================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1997
Commission File Number: 0-22745
JANUS AMERICAN GROUP, INC.
(Name of Small Business Issuer in its Charter)
Delaware 13-2572712
(State or Other Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2300 Corporate Blvd., N.W., Suite 232
Boca Raton, Florida 33431-8596
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 994-4800
Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:
Title of Class Name of each exchange on which registered
______________________________ __________________________________________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. |_|
The Registrant's revenues for its most recent fiscal year were $11,573,353.
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $19,566,945, as of March 17, 1998. It is the
position of the Company that the United States Lines, Inc. and United States
Lines (S.A.), Inc. Reorganization Trust is not an affiliate.
Number of shares of common stock outstanding as of March 30, 1998: 8,691,735
Transitional Small Business Disclosure Format: Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE:
Document Incorporated Part of Report
By Reference Into Which Incorporated
------------ -----------------------
Proxy Statement for Annual Meeting Part III
to be held on May 29, 1998
================================================================================
<PAGE>
PART I
Item 1. Description of Business.
Background of the Company
Janus American Group, Inc. (the "Company" or "Janus") is the successor to
United States Lines, Inc. ("U.S. Lines"), which once was one of the largest
containerized cargo shipping companies in the world. On November 24, 1986,
McLean Industries, Inc., First Colony Farms, Inc. and their subsidiaries U.S.
Lines and United States Lines (S.A.), Inc. ("U.S. Lines (S.A.)") filed petitions
for relief under Chapter 11 of the United States Bankruptcy Code. Soon
thereafter, the shipping operations of U.S. Lines and U.S. Lines (S.A.) ceased.
U.S. Lines and U.S. Lines (S.A.) emerged from bankruptcy in 1990 under the terms
of the First Amended and Restated Joint Plan of Reorganization dated February
23, 1989 (the "Plan"). At that time, names of U.S. Lines and U.S. Lines (S.A.)
were changed to Janus Industries, Inc. and JI Subsidiary, Inc. ("JI
Subsidiary"), respectively. On September 29, 1997 the name of the Company was
changed to Janus American Group, Inc. Since emerging from bankruptcy, the
Company and JI Subsidiary were engaged in attempting to find a suitable
acquisition or acquisitions. The Company has completed two acquisitions, which
are described below. JI Subsidiary has not completed any acquisitions and
currently has no business activities. The Company and JI Subsidiary are
incorporated under the laws of the State of Delaware. See "Description of
Business--History of the Company's Reorganization."
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 that owns one hotel (collectively, the "Owned Hotels"); (ii) a
hotel management company, with 21 hotels under management inclusive of the Owned
Hotels (hereinafter the hotels that are managed, but not owned by the Company,
are referred to as the "Managed Hotels" and the Owned Hotels and the Managed
Hotels are collectively referred to as the "Hotels"); (iii) a management fee
sharing arrangement with Summit Hotel Management Company ("Summit"); 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, both of which are
personally guaranteed by Messrs. Beck and Yeaggy (the acquired businesses and
assets are collectively the "Beck-Yeaggy Group"). In consideration therefor,
Messrs. Beck and Yeaggy and Beck Hospitality III, Inc., a corporation
wholly-owned by them, received shares of the Company's common stock, par value
$.01 per share (the "Common Stock"), representing approximately 43% of the total
outstanding shares of Common Stock and shares of the Series B preferred stock of
the Company, par value $.01 per share (the "Series B Preferred Stock"),
representing 100% of the total outstanding shares of Series B Preferred Stock.
Messrs. Beck and Yeaggy have been engaged in the hospitality business
since 1972. After giving effect to the transactions with the Company, Messrs.
Beck and Yeaggy continue to hold controlling equity interests in 12 hotels,
seven of which are now managed by the Company (such seven hotels are the "Beck
Yeaggy Affiliates") and, through another entity, continue to manage an
additional two hotels. With the exception of these existing businesses, they
have contractually agreed with the Company not to engage in any business that
competes with the business of the Company.
In July 1996, the Company acquired substantially all of the assets of
Pre-Tek Wireline Service Company, Inc. ("Pre-Tek"), an oil and gas engineering
services and wireline logging company based in Bakersfield, California. During
1997 the Company determined to discontinue this line of business and is
presently negotiating the sale of Pre-Tek to management.
2
<PAGE>
The Hospitality Business
General
The Company's business is the management and ownership of hospitality
properties.
Owned Hotels
The Owned Hotels are located in four states and operate under franchise
agreements that provide for the use of the brand names Days Inn, Best Western
and Knights Inn. One of the Owned Hotels is located at the Kings Dominion
amusement park near Richmond, Virginia and has been designated as the host hotel
for the amusement park. The remaining Owned Hotels are located either near
office parks, interstate highways or airports in Ohio, Indiana and North
Carolina. The Owned Hotels generally offer remote control cable television and
swimming pool, and in some cases, restaurants. Most do not have meeting
facilities nor do they offer in-room food service. They are designed to appeal
primarily to business travelers and vacationers seeking lower cost hotel
accommodations.
The Owned Hotels are owned in fee, either directly or through consolidated
entities. With the exception of the Best Western hotel located at the Kings
Dominion amusement park, the properties are wholly-owned by the Company. The
Best Western Kings Quarters hotel is owned by Kings Dominion Lodge, a general
partnership in which the Company has an 85% interest and Messrs. Beck and
Yeaggy, through a partnership, have a 15% interest. Each of the Owned Hotels is
subject to mortgage indebtedness which is described below. All of such
indebtedness, is secured solely by the applicable hotel property and fixtures,
and is non-recourse to the other assets of the Company.
The following chart presents a summary of the operations at the Owned
Hotels for calendar years ended December 31, 1997 and 1996.
1997
- --------------------------------------------------------------------------------
HOTEL AND LOCATION RMS AVAIL.(1) OCC %(2) ADR(3) RevPAR(4)
- --------------------------------------------------------------------------------
DAYS INN, SHARONVILLE, OHIO 52,195 52% $46.15 $23.84
BEST WESTERN KINGS QUARTERS, 91,264 50% $56.01 $27.70
DOSWELL, VIRGINIA
KNIGHTS INN, WESTERVILLE, OHIO 39,785 71% $34.06 $24.05
KNIGHTS INN, LAFAYETTE, INDIANA 40,880 71% $37.23 $26.57
KNIGHTS INN, MICHIGAN CITY, INDIANA 37,595 59% $36.74 $21.78
DAYS INN CRABTREE, 44,500 70% $50.46 $35.51
RALEIGH, NORTH CAROLINA
DAYS INN RTP, 40,382 91% $67.57 $61.41
RALEIGH, NORTH CAROLINA
- ----------
(1) Calculation is based on number of hotel rooms multiplied by number of days
in a year.
(2) Total number of rooms sold during a year divided by total number of rooms
available in such year.
(3) Average Daily Rate equals total room revenue (exclusive of taxes) during a
year divided by rooms sold.
(4) Revenue Per Available Room equals total room revenues (exclusive of taxes)
during a year, divided by rooms available for sale during such year.
3
<PAGE>
1996
- --------------------------------------------------------------------------------
HOTEL AND LOCATION RMS AVAIL. OCC% ADR RevPAR
- --------------------------------------------------------------------------------
DAYS INN, SHARONVILLE, OHIO 52,338 59% $45.10 $26.50
BEST WESTERN KINGS QUARTERS, 91,016 52% $53.86 $27.86
DOSWELL, VIRGINIA
KNIGHTS INN, WESTERVILLE, OHIO 39,894 72% $34.24 $24.80
KNIGHTS INN, LAFAYETTE, INDIANA 40,942 75% $35.88 $26.98
KNIGHTS INN, MICHIGAN CITY, INDIANA 37,633 59% $58.93 $20.47
DAYS INN CRABTREE, 44,652 71% $50.03 $33.62
RALEIGH, NORTH CAROLINA
DAYS INN RTP, 40,260 97% $60.33 $57.12
RALEIGH, NORTH CAROLINA
The following is a description of each of the Owned Hotels:
Days Inn Hotel, Raleigh, North Carolina. Built in 1979, the 122 room hotel
is located on 2.79 acres on the south side of Glenwood Avenue in the Crabtree
area of Raleigh. Glenwood Avenue is a major roadway through the area and
connects the Raleigh-Durham airport (approximately 11 miles northwest of the
property) and Interstate Highway 440 (one mile southeast). The hotel is well
located relative to the area's universities and freeways. The improvements
consist of two two-story, concrete block buildings with brick and glass
exteriors, an outdoor swimming pool and a one-story building consisting of the
hotel lobby and a 65 seat restaurant. Access to the guest rooms is from exterior
corridors.
The hotel is subject to a first mortgage with a balance of $2,781,671 as
of December 31, 1997, which amount is to be amortized on a monthly basis through
its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of
8.875% per annum. At December 31, 1997, the loan was in its third loan year.
Under the terms of the mortgage, the loan may not be prepaid prior to the eighth
loan year. Prepayment in loan years 8 through 14 is subject to a prepayment
penalty of 7% in year 8 decreasing by 1% each year thereafter.
In 1997 the Company spent approximately $81,000 on capital improvements.
Such improvements were paid from working capital and existing replacement
reserves. The replacement reserve balance was $260,715 as of December 31, 1997.
Improvements to be made in 1998 total approximately $432,000. Such improvements
will be funded from existing replacement reserves and from working capital.
Best Western Kings Quarters, Doswell, Virginia. Built in 1977, the 248
room hotel is located on 10.5 acres on the eastern side of Interstate Highway 95
and the south side of Route 30 in Hanover County (Doswell), Virginia, 20 miles
north of Richmond, Virginia. The hotel is the "Host Facility" for the adjacent
Paramount Kings Dominion theme park.
The improvements consist of two-story, brick hotel buildings with exterior
corridors and pitched roofs. The hotel's lobby is attached to one of the guest
buildings. The adjacent 140 seat Denny's restaurant is owned by Kings Dominion
Lodge, the partnership that owns the hotel. The amenities also include an
outdoor swimming pool, two tennis courts, a putting green, shuffleboard,
volleyball, ping-
4
<PAGE>
pong, horseshoes, children's playground, video arcade, guest laundry, meeting
room, lounge, exterior lighting and a paved parking lot for 360 cars.
The hotel is subject to a first mortgage with a balance of $5,046,067 as
of December 31, 1997, which amount is to be amortized on a monthly basis through
its maturity date of January 1, 2016. The mortgage carries a fixed interest rate
of 9.75% per annum. At December 31, 1997, the loan was in its second loan year.
Under the terms of the mortgage, the loan may not be prepaid prior to the eighth
loan year. Prepayment in loan years 8 through 14 is subject to a prepayment
penalty of 7% in year 8 decreasing by 1% each year thereafter.
The Company spent approximately $308,000 for improvements to the property
in 1997 and underwent a design review. That design review resulted in plans for
approximately $220,000 in additional improvements to be made during the year
1998.
Improvements during 1997 were, and improvements during 1998 will be,
financed from working capital and existing replacement reserves. The replacement
reserve balance as of December 31, 1997 was $546,292.
Days Inn, Sharonville, Ohio. Built in 1974, the 142 room hotel is located
along the southwest quadrant of the Interstate Highway Loop 275/State Road 42
intersection. The property's visibility from the two major highways is
considered to be excellent. Improvements consist of three two story concrete
buildings. The buildings have both interior and exterior corridors. The
lobby/reception area is part of one of the guest buildings. Additionally, there
is a one-story restaurant located on the property. The restaurant is leased to
and is operated by an unrelated third party.
The hotel is subject to a first mortgage with a balance of $2,698,148 as
of December 31, 1997. The mortgage requires monthly payments and matures on
September 1, 2002 with a remaining balance, assuming no prepayment, of
approximately $2,134,000. The mortgage carries an interest rate of 9.50% per
annum subject to adjustment on September 1, 1999 to a rate equal to 300 basis
points above the weekly average yield on United States Treasury Securities
adjusted to a constant maturity of three years. Under the terms of the mortgage,
the loan has a "marked to market" prepayment penalty.
In 1995, the Company, in concert with Days Inn of America, Inc., prepared
a two-year product improvement plan. Phase I was completed in 1996 and Phase II
was completed in the fourth quarter of 1997. The Company spent approximately
$212,000 for improvements to the property in 1997 financed from working capital.
During 1998 the Company expects to spend approximately $363,000 to upgrade the
exterior of the premises. This expenditure is to be financed from working
capital.
Days Inn (Research Triangle), Morrisville, North Carolina. Built in 1987,
the 110 room hotel is located on approximately 3.47 acres on Airport Blvd.,
south of Interstate Highway 40 and the Raleigh-Durham Airport. The three-story
concrete block building is faced with a brick and glass facade and is well
located relative to area universities, research facilities and freeways. The
building has interior corridors and a port cochere for convenient loading and
unloading of guests, and which provides a protected entry into the hotel's
lobby. Amenities include a fitness room, two meeting rooms, an outdoor swimming
pool and two airport shuttle vans.
The hotel is subject to a first mortgage with a balance of $2,852,995 as
of December 31, 1997, which amount is to be amortized on a monthly basis through
its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of
8.875% per annum. At December 31, 1997, the loan was in its
5
<PAGE>
third loan year. Under the terms of the mortgage, the loan may not be prepaid
prior to the eighth loan year. Prepayment in loan years 8 through 14 is subject
to a prepayment penalty of 7% in year 8 decreasing by 1% in each year
thereafter.
The Company spent approximately $60,000 for capital improvements in 1997.
Capital expenditures were financed from working capital and replacement
reserves. As of December 31, 1997, the balance in the replacement reserve
account was $179,898. The Company expects to spend approximately $200,000 on the
renovation of 30 rooms and property common areas during 1998. This expenditure
will be financed from working capital and the replacement reserve account.
Knights Inn, Westerville, Ohio. Built in 1985, the 109 room hotel is
located on approximately 2.85 acres at the northern line of Heather Down Road,
approximately 155 feet west of State Highway 10. Improvements consist of four
one-story modular buildings with wood trimmed stone and stucco exteriors and an
outdoor pool. The buildings have exterior corridors. The lobby consists of a
reception area and an office.
The hotel is subject to a first mortgage with a balance of $1,026,103 as
of December 31, 1997. The mortgage matures at August 1, 2001 with a remaining
balance, assuming no prepayment, of approximately $867,000. The mortgage carries
a fixed interest rate of 8.91% per annum. Under the terms of the mortgage, the
loan may be prepaid in whole or part at any time without penalty.
The Company spent approximately $39,000 for capital improvements in 1997.
Capital expenditures were financed from working capital. The Company expects to
spend approximately $110,000 on the renovation of 30 rooms and property common
areas during 1998. This expenditure will be financed from working capital.
Knights Inn, Michigan City, Indiana. Built in 1987, the 103 room hotel is
located on approximately 3.45 acres on the north side of Kieffer Road
approximately 1/4 mile west of U.S. Highway 421. The property is highly visible
from U.S. Highway 421. Improvements consist of 5 one-story modular buildings
with wood trimmed stone and stucco exteriors. The buildings have exterior
corridors. The lobby consists of a reception area and an office.
The hotel is subject to a first mortgage with a balance of $1,628,362 as
of December 31, 1997. The mortgage requires monthly payments and matures at
April 1, 2006 with a remaining balance, assuming no prepayment, of approximately
$1,097,000. The mortgage carries an interest rate of 9.5% per annum subject to
adjustment every three years to a rate 100 basis points above the prime rate of
Provident Bank. Such bank's prime rate is 8.50% as of August 20, 1997. The
interest rate on the mortgage was last adjusted April 1, 1997. Under the terms
of the mortgage, the loan may be prepaid in whole or in part at any time without
penalty.
The Company spent approximately $44,000 for capital improvements in 1997.
Capital improvements were financed from working capital. The Company expects to
spend approximately $120,000 on the renovation of 30 rooms and property common
areas during 1998. This expenditure will be financed from working capital.
Knights Inn, Lafayette, Indiana. Built in 1987, the 112 room hotel is
located on approximately 3.24 acres on the north side of State Road 26
approximately 1/2 mile west of Interstate Highway 65. The property is not
visible from the interstate highway, but is visible from State Road 26.
Improvements consist of four one-story modular buildings with wood trimmed stone
and stucco exteriors and an
6
<PAGE>
outdoor swimming pool. The buildings have exterior corridors. The lobby consists
of a reception area and an office.
The hotel is subject to a mortgage with a balance of $2,157,580 as of
December 31, 1997. The mortgage matures at April 1, 2006 with a remaining
balance, assuming no prepayment, of approximately $1,453,000. The mortgage
carries an interest rate of 9.50% per annum subject to adjustment every three
years to a rate 100 basis points above the original lending bank's prime rate.
The interest rate on the mortgage was last adjusted April 1, 1997. Under the
terms of the mortgage, the loan may be prepaid in whole or in part at any time
without penalty.
The Company spent approximately $65,000 for capital improvements in 1997.
Capital improvements were financed from working capital. The Company expects to
spend approximately $85,000 on the renovation of the lobby during 1998. This
expenditure will be financed from working capital.
7
<PAGE>
The Managed Hotels
The Company operates the Managed Hotels pursuant to management agreements
(the "Management Agreements") with the owners of such Managed Hotels. As of
December 31, 1997, 15 of the Managed Hotels were operated under
nationally-recognized brand names and 3 were non-franchised properties. The
brand names of the Managed Hotels include Best Western, Days Inn, Knights Inn,
Comfort Suites, Howard Johnson, Quality Inn and Holiday Inn. There are three
categories of properties from which the Company derives management fees: (i) the
Beck-Yeaggy Affiliates managed by the Company; (ii) third-party owned properties
managed by the Company; and (iii) third-party owned properties managed by the
Company's marketing partners, Summit and DePalma Hotel Corporation of Dallas
("DePalma").
The Beck-Summit Hotel Management Group, a Florida general partnership
("Beck-Summit"), was organized in 1992. Each of the Company and Summit holds a
50% partnership interest in Beck-Summit. The purpose of the partnership is to
market management services jointly and divide the management fees resulting
therefrom. Under the terms of the agreement between the parties, the party that
identifies a management opportunity acts as the manager for the applicable
property and receives 80% of the management fees payable by the property owner.
The remaining 20% of the management fees are retained by Beck-Summit. Funds
retained by the partnership that are in excess of its cash requirements are
distributed to the Company and Summit equally. Upon termination of the
partnership, each party retains the management rights to the properties it
originally identified.
The Company and DePalma organized DePalma-Janus, Partners, a Florida
general partnership ("D-J Partners") in 1997. The purposed of the partnership is
to manage two Days Inn hotels in Florida. The actual management services are
provided by DePalma. Each of the Company and DePalma holds a 50% interest in D-J
Partners. The Company through D-J Partners also has a 5% equity interest in the
underlying hotels.
The Company is responsible for all matters relating to the day-to-day
operations of the Managed Hotels and is required to prepare an annual operating
budget, use its reasonable best efforts to market the hotels and ensure
compliance with the terms of any applicable franchise agreements. As manager,
the Company is also responsible for the retention and supervision of personnel,
necessary for the operation of the hotel property. The Company has a contract
with a third party for this purpose. See "Operations--Hotel Personnel."
Under the terms of the Management Agreements, management fees are based on
a fixed percentage of a property's total revenues and/or incentive payments
based upon net operating income. Additional fees are also generated from the
rendering of accounting services. Each of the Management Agreements with respect
to the Beck-Yeaggy Affiliates has fixed management fees of 5% of total revenues
of the Managed Hotel. The Management Agreements for properties owned by third
parties provide for a base management fee ranging from approximately 3% to 5% of
the total revenues of the Managed Hotel or a flat fee per month and an incentive
fee based upon a percentage of profits.
The Management Agreements with respect to the Beck-Yeaggy Affiliates have
a term which expires in the year 2007. The Management Agreements for properties
owned by third parties generally have terms of one year to three years and are
automatically renewed for successive one-year periods after the initial term,
unless either party decides not to renew the same. The Management Agreements for
properties owned by third parties allow either party to terminate such
agreements prior to the stated expiration date for cause and two such Management
Agreements provide for termination prior to the stated expiration date without
8
<PAGE>
cause. All of the Management Agreements permit the owners of the Managed Hotels
to terminate such agreements prior to the stated expiration dates if the
applicable hotel is sold. The Management Agreements with the Beck-Yeaggy
Affiliates provide that in the event of a sale of the underlying hotels, the
Company is entitled to a termination payment equal to the present value of the
average of total fees for the prior three years (or such shorter period that the
Management Agreement was in effect) times the number of years remaining on the
term of the Management Agreement. The Management Agreements for properties owned
by third parties do not provide for a termination payment in the event of a sale
of the underlying hotel.
Operations
The Company operates each Hotel according to a business plan specifically
tailored to the characteristics of the Hotel and its market and employs
centralized management, accounting and purchasing systems to enhance hotel
operations, reduce the costs of goods purchased for the Hotel and increase
operating margins.
Computerized Reporting Systems. The Company has a service agreement for a
hotel property management information system with Computel Computer Systems,
Inc. ("Computel"), a corporation wholly-owned by Messrs. Beck and Yeaggy. This
agreement provides a computerized system that tracks all services provided by
most of the Hotels and enables the Company to monitor a broad spectrum of the
operations of each Hotel covered by the system, including the occupancy and
revenues of the Hotels. The agreement with Computel has a term of one year and
automatically renews for successive terms of one year, unless one party notifies
the other to the contrary at least three months prior to the termination date.
Computel is paid a monthly fee of $275 per hotel for its basic property
management software package and one computer terminal. Additional monthly fees
are charged for additional terminals and add-on software for services such as
guest messaging, call accounting interface, franchise central reservation
interface and movie interface. On each annual renewal of the agreement, Computel
is entitled to adjust its fees to the Company commensurate with the fees charged
to other customers. During 1998, as a result of requirements of one of the
Company's franchisors, the Company anticipates that a substantial number of the
Hotels will change to a computer reporting system controlled by a party
unaffiliated with the Company. This change is expected to reduce the Company's
cost of data processing services to the Company.
Hotel Personnel. Personnel at the Hotels are provided by Hospitality
Employee Leasing Program, Inc. ("HELP"), a corporation wholly-owned by Messrs.
Beck and Yeaggy, pursuant to an agreement with the Company. The agreement has a
term of one year and automatically renews for successive terms of one year,
unless one party notifies the other to the contrary at least three months prior
to the termination date. The Company pays HELP the actual costs of the personnel
provided to it to operate the Hotels plus an administrative fee of $8.15 per
bi-monthly pay period per person provided.
Franchise Agreements
The Company has entered into non-exclusive multi-year franchise, licensing
or membership agreements, which allow the Company to utilize the franchise or
brand name of the franchiser or licensor for the Owned Hotels. The Company
believes that its relationships with nationally recognized franchisers provides
significant benefits for its existing Owned Hotels. The franchise agreements
require the Company to pay annual fees, to maintain certain standards and to
implement certain programs that require additional expenditures by the Company
such as remodeling or redecorating. The payment of
9
<PAGE>
annual fees, which typically total from 8% to 12% of room revenues, covers
royalties and the costs of marketing and reservation services provided by the
franchisers. Franchise agreements, at their inception, generally provide for a
term of 15 years and for an initial fee in addition to annual fees payable to
the franchiser.
The Company currently has franchise or membership relationships with Days
Inn, Knights Inn and Best Western. Franchise agreements may be terminated if,
among other reasons, the Company breaches its obligations under the agreement,
the hotel is not operated in the ordinary course of business or the Company
becomes financially unstable. There can be no assurance that a desirable
replacement could be available if any of the franchise agreements were to be
terminated. Upon such termination with respect to Owned Hotels, the Company
would incur the costs of signage removal and other expenses, possible lost
revenues and the costs incidental to establishing new associations. Through the
Managed Hotels and Beck-Summit, the Company has additional relationships with
other franchisors, including Hutton, Quality Inns, Howard Johnson, Comfort
Suites, Marriott, Radisson and Holiday Inn.
Employment and Other Government Regulation
The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. Also, the Company and HELP are subject to laws governing
relationships with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. The failure to obtain or retain
liquor licenses or an increase in overall wage rates, employee benefit costs or
other costs associated with employees, could adversely affect the Company. Under
the Americans with Disabilities Act of 1990 (the "ADA") all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes its hotels are
substantially in compliance with these requirements, a determination that the
Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. These and other such
initiatives could adversely affect the Company.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership or operation of
the Hotels, the Company may be potentially liable for any such costs. Although
the Company is not currently aware of any material environmental claims pending
or threatened against it, no assurance can be given that a material
environmental claim will not be asserted against the Company or against the
Company and the Hotels. The cost of defending against claims of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations of the Company.
Competition
The lodging industry is highly competitive both in terms of geographic
markets and market segmentation. The Owned Hotels are in the market segment
known generally as economy and limited service hotels. The Company competes with
other franchisers of Days Inn hotels, Knights Inn hotels and Best Western hotels
within the geographic markets of the applicable Owned Hotels and operators of
other economy and limited service hotels. The Managed Hotels cover the spectrum
of market segments and include limited service hotels, full service mid-market
hotels and higher rated luxury properties.
10
<PAGE>
Like the Owned Hotels, the Managed Hotels compete, within their geographical
markets, with other properties operating under the same franchise names, with
properties operating under other franchise names and with independent operators.
Several owners/managers of multiple hotel properties are larger than the Company
and have greater financial and other resources and better access to the capital
markets than the Company. Performance of the hotel industry has been cyclical
and is affected by general economic conditions and by the local economy where
each hotel is located. In addition, to remain competitive, hotels must be
periodically renovated and modernized in order to compete with newer or more
recently renovated facilities. Furthermore, shifts in demographics or other
local market changes can reduce the economic returns from a hotel.
Employees
As of December 31, 1997, five full-time employees and four part-time
employees of the Company were engaged in management, business operations and
administration of its hospitality business. In addition, at that date
approximately 940 individuals employed by HELP provided services at the Hotels
under a service agreement between HELP and the Company. See "The Hospitality
Business--Operations."
Growth Strategy
Management of the Company intends to pursue a program of expanding its
business of the management and/or acquisition of hospitality (including hotels),
recreation, health care, entertainment or other related entities through the
marketing of its services to properties not owned by the Company or by
affiliates of Messrs. Beck and Yeaggy and through the acquisition of properties
either by itself or with others. The Company is engaged in a continuous
marketing program to expand the number of hotels that it manages. Since entering
the hospitality business in April 1997, and prior to December 31, 1997, the
Company increased its number of Managed Hotels by four. The Company also
continues to review possible acquisitions of hotels. There can be no assurance
that the Company will be successful in pursuing its growth strategy due to the
highly competitive nature of the market and current limitations on the Company's
ability to raise capital through the issuance of Common Stock and certain types
of preferred stock. See "Risk Factors--Competition"; and -- "Possible Need for
Additional Financing" and "Management's Discussion and Analysis or Plan of
Operation--Liquidity and Capital Resources."
Investment Policies
Generally. The Company's core business is the management and/or
acquisition of hospitality (including hotels), recreation, health care,
entertainment or other related entities that the Company believes may benefit
from the Company's management expertise.
Investments in Real Estate or Interests in Real Estate. Investments in
properties may include the acquisition and redevelopment of existing properties,
the acquisition of existing properties in concert with a third party,
acquisition of existing or new management contracts related to hospitality,
recreation, health care or entertainment properties or, in circumstances the
Company deems potentially advantageous, the acquisition of unimproved property
and the subsequent development or sale of such property.
There is no limitation on the percentage of the Company's assets that may
be invested in any one investment or in any one type of investment, including
the geographic location or distribution of such investments. The Company's
investment policy may be changed without a vote of the Company's
11
<PAGE>
security holders. The primary purpose of the Company's acquisition and
investment policy is to acquire assets that will provide income to the Company.
Capital gains related to the disposition of assets held by the Company is a
secondary consideration.
While the Company is unrestricted in terms of the type of properties in
which it may invest, the Company intends to focus its real estate investments on
hospitality or entertainment-related properties without specific geographic
limitations. Financing for any acquisitions undertaken by the Company is
expected to be provided through a combination of cash on hand, internally
generated cash, capital stock transactions (to the extent such capital stock
transactions can be accomplished without jeopardizing the Company's net
operating loss carryforwards) and through borrowings. There can be no assurance
that the enumerated sources of financing will be available to the Company on a
timely basis nor that borrowings by the Company will be available on terms the
Company deems acceptable, or at all. There is no limitation as to the amount of
indebtedness the Company may incur nor the amount or number of mortgages that
the Company may place on any one piece of property.
Investments in Real Estate Mortgages. The Company does not, within its
core business, intend to invest in real estate mortgages, except as ancillary to
the acquisition of other assets. It is not the Company's intention to service or
to warehouse real estate mortgages, nor is it the Company's intention to invest
in real estate mortgages as a passive investor in such instruments.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities. The Company does not intend to invest in securities of persons
primarily engaged in real estate activities, except where such investment may be
ancillary or incidental to transactions involving hospitality, recreation or
entertainment-related properties or management agreements to be acquired by the
Company. In this respect, the Company may acquire positions in corporate common
stock, real estate investment trusts, partnerships or limited liability
companies.
The Energy Service Business
In July 1996 the Company acquired the assets and liabilities of Pre-Tek
Wireline Service Company, Inc. and all of the stock of its wholly-owned
subsidiary, KFE Wireline, Inc. (collectively "Pre-Tek"). Pre-Tek provides
customers in the oil and gas industry with integrated well testing and
production logging services. Pre-Tek also provides precision downhole data
acquisition systems, and also uses advanced computer software to provide a
complete analysis service including well test design and interpretation and
simulation. Pre-Tek's operations are primarily in California. The Company has
determined to dispose of this business and is currently in discussions with
management of Pre-Tek to sell the business to them.
Pre-Tek has 13 full time employees, of which nine are field personnel who
are responsible for the labor and technical aspects of downhole well testing and
logging, two are management, one is clerical and one is a salesperson. Pre-Tek
retains part-time employees on an as needed basis.
12
<PAGE>
History of the Company's Reorganization
Under the terms of the Plan, (i) The United States Lines, Inc. and United
States Lines (S.A.), Inc. Reorganization Trust (the "Reorganization Trust") was
created for the benefit of unsecured creditors of U.S. Lines and U.S. Lines
(S.A.); (ii) certain assets and liabilities of U.S. Lines and U.S. Lines (S.A.)
were transferred to the Reorganization Trust; and (iii) U.S. Lines and U.S.
Lines (S.A.) were discharged of all liabilities.
The agreement establishing the Reorganization Trust (the "Trust
Agreement") provided for shares of stock of Janus and JI Subsidiary to be
distributed to the unsecured creditors as their claims were allowed. See "The
Reorganization Trust." The Plan provided for the unsecured creditors to hold a
majority of the outstanding stock of the reorganized companies through the
Reorganization Trust and further provided for a sale of stock to an investor who
would identify investment opportunities for the reorganized companies.
A principal objective of the Plan revealed in the Second Amended and
Restated Disclosure Statement of McLean Industries, Inc., First Colony Farms,
Inc., United States Lines and United States Lines (S.A.), Inc. dated February
23, 1989 (the "Disclosure Statement") was the preservation and maximization of
substantial net operating loss carryforwards ("NOLs") of U.S. Lines and U.S.
Lines (S.A.) for Federal income tax purposes. The Plan designed the Company's
post-reorganization capital structure in order to comply with the net operating
loss provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
and to ensure that at least one half of the common stock of Janus was owned by
creditors whose claims were "old and cold". The term "Net NOLs" means the amount
of NOLs of U.S. Lines and U.S. Lines (S.A.) for federal income tax purposes
adjusted to reflect reductions and related adjustments required under Code ss.
382(l)(5) but subject to Internal Revenue Service audits, subsequent changes in
the ownership of the Company and effects under Code ss. 382, the application of
Code Sections 269 and 384, and the consolidated return regulations under Code
Section 1502. See "The Net Operating Loss Carryforwards--Application of Code ss.
382 Under the Chapter 11 Reorganization". Management of the Company believes
that after taking into account these reductions and related adjustments the Net
NOLs currently are at least $500 million. See "Risk Factors--Net Operating Loss
Carryforwards".
Indebtedness of creditors was deemed "old and cold" by the Reorganization
Trust if the indebtedness (i) was held by a particular creditor for at least 18
months before the date of the filing of the Chapter 11 case or (ii) arose in the
ordinary course of the trade or business of the old loss corporation and was
held by the person who at all times held a beneficial interest in that debt.
Common Stock was issued to creditors with "old and cold" indebtedness and a
class of 4,000 shares of 12% preferred stock, having a liquidation value of $100
per share (the "Series A Preferred Stock"), was created for distribution to
those creditors whose claims did not meet the "old and cold" criteria. The
Company redeemed the outstanding shares of Series A Preferred Stock in December
1996.
Under the terms of the Plan, reorganized U.S. Lines (S.A.) remained a
separate entity under the name JI Subsidiary. Approximately 90% of the
outstanding common stock of JI Subsidiary is owned by Janus. As another means of
preserving the Federal income tax attributes of both U.S. Lines and U.S. Lines
(S.A.), the Reorganization Trust was issued both common stock of JI Subsidiary
and a class of preferred stock of JI Subsidiary (the "JIS Series A Preferred
Stock") for the benefit of the separate former unsecured creditors of U.S. Lines
(S.A.). JI Subsidiary redeemed the outstanding shares of JIS Series A Preferred
Stock in December 1996.
13
<PAGE>
The Dyson-Kissner-Moran Corporation, through a subsidiary ("DKM"), was the
investor that acquired stock of Janus as part of the Plan. DKM purchased 36% of
the stock of Janus for $3,000,000 and received a warrant to buy an additional 9%
of the stock. In addition, DKM purchased shares of the common stock of JI
Subsidiary and shares of JIS Series A Preferred Stock. Under the Plan, DKM
controlled the board of directors of Janus and provided managerial services.
Three representatives of the unsecured creditors of U.S. Lines also served on
the board. After five years, DKM was unable to make an acquisition for Janus or
JI Subsidiary. DKM's stock in Janus and JI Subsidiary was redeemed effective May
15, 1995 for less than half of DKM's original investment.
Effective upon the redemption, the representatives of the former creditors
of U.S. Lines on the Janus Board of Directors assumed responsibility for the
management of the Company and JI Subsidiary. The Board thereafter retained James
E. Bishop, an individual with experience in mergers, acquisitions and investment
banking as a senior officer and charged him with the responsibility of carrying
out the Company's and JI Subsidiary's acquisition objectives.
The Reorganization Trust
The Reorganization Trust was created by the Plan for the purpose of
resolving the disputed claims of former unsecured creditors of U.S. Lines and
U.S. Lines (S.A.), marshalling the remaining assets of U.S. Lines and U.S. Lines
(S.A.), such as claims against third parties, and acting as the disbursing agent
for distributions to the former creditors. The Trustee of the Reorganization
Trust is John T. Paulyson, who has been employed by the Reorganization Trust
since its inception.
The Reorganization Trust was issued stock by both Janus and JI Subsidiary
which was intended by the Plan to be distributed to the former creditors of U.S.
Lines and U.S. Lines (S.A.) as their claims were resolved. Five million shares
of the Company's Common Stock was originally issued to the Reorganization Trust,
all ultimately to be distributed to allowed creditors of U.S. Lines. As of
December 31, 1997, 3,942,952 of such shares have been distributed by the
Reorganization Trust to former creditors.
The balance of 1,057,048 shares, inclusive of a fixed reserve of 352,850
shares of Common Stock established by order of the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") for the
benefit of asbestos-related and other late-manifesting claimants, is to be
distributed to former creditors of U.S. Lines. The former creditors of U.S.
Lines whose claims have yet to be resolved include, in addition to non-asbestos
related claimants, more than 10,800 individuals who have asserted asbestos and
other late-manifesting personal injury claims. The resolution of these claims
(and any future late-manifesting asbestos and other personal injury claims) is
delayed, in part, by a dispute between the Reorganization Trust and the
insurance carriers of U.S. Lines over certain aspects of insurance coverage.
This dispute has no impact upon the Company other than delaying identification
of individual shareholders and prolonging the activities of the Reorganization
Trust the operations of which utilize cash that the Company and JI Subsidiary
might receive as a distribution.
The Trust Agreement provides for the Reorganization Trust to make
contributions of cash to Janus and JI Subsidiary from time to time of cash on
hand that exceeds its projected liabilities and administrative requirements.
Such contributions are to be made 90% to Janus and 10% to JI Subsidiary. In
accordance with this provision, the Reorganization Trust transferred an
aggregate of $7,491,020 to Janus and JI Subsidiary during 1997. Of the foregoing
amount, $5,736,020 was attributable to the settlement of an adversary proceeding
commenced by the Reorganization Trust on September 18, 1989 against the United
States Maritime Administration ("MARAD") relating to a sum of money that was
subject to an alleged preferential security interest received by MARAD. The full
amount of the
14
<PAGE>
settlement proceeds received by the Reorganization Trust was contributed to the
Company and JI Subsidiary.
As of December 31, 1997, the Reorganization Trust reported total cash and
cash equivalents of $4,951,425 of which $1,896,853 was identified as "restricted
funds". While there is no objective formula to determine the extent to which
Reorganization Trust assets exceed projected liabilities and administrative
requirements, management of the Company believes that more monies may ultimately
be available for contribution to the Company and JI Subsidiary by the
Reorganization Trust. During 1997 the administrative costs of the Reorganization
Trust decreased through reductions in personnel and office space, attributable
to the decreasing volume of unsettled claims of former unsecured creditors of
U.S. Lines and U.S. Lines (S.A.). Also, the MARAD litigation was concluded. The
principal unknown variable that could cause substantial depletion of the
unrestricted available cash and cash equivalents is the remaining period 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. No assurance
can be given, nor is any assurance intended, that additional cash will become
available to the Company and JI Subsidiary from the Reorganization Trust or the
amount of such additional cash, if any.
The Net Operating Loss Carryforwards
The following description of the NOLs is based upon management's analysis
of the application of the relevant sections of the Code to the historical NOLs
of U.S. Lines and U.S. Lines (S.A.). There can be no assurance that the Internal
Revenue Service or the courts will agree with management's analysis. There are
substantial risks associated with the Company's utilization of its NOLs. See
"Risk Factors--Net Operating Loss Carryforwards."
In the Disclosure Statement, it was estimated that the NOLs available to
U.S. Lines and U.S. Lines (S.A.) (collectively, the "U.S. Lines Group") were in
the range of $900 million to $1.15 billion dollars. For purposes of this
Registration Statement, unless otherwise defined or modified, the term "Gross
NOLs" means the total NOLs reported to the Internal Revenue Service on the
federal income tax returns of U.S. Lines and U.S. Lines (S.A.), including any
filed amended returns, before the application of any reductions and related
adjustments described in the following paragraphs under this heading "The Net
Operating Loss Carryforwards". Based on its federal income tax returns for the
years of 1985 through 1996, Janus reported cumulative Gross NOLs of
approximately $970,000,000. Under Code ss. 172(b) as in effect during the
relevant years, unused NOLs expire after fifteen taxable years from the taxable
year of a loss. Therefore, minor amounts of these Gross NOLs will expire before
1999 (approximately $1,700,000) and material amounts of these Gross NOLs will
expire beginning in 1999 (approximately $122,000,000 in 1999, approximately
$623,000,000 in 2000, approximately $201,000,000 in 2001, approximately
$9,000,000 in 2002 and smaller amounts in later years).
After taking into account the reorganization of the U.S. Lines Group
pursuant to the Plan (especially because of the reductions and related
adjustments imposed by Code ss. 382(l)(5)), as described in more detail in this
section "The Net Operating Loss Carryforwards", management of the Company
believes the Net NOLs are currently at least $500 million, although no assurance
can be given that the Company will be able to utilize these NOLs. The Net NOLs
may be affected by Internal Revenue Service audits, subsequent changes in the
ownership of the Company and effects under Code ss. 382, the application of Code
Sections 269 and 384, and the consolidated return regulations under Code Section
1502, which are described below in this section. See "Risk Factors--The Net
Operating Loss Carryforwards".
15
<PAGE>
Cancellation of Debt Income. Under the Plan, as described in the
Disclosure Statement, unsecured indebtedness of the U.S. Lines Group with an
aggregate face amount of approximately $1 billion to $1.35 billion was canceled.
Generally, the Code provides that a debtor whose indebtedness is canceled must
include the amount of canceled indebtedness in gross income to the extent the
indebtedness canceled exceeds any consideration given for the cancellation. The
Code further provides, however, that if a taxpayer is the subject of a
bankruptcy case and the cancellation of indebtedness ("COD") is pursuant to a
plan approved by the Bankruptcy Court, the amount canceled is not required to be
included in gross income. Instead, if the creditors receive cash or property
other than stock of the debtor, any amounts so excluded from gross income reduce
prescribed tax attributes of the debtor, including NOLs and the bases of the
assets of the debtor, in a specified order of priority beginning with NOLs. As
described in the Disclosure Statement, since it was expected that creditors
would receive some stock of the debtor (discussed in the following paragraphs),
it was anticipated that the amount of NOLs that would be reduced pursuant to
these provisions would be relatively small.
Provided two "de minimis" requirements were satisfied, if a debtor in
bankruptcy satisfied its debt by issuing its own stock prior to the effective
date of the Revenue Reconciliation Act of 1993, the debtor generally did not
recognize COD income nor did it suffer NOL reduction. To satisfy these two de
minimis requirements former Code ss. 108(e)(8) required that (i) a creditor must
have received more than nominal or token shares, and (ii) with respect to any
unsecured creditor, the ratio of the value of the stock received by the
unsecured creditor to the amount of its indebtedness canceled or exchanged for
the stock must not have been less than 50% of a similar ratio computed for all
unsecured creditors participating in the restructuring. For purposes of this
ratio, secured creditors were treated as unsecured to the extent they were
under-secured.
It had been hoped that the U.S. Lines Group could meet the two de minimis
tests by issuing stock of U.S. Lines to the creditors of both U.S. Lines and
U.S. Lines (S.A.) because this approach would have provided a simpler and more
flexible capital structure for the U.S. Lines Group. U.S. Lines requested a
private letter ruling from the Internal Revenue Service asking it to rule that
the U.S. Lines Group could be considered a single entity both in applying the
stock for debt exception to COD and in applying Code ss. 382 (discussed below).
A favorable ruling on this issue, however, could not be obtained because on
policy grounds the Internal Revenue Service was unwilling at that time to allow
a subsidiary to utilize its parent's stock in applying the stock for debt
exception of Code ss. 382. Therefore, both U.S. Lines and U.S. Lines (S.A.)
issued stock to their respective unsecured creditors to minimize any COD.
Because the Reorganization Trust represented and acted on behalf of the
creditors of both U.S. Lines and U.S. Lines (S.A.), stock of both entities was
issued to the Reorganization Trust in order to settle claims of creditors of
both entities.
The Plan was confirmed in 1989. Pursuant to the Plan, the then outstanding
common stock of U.S. Lines was canceled. Sixty-four percent of the issued shares
of Common Stock (55% after dilution for the warrant issued to DKM) and 2,200
shares of the Series A Preferred Stock, was distributed to the Reorganization
Trust for the benefit of creditors of U.S. Lines in exchange for the
cancellation of their debt and a $3 million cash capital contribution. DKM
contributed $3 million dollars in exchange for 36% of the issued Common Stock,
1,800 shares of the Series A Preferred Stock, that qualified under Code ss.
1504(a)(4), which is discussed below, and a warrant to acquire an additional 9%
of the Common Stock at a nominal exercise price (the "Warrant"). All of the
interests of DKM in Janus and JI Subsidiary were redeemed effective May 15,
1995.
16
<PAGE>
Code ss. 382 in General. If a corporation undergoes an "ownership change",
Code ss. 382 limits the corporation's right to use its NOLs each year to an
annual percentage (based on the federal long-term tax-exempt rate) of the fair
market value of the corporation at the time of the ownership change (the
"Section 382 Limitation"). If an ownership change under Code ss. 382 is
triggered, a corporation may also be restricted from utilizing certain built-in
losses and built-in deductions recognized during a five-year recognition period
after the ownership change. A corporation is considered to undergo "an ownership
change" if, as a result of changes in the stock ownership by "5-percent
shareholders" or as a result of certain reorganizations, the percentage of the
corporation's stock owned by those 5-percent shareholders has increased by more
than 50 percentage points over the lowest percentage of stock owned by those
shareholders at any time during a prescribed prior three-year testing period.
Five-percent shareholders are persons who hold 5% or more of the stock of a
corporation at any time during the testing period as well as groups of
shareholders who are not individually 5-percent shareholders. Stock ("Section
1504(a)(4) stock") that is limited and preferred as to dividends, does not
participate in corporate growth to any significant extent, has redemption and
liquidation rights that do not significantly exceed the issue price of the
stock, is not convertible into another class of stock and is not entitled to a
vote (except as a result of dividend arrearages) is not considered stock for
this purpose.
Application of Code ss. 382 Under the Chapter 11 Reorganization.
Management does not believe that the U.S. Lines Group was subject to the Section
382 Limitation because although a 50% ownership change was expected to occur as
a result of the transfer of stock of Janus and JI Subsidiary to the
Reorganization Trust for the benefit of the former unsecured creditors, an
exception under Code ss. 382(l)(5) is believed to have applied as described as
follows. Code ss. 382(l)(5) provides that the Section 382 Limitation will not
apply to a loss corporation if (1) the corporation, immediately before the
ownership change, is under the jurisdiction of a court in a United States Code
Title 11 or similar case, and (2) the shareholders and creditors of the old
corporation own at least 50% of the total voting power and value of the stock of
the corporation after the "ownership change" as a result of being shareholders
and creditors before the change. Stock transferred to such creditors counts only
if it is transferred with respect to "old and cold" indebtedness (as defined
above). The debtor company U.S. Lines requested a private letter ruling from the
Internal Revenue Service to the effect that if a corporation or other entity
held indebtedness of U.S. Lines that was otherwise "old and cold", the
indebtedness would not lose its characterization as "old and cold" as a result
of changes in ownership of the corporation or entity. Such a ruling was issued
on December 22, 1989 (the "IRS Ruling"). The IRS Ruling also held that the
ownership change of U.S. Lines was covered by Code ss. 382(l)(5) and therefore
the Section 382 Limitation was not triggered as a result of the owner shift
associated with the reorganization.
Consistent with the IRS Ruling, the Company's management believes that
Code ss. 382(l)(5) applied to the transfer of Janus stock to the U.S. Lines
creditors and JI Subsidiary's stock to the U.S. Lines (S.A.) creditors. Under
former Code ss. 382(l)(5)(C), although the Section 382 Limitation does not
apply, the Gross NOLs originally available to the U.S. Lines Group must
nevertheless be reduced by Janus and JI Subsidiary to the extent of 50% of the
COD income not taken into account by virtue of the stock for debt exception of
former Code ss. 108(e)(10)(B) (see "Cancellation of Debt Income", above in this
section). Based on a review of its accounting and tax records related to this
unrecognized COD income conducted by the Company's management with the
assistance of outside tax professionals, the Company's management believes that
its Gross NOLs must be reduced and adjusted under former Code ss. 382(l)(5)(C)
in an amount of approximately $450,000,000. The calculation of the unrecognized
COD income amount depends on the characterization of certain historical loans
and other financial relationships as well as on certain assumptions and
estimates. While management of the Company believes it has a reasonable basis
for this calculation, no assurance can be provided that the Internal Revenue
Service would agree with the Company's analysis. In addition, the Company's
management is
17
<PAGE>
not aware of any authority published by the Internal Revenue Service or
otherwise that describes the proper method of allocating the reduction under
Code ss. 382(l)(5)(C) among the particular NOLs according to source year. Under
Code ss. 382(l)(5)(B), the Gross NOLs originally available to the U.S. Lines
Group must also be reduced by Janus and JI Subsidiary to the extent of the
amount of interest accrued with respect to such canceled debt during the three
taxable years prior to the taxable year of the "ownership change" and during the
taxable year of the "ownership change" (up to the change date.) This Code ss.
382(l)(5)(B) adjustment is relatively minor (i.e. no more than $5 million)
because Janus filed its bankruptcy petition in 1986 and had substantially ceased
to accrue interest expense on its federal income tax returns. After taking into
account these reductions and related adjustments to the Gross NOLs, management
of the Company believes that the Net NOLs were, at December 31, 1997, at least
$500 million, subject to Internal Revenue Service audits, subsequent changes in
the ownership of the Company and effects under Code ss. 382, the application of
Code Sections 269 and 384, and the consolidated return regulations under Code
Section 1502, which are described below in this section. See "Risk Factors--The
Net Operating Loss Carryforwards."
Redemption of DKM. Management of the Company believes that the redemption
of stock held by DKM did not cause an ownership change under Code ss. 382. DKM
held 36% of the stock of Janus, based on a determination that the Warrant would
not be deemed exercised pursuant to the option attribution rules under Internal
Revenue Service regulations. At least one former creditor, Daewoo Corporation,
became a 5-percent shareholder of the Company based upon its claims against U.S.
Lines as settled by the Reorganization Trust. The remaining beneficiaries of the
Reorganization Trust, which individually were not 5-percent shareholders through
the Reorganization Trust, were collectively a "public group" 5-percent
shareholder for purposes of Code ss. 382.
The interests of the Daewoo Corporation and the public group increased by
a total of 36 percentage ownership points as a result of the redemption of the
Common Stock held by DKM. This was less than the 50% necessary for an ownership
change under Code ss. 382.
The redemption of the interests of DKM also gave rise to the emergence of
several new 5-percent shareholders based upon their respective interests in the
Reorganization Trust. As a result of restrictions contained in the Company's
Restated Certificate of Incorporation, as amended, Daewoo Corporation and these
5-percent shareholders are presently precluded from acquiring additional shares
of Common Stock.
Code ss. 382 and Subsequent Events and Investors. After the issuance of
Common Stock in the acquisitions completed by the Company in 1997, management of
the Company believes that the Company's current cumulative ownership shift under
Code ss. 382 is only a few percentage points short of a 50 percentage point
ownership change. If a future ownership change under Code ss. 382 were
triggered, the Company would be allowed to use its NOLs only up to the amount of
its Section 382 Limitation on an annual basis. More specifically, this annual
amount would equal the fair market value of the Company at the time of the
ownership change multiplied by the federal long-term tax-exempt rate. Therefore,
it will be necessary for Janus to monitor, and Janus has taken certain steps to
so monitor, any further transfers of Common Stock by its 5-percent shareholders
and further issuances or redemptions of Common Stock. Because Code ss. 382 tests
whether a 50 percentage point ownership change has occurred over a three-year
testing period, Janus' capacity to issue more Common Stock during the three
years subsequent to these recent transactions will be severely curtailed.
18
<PAGE>
If the Company issues stock in connection with acquisitions or to raise
cash, the new shareholders generally will be treated as either new 5-percent
shareholders or a new public group under Code ss. 382.
Certain Transferability Restrictions. In accordance with authority granted
by the Company's Restated Certificate of Incorporation, as amended, the Company
has imposed certain transferability restrictions upon Daewoo Corporation,
Mitsubishi Corporation, General Electric Capital Corporation and The Prudential
Insurance Company of America, each of whom is presently a 5-percent shareholder
for purposes of Code ss. 382. These restrictions provide that until April 24,
2001, the specified shareholders shall be prohibited from transferring, in any
manner, any shares of Common Stock, without the consent of the Company's Board
of Directors. The Company shall have no obligation to consent to a transfer
unless it shall have received an opinion of legal counsel acceptable to the
Company to the effect that the transfer does not give rise to an "ownership
change" under Code ss. 382 or otherwise affect the availability to the Company
of its NOLs and any other applicable tax attributes for Federal income tax
purposes. In addition to such imposed transferability restrictions, Messrs. Beck
and Yeaggy have agreed to equivalent transferability restrictions. In the event
that the Company's Board of Directors is willing to consent to a transfer of
Common Stock by any one shareholder subject to transferability restrictions, the
other shareholders subject to equivalent restrictions, including Messrs. Beck
and Yeaggy, will be offered the opportunity to engage in a transfer on a ratable
basis.
Impact of Consolidated Return Regulations. Under the consolidated return
regulations pursuant to the Code, the consolidated return change of ownership
("CRCO") rule may limit the carryover of NOLs from a consolidated return year
ending before the year of a CRCO ownership change. The Company believes that the
changes to the U.S. Lines Group former consolidated group's capital structure
caused a CRCO ownership change on or about December 30, 1988 when U.S. Lines
left its former consolidated group. To the extent the CRCO rule applies, Janus
and JI Subsidiary may carry over NOLs incurred in tax years prior to the CRCO
change of ownership only to the extent of the consolidated taxable income of
Janus and JI Subsidiary in the particular year after the CRCO ownership change.
The CRCO rule should not adversely affect the use of NOLs against the income of
a business acquired directly by Janus through merger or the purchase of the
acquired entities assets. The CRCO rule may prevent the Janus consolidated group
from utilizing its pre-CRCO NOLs against income generated by a newly acquired
business that is held in a subsidiary other than JI Subsidiary. Even with a CRCO
ownership change in 1988, the CRCO rule should not prevent the Janus
consolidated group from utilizing its NOLs that were generated in 1988 or in
later years against income of a new subsidiary.
Effect of Code ss. 384. Congress adopted Code ss. 384 in 1987 to prevent a
loss corporation from using its pre-acquisition NOLs and net built-in losses
against any net built-in gains of a corporation the control of which (utilizing
an 80% test of Code ss. 1504(a)(2)) is acquired by the loss corporation or whose
assets are acquired by the loss corporation in certain types of reorganizations.
The limitation of Code ss. 384 applies to built-in gains recognized within the
five-year recognition period after the acquisition date. Code ss. 384 will
prevent Janus from utilizing its NOLs against built-in gains recognized by any
acquired companies (assuming the control test is met) within five years of the
acquisition date, including Janus' recent entry into the hospitality business.
Any future acquisitions by Janus will need to be analyzed for the impact that
Code ss. 384 may have on the utilization of Janus' NOLs against any recognized
built-in gains. The interaction of the five-year rule of Code ss. 384 with the
impending expiration of most of the NOLs of Janus under the general rule of Code
ss. 172 reduces the possible tax benefit Janus can expect from its NOLs.
19
<PAGE>
Effect of Code ss. 269. Code ss. 269(a) provides that if:
(1) any person or persons acquire ... directly or indirectly,
control of a corporation, or
(2) any corporation acquires ..., directly or indirectly, property
of another corporation, ... the basis of which property, in the
hands of the acquiring corporation, is determined by reference to
the basis in the hands of the transferor corporation,
and the principal purpose of such acquisition was the evasion or avoidance of
Federal income tax by securing the benefit of a deduction, credit, or other
allowance that such person or corporation would not otherwise enjoy, then the
Internal Revenue Service may disallow such deduction, credit, or other
allowance. Control is defined to mean the ownership of stock possessing at least
50% of the total combined voting power of all classes of stock entitled to vote
or at least 50% of the total value of shares of all classes of stock of the
corporation.
Under Treas. Reg. ss. 1.269-3(a), the determination of the purpose for
which an acquisition was made requires a scrutiny of the entire circumstances in
which the transaction or course of conduct occurred, in connection with the tax
result claimed to arise therefrom.
The Disclosure Statement states that Code ss. 269 should not apply to the
transactions provided for under the Plan. The Disclosure Statement points out
that the creditors' receipt of Common Stock of the Company was a direct
consequence of their having extended credit to the debtor U.S. Lines. This
credit was not extended to achieve control of the debtor in bankruptcy and thus
avoid or evade federal income tax. Presumably, because of the 50% control test,
Code ss. 269 would not have applied to the DKM transaction. It is uncertain
whether the Internal Revenue Service would attempt to apply Code ss.269 to any
acquisition by Janus that met the 50% control test because, in part, of the
difficulty in determining whether the principal purpose for which an acquisition
was made was evasion or avoidance of federal income tax.
Risk Factors
The Common Stock of the Company is speculative in nature and involves a
high degree of risk. The risk factors below are not listed in order of
importance.
Possible Need for Additional Financing
The Company has been substantially dependent upon mortgage loans for the
financing of its real estate activities and internal cash flow for its working
capital requirements. The Company anticipates that in the absence of further
acquisitions of hotels and/or management agreements, and based on currently
proposed plans and assumptions relating to its operations, its available
resources, including its current cash balances, will be sufficient to satisfy
the Company's contemplated cash requirements for its current operations for at
least the next 24 months. In the event that the Company acquires one or more
hotels or a significant number of additional management agreements, or its
assumptions change or prove to be inaccurate, the Company could be required to
seek additional financing or curtail its activities. The Company has no current
arrangements with respect to, or sources of, additional financing. Any equity
financing may involve substantial dilution to the interest of the Company's
stockholders, and any debt financing could result in operational or financial
restrictions on the Company. There can be no assurance
20
<PAGE>
that any additional financing will be available to the Company on acceptable
terms or at all. There are also restrictions on the Company's ability to issue
Common Stock and certain kinds of preferred stock if the Company wishes to
preserve its NOLs. See "Description of Business--The Net Operating Loss
Carryforwards."
Conflicts of Interest
Messrs. Beck and Yeaggy continue to own and/or manage hotel properties
independent of the Company which are located in markets in which the Company is
operating. While under the terms of their employment agreements with the
Company, Messrs. Beck and Yeaggy are prohibited from acquiring additional
interests in hotels or hotel management companies while they serve as officers
of the Company, their present independent businesses give rise to the
possibility of conflicts of interest in common markets.
The Company relies upon Computel and HELP, which are wholly-owned by
Messrs. Beck and Yeaggy, for administrative and personnel services at the
Hotels.
The Company also has management agreements covering seven hotels that are
owned by affiliates of Messrs. Beck and Yeaggy which accounted for $414,902 or
45% of the pro forma management fee revenues of Janus for the year ended
December 31, 1997. See "Unaudited Pro Forma Combined Statement of Operations."
Loss of these contracts would be materially adverse to the Company.
Conflicts may arise between the Company and Messrs. Beck and Yeaggy in
connection with the exercise of any rights or the conduct of any negotiations to
extend, renew, terminate or amend the agreements between each of Computel and
HELP and the Company, any of the management agreements between the Company and
affiliates of Messrs. Beck and Yeaggy or the subleases for the offices occupied
by the Company in Boca Raton and Cincinnati which are sublet from an affiliate
of Messrs. Beck and Yeaggy. Conflicts may also arise between the Company and
Messrs. Beck and Yeaggy in connection with certain mortgage indebtedness of the
Company that is personally guaranteed by Messrs. Beck and Yeaggy, or in
connection with the exercise by the Company of its rights with respect to two
mortgage notes and related mortgages that were among the assets acquired from
the Beck Yeaggy Group.
In addition, certain key personnel of the Company work for and are
compensated by both the Company and affiliates of Messrs. Beck and Yeaggy. The
allocation of compensation expenses of these individuals between the Company and
such affiliates could lead to conflicts of interest.
Although management's recommendations on matters potentially involving
conflicts of interest will be referred to the Audit Committee of the Board of
Directors for review, there can be no assurance that any such conflicts will be
resolved in favor of the Company.
Operating Risks
The Company's business is subject to all of the risks inherent in the
lodging industry. These risks include, among other things, adverse effects of
general and local economic conditions, changes in local market conditions,
cyclical overbuilding of hotel space, a reduction in local demand for hotel
rooms, changes in travel patterns, the recurring need for renovations,
refurbishment and improvements of hotel properties, changes in interest rates
and the other terms and availability of credit. Changes in
21
<PAGE>
demographics or other changes in a hotel's local market could impact the
convenience or desirability of a hotel, which, in turn, could affect the
economic returns from the operation of a hotel. The operational expenses of a
hotel cannot be reduced when circumstances result in a reduction of revenue.
Competition
The lodging industry is highly competitive. Several of the Company's
competitors are larger than it and possess greater financial, operational and
managerial resources. There can be no assurance that in the markets in which the
Company's Hotels operate, competing hotels will not pose greater competition for
guests than presently exists, or that new hotels will not be constructed in such
locales. New or existing competitors could significantly lower rates or offer
greater conveniences, services or amenities, or significantly expand, improve or
introduce new facilities in markets in which the Hotels compete, thereby
adversely affecting the Company's operations. See "Description of Business--The
Hospitality Business--Competition."
Geographic Concentration of Hotels
Many of the Company's Hotels are located in Florida and Ohio. Such
geographic concentration exposes the Company's operating results to events or
conditions that specifically affect those areas, such as local and regional
economic, weather and other conditions. Adverse developments that specifically
affect those areas may have a material adverse effect on the results of
operations of the Company.
Relationships with Franchisers
The Company enters into non-exclusive agreements with certain franchisers
for the franchise or license of brand names, which allows the Company to benefit
from franchise name recognition and loyalty. The Company believes that its
relationships with nationally recognized franchisers provides significant
benefits for its existing Owned Hotels and acquisitions it may make in the
future. While the Company believes that it currently enjoys good relationships
with its franchisers, there can be no assurance that a desirable replacement
would be available if any of the franchise agreements were to be terminated.
Upon termination of any franchise agreement, the Company would incur the costs
of signage removal and other costs, possible lost revenues and the costs
incidental to establishing new associations.
Compliance with Government Regulation
The lodging industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale of
food and beverages (such as health and liquor license laws) and building and
zoning requirements. Also, the Company is subject to laws governing its
relationships with employees, including minimum wage requirements, overtime,
working conditions and work permit requirements. The failure to obtain or retain
liquor licenses or an increase in the minimum wage rate, employee benefit costs
or other costs associated with employees, could adversely affect the Company.
Under the Americans with Disabilities Act of 1990 (the "ADA") all public
accommodations are required to meet certain federal requirements related to
access and use by disabled persons. While the Company believes that the Hotels
are substantially in compliance with these requirements, a determination that
the Company is not in compliance with the ADA could result in the imposition of
fines or an award of damages to private litigants. These and other initiatives
could adversely affect the Company.
22
<PAGE>
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. In connection with the ownership or operation of
the Hotels, the Company may be potentially liable for any such costs. Although
the Company is not currently aware of any material environmental claims pending
or threatened against it, no assurance can be given that a material
environmental claim will not be asserted against the Company or against the
Company and the Hotels. The cost of defending against claims of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations of the Company.
Litigation
The Company's Hotels are visited by thousands of invitees each year.
Injuries incurred by any invitees on the hotel premises may result in litigation
against the Company. While the Company maintains general liability insurance,
there can be no assurance that a claim will be covered by such insurance or that
claims made against insurers by the Company will not result in increased
premiums or cancellation of insurance coverage.
Ownership of Hotel Real Estate
The Company currently owns seven hotels. Accordingly, the Company is
subject to the risks associated with the ownership of real estate. These risks
include, among others, changes in national, regional and local economies,
changes in real estate market conditions, changes in the costs, terms and
availability of credit, the potential for uninsured casualty or other losses and
changes in or enactment of new laws or regulations affecting real estate. Many
of these risks are beyond the control of the Company. Real estate is generally
illiquid which could result in limitations on the ability of the Company to sell
any one or more Owned Hotels if business conditions so required.
Hotel Renovation Risks
The renovation of hotels involves risks associated with construction and
renovation of real property, including the possibility of construction cost-
overruns and delays due to various factors (including the inability to obtain
regulatory approvals, inclement weather, labor or material shortages and the
unavailability of construction or permanent financing) and market or site
deterioration after acquisition or renovation. Any unanticipated delays or
expenses in connection with the renovation of hotels could have an adverse
effect on the results of operations and financial condition of the Company.
No Limits on Indebtedness
Neither the Company's Restated Certificate of Incorporation, as amended,
nor its by-laws limit the amount of indebtedness that the Company may incur.
Subject to limitations it may agree to in debt instruments, the Company expects
to incur additional debt in the future to finance acquisitions and renovations.
The Company's continuing substantial indebtedness could increase its
vulnerability to general economic and lodging industry conditions (including
increases in interest rates) and could impair the Company's ability to obtain
additional financing in the future and to take advantage of significant business
opportunities that may arise. The Company's indebtedness is, and will likely
continue to be, secured by mortgages on all of the Owned Hotels. Future
indebtedness may require the Company to secure indebtedness with other assets of
the Company, including its Management Agreements. There
23
<PAGE>
can be no assurance that the Company will be able to meet its debt service
obligations and, to the extent that it cannot, the Company risks the loss of
some or all of its assets, including the Owned Hotels, to foreclosure. Adverse
economic conditions could cause the terms on which borrowings become available
to be unfavorable. In such circumstances, if the Company is in need of capital
to repay indebtedness in accordance with its terms or otherwise, it could be
required to liquidate one or more investments in hotels at times that may not
permit realization of the maximum return on such investments. See "Management's
Discussion and Analysis or Plan of Operation--Liquidity and Capital Resources."
Control of the Company by Principal Officers
Messrs. Beck and Yeaggy beneficially own approximately 43% of the
outstanding shares of the Common Stock. As a result, such persons, acting
together, have the ability to exercise significant influence over all matters
requiring stockholder approval. Messrs. Beck and Yeaggy are also directors and
executive officers of the Company. The concentration of ownership could delay or
prevent a change in control of the Company.
No Public Trading Market; Possible Volatility of Stock Price; No Listing
of Securities on an Exchange; Potential Effects of "Penny Stock" Rules
While the Common Stock is currently listed on the Nasdaq SmallCap Market,
in order to maintain qualification for such listing, the Company must continue
to satisfy certain listing criteria. The failure to meet and maintain such
criteria may result in the Common Stock being ineligible for continued listing
on the Nasdaq SmallCap Market. In addition, if the Common Stock has a trading
price of less than $5.00 per share, trading in the Common Stock would also be
subject to the requirements of certain rules promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and must have received the purchaser's written consent to the transaction prior
to sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage them from effecting transactions in the Common Stock, which could
severely limit the liquidity of the Common Stock.
24
<PAGE>
Irregular Trading Market
The actual "float" of shares available for sale in the market is
approximately 23% of the 8,691,735 shares outstanding as of December 31, 1997.
Approximately 5,658,060 shares, comprised of 3,799,999 shares held by Messrs.
Beck and Yeaggy and their affiliate and 1,858,061 shares held by five percent
shareholders for purposes of the NOL preservation rules, are subject to
transferability restrictions until April 24, 2001. See "Description of
Business--The Net Operating Loss Carryforwards--Certain Transferability
Restrictions." In addition, as of December 31, 1997, 1,057,048 shares were still
held by the Reorganization Trust for the benefit of former unsecured creditors
of U.S. Lines. See "Description of Business--The Reorganization Trust."
Moreover, among the approximately 4,000 holders of record of the Common Stock
there are numerous holders of very small numbers of shares.
When the transferability restrictions expire, and as a result of certain
registration rights that have been granted to Messrs. Beck and Yeaggy, sales of
substantial amounts of Common Stock, or the perception that such sales could
occur, would adversely affect prevailing market prices for the Common Stock.
Dependence on Key Personnel
The Company believes that its success will depend to a significant extent
on the efforts and abilities of certain of its senior management, particularly
those of its Chairman of the Board, Louis S. Beck, its Vice Chairman, Harry
Yeaggy, its President, James E. Bishop and its President of Hotel Operations,
Michael M. Nanosky. Although the Company has entered into an employment
agreement with each of Messrs. Beck, Yeaggy, Bishop and Nanosky, the loss of any
one of them or other key management or operations employees could have a
material adverse effect on the Company's operating results and financial
condition. There is strong competition for qualified management personnel, and
the loss of key personnel or an inability on the Company's part to attract,
retain and motivate key personnel could adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to retain its existing key personnel or attract additional
qualified personnel. The Company does not presently carry and does not intend to
carry "key man" insurance on the lives of any of its key personnel.
Potential Effects of Preferred Stock Issuance
The Board of Directors has the authority, without further stockholder
approval, to issue up to 5,000,000 shares of preferred stock, in one or more
series, and to fix the number of shares and the rights, preferences and
privileges of any such series. The issuance of preferred stock by the Board of
Directors could affect the rights of the holders of the Common Stock. For
example, such an issuance could result in a class of securities outstanding that
would have dividend, liquidation, or other rights superior to those of the
Common Stock or could make a takeover of the Company or the removal of
management of the Company more difficult.
Dividends Unlikely
Since reorganization, the Company has never declared or paid dividends on
the Common Stock and currently does not intend to pay dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Board of Directors. In addition, the Company may not pay any
dividends on the Common Stock unless dividends on the outstanding preferred
stock are current. The Company presently has 10,451.88 shares of preferred stock
outstanding with an annual dividend expense
25
<PAGE>
of $783,891. The Company was current in the payment of dividends on the
preferred stock as of December 31, 1997.
Net Operating Loss Carryforwards
While management believes that the Net NOLs are at least $500 million at
December 31, 1997 (see "Description of Business--The Net Operating Loss
Carryforwards--Application of Code ss. 382 Under The Chapter 11
Reorganization"), there are risks associated with the Company's use of its NOLs
to reduce Federal income tax payments, including the possibility that the
Internal Revenue Service may seek to challenge such use, that the Company may be
unable to produce significant levels of taxable income prior to the expiration
of the NOLs and that a "change in ownership" of the Company may occur that would
cause the Company to lose a substantial portion of the NOLs. Although the
Company has taken steps to restrict transfers of Common Stock in order to avoid
a "change in ownership," there can be no assurance that these steps will be
successful. See "Description of Business--The Net Operating Loss Carryforwards"
and Consolidated Financial Statements. Code ss. 384 will prevent Janus from
utilizing its NOLs against built-in gains recognized by any acquired companies
(assuming a control test is met) within five years of the acquisition date. The
interaction of this five-year rule of Code ss. 384 with the impending expiration
of most of the NOLs of Janus under the general rule of Code ss. 172 reduces the
possible tax benefit Janus can expect from its NOLs. See "Description of
Business--The Net Operating Loss Carryforwards--Effect of Code ss. 384". In
addition, the reductions and related adjustments to the Gross NOLs calculated by
the Company pursuant to Code ss. 382(l)(5)(C) may be successfully challenged by
the Internal Revenue Service which would result in larger reductions of the
Gross NOLs than the Company has currently estimated. The Internal Revenue
Service could also challenge the manner in which the Company eventually
allocates the reductions under Code ss. 382(l)(5)(C) among the source years so
as to reduce the Net NOLs available to the Company in later years as the
Company's most recent NOLs expire. See "Description of Business--The Net
Operating Loss Carryforwards--Application of Code ss. 382 Under The Chapter 11
Reorganization."
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 a major system failure 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. Additionally, the Company does not expect the Year 2000 problem to
have a material effect on its financial position or results of operations.
However, if such modifications and conversions are not completed timely, the
Year 2000 problem may have a material impact on the financial position or
operations of the Company.
Seasonality; Quarterly Fluctuations
The lodging industry is seasonal in nature. Generally, hotel revenues are
greater in the second and third quarters than in the first and fourth quarters.
This seasonality can be expected to cause quarterly fluctuations in the revenues
of the Company. Quarterly earnings may also be adversely affected by events
beyond the Company's control, such as extreme weather conditions, economic
factors and other considerations affecting travel.
26
<PAGE>
Item 2. Description of Property.
The Company conducts its corporate and business operations activities from
offices in Cincinnati, Ohio and Boca Raton, Florida. The Company occupies 4,300
square feet of office space in Cincinnati, Ohio under a sublease, which
terminates in April 2000 and occupies 2,200 square feet of office space Boca
Raton, Florida under a sublease, which terminates in April, 1999. Both subleases
are from an affiliate of Messrs. Beck and Yeaggy.
See "Description of Business--The Hospitality Business" for a description
of the properties that are owned and operated by the Company.
Item 3. Legal Proceedings.
[The Company is not involved in any material legal proceedings.]
Item 4. Submission of Matters to a Vote of Security Holders.
On September 29, 1997, the Company held an annual meeting of shareholders.
At the meeting, the following matters were approved by the shareholders by the
following votes:
1. Election of Directors:
Name For Withheld
---- --- --------
Louis S. Beck 6,392,228 0
Richard P. Lerner 6,392,228 0
C. Scott Bartlett, Jr. 6,392,228 0
Lucille Hart-Brown 6,392,228 0
2. Ratification of the appointment of J.H. Cohn LLP as independent
public accountants:
For Against Abstain
--- ------- -------
6,005,588 0 386,640
3. Approval of the grant of stock appreciation rights to non-officer
directors:
For Against Abstain
--- ------- -------
6,005,588 0 386,640
4. Approval of amendment to the Company's Restated Certificate of
Incorporation, as amended to change the Company's name to Janus
American Group, Inc.:
For Against Abstain
--- ------- -------
6,005,588 0 386,640
27
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Holders:
As of March 23, 1998, there were approximately 4,000 holders of record of
the Company's Common Stock.
Dividends:
Since reorganization the Company has never declared or paid dividends on
its Common Stock and currently does not intend to pay dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Board of Directors.
Market Information:
Quotation of the Common Stock on the Nasdaq SmallCap Market commenced on
January 22, 1998. The Nasdaq Stock Market or Nasdaq is a highly-regulated
electronic securities market comprised of competing market makers whose trading
is supported by a communications network linking them to quotation
dissemination, trade reporting and order execution systems. This market also
provides specialized automation services for screen-based negotiations of
transactions, online comparison of transactions, and a range of informational
services tailored to the needs of the securities industry, investors and
issuers. The Nasdaq Stock Market consists of two distinct market tiers: the
Nasdaq National Market and the Nasdaq SmallCap Market. The Nasdaq Stock Market
is operated by The Nasdaq Stock Market, Inc., a wholly-owned subsidiary of the
National Association of Securities Dealers, Inc. The Company is not aware that
there were any publicly available quotations of the Common Stock in the
over-the-counter market prior to January 22, 1998.
Item 6. Management's Discussion and Analysis of Plan of Operation
Overview
Year Ended December 31, 1997 Compared To Year Ended December 31, 1996
Historical and Pro forma Results of Operations
The acquisition of the Beck-Yeaggy Group was accounted for as a purchase.
Accordingly, the Company's historical results of operations for the years ended
December 31, 1997 and 1996 included the results of operations of the Beck-Yeaggy
Group subsequent to April 30, 1997 (the effective date of acquisition for
accounting purposes). For that reason, the Company's historical results of
operations for the year ended December 31, 1997 are not directly comparable to
those for 1996.
The Company had a net loss of $562,744 for 1997 compared to a net loss of
$1,193,981 in 1996. Included in the net loss for 1997 and 1996 was a loss from
discontinued oil and gas services operations of Pre-Tek of $986,709 and $269,970
respectively. As discussed in Notes 1 and 12 of the Notes to Consolidated
Financial Statements elsewhere herein, the Company adopted a plan to discontinue
and
28
<PAGE>
dispose of Pre-Tek's operations in December 1997. Accordingly, the results of
operations of Pre-Tek in 1997 and 1996 and the estimated loss to be incurred in
connection with the disposal have been classified as separate components of
discontinued operations in the consolidated statements of operations. The loss
from discontinued operations of $986,709 in 1997 was comprised of the loss from
Pre-Tek operations of $349,353, the write-off of remaining goodwill related to
Pre-Tek of $801,356, a provision for the estimated loss to be incurred from
January 1, 1998 through March 31, 1998 of $150,000 and the estimated loss on
sale of the remaining net assets of Pre-Tek of $15,000, net of the applicable
credit for income taxes of $329,000.
The continuing operations of the Company are comprised primarily of the
operations and management of the Hotels. To present more comparable information
related to continuing operations, the discussion of results of operations will
relate to the Company's unaudited pro forma combined results of continuing
operations for the years ended December 31, 1997 and 1996. Pro forma statements
of continuing operations are included in Note 3 of the Notes to Consolidated
Financial Statements.
The unaudited pro forma operating information included in Note 3 of the
consolidated Financial Statements is based on the assumptions and adjustments
described in the Note and below which management believes are reasonable. The
unaudited pro forma combined information does not purport to represent what the
combined results of operations actually would have been if the Beck-Yeaggy Group
acquisition referred to above had occurred as of January 1, 1996 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 combined
information should be read in conjunction with the audited historical financial
statements of Janus and its subsidiaries included elsewhere herein.
In addition to combining the historical results of continuing operations
of the Company and the historical pre-acquisition results of operations of the
Beck-Yeaggy Group for the periods from January 1, 1997 to April 30, 1997 and
January 1, 1996 to December 31, 1996 as if the acquisition had been consummated
on January 1, 1996, 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 Beck-Yeaggy Group that were not acquired by the
Company; depreciation of property and equipment based on the fair values of
assets acquired; the amortization of goodwill; the net effects of changes to
compensation and related expenses based on revised lease agreements and expense
sharing arrangements with a related party and revised employment agreements; and
the issuance of shares of preferred and common stock (net of shares returned) as
part of the consideration for the acquisition. The provision for income taxes is
based upon pro forma income from continuing operations and the statutory Federal
and state rates. As discussed in Note 2 of the Consolidated Financial
Statements, 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.
The pro forma combined income from continuing operations of the Company
was $335,258 for the year ended December 31, 1997, as compared to income from
continuing operations of $245,168 for the year ended December 31, 1996. The
increase in income was primarily the result of decreases in compensation
expense, an increase in hotel revenues, other income, interest income and state
tax refunds from prior years that were received in 1997.
Room and related services revenue increased $40,613 to $10,968,056 in
1997. The increase was attributable primarily to an increase in room rates from
Owned Hotels. The average rate increased from $46.50 in 1996 to $48.69 for 1997
as occupancy decreased 2.8% in 1997 to 63.3% from 66.1% in 1996.
Food and beverage revenues are principally a function of the number of
guests who stay at each Owned Hotel, local walk-in business and catering sales.
The $33,518 increase in food and beverage sales from $1,617,775 for the year
ended December 31, 1996 to $1,651,293 for the comparable period in 1997 is
related to increased walk-in business at Best Western Kings Quarters and Days
Inn Raleigh.
29
<PAGE>
Management fee income decreased from $1,037,404 in 1996 to $921,217 in
1997 as an owner of eleven hotels, managed by the Company's marketing partner,
Summit, found it economically advantageous to sell five properties.
Other hotel related revenues increased for the year ended December 31,
1997 from $245,801 in 1996 to $321,629. The increase was directly related to the
co-marketing of Kings Island and Kings Dominion amusement park tickets with room
rentals.
Direct hotel operating expenses increased by $165,558 from $4,434,536 in
1996 to $4,600,094 in 1997. Direct room and related services and food and
beverage costs increased at a marginally higher percentage rate than room, food
and beverage revenue. The increase in the percentage rate of such costs to
related revenues was a result of the cost of maintaining a competent work force
in tightening labor markets.
Occupancy and other operating expenses remained stable in 1997.
Selling, general and administrative expenses decreased by $29,648 to
$4,537,086 in 1997 from $4,566,734 in 1996 as a result of a reduction in
compensation expenses, which was offset by an increase in professional fees.
Depreciation increased by $80,321 in 1997 from $1,187,482 in 1996. The
increase was attributable to the additional depreciation in 1997 of furniture
and fixture additions subsequent to the acquisition.
Interest income increased $136,024 to $858,423 in 1997 from $722,399 in
1996 as the amount of funds invested increased in 1997.
Interest expense decreased from $1,935,877 in 1996 to $1,861,619. The
decrease was related to the scheduled amortization of long-term debt secured by
the Owned Hotels.
Minority interest decreased from $78,811 in 1996 to $17,048 in 1997. In
1996 the minority interest included the accrued dividends on the J. I.
Subsidiary Series A Preferred Stock which was redeemed in 1996.
The decrease in preferred stock dividends from $808,603 for 1996 to
$783,891 for 1997 resulted from the effects of the redemption of the Company's
Series A Preferred Stock during 1996.
Liquidity and Capital Resources
The following discussion reflects the liquidity and capital resources of
the Company after the acquisition of the Beck-Yeaggy Group. The Company's
principal sources of liquidity are cash on hand (including escrow deposits and
replacement 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
30
<PAGE>
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 Code if the Company wishes to preserve its NOLs. See
"Description of Business--The Net Operating Loss Carryforwards" and "Risk
Factors--Net Operating Loss Carryforwards."
Historical Changes in Liquidity and Capital Resources
Total assets increased from $9,047,317 at December 31, 1996 to $61,404,126
at December 31, 1997. The increase in total assets was the result of the
acquisition of the Beck-Yeaggy Group as described in Note 3 of the Consolidated
Financial Statements.
Accounts receivable, property and equipment, other current assets,
goodwill, notes receivable, other assets, accounts payable, accrued expenses,
long-term debt, paid-in-capital, preferred stock and common stock all increased
as a result of the acquisition. (See Note 3) The increase in cash and cash
equivalents from $6,580,836 in 1996 to $11,191,481 in 1997 is predominantly
attributable to contributions from the Reorganization Trust.
At December 31, 1997 the Company had $11,191,481 in cash and cash
equivalents.
During the year ended December 31, 1997, the Company and its predecessors
invested approximately $937,000 in capital improvements in connection with the
Owned Hotels. The Company plans to spend an additional $1,500,000 on such
capital improvements during the year ending December 31, 1998.
Capital for improvements to Owned Hotels 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 Hotels for ongoing capital expenditures in each year.
The additional anticipated improvements in excess of the 4% to 5% are necessary
to reposition the properties in the marketplace. The additional expenditures are
mainly a result of the costs for new facilities at Days Inn Sharonville and Days
Inn Raleigh. The Company believes, based on its operating experience, that these
types of capital investments will enhance the competitive position of the Owned
Hotels and thereby enhance the Company's competitive position. Changes in the
competitive environment for a specific Owned Hotel may dictate higher or lower
capital expenditures.
The Company maintains a number of commercial banking relationships but
does not currently have any committed lines of credit, but it is in active
negotiations with lending institutions that 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 utilization of its common and/or preferred stock
to the extent such utilization does not jeopardize the Company's NOLs. See
"Description of Business--The Net Operating Loss Carryforwards" and "Risk
Factors--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 that could constrain or prohibit the Company from making
additional acquisitions as well as its
31
<PAGE>
ability to pay dividends or to make other distributions, incur additional
indebtedness or obligations or to enter into other transactions that 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 continues to benefit as the recipient of
moneys disbursed by the Reorganization Trust as the Reorganization Trust
accumulates moneys in excess of its reasonably required reserves and projected
operating expenses. During 1996, the Company received $7,621,980 in
contributions from the Reorganization Trust. Additional amounts of $755,000 and
$6,736,020 were transferred on April 25, 1997 and August 19, 1997, respectively.
While 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, management of the Company believes that there will be future
contributions. This belief is 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 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 December 31,1997 totals $19,978,533.
Mortgage debt totals $19,812,217, which consists of $10,717,718 in fixed rate,
fully self-amortizing mortgage loans and $9,171,483 in adjustable rate (3-5 year
adjustment period) mortgage loans. Such adjustable rate loans have maturity
dates ranging from August 1998 to April 2006. Interest rates on mortgage debt
range from 8.875% to 9.75% with a weighted average interest rate of 9.3%
effective at December 31, 1997. The approximate scheduled repayments of
principal on the long-term debt of the Company for the next five years are: from
1998 -- $2,112,000; 1999 -- $571,000; 2000 -- $621,000; 2001 -- $1,503,000; 2002
- -- $2,717,000. 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.
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 higher in the second and third quarters. Accordingly, the
Company's revenues reflect this seasonality.
Inflation
Although inflation has been relatively stable over the past two years and
has not had any discernible effect on the Company's operations, an increase in
the inflation rate and related higher interest rates could have a negative
effect on the Company's ability to secure additional capital under terms and
conditions acceptable to the Company or refinance indebtedness secured by the
Owned Hotels. Increase in the rate of inflation and interest rates could
materially adversely affect the ability of the Company to expand its operations
through the acquisition of Owned Hotels.
32
<PAGE>
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. 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. Such
risks and other aspects of the Company's business and operations are described
in "Description of Business" and "Management's Discussion and Analysis or Plan
of Operation." The Company has no obligation to publicly release the result of
any revisions that may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Item 7. Financial Statements.
The Financial Statements required by this item appear under the caption
"Index to Financial Statements" and are included elsewhere herein.
33
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
The material contained in "Election of Directors" and in "Section 16(a)
Beneficial Ownership Reporting Compliance" of the Company's definitive proxy
statement (to be filed pursuant to the Securities Exchange Act of 1934, as
amended) for the annual meeting of stockholders to be held on May 29, 1998 is
hereby incorporated by reference.
Item 10. Executive Compensation.
The material contained in "Compensation of Directors and Executive
Officers", "Compensation Committee Report on Executive Compensation" of the
Company's definitive proxy statement (to be filed pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of stockholders to be
held on May 29, 1998 is hereby incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The material contained in "Voting Securities and Principal Holders
Thereof" of the Company's definitive proxy statement (to be filed pursuant to
the Securities Exchange Act of 1934, as amended) for the annual meeting of
stockholders to be held on May 29, 1998 is hereby incorporated by reference.
Item 12. Certain Relationships and Related Transactions.
The material contained in "Certain Relationships and Related Transactions"
of the Company's definitive proxy statement (to be filed pursuant to the
Securities Exchange Act of 1934, as amended) for the annual meeting of
stockholders to be held on May 29, 1998 is hereby incorporated by reference.
34
<PAGE>
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
Exhibit
No. Description
- ------- -----------
3.1 Restated Certificate of Incorporation, as amended, incorporated by
reference to Exhibit 3.1 to Form 10-QSB of the Registrant for the
quarter ended September 30, 1997.
3.2 By-Laws incorporated by reference to Exhibit 3.2 to Form 10-SB of the
Registrant filed with the Securities and Exchange Commission on June
24, 1997.
10.1 Employment Agreement with James E. Bishop dated April 4, 1997
incorporated by reference to Exhibit 10.1 to Form 10-SB of the
Registrant filed with the Securities and Exchange Commission on June
24, 1997.
10.2 Employment Agreement with Louis S. Beck dated April 24, 1997
incorporated by reference to Exhibit 10.3 to Form 10-SB of the
Registrant filed with the Securities and Exchange Commission on June
24, 1997.
10.3 Employment Agreement with Harry G. Yeaggy dated April 24, 1997
incorporated by reference to Exhibit 10.4 to Form 10-SB of the
Registrant filed with the Securities and Exchange Commission on June
24, 1997.
10.4 Employment Agreement with Michael M. Nanosky dated April 24, 1997
incorporated by reference to Exhibit 10.5 to Form 10-SB of the
Registrant filed with the Securities and Exchange Commission on June
24, 1997.
10.5 1996 Stock Option Plan incorporated by reference to Exhibit 10.6 to
Form 10-SB of the Registrant filed with the Securities and Exchange
Commission on June 24, 1997.
10.6 Form of Stock Option Agreement incorporated by reference to Exhibit
10.7 to Form 10- SB of the Registrant filed with the Securities and
Exchange Commission on June 24, 1997.
10.7 Form of Stock Appreciation Right Certificate incorporated by reference
to Exhibit 10.8 to Form 10-SB of the Registrant filed with the
Securities and Exchange Commission on June 24, 1997.
10.8 Form of Registration Rights Agreement incorporated by reference to
Exhibit 10.9 to Form 10-SB of the Registrant filed with the Securities
and Exchange Commission on June 24, 1997.
10.9 Form of Investor Agreement incorporated by reference to Exhibit 10.10
to Form 10-SB of the Registrant filed with the Securities and Exchange
Commission on June 24, 1997.
35
<PAGE>
10.10 Form of Management Agreement incorporated by reference to Exhibit
10.11 to Form 10- SB of the Registrant filed with the Securities and
Exchange Commission on June 24, 1997.
10.11 Form of Client Service Agreement between Hospitality Employee Leasing
Program, Inc. and Janus Industries, Inc. incorporated by reference to
Exhibit 10.12 to Form 10-SB of the Registrant filed with the
Securities and Exchange Commission on June 24, 1997.
10.12 Form of Product Lease and Service Agreement between Computel Systems,
Inc. and Janus Industries, Inc. incorporated by reference to Exhibit
10.13 to Form 10-SB of the Registrant filed with the Securities and
Exchange Commission on June 24, 1997.
10.13 Sublease Agreement between Beck Hospitality Inc. III and Janus
Industries, Inc. (Cincinnati premises) incorporated by reference to
Exhibit 10.14 to Form 10-SB of the Registrant filed with the
Securities and Exchange Commission on June 24, 1997.
10.14 Sublease Agreement between Beck Hospitality Inc. III and Janus
Industries, Inc. (Boca Raton premises) incorporated by reference to
Exhibit 10.15 to Form 10-SB of the Registrant filed with the
Securities and Exchange Commission on June 24, 1997.
10.15 Partnership Agreement of Beck Summit Hotel Management Group, as
amended incorporated by reference to Exhibit 10.16 to Form 10-SB of
the Registrant filed with the Securities and Exchange Commission on
June 24, 1997.
10.16 Partnership Agreement of Kings Dominion Lodge, G.P. incorporated by
reference to Exhibit 10.17 to Form 10-SB of the Registrant filed with
the Securities and Exchange Commission on June 24, 1997.
10.17 Form of Franchise Agreement with Days Inn of America, Inc.
incorporated by reference to Exhibit 10.17 to Amendment No. 1 to Form
10-SB of the Registrant filed with the Securities and Exchange
Commission on August 22, 1997.
10.18 Form of Franchise Agreement with Knights Franchise Systems, Inc.
incorporated by reference to Exhibit 10.18 to Amendment No. 1 to Form
10-SB of the Registrant filed with the Securities and Exchange
Commission on August 22, 1997.
10.19 Membership with Best Western International, Inc. incorporated by
reference to Exhibit 10.19 to Amendment No. 1 to Form 10-SB of the
Registrant filed with the Securities and Exchange Commission on August
22, 1997.
24.1 Power of Attorney
27.1 Financial Data Schedule
Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company during the quarter
ended December 31, 1997.
36
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
JANUS AMERICAN GROUP, INC.
Dated: March 31, 1998 /s/ James E. Bishop
--------------------------------
James E. Bishop
President
Dated: March 31, 1998 /s/ Richard A. Tonges
--------------------------------
Richard A. Tonges
Treasurer and Vice President of
Finance (Principal Financial and
Accounting Officer)
In accordance with the Securities Exchange Act of 1934, this report been
signed by the following persons in the capacities and on the dates indicated.
Dated: March 31, 1998 /s/ *
--------------------------------
Louis S. Beck
Chairman
Dated: March 31, 1998 /s/James E. Bishop
--------------------------------
James E. Bishop
President and Director
Dated: March 31, 1998 /s/ *
--------------------------------
Harry G. Yeaggy
Vice Chairman
Dated: March 31, 1998 /s/ *
--------------------------------
Arthur Lubell
Director
Dated: March 31, 1998 /s/ *
--------------------------------
Richard P. Lerner
Director
37
<PAGE>
Dated: March 31, 1998 /s/ *
--------------------------------
Vincent W. Hatala, Jr.
Director
Dated: March 31, 1998 /s/ *
--------------------------------
Lucille Hart-Brown
Director
Dated: March 31, 1998 /s/ *
--------------------------------
Anthony Pacchia
Director
Dated: March 31, 1998 /s/ *
--------------------------------
C. Scott Bartlett, Jr.
Director
Dated: March 31, 1998 /s/ *
--------------------------------
Michael M. Nanosky
President of Hotel Operations
and Director
Dated: March 31, 1998 /s/ *
--------------------------------
Paul Tipps
Director
Dated: March 31, 1998 /s/ *
--------------------------------
Peter G. Aylward
Director
* /s/ James E. Bishop
- --------------------------------
James E. Bishop
Attorney-in-Fact
38
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
--------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7/31
* * *
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Janus American Group, Inc.
We have audited the accompanying consolidated balance sheets of JANUS AMERICAN
GROUP, INC. (formerly, Janus Industries, Inc.) AND SUBSIDIARIES as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Janus American
Group, Inc. and Subsidiaries as of December 31, 1997 and 1996, and their results
of operations and cash flows for the years then ended, in conformity with
generally accepted accounting principles.
J. H. COHN LLP
Roseland, New Jersey
February 20, 1998
F-2
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
------ ----------- ----------
Current assets:
Cash and cash equivalents $11,191,481 $6,580,836
Cash restricted for payments to redeem
preferred stock of subsidiary 673,200
Accounts receivable 408,474 83,100
Current portion of mortgage notes receivable 123,022
Other current assets 913,616 184,734
----------- ----------
Total current assets 12,636,593 7,521,870
Property and equipment, net of accumulated
depreciation 34,803,291 582,693
Mortgage notes receivable, net of current
portion 5,558,755
Goodwill, net of accumulated amortization 6,707,506 860,966
Deferred costs of proposed acquisition 74,692
Other assets 1,697,981 7,096
----------- ----------
Totals $61,404,126 $9,047,317
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Payable for redemption of preferred stock
of subsidiary $ 673,200
Current portion of long-term debt $ 2,112,215
Accounts payable 903,234 149,020
Accrued expenses 827,405 159,655
Dividends payable on preferred stock 197,583
----------- ----------
Total current liabilities 4,040,437 981,875
Long-term debt, net of current portion 17,866,318
Deferred tax liabilities, net 1,190,000
----------- ----------
Total liabilities 23,096,755 981,875
----------- ----------
Minority interest 1,688,969 43,837
----------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share:
5,000,000 shares authorized:
Series A; 4,000 shares authorized; none issued
Series B; 12,000 shares authorized; 10,451.88
shares issued and outstanding 105
Common stock, par value $.01 per share;
15,000,000 shares authorized; 11,880,867
and 8,080,868 shares issued in 1997 and
1996 118,809 80,809
Additional paid-in capital 43,163,320 13,061,256
Accumulated deficit (5,347,533) (4,245,730)
Treasury stock - 3,189,132 and 2,849,850
common shares in 1997 and 1996, at cost (1,316,299) (874,730)
----------- ----------
Total stockholders' equity 36,618,402 8,021,605
----------- ----------
Totals $61,404,126 $9,047,317
=========== ==========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ -----------
Hotel revenues:
Room and related services $ 8,213,514
Food and beverage 1,222,680
Management fees 566,824
Other 272,620
------------
Total hotel revenues 10,275,638
------------
Costs and expenses:
Direct hotel operating expenses:
Room and related services 1,841,215
Food and beverage 1,115,954
Selling and general 353,829
------------
Total direct hotel operating expenses 3,310,998
Occupancy and other operating expenses 1,174,951
Selling, general and administrative expenses 3,480,117 $ 1,116,222
Depreciation of property and equipment 873,581 4,815
Amortization of goodwill 112,900
------------ -----------
Total costs and expenses 8,952,547 1,121,037
------------ -----------
Operating income (loss) 1,323,091 (1,121,037)
Other income (expense):
Interest income 708,783 247,516
Other income 30,002
Interest expense (1,248,869)
------------ -----------
Income (loss) before income taxes and
minority interest 813,007 (873,521)
Provision for income taxes 331,000
------------ -----------
Income (loss) before minority interest 482,007 (873,521)
Minority interest in income of subsidiary 58,042 50,490
------------ -----------
Income (loss) from continuing operations 423,965 (924,011)
------------ -----------
Discontinued oil and gas services operations:
Loss from operations, net of credit for
income taxes of $136,000 in 1997 (213,353) (269,970)
Loss on disposal, net of credit for income
taxes of $193,000 in 1997 (773,356)
------------ -----------
Total discontinued operations (986,709) (269,970)
------------ -----------
Net loss (562,744) (1,193,981)
Preferred dividend requirements 539,059 24,712
------------ -----------
Net loss applicable to common stock $ (1,101,803) $(1,218,693)
============ ===========
Basic loss per common share:
Continuing operations $ (.02) $ (.19)
Discontinued operations (.13) (.05)
------------ -----------
Net loss $ (.15) $ (.24)
============ ===========
Basic weighted average common shares out-
standing 7,534,248 5,119,634
============ ===========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
---------------- ---------------- Paid in Accumulated -------------------
Shares Amount Shares Amount Capital Deficit Shares Amount Total
------ ------ ------ ------ ------- ------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 2,200.00 $ 22 7,812,500 $ 78,125 $ 4,967,763 $(3,027,037) 2,812,500 $ (772,017) $ 1,246,856
Net loss (1,193,981) (1,193,981)
Contributions to capital
from reorganization
trust 7,578,143 7,578,143
Shares and warrants
issued to acquire
oil and gas services
business 268,368 2,684 735,328 738,012
Shares returned as a
result of post-closing
adjustments in
connection with
acquisition of oil
and gas services
business 37,350 (102,713) (102,713)
Redemption of preferred
stock (2,200.00) (22) (219,978) (220,000)
Preferred stock
dividends (24,712) (24,712)
--------- ---- ---------- -------- ----------- ----------- --------- ----------- -----------
Balance, December 31, 1996 -- -- 8,080,868 80,809 13,061,256 (4,245,730) 2,849,850 (874,730) 8,021,605
Net loss (562,744) (562,744)
Contributions to capital
from reorganization
trust 7,440,930 7,440,930
Shares issued to acquire
hospitality business 10,451.88 105 3,799,999 38,000 22,763,772 22,801,877
Repurchase of 276,400
warrants (102,638) (102,638)
Repurchase of common stock 339,282 (441,569) (441,569)
Preferred stock dividends (539,059) (539,059)
--------- ---- ---------- -------- ----------- ----------- --------- ----------- -----------
Balance, December 31, 1997 10,451.88 $105 11,880,867 $118,809 $43,163,320 $(5,347,533) 3,189,132 $(1,316,299) $36,618,402
========= ==== ========== ======== =========== =========== ========= =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
------------ ------------
Operating activities:
Net loss $ (562,744) $(1,193,981)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation 993,394 61,434
Amortization of goodwill 172,442 30,375
Effects of discontinued operations 966,356
Minority interest in income of subsidiary 58,042 50,490
Changes in operating assets and liabilities:
Accounts receivable (94,425) 17,229
Other current assets (511,857) (89,393)
Other assets (447,191) 7,547
Accounts payable and accrued expenses 158,322 (85,593)
----------- -----------
Net cash provided by (used in)
operating activities 732,339 (1,201,892)
----------- -----------
Investing activities:
Acquisitions of businesses, net of noncash
consideration and cash acquired (1,646,541) (701,631)
Purchases of property and equipment (846,953) (101,854)
Proceeds from sales of equipment 45,000 9,000
Costs of proposed acquisition (74,692)
Proceeds from payments of notes receivable 76,505
----------- -----------
Net cash used in investing activities (2,371,989) (869,177)
----------- -----------
Financing activities:
Increase (decrease) in restricted cash 631,962 (673,200)
Repayments of long-term borrowings (355,042)
Redemption of preferred stock (220,000)
Redemption of preferred stock of subsidiary (631,962)
Repurchase of common stock (441,569)
Repurchase of warrants (102,638)
Preferred stock dividends (341,476) (130,312)
Contributions to capital from reorganization
trust, including $50,090 and $43,837 at-
tributable to minority interest 7,491,020 7,621,980
----------- -----------
Net cash provided by financing activi-
ties 6,250,295 6,598,468
----------- -----------
Increase in cash and cash equivalents 4,610,645 4,527,399
Cash and cash equivalents, beginning of year 6,580,836 2,053,437
----------- -----------
Cash and cash equivalents, end of year $11,191,481 $ 6,580,836
=========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 1,246,732 $ 1,476
=========== ===========
Income taxes paid $ 187,200
===========
See Notes to Consolidated Financial Statements.
F-6
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization:
As of December 31, 1997, the continuing operations of Janus American
Group, Inc. ("Janus"), which until September 29, 1997 had been named Janus
Industries, Inc., and its subsidiaries were comprised primarily of the
operations of seven hotels (of which six are wholly-owned and one is
85%-owned) and a hotel management company. Janus, its subsidiaries and its
predecessor entities are referred to collectively herein as the "Company."
The Company's owned and managed hotels are located primarily in the
Midwestern and Southeastern parts of the United States and are designed to
appeal primarily to business travelers and vacationers on limited budgets.
As further described in Note 3, the hotel operations and two mortgage
notes receivable were acquired, effectively, as of April 30, 1997 in a
transaction that was accounted for as a purchase. Accordingly, the
accompanying consolidated financial statements reflect the accounts for
the hotel operations from the date of acquisition and the financial
statements for periods prior to that date are not comparable.
As further described in Note 12, 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"). As
further described in Note 3, 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 existing 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").
F-7
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization (continued):
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 Janus or JIS) for payment of amounts in respect of
their discharged claims;
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.
F-8
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization (concluded):
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 2 - 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.
Fresh-start accounting:
The Company adopted fresh-start accounting at the time of its
reorganization in February 1990 (see Note 1). 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 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 three 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.
F-9
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
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.
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 are also
recognized on an accrual basis as earned.
Advertising costs:
The costs of advertising and promotion are expensed as incurred.
Advertising costs charged to operations, all of which were
attributable to the Company's hotel operations, amounted to $191,000
in 1997.
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.
F-10
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (continued):
Income taxes (concluded):
As explained in Note 1, 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.
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 "diluted" 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.
F-11
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of significant accounting policies (concluded):
Income (loss) per common share (concluded):
Since the Company had losses applicable to common stock in 1997 and
1996, the assumed effects of the exercise of outstanding stock
options and warrants were anti-dilutive and, accordingly, dilutive
per share amounts have not been presented in the accompanying
consolidated statements of operations. In addition, the basic per
share amounts presented in the accompanying consolidated statements
of operations which were computed in accordance with SFAS 128 do not
differ from those computed under previously promulgated accounting
standards.
Other recent accounting pronouncements:
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"), and Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("SFAS 131"), which could require
the Company to make additional disclosures in its financial
statements no later than for the year ending December 31, 1998. SFAS
130 defines comprehensive income, which includes items in addition
to those reported in the statement of operations, and requires
disclosures about its components. Management believes that the
adoption of SFAS 130 will not have a material impact on the
Company's disclosures. SFAS 131 requires disclosures for each
segment of a business and the determination of segments based on its
internal management structure. Management is in the process of
evaluating whether SFAS 131 will require the Company to make any
additional disclosures.
Note 3 - Acquisitions:
On April 24, 1997, the Company entered the hospitality business by
acquiring the following from affiliates of Louis S. Beck and Harry Yeaggy
(the "Sellers"): (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 hotels, the
management company and the Mortgages are also referred to herein as the
"Hotel Group." The Sellers also own controlling interests in other hotels,
certain of which are managed by the management company. Each of the
Sellers became an executive officer of the Company as of the date of
acquisition.
F-12
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Acquisitions (continued):
The consideration exchanged by the Company for the assets and liabilities
of the Hotel Group and the other direct acquisition costs were comprised
as follows:
Issuance of:
10,451.88 shares of Series B preferred stock
with a liquidating and estimated fair value
of $1,000 per share (Note 8) $10,451,880
3,799,999 shares of Janus common stock with
an estimated fair value of $3.25 per share 12,349,997
-----------
Total value of shares issued 22,801,877
Cash paid to the Sellers 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 operations of the Hotel Group have been included in the
accompanying 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
===========
F-13
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - 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 (see Note 11).
Accordingly, the amounts allocated to goodwill and deferred tax
liabilities shown above in connection with the acquisition of the 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 Hotel Group.
The issuance of Janus common and preferred shares in connection with the
acquisition was a noncash transaction that is not reflected in the
accompanying 1997 consolidated statement of cash flows. The goodwill
attributable to the acquisition of the Hotel Group is being amortized
based on an estimated useful life of 40 years.
The following unaudited pro forma information shows the results of
continuing operations for 1997 and 1996 (and, accordingly, exclude the
results of the discontinued oil and gas services operations) as though the
Hotel Group had been acquired as of January 1, 1996:
PRO FORMA
------------------------
1997 1996
----------- -----------
Hotel revenues:
Room and related services $10,968,056 $10,927,443
Food and beverage 1,651,293 1,617,775
Management fees 921,217 1,037,404
Other 321,629 245,801
---------- ----------
Total hotel revenues 13,862,195 13,828,423
---------- ----------
Costs and expenses:
Direct hotel operating ex-
penses:
Room and related services 2,586,017 2,492,438
Food and beverage 1,475,257 1,412,193
Selling and general 538,820 529,905
---------- ----------
Total direct hotel operat-
ing expenses 4,600,094 4,434,536
Occupancy and other operating
expenses 1,742,975 1,730,704
Selling, general and admini-
strative expenses 4,537,086 4,566,734
Depreciation of property and
equipment 1,267,803 1,187,482
Amortization of goodwill 169,737 170,510
---------- ----------
Total costs and expenses 12,317,695 12,089,966
---------- ----------
F-14
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Acquisitions (continued):
1997 1996
----------- -----------
Operating income $ 1,544,500 $ 1,738,457
Other income (expense):
Interest income 858,423 722,399
Other income 30,002
Interest expense (1,861,619) (1,935,877)
----------- -----------
Income before income taxes and
minority interest 571,306 524,979
Provision for income taxes 219,000 201,000
----------- -----------
Income before minority interest 352,306 323,979
Minority interest 17,048 78,811
----------- -----------
Income from continuing opera-
tions 335,258 245,168
Less preferred dividend require-
ments 783,891 808,603
----------- -----------
Net loss from continuing opera-
tions applicable to common
stock $ (448,633) $ (563,435)
=========== ===========
Basic loss per common share
from continuing operations $ (.05) $ (.06)
=========== ===========
Basic weighted average number
of common shares outstanding 8,783,563 9,031,017
=========== ===========
In addition to combining the historical results of operations of the
Company (which did not have any active operations prior to the 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 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 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 Hotel Group
acquisition;
-- The net effects of changes to compensation and related expenses
based on revised lease agreements and expense sharing arrangements
with a related party and revised employment agreements;
F-15
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Acquisitions (continued):
-- 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 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 Hotel Group had occurred as of January 1,
1996 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 of $2.75 per share,
and 500,000 warrants to purchase Janus common stock,
to stockholders and
former stockholders of Pre-Tek 738,012
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
===========
F-16
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Acquisitions (concluded):
The acquisition was accounted for as a purchase and, accordingly, the
results of Pre-Tek's operations have been included as discontinued
operations in the accompanying consolidated statements of operations from
July 15, 1996, the effective date of the acquisition. 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:
Equipment $ 543,995
Goodwill 891,341
Other assets 247,599
Accounts payable and other current
liabilities (260,131)
----------
Cost of acquisition $1,422,804
==========
The issuance and return of Janus common shares in connection with the
acquisition were noncash transactions that are not reflected in the
accompanying 1996 consolidated statement of cash flows. The goodwill
attributable to the acquisition of Pre-Tek was initially amortized based
on an estimated useful life of 15 years. However, the unamortized balance
of approximately $800,000 was written off and included in the loss from
discontinued operations in 1997 (see Note 12).
Unaudited pro forma information showing the results of operations for 1997
and 1996 as though the oil and gas services operations had been acquired
as of January 1, 1996 is not presented because such operations have been
discontinued.
F-17
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Mortgage notes receivable:
The Mortgages, which were acquired on April 24, 1997 in connection with
acquisition of the Company's hotel operations, are secured by a hotel in
Juno Beach, Florida and a campground in Kissimmee, Florida, both of which
are owned by entities controlled by the Sellers. The Sellers have also
personally guaranteed the Mortgages. The balances receivable at December
31, 1997 consisted of the following:
Note secured by hotel property, with interest
at .5% above a specified prime rate (an
effective rate of 9.0% at December 31, 1997) $2,185,744
Note secured by campground, with interest
at 8% 3,496,033
----------
Total long-term debt 5,681,777
Less current portion 123,022
----------
Long-term portion, net of current portion $5,558,755
==========
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.
Principal payments on the Mortgages in each of the five years subsequent
to December 31, 1997 are receivable as follows:
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 $320,516 from the Mortgages during
the period from May 1, 1997 to December 31, 1997.
F-18
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Property and equipment:
Property and equipment at December 31, 1997 and 1996 consisted of the
following:
Years of
Useful
Life 1997 1996
-------- ---- ----
Land $ 6,035,000
Hotels 30 26,942,000
Hotel furniture and
fixtures 5 2,232,941
Equipment and vehicles 5 648,147 $642,908
Other 5 11,724 25,890
----------- --------
35,869,812 668,798
Less accumulated depre-
ciation and amortiza-
tion 1,066,521 86,105
----------- --------
Totals $34,803,291 $582,693
=========== ========
Note 6 - Long-term debt:
Long-term debt at December 31, 1997 consisted of the following:
Fixed rate mortgage notes payable in monthly
installments, including interest at rates ranging
from 8.875% to 10%; the mortgage notes mature from
August 2000 through January 2016 $10,717,718
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
1998 through April 2006 9,094,499
Equipment notes with various maturities through December
2001 and interest at rates ranging from 8.98% to 15% 166,316
-----------
Total long-term debt 19,978,533
Less current portion 2,112,215
-----------
Long-term debt, net of current portion $17,866,318
===========
Long-term debt is secured by the Company's Mortgages and substantially all
of its property and equipment.
F-19
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Long-term debt (concluded):
Principal payments in years subsequent to December 31, 1997 are as
follows:
Year Ending
December 31, Amount
------------ ------
1998 $2,112,215
1999 570,665
2000 620,790
2001 1,502,792
2002 2,717,123
Note 7 - 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 of the Sellers, aggregating
$750,000 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.
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
any material adverse effects on the Company's consolidated
financial statements in subsequent years.
F-20
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' equity:
Capital stock:
Information regarding the capital stock of Janus follows:
-- Preferred stock, par value $.01 per share; 5,000,000 shares
authorized of which 4,000 shares were designated as "Series A"
(the "Janus Series A preferred stock") at December 31, 1997
and 1996, respectively, and 12,000 shares were designated as
"Series B" (the "Janus Series B preferred stock") at December
31, 1997; the 2,200 shares of Series A preferred stock that
were issued and outstanding at December 31, 1995 were redeemed
during 1996; the 10,451.88 shares of Series B preferred stock
outstanding at December 31, 1997 were issued during 1997; and
-- Common stock, par value $.01 per share; 15,000,000 shares
authorized; 11,880,867 and 8,080,868 shares issued at December
31, 1997 and 1996, respectively; 3,189,132 and 2,849,850
shares held as treasury shares at December 31, 1997 and 1996,
respectively. At December 31, 1997, the Reorganization Trust
held 1,057,048 shares of Janus common stock for possible
future distribution under the Plan which the Reorganization
Trust was originally required to vote in proportion to the
votes cast by the Company's other stockholders.
On April 14, 1997, the Bankruptcy Court issued an order
modifying the terms under which the Reorganization Trust votes
the shares of Janus common stock it holds. As a result, the
Reorganization Trust is now required to vote such shares in
proportion to the votes cast by other stockholders who
acquired their shares prior to March 17, 1997.
Information regarding the capital stock of JIS follows:
-- Preferred stock, par value $.01 per share; 5,000,000 shares
authorized at December 31, 1997 and 1996, respectively, of
which 7,650 shares were designated as "Series A" (the "JIS
Series A preferred stock"); the 4,207 shares of Series A
preferred stock that were issued and outstanding at December
31, 1995 were redeemed during 1996; and
-- Common stock, par value $.01 per share; 15,000,000 shares
authorized; 5,000,000 shares issued at December 31, 1997 and
1996, respectively; 409,000 shares held as treasury shares at
December 31, 1997 and 1996, respectively.
F-21
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' equity (continued):
Capital stock (continued):
The capitalization of Janus and JIS upon confirmation of the Plan
was determined pursuant to the Stock Purchase Agreement dated May
16, 1989, as amended pursuant to the Supplemental Agreement dated as
of February 23, 1990 (the "Stock Purchase Agreement"), among the
subsidiary of DKM, USL and USL-SA. The Stock Purchase Agreement was
an integral part of the Plan.
On May 15, 1995, the Company repurchased and redeemed from DKM, all
of its interests in Janus and JIS (comprised of 1,800 shares of
Janus Series A preferred stock, 2,812,500 shares of Janus common
stock and 3,443 shares of JIS Series A preferred stock) for total
consideration of $1,430,525 and DKM's waiver of its right to any
unpaid dividends. Additionally, DKM and its affiliates were released
from all of their obligations under the Stock Purchase Agreement.
The shares of Janus and JIS common stock and Series A preferred
stock acquired by the Reorganization Trust were acquired for the
benefit of former holders of claims against USL and USL-SA. Such
shares will be distributed by the Reorganization Trust from time to
time to such former creditors as their claims are liquidated.
However, shares of Janus or JIS common stock will be issued by the
Reorganization Trust only to creditors in a manner designed to
preserve the Company's net operating losses in accordance with the
requirements of the Internal Revenue Code.
The restated Certificate of Incorporation of each of Janus and JIS
contain restrictions on the "transfer" (as defined) of shares of the
Janus and JIS capital stock which are intended to preserve and
maintain the Federal income tax attributes of Janus and JIS. The
restated Certificates of Incorporation of each of Janus and JIS
prohibit the acquisition of any shares of the capital stock or
securities of Janus or JIS if, at the date of such acquisition, such
purchaser would be a holder of 5% or more of the issued and
outstanding capital stock of Janus or JIS, determined based on the
fair market value of the capital stock of Janus or JIS or the votes
represented by the shares of the capital stock of Janus or JIS
entitled to vote for the election of directors. However, such
transfers and issuances can be made if approved by the Board of
Directors.
F-22
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' equity (continued):
Capital stock (continued):
The Janus Series A preferred stock and the JIS Series A preferred
stock were substantially identical in their terms. The Janus and JIS
Series A preferred stock entitled the holders thereof to cash
dividends, payable on the last day of each June and December, at an
annual rate equal to 12% of the liquidation preference value of the
Janus or JIS Series A preferred stock. Shares of the Janus and JIS
Series A preferred stock were redeemable at a price of $100 per
share. Holders of the Janus and JIS Series A preferred stock were
not entitled to vote except as required by law.
The Series B preferred stock has a par value of $.01 per share and a
liquidating and redemption price of $1,000 per share. Holders of the
Series B preferred stock are entitled to cumulative dividends at the
annual rate of $75 per share. Unless dividends remain unpaid for a
specified period, holders will not derive any voting rights from the
Series B preferred stock.
In December 1996, the remaining 2,200 shares of Janus Series A
preferred stock then outstanding were redeemed through the payment
of the aggregate redemption price of $220,000 and the aggregate
balance of accrued and unpaid dividends of $130,312.
In December 1996, the Company notified the holders of the remaining
4,207 shares of JIS Series A preferred stock then outstanding that
such shares were being redeemed. Those shares were effectively
redeemed through the transfer of the aggregate redemption price of
$420,750 and the aggregate balance of accrued and unpaid dividends
of $252,450 to a restricted cash account which can only be used for
such redemption payments. The restricted cash and corresponding
liability of $673,200 are reflected separately in the accompanying
consolidated balance sheet as of December 31, 1996. The remaining
balances at December 31, 1997 were immaterial.
During 1996, the Reorganization Trust transferred cash in excess of
its projected liabilities and administrative requirements totaling
$7,621,980 to the Company, of which $6,859,784 was deemed a capital
contribution to Janus and $762,196 was deemed a capital contribution
to JIS (including $43,837 attributable to the minority interest in
the JIS common stock - see Note 14).
In July 1996, the Company issued 268,368 shares of Janus common
stock with a fair value of $738,012, as part of the consideration
for the acquisition of Pre-Tek (see Note 3). A total of 37,350
shares were subsequently returned to the Company as a result of
post-closing adjustments to the purchase price.
F-23
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Stockholders' equity (concluded):
Capital stock (concluded):
In April 1997, the Company issued 10,451.88 shares of Janus Series B
preferred stock and 3,799,999 shares of Janus common stock
(approximately 43% of the Janus common stock outstanding after such
issuance) as consideration for the acquisition of the Hotel Group
(see Note 3).
Based on the provisions of Janus' corporate charter and a separate
agreement between Janus and the Sellers, the Sellers are prohibited
from purchasing additional shares of Janus common stock without the
prior approval of the Board of Directors.
During 1997, the Company repurchased 339,282 shares of Janus common
stock for $441,569.
During 1997, the Reorganization Trust transferred cash in excess of
its projected liabilities and administrative requirements totaling
$7,491,020 to the Company, of which $7,031,054 was deemed a capital
contribution to Janus and $459,966 was deemed a capital contribution
to JIS (including $50,090 attributable to the minority interest in
the JIS common stock - see Note 14).
Warrants:
In July 1996, the Company also issued warrants to purchase 500,000
shares of Janus common stock, which were deemed to have a nominal
fair value, as part of the consideration for the acquisition of
Pre-Tek. All of the warrants will expire on July 15, 2001. During
1997, warrants to purchase 276,400 shares were repurchased for
$102,638. At December 31, 1997, warrants to purchase 111,803 shares
were exercisable at $3.00 per share; warrants to purchase 55,900
shares were exercisable at $4.00 per share; and warrants to purchase
55,897 shares were exercisable at $5.00 per share. However, the
warrants, or the shares issuable upon the exercise of the warrants,
may only be sold pursuant to an effective registration statement
under the Securities Act of 1933, as amended, or an appropriate
exemption from such registration.
Commencing in May 1999, the warrants become subject to redemption by
the Company at $.25 per warrant on 30 days' prior written notice if
the market price of the Janus common stock equals or exceeds $10.00
per share for 10 consecutive trading days.
F-24
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Stock options and stock appreciation rights:
During 1996, the stockholders of the Company approved the adoption of the
Janus Industries, Inc. 1996 Stock Option Plan (the "1996 Plan") and
approved the adoption and termination of the Janus Industries, Inc.
Directors' Stock Option Plans (the "Directors' Plan").
The 1996 Plan provides for grants of incentive stock options ("ISOs") and
nonstatutory stock options ("NSOs"). ISOs may be issued to any key
employee or officer of the Company; NSOs may be issued to any key employee
or officer of the Company or any of the Company's independent contractors,
agents or consultants other than nonemployee directors. A committee of at
least two directors (the "Committee") will determine the dates on which
options become exercisable and terminate (provided that options may not
expire more than ten years after the date of grant). All outstanding
options will become immediately exercisable in the event of a "change in
control" (as defined) of the Company. The exercise price of any ISO must
be at least 100% of the fair market value on the date of grant (110% for
an optionee that holds more than ten percent of the combined voting power
of all classes of stock of the Company). NSOs may be granted at any
exercise price determined by the Committee. The Company has reserved
300,000 shares of common stock for issuance under the 1996 Plan.
The 1996 Plan permits the Committee to grant stock appreciation rights
("SARs") in connection with any option granted under the 1996 Plan. SARs
enable an optionee to surrender an option and to receive a payment in cash
or common stock, as determined by the Committee, with a value equal to the
difference between the fair market value of the common stock on the date
of surrender of the related option and the option price.
During 1996, the Company granted options for the purchase of 20,000 shares
of common stock at an exercise price of $2.75 per share. There was no
public market for the Janus common stock during 1996 and 1997. Management
estimates that the exercise price for the options granted in 1996
approximated the fair value on the date of grant. All of the options
remained outstanding and exercisable at December 31, 1997 and 1996.
The Directors' Plan provided for annual grants of a specified number of
stock options to each nonemployee director beginning in 1997 at an
exercise price equal to the fair market value of the common stock on the
date of grant. No options were granted under the Directors' Plan prior to
its termination.
F-25
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Stock options and stock appreciation rights (concluded):
During 1997, the Company granted SARs with respect to 100,000 shares of
Janus common stock to an executive officer at an exercise price of $3.25
per share which will vest at the rate of 20,000 shares per year commencing
on April 23, 1997. It also granted SARs with respect to a total of 40,000
shares of Janus common stock to directors at an exercise price of $3.25
per share which will be exercisable at any time during the period from
October 25, 1997 through April 23, 2003; however, the appreciated value
paid with respect to the SARs issued to the directors will be limited to
$7.00 per share. Appreciation upon any exercise of the SARs issued in
1997 must be paid in cash. Management estimates that the exercise price
for the SARs granted in 1997 approximated the fair value on the respective
dates of grant and throughout the remainder of the year. Accordingly, the
Company made no charges to compensation expense related to the SARs during
1997.
The SARs issued in 1997 were not issued in conjunction with the 1996 Plan.
Accordingly, 280,000 shares of Janus common stock were available for grant
under the 1996 Plan at December 31, 1997.
The 1997 and 1996 pro forma loss from continuing operations applicable to
common stock and the related per share information determined using a fair
value based method of accounting for the stock options and SARs granted in
1997 and 1996, as required by SFAS 123, do not differ materially from the
corresponding historical amounts.
Note 10- Other related party transactions:
In addition to interest income derived from the Mortgages (see Note 4),
results of operations in 1997 include revenues and expenses derived from
related party transactions as follows:
Management fee income:
Hotels managed for the Sellers (a) $265,940
Hotels managed for a marketing partner (b) 268,947
Expenses:
Personnel leasing fees (c) 33,709
Management systems fees (d) 32,417
Rent for office facilities and equipment (e) 38,292
(a) The Company managed seven hotels for entities controlled by the
Sellers during the period from May 1, 1997 to December 31, 1997.
F-26
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10- Other related party transactions (concluded):
(b) The Company receives a portion of the management fees from hotels
managed by a marketing partner and shares a portion of the
management fees it earns from certain of the hotels it manages with
the marketing partner.
(c) The Company pays administrative fees to Hospitality Employee Leasing
Program, Inc. ("HELP"), a corporation wholly-owned by the Sellers.
HELP provides the Company with personnel for the hotels it owns and
manages. In addition, the Company reimburses HELP for the actual
payments it makes to or on behalf of such employees.
(d) The Company pays management systems fees for the use of a hotel
property management system and related computer hardware and
software under an agreement with Computel Computer Systems, Inc., a
corporation wholly-owned by the Sellers.
(e) The leases, which are either on a month-to-month basis or expire no
later than April 2000. Minimum future rentals under the leases as of
December 31, 1997 were immaterial.
At December 31, 1997, accounts receivable includes $131,645 arising from
management services provided to affiliated entities, and other current
assets includes $40,232 for accrued interest receivable on the Mortgages
and $146,408 receivable as a result of certain adjustments related to the
acquisition of the Hotel Group.
Note 11- Income taxes:
The net provision for income taxes attributable to income from continuing
operations for 1997 is comprised of the following provisions (credits):
Current - state (including the effects of refunds of
$67,000 from prior years) $ 1,000
--------
Deferred:
Federal 332,000
State (2,000)
--------
Total 330,000
--------
Total $331,000
========
F-27
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 11- Income taxes (concluded):
A reconciliation of the statutory Federal income tax rate of 34% to the
effective tax rate for the provision for income taxes attributable to
income from continuing operations in 1997 follows:
Statutory tax rate 34.0%
Nondeductible amortization of goodwill 4.7
Other 2.0
----
Total 40.7%
====
Additional information as to the components of the Company's loss before
income taxes, net provision for income taxes and net loss is set forth
below:
Continuing Discontinued
Operations Operations Total
---------- ---------- -----
Income (loss) before
income taxes and
minority interest $813,007 $(1,315,709) $(502,702)
Minority interest 58,042 58,042
-------- ----------- ---------
Income (loss) before
income taxes 754,965 (1,315,709) (560,744)
Provision (credit)
for income taxes 331,000 (329,000) 2,000
-------- ----------- ---------
Net income (loss) $423,965 $ (986,709) $(562,744)
======== =========== =========
For financial statement purposes, there was no net provision for Federal
income taxes in 1997 and 1996 as a result of the net pre-tax loss incurred
by the Company during each year. In addition, there was no credit for
Federal income taxes in 1997 and 1996 because all of the tax loss
attributes referred to above have been fully reserved through a valuation
allowance rather than reflected as deferred tax assets due to the lack of
a historical taxable income stream and the uncertainties referred to
above. Future benefits, if any, to be realized from the utilization of the
net operating loss carryforwards generated prior to the Company's
reorganization in February 1990 will be reported as an increase in
additional paid-in capital and not as a credit to results of operations.
Additionally, 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 December 31, 1997, management believes that such a
change in ownership has not occurred.
F-28
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12- 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 3). 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 in the accompanying consolidated statements of
operations. Management estimates that the Company will complete the
disposal through the sale of the net assets of the oil and gas services
operations by March 31, 1998.
The assets and liabilities of the discontinued operations have been
included with those of the Company's continuing operations in the
accompanying balance sheets at December 31, 1997 and 1996 and are
comprised as follows:
1997 1996
-------- --------
Equipment, net of accumulated
depreciation of $192,209 and
$55,702 $455,938 $574,845
Goodwill, net of amortization of
$30,375 860,966
Other current and noncurrent assets 212,827 194,606
Accounts payable and accrued expenses:
Estimated loss on disposal (165,000)
Other (119,950) (195,604)
--------- ----------
Net assets of discontinued operations $ 383,815 $1,434,813
========= ==========
The oil and gas services operations generated net sales of $1,297,715 and
$381,055 for the year ended December 31, 1997 and the period from July 15,
1996 (the date of acquisition) through December 31, 1996, respectively.
The loss on disposal of discontinued operations for the year ended
December 31, 1997 was comprised as follows:
Write-off of remaining goodwill $801,356
Estimated loss to be incurred from January 1, 1998
through estimated date of disposal 150,000
Estimated loss on sale of the remaining net assets 15,000
Credit for income taxes (193,000)
--------
Loss on disposal $773,356
========
F-29
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12- Discontinued operations (concluded):
The loss on disposal is based on management's best estimate of the results
of the discontinued operations through the estimated date of disposal and
the amounts to be realized from the sale of the remaining net assets. The
actual loss the Company will ultimately realize could differ materially in
the near term from the amounts estimated in arriving at the loss on
disposal of the discontinued operations.
Note 13- Fair value of financial instruments:
The Company's financial instruments at December 31, 1997 and/or 1996
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) 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 14- 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 3). The balance of the minority
interest in these consolidated subsidiaries at the beginning and end of
1997 and 1996 and the changes in the minority interest during each of
those years are set forth below:
F-30
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14- Minority interest (concluded):
Hotel
JIS Partnership Total
--- ----------- -----
Balance, January 1, 1996 $622,710 $ 622,710
Accrued dividends on
the JIS Series A
preferred stock 50,490 50,490
Redemption of the JIS
Series A preferred
stock (673,200) (673,200)
Effect of contributions
to capital from the
Reorganization Trust (a) 43,837 43,837
-------- ----------
Balance, December 31, 1996 43,837 43,837
Initial allocation at
the date of acquisi-
tion of the Hotel
Group $1,537,000 1,537,000
Effect of contributions
to capital from the
Reorganization Trust (a) 50,090 50,090
Net income (loss) (2,814) 60,856 58,042
-------- ---------- ----------
Balance, December 31, 1997 $ 91,113 $1,597,856 $1,688,969
======== ========== ==========
(a) As a result of prior cumulative losses, distributions and
redemptions, the minority interest in JIS had been eliminated as of
December 31, 1995 and, since the minority stockholders do not incur
any obligations as a result of losses and distributions in excess of
their equity in JIS, a portion of such excess was charged against
the majority interest in the JIS common stock held by Janus.
Accordingly, a portion of each capital contribution made by the
Reorganization Trust to JIS in 1997 and 1996 was reallocated to the
capital of the majority interest.
* * *
F-31
Exhibit 10.24
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Louis S. Beck
--------------------------------
Louis S. Beck
Chairman
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Harry G. Yeaggy
--------------------------------
Harry G. Yeaggy
Vice Chairman
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Arthur Lubell
--------------------------------
Arthur Lubell
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Richard P. Lerner
--------------------------------
Richard P. Lerner
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Vincent W. Hatala, Jr.
--------------------------------
Vincent W. Hatala, Jr.
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Lucille Hart-Brown
--------------------------------
Lucille Hart-Brown
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
27th day of March 1998.
/s/ Anthony Pacchia
--------------------------------
Anthony Pacchia
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ C. Scott Bartlett, Jr.
--------------------------------
C. Scott Bartlett, Jr.
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Michael M. Nanosky
--------------------------------
Michael M. Nanosky
President of Hotel Operations
and Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
20th day of March 1998.
/s/ Paul Tipps
--------------------------------
Paul Tipps
Director
Attest:
________________________________
<PAGE>
JANUS AMERICAN GROUP, INC.
POWER OF ATTORNEY
Form 10-KSB
for
Year Ended
December 31, 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Director and/or
Officer of Janus American Group, Inc. ("Janus"), a Delaware corporation, hereby
constitutes and appoints James E. Bishop, his true and lawful attorney and agent
(with full power of substitution), in the name and on behalf of the undersigned,
to do any and all acts and things and execute any and all instruments that the
said attorney and agent may deem necessary or advisable to enable Janus to
comply with the Securities Exchange Act of 1934, as amended, and any rules and
regulations and requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing of Form 10-KSB of Janus under the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign the name of the undersigned in his or
her capacity as Director and/or Officer of Janus to the Form 10-KSB to be filed
with the Securities and Exchange Commission, to any and all amendments to the
said Form 10-KSB and to any and all instruments and documents filed as a part of
or in connection with the said Form 10-KSB or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that the said attorney and agent shall do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents this
24th day of March 1998.
/s/ Peter G. Aylward
--------------------------------
Peter G. Aylward
Director
Attest:
________________________________
