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, 1998
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: $6,954,730.
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 March 31, 1999.
The number of shares outstanding of issuer's common equity as of March 31, 1999,
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................................................ 7
ITEM 4 Submission of Matters to a Vote of Security Holders.............. 7
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters......... 8
ITEM 6 Management's Discussion and Analysis or Plan of Operation........ 8
ITEM 7 Financial Statements............................................. 11
ITEM 8 Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure............................................. 24
PART III
ITEM 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................ 25
ITEM 10 Executive Compensation........................................... 26
ITEM 11 Security Ownership of Certain Beneficial Owners and Management... 26
ITEM 12 Certain Relationships and Related Transactions................... 28
ITEM 13 Exhibits and Reports on Form 8-K................................. 29
Signatures....................................................... 31
Index of Exhibits................................................ 32
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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.
("Keystone", 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. 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 461,000 in 1998.
Columbia County had a population of approximately 92,000 in 1998. 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, Ltd. ("Home Sites")
developments. The revenues of Keystone constituted 92% of the total revenues of
the Company for the fiscal year ended December 31, 1998.
Keystone purchases developed lots for home construction from Home Sites.
For the year ended December 31, 1998, such purchases were $58,000. Crowell also
provides management services to Home Sites. For the year ended December 31,
1998, management fees earned by the Company were $69,645.
Currently, Keystone's home prices (which include lot costs) range from
approximately $95,000 to $215,000. Heated square footage in these homes ranges
from 1,200 to 3,400 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, 1998, was approximately $2,900,000.
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 36% complete on these contracts at December 31,
1998. Management believes all backlog at December 31, 1998, will be completed
during 1999.
All operations of the Company are domestic.
DISPOSITIONS OF ASSETS
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, 1996 and 1995
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 are approximately $6,000, as they are
received. The net book value of PRC at the time of the sale was approximately
$652,000. The Company was, and continues to be, a guarantor on the mortgage loan
assumed by Mr. Jones. As a result 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 of 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 year ended December 31, 1997, were $298,563.
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
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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, Yohe Plumbing, Hutto Plumbing, Inc., Universal
Cabinets, CSR Concrete, Wickes Lumber Company, The Carpet Shop, Ferguson
Enterprises, Smith's Landscape Nursery, and Creighton Laircey.
EMPLOYEES
As of December 31, 1998, 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, 1998, 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/ None
Shopping Ctr
1.41 acres undeveloped land None The Pass None Commercial None
48 developed lots Chaparral The Pass Residential None
6 developed lots Bakers Ferry The Pass Residential $ 39,000
27 developed lots Cedar Rock The Pass None Residential 96,500
Homes under construction Bakers Ferry The Pass Sales 615,383
inventory
Homes under construction The Boulders The Pass Sales 288,000
inventory
Homes under construction Cedar Rock The Pass Sales 578,404
inventory
Homes under construction Chaparral The Pass Sales 409,829
inventory
Homes under construction Lakes & Streams South Carolina Sales 202,138
inventory
Homes under construction Walnut Grove South Carolina Sales 141,943
inventory __________
Total mortgage debt $ 2,371,197
============
</TABLE>
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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, 1998, on the mortgage
debt was approximately $260,000 (including capitalized interest). A similar
payment for 1999 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 8.25% to 8.75%. 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 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
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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 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, 1998.
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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, 1998, 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 1998 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.
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 increased by $1,228,906 or 23.8%, and commercial brokerage
commissions decreased by $120,872 or 66% for the year ended December 31, 1998,
as compared to the year ended December 31, 1997.
Gross profit percent on home sales increased to 9.7% in 1998 from 5.4% in
1997.
Gross profit percent on commercial brokerage commissions decreased from
34.4% in 1997 to 27.0% in 1998.
Gross profit on lot sales increased from 52.1% in 1997 to 56.3% in 1998.
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Salaries decreased in 1998 as compared to 1997 by $16,814 or 4.2%.
Depreciation expense decreased by $784 or 4.6% in 1998 as compared to 1997.
Taxes and licenses decreased by $8,335 or 29.7%, in 1998 as compared to
1997.
Building occupancy decreased by $31,678 or 45.9% in 1998 as compared to
1997. Office expense decreased in 1998 by $152 or .2% as compared to 1997.
Advertising and promotion increased by $925 or 5.1% in 1998 as compared to
1997.
Legal and accounting expenses decreased by $458 or 1.7% in 1998 as compared
to 1997.
Communications expenses decreased by $1,159 or 6.4% in 1998 as compared to
1997.
Overall operating expenses decreased by $24,746 or 3.5% for 1998 as
compared to 1997.
Interest income increased by $9,354 in 1998 as compared to 1997.
Interest expense from continuing operations increased by $3,368 or 2.3% in
1998 as compared to 1997.
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, 1998, available cash and proceeds from
land, lot, and home sales were expected to be sufficient to meet the Company's
requirements until spring of 1999 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. (See Item 2.
Description of Properties.) The interest rates on the development loans are
8.25% to 8.75% in December 1998. 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, 1999 and 2000, 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 8.25% to 8.75% as
of December 31, 1998. 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.
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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
$2,399,759 as of December 31, 1998) 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 1999 total $2,379,005. 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, 1998, has improved as
compared to that of December 31, 1997. Stockholders' equity as of December 31,
1998, was $857,758 as compared to $684,689 at December 31, 1997.
Properties held for resale decreased from $3,415,398 at December 31, 1997
to $2,975,611 at December 31, 1998, a decrease of $439,787, or 12.9%. 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 $51,390 or 26.7%, at December 31, 1998, from December 31,
1997.
Receivables decreased from $94,108 at December 31, 1997, to $75,548 at
December 31, 1998, a decrease of $18,560 or 19.7%, because of collections on a
note receivable in connection with the sale of UDS.
Other assets increased from $60,750 at December 31, 1997, to $64,531 at
December 31, 1998, an increase of $3,781 or 6.2%.
Notes payable decreased from $2,967,064 at December 31, 1997, to $2,399,759
at December 31, 1998, a decrease of $567,305 or 19.1%. 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 $181,238 at
December 31, 1997, to $145,994 at December 31, 1998, a decrease of $35,244 or
19.4%.
The Company has net operating loss carryforwards available of approximately
$1,770,000 to offset against future federal taxable income. The maximum value of
these carryforwards computed at maximum federal and state income tax rates is
approximately $690,000. This amount is not reflected in the financial
statements.
IMPACT OF INFLATION
Although inflationary pressures were moderate in 1998 and 1997, 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.
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ITEM 7. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
The following consolidated financial statements of Crowell & Co., Inc., and
subsidiaries are included herein:
Consolidated Balance Sheet - December 31, 1998
Consolidated Statements of Operations - Years ended December 31, 1998 and
1997
Consolidated Statements of Changes in Stockholders' Equity - Years ended
December 31, 1998 and 1997
Consolidated Statements of Cash Flows - Years ended December 31, 1998 and
1997
Notes to Consolidated Financial Statements - Years ended December 31, 1998
and 1997
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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 sheet of Crowell &
Co., Inc., and subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the two years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, 1998, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ELLIOTT, DAVIS & COMPANY, L.L.P.
Augusta, Georgia
April 13, 1999
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CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
PROPERTIES HELD FOR RESALE
Homes under construction and for sale $ 2,433,454
Developed residential land 710,775
Land held for future development 19,000
-----------
3,163,229
-----------
CASH AND CASH EQUIVALENTS, including escrow funds of $3,984 244,054
-----------
RECEIVABLES
Notes 54,196
Accounts and other 21,352
-----------
75,548
-----------
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 149,641
-----------
149,641
Less accumulated depreciation (75,874)
-----------
73,767
-----------
OTHER ASSETS 64,531
-----------
ASSETS OF BUSINESS TRANSFERRED UNDER CONTRACTUAL ARRANGEMENT 606,000
-----------
$ 4,227,129
===========
The accompanying notes are an integral part of this consolidated financial
statement.
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LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE TO BANKS $ 2,399,759
-----------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable 297,241
Accrued expenses 32,387
Customer deposits 3,984
-----------
333,612
-----------
OTHER LIABILITIES
Liabilities and deferred credit of business transferred under
contractual arrangement 606,000
Deferred gain on disposal of Petersburg Racquet Club 30,000
-----------
636,000
-----------
TOTAL LIABILITIES $ 3,369,371
-----------
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 & outstanding 525,000
shares; accumulated dividends $189,000 ($0.36 per
share) 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 & outstanding 486,899
shares; accumulated dividends $194,760 ($0.40 per
share) 486,899
Common, without par value; 50,000,000 shares
authorized; 2,520,835 shares issued & outstanding
at December 31, 1998 696,774
Additional paid-in capital Preferred stock - Series A 33,648
Accumulated deficit (884,563)
-----------
TOTAL STOCKHOLDERS' EQUITY 857,758
-----------
$ 4,227,129
===========
The accompanying notes are an integral part of this consolidated financial
statement.
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CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1998 1997
----------- -----------
REVENUES
<S> <C> <C>
Home sales $ 6,389,071 $ 5,160,165
Brokerage commissions 61,906 182,778
Other income 136,353 138,420
Lot sales 192,400 388,300
Land sales 175,000 341,000
----------- -----------
6,954,730 6,210,663
----------- -----------
COST OF REVENUES
Homes 5,768,374 4,881,475
Agent commissions 45,172 119,921
Other 31,577 30,117
Lots 84,000 185,923
Land 46,899 133,335
----------- -----------
5,976,022 5,350,771
----------- -----------
OPERATING EXPENSES
Salaries 400,446 417,260
Depreciation 17,174 17,958
Taxes and license 19,768 28,103
Building occupancy 37,309 68,987
Advertising and promotion 19,080 18,155
Office expense 88,016 88,168
Legal and accounting 27,215 27,673
Communications 16,842 18,001
Completed home expenses 46,704 12,996
----------- -----------
672,554 697,301
----------- -----------
OPERATING INCOME 306,154 162,591
----------- -----------
FINANCIAL INCOME (EXPENSE)
Interest income 17,559 8,205
Interest expense (150,644) (147,276)
----------- -----------
(133,085) (139,071)
----------- -----------
INCOME FROM CONTINUING OPERATIONS 173,069 23,520
----------- -----------
DISCONTINUED OPERATIONS
Loss from Petersburg Racquet Club -- (80,700)
----------- -----------
-- (80,700)
----------- -----------
NET INCOME (LOSS) $ 173,069 $ (57,180)
=========== ===========
EARNINGS PER COMMON SHARE:
Weighted average number of common shares outstanding 2,520,835 2,520,835
Basic earnings per share
Income (loss) from continuing operations $ .04 $ (.02)
Loss from discontinued operations -- (.03)
----------- -----------
NET INCOME (LOSS) PER COMMON SHARE $ .04 $ (.05)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 16
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Additional
Paid-In
Capital Stock Issued 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, 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
Net income -- -- -- -- 173,069 173,069
-------- -------- -------- ------- ----------- ---------
BALANCE, DECEMBER 31, 1998 $525,000 $486,899 $696,774 $33,648 $ (884,563) $ 857,758
======== ======== ======== ======= =========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 17
CROWELL & CO., INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ 173,069 $ (57,180)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 17,174 76,766
(Gain) loss on disposal of assets 7,386 (15,139)
Changes in assets and liabilities:
(Increase) decrease in:
Properties held for resale 252,169 77,719
Accounts and other receivables (20,766) 35,005
Home sale notes receivable -- 6,316
Other assets (3,781) (17,418)
Increase (decrease) in:
Accounts payable 164,323 111,763
Accrued expenses (7,517) (3,001)
Customer deposits (4,432) 932
Deferred gain on disposal of Petersburg Racquet Club -- 30,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 577,625 245,763
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 53,672 100,000
Purchase of property and equipment (51,878) (156,944)
Collections on notes receivable 39,276 26,478
----------- -----------
NET CASH PROVIDED BY, USED IN, INVESTING ACTIVITIES 41,070 (30,466)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 4,481,906 4,190,611
Payments of bank loans and other debt (5,049,211) (4,275,738)
----------- -----------
NET CASH USED IN FINANCING ACTIVITIES (567,305) (85,127)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 51,390 130,170
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 192,664 62,494
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 244,054 $ 192,664
=========== ===========
SUPPLEMENTARY DISCLOSURES
Interest paid (net of amount capitalized) $ 156,939 $ 146,932
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 18
CROWELL & CO., INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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
("MSA"). 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.
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 significant intercompany accounts and
transactions have been eliminated in consolidation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME (LOSS) PER SHARE
Income (loss) per common share is computed by dividing income available to
common stockholders by the weighted average of the number of shares outstanding.
The preferred dividend accrued of $80,952 is subtracted from the income or loss
from continuing operations and net income (loss) for the purposes of computing
the income or loss per common share 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 owned for a total potential of
252,975 shares. However, because inclusion of convertible preferred stock would
have an anti-dilutive effect on the income (loss) per common share, the
convertible preferred stock conversion is excluded from the computation of the
income (loss) per common share assuming full dilution.
CASH AND CASH EQUIVALENTS
All highly liquid instruments with an original maturity of three months or
less are considered cash equivalents.
<PAGE>
Page 19
RECEIVABLES
The Company uses the allowance method for recording bad debts.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
expensed as incurred. Improvements that significantly increase the lives of
assets are capitalized and depreciated or amortized over their estimated useful
lives on the straight-line and declining-balance methods for both financial
reporting and income tax purposes. Gains or losses on disposals are credited or
charged to operations.
PROPERTIES HELD FOR RESALE
Properties held for resale are stated at the lower of cost, using the
specific identification method, or net realizable value. Net realizable value
represents estimates, based on management's present plans and intentions, of
sale price less development and disposition cost, assuming that disposition
occurs in the normal course of business.
Homes under construction and for sale include lot costs, construction
costs, capitalized interest and significant indirect costs related to
development and construction activities. Indirect costs that do not relate to
development and construction activities, including general and administrative
expenses, are charged to expense as incurred.
Developed residential land includes land and land development costs. As
each development phase is completed, land development costs, including
capitalized interest and real estate taxes when material, are then allocated to
individual lots based on the total number of lots expected to be developed
within each development.
REVENUE RECOGNITION
The Company recognizes revenues on sales of residential lots, land, and
homes upon a formal closing and receipt of cash. The Company recognizes
commissions earned on real estate brokerage transactions upon a formal closing.
INCOME TAXES
The Company records income taxes on the liability method. This method
requires the recognition of deferred income taxes for the impact of "temporary
differences" between the amount of assets and liabilities for financial
reporting purposes and such amounts as determined by tax regulations.
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform with the
current year presentation.
CONCENTRATION OF RISK
The Company operates in the Augusta, Georgia, MSA. Therefore, the Company
can be adversely affected by local economic conditions. Financial instruments
which potentially subject the Company to concentrations of credit risk consist
principally of temporary cash investments. The Company places its temporary cash
investments with high credit quality financial institutions. At times, such
investments may be in excess of the FDIC insurance limits.
<PAGE>
Page 20
NOTE 3 - NOTES RECEIVABLE
At year end, notes receivable consist of the following:
Note receivable from an individual due in
quarterly installments with interest at 8.8%,
secured by all assets of UDS. (See Note 9) $ 54,196
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
----------
Less allowance for doubtful accounts (136,000)
----------
$ 54,196
==========
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company leases office space from the majority stockholder under two
leases, each with a term of twenty (20) years, and expiring in 2009. 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, 1998,
under these leases is $1,016,400, which is due as follows:
Year ending December 31,
------------------------
1999 85,200
2000 85,200
2001 87,600
2002 90,000
2003 90,000
Thereafter 578,400
----------
$1,016,400
==========
The total rental expense for these leases included in the consolidated
statements of income for the years ended December 31, 1998 and 1997, was $85,200
and $127,200, respectively. The Company received rental income of approximately
$90,000 for both 1998 and 1997 which offsets 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.
The Company is generally involved in legal proceedings, arising in the
ordinary course of business, which are covered by insurance. In the opinion of
the Company's
<PAGE>
Page 21
management, none of the claims relating to such proceedings will have a material
adverse affect on the financial condition or results of operations of the
Company.
NOTE 5 - NOTES PAYABLE
At year end, notes payable consist of the following:
To banks
Secured by residential properties held for resale,
maturing at various dates through 1999, at
interest rates from prime plus 1.0% to
1.5% (8.5% to 10.0%). $2,371,197
Secured by vehicle, at an interest rate of 8%,
payable by monthly installments due June
25,2003. 28,562
----------
$2,399,759
==========
Under provisions of financing arrangements outstanding at December 31,
1998, the Company has unused commitments for financing of approximately
$1,985,000. 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, 1998. 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
$2,264,257.
Maturities of debt are as follows:
Year ending December 31,
------------------------
1999 $ 2,378,564
2000 5,497
2001 5,953
2002 6,447
2003 3,298
-----------
$ 2,399,759
===========
Capitalized interest (see NOTE 2) was approximately $107,000 and $76,000
for the years ended December 31, 1998 and 1997, 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, 1998 and 1997, Crowell filed consolidated
income tax returns with its subsidiary Keystone.
For the years ended December 31, 1998 and 1997, the Company recorded no
income tax provision. In 1997, and previous years, the Company incurred net
losses and established valuation reserves for the entire amount of its deferred
tax assets. In 1998 the Company had net income and reduced its valuation reserve
by a similar amount. At December 31, 1998 the Company had a valuation reserve
equal to its deferred tax asset as it had determined that it was more likely
than not that the reported asset would not be realized. For the year ended
December 31, 1997, 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
<PAGE>
Page 22
receivable received by the Company on the sale of PRC. (See NOTE 3 and NOTE 10.)
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, 1998 and 1997, consist
of the following:
Years ended December 31,
------------------------
1998 1997
--------- ---------
Deferred tax assets
Federal and state net operating loss carryforwards $ 690,000 $ 760,000
Less valuation allowance (690,000) (760,000)
--------- ---------
Net deferred tax asset $ -- $ --
========= =========
Remaining net operating loss carryforwards of $1,768,804 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 $ 30,902
2003 597,531
2004 154,945
2005 294,482
2010 683,502
2011 7,442
------------
$ 1,768,804
============
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.
Any significant intersegment revenues for the periods presented have been
eliminated. Various industry segment data is as follows:
Year ended December 31,
-----------------------
1998 1997
---------- ----------
Net sales
Real estate development $6,892,824 $6,027,885
Real estate brokerage 61,906 182,778
---------- ----------
Net sales $6,954,730 $6,210,663
========== ==========
<PAGE>
Page 23
Operating income
Real estate development $ 289,494 $ 122,767
Real estate brokerage 16,660 39,824
---------- ----------
Operating income $ 306,154 $ 162,591
========== ==========
Capital expenditures
Real estate development $ 51,878 $ 156,944
Real estate brokerage -- --
---------- ----------
Net capital expenditures $ 51,878 $ 156,944
========== ==========
Depreciation and amortization
Real estate development $ 17,174 $ 17,958
Real estate brokerage -- --
---------- ----------
Net depreciation and amortization $ 17,174 $ 17,958
========== ==========
Assets employed
Real estate development $4,039,511 $4,468,991
Real estate brokerage -- --
---------- ----------
$4,039,511 $4,468,991
========== ==========
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, 1998 such purchases were $58,000. Crowell also provides management
services to Home Sites. For the year ended December 31, 1998 management fees
earned by the Company were $69,645.
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.
As described in Note 4, the Company leases office space from its majority
stockholder.
NOTE 9 - FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosure About Fair Value of Financial Instruments, defines
the fair value of a financial instrument as the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. The following summarizes the estimated fair
values of financial instruments and the major methods and assumptions used in
estimating such amounts.
The recorded amounts of short term financial instruments (primarily cash
and cash equivalents, accounts receivable, and accounts payable) approximate the
fair values due to the relatively short period to maturity.
The carrying amount of the Company's long term debt at December 31, 1998,
approximate the fair value based upon debt instruments with similar terms and
conditions.
The carrying amount of the Company's notes receivable at December 31, 1998,
approximate the fair value based upon notes with similar terms and conditions.
<PAGE>
Page 24
NOTE 10 - DISCONTINUED OPERATIONS
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 $606,000 in 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 year ended December 31, 1997, were $298,563.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Within the two year period ended December 31, 1998, there have been no
changes in independent certified public accountants or disagreements with
accountants on matters of accounting or financial disclosure.
On March 10, 1999, Crowell & Co., Inc. ("Crowell"), engaged Elliott, Davis
& Company, L.L.P., to serve as independent auditors. On or about that date,
Cherry, Bekaert, & Holland, L.L.P., was dismissed as independent auditors of
Crowell.
Cherry, Bekaert, & Holland's report on the financial statements for the
past two years did not contain an adverse opinion or a disclaimer of opinion nor
was it modified as to uncertainty, audit scope or accounting principles.
The board of directors of Crowell approved the change in independent
auditors.
There were no disagreements with the Company's prior independent auditors,
Cherry, Bekaert, & Holland, L.L.P., within the two-year period ended December
31, 1998 and the interim period of January 1, 1999 through March 10, 1999, on
matters of accounting principles or practices, financial statement disclosure,
or auditing scope of procedure.
Crowell has not consulted with Elliott, Davis & Company, L.L.P., during its
two most recent fiscal years nor during any subsequent interim period prior to
its engagement regarding the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on the Company's financial statements.
<PAGE>
Page 25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Set forth below is certain information as of March 31, 1999, about each of
the directors and executive officers of Crowell.
Name Age Office
- ---- --- ------
Otis L. Crowell 64 Director, President and Chairman of the Board
O. Lamar Crowell, Jr. 33 Director and Vice President
Mark L. Gilliam 37 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.
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, 1998, Crowell's
executive officers, directors and owners of more than 10% of its Common Stock
complied with all filing requirements.
<PAGE>
Page 26
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table summarizes by category, for the fiscal years ended
December 31, 1998, 1997, and 1996, 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, 1998, in an
amount in excess of $100,000:
Name and Year Ended
Principal Position December 31, Salary
- --------------------------------------------------------------------------------
Otis L. Crowell 1998 $ 120,000
President and 1997 120,000
Chief Executive Officer 1996 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 March 31, 1999, 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%
3750 Evans to Locks Road (73.8%) (16.7%)
Augusta, GA 30907
<PAGE>
Page 27
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%
directors as a group (2 persons) (73.4%)
</TABLE>
+ Less than 1.0%
* Executive officer or director
(1) Based on 2,520,835 shares of Common Stock outstanding on February 29, 1998.
(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.
(4) Based on one vote per share for Common Stock and one vote per four shares
for Series A and B Preferred Stock.
<PAGE>
Page 28
(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, 1998, under these leases is
$1,016,400, which is due as follows:
1999 $ 85,200
2000 85,200
2001 87,600
2002 90,000
2003 90,000
2004-2009 578,400
----------
$1,016,400
==========
The total rental expense for these leases included in the consolidated
statements of income for each year ended December 31, 1998 and 1997, was $85,200
and $127,200, respectively. The Company received rental income of approximately
$90,000 for two of the operating leases for both 1998 and 1997 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, 1998, such purchases were $58,000 Crowell also
provides management services to Home Sites. For the year ended December 31,
1998, management fees earned by the Company were $69,645.
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.
<PAGE>
Page 29
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)
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)
<PAGE>
Page 30
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 did not file a report on Form 8-K during the Quarter ended
December 31, 1998.
<PAGE>
Page 31
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: April 15, 1999 /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: April 15, 1999 /s/ Otis L. Crowell
-----------------------------------
Otis L. Crowell, President and
Chairman of the Board
DATE: April 15, 1999 /s/ Mark L. Gilliam
-----------------------------------
Mark L. Gilliam, Director, Vice
President, Secretary and Chief
Financial Officer
DATE: April 15, 1999 /s/ O. Lamar Crowell, Jr.
-----------------------------------
O. Lamar Crowell, Jr., Director
<PAGE>
Page 32
INDEX OF EXHIBITS
11 Computation of earnings per share
12 Subsidiaries
27 Financial Data Schedule
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CROWELL & CO., INC.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
NET LOSS $ 173,069 $ (27,180)
PREFERRED STOCK DIVIDENDS (80,952) (80,952)
----------- -----------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ 92,117 $ (108,132)
=========== ===========
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 $ .04 $ (.02)
Income from discontinued operations -- (.03)
----------- -----------
NET LOSS PER COMMON SHARE $ .04 $ (.05)
=========== ===========
</TABLE>
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 244,054
<SECURITIES> 0
<RECEIVABLES> 75,548
<ALLOWANCES> 0
<INVENTORY> 3,163,229
<CURRENT-ASSETS> 0
<PP&E> 73,767
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,227,129
<CURRENT-LIABILITIES> 0
<BONDS> 2,399,759
696,774
0
<COMMON> 1,011,899
<OTHER-SE> (850,915)
<TOTAL-LIABILITY-AND-EQUITY> 4,227,129
<SALES> 6,389,071
<TOTAL-REVENUES> 6,954,730
<CGS> 5,768,374
<TOTAL-COSTS> 5,976,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 150,644
<INCOME-PRETAX> 173,069
<INCOME-TAX> 0
<INCOME-CONTINUING> 173,069
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 173,069
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
