U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
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) 997-4800
Janus Industries, Inc.
(Former name)
Check whether issues (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes |X| No |_|
Number of shares of common stock outstanding as of March 31, 1999: 8,671,092
Transitional Small Business Disclosure Format: Yes |_| No |X|
Page 1 of 32
<PAGE>
JANUS AMERICAN GROUP, INC.
FORM 10-QSB
FOR QUARTERLY PERIOD ENDED MARCH 31, 1999
Part I. Financial Information Page No.
Item 1. Financial Statements 4-24
Item 2. Management's Discussion and Analysis
Of Financial Condition and Results of Operations 25-30
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 31
Signature Page 32
2
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Page
HISTORICAL FINANCIAL STATEMENTS:
UNAUDITED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998 4
UNAUDITED CONSOLIDATED STATEMENTS
OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 5
UNAUDITED CONSOLIDATED STATEMENT OF
OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1999 6
UNAUDITED CONSOLIDATED STATEMENTS
OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 7
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS 8-21
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS;
INTRODUCTION TO THE UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS 22
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1999
AND MARCH 31, 1998 23
NOTES TO ADJUSTED UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL STATEMENTS 24
3
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT MARCH 31, 1999 AND DECEMBER 31, 1998
ASSETS
March 31, December 31,
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,752,011 $ 12,383,741
Restricted cash for preferred stock of subsidiary; debt
service and real estate taxes 1,107,131 802,746
Accounts receivable 661,051 1,422,327
Current portion of notes receivable 275,642 322,043
Other current assets 198,165 239,206
----------- -----------
Total current assets 13,994,000 15,170,063
Property and equipment, net of accumulated depreciation
and amortization 99,523,273 74,550,300
Notes receivable 453,194 453,194
Mortgage notes receivable 3,308,935 5,425,046
Goodwill, net of accumulated amortization 6,494,369 6,536,996
Deferred tax asset 800,126 680,126
Other assets 5,865,598 5,868,067
----------- -----------
Total $130,439,495 $108,683,792
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable for redemption of preferred stock $ 36,071 $ 41,370
Current portion of long-term debt 4,566,210 2,683,504
Accounts payable 2,435,591 1,495,253
Accrued expenses 2,268,218 1,910,248
Dividends payable - -
----------- -----------
Total current liabilities 9,306,090 6,130,375
Long-term debt, net of current portion 73,023,777 60,582,883
Deferred tax liabilities - -
----------- -----------
Total liabilities 82,329,867 66,713,258
Minority interest 2,441,211 1,773,960
Commitments and contingencies
Stockholders' equity:
Preferred stock:
Series B; par value $.01 per share; 20,000 shares
authorized; 16,788.08 and 10,451.88 shares issued
and outstanding 168 105
Common stock, par value $.01 per share; 15,000,000
shares authorized; 11,883,220 shares issued 118,833 118,833
Additional paid-in capital 52,074,257 45,738,120
Accumulated deficit (5,108,542) (4,244,185)
Treasury stock - 3,212,128 and 3,192,128 common shares,
at cost (1,416,299) (1,416,299)
----------- -----------
Total stockholders' equity 45,668,417 40,196,574
----------- -----------
Total $130,439,495 $108,683,792
=========== ===========
</TABLE>
4
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31,
1999 1998
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $ 7,436,508 $1,836,667
Food and beverage 2,381,785 293,046
Management fees 561,993 375,131
Other 217,532 30,528
---------- ---------
Total revenues 10,597,818 2,535,372
---------- ---------
Cost and expenses:
Direct hotel operating expenses:
Room and related services 1,921,078 523,182
Food and beverage 1,863,205 252,180
Selling and general expenses 455,956 127,150
---------- ---------
Total direct hotel operating expense 4,240,239 902,512
Occupancy and other operating expenes 1,617,727 421,348
Selling, general and administrative expenses 2,518,090 919,336
Depreciation of property and equipment 1,275,046 341,724
Amortization of intangible assets 78,426 50,982
---------- ---------
Total costs and expenses 9,729,528 2,635,902
---------- ---------
Operating income (loss) 868,290 (100,530)
Other income (expense)
Interest income 197,048 246,449
Other income 20,000 -
Interest expense (1,671,070) (458,422)
---------- ---------
Income (loss) before state income taxes and
minority interest (585,732) (312,503)
Provision (credit) for federal income taxes - -
Provision for deferred income taxes - -
Provision (credit) for state and local income taxes - -
---------- ----------
Income (loss) before minority interest (585,732) (312,503)
Minority interest 9,823 (39,751)
---------- ----------
Net income (loss) (595,555) (272,752)
Less preferred dividend requirements 268,802 197,583
---------- ---------
Net income (loss) applicable to common stock $(864,357) $ (470,335)
Net income (loss) per common share-Basic (0.10) (0.05)
==== ====
Net income (loss) per common share-Assuming dilution (0.10) (0.05)
==== ====
Basic weighted average common shares outstanding 8,682,858 8,691,735
========= =========
Weighted average common shares outstanding-assuming dilution 8,682,858 8,691,735
========= =========
</TABLE>
5
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Preferred Common
Stock Stock
---------------- ----------------
Number Number Additional
of of Comprehensive Paid-in
Shares Amount Shares Amount Income Capital
---------------- ---------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1. 1999 10,451.88 $105 11,883,220 $118,833 $45,738,120
Shares issued to acquire hospitality business 6,336.20 63 $6,336,137
Comprehensive Income:
Net income (loss) $(595,555)
Decrease in net operating loss valuation allowance
Use of net operating loss carryforward against
current tax exp.
--------
Comprehensive Income $(595,555)
=========
Conversion of warrants and payment of puts
Preferred Stock Dividends
-------- --- ---------- ------- ----------
Balance at March 31, 1999 16788.08 $168 11,883,220 $118,833 $52,074,257
======== === ========== ======= ==========
Treasury Stock
--------------------
Number
Accumulated of
Deficit Shares Amount Total
------------------------------------ ------------
<S> <C> <C> <C> <C>
Balance January 1. 1999 $(4,244,185) 3,192,128 $(1,416,299) $40,196,574
Shares issued to acquire hospitality business 6,336,200
Comprehensive Income: -
Net income (loss) (5,955,545) (595,555)
Decrease in net operating loss valuation allowance -
Use of net operating loss carryforward against -
current tax exp.
Comprehensive Income 20,000 -
Conversion of warrants and payment of puts -
Preferred Stock Dividends (268,802) (268,802)
---------- --------- ---------- ----------
Balance at March 31, 1999 $(5,108,542) 3,212,128 $(1,416,299) $45,668,417
========== ========= ========== ==========
</TABLE>
6
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
March 31, March 31,
1999 1998
<S> <C> <C>
Operating activities:
Net income (loss) $ (595,555) $ (272,752)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,275,046 341,724
Amortization of intangible assets 78,426 50,982
Minority Interest 9,823 (39,751)
Deferred income taxes
Discontinued operations - (73,948)
Changes in operating assets and liabilities:
Accounts receivable 761,276 108,125
Other current assets 41,041 372,766
Other asset 343,917 (249,814)
Accounts payable and accrued expenses (98,787) (605,480)
---------- ----------
Net cash provided by operating
activities 1,815,187 (368,148)
---------- ----------
Investing activities:
Acquisition of hospitality business, net of
noncash consideration and cash required 462,008 -
Increase in Notes Receivable 0 (4,276)
Purchases of property and equipment (1,140,159) (205,341)
Gain on sale of subsidiary's net assets 0 14,161
Collections of notes receivable 20,764 34,662
---------- ----------
Net cash ( used in) investing activities (657,387) (160,794)
---------- ----------
Financing activities:
Dividends Paid (268,802) (395,166)
Decrease (increase) in restricted cash (304,385) 171,800
Repurchase of common stock
Repurchase of warrants -
Conversion of warrants to common stock - 8,823
Proceeds from long-term borrowings - -
Repayments of long-term borrowings (1,216,343) (146,779)
----------- ----------
Net cash provided by financing activities (1,789,530) (361,322)
---------- ----------
Increase (decrease) in cash and cash equivalents (631,730) (890,264)
Cash and cash equivalents, beginning of period 12,383,741 11,523,848
---------- ----------
Cash and cash equivalents, end of period $11,752,011 $10,633,584
========== ==========
Supplemental disclosure of cash flow data:
Interest paid $(1,671,070) $ (458,422)
========== ==========
Income taxes paid Noncash transactions:
Acquisition of hospitality business $ 6,336,200
========== ==========
</TABLE>
7
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1--Unaudited interim financial statements:
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary to present fairly the financial position
of Janus American Group, Inc. (formerly Janus Industries, Inc.) and
subsidiaries (the "Company" or "Janus") as of March 31, 1999, its
results of operations and cash flows for the three months ended March
31, 1999 and 1998 and its changes in stockholders' equity for the three
months ended March 31, 1999. Certain terms used herein are defined in
the audited consolidated financial statements of the Company as of
December 31, 1998 and 1997 and for the years then ended (the "Audited
Janus Financial Statements") included in the Company's form 10-KSB
previously filed with the Securities and Exchange Commission.
Accordingly, these unaudited consolidated financial statements should
be read in conjunction with the Audited Janus Financial Statements and
the other financial statements included in the Form 10-KSB.
The results of operations for the three months ended March 31, 1999 are
not necessarily indicative of the results of operations for the full
year ending December 31, 1999.
Note 2--Organization:
As of March 31, 1999, the operations of Janus American Group, Inc. and
its' Subsidiaries ("Janus" or the "Company"), which until September 29,
1997 had been named Janus Industries, Inc., were comprised primarily of
the operations of eighteen hotels (of which sixteen are wholly-owned,
one 85% owned and one 75% owned) and a hotel management company.
In November 1986, the Company's predecessor, United States Lines, Inc.
("USL"), together with United States Lines (S.A.) Inc. ("USL-SA") and
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").
8
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies:
Use of estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could
differ from those estimates.
Principles of consolidation:
The unaudited consolidated financial statements include the
accounts of Janus and its majority-owned subsidiaries. All
significant intercompany balances and transactions have been
eliminated in consolidation.
Cash equivalents:
Cash equivalents generally consist of highly liquid
investments with maturities of 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
asset (40 years).
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. As of March 31, 1999 there was no such
impairment.
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.
9
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (continued):
Revenue recognition:
The Company recognizes all revenues 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 $455,956 and $127,150 for the three months ended
March 31, 1999 and 1998 respectively.
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.
The Reorganization Trust was formed as part of the "Plan".
(See Note 2).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
10
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (continued):
Stock options (continued):
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.
Reclassification:
Prior year amounts have been reclassified to conform with
current year presentation.
Income (loss) per common share:
Effective December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards No.
128, Earnings per Share ("SFAS 128"), which replaces the
presentation of "primary" and "fully-diluted" income (loss)
per common share required under previously promulgated
accounting standards with the presentation of "basic" and
"assuming dilution" income (loss) per common share.
Basic net income (loss) per common share is calculated by
dividing net income or loss, as adjusted for required
preferred stock dividends, by the weighted average number of
common shares outstanding during the period. The calculation
of diluted net income (loss) per common share is similar to
that of basic net income (loss) per common share, except that
the denominator is increased to include the number of
additional common shares that would have been outstanding if
all potentially dilutive common shares, principally those
issuable upon the exercise of stock options and warrants, were
issued during the period.
The Company's reported net income represents its net income
available to common shareholders for purposes of computing
both measures. The following reconciles shares outstanding at
the beginning of the year to average shares outstanding used
to compute both income per share measures.
11
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 3--Summary of significant accounting policies (concluded):
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
March 31, 1999 March 31, 1998
-------------- --------------
<S> <C> <C>
Averages shares outstanding-basic 8,691,092 8,691,735
Effect of dilutive securities-
dilutive shares contingently
issuable upon the exercise of
stock options and warrants - -
--------- ---------
Averages shares outstanding-
Assuming dilution 8,691,092 8,691,735
========= =========
</TABLE>
Note 4--Acquisitions:
On August 14, 1998, the Company acquired four additional hotels from
commonly controlled sellers (the "Cornerstone Hotel Group"). The total
purchase price was $44,110,500 in cash, financed by four mortgage
loans in substantially the amount of the total purchase price, secured
by the acquired properties. The loans are cross-defaulted and
cross-collateralized among the four hotels but otherwise of limited
recourse to the Company. The financing was for an initial term of ten
years, based upon a 25-year amortization schedule, at a fixed interest
rate of 8.09% per annum.
The acquisition was accounted for as a purchase and was allocated as
follows:
Land $ 4,132,509
Buildings 28,927,552
Equipment 52,500
Furniture and fixtures 8,090,259
Prepaids and escrow for product
improvement program 2,907,680
----------
Total purchase price allocated $44,110,500
==========
Effective January 1, 1999 the Company acquired seven additional hotel
properties from affiliates of Louis S. Beck and Harry Yeaggy ("Messrs.
Beck and Yeaggy") and two additional hotel management contracts with
respect to the hotels known as Knights Inn West Palm Beach in West Palm
Beach, Florida and Days Inn Inner Harbor in Baltimore, Maryland ("Beck
II").
12
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 4--Acquisitions (concluded):
The consideration exchanged by the Company pursuant to the merger
agreement with Beck II was the following:
Issuance of:
6336.20 shares of Series B preferred
stock with a liquidation
preference and estimated
fair value of $1,000 per share $6,336,200
The acquisition was reported as a purchase and, accordingly, the
results of Beck II have been included in the accompanying unaudited
consolidated statements of operations subsequent to January 1, 1999
(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 as shown below.
Cash $ 1,120,679
Accounts Receivable 77,835
Other Current Assets 4,088
Property and Equipment 25,107,860
Deferred Tax Assets 120,000
Other Assets 761,989
Accounts Payable (605,864)
Other Current Liabilities (519,469)
Liability to Seller or Affiliates (1,908,267)
Long Term Debt (17,165,224)
Minority Interest in the 75% owned
hotel corporation (657,427)
----------
Total Purchase Price Allocated $ 6,336,200
==========
Unaudited information reflecting the historical results of operations
of the Company for the three months ended March 31, 1999 and pro forma
results of operations for the three months ended March 31, 1998 as
though each of the Cornerstone Hotel Group and Beck II had been
acquired as of January 1, 1998 are included herein as Pro forma
Consolidated Financial Statements.
13
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 5--Mortgage notes receivable:
The Mortgages, which were acquired on April 24, 1997 by the Company,
are secured by a hotel in Juno Beach, Florida and a campground in
Kissimmee, Florida, both of which are owned by entities controlled by
Messrs. Beck and Yeaggy. Messrs. Beck and Yeaggy have also personally
guaranteed the Mortgages. The Beck II purchase, effective January 1,
1999, included the Juno Beach, Florida, property which was subject to
a mortgage note to the Company which resulted in a cancellation of
said Note.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
<S> <C> <C>
Note secured by hotel property, with $ - $2,141,749
interest at .5% above specified prime
rate (an effective rate of 9.0% at
December 31, 1998)
Note secured by campground, with interest 3,396,244 3,417,006
at 8% --------- ---------
Total long-term receivable 3,396,244 5,558,755
Less current portion 87,309 133,709
--------- ---------
Long-term portion, net of current portion $3,308,935 $5,425,046
========= =========
</TABLE>
The Campground note is payable in monthly installments of principal
and interest through April 2003 with a final installment of all
remaining principal and interest in May 2003.
Principal payments on the Campground note in each of the five years
subsequent to December 31, 1998 are:
Year Ending December 31 Amount
1999 $ 85,586
2000 92,690
2001 100,384
2002 108,716
2003 3,029,629
14
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 5--Mortgage notes receivable (concluded):
The Company derived interest income of $68,202 and $118,893
from the Mortgages during the three months ended March 31,
1999 and 1998 respectively.
Note 6--Property and equipment:
Property and equipment at March 31, 1999 and December 31, 1998
consisted of the following:
<TABLE>
<CAPTION>
Years of March 31, December 31,
Useful Life 1998 1998
----------- ---- ----
<S> <C> <C> <C>
Land $ 12,678,287 $10,167,507
Hotels 30 73,913,680 56,004,760
Hotel furniture and fixtures: 5 8,412,099 3,125,877
Hotel furniture and fixtures: 9 8,866,749 8,415,676
Equipment and vehicles 5 174,238 83,212
Other 5 19,886 19,886
----------- ----------
104,064,939 77,816,918
Less accumulated depreciation and
amortization 4,541,666 3,266,618
----------- ----------
Totals $ 99,523,273 $74,550,300
=========== ==========
</TABLE>
Note 7-- Long-term debt:
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
Long-term debt consisted of the following:
<S> <C> <C>
Fixed rate mortgage notes payable in monthly
installments, including interest at rates
ranging from 8.09% to 10%; the mortgage notes
mature from August 2000 through January 2016 $62,838,773 $54,320,332
Variable rate mortgage notes payable in monthly
installments, including interest at rates varying
with the prime commercial lending rate, rates
on U.S. Treasury securities and other defined
indexes (the effective rates at December 31, 1997
ranged from 8.73% to 9.5%); the mortgage notes
mature from August 1999 through April 2006 14,054,591 8,823,009
Equipment notes with various maturities
through December 2001 and interest at rates
ranging from 8.98% to 15% 696,623 123,046
---------- ----------
Total long-term debt 77,589,987 63,266,387
Less current portion 4,566,210 2,683,504
---------- ----------
Long-term debt, net of current portion $73,023,777 $60,582,883
========== ==========
</TABLE>
15
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 7-- Long-term debt (concluded):
Long-term debt is secured by the Company's notes, property and
equipment. Principal payments in years subsequent to December 31, 1998
are as follows:
Year Ending December 31 Amount
1999 $4,566,210
2000 3,511,992
2001 1,973,184
2002 1,918,718
2003 2,029,292
Note 8--Commitments and contingencies:
Employment agreements:
The Company entered into employment agreements whereby it will
be obligated to pay minimum salaries to four of its executive
officers, including each of Messrs. Beck and Yeaggy,
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.
16
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 8--Commitments and contingencies (concluded):
Exposure to credit risk with respect to the Mortgages is
limited because they are secured by real estate with an
estimated market value in excess of the mortgage balance.
Litigation:
The Company is a party to various legal proceedings. In the
opinion of management, these actions are routine in nature and
will not have a material adverse effects on the Company's
consolidated financial statements in subsequent years.
Note 9--Income taxes:
For financial statement purposes, there was a provision for Federal
income taxes at March 31, 1999 and December 31, 1998. Benefits 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. In 1998 the Company increased
paid-in-capital by $2,566,000 as a result of such benefits.
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 March 31, 1999 management believes that such a
change in ownership has not occurred.
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 follows:
<TABLE>
<CAPTION>
Deferred taxes were comprised of the following:
March 31 December 31
1999 1998
<S> <C> <C>
Deferred tax liabilities
Depreciation and gain recognition $ 1,885,874 $ 1,885,874
Deferred tax assets
Net operating loss carryforwards 165,375,000 165,355,000
Valuation allowance 162,809,000 162,789,000
Net deferred tax assets 2,566,000 2,566,000
----------- -----------
Net deferred tax asset (liability) $ 680,126 $ 680,126
=========== ===========
</TABLE>
17
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 9--Income taxes (concluded):
Net operating loss carryforwards consist of federal carryforwards of
$486,400,000 principally expiring in years 2000 through 2011.
The Company's actual tax rate differs from statutory rates due to
goodwill, income (loss) from the Reorganization Trust and federal tax
refunds.
Note 10--Fair value of financial instruments:
The Company's financial instruments at March 31, 1999 and 1998
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 11--Minority interest:
The Company owns 90% of JISubsidiary, 85% of Kings Dominion Lodge and
75% of Motel Associates of Pompano Beach, Inc. The balance of the
minority interest in these consolidated subsidiaries at March 31, 1999
and December 31, 1998 and the changes in the minority interest are set
forth below:
<TABLE>
<CAPTION>
Kings Dominion Motel Assoc.of
JISubsidiary Lodge Pompano Beach Total
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ 91,113 1,682,848 - $1,773,961
Initial allocation at the
date of Acquisition
of Beck II 657,427 657,427
Net Income (loss) - (47,102) 56,925 9,823
------ --------- ------- ---------
Balance at March 31, 1999 91,113 1,635,746 714,352 2,441,211
====== ========= ======= =========
</TABLE>
18
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 12--Stockholders equity:
Capital stock:
Information regarding the capital stock of Janus follows:
-Preferred stock, par value $.01 per share; 5,000,000 shares
authorized at March 31, 1999 and December 31, 1998,
respectively, of which 20,000 shares at March 31, 1999 and
12,000 shares at December 31, 1998 were designated as "Series
B" (the "Janus Series B preferred stock"); 16,788.08 and
10,451.80 shares were outstanding at March 31, 1999 and
December 31, 1998, respectively.
-Common stock, par value $.01 per share; 15,000,000 shares
authorized; and 11,880,867 shares issued at March 31, 1999 and
December 31, 1998; and 3,189,132 shares held as treasury
shares at March 31, 1999 and December 31, 1998. At December
31, 1998 and 1997 the Reorganization Trust held 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, but
disregarding shares issued after March 16, 1997.
In January 1999 the Company issued 6336.20 shares of Janus
Series B preferred stock as consideration for acquisition of
Beck II. Total outstanding at March 31, 1999 is 16,788.08.
Based on the provisions of Janus' corporate charter and a
separate agreement between Janus and Messrs. Beck and Yeaggy,
Messrs. Beck and Yeaggy are prohibited from purchasing
additional shares of Janus common stock without the prior
approval of the Board of Directors.
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, 1998,
warrants to purchase 110,626 shares were exercisable at $3.00
per share; warrants to purchase 55,312 shares were exercisable
at $4.00 per share; and warrants to purchase 55,309 shares
were exercisable at $5.00 per share. However, the warrants may
only be sold pursuant to an effective registration statement
under the securities Act of 1933 or an appropriate exemption
from such registration.
19
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 12--Stockholders equity (concluded);
Warrants (concluded):
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.
Note 13--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 "Option Plan").
The Option 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 Option Plan.
The Option Plan permits the Committee to grant stock appreciation
rights ("SARs") in connection with any option granted under the 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.
Options to purchase 4,000 shares at an exercise price of $2.75 remain
outstanding at March 31, 1999.
In 1998, the Company granted SARs with respect to 25,000 shares of
common stock to a director at an exercise price of $2.48 per share,
which will be exercisable at any time through December 17, 2003.
20
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Note 14--Other related party transactions:
The Company engages in various transactions with other entities in which
Mr. Beck and Mr. Yeaggy have an interest. In addition to interest
derived from the Mortgages (see Note 5), results of operations in 1999
and 1998 include revenues and expenses derived from related party
transactions as follows:
March 31 March 31
1999 1998
Management fee income (a) $ - $104,847
Personnel leasing fees (b) 46,749 14,320
Management systems fees (c) 21,000 12,500
Rent for office facilities and equipment(c) 19,100 9,415
Reimbursement for Management expenses $ - $496,562
(a) The Company managed 6 hotels for entities controlled by Messrs.
Beck and Yeaggy, which were subsequently acquired by the Company
effective January 1, 1999.
(b) The Company pays administrative fees to Hospitality Employee
Leasing Program, Inc. ("HELP"), a corporation wholly-owned by Messrs.
Beck and Yeaggy, which 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.
(c)The Company pays rent and 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 Messrs. Beck and Yeaggy.
21
<PAGE>
JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Effective January 1, 1999 Janus American Group, Inc. ("Janus") consummated the
acquisition of six hotels, a 75% equity interest in a hotel corporation, and two
management contracts (collectively "Beck II") that were effectively owned and
controlled by Louis S. Beck and Harry Yeaggy ("Messrs. Beck and Yeaggy"), as
more fully described in the Company's report on Form 8-K dated February 2, 1999,
as amended by Form 8-KA filed April 7, 1999.
On August 14, 1998, Janus consummated the acquisition of four hotels (the
"Cornerstone Hotel Group") as more fully described in the Company's report on
Form 8-K dated August 28, 1998, as amended by Form 8-KA filed October 16, 1998.
The acquisition included the profit from operations commencing July 1, 1998.
Janus has accounted for the acquisitions of the Cornerstone Hotel Group and Beck
II pursuant to the purchase method of accounting in its historical financial
statements based on effective acquisition dates of January 1, 1999 and August
14, 1998 respectively.
The accompanying adjusted unaudited pro forma consolidated statement of
operations for the three months ended March 31, 1998 combines the historical
consolidated statement of operations of Janus and its subsidiaries for the three
months ended March 31, 1998 (including the Cornerstone Hotel Group and Beck II
for the period from January 1, 1998 to March 31, 1998 as if the acquisition was
consummated as of January 1, 1998.)
The accompanying unaudited pro forma consolidated financial statements are based
on the assumptions and adjustments described in the accompanying notes which
management believes are reasonable. The unaudited pro forma consolidated
financial statements do not purport to represent what the consolidated results
of operations actually would have been if the acquisition of Cornerstone Hotel
Group and Beck II referred to above had occurred as of January 1, 1998 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 consolidated
financial statements and the accompanying notes should be read in conjunction
with the audited and unaudited historical financial statements of Janus and its
subsidiaries included in the Form 10-KSB for the year ended December 31, 1998.
22
<PAGE>
<TABLE>
JANUS AMERICAN GROUP, INC.
<CAPTION>
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
ADJUSTED FOR CORNERSTONE AND BECK II TRANSACTIONS
FOR THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Janus Janus
Historical Proforma
3/31/99 3/31/98
<S> <C> <C>
Revenues:
Hotel revenues:
Room and related services $ 7,436,508 $ 7,541,260
Food and beverage 2,381,785 2,470,316
Management fees 561,993 375,131
Other 217,532 220,643
---------- ----------
Total revenues 10,597,818 10,607,350
Cost and expenses:
Direct hotel operating expenses:
Room and related services 1,921,078 2,112,051
Food and beverage 1,863,205 2,030,884
Selling and general expenses 455,956 464,770
---------- ----------
Total direct hotel operating 4,240,239 4,607,705
expense
Occupancy and other operating expenes 1,617,727 1,603,689
Selling, general and administrative expenses 2,518,090 2,310,569
Depreciation of property and equipment 1,275,046 1,187,456
Amortization of intangible assets 78,426 75,761
---------- ----------
Total costs and expenses 9,729,528 9,785,180
Operating income (loss) 868,290 822,170
Other income (expense)
Interest income 197,048 197,349
Other income 20,000 -
Interest expense (1,671,070) (1,711,220)
---------- ----------
Income (loss) before state income taxes and
minority interest (585,732) (691,701)
Federal income tax(benefits) - -
Provision for deferred income taxes - -
Provision (credit) for state and local income - -
taxes
---------- ----------
Total provision for income taxes - -
---------- ----------
Income (loss) before minority interest (585,732) ($691,701)
Minority interest 9,823 $30,400
---------- ----------
Income (loss) from continuing operations (595,555) ($722,101)
---------- ----------
Net income (loss) (595,555) (722,101)
Less preferred dividend requirements 268,802 268,802
---------- ----------
Net income (loss) applicable to common stock $ (864,357) $ (990,903)
========== ==========
Net income (loss) per common share-Basic (0.10) (0.11)
Net income (loss) per common share-Assuming (0.10) (0.11)
dilution
Basic weighted avg. shares outstanding 8,682,858 8,691,735
========== ==========
Basic weighted avg. shares outstanding-assuming
dilution 8,682,858 8,691,735
========== ==========
</TABLE>
23
<PAGE>
Purchases of the Cornerstone Hotel Group and Beck II:
Information with respect to the cost incurred by Janus to purchase the
Cornerstone Hotel Group on August 14, 1998 and (the effective date of the
acquisition used for accounting purposes) and Beck II effective January 1, 1999
and the allocation of such costs in accordance with the purchase method of
accounting is set forth in Note 4 of the notes to the unaudited consolidated
financial statements of Janus included elsewhere herein.
Pro Forma Adjustments to the Unaudited Consolidated Statements of Operations for
the three months ended March 31, 1998
(a) To record the effect on interest income resulting from the consolidating
elimination of the Janus mortgage note receivable.
(b) To eliminate non-recurring general and administrative expenses of $463,596
for management fees, director fees and auto leases and recording the effect
of increased expenses of a regional accounting office.
(c) To record the effects on depreciation expense arising from the allocation
of purchase price of the Cornerstone Hotel Group and Beck II between land,
buildings, furniture, fixtures and equipment.
(d) To record the effects on amortization expense arising from the amortization
of loan fees, franchise fees and prepaid fees incurred in the acquisition
of the Cornerstone Hotel Group and Beck II.
(e) To record the dividends attributable to the shares of Series B preferred
stock issued as part of the consideration paid to sellers in the
acquisition of Beck II.
(f) To record additional interest expense of $329,627 based on acquisition
financing of $44,000,000 amortized over 25 years at 8.09% offset by the
reduction of interest expense of $49,100 resulting from the elimination as
a result of the acquisition of the Juno mortgage payable to the Company.
(g) To record the effect of a minority interest of 25% in the Days Inn Pompano
from January 1, 1998 to March 31, 1998.
24
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Three Months Ended March 31, 1999 Compared to the Three Months Ended March 31,
1998
Historical and Pro forma Results of Operations
The acquisition of Beck II effective January 1, 1999 (the "Beck-Yeaggy
Group"), and the acquisition of the Cornerstone Group in August 1998, were
accounted for as purchases. Accordingly, the Company's historical results of
operations for the three months ended March 31, 1999 and 1998 included the
results of operations of the Beck-Yeaggy Group and the Cornerstone Group
subsequent to their effective dates of acquisition for accounting purposes. For
that reason, the Company's historical results of operations for the three months
ended March 31, 1999 are not directly comparable to those for 1998.
The Company had a net loss of ($595,555) at March 31, 1999 compared to
a net loss of ($272,752) at March 31, 1998. The difference was primarily the
result of acquisitions of hotels which are out of season from January 1 to
Memorial Day weekend.
The operations of the Company are comprised primarily of the operations
of owned hotels and the Company's management of hotels owned by third parties.
To present more comparable information related to operations, the discussion of
results of operations will relate to the Company's unaudited pro forma
consolidated results of continuing operations for the three months ended March
31, 1999 and 1998. Pro forma statements of operations are included within the
Notes to Unaudited Consolidated Financial Statements.
The unaudited pro forma operating information is based on the
assumptions and adjustments described in the attachments and which management
believes are reasonable. The unaudited pro forma consolidated information does
not purport to represent what the consolidated results of operations actually
would have been if the acquisitions of Beck II and the Cornerstone Hotel Group
had occurred as of January 1, 1998 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 consolidated 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 operations of the
Company and the historical pre-acquisition results of operations of Beck II and
the Cornerstone Hotel Group for the periods from January 1, 1998 to March 31,
1998 as if the acquisition had been consummated on January 1, 1998. Adjustments
were made for 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 stock as part of the consideration for the
acquisition. The provision for income taxes, if applicable, is based upon pro
forma income from operations and the statutory Federal and state rates.
25
<PAGE>
The pro forma consolidated net loss from operations of the Company was
($595,555) for the three months ended March 31, 1999, as compared to net loss of
($722,101) for the three months ended March 31, 1998. The decrease in the loss
was primarily the result of decreases in direct operating expenses and increases
in management fee income offset by decreases in hotel revenue, food revenue and
an increase in depreciation expense.
Room and related services revenue decreased $104,752 to $7,436,508 in
1999. The decrease was attributable primarily to a decrease in occupancy. The
average room rate increased from $54.88 in 1998 to $57.30 for 1999. Occupancy
decreased in 1999 by 3.38% to 51.25%.
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 $88,531 decrease in food and beverage sales from $2,470,316 in 1999 to
$2,381,785 for the comparable period in 1999 is related to the decreased
occupancy at the Company's four full-service hotels offset by increases in menu
pricing.
Management fee income increased $186,862 in 1999 to $561,993 as a
result of the addition of new third party management contracts and the
termination of a joint marketing venture whereby fee income was shared with a
joint venture partner.
Other hotel related revenues were relatively flat for the three months
ended March 31, 1999.
Direct hotel operating expenses decreased by $367,466 from $4,607,705
in 1998 to $4,240,239 in 1999. Direct room and related services and food and
beverage costs decreased as a result of decreased payroll costs, the elimination
of contracted cleaning services and a reduction in the number of rooms sold.
Occupancy and other operating expenses remained stable in 1999.
Selling, general and administrative expenses increased by $207,521 to
$2,518,090 in 1999 from $2,310,569 in 1998 as a result of the addition of staff
to meet management requirements, commissions for management contracts and
shareholder services costs.
Depreciation increased by $87,590 in 1999 from $1,187,456 in 1998. The
increase was attributable to depreciation for a full year on 1998 additions and
a half year on first quarter 1999 additions.
Interest income remained stable as reductions in cash from the previous
year was offset by higher yields on investments.
Interest expense decreased from $1,711,220 in 1998 to $1,671,070 in
1999. The decrease was attributable to normal principal amortization.
26
<PAGE>
Minority interest decreased from $30,400 in 1998 to $9,823 in 1999 as
net loss from the Kings Dominion partnership increased in 1999 and the net
income from the Days Inn Pompano hotel decreased in 1999 from 1998.
Liquidity and Capital Resources
The following discussion reflects the liquidity and capital resources
of the Company after giving effect to the transaction with affiliates of Messrs.
Beck and Yeaggy which closed effective January 1, 1999. 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 and borrowings, some of which is likely to be secured by
assets of the Company. The Company has no committed lines of credit and there
can be no assurance that credit will be available to the Company or if available
that such credit will be available on terms and in amounts satisfactory to the
Company. The ability of the Company to issue its common or preferred stock is
materially restricted by the requirements of the Internal Revenue Code if the
Company wishes to preserve its NOLs.
Historical Changes in Liquidity and Capital Resources
Total assets increased from $108,683,792 at December 31, 1998 to
$130,439,495 at March 31, 1999. The increase in total assets was the result of
the acquisition of Beck II described in Note 4 of the Unaudited 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 and preferred stock all increased as a result of
the acquisitions. The decrease in cash and cash equivalents from $12,383,741 in
1998 to $11,752,011 March 31, 1999 is attributable to capital requirements for
improvements prior to reimbursement from replacement reserves and the operations
of the hotels out of season.
At March 31, 1999 the Company had $11,752,011 in cash and cash
equivalents.
During the year ended December 31, 1998, the Company and its
predecessors invested approximately $1,446,100 in capital improvements in
connection with the Owned Hotels. The Company plans to spend an additional
$3,100,000 on such capital improvements during the year ending December 31,
1999, of which $1,922,000 remains from the original product improvement plan
which the Company agreed to in connection with the acquisition of the
Cornerstone Hotel Group and is currently reserved.
Capital for improvements to Owned Hotels has been and is expected to be
provided by a combination of internally generated cash, reserve replacement
accounts 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 enhance the competitive position of the
properties. The additional expenditures are mainly a result of the costs for new
facilities at Holiday Inn Independence, Holiday Inn North Canton and Holiday Inn
Hudson.
27
<PAGE>
The Company maintains a number of commercial banking relationships and
maintains line of credit totalling $2,200,000 at March 31, 1999.
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. 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. 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 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's long-term debt at March 31, 1999 totals $77,589,987.
Mortgage debt totals $76,893,364, which consists of $62,838,773 in fixed rate,
fully self-amortizing mortgage loans and $14,054,591 in adjustable rate (3-5
year adjustment period) mortgage loans. Such adjustable rate loans have maturity
dates ranging from August 1999 to April 2006. Interest rates on mortgage debt
range from 8.09% to 9.75% with a weighted average interest rate of 8.55%
effective at March 31, 1999. The approximate scheduled repayments of principal
on the long-term debt of the Company for the next five years are: 1999 --
$4,566,210; 2000 -- $3,511,992; 2001 -- $1,973,184; 2002 -- $1,918,718; 2003 --
$2,029,292. 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.
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. 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 no further 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.
28
<PAGE>
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 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 could materially adversely affect the ability of the Company to expand
its operations through the acquisition of Owned Hotels.
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. The Company anticipates completing this work by September 30, 1999.
The Company is also in the process of working with each of its property general
managers to complete a plan in order to ensure that all of the computerized
operations of the Hotels for the year 2000 run properly. All Hotels will have a
Year 2000 test prior to September 30, 1999 to ensure that the Year 2000 does not
cause any significant problems with the Hotels' ability to rent rooms.
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
29
<PAGE>
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 "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.
30
<PAGE>
PART II--OTHER INFORMATION
Item 2--Changes in Securities and Use of Proceeds
(a) Effective January 11, 1999 the Designations, Preferences and Rights of
the Company's Preferred Stock, Series B, as set forth in the Company's
Restated Certificate of Incorporation, as amended, was amended to
increase the number of shares in the Series B from 12,000 to 20,000.
(b) On February 2, 1999 the Company issued 6,336 shares of its Preferred
Stock, Series B, valued at $1,000 per share, as consideraiton in the
Beck II merger. The shares were issued as follows: 828 shares to Louis
S. Beck; 3,924.15 shares to Elbe Financial Group, L.L.C., a company
wholly-owned by Mr. Beck; and 1,584.05 shares to Harry G. Yeaggy. No
underwriters were involved nor were any commissions paid in connection
with such transaction. The Company relied on Section 4(2) of the
Securities Act in making the foregoing private placement. No offer was
made to any person other than Messrs. Beck and Yeaggy, the owners of
Beck II.
Iem 6--Exhibits and Reports on Form 8-K.
A. Exhibits
Exhibit 27: Financial Data Schedule
B. Reports on Form 8-K
(1) Form 8-K dated February 2, 1999 reporting the acquisition of
seven hotel properties
(2) Form 8-K/A dated February 1, 1999 amending and supplementing the
foregoing report by inclusion of financial statements and pro
forma financial information
31
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JANUS AMERICAN GROUP, INC.
Dated: May 14, 1999 /s/James E. Bishop
------------------------ ---------------------------------------
James E. Bishop
President
Dated: May 14, 1999 /s/Richard A. Tonges
------------------------ ---------------------------------------
Richard A. Tonges
Treasurer and Vice President of Finance
(Principal Financial and
Accounting Officer)
32
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