Page 1

                               CROWELL & CO., INC.

                               1997 Annual Report


<PAGE>
                                                                          Page 2

                                 COMPANY PROFILE

     The  principal   businesses  of  the  Company  and  its   subsidiaries  are
home-building,  the development of residential  properties,  and commercial real
estate brokerage.  Generally the Company acquires new properties for development
in the  Augusta,  Georgia  area based on  management's  assessment  of levels of
current and  expected  consumer  demand.  The analysis  and  acquisition  of new
properties by personnel of the Company are conducted on a continuous basis.

     Keystone  Homes,  Inc.  ("Keystone"),  a  wholly  owned  subsidiary  of the
Company,   builds   single-family  and  multi-family  homes  on  a  presold  and
speculative  basis.  Keystone  is the  primary  builder in all of the  Company's
developments. Generally, Keystone does not build outside Crowell developments.

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                                                                          Page 3

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

                              OR PLAN OF OPERATION

OVERVIEW

     The  primary   objective  of  the  Company's   management  is  to  maximize
shareholder  wealth.  The  Company  attempts to  accomplish  this  objective  by
increasing  total revenues and controlling  expenses.  Management  believes that
existing  corporate  structure  is  adequate  to  support  increased  sales.  In
addition,  management  believes  revenues  can  be  increased  most  rapidly  by
increasing home-building efforts.

     The statements in this report regarding future sales,  expenses,  and other
items  relating  to  the  future  of  the  Company  constitute  Forward  Looking
Statements under the Private  Securities  Litigation  Reform Act of 1995. Actual
results may differ  materially from the Company's  expectations as a result of a
number of factors,  including the national and local economy, market conditions,
competition,  real estate demand, availability of financing, interest rates, and
weather conditions.

     On February 13, 1998,  the Company filed a Preliminary  Proxy  Statement on
Schedule  14A with the  Securities  and Exchange  Commission  for the purpose of
eliminating the periodic reporting  requirements  under the Securities  Exchange
Act of 1934 by a reverse common stock split.  The reverse common stock split, if
consummated,   will  eliminate  all  common  shareholders  except  the  majority
stockholder.

RESULTS OF OPERATION

     Management  continually  monitors  inventory levels in relation to customer
demand in order to build the needed  number of homes.  Management  believes that
housing inventory needs are dynamic and that a specific  inventory level must be
matched with anticipated consumer demand. Therefore, there is no specific amount
of inventory which will always be the optimum.

     Home sales  decreased by  $1,093,103  or 17.5%,  and  commercial  brokerage
commissions  decreased by $23,477 or 11.4% for the year ended December 31, 1997,
as compared to the year ended  December  31,  1996.  The  decrease in home sales
primarily  resulted from selling fewer homes in 1997 than in 1996.  The decrease
in commercial brokerage commissions resulted from the decrease in dollar amounts
of property brokered in 1997.

     Gross profit  percent on home sales  decreased to 5.4% in 1997 from 8.5% in
1996. The decrease in gross profit  percentage on home sales resulted  primarily
from building homes on rougher lots in 1997 as compared to 1996.

     Gross profit  percent on commercial  brokerage  commissions  increased from
31.0% in 1996 to 34.4% in 1997.

     Gross profit on lot sales increased from 49.2% in 1996 to 52.1% in 1997.

     Salaries  decreased  in 1997 as  compared  to 1996 by  $110,837  or  21.0%,
because of employee  attrition.  Management believes salary expense will be less
in 1998 than in 1997 because of the loss of several  employees  during 1997. The
Company does not plan to replace employees lost through attrition.

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                                                                          Page 4

     Depreciation  expense decreased by $814 or 4.3% in 1997 as compared to 1996
because several assets have been fully depreciated.

     Taxes and  licenses  decreased  by $1,815 or 6.1%,  in 1997 as  compared to
1996.

     Building  occupancy  increased  by $11,161 or 19.3% in 1997 as  compared to
1996 because of an increase in maintenance costs.

     Office expense decreased in 1997 by $3,170 or 3.5% as compared to 1996. The
decrease in office expenses in 1997 as compared to 1996 resulted  primarily from
the  decrease in the number of  employees  and the decrease in number of Company
operations.

     Advertising and promotion increased by $2,049 or 12.7%, in 1997 as compared
to 1996.

     Legal and  accounting  expenses  increased  by  $1,681 or 6.5%,  in 1997 as
compared to 1996.

     Communications expenses increased by $1,276 or 7.6%, in 1997 as compared to
1996.

     Overall  operating  expenses  decreased  by  $87,473  or 11.1%  for 1997 as
compared to 1996.  The overall  decreases  in 1997 as compared to 1996  resulted
primarily from decreases in salaries.

     Interest income  increased by $7,264 in 1997 as compared to 1996 because of
collections on a note receivable.

     Interest expense from continuing operations decreased by $69,616 in 1997 as
compared to 1996 because of the decrease in housing inventory carried throughout
the year.

LIQUIDITY AND CAPITAL RESOURCES

     The Company  expects to sell land it presently owns to meet liquidity needs
as it has done in the past.  Together  with revenues  from other  sources,  such
sales  would be  expected  to  generate  sufficient  cash to meet the  Company's
liquidity  requirements.  At December 31, 1997, available cash and proceeds from
land,  lot, and home sales were  expected to be sufficient to meet the Company's
requirements  until spring of 1998 when home sales typically improve and provide
cash for operations.

     The  Company  has  obtained   financing   historically  by  borrowing  from
conventional lending sources using land acquired for development as security for
loans.

     Current  and future  liquidity  needs are  expected to be met by use of the
proceeds  from lot and land  sales and the  proceeds  from  loans,  using  lands
purchased  for  development  as  collateral.   Existing  development  loans  and
commitments  available  to the  Company  have  been  made by  various  financial
institutions and are secured by the improved lots held for resale.  (See Item 2.
Description of Properties.) The interest rates on the development  loans are the
prime rates of the lenders (8.0% in December 1997) plus 1.0 to 1.5%. Payments of
interest are due monthly or quarterly  and a portion of the  principal is repaid
as each lot is sold. The existing loans  terminate in the years ending  December
31, 1998 and 1999, at which time all principal and accrued interest are payable.
There  are  no  penalties  for  prepayment.  Management  expects  to  renew  the
development loans at that time.

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                                                                          Page 5

     Residential  home  construction  costs  are  financed  through  the  use of
additional  commitments  using the improved lots as collateral.  Lot acquisition
costs and home  construction  costs are  financed by  construction  loans from a
number of conventional lending sources, generally lending 90 to 95% of the costs
of the home, secured by the lot and improvements,  at rates of 9.25% to 9.75% as
of December  31,  1997.  These  loans are paid upon the sale of the home.  These
loans are negotiated and closed on a project-by-project and lot-by-lot basis.

     Financing  arrangements for long-term needs have not been made because such
arrangements  in  the  land  development   business  are  generally  made  on  a
project-by-project  basis. Debt service on existing loans (loan balances totaled
$2,967,064 as of December 31, 1997) and funds for  operations are expected to be
met from the  proceeds  of lot sales,  land  sales,  home sales and real  estate
brokerage  commissions.  Notes  maturing in 1998 total  $2,227,564.  The Company
historically  has renewed these notes annually  although there are no assurances
that such loans will be renewed  by the  financial  institution.  The notes will
eventually  be repaid from proceeds of land,  lot, and home sales.  (See Item 7.
Financial Statements for additional details regarding notes payable.)

     The Company's financial condition at December 31, 1997, has deteriorated as
compared to that of December 31, 1996.  Stockholders'  equity as of December 31,
1997, was $684,689 as compared to $741,869 at December 31, 1997.

     Properties  held for resale  decreased from $3,493,117 at December 31, 1996
to  $3,415,398  at December  31,  1997,  a decrease of $77,719,  or 2.2%,  which
reflects the decrease in inventory to adjust to decreased sales. Properties held
for resale will  increase and decrease as management  determines  and builds the
level of inventory needed to satisfy customer demand.

     Cash increased by $130,170 or 208%, at December 31, 1997, from December 31,
1996 because of $100,000  collected  on December  31, 1997,  from payment on the
sale of Petersburg Racquet Club.

     Receivables  decreased  from  $161,907 at December 31, 1996,  to $94,108 at
December 31, 1997, a decrease of $67,799 or 41.9%,  because of  collections on a
note receivable in connection with the sale of UDS.

     Other assets  increased  from  $43,332 at December 31, 1996,  to $60,750 at
December 31, 1997, an increase of $17,418 or 40.2%.

     Notes payable decreased from $3,566,459 at December 31, 1996, to $2,967,064
at December 31,  1997,  a decrease of $599,395 or 16.8%,  because of the sale of
Petersburg  Racquet  Club.  Notes  payable will  increase and decrease in direct
proportion to the level of housing inventory maintained by the Company.

     Accounts payable and accrued liabilities increased from $71,544 at December
31, 1996, to $181,238 at December 31, 1997, an increase of $109,694 or 153.3%.

     The Company has net operating loss carryforwards available of approximately
$1,945,000 to offset against future federal taxable income. The maximum value of
these  carryforwards  computed at maximum  federal and state income tax rates is
approximately   $760,000.   This  amount  is  not  reflected  in  the  financial
statements.

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                                                                          Page 6

                      CROWELL & CO., INC., AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

<TABLE>
<CAPTION>
                                                                December 31,
                                                         --------------------------
                                                             1997           1996
                                                         -----------    -----------
PROPERTIES HELD FOR RESALE
<S>                                                      <C>            <C>        
   Homes under construction and for sale                 $ 2,173,005    $ 2,276,944
   Developed residential land                              1,176,494      1,016,939
   Land held for future development                           65,899        199,234
                                                         -----------    -----------
                                                           3,415,398      3,493,117
                                                         -----------    -----------
CASH AND CASH EQUIVALENTS, including escrow funds
   of $2,634 and $6,434 in 1997 and 1996, respectively       192,664         62,494
                                                         -----------    -----------

RECEIVABLES
   Notes                                                      93,522        126,316
   Accounts and other                                            586         35,591
                                                         -----------    -----------
                                                              94,108        161,907
                                                         -----------    -----------
PROPERTY AND EQUIPMENT
   Rental homes                                               90,000         90,000
   Petersburg Racquet Club                                         0      1,059,993
   Furniture, fixtures and equipment                          97,763        146,903
                                                         -----------    -----------
                                                             187,763      1,296,896
   Less accumulated depreciation                             (87,692)      (677,874)
                                                         -----------    -----------
                                                             100,071        619,022
                                                         -----------    -----------

OTHER ASSETS                                                  60,750         43,332
                                                         -----------    -----------

ASSETS OF BUSINESS TRANSFERRED UNDER
   CONTRACTUAL ARRANGEMENT                                   606,000             --
                                                         -----------    -----------
                                                         $ 4,468,991    $ 4,379,872
                                                         ===========    ===========
</TABLE>

See notes to consolidated financial statements.

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                                                                          Page 7

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                             December 31,
                                                                      --------------------------
                                                                          1997           1996
                                                                      -----------    -----------
<S>                                                                   <C>            <C>        
NOTES PAYABLE TO BANKS                                                $ 2,967,064    $ 3,566,459
                                                                      -----------    -----------
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable                                                          132,918         21,155
Accrued expenses                                                           39,904         42,905
Customer deposits                                                           8,416          7,484
                                                                      -----------    -----------
                                                                          181,238         71,544
                                                                      -----------    -----------
OTHER LIABILITIES
Liabilities and deferred credit of business transferred under
   contractual arrangement                                                606,000             --
Deferred gain on disposal of Petersburg Racquet Club                       30,000             --
                                                                      -----------    -----------

   TOTAL LIABILITIES                                                  $ 3,784,302    $ 3,638,003
                                                                      -----------    -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY
   Capital stock:

      Preferred, voting and non-participating, without par value;
         10,000,000 shares authorized, 1,011,899 designated to
         Series A and Series B
      Series A preferred, 8% cumulative, stated value $1 per share;
         callable at $1 per share plus accumulated dividends,
         convertible into common stock at the rate of 1 share for 4
         preferred shares; authorized 2,000,000 shares; issued and
         outstanding 525,000 shares; accumulated dividends $147,000
         ($0.28 per share)                                                525,000        525,000
      Series B preferred, 8% cumulative, stated value $1 per share;
         callable at $1 per share plus accumulated dividends,
         convertible into common stock at the rate of 1 share for 4
         preferred shares; authorized 486,899 shares; issued and
         outstanding 486,899 shares; accumulated dividends $155,808
         ($0.32 per share)                                                486,899        486,899
      Common, without par value; 50,000,000 shares authorized;
         2,520,835 shares issued and outstanding at December 31,
         1997 and 1996                                                    696,774        696,774
   Additional paid-in capital  Preferred stock - Series A                  33,648         33,648
   Accumulated deficit                                                 (1,057,632)    (1,000,452)
                                                                      -----------    -----------

       TOTAL STOCKHOLDERS' EQUITY                                         684,689        741,869
                                                                      -----------    -----------

                                                                      $ 4,468,991    $ 4,379,872
                                                                      ===========    ===========
</TABLE>

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                                                                          Page 8

                      CROWELL & CO., INC., AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                            Year ended December 31,
                                                          --------------------------
                                                              1997           1996
                                                          -----------    -----------
REVENUES
<S>                                                       <C>            <C>        
   Home sales                                             $ 5,160,165    $ 6,253,268
   Brokerage commissions                                      182,778        206,255
   Other income                                               138,420         89,798
   Lot sales                                                  388,300        254,900
   Land sales                                                 341,000             00
                                                          -----------    -----------
                                                            6,210,663      6,804,221
                                                          -----------    -----------
COST OF REVENUES
   Homes                                                    4,881,475      5,721,184
   Agent commissions                                          119,921        142,395
   Other                                                       30,117             00
   Lots                                                       185,923        129,408
   Land                                                       133,335             00
                                                          -----------    -----------
                                                            5,350,771      5,992,987
                                                          -----------    -----------
OPERATING EXPENSES
   Salaries                                                   417,260        528,097
   Depreciation                                                17,958         18,772
   Taxes and license                                           28,103         29,918
   Building occupancy                                          68,987         57,826
   Advertising and promotion                                   18,155         16,106
   Office expense                                              88,168         91,338
   Legal and accounting                                        27,673         25,992
   Communications                                              18,001         16,725
   Completed home expenses                                     12,996             00
                                                          -----------    -----------
                                                              697,301        784,774
                                                          -----------    -----------

     OPERATING INCOME                                         162,591         26,460
                                                          -----------    -----------

FINANCIAL INCOME (EXPENSE)
   Interest income                                              8,205            941
   Interest expense                                          (147,276)      (216,892)
                                                          -----------    -----------
                                                             (139,071)      (215,951)
                                                          -----------    -----------

   INCOME (LOSS) FROM CONTINUING OPERATIONS                    23,520       (189,491)
                                                          -----------    -----------

DISCONTINUED OPERATIONS
   Income from residential brokerage division                      00         69,686
   Income from computer division                                   00          3,306
   Gain on disposal of computer division                           00        159,927
   Loss from Petersburg Racquet Club                          (80,700)       (56,581)
                                                          -----------    -----------
                                                              (80,700)       176,338
                                                          -----------    -----------

   NET LOSS                                               $   (57,180)   $   (13,153)
                                                          ===========    ===========


(CONTINUED ON NEXT PAGE) EARNINGS PER COMMON SHARE:

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                                                                          Page 9
EARNINGS PER COMMON SHARE
   Weighted average number of common shares outstanding     2,520,835      2,520,835
   Basic earnings per share
     Loss from continuing operations                      $      (.02)      $ ( .11)
     Income (loss) from discontinued operations                  (.03)           .07
                                                          -----------    -----------

   NET LOSS PER COMMON SHARE                              $      (.05)   $      (.04)
                                                          ===========    ===========
</TABLE>

See notes to consolidated financial statements.

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                                                                         Page 10
                      CROWELL & CO., INC., AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                       Capital Stock Issued                 Additional Paid-In Capital
                             ---------------------------------------    ----------------------------------------
                                                                                                        Total
                              Preferred     Preferred                   Preferred     Accumulated   Stockholders'
                              Series A      Series B       Common        Series A       Deficit         Equity
----------------------------------------------------------------------------------------------------------------

<S>                          <C>           <C>           <C>            <C>           <C>            <C>        
BALANCE, DECEMBER 31, 1995   $   525,000   $   486,899   $   696,776    $    33,648   $  (987,299)   $   755,024

Purchase of Stock                     --            --            (2)            --            --             (2)
Net loss                              --            --            --             --       (13,153)       (13,153)
                             -----------   -----------   -----------    -----------   -----------    -----------

BALANCE, DECEMBER 31, 1996   $   525,000   $   486,899   $   696,774    $    33,648   $(1,000,452)   $   741,869

Net loss                              --            --            --             --       (57,180)       (57,180)
                             -----------   -----------   -----------    -----------   -----------    -----------

BALANCE, DECEMBER 31, 1997   $   525,000   $   486,899   $   696,774    $    33,648   $(1,057,632)   $   684,689
                             ===========   ===========   ===========    ===========   ===========    ===========
</TABLE>

See notes to consolidated financial statements.

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                                                                         Page 11

                      CROWELL & CO., INC., AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 Years ended December 31,
                                                                --------------------------
                                                                    1997           1996
                                                                -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                             <C>            <C>         
   Net loss                                                     $   (57,180)   $   (13,153)
   Adjustments to reconcile net loss to net cash
   provided by operating activities:
      Depreciation and amortization                                  76,766         54,388
      Gain on disposal of assets                                    (15,139)      (159,927)
      Changes in assets and liabilities:
         (Increase) decrease in:
         Properties held for resale                                  77,719        436,080
         Accounts and other receivables                              35,005         60,719
         Home sale notes receivable                                   6,316         24,450
         Other assets                                               (17,418)        10,184
      Increase (decrease) in:
         Accounts payable                                           111,763        (56,928)
         Accrued expenses                                            (3,001)       (46,969)
         Customer deposits                                              932        (22,886)
         Deferred gain on disposal of Petersburg Racquet Club        30,000             --
                                                                -----------    -----------
           NET CASH PROVIDED BY OPERATING ACTIVITIES                245,763        285,958
                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
   Proceeds from sale of assets                                     100,000         80,000
   Purchase of property and equipment                              (156,944)      (329,579)
   Collections on notes receivable                                   26,478              0
                                                                -----------    -----------
             NET CASH USED IN INVESTING ACTIVITIES                  (30,466)      (249,579)
                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from bank loans                                       4,190,611      4,679,657
   Payments of bank loans and other debt                         (4,275,738)    (4,922,106)
                                                                -----------    -----------
       NET CASH USED IN FINANCING ACTIVITIES                        (85,127)      (242,449)
                                                                -----------    -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                130,170       (206,070)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                       62,494        268,564
                                                                -----------    -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                        $   192,664    $    62,494
                                                                ===========    ===========

SUPPLEMENTARY DISCLOSURES
   Interest paid (net of amount capitalized)                    $   146,932    $   262,853
   Note receivable from disposal of assets                               --        120,000
</TABLE>

See notes to consolidated financial statements.


<PAGE>
                                                                         Page 12

                      CROWELL & CO., INC., AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           DECEMBER 31, 1997 AND 1996

NOTE 1 - DESCRIPTION OF BUSINESS

     The principal  operations of Crowell & Co., Inc., and its subsidiaries (the
"Company") are development of residential properties for resale,  home-building,
and providing  commercial real estate brokerage services.  The Company acts as a
general contractor on all development and home-building.

     Crowell & Co., Inc.  ("Crowell"),  the parent company,  primarily  develops
residential properties in the Augusta,  Georgia,  metropolitan statistical area.
Crowell also provides commercial real estate brokerage services.

     Keystone Homes,  Inc.  ("Keystone"),  a wholly owned subsidiary of Crowell,
builds  single-family and multi-family  homes on a presold and speculative basis
in the Augusta, Georgia, metropolitan statistical area.

     The Company incurred a loss from continuing operations of $189,491 in 1996.
The Company sold two of its divisions  during 1997 and 1996,  and management has
initiated other internal changes which management  believes will help return the
Company to profitability. However, the real estate market in the Augusta area is
subject to fluctuations  beyond the Company's  control.  As discussed in Note 5,
the  Company  also  has  additional   borrowing  capacity  under  its  financing
arrangements.

     All operations of Crowell and its subsidiaries are domestic.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
and its wholly  owned  subsidiaries.  All  material  intercompany  accounts  and
transactions are eliminated in consolidation.

ACCOUNTING ESTIMATES

     The  preparation of the financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

LOSS PER SHARE

     The loss per common  share is computed  using the  weighted  average of the
number of shares  outstanding during the years ended December 31, 1997 and 1996.
Because  inclusion of convertible  preferred  stock would have an  anti-dilutive
effect on the loss per common share, the convertible preferred stock is excluded
from the  computation of the loss per common share  assuming full dilution.  The
preferred

<PAGE>
                                                                         Page 13

dividend accrued of $80,952 is subtracted from the income or loss for continuing
operations  and net loss for the purposes of computing the loss per common share
regardless  of whether  the  preferred  dividend  is paid.  At the option of the
holder,  the preferred  stock is convertible  into common stock at one share for
every four shares owed for a total potential of 252,975 shares.

CASH AND CASH EQUIVALENTS

     For  the  purpose  of the  Statements  of Cash  Flows,  all  highly  liquid
instruments  with an original  maturity of three  months or less are  considered
cash equivalents.

RECEIVABLES

         The Company uses the allowance method for recording bad debt.

PROPERTY AND EQUIPMENT

     Property  and  equipment  are stated at cost.  Maintenance  and repairs are
charged to expense. Improvements that significantly increase the lives of assets
are capitalized and depreciated or amortized over their estimated  useful lives.
Gains or losses on disposals are credited or charged to operations.

DEPRECIATION

     Depreciation of property and equipment is computed on the straight-line and
declining-balance methods for both financial reporting and income tax purposes.

PROPERTIES HELD FOR RESALE

     Properties  held for resale are stated at the lower of cost or market using
the specific  identification  method.  Certain property  purchases and sales are
treated as cash transactions for the statements of cash flows.

CUSTOMER DEPOSITS

     A portion of the  Company's  cash is reserved for the repayment of security
deposits,  excess cash owed to property owners on property  management  accounts
and earnest money received on pending real estate sales contracts.

CAPITALIZED INTEREST

     The  Company  capitalizes  the  portion  of  interest  incurred  during the
construction  period for funds  borrowed  to develop  properties  and  construct
residential homes. Such interest is charged to properties and expensed as a cost
of sale as properties are sold.

REVENUE RECOGNITION

     The Company  recognizes  revenues on sales of residential  lots,  land, and
homes at the time of closing and receipt of cash.

     The  Company  uses the  completed  contract  method on  Company-constructed
homes.  This method is used  because the typical home is completed in six months
or less  and the  financial  position  and  results  of  operations  do not vary
significantly  from those which would result from the use of the  percentage  of
completion method. A contract is considered  complete at the time of closing and
receipt of cash.

<PAGE>
                                                                         Page 14

     Contract  costs  include all direct  materials  and labor costs,  allocated
common cost of land and development and those indirect costs related to contract
performance,  including interest on borrowings. General and administrative costs
are charged to expense as incurred.

     The  Company  recognizes   commissions  earned  on  real  estate  brokerage
transactions at the time of closing.

RECLASSIFICATIONS

     Certain 1996 amounts have been  reclassified  to conform with the financial
statement  presentation used in 1997. These  reclassifications  had no effect on
net income.

CONCENTRATION OF RISK

     The Company operates in the Augusta,  Georgia, MSA. Therefore,  the Company
can be  adversely  affected  by  local  economic  conditions.  The  Company  had
approximately  $21,000 in excess of federally  insured amounts on deposit in one
bank.

NOTE 3 - NOTES RECEIVABLE

                                                               December 31,
                                                         ----------------------
                                                            1997         1996
                                                         ---------    ---------
Note receivable from an individual due in
  quarterly installments with interest at 8.8%,
  secured by all assets of UDS.  (See Note 9)            $  93,522    $ 120,000
Various second mortgage notes receivable on
  homes sold by Ivey at interest rates of 9.0%
  to 11.0%, due at various dates through 1997                   --        6,315
Note receivable from an individual due on
  December 31, 2002, interest receivable monthly,
  beginning January 31, 1999, at 8.3%, secured by PRC      136,000            0
                                                         ---------    ---------
Less allowance for doubtful accounts                      (136,000)           0
                                                         ---------    ---------
                                                         $  93,522    $ 126,315
                                                         =========    =========

     In the  opinion  of  management,  the  fair  value of the  above  financial
instruments does not materially differ from the face value.

NOTE 4 - COMMITMENTS AND CONTINGENCIES

     The Company leased its office space from the majority stockholder.  On June
1, 1989, the Company entered into three (3) operating lease agreements each with
a term of twenty  (20)  years.  The  leases  provide  that the  Company  pay all
property taxes,  insurance and maintenance plus an annual rental. The Company is
no longer  obligated  on one lease  because the  majority  stockholder  sold the
building  covered  under the  lease.  The total  minimum  rental  commitment  at
December 31, 1997, under these leases is $1,098,000, which is due as follows:

       Year ending December 31,
       ------------------------
                 1998                                  $     81,600
<PAGE>
                                                                         Page 15

                 1999                                        85,200
                 2000                                        85,200
                 2001                                        87,600
                 2002                                        90,000
              Thereafter                                    668,400
                                                         ----------
                                                         $1,098,000
                                                         ==========

     The total  rental  expense for these  leases  included in the  consolidated
statements  of income  for the  years  ended  December  31,  1997 and 1996,  was
$127,200 and  $122,400,  respectively.  The Company  received  rental  income of
approximately  $80,000  for two of the  operating  leases for both 1997 and 1996
which offset the rental expense.

     The Company sold Petersburg  Racquet Club ("PRC") on December 31, 1997. The
buyer of PRC assumed a note  payable to the bank in the amount of  approximately
$576,000.  The  Company  remains  as a  secondary  debtor on the  assumed  note.
Therefore,  the Company  has a  contingent  liability  in the amount of the note
payable  balance in the event that the buyer of PRC fails to make payment  under
the note payable agreement.

NOTE 5 - NOTES PAYABLE

<TABLE>
<CAPTION>
                                                                      December 31,
                                                                ------------------------
                                                                   1997          1996
                                                                ----------    ----------
<S>                                                             <C>           <C>
To banks
   Secured by residential properties held for resale,
      maturing at various dates through 1998, at interest
      rates from prime plus 1.0% to 1.5% (8.5% to 10.0% at
      December 31, 1997 and 1996)                               $2,906,630    $2,955,170

   Secured by Petersburg Racquet Club property, maturing
      2009, at an interest rate of 7.5% at December 31, 1996
      (see Note 4)                                                      --       541,461

   Secured by single-family homes held for resale and
      rental, maturing at various dates through 1998, at
      interest rates of 9.0% to 11.0%                               60,434        69,828
                                                                ----------    ----------
                                                                $2,967,064    $3,566,459
                                                                ==========    ==========
</TABLE>

     In the  opinion  of  management,  the  fair  value of the  above  financial
instruments does not materially differ from the face value.

     Under  provisions  of financing  arrangements  outstanding  at December 31,
1997,  the  Company  has  unused  commitments  for  financing  of  approximately
$1,170,000.  These additional amounts are available upon request and approval of
development  progress and are subject to the same terms and obligations as those
existing  on  December  31,  1997.  The  majority   stockholder  has  personally
guaranteed all bank loans.  The president of Keystone has personally  guaranteed
all  of  Keystone's  bank  loans  which  amounts  to  additional  guarantees  of
$2,077,264.

     Maturities of debt are as follows:

       Year ending December 31,
       ------------------------
                 1998                                   $ 2,227,564

<PAGE>
                                                                         Page 16

                 1999                                       739,500
                                                        -----------
                                                        $ 2,967,064
                                                        ===========

     Capitalized interest (see NOTE 2) was approximately $76,000 and $78,000 for
the years ended  December 31, 1997 and 1996,  respectively.  All other  interest
incurred was recognized as financial  expense in the consolidated  statements of
income.

NOTE 6 - INCOME TAX MATTERS

     For the years ended December 31, 1997 and 1996,  Crowell filed consolidated
income tax returns with its subsidiary Keystone.

     For the years ended December 31, 1997 and 1996, no income tax provision was
made  because of the net losses  the  Company  incurred.  The  Company  reported
$136,000 in income on its income tax return that was not  recorded in income for
financial  reporting  purposes.  This  income  relates  to the  note  receivable
received by the Company on the sale of PRC. (See NOTE 3 and NOTE 9.) The Company
used its net operating loss  carryforward  to eliminate the income tax liability
on this income.

     Deferred tax assets and liabilities at December 31, 1997 and 1996,  consist
of the following:

                                                        Years ended December 31,
                                                        -----------------------
                                                           1997          1996
                                                        ---------     ---------
Deferred tax assets

   Federal and state net operating loss carryforwards   $ 760,000     $ 800,000
   Less valuation allowance                              (760,000)     (800,000)
                                                        ---------     ---------
Net deferred tax asset                                  $      --     $      --
                                                        =========     =========

     Remaining net operating loss  carryforwards of $1,945,020 expire in varying
amounts  between  December 31, 2002,  and December 31, 2011,  and are subject to
Internal  Revenue  Code  Section 382  limitations  relating  to a  corporation's
ability  to use net  operating  loss  carryforwards  subsequent  to a change  in
ownership. An expiration schedule is as follows:

       Year ending December 31
       -----------------------
                 2002                                  $    207,118
                 2003                                       597,531
                 2004                                       154,945
                 2005                                       294,482
                 2010                                       683,502
                 2011                                         7,442
                                                       ------------
                                                       $  1,945,020
                                                       ============

NOTE 7 - INDUSTRY SEGMENT DATA

     The Company  conducts its  operations in the  principal  industries of real
estate development and home-building.

<PAGE>
                                                                         Page 17

     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,
                                                    --------------------------
                                                       1997            1996
                                                    ----------      ----------
Net sales
   Real estate development                          $6,019,082      $6,597,966
   Real estate brokerage                               191,581         206,255
                                                    ----------      ----------
      Net sales                                     $6,210,663      $6,804,221
                                                    ==========      ==========
Operating income
   Real estate development                          $  122,767      $   (9,843)
   Real estate brokerage                                39,824          36,303
                                                    ----------      ----------
      Operating income                              $  162,591      $   26,460
                                                    ==========      ==========
Capital expenditures
   Real estate development                          $  156,944      $  324,215
   Real estate brokerage                                    --              --
                                                    ----------      ----------
      Net capital expenditures                      $  156,944      $  324,215
                                                    ==========      ==========
Depreciation and amortization
   Real estate development                          $   17,958      $   18,772
   Real estate brokerage                                    --              --
                                                    ----------      ----------
      Net depreciation and amortization             $   17,958      $   18,772
                                                    ==========      ==========
Assets employed
   Real estate development                          $4,468,991      $4,379,872
   Real estate brokerage                                    --              --
                                                    ----------      ----------
                                                    $4,468,991      $4,379,872
                                                    ==========      ==========

NOTE 8 - RELATED PARTY TRANSACTIONS

     Keystone  purchases  developed lots for home  construction from Home Sites,
Ltd.  ("Home Sites"),  an entity related by common  control.  For the year ended
December 31, 1996 such purchases were $79,500.  Crowell also provides management
services to Home Sites.  For the year ended  December 31, 1996  management  fees
earned by the Company were $5,430.

     The Company received $120,275 in real estate commissions from property sold
to Home Sites by an unrelated  party for the year ended  December 31, 1997.  For
the year ended  December  31, 1997,  an officer of the Company  purchased a home
from  the  Company.  The  sales  price  was  $172,069.  The cost of the home was
$161,918.

NOTE 9 - DISCONTINUED OPERATIONS

     On December 16, 1996 Crowell sold United Data  Systems,  Inc.,  ("UDS"),  a
computer software company. The sales price of UDS was $200,000 which was

<PAGE>
                                                                         Page 18

received in the form of $80,000 in cash and a note  receivable of $120,000 which
is secured by all sold and future  assets of UDS.  The net book value of UDS was
approximately   $40,000.   Therefore,  a  gain  of  approximately  $160,000  was
recognized on the sale. The purchaser of UDS was Chin U. Yu ("Chin").  There was
no material  relationship  between  Crowell and Chin at the time of the sale. No
income  tax was  incurred  from the sale of UDS  because of the  operating  loss
incurred by Crowell for 1997. Total revenue for UDS for the years ended December
31, 1996 was $562,713.

     On December 31, 1997,  Crowell sold the real estate and business  operation
known as Petersburg  Racquet Club ("PRC") to Craig S. Jones,  an individual.  No
material  relationship  existed between Mr. Jones and Crowell at the time of the
sale.  The purchase  price of PRC was  approximately  $818,000.  This amount was
received in the form of  approximately  $100,000 in cash,  the  assumption  of a
mortgage loan on PRC in the amount of approximately $576,000, the execution of a
note  secured by a second  mortgage  on PRC in favor of Crowell in the amount of
approximately  $129,000,  the  execution  of a note in favor of  Crowell  in the
amount of  approximately  $7,000 and the  obligation to pay Crowell the accounts
receivable of PRC at December 31, 1997, which were approximately $6,000, as they
were  received.  As a result of the  Company  remaining  liable  on the  assumed
mortgage note, the Company has accounted for the PRC  transaction  following the
treatment set forth in the Securities  Exchange  Commission's  Staff  Accounting
Bulletins - Topic 5E (SAB Topic 5E)  "Accounting for divestiture of a subsidiary
or other business  operation".  Accordingly,  the assets of PRC at the sale date
have been  recorded  under the  caption  Assets of  business  transferred  under
contractual  arrangement with a corresponding  amount recorded under Liabilities
and deferred  credit of business  transferred.  The $166,000 gain on sale of PRC
has been  separately  deferred as a deferred  gain of $30,000 and a reduction in
the notes receivable from Mr. Jones in the amount of $136,000.  The Company will
continue to follow this accounting treatment until the amount of the outstanding
debt which Mr. Jones has assumed  declines to a level which  permits the Company
to record  the  transaction  as a sale.  Revenues  from PRC for the years  ended
December 31, 1997 and 1996, were $298,563 and $185,190, respectively.

NOTE 10 - OTHER MATTERS

     On February 13, 1998,  the Company filed a Preliminary  Proxy  Statement on
Schedule  14A with the  Securities  and Exchange  Commission  for the purpose of
eliminating the periodic reporting  requirements  under the Securities  Exchange
Act of 1934 by a reverse common stock split.  The reverse common stock split, if
consummated,   will  eliminate  all  common  shareholders  except  the  majority
stockholder.

<PAGE>
                                                                         Page 19

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors
Crowell & Co., Inc., and Subsidiaries
Augusta, Georgia

     We have audited the accompanying  consolidated  balance sheets of Crowell &
Co.,  Inc., and  subsidiaries  as of December 31, 1997 and 1996, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material  respects,  the financial  position of Crowell &
Co., Inc., and subsidiaries as of December 31, 1997 and 1996, and the results of
their  operations  and their cash flows for the years then ended,  in conformity
with generally accepted accounting principles.

CHERRY, BEKAERT & HOLLAND, L. L. P.

Augusta, Georgia
August 21, 1998

<PAGE>

                      CROWELL & CO., INC., AND SUBSIDIARIES

                        DIRECTORS AND EXECUTIVE OFFICERS

Otis L. Crowell
Director, President and Chairman of the Board

O. Lamar Crowell, Jr.
Director and Vice President

Mark L. Gilliam
Director, Vice President, Secretary and Chief Financial Officer

                              CORPORATE INFORMATION

CORPORATE OFFICES
610 Industrial Park Boulevard
Evans, GA 30809
(706) 855-1099

INDEPENDENT AUDITORS
Cherry, Bekaert & Holland
Augusta, GA

TRANSFER AGENT
Crowell & Co., Inc.
Evans, GA

COMMON STOCK AND DIVIDEND INFORMATION
There is no public trading  market for the securities of Crowell.  As of January
31, 1998,  there were  approximately  740 holders of record of Crowell's  Common
Stock without par value.  No dividends have been paid on Crowell's  Common Stock
for more than 2 years  and the  management  of  Crowell  does not  intend to pay
dividends in the foreseeable future.

FORM 10-KSB
A copy of the Company's Annual Report on Form 10-KSB (without exhibits) as filed
with the  Securities  and Exchange  Commission  for the year ended  December 31,
1997,  may be  obtained  without  charge by  writing  to Mark L.  Gilliam at the
Company's corporate office.

ADDITIONAL INFORMATION
For additional  information,  contact Mark L. Gilliam at the Company's corporate
office.