Commission File Number 0-22745
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
JANUS AMERICAN GROUP, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-2572712
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 CORPORATE BLVD., N.W.
SUITE 232
BOCA RATON, FLORIDA 33431-8596
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (561) 994-4800
CHECK WHETHER ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH
SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2)
HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X _ NO _
Number of shares of Common Stock outstanding as of November 13, 1998: 8,694,088
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES |_| NO |X|
<PAGE>
JANUS AMERICAN GROUP, INC.
FORM 10-QSB
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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<S> <C> <C>
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Financial Statements 3-32
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 33-39
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 40
SIGNATURE PAGE 40
</TABLE>
2
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
INDEX TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
HISTORICAL FINANCIAL STATEMENTS:
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS 5
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS 6
OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF 7
STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS 8
OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS 9
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL 10-27
STATEMENTS
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
INTRODUCTION TO THE UNAUDITED PRO FORMA CONDENSED 28
CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS 29
OF OPERATIONS ADJUSTED FOR DISCONTINUED OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997
3
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS 30
OF OPERATIONS ADJUSTED FOR DISCONTINUED OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997
NOTES TO ADJUSTED UNAUDITED PRO FORMA CONDENSED 31-32
CONSOLIDATED FINANCIAL STATEMENTS
4
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<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
September 30, December 31,
1998 1997
---------------------------
<S> <C> <C>
Current asset:
Cash and cash equivalents $13,667,753 $11,150,243
Restricted cash for preferred stock of sub. and real estate taxes $897,404 $373,605
Accounts receivable $1,756,456 $554,882
Current portion of notes receivable $254,286 $171,632
Other current assets $174,139 $386,231
---------------------------
Total current assets $16,750,038 $12,636,593
Property and equipment, net of accumulated depreciation
and amortization $74,907,925 $34,803,291
Notes receivable $532,778 $126,390
Mortgage notes receivable $5,459,525 $5,558,755
Goodwill, net of accumulated amotization $6,579,624 $6,707,506
Other assets $5,415,685 $1,571,591
---------------------------
Total $109,645,575 $61,404,126
===========================
LIABILTIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable for redemption of preferred stock $41,238 $41,238
Current portion of long-term debt $2,727,943 $2,112,215
Accounts payable $2,522,811 $903,234
Accrued expenses $1,837,556 $786,167
Dividends payable $0 $197,583
---------------------------
Total current liabilities $7,129,548 $4,040,437
Long-term debt, net of current portion $60,816,489 $17,866,318
Deferred tax liabilities $1,190,000 $1,190,000
---------------------------
Total liabilities $69,136,037 $23,096,755
---------------------------
Minority interest $1,801,471 $1,688,969
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
shares authorized; 11,883,220 and 11,880,867 shares issued $118,833 $118,809
Additional paid- in capital $43,172,119 $43,163,320
Accumulated deficit ($3,266,691) ($5,347,533)
Treasury stock- 3,189,132 shares, at cost ($1,316,299) ($1,316,299)
---------------------------
Total stockholders' equity $38,708,067 $36,618,402
---------------------------
Total $109,645,575 $61,404,126
===========================
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
September 30, September 30,
1998 1997
-----------------------------
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $14,610,273 $6,089,861
Food and beverage $3,576,178 $913,181
Management fees $1,134,009 $447,369
Other $371,354 $174,969
--------------------------
Total hotel revenues $19,691,814 $7,625,380
Sales $0 $1,050,081
--------------------------
Total revenues $19,691,814 $8,675,461
--------------------------
Cost and expenses:
Direct hotel operating expenses:
Room and related services $3,409,281 $1,280,648
Food and beverage $3,034,371 $787,866
Selling and general expenses $928,219 $222,154
--------------------------
Total direct hotel operating expense $7,371,871 $2,290,668
Occupancy and other operating expense $2,314,338 $1,608,370
Selling, general and administrative expenses $4,229,034 $2,411,855
Depreciation of property and equipment $1,539,413 $587,863
Amortization of intangible assets $154,867 $109,207
--------------------------
Total costs and expenses $15,609,523 $7,007,963
--------------------------
Operating income (loss) $4,082,291 $1,667,498
Other income (expense)
Interest income $886,347 $430,929
Other income $0 $25,317
Interest expense ($2,214,471) ($801,728)
--------------------------
Income (loss) before state income taxes and
minority interest $2,754,167 $1,322,016
Provision (credit) for federal income taxes $0
Credit for prior years federal income tax refunds ($261,215)
Provision (credit) for state income taxes $230,895 ($3,473)
--------------------------
Income (loss) before minority interest $2,784,487 $1,318,543
Minority interest $112,502 $127,417
--------------------------
Net income (loss) $2,671,985 $1,191,126
Less preferred dividend requirements $591,142 $341,476
--------------------------
Net income (loss) applicable to common stock $2,080,843 $849,650
Net income (loss) per common share-Basic 0.24 0.12
==========================
Net income (loss) per common share-Assuming dilution 0.23 0.12
==========================
Basic weighted average common shares outstanding 8,693,855 7,144,180
==========================
Weighted average common shares outstanding-assuming dilution 8,915,102 7,367,180
==========================
</TABLE>
6
<PAGE>
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<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Preferred Stock Common Stock
------------------- --------------------
Number Number
of of
Shares Amount Shares Amount
------------------- --------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998 10,451.88 $105 11,880,867 $118,809
Comprehensive Income:
Net income
Decrease in net operating loss valuation allowance
Use of net operating loss carryforward against current tax exp.
Comprehensive Income
Conversion of warrants 2353 $24
Preferred Stock Dividends
------------------- --------------------
Balance at September 30, 1998 10451.88 $105 11,883,220 $118,833
<CAPTION>
Additional
Comprehensive Paid-in Accumulated
Income Capital Deficit
---------------------------------------------
<S> <C> <C> <C> <C>
Balance January 1, 1998 $43,163,320 ($5,347,535)
Comprehensive Income:
Net income $2,671,985 $2,671,985
Decrease in net operating loss valuation allowance $936,000 $936,000
Use of net operating loss carryforward against current tax exp. ($936,000) ($936,000)
----------
Comprehensive Income $2,671,985
==========
Conversion of warrants $8,799
Preferred Stock Dividends ($591,142)
---------------------------
Balance at September 30, 1998 $43,172,119 ($3,266,692)
<CAPTION>
Treasury Stock
-----------------------
Number
of
Shares Amount Total
----------------------- ------------
<S> <C> <C> <C> <C>
Balance January 1, 1998 3,189,132 ($1,316,299) $36,618,400
Comprehensive Income:
Net income $2,671,985
Decrease in net operating loss valuation allowance $936,000
Use of net operating loss carryforward against current tax exp. ($936,000)
Comprehensive Income
Conversion of warrants $8,823
Preferred Stock Dividends ($591,142)
----------------------- -----------
Balance at September 30, 1998 3,189,132 ($1,316,299) $38,708,066
</TABLE>
7
<PAGE>
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<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
September 30, September 30,
1998 1997
-----------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $2,671,985 $1,191,126
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization $1,539,413 $587,863
Amortization of intangible assets $154,867 $109,207
Minority Interest $112,502 $127,417
Deferred income taxes ($30,000)
Operating loss from discontinued operations ($73,948)
Changes in operating assets and liabilities:
Accounts receivable ($1,201,574) ($147,115)
Other current assets $212,092 ($477,734)
Other asset ($3,871,097) ($455,941)
Accounts payable and accrued expenses $2,670,966 $246,238
--------------------------
Net cash provided by (used in) operating
activities $2,215,206 $1,151,061
--------------------------
Investing activities:
Acquisition of hospitality business, net of
noncash consideration and cash required ($1,325,129)
Increase in Notes Receivable ($4,276)
Purchases of property and equipment ($904,864) ($409,494)
Gain on sale of subsidiary's net assets $14,161 $13,000
Collections of notes receivable $130,188 $47,317
--------------------------
Net cash provided by ( used in) investing activities ($764,791) ($1,674,306)
--------------------------
Financing activities:
Dividends Paid (4th Qtr. 97-$197,583 & 1st thru 3rd Qtr. 98-$591,124) ($788,707)
Decrease in restricted cash $631,830
Repurchase of common stock ($441,569)
Repurchase of warrants ($102,638)
Conversion of warrants to common stock $8,823
Reduction of payable for redemption of pre-
ferred stock of subsidiary ($631,830)
Contributions to capital from United States
Lines, Inc. and United States Lines (S.A.),
Inc. Reorganization Trust, including $8,628
to minority interest in 1997 $7,491,020
Proceeds from long-term borrowings $2,804,878 $26,136
Repayments of long-term borrowings ($434,101) ($242,072)
--------------------------
Net cash provided by (used in) financing activities $1,590,893 $6,730,877
--------------------------
Increase (decrease) in cash and cash equivalents $3,041,308 $6,207,632
Cash and cash equivalents, beginning of period $11,523,848 $6,580,836
--------------------------
Cash and cash equivalents, end of period $14,565,156 $12,788,468
==========================
Supplemental disclosure of cash flow data:
Interest paid $2,214,471 $790,979
==========================
</TABLE>
8
<PAGE>
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<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
September 30, September 30,
1998 1997
-----------------------------
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $9,645,826 $3,892,101
Food and beverage $2,783,325 $590,219
Management fees $317,976 $245,322
Other $236,530 $165,940
--------------------------
Total hotel revenues $12,983,657 $4,893,582
Sales $0 $318,852
--------------------------
Total revenues $12,983,657 $5,212,434
--------------------------
Cost and expenses:
Direct hotel operating expenses:
Room and related services $2,173,103 $829,100
Food and beverage $2,368,169 $529,531
Selling and general expenses $632,742 $142,176
--------------------------
Total direct hotel operating expense $5,174,014 $1,500,807
Occupancy and other operating expense $1,431,353 $765,114
Selling, general and administrative expenses $2,135,026 $1,440,124
Depreciation of property and equipment $840,942 $313,854
Amortization of intangible assets $58,521 $55,633
--------------------------
Total costs and expenses $9,639,856 $4,075,532
--------------------------
Operating income (loss) $3,343,801 $1,136,902
Other income (expense)
Interest income $248,304 $256,314
Other income $0 $5,677
Interest expense ($1,289,484) ($479,058)
--------------------------
--------------------------
Income (loss) before state income taxes and
minority interest $2,302,621 $919,835
Provision (credit) for federal income taxes $0 $0
Credit for prior years federal income tax refunds $0 $0
Provision (credit) for state income taxes $230,895 $79,730
--------------------------
Income (loss) before minority interest $2,071,726 $840,105
Minority interest $111,407 $95,570
--------------------------
Net income (loss) $1,960,319 $744,535
Less preferred dividend requirements $197,584 $210,827
Net income (loss) applicable to common stock $1,762,735 $533,708
Net income (loss) per common share-Basic 0.20 0.06
==========================
Net income (loss) per common share-Assuming dilution 0.20 0.06
==========================
Basic weighted average common shares outstanding 8,694,088 8,691,735
==========================
Basic weighted average common shares outstanding-
assuming dilution 8,915,335 8,915,335
==========================
</TABLE>
9
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1--Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of
normal recurring accruals, necessary to present fairly the financial
position of Janus American Group, Inc. (formerly Janus Industries, Inc.)
and subsidiaries (the "Company" or "Janus") as of September 30, 1998, its
results of operations and cash flows for the nine months ended September
30, 1998 and 1997 and its changes in stockholders' equity for the nine
months ended September 30, 1998. Certain terms used herein are defined in
the audited consolidated financial statements of the Company as of December
31, 1997 and 1996 and for the years then ended (the "Audited Janus
Financial Statements") included in the Company's Form 10-KSB previously
filed with the Securities and Exchange Commission. Accordingly, these
unaudited condensed consolidated financial statements should be read in
conjunction with the Audited Janus Financial Statements and the other
financial statements included in the Form 10-KSB.
The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results of operations for the full year
ending December 31, 1998.
Note 2--Organization:
As of September 30, 1998, the continuing operations of Janus, which until
September 29, 1997 had been named Janus Industries, Inc., were comprised
primarily of the operations of eleven hotels (of which ten are wholly-owned
and one is 85%-owned) and a hotel management company.
The Company's owned and managed hotels are located primarily in the
Midwestern and Southeastern parts of the United States. As further
described in Note 4, seven hotel properties and two mortgage notes
receivable were acquired, effectively, as of April 30, 1997 in a
transaction that was accounted for as a purchase. Four additional hotel
properties were acquired on August 14, 1998 in a transaction that was
accounted for as a purchase. Accordingly, the accompanying unaudited
consolidated financial statements reflect the accounts for the hotel
operations for the nine months ended September 30, 1998 and the financial
statements for periods prior to that date are not comparable.
As further described in Note 10, management decided during December 1997 to
discontinue and dispose of all of the Company's operations related to the
provision of engineering and wireline logging services to companies in the
oil and gas industry (the "oil and gas services operations").
10
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 2--Organization (continued):
As further described in Note 4 those operations were acquired on July 15,
1996 in a transaction that was accounted for as a purchase.
From February 1990, when it emerged from the reorganization proceedings
described below, until July 15, 1996, the Company did not actively engage
in any trade or business. Income consisted primarily of interest on
temporary investments. Expenses consisted primarily of professional fees
and other costs incurred in connection with the Company's efforts to
acquire businesses, and record retention and other administrative expenses
incurred to satisfy the Company's financial reporting requirements.
In November 1986, the Company's predecessors, United States Lines, Inc.
("USL") and United States Lines (S.A.) Inc. ("USL-SA"), together with two
related companies, filed petitions under Chapter 11 of the United States
Bankruptcy Code. In May 1989, the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court") confirmed a plan of
reorganization with respect to such companies, which was later amended and
modified pursuant to an order of the Bankruptcy Court entered in February
1990 (the "Plan").
Pursuant to the Plan and the order of the Bankruptcy Court confirming the
Plan:
a. USL and USL-SA changed their names to Janus Industries, Inc. and JI
Subsidiary, Inc. ("JIS"), respectively;
b. The United States Lines, Inc. and United States Lines (S.A.) Inc.
Reorganization Trust (the "Reorganization Trust") was established for
the purpose of administering the Plan and liquidating and paying
claims of former creditors of USL and USL-SA; it will also make
contributions of cash to Janus and JIS from time to time of amounts in
excess of its projected liabilities and administrative requirements;
c. All claims of former creditors of USL and USL-SA were discharged; as a
result, such former creditors may look only to the Reorganization
Trust (and not to Janus or JIS) for payment of amounts in respect of
their discharged claims;
11
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 2--Organization (continued):
d. The interests of all holders of shares of the capital stock of USL and
USL-SA were extinguished and the former creditors of USL and USL-SA
became entitled to receive all of the shares of capital stock issuable
by Janus and JIS, except for shares issuable to Janus and a subsidiary
of Dyson-Kissner-Moran ("DKM"), a new Investor; shares of capital
stock issuable to such former creditors were initially issued to the
Reorganization Trust as recordholder for reissuance to such creditors;
and
e. The Reorganization Trust contributed $3,000,000 of USL and USL-SA cash
to capitalize Janus and JIS on February 23, 1990 and provided Janus
and JIS with certain books and records, and all tax attributes and tax
benefits, of USL and USL-SA; it also made cash contributions of
approximately $7,491,000 and $7,622,000 to the capital of Janus and
JIS in 1997 and 1996, respectively.
At the time the Plan was approved, Janus and JIS had no commercial
operations. However, they had substantial Federal net operating loss
carryforwards (see Note 11). Under the Plan, DKM purchased approximately
36% of the Company's common stock and a warrant to purchase an additional
9% of the Company's common stock for $3,000,000. In addition, DKM was to
control the Board of Directors of Janus and was required to seek and assist
the Company in the consummation of the acquisition of one or more operating
businesses while preserving the Federal income tax attributes of Janus and
JIS. However, DKM was not able to assist the Company in consummating any
acquisitions and, as a result, the Company repurchased and redeemed all of
DKM's interests in Janus and JIS.
The Company obtained new management during 1995 and consummated the
acquisition of the oil and gas services operations in 1996 and the hotel
operations in 1997.
Note 3--Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
12
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (continued):
Fresh-start accounting:
The Company adopted fresh-start accounting at the time of its
reorganization in February 1990 (see Note 2). The Company's opening
balance sheet consisted of $6,000,000 in cash and capital stock.
Accordingly, the reorganization value of the Company approximated book
value.
Principles of consolidation:
The unaudited consolidated financial statements include the accounts
of Janus and its majority-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation.
Cash equivalents:
Cash equivalents generally consist of highly liquid investments with
maturities of six months or less when acquired.
Property and equipment:
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets.
Goodwill:
Goodwill, which represents the excess of the costs of acquired
businesses over the fair value of the net assets acquired at the
respective dates of acquisition, is amortized using the straight-line
method over the estimated useful lives of the assets.
Impairment of long-lived assets:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS
121"). Under SFAS 121, impairment losses on long-lived assets, such as
property and equipment and goodwill, are recognized when events or
changes in circumstances indicate that the undiscounted cash flows
estimated to be generated by such assets are less than their carrying
value and, accordingly, all or a portion of such carrying value may
not be recoverable. Impairment losses are then measured by comparing
the fair value of assets to their carrying amounts.
13
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (continued):
Deferred loan costs:
Costs incurred to obtain long-term financing are deferred and
amortized using the straight-line method (which approximates the
interest method) over the terms of the loans.
Revenue recognition:
The Company recognizes revenues from room and related services and
management fees on an accrual basis as earned. Food and beverage
revenues are recognized when goods are sold. Revenues from
discontinued engineering and wireline logging services were also
recognized on an accrual basis as earned.
Advertising costs:
The costs of advertising and promotion are expensed as incurred.
Income taxes:
The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred tax assets and liabilities to
be computed annually for temporary differences between the financial
statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the temporary differences
are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities. Income tax credits
attributable to benefits from net operating loss carryforwards or
other temporary differences that existed at the time the Company
adopted fresh-start accounting are reflected as a contribution to
stockholders' equity in the period in which the tax benefits are
realized.
As explained in Note 2, the assets and liabilities of USL and USL-SA
were initially transferred to the Reorganization Trust in February
1990. The Reorganization Trust is considered to be a grantor trust for
income tax purposes. Accordingly, any taxable income or loss
associated with the disposition of assets and the settlement of
liabilities by the Reorganization Trust are recorded in the Federal
and state income tax returns of the Company; however, such assets and
liabilities are not presented in these consolidated financial
statements.
14
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (continued):
Stock options:
In accordance with the provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, the Company
will recognize compensation costs as a result of the issuance of stock
options based on the excess, if any, of the fair value of the
underlying stock at the date of grant or award (or at an appropriate
subsequent measurement date) over the amount the employee must pay to
acquire the stock. Therefore, the Company will not be required to
recognize compensation expense as a result of any grants of stock
options at an exercise price that is equivalent to or greater than
fair value. The Company will also make pro forma disclosures, as
required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS 123"), of net income or
loss as if a fair value based method of accounting for stock options
had been applied, if such amounts differ materially from the
historical amounts.
Income (loss) per common share:
Effective December 31, 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings per
Share ("SFAS 128"), which replaces the presentation of "primary" and
"fully-diluted" income (loss) per common share required under
previously promulgated accounting standards with the presentation of
"basic" and "assuming dilution" income (loss) per common share.
Basic net income (loss) per common share is calculated by dividing net
income or loss, as adjusted for required preferred stock dividends, by
the weighted average number of common shares outstanding during the
period. The calculation of diluted net income (loss) per common share
is similar to that of basic net income (loss) per common share, except
that the denominator is increased to include the number of additional
common shares that would have been outstanding if all potentially
dilutive common shares, principally those issuable upon the exercise
of stock options and warrants, were issued during the period.
The Company's reported net income represents its net income available to common
shareholders for purposes of computing both measures. The following reconciles
shares outstanding at the beginning of the year to average shares outstanding
used to compute both income per share measures:
15
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (continued):
<TABLE>
<CAPTION>
Quarter Quarter
Year to Year to Ending Ending
September September September September
30, 1998 30, 1997 30, 1998 30, 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average shares outstanding -
basic 8,693,855 7,144,180 8,694,088 8,691,735
Effect of dilutive securities
Dilutive shares contingently
issuable upon the exercise
of stock options and
warrants 221,247 223,600 221,247 223,600
--------- --------- --------- ---------
Average shares
outstanding--assuming dilution 8,915,102 7,367,780 8,915,335 8,915,335
</TABLE>
Note 4--Acquisitions:
On April 24, 1997, the Company entered the hospitality business by
acquiring the following from affiliates of Louis S. Beck and Harry G.
Yeaggy ("Messrs. Beck and Yeaggy"): (i) seven hotels (of which six are
wholly-owned and one is owned by an 85%-owned partnership), (ii) a hotel
management company and substantially all of the assets thereof other than
seven management contracts and (iii) financial participations in the form
of mortgages on one additional hotel and a campground (the "Mortgages").
The seven hotels, the management company and the Mortgages are also
referred to herein as the "BY Hotel Group." Messrs. Beck and Yeaggy also
own controlling interests in other hotels, certain of which are managed by
the Company.
Each of Messrs. Beck and Yeaggy became an executive officer of the Company
as of the date of acquisition.
16
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (continued):
The consideration exchanged by the Company for the assets and liabilities
of the BY and the other direct acquisition costs were comprised as follows:
Issuance of
10,451.88 shares of Series B preferred $10,451,880
stock with a liquidation preference and
estimated fair value of $1,000 per share
3,799,999 shares of Janus common stock 12,349,997
with an estimated fair value of $3.25 per share
TOTAL VALUE OF SHARES ISSUED $22,801,877
Cash paid to Messrs. Beck and Yeaggy to
repay short-term loans 793,803
Legal, accounting and other costs
related to the purchase 1,007,424
-----------
Total purchase price to be allocated $24,603,104
-----------
The acquisition was accounted for as a purchase and, accordingly,
the results of the BY Hotel Group have been included in the
accompanying unaudited consolidated statements of operations
subsequent to April 30, 1997 (the effective date of the
acquisition for accounting purposes). In addition, total
acquisition costs were allocated to the assets acquired and
liabilities assumed based on their estimated fair values on the
date of acquisition, with the excess of cost over such fair
values allocated to goodwill, as shown below:
Cash $79,994
Accounts receivable 230,011
Other current assets 217,024
Property and equipment 34,400,000
Mortgage notes receivable 5,758,282
Goodwill 6,820,406
Other assets 1,256,672
Accounts payable (579,115)
Other current liabilities (519,595)
Long-term debt (20,333,575)
Deferred tax liabilities (1,190,000)
Minority interest in the 85%-owned
hotel Partnership (1,537,000)
-----------
Total purchase price allocated $24,603,104
-----------
17
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (continued):
Although the Company has a substantial amount of estimated available
net operating loss carryforwards for Federal income tax and
alternative minimum tax purposes, the deferred tax assets potentially
available from such carryforwards have been reduced by a valuation
allowance due to uncertainties related to their future realization.
Accordingly, the amounts allocated to goodwill and deferred tax
liabilities shown above in connection with the acquisition of the BY
Hotel Group have each been reduced by approximately $8,134,000, which
is equivalent to the reduction in the valuation allowance attributable
to the portion of the net operating loss carryforwards that management
estimates will be offset by temporary differences attributable to the
acquired net assets of the BY Hotel Group.
The goodwill attributable to the acquisition of the BY Hotel Group is
being amortized based on an estimated useful life of 40 years.
On August 14, 1998, the Company acquired four additional hotel
properties from commonly controlled sellers (the "Cornerstone Hotel
Group"). The total purchase price was $44,110,500 in cash and was
financed by four loans from Amresco Capital, L.P. in substantially the
amount of the total purchase price, secured by the acquired
properties. The four loans are cross-defaulted and
cross-collateralized, but otherwise of limited recourse to the
Company. The financing, is for a term of ten years, based upon a
25-year amortization schedule, at a fixed interest rate of 8.09% per
annum.
The acquisition was accounted for as a purchase and was allocated as
follows:
Land $4,132,509
Buildings 28,927,552
Equipment 52,500
Furniture and fixtures 8,090,259
Prepaids and escrow for product 2,907,680
improvement program
Total purchase price allocated $44,110,500
-----------
18
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (continued):
The following unaudited information shows the pro forma results of
continuing operations of the Company for the nine months ended
September 30, 1998 and pro forma results of operations for the nine
months ended September 30, 1997 as though each of the BY Hotel Group
and the Cornerstone Hotel Group had been acquired as of January 1,
1997. In each case, the results of the discontinued oil and gas
services operations are excluded.
Adjusted Pro Forma Adjusted Pro Forma
September 30, 1998 September 30, 1997
-----------------------------------------
Revenues:
Hotel revenues:
Room and related services $22,977,386 $22,526,644
Food and beverage 7,962,666 7,649,854
Management fees 1,134,009 801,762
Other 619,961 620,090
-----------------------------------------
Total hotel revenues $32,694,022 $31,598,350
Sales $0 $0
--
-----------------------------------------
Total revenues $32,694,022 $31,598,350
-----------------------------------------
Cost and expenses:
Direct hotel operating expenses
Room and related services $5,741,043 $5,720,404
Food and beverage 6,586,823 6,515,478
Selling and general expenses 1,872,404 1,687,672
-----------------------------------------
Total direct hotel
operating expense $14,200,270 $13,923,554
Occupancy and other operating
expenses $3,984,098 $3,758,837
Selling, general and admin.
expenses 5,400,294 5,159,116
Depreciation of property and
equipment 2,475,761 2,257,443
Amortization of intangible
assets 196,477 204,296
-----------------------------------------
Total costs and expenses $26,256,900 $25,303,246
-----------------------------------------
Operating income (loss) $6,437,122 $6,295,104
Other income (expense) 886,347 605,867
Interest income 0 (25,317)
Interest expense (3,989,619) (4,070,322)
-----------------------------------------
Income (loss) before income taxes
and minority interest $3,333,850 $2,805,332
19
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (continued):
Credit for prior year state income
tax refunds 205,963 0
Credit for prior year federal income
tax refunds (261,215) 0
230,895 17,527
Income (loss) before minority $3,158,207 $2,822,859
interest
Minority interest $112,502 $86,423
-----------------------------------------
Net income (loss) $3,045,705 $2,736,436
Less preferred dividend requirements $591,142 $586,308
-----------------------------------------
Net income (loss) applicable to
common stock $2,454,563 $2,150,128
Net income (loss) per common share $0.31 $0.24
-----------------------------------------
Weighted average common shares
outstanding 8,694,088 8,783,563
=========================================
In addition to combining the historical results of operations of the
Company (which did not have any active operations prior to the BY Hotel
Group acquisition other than the discontinued oil and gas services
operations not included above) and the historical pre-acquisition results
of operations of the BY Hotel Group and the Cornerstone Hotel Group, the
pro forma results of operations include adjustments that, among other
things, Reflect:
-- The elimination of the net revenues derived from management contracts
of the BY Hotel Group and non-recurring income of the Cornerstone
Hotel Group that were not acquired by the Company;
-- Depreciation of property and equipment based on the fair values of
assets acquired;
-- Amortization of the additional goodwill arising from the BY Hotel
Group acquisition and licensing fees, loan costs and closing costs
incurred in the acquisition of Cornerstone Hotel Group;
20
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (continued):
-- The net effects of changes to compensation and related expenses based
on revised lease agreements, expense sharing arrangements with a
related party, revised employment agreements and non-recurring
expenses;
-- The net effects of changes to interest expense based on acquisition
financing of the Cornerstone Hotel Group.
-- The provision for income taxes is based upon pro forma income from
continuing operations and the statutory Federal and state rates. Any
actual income tax credits attributable to benefits from net operating
loss carryforwards that existed at the time the Company adopted
fresh-start accounting will be reflected as a contribution to
stockholders' equity in the period in which the tax benefits are
realized; and
-- The effects of the issuance of shares of preferred and common stock as
part of the consideration for the acquisition of BY Hotel Group on
preferred stock dividends and weighted average common shares
The unaudited pro forma results of operations shown above do not purport to
represent what the combined results of operations actually would have been
if the acquisition of the BY Hotel Group and the Cornerstone Hotel Group
had occurred as of January 1, l997 instead of the actual date of
consummation or what the results of operations would be for any future
periods
On July 15, 1996, the Company commenced oil and gas services operations
when it acquired certain assets and liabilities of Pre-Tek Wireline Service
Company, Inc. ("PTWSC") and its wholly-owned subsidiary, K.F.E. Wireline,
Inc. ("KFE"), for consideration comprised of cash, common stock and
warrants. PTWSC and KFE are referred to collectively herein as "Pre-Tek."
The oil and gas services operations were discontinued in December 1997.
The consideration exchanged by the Company for such assets and liabilities
and the other direct acquisition costs were comprised as follows:
Cash payments to certain creditors and
former stockholders of Pre-Tek $605,413
Issuance of 268,368 shares of Janus common stock, with
a fair value per share of $2.75, and 500,000 warrants
to purchase Janus common stock, to stockholders and
former stockholders of Pre-Tek 738,012
21
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (continued):
Return of 37,350 shares of Janus
common stock as a result of
post-closing adjustments (102,713)
Other acquisition costs 182,092
TOTAL $1,422,804
The acquisition was accounted for as a purchase and, accordingly, the
results of Pre- Tek's operations have been included as discontinued
operations.
Unaudited pro forma information showing the results of operations for the
three months ended June 30, 1998 and 1997 of the oil and gas services
operations are not presented because such operations have been
discontinued.
Note 5-- Mortgage notes receivable:
The Mortgages, which were acquired on April 24, 1997 as part of the
acquisition of the BY Hotel Group, are secured by a hotel in Juno Beach,
Florida and a campground in Kissimmee, Florida, both of which are owned by
entities controlled by Messrs. Beck and Yeaggy. Messrs. Beck and Yeaggy
have also personally guaranteed the Mortgages. The balances receivable at
September 30, 1998 consisted of the following:
Note secured by hotel property, with
interest at .5% above specified prime
rate (an effective rate of 9.0% at
December 31, 1997) $2,106,065
Note secured by campground, with
interest at 8% 3,353,459
Total long-term receivable 5,590,477
Less current portion 130,953
LONG-TERM PORTION, NET OF CURRENT
PORTION $5,459,524
The Mortgages are payable in monthly installments of principal and interest
through April 2003 and final installments of all remaining principal and
interest in May 2003.
22
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 5-- Mortgage notes receivable (continued):
Principal payments on the Mortgages in each of the five years subsequent to
December 31, 1997 are:
Year Ending
December 31 Amount
----------- --------
1998 $123,022
1999 133,708
2000 145,326
2001 157,958
2002 171,690
The Company derived interest income of $354,786 from the Mortgages during
the period from January 1, 1998 to September 30, 1998.
Note 6--Property and equipment:
Property and equipment at September 30, 1998 and December 31, 1997
consisted of the following:
Years of September 30, December
Useful Life 1998 31, 1997
----------- ------------- -----------
Land $10,167,507 $6,035,000
Hotels 30 55,931,417 26,942,000
Hotel furniture and 5 3,054,922 2,232,941
fixtures:
Hotel furniture and 9 8,090,260 0
fixtures:
Equipment and 5 67,067 648,147
vehicles
Other 5 10,483 11,724
----------------------------
$77,321,656 $35,869,812
Less accumulated
depreciation and
amortization 2,413,731 1,066,521
----------------------------
Totals $74,907,925 $34,803,291
----------------------------
23
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 7--Long-term debt:
Long-term debt at September 30, 1998 consisted of the
following:
Fixed rate mortgage notes payable in monthly
installments, including interest at rates ranging from
8.09% to 10%;
The mortgage notes mature from August 2000 through
January 2016 $54,525,334
Variable rate mortgage notes payable in monthly
installments, Including interest at rates varying with
the prime commercial Lending rate, rates on U.S.
Treasury securities and other defined indexes (the
effective rates at December 31, 1997 ranged from 8.73%
to 9.5%); the mortgage notes mature from August 1999
through April 2006 8,884,824
Equipment notes with various maturities through
December 2001 and interest at rates ranging from 8.98%
to 15% 134,268
-----------
Total long-term debt $63,544,426
Less current portion 2,727,943
Long-term debt, net of current portion $60,816,483
-----------
Long-term debt is secured by the Company's property and equipment.
Principal payments in years subsequent to December 31, 1997 are as follows:
Year Ending
December 31 Amount
----------- ----------
1998 $2,343,276
1999 1,157,935
2000 1,257,374
2001 2,192,827
2002 3,465,099
24
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 8--Commitments and contingencies:
Employment agreements:
During 1997, the Company entered into employment agreements whereby it
will be obligated to pay minimum salaries to four of its executive
officers, including each Messrs. Beck and Yeaggy, aggregating $760,000
during 1998 and 1999 and $250,000 in 2000.
Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash in banks,
accounts receivable and the Mortgages.
The Company maintains its cash balances in bank deposit accounts
which, at times, may exceed the Federal Deposit Insurance Corporation
coverage limits thereby exposing the Company to credit risk. The
Company reduces its exposure to credit risk by maintaining such
deposits with financial institutions which management believes are
high quality.
Exposure to credit risk with respect to trade receivables is limited
by the short payment terms and, generally, the low balances applicable
to such instruments and the Company's routine assessment of the
financial strength of its customers.
Exposure to credit risk with respect to the Mortgages is limited
because they are secured by real estate with an estimated market value
in excess of the mortgage balance.
Litigation:
The Company is a party to various legal proceedings. In the opinion of
management, these actions are routine in nature and will not have a
material adverse effects on the Company's consolidated financial
statements in subsequent years.
Note 9--Income taxes:
For financial statement purposes, there was no provision for Federal income
taxes at September 30, 1998 and 1997 because all of the tax loss attributes
referred to above have been reserved through a valuation allowance against
the deferred tax assets due to the lack of a historical taxable income
stream. Further benefits to be realized from the utilization of the net
operating loss carryforwards generated prior to the Company's
reorganization in February 1990, including future effects of the net
operating losses on the projected earnings from recent acquisitions will
not
25
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 9--Income taxes (continued):
materially effect the results of operations, as such effects will be
reported as an increase in additional paid-in capital and not as a credit
to results of operations.
Section 382 of the Internal Revenue Code limits the amounts of net
operating loss carryforwards usable by a corporation following a change of
more than 50% in the ownership of the corporation during a three-year
period. As of June 30, 1998 management believes that such a change in
ownership has not occurred.
Currently, the net operating loss utilized of $936,000 in the period ended
September 30, 1998 is included in the disclosure of comprehensive income in
accordance with the accounting for losses prior to the February 1990
reorganization.
During the period ended September 30, 1998, the Company received $261,215
in refunds from the Internal Revenue Service (the "Service") attributable
to amended returns filed for previous years, plus interest of $154,280. The
Company recorded such refunds as income upon receipt as such amended
returns had been reviewed by the Service and accepted.
Note 10--Discontinued operations:
In December 1997, the Company adopted a plan to discontinue and dispose of
the oil and gas services operations that it had acquired in July 1996 (see
Note 4). Accordingly, the results of the oil and gas services operations
through December 31, 1997 and the estimated loss to be incurred in
connection with the disposal have been classified as separate components of
discontinued operations. See audited consolidated financial statements
filed as part of Form 10-KSB for the year ended December 31, 1997.
Management has completed the disposal through the sale of the stock of
PTWSC as of March 31, 1998.
Pre-Tek operating losses from January 1 to March 31, 1998 totaled $42,787.
The gain from the sale of stock totaled $14,161. The net effect of the
operating loss and gain on sale of stock totaling $18,626 reduced the
accrual from discontinued operations at March 31, 1998 to $136,186.
Note 11--Fair value of financial instruments:
The Company's financial instruments at September 30, 1998 and 1997
consisted of cash, accounts receivable, mortgage notes receivable, accounts
payable and fixed and variable rate mortgage and equipment notes payable.
In the opinion of management, (i) cash, accounts receivable and accounts
payable were carried at values that approximated their fair values because
of their short-term maturities and (ii)
26
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 11--Fair value of financial instruments (continued):
mortgage notes receivable and mortgage and equipment notes payable were
carried at values that approximated their fair values because they had
interest rates equivalent to those currently prevailing for financial
instruments with similar characteristics.
Note 12--Minority interest:
The Company owns an interest of approximately 90% in JIS and an interest of
85% in a hotel partnership that it acquired as part of the acquisition of
the Hotel Group during 1997 (see Note 4). The balance of the minority
interest in these consolidated subsidiaries at September 30, 1998 and the
changes in the minority interest are set forth below:
JIS HOTEL TOTAL
PARTNERSHIP
--------------------------------------------
Balance 1/1/98 $91,114 $1,597,856 $1,688,970
Net Income (loss) -0- 112,501 112,501
--------------------------------------------
Balance at 9/30/98 $91,114 $1,710,357 $1,801,471
27
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On August 14, 1998, Janus American Group Inc. ("Janus") consummated the
acquisition of four hotels (the "Cornerstone Hotel Group") as more fully
described in the Company's report on Form 8-K dated August 28, 1998, as amended
by Form 8-K/A dated October 26, 1998. The acquisition included the profit from
operations commencing July 1, 1998. On April 24, 1997, Janus consummated the
acquisition of a 100% equity interest in six hotels and an 85% equity interest
in a seventh hotel, a 100% equity interest in a hotel management company (the
"Management Company") and substantially all of the assets thereof other than
seven management contracts and 100% interests in mortgages (the "Mortgages") on
one additional hotel and a campground, all of which were owned by corporations
and partnerships that were, effectively, wholly-owned or controlled by Louis S.
Beck and Harry Yeaggy (the "Messrs. Beck and Yeaggy") during the year ended
December 31, 1996 and the period from January 1, 1997 through the date of
acquisition. The hotels, the Management Company and the Mortgages are referred
to herein as the "BY Hotel Group." On July 15, 1996, the Company acquired the
oil and industry services business of Pre-Tek Wireline Service Company, Inc. and
its wholly-owned subsidiary ("Pre-Tek"). Janus has accounted for the
acquisitions of the Cornerstone Hotel Group, the BY Hotel Group and Pre-Tek
pursuant to the purchase method of accounting in its historical financial
statements based on effective acquisition dates of August 14, 1998, April 30,
1997 and July 15, 1996, respectively. It was determined by management to
discontinue and dispose of the oil and gas services operations at December 31,
1997. The estimated loss was accrued. Based upon the above, the pro forma was
adjusted to eliminate the effect of Pre-Tek from operations.
The accompanying adjusted unaudited pro forma condensed statement of operations
for the nine months ended September 30, 1997 combines the historical
consolidated statement of operations of Janus and its subsidiaries for the nine
months ended September 30, 1997 (including the BY Hotel Group and Cornerstone
Hotel Group for the period from January 1, 1997 to September 30, 1997 as if the
acquisition was consummated as of January 1, 1997, and the elimination of
Pre-Tek for the entire period).
The accompanying adjusted unaudited pro forma condensed statement of operations
for the three months ended September 30, 1998 combines the historical
consolidated statement of operations of Janus and its subsidiaries for the three
months ended September 30, 1998 (including the operations of the Cornerstone
Hotel Group from July 1, 1998 to September 30, 1998).
The accompanying unaudited pro forma condensed combined financial statements are
based on the assumptions and adjustments described in the accompanying notes
which management believes are reasonable. The unaudited pro forma condensed
consolidated financial statements do not purport to represent what the combined
results of operations actually would have been if the acquisition of BY
Hotel-Group and Cornerstone Hotel Group referred to above had occurred as of
January 1, 1997 instead of the actual date of consummation or what the financial
position and results of operations would be for any future periods. The
unaudited pro forma condensed combined financial statements and the accompanying
notes should be read in conjunction with the audited and unaudited historical
financial statements of Janus and its subsidiaries, the BY Hotel Group and
Pre-Tek included elsewhere herein and in the Form 10-KSB for the year ended
December 31, 1997.
28
<PAGE>
<TABLE>
<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ADJUSTED FOR DISCONTINUED OPERATIONS
FOR NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
Pro Forma Pro Forma
Janus American Janus American
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $22,977,386 $22,526,644
Food and beverage $7,962,666 $7,649,854
Management fees $1,134,009 $801,762
Other $619,961 $620,090
----------- -----------
Total hotel revenues $32,694,022 $31,598,350
Sales $0 $0
---------- -----------
Total revenues $32,694,022 $31,598,350
Cost and expenses:
Direct hotel operating expenses:
Room and related services $5,741,043 $5,720,404
Food and beverage $6,586,823 $6,515,478
Selling and general expenses $1,872,404 $1,687,672
----------- -----------
Total direct hotel operating expense $14,200,270 $13,923,554
Occupancy and other operating expense $3,984,098 $3,758,837
Selling, general and administrative expenses $5,400,294 $5,159,116
Depreciation of property and equipment $2,475,761 $2,257,443
Amortization of intangible assets $196,477 $204,296
----------- -----------
Total costs and expenses $26,256,900 $25,303,246
Operating income (loss) $6,437,122 $6,295,104
Other income (expense)
Interest income $886,347 $605,867
Other income $0 ($25,317)
Interest expense ($3,989,619) ($4,070,322)
----------- -----------
Income (loss) before state income taxes and
minority interest $3,333,850 $2,805,332
Provision (credit ) for federal income taxes $0 $0
Credit for prior years federal income tax refunds ($261,215) $0
Provision (credit) for state income taxes $230,895 $17,527
----------- -----------
Income (loss) before minority interest $3,364,170 $2,822,859
Minority interest $112,502 $86,423
----------- -----------
Income (loss) from continuing operations $3,251,668 $2,736,436
----------- -----------
Net income (loss) $3,251,668 $2,736,436
Less preferred dividend requirements $591,142 $586,308
=========== ===========
Net income (loss) applicable to common stock $2,660,526 $2,150,128
=========== ===========
Net income (loss) per common share-Basic 0.31 0.24
Net income (loss) per common share-Assuming dilution 0.30 0.24
Basic weighted avg. shares outstanding 8,694,088 8,814,509
=========== ===========
Basic weighted avg. shares outstanding-assuming dilution 8,915,335 8,814,509
=========== ===========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
JANUS AMERICAN GROUP, INC.
UNAUDITED PROFORMA CONSOLIDATED STATEMENTS OF OPERATIONS
ADJUSTED FOR DISCONTINUED OPERATIONS
FOR THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $ 9,645,826 $ 9,656,932
Food and beverage $ 2,783,325 $ 2,679,424
Management fees $ 317,976 $ 245,322
Other $ 236,530 $ 261,947
----------- -----------
Total hotel revenues $12,983,657 $12,843,625
Sales $ 0 $ 0
----------- -----------
Total revenues $12,983,657 $12,843,625
----------- -----------
Cost and expenses:
Direct hotel operating expenses:
Room and related services $ 2,173,103 $ 2,216,310
Food and beverage $ 2,368,169 $ 2,358,232
Selling and general expenses $ 632,742 $ 602,912
----------- -----------
Total direct hotel operating expense $ 5,174,014 $ 5,177,454
Occupancy and other operating expense $ 1,431,353 $ 1,465,638
Selling, general and administrative expenses $ 2,135,026 $ 1,970,202
Depreciation of property and equipment $ 840,942 $ 745,387
Amortization of intangible assets $ 58,521 $ 61,582
----------- -----------
Total costs and expenses $ 9,639,856 $ 9,420,263
----------- -----------
Operating income (loss) $ 3,343,801 $ 3,423,362
Other income (expense)
Interest income $ 248,304 $ 278,442
Other income $ 0 ($ 25,317)
Interest expense ($ 1,289,484) ($ 1,323,170)
----------- -----------
Income (loss) before state income taxes and
minority interest $ 2,302,621 $ 2,353,317
Provision (credit) for federal income taxes $ 0 $ 0
Credit for prior years federal income tax refunds $ 0 $ 0
Provision (credit) for state income taxes $ 230,895 $ 39,730
----------- -----------
Income (loss) before minority interest $ 2,071,726 $ 2,313,587
Minority interest $ 111,407 $ 95,570
----------- -----------
Net income (loss) $ 1,960,319 $ 2,218,017
Less preferred dividend requirements $ 197,584 $ 194,362
----------- -----------
Net income (loss) applicable to common stock $ 1,762,735 $ 2,023,655
Net income (loss) per common share-Basic 0.20 0.23
=========== ===========
Net income (loss) per common share-Assuming dilution 0.20 0.23
=========== ===========
Basic weighted average common shares outstanding 8,694,088 8,691,735
=========== ===========
Basic weighted average common shares outstanding-asuuming dilutio 8,915,335 8,915,335
=========== ===========
</TABLE>
30
<PAGE>
Purchases of the BY Hotel Group and Pre-Tek:
Information with respect to the cost incurred by Janus to purchase the BY Hotel
Group on April 30, 1997 and Cornerstone Hotel Group on August 14, 1998 (the
effective date of the acquisition used for accounting purposes) and the
allocation of such costs in accordance with the purchase method of accounting is
set forth in Note 4 of the notes to the unaudited condensed consolidated
financial statements of Janus included elsewhere herein.
Information with respect to the cost incurred by Janus to purchase Pre-Tek on
July 15, 1996 is set forth in Note 4 of the notes to the unaudited condensed
consolidated financial statements of Janus included elsewhere herein.
Pro Forma Adjustments to the Unaudited Consolidated Statements of Operations
for the nine months ended September 30, 1998
(a) To eliminate the effects of discontinued operation of the oil gas services
business as of January 1, 1998.
(b) To eliminate the effects of non-recurring income resulting from workers
compensation refunds and rent from a restaurant not acquired as part of the
Cornerstone Hotel Group, totaling $302,616.
(c) To eliminate non-recurring repair expense and occupancy and other expenses
totaling $92,616.
(d) To record the effect of non-recurring general and administrative expenses
of $880,555 for management fees, director fees and auto leases.
(e) To record the effects on depreciation expense arising from the allocation
of purchase price of the Cornerstone Hotel Group between land, building,
furniture, fixtures and equipment.
(f) To record the effects on amortization expense arising from the amortization
of loan fees, franchise fees and prepaid fees incurred in the acquisition
of the Cornerstone Hotel Group.
(g) To eliminate interest income of $7,253 as no cash accounts were acquired.
(h) To record additional interest expense of $1,228,976 based on acquisition
financing of $44,000,000 amortized over 25 years at 8.09%.
Pro Forma Adjustments to the Unaudited Condensed Consolidated Statements of
Operations for the nine months ended September 30, 1997.
(a) To eliminate the net revenues derived from management contracts of the BY
Hotel Group that were not acquired by Janus.
31
<PAGE>
(b) To record the additional cost to be incurred as a result of the revisions
to the agreement with Hospitality Employee Leasing Program, Inc. that
became effective upon the consummation of the acquisition of the BY Hotel
Group.
(c) To record the net effects of changes to compensation and related expenses
based on revised employment and lease agreements that became effective upon
the consummation of the acquisition of the BY Hotel Group and the
elimination of the costs of consultants who will no longer be employed and
certain other nonrecurring costs of the BY Hotel Group and Cornerstone
Hotel Group.
(d) To record the effects arising from the allocation of the purchase price for
the acquisition of the BY Hotel Group and the Cornerstone Hotel Group on
historical depreciation and amortization of property and equipment based on
the fair values and estimated useful lives of the assets required.
(e) To record the effects arising from the allocation of the purchase price for
the acquisition of the BY Hotel Group on historical amortization of
goodwill based on a minimum estimated benefit period for goodwill arising
from the acquisition of the BY Hotel Group of 40 years and the amortization
of costs associated with licensing fees and loan costs incurred in the
acquisition of the Cornerstone Hotel Group, amortized over the applicable
terms of the licenses and loans.
(f) To adjust state income tax provisions and credits based on the pro forma
income or loss before income taxes and related carryforwards applicable to
each state. No provisions or credits for Federal income taxes have been
recorded on the pro forma net income or loss before income taxes based on
the availability of net operating loss carryforwards due to the
uncertainties related to their future use (see Note 5 of the notes to the
condensed consolidated financial statements herein).
(g) To record the minority interest in the net income (loss) of the 85%-owned
hotel.
(h) To record the dividends attributable to the shares of Series B preferred
stock issued as part of the consideration paid to the Sellers.
Pro Forma Adjustments to the Unaudited Condensed Consolidated Statements of
Operations for the three months ended September 30, 1998:
(a) To record the effects arising from the allocation of the purchase price for
the acquisition of the Cornerstone Hotel Group on historical depreciation
and amortization of property and equipment based on estimated useful lives
of the assets acquired.
(b) To record the effects arising from the acquisition financing on historical
interest expense.
(c) To record the elimination of non-recurring fees to directors and deferred
maintenance.
32
<PAGE>
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion of the Company's historical results of operations,
changes in liquidity and capital resources and liquidity and capital resources
as of September 30, 1998 and for the nine months ended September 30, 1998 and
1997 should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements of the Company and the notes thereto and the Unaudited Pro
Forma Condensed Consolidated Financial Statements Adjusted for Discontinued
Operations, of Janus American Group, Inc. and Subsidiaries and the notes thereto
included elsewhere herein. The term "Company" means Janus American Group, Inc.
("Janus") collectively with its subsidiaries, JI Subsidiary, Inc. ("JIS"),
Pre-Tek Wireline Service Company, Inc. ("Wireline") and KFE Wireline, Inc.
("KFE"). References to the operations of "Pre-Tek" in this discussion are to the
combined operations of Wireline and Wireline's subsidiary, KFE.
Janus and JIS are the successors to United States Lines, Inc. ("U.S.
Lines") and United States Lines (S.A.), Inc. ("U.S. Lines (S.A)"), which emerged
from a Chapter 11 bankruptcy in 1990. The Plan of Reorganization, which was
approved by the creditors of U.S. Lines and U.S. Lines (S.A.) and the United
States Bankruptcy Court for the Southern District of New York, contemplated that
Janus and JIS would seek out acquisition opportunities for each of the
reorganized companies in order to utilize their respective anticipated available
net operating loss carryforwards ("NOLs") for Federal income tax purposes.
The Company acquired the business of Pre-Tek, an oil and gas engineering
services and wireline logging company based in Bakersfield, California, in July
1996. On April 24, 1997, the Company acquired, from affiliates of Louis S. Beck
("Beck") and Harry G. Yeaggy ("Yeaggy"), certain assets relating to the
hospitality business comprised of (i) six hotels and an 85% partnership interest
in a partnership which owns a hotel, (ii) a hotel management company, with 21
hotels under management inclusive of the foregoing hotels (hereinafter hotels
which are managed, but not owned by the Company, are referred to as the "Managed
Hotels"), (iii) a management fee sharing arrangement with Summit Hotel
Management Company and (iv) two loans, one of which is secured by a first
mortgage on a hotel and the other of which is secured by a first mortgage on a
campground and both of which are personally guaranteed by Messrs. Beck and
Yeaggy (the businesses and assets acquired on April 24, 1997, are collectively
the "BY Hotel Group"). On August 14, 1998 the company acquired four full service
hotels in the Cleveland area (the "Cornerstone Hotel Group"), including the net
profit from operation of the hotels from July 1, 1998. Management is diligently
pursuing a program for additional acquisitions through the use of a combination
of cash, capital stock and, when necessary, borrowing.
In December 1997, the Company adopted a plan to discontinue and dispose of
the oil and gas services operations that it had acquired in July 1996. See Note
4 to the Unaudited Condensed Consolidated Financial Statements included
elsewhere herein. Accordingly, the results of the oil and gas services
operations through December 31, 1997 and the estimated loss to be incurred in
33
<PAGE>
connection with the disposal were classified as separate components of
discontinued operations at December 31, 1997. See Consolidated Statements of
Operations included in the Company's Report on Form 10-KSB for the year ended
December 31, 1997. Management has completed the disposal through the sale of the
stock of Pre-Tek to management of Pre-Tek as of March 31, 1998.
HISTORICAL AND PRO FORMA RESULTS OF OPERATIONS FOR NINE MONTHS ENDED SEPTEMBER
30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1997
The acquisition of the BY Hotel Group, the Cornerstone Hotel Group and
Pre-Tek were accounted for as purchases and, accordingly, the Company's
historical results of operations for the nine months ended September 30, 1998
and 1997 include the results of operations of the BY Hotel Group for the nine
months ended September 30, 1998 and subsequent to April 30, 1997 (the effective
date of acquisition for accounting purposes), Pre-Tek for the nine months ended
September 30, 1997 subject to the effect of discontinued operations as estimated
at December 31, 1997 and the results of operations of the Cornerstone Hotel
Group from July 1, 1998 to September 30, 1998. See Note 10 to the Unaudited
Condensed Consolidated Financial Statements included elsewhere herein.
Accordingly, the Company's historical results of operations for the nine months
ended September 30, 1998 are not directly comparable to those for the nine
months ended September 30, 1997.
To present more comparable information, adjusted unaudited pro forma
combined results of operations for the nine months ended September 30, 1998 and
1997 are set forth herein. The adjusted unaudited pro forma results of
operations sets forth the actual results of continuing operations of the Company
for the nine months ended September 30, 1998 as compared to pro forma results of
operations for the nine months ended September 30, 1997, as though the BY Hotel
Group and the Cornerstone Hotel Group had been acquired as of January 1, 1997.
In each case, the results of the discontinued oil and gas services operations
are excluded.
The pro forma combined net income of the Company was $2,660,526 for the
nine months ended September 30, 1998 as compared to $2,150,128 during the same
period of 1997. The difference was primarily the result of increases in interest
income and management fee income in addition to federal income tax refunds
totaling $261,215, offset by franchise taxes paid to various states based on the
net worth of the Company as of December 31, 1997, and estimated state income
taxes based on pro forma net income.
Room revenue increased $450,672 in the nine months ended September 30, 1998
as compared to the nine month period in the prior year. Average rate increased
by $1.97 from $61.17 in 1997 to $63.14 for 1998, which was offset by a small
occupancy percentage decrease of .48% in 1998 to 67.94%, from 68.42% in 1997.
Management fee income increased from $801,762 in 1997 to $1,134,009 in 1998
attributable to: (i) an increase in room revenue at the Managed Hotels where the
management fees are calculated as a percentage of room revenues; (ii) additional
management contracts over
34
<PAGE>
the same period in the prior year; and (iii) the Company's receipt of payment of
incentive management fees upon the sale of certain Managed Hotels by such
hotels' owners.
Other hotel related revenues remained stable in 1998 as compared to the
comparable period in 1997.
Direct hotel operating expenses increased by $276,716 from $13,923,554 in
1997 to $14,200,270 in 1998. Direct room and related services costs increased as
labor costs increased. Food and beverage costs increased as a result of
increased food and beverage sales which led to higher labor costs partially
offset by lower food costs.
Selling and general expenses increased by $184,732 from $1,687,672 in 1997
to $1,872,404 in 1998 because of increased outdoor advertising costs, additional
payroll for directors of sales at various locations and additional marketing
fees to licensors as rooms sales increased.
Occupancy and other operating expenses increased to $3,984,098 in 1998 from
$3,758,837 in 1997. The increase was the result of payroll expense increases due
to renovation programs commenced in the first and second quarters.
Selling, general and administrative expenses increased $241,178 to
$5,400,294 in 1998 from $5,159,116 in 1997 as a result of increased compensation
expenses and professional fees for legal and accounting services.
Depreciation and amortization expense increased by $218,318 in 1998 from
$2,257,443 in 1997 as a result of depreciation expense on 1997 and 1998
improvements.
Interest and other income increased $280,480 to $886,347 in 1998 from
$605,867 in 1997 as the amount of funds invested increased over the same period
in the prior year and interest was received on a federal income tax refund.
Interest expense decreased from $4,070,322 in 1997 to $3,989,619. The
decrease was a combination of interest rate increases on variable debt and the
offsetting interest expense deduction as a result of normal amortization.
The charges to operations for minority interest increased by $26,072 to
$112,502 in 1998 from $86,423 in 1997 as a result of increased profits from Best
Western Kings Quarters.
HISTORICAL AND PRO FORMA RESULTS OF OPERATIONS FOR THREE MONTHS ENDED SEPTEMBER
30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1997
The pro forma combined net income of the Company was $1,762,735 for the
three months ended September 30, 1998 as compared to $2,023,655 during the same
period of 1997. The decrease in net income was primarily the result of increases
in interest and management fee income and federal income tax refunds from prior
years totaling $261,215 offset by the accrual
35
<PAGE>
of potential state income taxes resulting from income generated that is not
protected by federal net operating loss carryforwards.
Room revenue remained stable in the three months ended September 30, 1998
as compared to the three months ended September 30, 1997.
Management fee income increased from $72,654 in the three months ended
September 30, 1997 to $317,976 in the three months ended September 30, 1998
attributable to: (i) an increase in room revenues at the Managed Hotels where
the management fees are calculated as a percentage of room revenues, and (ii)
additional management contracts over the same period in the prior year.
Other hotel related revenues decreased $25,417 to $236,530 from $261,947 in
1997 as a result of a timing change in the receipt of a refund attributable to
amusement park ticket sales.
Direct hotel operating expenses remained stable for the three months ended
September 30, 1998, as compared to the three months ended September 30, 1997, as
room revenues remained stable.
Occupancy and other operating expense decreased to $1,431,353 in 1998 from
$1,465,638 in 1997. The decrease was the result of non-recurring payroll expense
increases in 1997 attributable to the completion of renovation programs in the
third quarter of 1997.
Selling, general and administrative expenses increased $164,824 to
$2,135,026 for the three months ended September 30, 1998 from $1,970,202 for the
three months ended September 30, 1997, as a result of increased compensation
expenses and professional fees for legal and accounting services.
Depreciation and amortization expense increased by $95,555 as a result of
depreciation expense on 1997 and 1998 improvements completed in the previous
quarters.
Interest income decreased $30,338 to $248,304 in the three months ended
September 30, 1998 from $278,442 for the three months ended September 30, 1997
as the amount of funds invested decreased and the rate earned on deposits
decreased by .5%.
Interest expense decreased by $33,686 as the effect of principal
amortization more than offset interest rates increases on variable rate debt.
Minority interest increased by $15,887 from $95,570 for the three months
ended September 30, 1997 to $111,407 for the three months ended September 30,
1998, as a result of increased profits from Best Western Kings Quarters.
36
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1998
The following discussion reflects the liquidity and capital resources of
the Company. The Company's principal sources of liquidity are cash on hand
(including escrow deposits and replacements reserve), cash from operations,
earnings on invested cash and, when required, principally in connection with
acquisitions, borrowings (consisting primarily of loans secured by mortgages on
real property owned or to be acquired by the Company). The Company's continuing
operations are funded through cash generated from its hotel operations.
Acquisitions of hotels are expected to be financed through a combination of cash
on hand, internally generated cash, issuance of equity securities of Janus and
borrowings, some of which is likely to be secured by assets of the Company. The
Company has no committed lines of credit and there can be no assurance that
credit will be available to the Company or if available that such credit will be
available on terms and in amounts satisfactory to the Company. The ability of
the Company to issue its common or preferred stock is materially restricted by
the requirements of the Internal Revenue Code of 1986, as amended, if the
Company wishes to preserve its net operating loss carryforwards.
At September 30, 1998, the Company had $14,565,156 in cash and cash
equivalents. Included in the total is restricted cash of $897,404 consisting of
$41,238 for the redemption of preferred stock of JIS and $856,106 for real
estate tax escrow accounts and debt service reserve accounts.
During the nine months ended September 30, 1998, the Company invested
approximately $904,900 in capital improvements in its owned hotels. The Company
plans to spend an additional $600,000 on such capital improvements over the
remaining three months of 1998 in addition to approximately $2,400,000 on the
hotels in the Cornerstone Hotel Group as required in the licensing agreements
with Holiday Inns International. The funds for the improvements were escrowed at
closing as an offset to the purchase price.
Capital for improvements to hotel properties has been and is expected to be
provided by a combination of internally generated cash and, if necessary and
available, borrowings. The Company expects to spend annually approximately 4% to
5% of revenues from owned hotel properties for ongoing capital expenditures in
each year. The Company believes, based on its operating experience, that these
types of capital investments will enhance the competitive position of the hotels
and thereby enhance the Company's competitive position. Changes in the
competitive environment for a specific hotel may dictate higher or lower capital
expenditures.
The Company maintains a number of commercial banking relationships but does
not currently have committed lines of credit. It is in active negotiations with
lending institutions which might extend credit facilities to the Company for
capital purposes including capital that might be required for the acquisition of
additional hotels or management contracts. There can be no assurance such
negotiations will be successful.
The Company anticipates that it will be able to secure the capital required
to pursue its acquisition program through a combination of borrowing, internally
generated cash and
37
<PAGE>
utilization of its common and/or preferred stock to the extent such utilization
does not jeopardize the Company's net operating loss carryforwards. There can be
no assurance however that the Company will be able to negotiate sufficient
borrowings to accomplish its acquisition program on terms and conditions
acceptable to the Company, or at all. Further, any such borrowings may contain
covenants that impose limitations on the Company which could constrain or
prohibit the Company from making additional acquisitions as well as its ability
to pay dividends or to make other distributions, incur additional indebtedness
or obligations or to enter into other transactions which the Company may deem
beneficial. Additionally, factors outside of the Company's control could affect
its ability to secure additional funds on terms acceptable to the Company. Those
factors include, without limitation, any increase in the rate of inflation
and/or interest rates, localized or general economic dislocations, an economic
down-turn and regulatory changes constricting the availability of credit.
The Company has benefited and management believes that the Company will
continue to benefit as the recipient of moneys disbursed by the Reorganization
Trust as the Reorganization Trust has funds in excess of its reasonably required
reserves and projected operating expenses. There is no objective formula to
determine the extent to which Reorganization Trust assets exceed projected
liabilities and administrative requirements thereby making additional cash
available for contribution to the Company. However, it is management's belief
that there will be further contributions from the Reorganization Trust based
upon the decrease of the Reorganization Trust's administrative expenses through
reductions in personnel and office space, which is related to the decreasing
volume of unsettled claims of former unsecured creditors of U.S. Lines and U.S.
Lines (S.A.). The amount of excess cash available for contribution to the
Company will also be dependent upon the remaining duration of Reorganization
Trust activity necessary to resolve outstanding claims, particularly the
asbestos and other late-manifesting personal injury claims, and the amount of
professional fees associated with this activity. Accordingly, no assurance can
be given as to the amount or timing of additional contributions from the
Reorganization Trust, if in fact there are any additional contributions.
The Company's long-term debt at September 30, 1998 totals $63,544,432.
Mortgage debt totals $63,410,658, which consists of $54,525,834 in fixed rate,
fully self-amortizing mortgage loans and $8,884,824 in adjustable rate (3-5 year
adjustment period) mortgage loans. Such adjustable rate loans have maturity
dates at various dates through April 2006. Interest rates on mortgage debt range
from 8.09% to 10.00% with a weighted average interest rate of 8.5% effective at
September 30, 1998. The approximate scheduled repayments of principal on the
long-term debt of the Company are: from September 30, 1998 through December 31,
1998 -- $146,015; 1999 -- $2,620,752; 2000 -- $1,257,374; and 2001 --
$2,192,827. Management of the Company currently believes that the cash flow from
the Company's hotel operations will be sufficient to make the required
amortization payments. Balloon payments required to be made at the maturity of
the non-self-amortizing loans are expected to be made from cash on hand at the
time or from the proceeds of refinancing. There can be no assurance that the
Company will be able to obtain financing, or financing on terms satisfactory to
it.
Seasonality. Demand at many of the hotels is affected by seasonal patterns.
Demand for hotel rooms in the industry generally tends to be lower during the
first and fourth quarters and
38
<PAGE>
higher in the second and third quarters. Accordingly, the Company's revenues
reflect this seasonality.
YEAR 2000 ISSUES
The Company has conducted a review of its computer systems to identify the
systems that could be affected by the "Year 2000" issue and has initiated an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer programs being written using the two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
problems for the Company's computer systems as so modified and converted. The
Company also relies on computer-based services provided by third parties, such
as hotel reservations systems maintained by hotel franchisers. The Company is in
the process of determining whether these third parties have implemented Year
2000 plans. At present, the Company does not expect the Year 2000 problem to
have a material effect on its financial position or results of operations.
However, if the Company's own modifications and conversions , or those by third
parties, are not completed timely, the Year 2000 problem may have a material
impact on the financial position or operations of the Company.
FORWARD LOOKING STATEMENTS
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "expects," "plans," "will continue," "is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.
39
<PAGE>
PART II--OTHER INFORMATION
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
27.2 Financial Data Schedule
(B) Reports on Form 8-K:
August 14, 1998--Reporting the acquisition of four hotel properties.
SIGNATURE
In accordance with the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 13, 1998 JANUS AMERICAN GROUP, INC.
By: /s/ JAMES E. BISHOP
--------------------------------
James E. Bishop, President
/s/ RICHARD A. TONGES
---------------------------------
Richard A. Tonges, Treasurer and
Vice President of Finance (Principal
Financial and Accounting Officer)
40
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,565,157
<SECURITIES> 0
<RECEIVABLES> 2,010,742
<ALLOWANCES> 0
<INVENTORY> 129,332
<CURRENT-ASSETS> 16,750,038
<PP&E> 77,321,656
<DEPRECIATION> 2,413,731
<TOTAL-ASSETS> 109,645,575
<CURRENT-LIABILITIES> 7,129,548
<BONDS> 0
0
105
<COMMON> 118,833
<OTHER-SE> 38,589,129
<TOTAL-LIABILITY-AND-EQUITY> 109,645,575
<SALES> 18,186,451
<TOTAL-REVENUES> 19,691,814
<CGS> 7,371,871
<TOTAL-COSTS> 15,609,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,214,471
<INCOME-PRETAX> 2,754,167
<INCOME-TAX> (30,320)
<INCOME-CONTINUING> 2,671,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,080,843
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
