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, 1999
Commission file number: 0-7765
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CROWELL & CO., INC.
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(Name of small business issuer in its charter)
Georgia 58-1021933
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
924 Stevens Creek Road, Augusta, Georgia 30907
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(Address of Principal executive offices) Zip Code
Issuer's telephone number including area code: (706) 855-1099
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Securities registered pursuant to Section 12 (b) of the Act: None
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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: $12,968,379.
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 April 24, 2000.
The number of shares outstanding of issuer's common equity as of April 24, 2000,
is 2,520,835.
The Index of Exhibits is on page 29.
<PAGE>
TABLE OF CONTENTS
PART 1 PAGE
ITEM 1 Description of Business........................................... 3
ITEM 2 Description of Properties......................................... 4
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.......................................... 22
PART III
ITEM9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................. 23
ITEM 10 Executive Compensation............................................ 23
ITEM 11 Security Ownership of Certain Beneficial Owners and Management.... 24
ITEM 12 Certain Relationships and Related Transactions.................... 25
ITEM 13 Exhibits and Reports on Form 8-K.................................. 26
Signatures........................................................ 28
Index of Exhibits................................................. 29
2
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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 924 Stevens Creek
Road, Augusta, Georgia, 30907. 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 lots 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 Petersburg Racquet Club,
its pool and tennis facility to Craig S. Jones on December 31, 1997. (See
Dispositions of Assets on page 3.)
Crowell acquires and develops land for home building primarily in Columbia
County, Georgia, and Aiken County, South Carolina. The Augusta Metropolitan
Statistical Area ("MSA") contains Richmond, Columbia, and McDuffie Counties in
Georgia and Aiken and Edgefield Counties in South Carolina. The population of
this MSA was approximately 469,000 in 1999. Columbia County had a population of
approximately 97,000 in 1999. Aiken County had a population of approximately
136,000.
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 three 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 97% of the total revenues of
the Company for the fiscal year ended December 31, 1999.
Keystone purchases developed lots for home construction from Home Sites.
For the year ended December 31, 1999, such purchases were $530,000. Crowell also
provides management services to Home Sites. For the year ended December 31,
1999, management fees earned by the Company were $79,155.
Currently, Keystone's home prices (which include lot costs) range from
approximately $95,000 to $320,000. Heated square footage in these homes ranges
from 1,200 to 3,500 square feet. Keystone builds single-family detached homes
and attached townhomes. Keystone uses either concrete slabs or flooring systems
in the construction of its homes and exterior materials may be brick, vinyl
siding, or stucco.
Keystone's backlog at December 31, 1999, was $817,482. 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 53.5% complete on these contracts at December 31, 1999. Management
believes all backlog at December 31, 1999, will be completed during 2000.
All operations of the Company are domestic.
DISPOSITIONS OF ASSETS
On December 31, 1997, Crowell sold the recreation facility 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
3
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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 a guarantor on the mortgage loan assumed by Mr. Jones. As a
result, the Company accounted for the PRC transaction following the treatment
set forth in the Securities and 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
had 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
had 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. Revenues from PRC for
the year ended December 31, 1997, were $298,563.
During the year ended December 31, 1999, Mr. Jones refinanced the note
guaranteed by the Company. The Company is no longer a guarantor of any of Mr.
Jones' debt. Therefore, the $166,000 gain on the sale of PRC has been recognized
in the financial statements for the year ended December 31, 1999.
Proceeds from the sale of PRC were used in the normal operations of the
Company.
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.
Because Keystone is the primary builder in several subdivisions developed
by Crowell and Home Sites, Keystone is not subject to the lot acquisition
problems that some of its competitors face. Therefore, Keystone is able to
concentrate on building efficiencies and customer needs. Keystone's home prices
are determined by market conditions and are affected by demand, land acquisition
costs, and the cost of labor and materials.
SOURCES AND AVAILABILITY OF RAW MATERIALS
There is an adequate supply of building materials available in the Augusta,
Georgia area. Major suppliers of the Company are Howard Lumber Company, Maner
Builders Supply Company, 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, 1999, the Company had eleven (11) full time employees.
The Company has one (1) commercial real estate agent.
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ITEM 2. DESCRIPTION OF PROPERTIES
At December 31, 1999, 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
37 developed lots Chaparral The Pass Residential None
52 developed lots Hardy Pointe Columbia County Residential $996,222
73 developed lots The Village at Riverview Aiken County Residential 687,200
Property under development Laurel Oaks Aiken County None Residential 637,223
Homes under construction Bakers Ferry The Pass Sales 303,550
inventory
Homes under construction The Boulders The Pass Sales 101,250
inventory
Homes under construction Cedar Rock The Pass Sales 67,475
inventory
Homes under construction Chaparral The Pass Sales 360,475
inventory
Homes under construction Hardy Pointe Columbia County Sales 871,186
inventory
Homes under construction Lakes & Streams South Carolina Sales 154,725
inventory
Homes under construction The Village at Riverview Aiken County Sales 117,075
inventory
Homes under construction Walnut Grove South Carolina Sales 603,486
inventory ----------
Total mortgage debt $4,899,867
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</TABLE>
A table of lenders, aggregate amounts of loans and interest rates is shown
below:
Lender Aggregate Amount Interest Rate
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Prime Lending, Inc. $ 600,631 9.00 - 9.25%
Georgia Bank & Trust 2,351,348 9.00 - 9.25%
Southtrust Bank, Inc. 101,250 9.00 - 9.25%
Premier Lending, Inc. 1,888,384 9.00 - 9.25%
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Total $ 4,941,343
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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.
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The interest expense for the year ended December 31, 1999, on the mortgage
debt was approximately $350,000 (including capitalized interest). A similar
payment for 2000 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 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
6
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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, 1999.
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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, 1999, 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 1999 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 the
existing corporate structure is adequate to support increased sales. In
addition, management believes revenues can be increased most rapidly by
increasing home-building efforts.
The statements in this report regarding future sales, expenses, and other
items relating to the future of the Company constitute Forward Looking
Statements under the Private Securities Litigation Reform Act of 1995. Actual
results may differ materially from the Company's expectations as a result of a
number of factors, including the national and local economy, market conditions,
competition, real estate demand, availability of financing, interest rates, and
weather conditions.
On December 10, 1999, the Company re-filed a Preliminary Proxy Statement on
Schedule 14A with the Securities and Exchange Commission for the purpose of
eliminating the periodic reporting requirements under the Securities Exchange
Act of 1934 by a reverse common stock split. The reverse common stock split, if
consummated, will eliminate all common shareholders except the majority
shareholder.
RESULTS OF OPERATION
Management continually monitors inventory levels in relation to customer
demand in order to build the needed number of homes. Therefore, there is no
specific amount of inventory that will always be the optimum.
Home sales increased by $4,374,655 or 68%, and commercial brokerage
commissions increased by $59,505 or 96% for the year ended December 31, 1999, as
compared to the year ended December 31, 1998. Management attributes the increase
in home sales to the strength of the local and national economy and to the
location of the Company's housing. Management does not anticipate a similar
increase in sales for 2000. The Company has one commercial sales agent. The
brokerage commissions are wholly dependent on this agent. Management does not
anticipate a similar increase in brokerage commissions for 2000.
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Keystone built an office building and self-storage warehouse for the year
ended December 31, 1999, for an entity related by common control. Revenues and
cost of revenues for this project were $1,801,702. The Company leases office and
warehouse space from this entity.
Gross profit percent on home sales increased to 10.4% in 1999 from 9.7% in
1998. Management does not believe the increase in gross profit percent to be
significant. Management does not anticipate a similar increase in gross profit
percent for 2000.
Gross profit percent on commercial brokerage commissions increased from
27.0% in 1998 to 29.4% in 1999. Management does not believe the increase in
gross profit percent to be significant.
Gross profit on lot sales decreased from 56.3% in 1998 to 42.4% in 1999.
Management attributes this decrease to the lower prices received on lots because
of the topography of those lots. Management expects the gross profit percent to
remain stable in 2000.
Salaries increased in 1999 as compared to 1998 by $111,053 or 28%.
Management attributes this to additional employees hired and wages paid to
existing employees to produce the increase in revenues. Management does not
anticipate a similar increase for 2000.
Depreciation expense increased by $11,552 or 67% in 1999 as compared to
1998. Management attributes this increase to the purchase of vehicles,
computers, and communication equipment. Management does not anticipate a similar
increase for 2000.
Taxes and licenses increased by $8,278 or 42%, in 1999 as compared to 1998.
Management attributes this increase to the increase of properties held for
resale. Management anticipates a similar increase for 2000.
Building occupancy increased by $25,247 or 68% in 1999 as compared to 1998.
Management attributes this increase to the occupation of new office space.
Management believes a similar increase can be expected for 2000.
Office expense increased in 1999 by $33,127 or 38% as compared to 1998.
Management attributes this increase to increased costs to support sales volume.
Management does not expect a similar increase for 2000.
Advertising and promotion increased by $13,159 or 69% in 1999 as compared
to 1998. Management believes the increase resulted in greater sales. Management
expects a similar increase in 2000.
Legal and accounting expenses decreased by $1,764 or 6% in 1999 as compared
to 1998. Management does not believe the decrease to be significant and
anticipates a similar expense for 2000.
Communications expenses increased by $860 or 5% in 1999 as compared to
1998. Management does not believe the increase to be significant and anticipates
a similar expense for 2000.
Overall operating expenses increased by $200,560 or 30% for 1999 as
compared to 1998.
Interest income increased by $5,148 or 29% in 1999 as compared to 1998.
Management does not expect interest income to be significant in 2000.
Interest expense from continuing operations increased by $42,772 or 28% in
1999 as compared to 1998. Management attributes this increase to the increase of
properties held for resale. Management anticipates a similar increase for 2000.
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LIQUIDITY AND CAPITAL RESOURCES
The Company expects to sell land, lots, and homes it presently owns and
land and lots it will acquire and homes it will build in the future to meet
liquidity needs as it has done in the past. Such sales are expected to generate
sufficient cash to meet the Company's liquidity requirements for 12 months and
beyond. At December 31, 1999, available cash and proceeds from land, lot, and
home sales were expected to be sufficient to meet the Company's requirements
until spring of 2000 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 9%
to 9.25% in December 1999. 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, 2000 and 2001, at which time all
principal and accrued interest are payable. There are no penalties for
prepayment. Management expects to renew the development loans at that time.
Residential home construction costs are financed through the use of
additional commitments using the improved lots as collateral. Lot acquisition
costs and home construction costs are financed by construction loans from a
number of conventional lending sources, generally lending 90 to 95% of the costs
of the home, secured by the lot and improvements, at rates of 9% to 9.25% as of
December 31, 1999. These loans are paid upon the sale of the home. These loans
are negotiated and closed on a project-by-project or lot-by-lot basis that
generally generates additional cash above the loan payoff to finance operations.
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
$4,941,343 as of December 31, 1999) 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 2000 total $4,909,954. The Company
historically has renewed these notes annually although there are no assurances
that the financial institution will renew such loans. 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, 1999, has improved as
compared to that of December 31, 1998. Stockholders' equity as of December 31,
1999, was $1,307,625 as compared to $857,758 at December 31, 1998.
Properties held for resale increased $2,746,703, or 87% from $3,163,229 at
December 31, 1998 to $5,909,933 at December 31, 1999. 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 $162,867 or 67%, at December 31, 1999, from December 31,
1998.
Receivables decreased from $75,548 at December 31, 1998, to $21,481 at
December 31, 1999, a decrease of $54,067 or 72%, because of collections on a
note receivable in connection with the sale of UDS.
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Other assets increased from $64,531 at December 31, 1998, to $70,082 at
December 31, 1999, an increase of $5,551 or 9%. Other assets consist of prepaid
items and the cash value of a life insurance policy.
Notes payable increased from $2,399,759 at December 31, 1998, to $4,941,343
at December 31, 1999, an increase of $2,541,584 or 106%. 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 $333,612 at
December 31, 1998, to $270,591 at December 31, 1999, a decrease of $63,021 or
19%.
The Company has net operating loss carryforwards available of approximately
$1,470,000 to offset against future federal taxable income. The maximum value of
these carryforwards computed at maximum federal and state income tax rates is
approximately $570,000. This amount is not reflected in the financial
statements.
IMPACT OF INFLATION
Although inflationary pressures were moderate in 1999 and 1998, the Company
continues to seek ways to reduce the impact of inflation. To the extent
permitted by competition, the Company passes increased costs on to customers by
increasing sales prices of residential lots and homes.
SEASONALITY
The Company typically sells more homes during the second and third quarters
of the year than during the remainder of the year.
ITEM 7. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
The following consolidated financial statements of Crowell & Co., Inc., and
subsidiary are included herein:
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and 1998
Consolidated Statements of Changes in Stockholders' Equity -
Years ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements - Years ended
December 31, 1999 and 1998
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Crowell & Co., Inc., and Subsidiary
Augusta, Georgia
We have audited the accompanying consolidated balance sheet of Crowell &
Co., Inc., and subsidiary as of December 31, 1999, 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, 1999. 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 subsidiary as of December 31, 1999, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
ELLIOTT, DAVIS & COMPANY, L.L.P.
Augusta, Georgia
April 24, 2000
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CROWELL & CO., INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1999
ASSETS
PROPERTIES HELD FOR RESALE
Homes under construction and for sale $ 3,011,176
Developed residential land 2,868,743
Land held for future development 30,014
-----------
5,909,933
CASH AND CASH EQUIVALENTS, including escrow funds of $6,134 406,921
-----------
RECEIVABLES
Notes 11,081
Accounts and other 10,400
-----------
21,481
PROPERTY AND EQUIPMENT
Property and equipment 157,880
Less accumulated depreciation (46,738)
-----------
111,142
OTHER ASSETS 70,082
-----------
$ 6,519,559
LIABILITIES AND STOCKHOLDERS' EQUITY
NOTES PAYABLE TO BANKS $ 4,941,343
-----------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable 219,575
Accrued expenses 35,459
Customer deposits 15,557
-----------
270,591
TOTAL LIABILITIES 5,211,934
-----------
COMMITMENTS AND CONTINGENCIES (SEE NOTES 4 AND 5)
STOCKHOLDERS' EQUITY
Capital stock:
Preferred, voting & 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 $231,000
($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 $233,712
($0.40 per share) 486,899
Common, without par value; 50,000,000 shares authorized;
2,520,835 shares issued & outstanding at December 31, 1999 696,774
Additional paid-in capital Preferred stock - Series A 33,648
Accumulated deficit (434,696)
-----------
TOTAL STOCKHOLDERS' EQUITY 1,307,625
-----------
$ 6,519,559
===========
The accompanying notes are an integral part of this consolidated financial
statement.
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CROWELL & CO., INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998
------------ -----------
REVENUES
Home sales $ 10,763,726 $ 6,389,071
Commercial construction 1,801,702 --
Brokerage commissions 121,411 61,906
Other income 127,096 136,353
Lot sales 154,444 192,400
Land sales -- 175,000
------------ -----------
12,968,379 6,954,730
------------ -----------
COST OF REVENUES
Homes 9,647,765 5,768,374
Commercial construction 1,801,702 --
Agent commissions 85,737 45,172
Other 16,366 31,577
Lots 88,982 84,000
Land -- 46,899
------------ -----------
11,640,552 5,976,022
------------ -----------
OPERATING EXPENSES
Salaries 511,499 400,446
Depreciation 28,726 17,174
Taxes and license 28,046 19,768
Building occupancy 62,556 37,309
Advertising and promotion 32,239 19,080
Office expense 121,143 88,016
Legal and accounting 25,452 27,215
Communications 17,702 16,842
Completed home expenses 45,751 46,704
------------ -----------
873,114 672,554
------------ -----------
OPERATING INCOME 454,713 306,154
------------ -----------
FINANCIAL INCOME (EXPENSE)
Interest income 22,707 17,559
Interest expense (193,416) (150,644)
------------ -----------
(170,709) (133,085)
------------ -----------
INCOME FROM CONTINUING OPERATIONS 284,004 173,069
------------ -----------
DISCONTINUED OPERATIONS
Deferred gain from Petersburg Racquet Club 165,863 --
------------ -----------
NET INCOME $ 449,867 $ 173,069
============ ===========
EARNINGS PER COMMON SHARE:
Weighted average number of
common shares outstanding 2,520,835 2,520,835
Basic earnings per share
Continuing operations $ .08 $ .04
Discontinued operations .07 --
------------ -----------
EARNINGS PER COMMON SHARE $ .15 $ .04
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
14
<PAGE>
CROWELL & CO., INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Capital Stock Issued Additional
-------------------- Paid-In Capital
--------------- Total
Preferred Preferred Preferred Accumulated Stockholders'
Series A Series B Common Series A Deficit Equity
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 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
----------- ----------- ----------- ----------- ----------- -----------
Net income -- -- -- -- 449,867 449,867
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1999 $ 525,000 $ 486,899 $ 696,774 $ 33,648 $ (434,696) $ 1,307,625
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
15
<PAGE>
CROWELL & CO., INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 449,867 $ 173,069
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 28,726 17,174
Loss on disposal of assets -- 7,386
Deferred gain on disposal of Petersburg Racquet Club (165,863) --
Changes in assets and liabilities:
(Increase) decrease in:
Properties held for resale (2,746,703) 252,169
Accounts and other receivables 10,952 (20,766)
Other assets (5,551) (3,781)
Increase (decrease) in:
Accounts payable (77,666) 164,323
Accrued expenses 3,072 (7,517)
Customer deposits 11,573 (4,432)
------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,491,593) 577,625
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of assets 10,800 53,672
Purchase of property and equipment (79,826) (51,878)
Collections on notes receivable 181,902 39,276
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 112,876 41,070
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans 10,622,254 4,481,906
Payments of bank loans and other debt (8,080,670) (5,049,211)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 2,541,584 (567,305)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 162,867 51,390
------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 244,054 192,664
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 406,921 $ 244,054
============ ============
SUPPLEMENTARY DISCLOSURES
- -------------------------
Interest paid (net of amount capitalized) $ 178,337 $ 156,939
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
16
<PAGE>
CROWELL & CO., INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
The principal operations of Crowell & Co., Inc., and its subsidiary (the
"Company") are development of residential lots 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 lots 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 subsidiary 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.
EARNINGS PER SHARE
Earnings 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 from
continuing operations and net income for the purposes of computing the earnings
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 earnings per common share, the convertible preferred
stock conversion is excluded from the computation of the earnings 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.
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.
17
<PAGE>
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.
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 and brokerage firms.
At times, such investments may be in excess of the FDIC insurance limits.
NEW ACCOUNTING STANDARDS
In June of 1998 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 establishes, for the
first time, comprehensive accounting and reporting standards for derivative
instruments and hedging activities. For accounting purposes SFAS 133
comprehensively defines a derivative instrument. SFAS 133 requires that all
derivative instruments be recorded in the statement of financial position at
fair value. The accounting for the gain or loss due to change in fair value of
the derivative instrument depends on whether the derivative instrument qualifies
as a hedge. If the derivative instrument does not qualify as a hedge, the gains
or losses are reported in earnings when they occur. However, if the derivative
instrument qualifies as a hedge, the accounting varies based on the type of risk
being hedged.
SFAS 133, as amended by SFAS 137, applies to all entities and is effective
as of the beginning of the first quarter of the fiscal year beginning after June
15, 2000. The Company does not expect the adoption of SFAS 133 to have a
materially adverse impact on the consolidated financial position or results of
operations of the Company.
18
<PAGE>
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 United Data Systems, formerly a division
of the Company $ 11,081
============
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company leases office space from the majority stockholder under three
leases, two with a term of twenty (20) years, and expiring in 2009 and one (1)
with a term of 15 years, expiring in 2014. The leases provide that the Company
pays all property taxes, insurance and maintenance plus an annual rental. The
total minimum rental commitment at December 31, 1999, under these leases is
$1,403,958, which is due as follows:
Year ending December 31,
------------------------
2000 117,804
2001 120,204
2002 122,604
2003 122,604
2004 125,104
Thereafter 795,638
------------
$ 1,403,958
============
The total rental expense for these leases included in the consolidated
statements of income for the years ended December 31, 1999 and 1998, was
$101,502 and $85,200, respectively. The Company received rental income of
approximately $59,055 and $90,000, respectively, for the years 1999 and 1998,
which offsets the rental expense.
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 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 2001, at interest rates from
prime plus 1.0% to 1.5% (9.0% to 9.25%). $ 4,899,867
Secured by vehicles, at an interest rate of 8%, payable
in monthly installments ending June 25, 2003. 41,476
------------
$ 4,941,343
============
Under provisions of financing arrangements outstanding at December 31,
1999, the Company has unused commitments for financing of approximately
$1,780,000. 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, 1999. The majority stockholder has personally
guaranteed all bank loans. The president of Keystone has personally guaranteed
all of Keystone's bank loans, which amount to additional guarantees of
$3,616,920.
19
<PAGE>
Maturities of debt are as follows:
Year ending December 31,
------------------------
2000 $ 4,909,954
2001 10,936
2002 11,857
2003 8,596
------------
$ 4,941,343
============
Capitalized interest (see NOTE 2) was approximately $155,000 and $107,000
for the years ended December 31, 1999 and 1998, 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, 1999 and 1998, Crowell filed consolidated
income tax returns with its subsidiary Keystone.
For the years ended December 31, 1999 and 1998, 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 1999 and 1998, the Company had net income and reduced its
valuation reserve by a similar amount. At December 31, 1999, 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. The
Company used its net operating loss carryforward to eliminate the income tax
liability on income from the years ended December 31, 1999 and 1998.
Deferred tax assets and liabilities at December 31, 1999 and 1998, consist
of the following:
Years ended December 31,
--------------------------
1999 1998
---------- ----------
Deferred tax assets
Federal and state net operating
loss carryforwards $ 570,000 $ 690,000
Less valuation allowance (570,000) (690,000)
---------- ----------
Net deferred tax asset $ -- $ --
========== ==========
Remaining net operating loss carryforwards of $1,463,012 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
-----------------------
2003 $ 322,641
2004 154,945
2005 294,482
2010 683,502
2011 7,442
-------------
$ 1,463,012
=============
20
<PAGE>
NOTE 7 - 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, 1999 and 1998 such purchases were $530,000 and $58,000. Crowell
also provides management services to Home Sites. For the years ended December
31, 1999 and 1998, management fees earned by the Company were $79,155 and
$69,645.
As described in Note 4, the Company leases office space from its majority
stockholder.
For the year ended December 31, 1999, the Company built an office
building/self-storage facility for an entity related by common control. Revenues
and cost of revenues, reflected in the financial statements amounted to
$1,801,702. The Company leases its office space from this entity.
NOTE 8 - EARNINGS PER SHARE
The computation of earnings per share is as follows:
Year ended December 31,
1999 1998
----------- -----------
NET INCOME $ 449,867 $ 173,069
PREFERRED STOCK DIVIDENDS (80,952) (80,952)
----------- -----------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 368,915 $ 92,117
=========== ===========
EARNINGS PER COMMON SHARE:
Weighted average number of
common shares outstanding 2,520,835 2,520,835
Primary earnings per share
Continuing operations $ .08 $ .04
Discontinued operations .07 --
----------- -----------
EARNINGS PER COMMON SHARE $ .15 $ .04
=========== ===========
NOTE 9 - DISCONTINUED OPERATIONS
On December 31, 1997, Crowell sold the recreation facility 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 a guarantor on the mortgage loan assumed by Mr. Jones. As a
result, the Company accounted for the PRC transaction following the treatment
set forth in the Securities and 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
had been recorded under the caption Assets of business
21
<PAGE>
transferred under contractual arrangement with a corresponding amount recorded
under Liabilities and deferred credit of business transferred. The $165,863 gain
on sale of PRC had 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. Revenues
from PRC for the year ended December 31, 1997, were $298,563.
During the year ended December 31, 1999, Mr. Jones refinanced the note
guaranteed by the Company. The Company is no longer a guarantor of any of Mr.
Jones' debt. Therefore, the $165,863 gain on the sale of PRC has been recognized
in the financial statements for the year ended December 31, 1999.
NOTE 10 - 401(K) AND PROFIT SHARING PLAN
The Company's defined contribution profit-sharing plan covers all eligible
employees of the Company. The plan provides for voluntary contributions at the
election of the employee. The Company's contribution is determined each year by
the Board of Directors. This discretionary amount contributed by the Company was
$5,000 for both years ended December 31, 1999 and 1998.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On March 10, 1999, the Company 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.
There have been no disagreements with the Company's auditors, Elliott,
Davis & Company, L.L.P., on matters of accounting principles or practices,
financial statement disclosure, or auditing scope of procedure.
22
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
Set forth below is certain information as of April 24, 1999, about each of
the directors and executive officers of Crowell.
Name Age Office
- ---- --- ------
Otis L. Crowell 65 Director, President and Chairman of the Board
O. Lamar Crowell, Jr. 34 Director and Vice President
Mark L. Gilliam 38 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, 1999, Crowell's
executive officers, directors and owners of more than 10% of its Common Stock
complied with all filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table summarizes by category, for the fiscal years ended
December 31, 1999, 1998, and 1997, 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, 1999, in an
amount in excess of $100,000:
23
<PAGE>
Name and Year Ended
Principal Position December 31, Salary
- --------------------------------------------------------------------------------
Otis L. Crowell 1999 $ 120,000
President and 1998 120,000
Chief Executive Officer 1997 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 April 24, 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 that 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
Mark L. Gilliam* 1,250 - - +
3696 El Cordero Road +
Martinez, GA 30907
24
<PAGE>
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 March 31, 2000.
(2) Based on 525,000 shares of Series A Preferred Stock outstanding on March
31, 2000. 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 March
31, 2000. 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.
25
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases office space from Otis L. Crowell, president of the
Company, under three leases, two with a term of twenty (20) years, and expiring
in 2009 and one (1) with a term of 15 years, expiring in 2014. The leases
provide that the Company pays all property taxes, insurance and maintenance plus
an annual rental. The total minimum rental commitment at December 31, 1999,
under these leases is $1,403,958, which is due as follows:
Year ending December 31,
2000 117,804
2001 120,204
2002 122,604
2003 122,604
2004 125,104
Thereafter 795,638
------------
$ 1,403,958
============
The total rental expense for these leases included in the consolidated
statements of income for the years ended December 31, 1999 and 1998, was
$101,502 and $85,200, respectively. The Company received rental income of
approximately $59,055 and $90,000, respectively, for the years 1999 and 1998,
which offsets the rental expense.
Keystone purchases developed lots for home construction from Home Sites.
Otis L. Crowell is the General Partner of Homes Sites (see Item 1. Description
of Business). For the years ended December 31, 1999 and 1998, such purchases
were $530,000 and $58,000, respectively. Crowell also provides management
services to Home Sites. For the years ended December 31, 1999 and 1998,
management fees earned by the Company were $79,155 and $69,645, respectively.
For the year ended December 31, 1999, Keystone built an office building and
self-storage warehouse for Crowell Holdings, Ltd. ("Holdings"), a limited
partnership. Otis L. Crowell, president of Crowell, Linda G. Crowell, wife of
Otis L. Crowell, and O. Lamar Crowell, Jr., director of Crowell and president of
Keystone and son of Otis L. Crowell, are limited partners of Holdings. Beverly
Crowell, Sandra Crowell, and John Crowell, children of Otis L. Crowell, are
limited partners of Holdings. Crowell Partners, Inc., a corporation of which
Otis L. Crowell is the sole shareholder, is the general partner of Holdings.
Revenues and cost of revenues for this project were $1,801,702. The Company
leases office and warehouse space from Holdings.
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.)
26
<PAGE>
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)
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, 1998, between the
Company and Craig S. Jones (filed herewith)
10.12 Lease agreement dated December 21, 1998, between the Company and
Otis L. Crowell
27
<PAGE>
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, 1999.
28
<PAGE>
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 24, 2000 /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 24, 2000 /s/ Otis L. Crowell
--------------------
Otis L. Crowell, President
and Chairman of the Board
DATE: April 24, 2000 /s/ Mark L. Gilliam
--------------------
Mark L. Gilliam, Director, Vice
President, Secretary and Chief
Financial Officer
DATE: April 24, 2000 /s/ O. Lamar Crowell, Jr.
--------------------------
O. Lamar Crowell, Jr., Director
<PAGE>
INDEX OF EXHIBITS
10.12 Lease agreement dated December 21, 1998, between the Company and Otis
L. Crowell
11 Computation of earnings per share
21 Subsidiaries
27 Financial Data Schedule
EXHIBIT 10.12
LEASE AGREEMENT BETWEEN THE COMPANY AND OTIS L. CROWELL
REAL ESTATE LEASE
STATE OF GEORGIA )
) LEASE
COUNTY OF RICHMOND )
1. PARTIES
-------
This lease is made this 21st day of December, 1998, by and between Otis L.
Crowell, his successors and assigns, hereinafter called LESSOR, and Crowell &
Co., Inc., a Georgia Corporation, hereinafter called LESSEE.
2. TERM OF LEASE
-------------
The term of the lease shall be for fifteen years.
3. COMMENCEMENT
------------
The lease shall commence on the day that Augusta-Richmond County issues a
certificate of occupancy and the LESSEE and the LESSOR agree that the building
is complete and ready for occupancy or the date the LESSEE takes possession of
the demised premises, whichever comes first.
Regardless, commencement will not begin until the premises are in
compliance with all laws, regulations, or ordinances which may be required for
use of the premises by the occupant.
When the commencement day is determined, the LESSOR and LESSEE agree to
execute an amendment to this lease setting forth the commencement date.
4. PREMISES
--------
This lease covers a building to be erected on Stevens Creek Road in
Richmond County, Georgia, the layout has been agreed to and attached marked
Exhibit 'A'. The building shall be known as Suite A of Riverwatch Commons and
contains 2964 square feet.
5. RENT
----
The first month's rent and each month's rent throughout the term of the
lease shall be $2,717.00. Should the lease term begin on any day other than the
first of the month, the rent shall be prorated where each subsequent payment of
rent shall be due on the first of the month throughout the term of this lease.
The rental payment shall be payable to Otis L. Crowell, located at 610
Industrial Park Boulevard, Evans, GA 30809.
Should the LESSEE fail to pay any installment upon the day the same is due,
the LESSOR has the option of declaring the entire balance of the full lease term
due and payable, without notice to the LESSEE, and time is of the essence of
this agreement.
6. TAXES, INSURANCE, AND MAINTENANCE
---------------------------------
This is to be a triple net lease. All taxes, insurance, maintenance and
improvements to the property are to be paid by the LESSEE at its sole expense.
The LESSEE is to maintain the proper insurance on the improvements to cover the
replacement value. The LESSEE is also to maintain the proper liability insurance
at a level that is mutually agreeable to the LESSOR. This liability policy is to
protect the LESSOR as well as the LESSEE.
7. LIABILITY FOR DAMAGES
---------------------
The LESSEE is to hold the LESSOR harmless from any and all claims that may
arise as a result of the execution of this lease with the LESSOR, or occupancy
of space by the LESSEE, or the LESSEE's assigns.
IN WITNESS WHEREOF, the parties hereto have cause these presents to be executed
this lease the day and year first above written.
WITNESSES:
By:
- --------------------------------------- -----------------------------------
(LESSEE) Crowell & Co., Inc.
- --------------------------------------- --------------------------------------
(LESSOR) Otis L. Crowell
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
CROWELL & CO., INC.
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998
----------- -----------
<S> <C> <C>
NET INCOME $ 449,867 $ 173,069
PREFERRED STOCK DIVIDENDS (80,952) (80,952)
----------- -----------
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS $ 368,915 $ 92,117
=========== ===========
EARNINGS PER COMMON SHARE:
Weighted average number of common shares outstanding 2,520,835 2,520,835
Primary earnings per share
Continuing operations $ .08 $ .04
Discontinued operations .07 --
----------- -----------
EARNINGS PER COMMON SHARE $ .15 $ .04
=========== ===========
</TABLE>
EXHIBIT 21
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 406,921
<SECURITIES> 0
<RECEIVABLES> 21,481
<ALLOWANCES> 0
<INVENTORY> 5,909,933
<CURRENT-ASSETS> 0
<PP&E> 111,142
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,519,559
<CURRENT-LIABILITIES> 0
<BONDS> 4,941,343
696,774
0
<COMMON> 1,011,899
<OTHER-SE> (400,988)
<TOTAL-LIABILITY-AND-EQUITY> 6,519,559
<SALES> 10,763,726
<TOTAL-REVENUES> 12,968,379
<CGS> 9,647,765
<TOTAL-COSTS> 11,640,552
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,416
<INCOME-PRETAX> 284,004
<INCOME-TAX> 0
<INCOME-CONTINUING> 284,004
<DISCONTINUED> 165,863
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 449,867
<EPS-BASIC> 0.15
<EPS-DILUTED> 0.15
</TABLE>
