solicitation of
proxies will be borne by the Company.)
THE REVERSE STOCK SPLIT
If the proposal is adopted, the Articles of Incorporation of Crowell & Co.,
Inc., will be amended to provide that all shares of outstanding Common Stock,
without par value,
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<PAGE>
be the subject of a reverse stock split, so that each outstanding share shall,
without further action of the Corporation, be entitled to .000005 of a share of
Common Stock, without par value, upon surrender of the old shares for
certificates representing the new shares.
No fractional new shares will be issued. Any common shareholders who would
otherwise be entitled to a fractional share will be paid for such right at the
rate of $.03 per old share.
BACKGROUND OF AND REASON FOR THE REVERSE STOCK SPLIT
In 1988 Janka, Inc. ("Janka"), a company whose majority shareholder was
Otis L. Crowell, merged with the Mid South Corporation ("Mid South"). Mid South
was a public company with approximately 750 shareholders. To management of the
Company's knowledge, no dividends had ever been paid on Mid South's common
stock.
After the merger, Mr. Crowell became the majority shareholder of Mid South.
In 1989, Crowell & Co., Inc. ("Crowell"), a company wholly owned by Mr. Crowell,
was merged into Mid South. Subsequently, the name of the combined companies was
changed to Crowell & Co., Inc.
The purpose of these mergers was to make it possible for the Company to
raise capital for real estate operations through public markets. Over the past
10 years, and after substantial effort, the Company has been unable to develop a
trading market for its common stock, thus never realizing the possibility of
raising capital through public markets. Because of this, the only reason for
merging Crowell, Janka, and Mid South, the ability to raise capital in public
markets, has never been realized.
The Company has expended substantial dollars and efforts over the past ten
years meeting the reporting rules required by the Securities and Exchange
Commission ("SEC"). Total dollars spent are in excess of $500,000. Approximately
$50,000 per year is spent because the Company must be audited by Independent
Certified Public Accountants, attorneys are used to review filing documents,
fees are paid to various outside electronic filers in order to comply with the
SEC's EDGAR filing requirements, postage for filings, and various other expenses
related to the Company's public company status.
Recently, major lenders to the Company have urged the Company to cut
corporate expenses, including the expense of maintaining public company status
because of the Company's general financial condition. One major lender has
informed the Company that it is unwilling to loan the Company additional funds
without the personal guarantee of Mr. Crowell. Mr. Crowell has expressed
hesitancy to continue to do this.
Because of the aforementioned conditions, which are the Company's inability
to raise capital through public markets, the substantial expenses incurred by
the reporting requirements of the Company's public company status, the
recommendation of lenders to cut expenses by terminating public company status,
and the reluctance of Mr. Crowell to continue to personally guarantee the
Company`s debt, the Company's President, Mr. Crowell, and Chief Financial
Officer, Mark L. Gilliam, began exploring ways to terminate public company
status.
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<PAGE>
Several options were considered including a tender offer, various types of
mergers, corporate reorganization, and a reverse stock split. The excess expense
and uncertainty of success eliminated all options except corporate
reorganization and a reverse stock split.
The reverse stock split was chosen because its outcome was certain,
expenses incurred by the Company were moderate, and shareholders would receive
payment for their fractional shares as opposed to corporate reorganization where
shareholders would receive no payment.
THE EFFECTS OF THE REVERSAL STOCK SPLIT
The result of the reverse stock split will be the attainment of private
company status for the Company and the payment for fractional shares owned by
shareholders which will be generated by the reverse stock split. The valuation
date of the Company has been set at January 31, 1998, for the payment of
fractional shares. The Board of Directors has determined a value of the
Company's common stock as $75,625. This translates to $.03 per share for every
share owned prior to the reverse stock split.
BOARD RECOMMENDATIONS
THE COMPANY'S BOARD BELIEVES THAT THE REVERSE STOCK SPLIT PROPOSAL IS IN
THE BEST INTERESTS OF THE SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY VOTE TO ADOPT THE PROPOSAL.
DISSENTERS' RIGHTS
In the event the Proposal is approved, shareholders would have certain
rights to dissent and demand appraisal of their shares under Section 14-2-1302
of the Georgia Code. Under Georgia Law, dissenting shareholders who comply with
the requisite statutory procedures would be entitled to receive a judicial
determination and payment of "fair value" of their Shares as of the close of
business on the day prior to the date of shareholders called to vote on such
Proposal. The value so determined could be more or less than the consideration
offered pursuant to the amount disclosed in this Proxy Statement.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The payment for fractional shares for the Company's Common Stock pursuant
to the Reverse Stock Split is expected to be a fully taxable transaction.
Accordingly, each exchanging shareholder will recognize gain or loss for federal
income tax purposes measured by the difference between such shareholder's basis
in the Shares exchanged and the cash received by the Shareholder for the
fractional shares. Such gain or loss will be capital gain or loss if the Shares
were held as a capital asset. All shareholders are urged to consult with their
own tax advisors as to the tax consequences of the Reverse Stock Split.
SOURCES AND AMOUNT OF FUNDS
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<PAGE>
Upon approval of the Reverse Stock Split, the Company plans to pay for the
fractional shares from funds generated from the normal operations of the
Company.
BUSINESS OF THE COMPANY
The principal businesses of the Company and its subsidiaries are
home-building, the development of residential properties, and commercial real
estate brokerage. Generally, the Company acquires new properties for development
in the Augusta, Georgia area based on management's assessment of levels of
current and expected consumer demand. The analysis and acquisition of new
properties by personnel of the Company are conducted on a continuous basis.
Keystone Homes, Inc. ("Keystone"), a wholly owned subsidiary of the
Company, builds single-family and multi-family homes on a presold and
speculative basis. Keystone is the primary builder in all of the Company's
developments. Generally, Keystone does not build outside Crowell developments.
The Company is a Georgia corporation which was organized in 1966. The
offices of the Purchaser are located at 610 Industrial Park Boulevard, Evans,
Georgia, 30809. The telephone is 706-855-1099.
MARKET PRICE OF COMPANY COMMON STOCK, PREFERRED STOCK, AND SHARES
There is currently no established trading market for the Company's Common
or Preferred Stock. The Company does not intend to list any of such securities
on a national securities exchange or to seek their admission to trading on the
National Association of Securities Dealers Automated Quotation System. No
assurance can be given that any market for the Company Common or Preferred Stock
will develop, or if any such market develops, as to the liquidity of such
market. No dividends have been paid on the Common Stock in the past five years.
The Company is not aware of any dividends ever being paid on the Common Stock.
Accumulated unpaid dividends on the Company's Preferred Stock amount to $302,808
at December 31, 1997.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of January 31, 1998, 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 by each director and by
each executive officer named in the Compensation Table and all directors and
executive officers of the Company as a group. Beneficial ownership as reported
in the table has been determined in accordance with Securities and 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
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<PAGE>
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 - 67.7%
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 - - 5.8%
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 - - 68.7%
and directors as a group (73.4%)
(3 persons)
</TABLE>
+ Less than 1.0%
* Executive officer or director
(1) Based on 2,520,835 shares of Common Stock outstanding on January 31, 1998.
(2) Based on 525,000 shares of Series A Preferred Stock outstanding on January
31, 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.
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<PAGE>
(3) Based on 486,899 shares of Series B Preferred Stock outstanding on January
31, 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.
(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.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Cherry, Bekaert & Holland has served as independent accountants of the
Company since 1987. Representatives of Cherry, Bekaert & Holland will not be
present at the Special Meeting.
OTHER MATTERS THAT MAY COME BEFORE THE SPECIAL MEETING
The Board of Directors of the Company knows of no matters other than those
referred to in the accompanying Notice of Special Meeting of Shareholders which
may properly come before the Special Meeting. However, if any other matter
should be properly presented for consideration and voting at the Special Meeting
or adjournments thereof, it is the intentions of the persons named as proxies on
the enclosed form of proxy card to vote the shares represented by all valid
proxy cards in accordance with their judgment of what is in the best interest of
the Company.
AVAILABLE INFORMATION
The Company is subject to the informational filing or submission
requirements of the Exchange Act, and in accordance therewith are required to
file or submit periodic reports and other information with the Securities and
Exchange Commission under the Securities Act of 1934, as amended (the "Exchange
Act") relating to their business, financial condition and other matters. Such
reports, proxy statements and other information may be inspected, without
charge, and copies may be obtained at prescribed rates, at the Commission's
public reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the regional offices of the Commission located in Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, 13th Floor, New York, New York 10048 and can also be reviewed through
the Commission's Electronic Data Gathering, Analysis and Retrieval System which
is publicly available through the Commission's Web site (http://www.sec.gov).
7
<PAGE>
All information contained herein with respect to the Company has been
supplied by the Company.
No person has been authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement and, if given or made, such information or representation should
not be relied upon as having been authorized by the Company. The delivery of
this Proxy Statement shall not , under any circumstances, create any implication
that there has been no change in the affairs of the Company or any subsidiary
thereof since the date hereof or that the information contained or incorporated
by reference herein is correct as of any time subsequent to the date hereof or
thereof. This Proxy Statement does not constitute the solicitation of a proxy in
any jurisdiction to or from any person to whom it is not lawful to make any such
solicitation in such jurisdiction.
By Order of the Board of Directors,
Mark L. Gilliam
Secretary
Evans, Georgia
February 13, 1998
The Company's 1996 Annual Report, the 10-QSB for the nine months ended September
30, 1997, and the 8-K for December 31, 1997, have been mailed to Shareholders of
the Company with these proxy materials. The Annual Report does not form any part
of the material for the solicitation of proxies.
<PAGE>
CROWELL & CO., INC.
SPECIAL MEETING
MARCH 13, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned shareholder of Common Stock, without par value, (the "Common
Stock") or Preferred Stock, stated value $1.00 per share (the "Preferred
Stock"), of Crowell & Co., Inc. (the "Company"), hereby appoints Otis L. Crowell
and Mark L. Gilliam, and each of them with full power of substitution, proxies
to vote at the Annual Meeting of shareholders of the Company to be held at the
Holiday Inn, 2155 Gordon Highway, Augusta, Georgia, on March 13, 1998, at 9:00
a.m., local time, and at any adjournment or adjournments thereof, hereby
revoking any proxies heretofore given, to vote all shares of Common Stock or
Preferred Stock of the Company held or owned by the undersigned as of the record
date (January 31, 1998) as directed below, and in their discretion upon such
other matters as may come before the meeting. If the undersigned revokes this
Proxy by giving written notice to the Secretary of the Company, the undersigned
may vote in person at the Annual Meeting all shares of Common Stock or Preferred
Stock owned by the undersigned as of the record date (January 31,1998).
Resolved, that the Articles of Incorporation of Crowell & Co.,
Inc. be amended to provide that all shares of outstanding Common
Stock, without par value, be the subject of a reverse stock split, so
that each outstanding share shall, without further action of the
Corporation, be entitled to .000005 of a share of Common Stock,
without par value, upon surrender of the old shares for certificates
representing the new shares.
Further resolved, that no fractional new shares be issued, but
that any common shareholders who would otherwise be entitled to a
fractional share be paid for such right at the rate of $.03 per old
share.
FOR__________ AGAINST__________ WITHHELD__________
IF NO DIRECTION IS GIVEN THIS PROXY WILL BE VOTED FOR THE APPROVAL OF THIS
PROPOSAL.
NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If the signer is a corporation, the full corporate name
should be signed by a duly authorized officer.
Date:
------------------------
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Shareholder signature and title if applicable
- --------------------------------------------------------------------------------
Shareholder signature (if jointly held)
<PAGE>
CROWELL & CO., INC.
1996 Annual Report
<PAGE>
Page 2
COMPANY PROFILE
The principal businesses of the Company and its subsidiaries are
home-building, the development of residential properties, and commercial real
estate brokerage. Generally the Company acquires new properties for development
in the Augusta, Georgia area based on management's assessment of levels of
current and expected consumer demand. The analysis and acquisition of new
properties by personnel of the Company are conducted on a continuous basis.
Keystone Homes, Inc. ("Keystone"), a wholly owned subsidiary of the
Company, builds single-family and multi-family homes on a presold and
speculative basis. Keystone is the primary builder in all of the Company's
developments. Generally, Keystone does not build outside Crowell developments.
Additionally, Crowell owned and operated Petersburg Racquet Club, a tennis
and swimming facility located in Crowell's largest development during the years
ended December 31, 1996 and 1995.
Crowell also owned and operated United Data Systems, a computer software
company, during the years ended December 31, 1996 and 1995. Crowell sold United
Data Systems on December 16, 1996. Details of the sale are disclosed in the
financial statements included with this annual report.
<PAGE>
Page 3
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.
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 $155,759, or 2.5%, and commercial brokerage
commissions increased by $68,905, or 50.2% for the year ended December 31, 1996,
as compared to the year ended December 31, 1995. The slight decrease in home
sales primarily resulted from selling fewer homes in 1996 than in 1995. The
increase in commercial brokerage commissions resulted from the brokerage of more
property sales in 1996.
Gross profit percent on home sales increased to 9% in 1996 from 5% in 1995.
The increase in gross profit percentage on home sales resulted primarily from
lower lot acquisition costs in 1996 as compared to 1995.
Gross profit percent on commercial brokerage commissions increased from 30%
in 1995 to 31% in 1996.
Gross profit on lot sales increased from 36% in 1995 to 49% in 1996. The
increase in gross profit percentage on lot sales resulted primarily from lower
lot costs in 1996 as compared to 1995.
Salaries decreased in 1996 as compared to 1995 by $5,143, or 1%, because of
employee attrition. Management believes salary expense will be less in 1996 than
in 1997 because of the loss of several employees during 1996. The Company does
not plan to replace employees lost through attrition.
Depreciation expense decreased by $10,920 or 17% in 1996 as compared to
1995 because several assets have been fully depreciated. Management believes
depreciation expense will increase in 1997 based on projected increased
depreciation caused by additions at Petersburg Racquet Club ("PRC").
<PAGE>
Page 4
Taxes and licenses decreased by $29,951, or 46%, in 1996 as compared to
1995. The decrease in taxes and licenses resulted primarily from the decrease in
properties held in 1996 as compared to 1995 and a timing difference in recording
property taxes expensed.
Building occupancy decreased by $1,685 in 1996 as compared to 1995.
Office expense decreased in 1996 by $31,735 or 23% as compared to 1995. The
decrease in office expenses in 1996 as compared to 1995 resulted primarily from
the decrease in the number of employees and the decrease in number of Company
operations.
Advertising and promotion decreased by $1,982, or 10%, in 1996 as compared
to 1995.
Legal and accounting expenses decreased by $17,155, or 40%, in 1996 as
compared to 1995. The decrease in legal and accounting fees resulted primarily
from the reduction in audit fees and smaller use of attorneys in 1996 as
compared to 1995.
Communications expenses decreased by $1,281, or 6%, in 1996 as compared to
1995 because of lower long distance rates.
Overall operating expenses decreased by $99,852 for 1996 as compared to
1995. The overall decreases in 1996 as compared to 1995 resulted primarily from
decreases in taxes and licenses, office expenses, and legal and accounting
expenses.
Interest income decreased by $44,768 in 1996 as compared to 1995 because a
note receivable in the amount of approximately $260,000 was collected in 1995.
Interest expense from continuing operations decreased by $151,639 in 1996
as compared to 1995 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, 1996, available cash and proceeds from
land, lot, and home sales were expected to be sufficient to meet the Company's
requirements until spring of 1996 when home sales typically improve and provide
cash for operations.
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. The interest
rates on the development loans are the prime rates of the lenders (8.0% in
December 1996) 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, 1997 and 1998, 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.
<PAGE>
Page 5
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, 1996. 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.
In addition to the development loans, the Company has a loan agreement with
an Augusta, Georgia savings and loan institution for a currently outstanding
amount of approximately $541,461 at a rate of one percent over the institution's
base lending rate (8.5% at December 31, 1996).
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
$3,566,459 as of December 31, 1996) 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 1997 total $2,483,111. 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.
The Company's financial condition at December 31, 1996, is substantially
equivalent to that of December 31, 1995. Stockholders' equity as of December 31,
1995, was $755,024 as compared to $741,869 at December 31, 1996.
Properties held for resale decreased from $3,929,197 at December 31, 1995
to $3,493,117 at December 31, 1996, a decrease of $436,080, or 11%, 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 decreased by $206,070, or 77%, at December 31, 1966, from December 31,
1995.
Receivables increased from $127,076 at December 31, 1995, to $161,907 at
December 31, 1996, an increase of $34,831, or 27%, because of the addition of a
note receivable in connection with the sale of UDS.
Other assets decreased from $53,516 at December 31, 1995, to $43,332 at
December 31, 1996, a decrease of $10,184, or 19%.
Notes payable decreased from $3,808,908 at December 31, 1995, to $3,566,459
at December 31, 1996, a decrease of $242,449, or 6%, because of a decrease in
inventory levels. Notes payable will increase and decrease in direct proportion
to the level of housing inventory maintained by the Company.
Accounts payable and accrued liabilities decreased from $198,327 at
December 31, 1995, to $71,544 at December 31, 1996, a decrease of $126,783 or
64%, because proceeds from home sales and collections on asset sales were used
to pay liabilities.
The Company has net operating loss carryforwards available of approximately
$2,060,000 to offset against future federal taxable income. The current value of
these
<PAGE>
Page 6
carryforwards computed at maximum federal and state income tax rates is
approximately $800,000. This amount is not reflected in the financial
statements.
<PAGE>
Page 7
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
------------
1996 1995
---------- ----------
PROPERTIES HELD FOR RESALE
Homes under construction and for sale $2,276,944 $2,445,971
Developed residential land 1,016,939 1,103,676
Land held for future development 199,234 379,550
---------- ----------
3,493,117 3,929,197
---------- ----------
CASH, including escrow funds of $6,434 and $25,689
in 1996 and 1995, respectively 62,494 268,564
---------- ----------
RECEIVABLES
Notes 126,316 30,766
Accounts and other 35,591 96,310
---------- ----------
161,907 127,076
---------- ----------
PROPERTY AND EQUIPMENT
Rental homes 90,000 124,000
Petersburg Racquet Club 1,059,993 706,547
Computer equipment and software 0 153,269
Furniture, fixtures and equipment 146,903 206,268
---------- ----------
1,296,896 1,190,084
Less accumulated depreciation 677,874 806,178
---------- ----------
619,022 383,906
---------- ----------
OTHER ASSETS 43,332 53,516
---------- ----------
$4,379,872 $4,762,259
========== ==========
See notes to consolidated financial statements.
<PAGE>
Page 8
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
NOTES PAYABLE TO BANKS $3,566,459 $3,808,908
---------- ----------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable 21,155 78,083
Accrued expenses 42,905 89,874
Customer deposits 7,484 30,370
---------- ----------
71,544 198,327
---------- ----------
TOTAL LIABILITIES 3,638,003 4,007,235
---------- ----------
COMMITMENTS
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 $105,000 ($0.20 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 $116,856 ($0.24 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,
1996 and 1995. 696,774 696,776
Additional paid-in capital Preferred stock - Series A 33,648 33,648
Accumulated deficit (1,000,452) (987,299)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 741,869 755,024
---------- ----------
$4,379,872 $4,762,259
========== ==========
</TABLE>
<PAGE>
Page 9
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
----------- -----------
REVENUES
<S> <C> <C>
Home sales $ 6,253,268 $ 6,409,027
Brokerage commissions 206,255 137,350
Other income 270,977 277,344
Lot sales 254,900 71,600
----------- -----------
6,985,400 6,895,321
----------- -----------
COST OF REVENUES
Homes 5,721,184 6,073,514
Agent commissions 142,395 95,778
Other 31,617 37,477
Lots 129,408 45,700
----------- -----------
6,024,604 6,252,469
----------- -----------
OPERATING EXPENSES
Salaries 597,184 602,327
Depreciation 54,388 65,308
Taxes and license 35,836 65,787
Building occupancy 105,530 107,215
Advertising and promotion 17,798 19,780
Office expense 105,223 136,958
Legal and accounting 25,992 43,147
Communications 19,488 20,769
----------- -----------
961,439 1,061,291
----------- -----------
OPERATING LOSS (643) (418,439)
----------- -----------
FINANCIAL INCOME (EXPENSE)
Interest income 941 45,709
Interest expense (246,370) (398,009)
----------- -----------
(245,429) (352,300)
----------- -----------
LOSS FROM CONTINUING OPERATIONS (246,072) (770,739)
----------- -----------
DISCONTINUED OPERATIONS
Income (loss) from residential brokerage division 69,686 (76,450)
Gain on disposal of residential brokerage division 0 79,000
Income from computer division 3,306 64,709
Gain on disposal of computer division 159,927 0
----------- -----------
232,919 67,259
----------- -----------
NET LOSS (13,153) (703,480)
=========== ===========
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 $ (.13) $ (.34)
Income from discontinued operations .09 .03
----------- -----------
NET LOSS PER COMMON SHARE $ (.04) $ (.31)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 10
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Capital Stock Issued
-------------------- Additional Paid-In Capital
Preferred Preferred Preferred Accumulated
Series A Series B Common Series A Deficit
-------- -------- --------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 $525,000 $486,899 $ 696,776 $33,648 $ (283,819)
Net loss -- -- -- -- (703,480)
-------- -------- --------- ------- -----------
BALANCE, DECEMBER 31, 1995 $525,000 $486,899 $ 696,776 $33,648 $ (987,299)
Purchase of Stock -- -- (2) -- --
Net loss -- -- -- -- (13,153)
-------- -------- --------- ------- -----------
BALANCE, DECEMBER 31, 1996 $525,000 $486,899 $ 696,774 $33,648 $(1,000,452)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 11
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (13,153) $ (703,480)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 54,388 74,526
(Gain) loss on disposal of assets (159,927) 45,065
Changes in assets and liabilities:
(Increase) decrease in:
Properties held for resale 436,080 1,743,951
Accounts and other receivables 60,719 (20,022)
Home sale notes receivable 24,450 53,301
Other assets 10,184 122,109
Increase (decrease) in:
Accounts payable (56,928) 5,111
Accrued expenses (46,969) (36,501)
Customer deposits (22,886) (74,656)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 285,958 1,209,404
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 80,000 100,000
Purchase of property and equipment (329,579) (17,265)
Collections on notes receivable 0 452,222
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (249,579) 534,957
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 4,679,657 4,294,615
Payments of bank loans and other debt (4,922,106) (6,000,744)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (242,449) (1,706,129)
----------- -----------
NET INCREASE (DECREASE) IN CASH (206,070) 38,232
CASH AT BEGINNING OF YEAR 268,564 230,332
----------- -----------
CASH AT END OF YEAR $ 62,494 $ 268,564
=========== ===========
SUPPLEMENTARY DISCLOSURES
Interest paid (net of amount capitalized) $ 262,853 $ 384,119
Income taxes paid 0 5,503
Note receivable from disposal of assets 120,000 0
</TABLE>
See notes to consolidated financial statements.
<PAGE>
Page 12
CROWELL & CO., INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
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.
Additionally Crowell owns and operates Petersburg Racquet Club, a tennis and
pool facility located in Crowell's largest development. Crowell also provides
property appraisal services and commercial real estate brokerage services.
Ivey Homes, Inc. ("Ivey"), and Keystone Homes, Inc. ("Keystone"), both
wholly owned subsidiaries of Crowell, build single-family and multi-family homes
on a presold and speculative basis in the Augusta, Georgia, metropolitan
statistical area. The operations of Ivey and Keystone were combined in 1996.
The Company incurred losses from continuing operations of $246,072 and
$770,739 in 1996 and 1995, respectively. The Company sold two of its divisions
during 1996 and 1995, 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.
<PAGE>
Page 13
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, 1996 and 1995.
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 is subtracted from the net loss for the purposes of
computing the loss per common share regardless of whether the preferred dividend
is paid.
RECEIVABLES
The Company uses the allowance method for recording bad debt. At December
31, 1996 and 1995, an allowance for collectible receivables was not considered
necessary.
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
<PAGE>
Page 14
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, 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 1995 amounts have been reclassified to conform with the financial
statement presentation used in 1996. These reclassifications had no effect on
net income.
NOTE 3 - NOTES RECEIVABLE
December 31,
1996 1995
-------- -------
Note receivable from an individual due in
quarterly installments with interest at 8.8%,
secured by all assets of UDS. (See Note 9) $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 $30,766
-------- -------
$126,315 $30,766
======== =======
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 leases 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 total
minimum rental commitment at December 31, 1996, under these leases is
$1,837,200, which is due as follows:
Year ending December 31,
1997 $ 127,200
1998 127,200
1999 130,800
2000 133,200
2001 135,600
Thereafter 1,183,200
----------
$1,837,200
<PAGE>
Page 15
The total rental expense for these leases included in the consolidated
statements of income for the years ended December 31, 1996 and 1995, was
$122,400 and $120,000, respectively.
NOTE 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---------- ----------
<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, 1996 and 1995). $2,955,170 $3,345,402
Secured by Petersburg Racquet Club property, maturing
2009, at an interest rate of 8.5% and 7.5% at
December 31, 1996 and 1995, respectively. 541,461 330,082
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%. 69,828 133,424
---------- ----------
$3,566,459 $3,808,908
========== ==========
</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,
1996, the Company has unused commitments for financing of approximately
$940,000. 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, 1996. The majority stockholder has personally
guaranteed all bank loans. In addition, the president of Ivey has personally
guaranteed all of Ivey's bank loans, which amounts to additional guarantees of
$1,667,674 as of December 31, 1996. The president of Keystone has personally
guaranteed all of Keystone's bank loans which amounts to additional guarantees
of $591,544.
Maturities of debt are as follows:
Year ending December 31,
1997 $2,483,111
1998 596,256
1999 34,883
2000 37,967
2001 41,323
Thereafter 372,919
----------
$3,566,459
==========
<PAGE>
Page 16
Capitalized interest (see Note 2) was approximately $78,000 and $58,000 for
the years ended December 31, 1996 and 1995, 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, 1996 and 1995, Crowell filed consolidated
income tax returns with its subsidiaries Ivey and Keystone.
For the years ended December 31, 1996 and 1995, no income tax provision was
made because of the net losses the Company incurred.
As of December 31, 1996, and for the year then ended, the Company had no
significant temporary or permanent differences to report. For the year ended
December 31, 1995, the Company collected the remainder of a note receivable
recorded on the cash basis for income tax purposes in the amount of
approximately $260,000. No income tax was incurred by the collection because of
the net loss incurred by the Company.
The Company adopted SFAS No. 109 as of January 1, 1995. Under the asset and
liability method of SFAS 109, deferred tax assets and liabilities are recognized
for temporary differences between the financial reporting basis of assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The adoption of SFAS No. 109 had no significant effect on income
for the year ended December 31, 1995.
Deferred tax assets and liabilities at December 31, 1996 and 1995, consist
of the following:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
--------- ---------
Deferred tax assets
<S> <C> <C>
Federal and state net operating loss carryforwards $ 800,000 $ 800,000
Less valuation allowance (800,000) (800,000)
--------- ---------
Net deferred tax asset $ - $ -
========= =========
</TABLE>
Remaining net operating loss carryforwards of $2,058,248 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 $ 320,346
2003 597,531
2004 154,945
2005 294,482
2010 683,502
2011 7,442
----------
$2,058,248
==========
<PAGE>
Page 17
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. In addition, the real estate development segment operates
a tennis and pool facility.
The real estate brokerage segment consists of commission revenue and
related expenses for primarily commercial real estate sales.
Any significant intersegment revenues for the periods presented have been
eliminated. Various industry segment data is as follows:
Year ended December 31,
-----------------------
1996 1995
----------- -----------
Net sales
Real estate development $ 6,779,145 $ 6,757,971
Real estate brokerage 206,255 137,350
----------- -----------
Net sales $ 6,985,400 $ 6,895,321
=========== ===========
Operating income (loss)
Real estate development $ (36,946) $ (422,838)
Real estate brokerage 36,303 4,399
----------- -----------
Operating income (loss) $ (643) $ (418,439)
=========== ===========
Capital expenditures
Real estate development $ 324,215 $ 5,741
Real estate brokerage -- --
----------- -----------
Net capital expenditures $ 324,215 $ 5,741
=========== ===========
Depreciation and amortization
Real estate development $ 54,388 $ 65,308
Real estate brokerage -- --
----------- -----------
Net depreciation and amortization $ 54,388 $ 65,308
=========== ===========
Assets employed
Real estate development $ 4,379,872 $ 4,661,515
Real estate brokerage -- --
----------- -----------
$ 4,379,872 $ 4,661,515
=========== ===========
<PAGE>
Page 18
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 years ended
December 31, 1996 and 1995, such purchases amounted to $79,500 and $292,700,
respectively. Crowell also provides management services to Home Sites. For the
years ended December 31, 1996 and 1995, management fees earned by the Company
amounted to $5,430 and $35,522, respectively.
An officer of the company also received real estate commissions on Home
Sites property sold by Crowell in the amount of $34,457 for the year ended
December 31, 1995.
NOTE 9 - DISCONTINUED OPERATIONS
On June 1, 1995, Crowell sold its residential real estate brokerage
division ("Division") to Meybohm Realty, Inc. ("Meybohm), another real estate
brokerage firm located in the Augusta area, with an effective closing date of
June 1, 1995. 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 incurred 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 year ended December 31,
1995, was $528,473.
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 1996. Total revenue for UDS for the years ended December
31, 1996 and 1995 was $421,199 and $562,713, respectively.
<PAGE>
Page 19
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, 1996 and 1995, 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, 1996 and 1995, 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
March 21, 1997
<PAGE>
CROWELL & CO., INC., AND SUBSIDIARIES
DIRECTORS AND EXECUTIVE OFFICERS
Otis L. Crowell
President and Chairman of the Board of Directors
O. Lamar Crowell, Jr.
Vice President and Director
Mark L. Gilliam
Vice President, Secretary, Chief Financial Officer, and Director
CORPORATE INFORMATION
CORPORATE OFFICES
610 Industrial Park Boulevard
Evans, GA 30809
(706) 855-1099
INDEPENDENT AUDITORS
Cherry Bekaert & Holland
Augusta, GA
TRANSFER AGENT
Crowell & Co., Inc.
Evans, GA
COMMON STOCK AND DIVIDEND INFORMATION
There is no public trading market for the securities of Crowell. As of January
31, 1998, there were approximately 740 holders of record of Crowell's Common
Stock without par value. No dividends have been paid on Crowell's Common Stock
for more than 2 years and the management of Crowell does not intend to pay
dividends in the foreseeable future.
FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB (without exhibits) as filed
with the Securities and Exchange Commission for the year ended December 31,
1996, may be obtained without charge by writing to Mark L. Gilliam at the
Company's corporate office.
ADDITIONAL INFORMATION
For additional information, contact Mark L. Gilliam at the Company's corporate
office.
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997
Commission File No. 0-7765
Crowell & Co., Inc.
-----------------------------------------------------------------
(Exact Name of small business issuer as specified in its charter)
GEORGIA 58-1021933
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
432 South Belair Road, Augusta, Georgia 30907
---------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code (706) 855-1099
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of issuer's common equity as of October 31,
1997 is 2,520,835.
<PAGE>
CROWELL & CO., INC.
INDEX
PAGE NO.
--------
PART 1 - FINANCIAL INFORMATION
ITEM 1 - Financial Statements ................................ 4
ITEM 2 - Management's Discussion and Analysis ................ 8
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
The following condensed consolidated financial statements of Crowell & Co.,
Inc., and Subsidiaries are included in Item 1:
Condensed Consolidated Balance Sheet September 30, 1997
Condensed Consolidated Statements of Operations and Accumulated Deficit
Three month and nine month periods ended September 30, 1997 and 1996
Condensed Consolidated Statements of Cash Flows -
Three month and nine month periods ended September 30, 1997 and
1996
Notes to Condensed Consolidated Financial Statements
3
<PAGE>
Crowell & Co., Inc., and Subsidiaries
Condensed Consolidated Balance Sheet
September 30, 1997
Assets
Properties held for resale & development
Homes under construction and for sale $ 1,839,775
Developed residential 1,157,476
Land held for future development and other 65,899
------------
3,063,150
------------
Cash and cash equivalents, including escrow funds of $2,634 162,693
------------
Receivables 108,051
------------
Property and equipment, net of depreciation 111,614
------------
Petersburg Racquet Club, net of depreciation 606,910
------------
Other assets 67,854
------------
$ 4,120,272
============
Liabilities and Stockholders' Equity
Notes payable to banks $ 3,151,024
------------
Accounts payable and accrued expenses 155,988
------------
Stockholders' equity
Preferred stock 1,011,899
Common stock 696,776
Paid-in capital 33,648
Accumulated deficit (929,063)
------------
813,260
------------
$ 4,120,272
============
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Crowell & Co., Inc., and Subsidiaries
Condensed Consolidated Statements of Operations and Accumulated Deficit
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
<S> <C> <C> <C> <C>
Home sales $ 1,749,552 $ 2,201,385 $ 4,389,114 $ 5,169,155
All other revenues 567,100 177,047 1,153,449 595,606
----------- ----------- ----------- -----------
2,316,652 2,378,432 5,542,563 5,764,761
----------- ----------- ----------- -----------
Cost of revenues
Homes 1,703,793 2,002,129 4,140,646 4,618,826
All other costs 192,433 26,902 482,129 358,277
----------- ----------- ----------- -----------
1,896,226 2,029,031 4,622,775 4,977,103
----------- ----------- ----------- -----------
Operating expenses 267,306 218,342 755,372 697,736
----------- ----------- ----------- -----------
Operating income (loss) 153,120 131,059 164,416 89,922
----------- ----------- ----------- -----------
Other income 29,716 25,709 61,488 24,352
----------- ----------- ----------- -----------
Net financial expense 60,036 38,757 154,515 184,637
----------- ----------- ----------- -----------
Income (loss) before discontinued operations 122,800 118,011 71,389 (70,363)
----------- ----------- ----------- -----------
Discontinued Operations 0 (14,193) 0 (12,283)
----------- ----------- ----------- -----------
Income (loss) 122,800 103,818 71,389 (82,646)
----------- ----------- ----------- -----------
Accumulated deficit
Beginning of period (1,051,863) (1,173,763) (1,000,452) (987,299)
End of period (929,063) (1,069,945) (929,063) (1,069,945)
----------- ----------- ----------- -----------
Weighted average common shares outstanding 2,520,835 2,520,835 2,520,835 2,520,835
Net loss per common share
Primary earnings per share
Income (loss) from continuing operations $ .04 $ .04 $ .00 ($ .06)
Income (loss) from discontinued operations .00 (.01) .00 .00
------ ------- ------ ------
$ .04 $ .03 $ .00 ($ .06)
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Crowell & Co., Inc., and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
Cash flows from operating activities
<S> <C> <C> <C> <C>
Net income (loss) $ 122,800 $ 103,818 $ 71,389 ($ 82,646)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 20,400 20,700 61,200 62,100
Net (increase) decrease in inventory,
receivables, prepaids, payables and accruals 610,442 842,640 516,926 629,816
--------- --------- --------- ---------
Net cash provided by operating activities 753,642 967,158 649,515 609,270
--------- --------- --------- ---------
Cash flows from investing activities
Purchases of property and equipment 0 (78,066) (159,752) (113,222)
Receipts on notes 11,500 0 25,871 0
--------- --------- --------- ---------
Net cash provided by (used in) investing activities 11,500 (78,066) (133,881) (113,222)
--------- --------- --------- ---------
Cash flows from financing activities
Proceeds from borrowings 936,891 762,717 3,347,237 3,718,274
Payments of borrowings (1,613,982) (1,390,961) (3,762,672) (4,188,197)
--------- --------- --------- ---------
Net cash used in financing activities (677,091) (628,244) (415,435) (469,923)
--------- --------- --------- ---------
Net increase in cash 88,051 260,848 100,199 26,125
Cash at beginning of period 74,642 33,841 62,494 268,564
Cash at end of period $ 162,693 $ 294,689 $ 162,693 $ 294,689
========= ========= ========= =========
Supplemental disclosures
Interest paid, net of amount capitalized $ 64,723 $ 51,229 $ 149,957 $ 200,807
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
CROWELL & CO., INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
Note 1 - Basis of Presentation
The accompanying financial statements are presented in accordance with the
requirements of Form 10-QSB and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's annual Form 10-KSB filing. Accordingly, the
reader of this Form 10-QSB may wish to refer to the Company's Form 10-KSB for
the year ended December 31, 1996, for further information.
The financial information has been prepared in accordance with the Company's
customary accounting practices and has not been audited. In the opinion of
management, the information presented reflects all adjustments necessary for a
fair statement of interim results. All such adjustments are of a normal and
recurring nature.
Note 2 - Loss per share
The income (loss) per common share has been computed using the weighted average
of the number of shares outstanding during the three and nine month periods
ended September 30, 1997 and 1996. Because inclusion of convertible preferred
stock would have an anti-dilutive or no effect on the income (loss) per common
share, the convertible preferred stock is excluded from the computation of the
income (loss) per common share assuming full dilution for the quarters ended
September 30, 1997 and 1996, and for the nine months ended September 30, 1997
and 1996.
7
<PAGE>
Item 2. Management's Discussion and Analysis
Results of Operations for the Quarters ended September 30, 1997 and 1996
The primary sources of revenue of Crowell & Co., Inc., and Subsidiaries (the
"Company") are the development of residential properties for resale and
homebuilding.
Other sources of revenue include operation of a pool and tennis facility, and
various other real estate related activities.
Total revenues for the quarter ended September 30, 1997, are $61,780 less than
revenues for the quarter ended September 30, 1996. This can be attributed to a
decrease in home sales of $451,833 and an increase in other revenues of
$390,053.
Currently sales backlog on Company constructed homes is $1,146,519. Construction
on these homes is 79% complete. Backlog represents signed contracts for the
purchase of homes where the property has not been closed. Therefore, the Company
still holds legal title and has not recognized any income.
The gross profit margin on home sales decreased in the quarter ended September
30, 1997, as compared to the quarter ended September 30, 1996, from 9% to 3%.
Operating expenses increased by $48,964 for the quarter ended September 30,
1997, as compared to the same quarter last year. Operating expenses include
salaries, office expenses, occupancy, depreciation, advertising and promotion,
taxes and licenses, legal and accounting, communications, and other expenses.
These expenses are fixed in nature and normally do not fluctuate with different
revenue levels.
The Company had net income for the third quarter of 1997 of $122,800 compared to
a net income of $103,818 for the third quarter of 1996.
Liquidity and Capital Resources
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 home, 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 raw land and the improved lots held for resale.
Payments of interest are due monthly or quarterly and a portion of the principal
is repaid as each lot is sold. The Company has approximately $206,000 in unused
development
8
<PAGE>
loan commitments available to use in the development of residential properties
as of September 30, 1997.
Residential home construction costs are expected to be met through the use of
existing commitments aggregating approximately $1,070,000 as of September 30,
1997, and through the use of additional commitments also 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 90-95% of the costs of the home, secured by the lot and improvements.
These loans are repaid upon the sale of the home. These loans are negotiated and
closed on a project-by-project and lot-by-lot basis.
In addition to the development loans, the Company has a loan agreement with an
Augusta, Georgia, bank in the amount of approximately $584,000 which is secured
by real property.
The Company also has several other loans with various lenders which are secured
by various Company assets.
Financing arrangements for long-term needs have not been made. Such arrangements
in the land development business are generally made on a project-by-project
basis. Debt service on all existing loans (loan balances totaled $3,151,024 as
of September 30, 1997) and funds for operations are expected to be met from the
proceeds of home, lot, and land sales. Notes maturing in the next twelve months
total approximately $2,600,000. At September 30, 1997, available cash and
proceeds from home, lot, and land sales were expected to be sufficient to meet
the Company's requirements for the following quarter. The Company historically
has renewed these notes as is common in the development business. The notes will
eventually be repaid from proceeds of land, lot, and home sales.
The Company expects to, as it has done in the past, sell land it presently owns
to meet liquidity needs. Coupled with revenues from normal sources, such sales
would be expected to generate sufficient cash to meet liquidity requirements.
The Company has net operating loss carryforwards available of approximately
$2,060,000 to offset against future federal and state taxable income. The
current value of these carryforwards computed at maximum federal and state
income tax rates is approximately $800,000. This amount is not reflected in the
financial statements.
Results of Operations for the Nine Month Periods Ended September 30, 1997 and
1996
Total revenues for the nine months ended September 30, 1997, are $222,198 less
than for the nine months ended September 30, 1996. This can be attributed
primarily to a decrease in home sales of $780,041 and an increase in other
revenues of $557,843.
Gross profit percent on home sales decreased from 11% for the nine months ended
September 30, 1996, to 6% for the nine months ended September 30, 1997.
9
<PAGE>
Operating expenses increased by $57,636 for the nine months ended September 30,
1997, as compared to the nine months ended September 30, 1996.
Net loss for the nine months ended September 30, 1996, was $82,646 compared with
a net income of $71,389 for the nine months ended September 30, 1997.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Crowell & Co., Inc.
November 13, 1997 By: /s/ Mark L. Gilliam
--------------------------
Mark L. Gilliam
Vice President on Behalf of
the registrant and as Chief
Financial Officer
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
Pursuant To Section 13 Or 15 (d) of the Securities Exchange Act Of 1934
Date of Report (Date of earliest event reported): December 31, 1997
CROWELL & CO., INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 0-7765 58-1021933
------- ------ ----------
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
610 Industrial Park Boulevard, Evans, GA 30809
- ---------------------------------------- -----
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number including area code: (706) 855-1099
--------------
<PAGE>
CROWELL & CO., INC.
INDEX
PAGE
ITEM 2 Acquisition or Disposition of Assets............................... 3
<PAGE>
CROWELL & CO., INC.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On December 31, 1997, Crowell & Co., Inc. ("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 are approximately $6,000, as they are
received.
The net book value of PRC at the time of the sale was approximately $643,000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
hereunto duly authorized.
Crowell & Co., Inc.
DATE January 8, 1998 /s/ Mark L. Gilliam
--------------- ---------------
Mark L. Gilliam as Vice President on
Behalf of the registrant and as Chief
Financial Officer
