SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
August 14, 1998
JANUS AMERICAN GROUP, INC.
(Exact name of Registrant as specified in Charter)
Delaware 0-22745 13-2572712
- --------------------------- ------------- --------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2300 Corporate Blvd., N.W., Suite 232, Boca Raton, FL 33431-8596
----------------------------------------------------------------
Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (561) 994-4800
(Former name or Former Address, if Changed Since Last Report)
<PAGE>
This Form 8-K/A amends and supplements the Form 8-K dated August 14, 1998
filed with the Securities and Exchange Commission on August 28, 1998, relating
to the acquisition by the Company of four hotels located in Ohio from sellers
commonly controlled by Michael Gallucci, Jr. of Akron Ohio (the "Cornerstone
Hotel Group"). This Form 8-K/A contains the information referred to in Item 7 of
the Form 8-K.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Material Factors in the Acquisition of the Cornerstone Hotel Group and
Financial Statements of Businesses Acquired
For the audited financial statements of the Cornerstone Hotel Group,
see the Index to Financial Statements and Pro Forma Financial
Information below.
The four hotel properties of the Cornerstone Hotel Group, and material
factors assessed by Janus in determining to make the acquisition, are
described below:
(1) Holiday Inn Independence is a 364 room full service hotel located near
downtown Cleveland and the Hopkins International Airport at the intersection of
Interstate Highway 77 and State Route 480. The purchase price was $21,807,000.
The average daily rate charged per room and the annual occupancy
percentages are as follows:
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
------- -------- -------- -------- --------
ADR $82.93 $82.68 $76.43 $73.43 $68.51
OCC% 62.8% 65.3% 64% 68% 65.1%
Based upon an analysis of competition in the market, management of Janus
determined that there was considerable upside potential for a rate increase and
potential expense savings in the area of housekeeping and marketing.
Management of Janus concluded that a rate increase could be sustained in
the market because the quality of the rooms were good, compared to the
competition, as a result of a recently completed renovation program of
approximately $2,000,000. In addition, as a condition of the licensing agreement
with Holiday Hospitality Franchising, Inc. ("Holiday Inn"), the property will be
subject to a product improvement plan at an approximate cost of $904,970.
All other operating expenses should remain stable, including repair and
maintenance and real estate taxes.
(2) Holiday Inn Hudson is a 289 room full service hotel located off Exit
189 of the Ohio Turnpike between Cleveland and Akron about 15 miles from Sea
World, a visitor attraction. The purchase price was $13,369,350.
2
<PAGE>
The average daily rate and occupancy percentages are as follows:
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
------ -------- -------- -------- --------
ADR $73.72 $69.87 $65.08 $60.97 $59.69
OCC% 62.4% 65.7% 64.2% 73.8% 67.5%
Based upon an analysis of competition in the area and the current mix of
corporate and tourist business at this location, management of Janus determined
that managing the rate yield between these two market segments could generate
additional profitability as the rate charged to the tourist was well below the
current market rate.
In addition, a capital improvement program costing approximately $2,500,000
had recently been completed at the property, resulting in a higher room quality
than the competition. Moreover, as a condition of the licensing agreement with
Holiday Inn, the property will be subject to a product improvement plan at an
approximate cost of $1,129,927.
All other operating expenses, with the exception of housekeeping, should
remain stable, including repairs and maintenance and real estate taxes.
(3) Holiday Inn North Canton is a 194 room full service hotel located three
miles from downtown Canton off Interstate Highway 77. The purchase price was
$5,454,250.
The average daily rate and occupancy percentages are as follows:
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
------- -------- -------- -------- --------
ADR $58.10 $53.78 $53.63 $50.87 $51.39
OCC% 76% 73% 75.6% 77.4% 66.6%
The property has a mix of tourist and corporate business. Management of
Janus concluded that a rate increase could be sustained in the market because
the quality of the rooms were good, compared to the competition, as a result of
a recently completed capital improvement program of approximately $1,500,000.
In addition, as a condition of the licensing agreement with Holiday Inn,
the property will be subject to a product improvement plan at an approximate
cost of $327,613.
All other operating expenses, with the exception of housekeeping, should
remain stable, including repairs and maintenance and real estate taxes.
(4) Comfort West Montrose is a 132 room limited feature hotel located north
of Akron off Exit 137 of Interstate 77. The purchase price was $3,479,900.
3
<PAGE>
The average daily rate and occupancy percentages are as follows:
6/30/98 12/31/97 12/31/96 12/31/95 12/31/94
------- -------- -------- -------- --------
ADR $55.41 $56.66 $56.47 $55.31 $50.50
OCC% 63% 61.5% 68.9% 73% 75.6%
After a review of the market, it was determined by management of Janus that
the Comfort Inn had lost market share as a result of additional competition and
the lateness of prior management in responding with a capital improvement
program to improve product quality. Prior management had implemented a product
improvement program in late 1997 which was completed shortly before the
acquisition of the property by Janus. Janus' management determined that with the
improvement in product quality, room rate and occupancy could be increased.
Choice Hotels International, Inc., the licensor of the "Comfort Inn" name,
requires minimum modifications in order to maintain the Comfort Inn license.
Repair and maintenance expenses may increase as a result of required
deferred maintenance. All other operating expenses, with the exception of front
desk and housekeeping costs, should remain stable including real estate taxes.
The product improvement plans to be implemented as a requirement of the
Holiday Inn licensing agreement were included in the purchase prices for the
three applicable properties and 100% of the estimated costs were escrowed at
closing.
(b) Pro Forma Financial Information
See Index to Financial Statements and Pro Forma Financial Information
below.
(c) Exhibits
Exhibit No. Description
23.1 Consent of Bober, Markey & Company, Certified Public
Accountants, a Professional Corporation
4
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
PRO FORMA FINANCIAL INFORMATION
Page
FINANCIAL STATEMENTS
CORNERSTONE HOTEL GROUP
Independent Auditors' Report ........................................... 6
Combined Balance Sheet at December 31, 1997 ............................ 7-8
Combined Statement of Income at December 31, 1997 ...................... 9
Combined Statement of Equity at December 31, 1997 ...................... 10
Combined Statement of Cash Flows at December 31, 1997 .................. 11-12
Notes to Combined Financial Statements ................................. 13-17
PRO FORMA FINANCIAL INFORMATION
Introduction to the Unaudited Pro Forma Combined Financial Statements 18
Unaudited Pro Forma Combined Statement of Operations for Twelve Months
Ended December 31, 1997 19
Notes to Unaudited Pro Forma Combined Statement of Operations for the
Twelve Months Ended December 31, 1997 20
Unaudited Pro Forma Combined Balance Sheet at June 30, 1998 21
Note to Unaudited Pro Forma Combined Balance Sheet of June 30, 1998 22
Unaudited Pro Forma Combined Statement of Operations for Six Month
Ended June 30, 1998 23
Notes to Unaudited Pro Forma Combined Statement of Operations for the
Six Months Ended June 30, 1998 24
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders/Partners
Cornerstone Hotel Group
Akron, Ohio
We have audited the accompanying combined balance sheet of the Cornerstone Hotel
Group (the "Company") as of December 31, 1997, and the related combined
statements of income, equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1997, and the results of its operations and cash flows for the year
then ended in conformity with generally accepted accounting principles.
6
<PAGE>
CORNERSTONE HOTEL GROUP
COMBINED BALANCE SHEET
December 31, 1997
ASSETS
CURRENT ASSETS
Cash & equivalents ............................................. $ 1,971,196
Accounts Receivable ............................................ 647,827
Inventories .................................................... 142,964
Other current assets ............................................ 188,807
-----------
TOTAL CURRENT ASSETS ........................................ 2,950,794
-----------
PROPERTY AND EQUIPMENT
Land and improvements .......................................... 3,060,646
Building and improvements ...................................... 23,847,521
Furniture and fixtures ......................................... 7,428,303
Equipment ...................................................... 297,000
Vehicles ....................................................... 145,053
-----------
34,778,523
Less accumulated depreciation .................................. (14,607,478)
-----------
20,171,045
-----------
OTHER ASSETS
Escrow funds ................................................... 246,407
Franchises fees, net of amortization ............................ 264,621
Deferred charges, net of amortization .......................... 194,379
Other assets ................................................... 48,043
-----------
753,450
-----------
TOTAL ASSETS ................................................ $23,875,289
===========
The accompanying notes are an integral part of these combined financial
statements
7
<PAGE>
CORNERSTONE HOTEL GROUP
COMBINED BALANCE SHEET
December 31, 1997
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt ........................... $ 1,251,000
Accounts Payable ............................................... 636,190
Accrued Real Estate Taxes ...................................... 590,444
Accrued payroll and related taxes .............................. 191,166
Accrued expenses ............................................... 606,446
-----------
TOTAL CURRENT LIABILITIES ................................... 3,239,246
-----------
NONCURRENT LIABILITIES
Long term debt ................................................. 13,834,870
-----------
EQUITY
Partners' capital .............................................. 1,967,953
Stockholders' equity
Common stock- no par value, 2000 shares ...................... 20,600
authorized, 1,100 shares issued and outstanding
Additional paid-in capital ................................... 857,400
Retained earnings ............................................ 3,955,220
-----------
4,833,220
-----------
TOTAL EQUITY ............................................... 6,801,173
-----------
TOTAL LIABILITIES AND EQUITY ................................. $23,875,289
===========
The accompanying notes are an integral part of these combined financial
statements
8
<PAGE>
CORNERSTONE HOTEL GROUP
COMBINED STATEMENT OF INCOME
For the year ended December 31, 1997
REVENUE
Room ......................................................... $16,949,084
Telephone .................................................... 377,947
Beverage ..................................................... 2,146,461
Food ......................................................... 6,655,759
Other ........................................................ 534,261
-----------
TOTAL REVENUE ............................................. 26,663,512
COST OF SALES .................................................. 19,909,208
-----------
GROSS OPERATING INCOME ......................................... 6,754,304
-----------
OTHER INCOME (EXPENSE)
Management fees .............................................. (1,607,822)
Directors' fees .............................................. (50,000)
Other nonoperating expenses ................................. (331,336)
Interest expense ............................................. (936,066)
Interest income .............................................. 45,667
Net rental income ............................................ 34,161
Loss on disposal of fixed assets ............................. (267,706)
Depreciation and amortization ................................ (1,600,264)
-----------
4,713,366
-----------
NET INCOME ................................................ $ 2,040,938
===========
The accompanying notes are an integral part of these combined financial
statements
9
<PAGE>
<TABLE>
<CAPTION>
CORNERSTONE HOTEL GROUP
COMBINED STATEMENT OF EQUITY
For the year ended December 31, 1997
Additional
Partners' Common Paid-in Retained Total
Capital Stock Capital Earnings Equity
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES - BEGINNING OF YEAR $ 1,050,909 $ 20,600 $ 857,400 $ 4,328,326 $ 6,257,235
Net Income 764,044 -- -- 1,276,894 2,040,938
Distributions (447,000) -- -- (1,650,000) (2,097,000)
Contributions of capital 600,000 -- -- -- 600,000
----------- ----------- ----------- ----------- -----------
BALANCES - END OF YEAR % 1,967,953 $ 20,600 $ 857,400 $ 3,955,220 $46,801,173
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements
10
<PAGE>
CORNERSTONE HOTEL GROUP
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ....................................................... $ 2,040,938
Adjustments to reconcile net loss
to net cash used for operating activities:
Depreciation and amortization .............................. 1,645,257
Net loss on sales of property .............................. 267,706
Decrease in accounts receivable ............................ 271,263
Decrease in inventories .................................... 2,190
Increase in other current assets ........................... (79,947)
Increase in other assets ................................... (76,552)
Decrease in accounts payable ............................... (26,591)
Decrease in accrued real estate taxes ...................... 60,425
Increase in accrued payroll and related taxes .............. 15,796
Decrease in other accrued expenses ......................... (124,842)
-----------
TOTAL CASH PROVIDED BY OPERATING ACTIVITIES .............. 3,995,643
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property .......................................... (4,301,217)
Proceeds from sales of property and equipment .................. 43,192
Decrease in escrowed funds ..................................... 1,110,462
Principal payments received on notes receivable ................ 135,000
-----------
TOTAL CASH USED BY INVESTING ACTIVITIES .................. (3,012,563)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on long-term debt ........................... (1,053,650)
Proceeds from issuance of long-term debt ....................... 1,457,829
Contributions of capital ....................................... 600,000
Partner's withdrawals ......................................... (447,000)
Distributions to shareholders .................................. (1,650,000)
-----------
TOTAL CASH USED BY FINANCING ACTIVITIES .................. (1,092,821)
-----------
The accompanying notes are an integral part of these combined financial
statements
11
<PAGE>
CORNERSTONE HOTEL GROUP
COMBINED STATEMENT OF CASH FLOWS
For the year ended December 31, 1997
DECREASE IN CASH AND EQUIVALENTS ................................. $ (109,741)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD ........................ 2,080,937
-----------
CASH AND EQUIVALENTS, END OF PERIOD .............................. $ 1,971,196
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest ..................................................... $ 927,728
===========
The accompanying notes are an integral part of these combined financial
statements
12
<PAGE>
CORNERSTONE HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The combined financial statements of Cornerstone Hotel Group ("the Company"),
owns and operates four hotels in the Cleveland/Akron area and includes the
following entities: Galburton Inn, Inc., North Canton Operating Corporation,
North Canton Properties, Rockside Road Operating Corporation, Rockside Road
Properties, and West Montrose Properties. All significant intercompany
transactions have been eliminated.
Cash Equivalents
The Company considers all temporary cash investments purchased with a maturity
of three months or less to be cash equivalents. The Company maintains its cash
accounts at commercial banks located in Ohio. Aggregate accounts are guaranteed
by the Federal Deposit Insurance Corporation (FDIC) up to $100,000.
Inventory
Inventories for the Company's restaurants and bars are recorded at cost and
valued using the first-in, first-out method.
Use of Estimates
In preparing the Property's financial statements, management is required to make
estimates and assumptions that effect the reported amounts of assets and
liabilities, the 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.
13
<PAGE>
CORNERSTONE HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Depreciation
Fixed assets are recorded at cost. Depreciation is being calculated by the use
of accelerated and straight-line methods, depending on the assets, over their
estimated useful lives, ranging from 5 to 40 years. Cost, accumulated
depreciation and depreciation expense at December 31, 1997 and for the year then
ended:
ACCUMULATED DEPRECIATION
COST DEPRECIATION EXPENSE
----------- ------------- ------------
Land and improvements $ 3,060,646 $ 327,010 $ 36,654
Building and improvements 23,847,521 10,844,381 693,282
Furniture and fixtures 7,428,303 3,202,179 694,271
Equipment 297,000 159,540 91,029
Vehicles 145,053 74,368 33,666
----------- ------------ -----------
$34,778,523 $14,607,478 $1,548,902
=========== ============ ===========
Valuation of Long-Lived Assets
The Company follows Statement of Financial Accounting Standard No. 121 (SFAS
121). This statement requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable. SFAS 121 also requires that assets to be disposed of be
reported at the lower of the carrying amount or the fair value less costs to
sell. This statement did not have any effect on the Company's 1997 financial
statements.
Franchise Fees
Franchise fees of $294,500 and $32,500 paid to Holiday Inns of America and
Choice Hotels International, respectively, are being amortized over periods
ranging from 12.5 to 20 years, extending through August 2010. Accumulated
amortization was $62,379 at December 31, 1997.
Monthly franchise fees are also paid to Holiday Inns of America based on gross
room revenue and/or occupancy and service related to the reservation system.
Total franchise fees were $1,275,034 for 1997.
In addition, royalty and advertising fees of 3% and 2% of gross room revenues,
respectively, are paid to Choice Hotels International on a monthly basis. Total
royalty and advertising fees were $86,925 for 1997.
14
<PAGE>
CORNERSTONE HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Advertising Costs
The Company expenses advertising costs as incurred. Total advertising cost was
$2,456,691 for 1997.
Escrowed Funds
During 1995, a portion of the proceeds received from the Company's debt
refinancing were being held in escrow to be used for remodeling and renovations
to the Rockside Road property. These funds are expected to be fully expended in
1998.
Deferred Charges
Loan fees expended to refinance the Company's long term debt are being amortized
over periods ranging from 5 to 16 years extending through 2011.
Accumulated amortization was $205,475 at December 31, 1997.
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997:
Variable rate taxable demand notes payable to a
bank, maturing in July 2010, subject to
redemption prior to maturity, interest at
6.06875%. Payments of principal and interest are
due monthly beginning August 1995. The note is
secured by a bank letter of credit for the
outstanding amount of the obligation. $ 7,916,065
Variable rate taxable demand notes payable to a
bank, maturing in July 2010, subject to
redemption prior to maturity, interest at
6.11875%. Payments of principal and interest are
due monthly beginning August 1995. The note is
secured by a bank letter of credit for the
outstanding amount of the obligation. 1,688,239
15
<PAGE>
CORNERSTONE HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
Note payable to a bank, monthly payments of
$10,000 plus interest at 9.09% through July 1997,
monthly payments of $39,085 including interest,
beginning August 1997 through July 2011, secured
by real property located in North Canton, Ohio;
subject to certain conditions in the note
agreement at December 31, 1997, the undisbursed
amount of the note was $1,408,499. 2,391,501
Mortgage payable to a bank, maturing February
2005, monthly payments of $31,228 including
interest at 7.69%, secured by certain equipment
and real property located in Akron, Ohio. 2,023,260
Mortgage payable to a bank maturing September
2008, monthly payments of $11,620 including
interest at 7.5%, subject to adjustment every five
years so that the loan will amortize over 180
months, secured by real property located in Akron,
Ohio. $ 1,030,805
-----------
15,049,870
Less current portion 1,215,000
-----------
$13,834,870
===========
Future maturities of long-term debt for the years ending December 31, are as
follows:
1998 $ 1,215,000
1999 1,231,000
2000 1,269,000
2001 1,311,000
2002 1,357,000
Thereafter 8,666,870
-----------
Total $15,049,870
===========
16
<PAGE>
CORNERSTONE HOTEL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 3 - EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(K) plan which allows employee contributions ranging
from 1% to 15% of employee compensation. The Company will match 25% of each
dollar contributed up to 4% of compensation. The Company contributions to the
Plan for 1997 were $20,524.
NOTE 4 - INCOME TAXES
The Company consists of a group of entities as described in Note 1 above.
Galburton Inn, Inc., North Canton Operating Corporation and Rockside Road
Operating Corporation are Subchapter S Corporations as provided under the
Internal Revenue Code and as a result, income is taxed at the shareholder level.
North Canton Properties, Rockside Road Properties and West Montrose Properties
are treated as partnerships for income tax purposes, the related earnings and
losses are included in the personal returns of the partners taxed at the
individual level.
If the Company were taxed at the corporate level, federal income tax would be
approximately $705,000 for 1997.
NOTE 5 - MANAGEMENT AGREEMENTS
The Company's hotel operations are managed by the Cornerstone Company, which is
owned by a related party. Management agreements provide for payment to the
Cornerstone Company of management fees of basically 6% of room rentals,
restaurant and bar receipts. Accrued management fees payable were $104,985 at
December 31, 1997. Management fees totaled $1,607,822 for 1997.
NOTE 6 - SUBSEQUENT EVENT
During August 1998, the Company's stockholders and partners finalized an
agreement to sell the assets of the Company to Janus American Group, Inc. for
$44,110,500.
17
<PAGE>
JANUS AMERICAN GROUP, INC.
INTRODUCTION TO THE UNAUDITED
PRO FORMA COMBINED FINANCIAL STATEMENTS
On August 14, 1998 Janus American Group, Inc. ("Janus") closed the
acquisition of four hotels located in Ohio from commonly-controlled sellers (the
"Cornerstone Hotel Group").
The following pro forma combined statement of operations of Janus as of
December 31, 1997 has been prepared as if the acquisition of the Cornerstone
Hotel Group had occurred on January 1, 1997 and the following pro forma
statement of operations of Janus as of June 30, 1998 has been prepared as if the
acquisition of the Cornerstone Hotel Group had occurred on January 1, 1998.
Adjustments are for: (i) non-recurring income and expenses of the four
properties; (ii) interest expense based on acquisition financing; (iii)
increased depreciation expense based on the acquisition price; (iv) amortization
of prepaid franchise fees and loan costs; and (v) elimination of the income tax
provision based on Janus' net operating loss carryforwards.
The following pro forma balance sheet of Janus as of June 30, 1998 has
been prepared as if the acquisition of the Cornerstone Hotel Group had occurred
as of that date. Adjustments reflect the real estate acquisition, financing of
the acquisition and the proration of hotel operating expenses at the closing
date.
The pro forma financial information is based upon (i) the audited
consolidated financial statements of Janus for the year ended December 31, 1997
included in Janus' Annual Report on Form 10-KSB for the year ended December 31,
1997, (ii) the unaudited consolidated financial statements of Janus for the six
months ended June 30, 1998 included in Janus' Quarterly Report on Form 10-QSB
for the period ended June 30, 1998 and (iii) the audited financial statements of
the Cornerstone Hotel Group for the year ended December 31, 1997 included
herein.
The pro forma financial information is presented for information
purposes only and is not necessary indicative of the financial position or
results of operations of Janus that would have occurred if the acquisition
referred to above had been completed on the date indicated, nor does it purport
to be indicative of future financial position or results of operations.
Moreover, the pro forma financial information is based on the adjustments
described in the accompanying notes, which management believes are reasonable.
18
<PAGE>
<TABLE>
<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
BASED ON PRO FORMA ADJUSTED TWELVE MONTHS ENDED DECEMBER 31, 1997
Pro forma Historical Cornerstone Janus
Janus Cornerstone Adjustments Adjusted
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel Revenues:
Room and related services $10,968,056 $17,327,031 $28,295,087
Food and beverage $ 1,651,293 $ 8,802,220 $10,453,513
Management fees $ 921,217 $ 0 $ 921,217
Other $ 321,629 $ 534,261 (1) $ (140,122) $ 715,768
-------------------------- -----------
Total hotel revenues $13,862,195 $26,663,512 $40,385,585
Sales $ 0
Total revenues $13,862,195 $26,663,512 $40,385,585
-------------------------- -----------
Cost and expenses:
Direct hotel operating expenses:
Room and related services $ 2,586,017 $ 4,848,516 $ 7,434,533
Food and beverage $ 1,475,257 $ 7,454,632 $ 8,929,889
Selling and general expenses $ 538,820 $ 1,777,424 $ 2,316,244
-------------------------- -----------
Total direct hotel operating expense $ 4,600,094 $14,080,572 $18,680,666
Occupancy and other operating expense $ 1,742,975 $ 5,208,567 (2) $(1,845,063) $ 5,106,479
Selling, general and administrative expenses $ 4,537,086 $ 2,609,226 (3) $ (50,000) $ 7,096,312
Depreciation of property and equipment $ 1,267,803 $ 1,600,264 (4) $ 775,919 $ 3,643,986
Amortization of intangible assets $ 169,737 (5) $ 51,946 $ 221,683
-------------------------- -----------
Total costs and expenses $12,317,695 $23,498,629 $34,749,126
Operating income (loss) $ 1,544,500 $ 3,164,883 $ 5,636,459
Other income (expense)
Interest income $ 858,423 $ 45,667 (6) $ (45,667) $ 858,423
Other income $ 30,002 $ (233,545) (7) $ 233,545 $ 30,002
Interest income $(1,861,619) $ (936,066) (8) $(2,589,910) $(5,387,595)
-------------------------- -----------
Income (loss) before state income taxes and
minority interest $ 571,306 $ 2,040,939 $ 1,137,289
Provision for income taxes $ 219,000 (9) $ (219,000) $ 0
Credit for prior years federal income tax refunds $ 0
Credit for prior years state income tax refunds $ 0
-------------------------- -----------
Income (loss) before minority interest $ 352,306 $ 2,040,939 $ 1,137,289
Minority interest $ 17,048 $ 17,048
-------------------------- -----------
Income (loss) from continuing operations $ 335,258 $ 2,040,939 $ 1,120,241
-------------------------- -----------
Discontinued oil and gas services operations:
Loss from operations, net of credit for
income taxes of $136,000 in 1997 $ 0 $ 0
Loss on disposal, net of credit for income
taxes of $193,000 in 1997 $ 0 $ 0
-------------------------- -----------
Total discontinued operations $ 0 $ 0 $ 0
-------------------------- -----------
Net loss $ 335,258 $ 2,040,939 $ 1,120,241
Less preferred dividend requirements $ 783,891 $ 783,891
-------------------------- -----------
Net income (loss) applicable to common stock $ (448,633) $ 2,040,939 $ 336,350
========================== ===========
Basic income (loss) per common share:
Continuing operations (0.05) 0.23 0.04
Discontinued operations 0.00 0.00 0.00
-------------------------- -----------
Net income (loss) (0.05) 0.23 0.04
Basic weighted avg. shares outstanding 8,783,563 8,783,563 8,783,563
========================== ===========
</TABLE>
19
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1997
(1) Reflects the elimination of a non-recurring income item of $140,122
attributable to an insurance rebate.
(2) Reflects the elimination of management fee expense of $1,607,822 and
non-recurring repair and maintenance expense of $237,241.
(3) Reflects the elimination of a director's fee of $50,000.
(4) Reflects the elimination of the depreciation expense of the Cornerstone
Hotel Group and the computation of depreciation on the Cornerstone Hotel
Group properties based upon Janus' cost.
(5) Reflects a $28,771 amortization expense of loan costs and a $23,175
amortization expense of license fees incurred in connection with the
acquisition and related financing.
(6) Reflects the elimination of interest income on the cash and investments
of the Cornerstone Hotel Group which were not included in the
acquisition.
(7) Reflects the elimination of a $267,706 loss on the disposal of certain
fixed assets which had not been utilized in the hotel operations of the
Cornerstone Hotel Group and rent income of $34,161 from real property
which was not included in the acquisition.
(8) Reflects the elimination of the historical interest expense of the
Cornerstone Hotel Group of $936,066 and the inclusion of interest
expense attributable to the financing obtained in connection with the
acquisition of $3,525,976, for a net adjustment of $2,589,910.
(9) Reflects the elimination of an income tax provision of $219,000 due to
the availability of the net operating loss carryforwards of Janus.
20
<PAGE>
<TABLE>
<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT JUNE 30, 1998
Cornerstone Pro forma
Historical Entry Acquisition Janus
Janus Adjustments(1) Adjusted
-----------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current asset:
Cash and cash equivalents $11,045,237 $ (224,989) $10,820,248
Restricted cash for preferred stock of sub, and real estate taxes $ 218,342 $ 249,518 $ 467,860
Accounts receivable $ 578,766 $ 795,339 $ 1,374,105
Current portion of notes receivable $ 186,588 $ 186,588
Other current assets $ 119,818 $ 129,952 $ 249,770
----------- -----------
Total current assets $12,148,751 $13,098,571
Property and equipment, net of accumulated depreciation
and amortization $34,293,917 $40,594,221 $74,888,138
Notes receivable $ 612,361 $ 612,361
Mortgage notes receivable $ 5,493,292 $ 5,493,292
Goodwill, net of accumulated amortization $ 6,622,251 $ 6,622,251
Other assets $ 2,135,650 $ 3,008,081 $ 5,143,731
----------- -----------
Total $61,306,222 $105,858,344
=========== ============
LIABILITIES AND STOCK HOLDERS' EQUITY
Current liabilities:
Payable for redemption of preferred stock $ 41,238 $ 41,238
Current portion of long-term debt $ 2,148,110 $ 920,198 $ 3,068,308
Accounts payable $ 1,082,237 $ 302,920 $ 1,385,157
Accrued expenses $ 474,270 $ 249,202 $ 723,472
Dividends payable $ 195,974 $ 195,974
----------- ------------
Total current liabilities $ 3,941,829 $ 5,414,149
Long-term debt, net of current portion $17,538,990 $43,079,802 $ 60,618,792
Deferred tax liabilities $ 1,190,000 $ 1,190,000
----------- ------------
Total liabilities $22,670,819 $ 67,222,941
Minority interest $ 1,690,065 $ 1,690,065
----------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Series B; par value $.01 per share; 12,000 shares
authorized; 10,451.88 shares issued and outstanding $ 105 $ 105
Common stock, par value $.01 per share; 15,000,000 $ 0
shares authorized; 11,880,867 shares issued $ 118,809 $ 118,809
Additional paid-in capital $43,172,142 $ 43,172,142
Accumulated deficit $(5,029,420) $ (5,029,420)
Treasury stock--3,189,132 shares, at cost $(1,316,299) $ (1,316,299)
----------- ------------
Total stockholders' equity $36,945,337 $ 36,945,337
----------- ------------
Total $61,306,222 $105,858,344
=========== ============
</TABLE>
21
<PAGE>
NOTE TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT JUNE 30, 1998
(1) The following is an explanation of the adjustments for the acquisition
of the Cornerstone Hotel Group:
(i) Cash has been reduced by $224,989 to reflect out-of-pocket
expenditures to close the acquisition and related real estate mortgage
financing;
(ii) Restricted cash has been increased by $249,518 to reflect a real
estate tax escrow required under the terms of the mortgage financing in
connection with the acquisition;
(iii) Accounts receivable has been increased by $795,339 to reflect a
city and guest ledger acquired as part of the acquisition and payment
obligations due from the seller totaling $229,302.
(iv) Other current assets has been increased by $129,952 to reflect food
and beverage inventory acquired as part of the acquisition;
(v) Property and equipment has been increased by $40,594,221 to reflect
the net acquisition price of real estate and improvements after
adjustment for financing costs and the costs of miscellaneous assets
acquired as part of the acquisition;
(vi) Other assets has been increased by $3,008,081 consisting of a
product improvement escrow in the amount of $2,382,310, a licensing fee
of $39,500, financing costs of $575,410 and prepaid operating contracts
acquired as part of the acquisition totaling $10,861;
(vii) The current portion of long-term debt has been increased by
$920,198 to reflect the principal payments due on the acquisition
financing over the next twelve months;
(viii) Accounts payable has been increased by $302,920 to reflect
liabilities of the Cornerstone Hotel Group assumed by Janus in
connection with the acquisition and which resulted in a corresponding
reduction in the cash paid at closing;
(ix) Accrued expenses has been increased by $249,202 to reflect
pro-rated real property tax obligations of the Cornerstone Hotel Group
assumed by Janus in connection with the acquisition and which resulted
in a corresponding reduction in the cash paid at closing; and
(x) Long-term debt, net of current portion has been increased by
$43,079,802 to reflect acquisition financing of $44,000,000, reduced by
current maturities (see (vii) above).
22
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
<CAPTION>
Historical Historical Cornerstone Janus
Janus Cornerstone Adjustments Adjusted
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Hotel Revenues:
Room and related services $4,964,447 $ 8,367,113 $13,331,560
Food and beverage $ 792,853 $ 4,386,488 $ 5,179,341
Management fees $ 816,033 $ 0 $ 816,033
Other $ 134,824 $ 551,223 (1) $ (302,616) $ 383,431
-------------------------- -----------
Total hotel revenues $6,708,157 $13,304,824 $19,710,365
Sales $ 0
-------------------------- -----------
Total revenues $6,708,157 $13,304,824 $19,710,365
Cost and expenses:
Direct hotel operating expenses:
Room and related services $1,236,178 $ 2,331,762 $ 3,567,940
Food and beverage $ 666,202 $ 3,552,452 $ 4,218,654
Selling and general expenses $ 295,477 $ 944,185 $ 1,239,662
-------------------------- -----------
Total direct hotel operating expense $2,197,857 $ 6,828,399 $ 9,026,256
Occupancy and other operating expense $ 882,985 $ 1,762,376 (2) $ (92,616) $ 2,552,745
Selling, general and administrative expenses $2,094,008 $ 2,051,815 (3) $ (880,555) $ 3,265,268
Depreciation of property and equipment $ 698,471 $ 955,046 (4) $ 233,046 $ 1,886,563
Amortization of intangible assets $ 96,346 $ 44,653 (5) $ (18,680) $ 122,319
-------------------------- -----------
Total costs and expenses $5,969,667 $11,642,289 $16,853,151
Operating income (loss) $ 738,490 $ 1,662,535 $ 2,857,214
Other income (expense)
Interest income $ 638,043 $ 7,253 (6) $ (7,253) $ 638,043
Other income $ 0 $ 0 $ 0
Interest income $ (924,987) $ (546,172) (7) $(1,226,089) $(2,697,248)
-------------------------- -----------
Income (loss) before state income taxes and
minority interest $ 451,546 $ 1,123,616 $ 798,009
Provision for income taxes $ 0 $ 0 $ 0
Credit for prior years federal income tax refunds $ 261,215 $ 0 $ 261,215
Credit for prior years state income tax refunds $ 0
-------------------------- -----------
Income (loss) before minority interest $ 712,761 $ 1,123,616 $ 1,059,224
Minority interest $ 1,095 $ 0 $ 1,095
-------------------------- -----------
Income (loss) from continuing operations $ 711,666 $ 1,123,616 $ 1,058,129
-------------------------- -----------
Discontinued oil and gas services operations:
Loss from operations, net of credit for
income taxes of $136,000 in 1997 $ 0 $ 0 $ 0
Loss on disposal, net of credit for income 0
taxes of $193,000 in 1997 $ 0 $ 0
-------------------------- -----------
Total discontinued operations $ 0 $ 0 $ 0
-------------------------- -----------
Net income (loss) $ 711,666 $ 1,123,616 $ 1,058,129
Less preferred dividend requirements $ 393,558 $ 0 $ 393,558
-------------------------- -----------
Net income (loss) applicable to common stock $ 318,108 $ 1,123,616 $ 664,571
========================== ===========
Basic income (loss) per common share:
Continuing operations 0.04 0.13 0.08
Discontinued operations 0.00 0.00 0.00
-------------------------- -----------
Net income (loss) 0.04 0.13 0.08
Basic weighted avg. shares outstanding 8,691,735 $ 8,691,735 8,691,735
========================== ===========
</TABLE>
23
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998
(1) Reflects the elimination of non-recurring income items totaling
$302,616, consisting of workers compensation premium refunds of $220,000
and rent income of $82,616 from real property which was not included in
the acquisition.
(2) Reflects the elimination of non-recurring occupancy expenses totaling
$92,616, consisting of certain repair expenses of $80,000 and a real
estate tax expense of $12,616 attributable to real property which was
not included in the acquisition.
(3) Reflects the elimination of administrative expenses totaling $880,555
attributable to obligations which were not assumed as part of the
acquisition (management fees of $785,593; a director fee of $90,000; and
automobile lease payments of $4,962).
(4) Reflects the elimination of the depreciation expense of the Cornerstone
Hotel Group and the computation of depreciation on the Cornerstone Hotel
Group properties based upon Janus' cost.
(5) Reflects (i) the elimination of intangible assets of the Cornerstone
Hotel Group not acquired by Janus and (ii) the amortization of licensing
fees and loan costs incurred by Janus in the acquisition and related
financing.
(6) Reflects the elimination of interest income on the cash and investments
of the Cornerstone Hotel Group which were not included in the
acquisition.
(7) Reflects the elimination of the historical interest expense of the
Cornerstone Hotel Group of $546,172 and the inclusion of interest
expense attributable to the financing obtained in connection with the
acquisition of $1,772,261, for a net adjustment of $1,226,089.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Janus American Group, Inc.
---------------------------
(Registrant)
Dated: October 26, 1998 By: /s/ James E. Bishop
------------------------
Name: James E. Bishop
Title: President
25
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion in this current report on Form 8-K/A
of our report dated August 13, 1998 relating to the financial statements of the
Cornerstone Hotel Group for the year ended December 31, 1997.
/s/ Bober, Markey & Company
-----------------------------
Bober, Markey & Company
Certified Public Accountants,
A Professional Corporation
Akron, Ohio
October 19, 1998
26
