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, 1999
JANUS HOTELS AND RESORTS, INC.
(Exact name of registrant as specified in its charter)
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Delaware Commission File Number: 0-22745 13-2572712
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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2300 Corporate Blvd., N.W., Suite 232 33431-8596
Boca Raton, Florida (Zip Code)
(Address of principal executive offices)
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 each 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)
Check whether the issuer (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 |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in 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 issuer's revenues for its most recent fiscal year were $51,173,422
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer was approximately $14,467,000, as of March 21,
2000. 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 21, 2000: 8,671,092
Transitional Small Business Disclosure Format: Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to the 2000
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission, are incorporated by reference in Part III, Items 9-12 of the Annual
Report on Form 10-KSB as indicated herein.
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PART I
Item 1. Description of Business.
Background of the Company
Janus Hotels and Resorts, Inc. (the "Company" or "Janus"), a Delaware
corporation, is engaged in the ownership and management of hotels. The Company
has ownership interests in 16 hotels (the "Owned Hotels") and manages an
additional 33 hotels (the hotels which are managed, but not owned, by the
Company are referred to as the "Managed Hotels" and the Owned Hotels and Managed
Hotels are collectively referred to as "Hotels").
The Company's executive offices are located at 2300 Corporate Boulevard, N.W.,
Suite 232, Boca Raton, Florida 33431 and its telephone number is (561) 994-4800.
In April 1997, the Company entered the hotel business by acquiring, 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% interest in a partnership that owns one hotel; (ii) a hotel management
company; (iii) a management fee sharing arrangement with Summit Hotel Management
Company, which has since been terminated; 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, which are both personally guaranteed by Messrs.
Beck and Yeaggy. 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).
Messrs. Beck and Yeaggy, who are currently Chairman and Vice Chairman,
respectively, of the Board of Directors of the Company, have been engaged in the
hospitality business since 1972.
In August 1998, the Company acquired four hotels near Cleveland, Ohio (the
"Cornerstone Hotel Group") from an unrelated party.
Effective January 1, 1999, the Company acquired, by merger, Beck Hospitality,
Inc. II ("Beck II") which owned six hotels and a 75% interest in another hotel.
As part of the purchase price in this transaction, Messrs. Beck and Yeaggy
received additional shares of the Series B Preferred Stock, all of the
outstanding shares of which are beneficially owned by them.
Messrs. Beck and Yeaggy retain miscellaneous independent interests in the
hospitality business. However, they have contractually agreed with the Company
not to engage in any business that competes with the business of the Company.
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, the 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 May 21, 1999, the name of
the Company was changed to Janus Hotels and Resorts, Inc. JI Subsidiary
currently has no business activities. See "Description of Business--History of
the Company's Reorganization."
Prior to entering the hospitality business, 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 subsequently sold the business to its
management effective April 1, 1998.
2
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The Hospitality Business
The Owned Hotels
The Owned Hotels are located in five states and operate under franchise or
membership agreements that provide for the use of the brand names Days Inn, Best
Western, Knights Inn, Holiday Inn and Comfort Inn. One of the Owned Hotels is
located adjacent to the Paramount Kings Dominion amusement park near Richmond,
Virginia. The remaining Owned Hotels are located near either office parks,
interstate highways, airports or tourist attractions in Ohio, Florida, Indiana
and North Carolina. The Owned Hotels generally offer remote control cable
television, a swimming pool and, in many cases, restaurants. Some of them offer
meeting and banquet facilities and room service.
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 and the Days Inn, Pompano Beach, Florida, the Owned
Hotels 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. An unrelated party holds a 25% interest in the Days Inn, Pompano
Beach, Florida. 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, with the exception of the indebtedness incurred in the
acquisition of the hotels known as Holiday Inn, Independence; Holiday Inn, North
Canton; Holiday Inn, Hudson; and Comfort Inn, Akron, which is
cross-collateralized by those hotels.
The following charts present a summary of the operations of the Owned Hotels for
the calendar years ended December 31, 1999 and 1998.
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1999
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HOTEL AND LOCATION RMS AVAIL. 1 OCC% 2 ADR 3 Rev PAR 4
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Days Inn, Sharonville, OH 52,195 61% $44.29 $26.81
Best Western Kings Quarters, Doswell, VA 90,520 45% $67.01 $29.90
Knights Inn, Westerville, OH5 29,539 57% $36.60 $20.92
Knights Inn, Lafayette, IN 40,880 71% $39.92 $28.14
Knights Inn, Michigan City, IN6 37,595 62% $40.93 $25.16
Days Inn Crabtree, Raleigh, NC 44,530 64% $43.14 $27.46
Days Inn RTP, Raleigh, NC 40,515 88% $69.74 $61.65
Holiday Inn, Independence, OH 132,860 63% $90.19 $56.52
Holiday Inn, North Canton, OH 70,810 79% $63.08 $49.66
Holiday Inn, Hudson, OH 105,120 57% $81.37 $46.16
Comfort Inn, Akron, OH 48,180 61% $60.40 $36.85
Days Inn East, Cincinnati, OH 33,945 70% $44.78 $31.32
Holiday Inn Express, Juno Beach, FL 38,690 82% $59.93 $49.08
Red Roof Kings Island, Mason, OH 45,260 46% $50.66 $23.35
Days Inn Kings Island, Mason, OH 45,260 59% $58.01 $33.92
Days Inn Cambridge, Cambridge, OH 37,595 44% $53.10 $23.59
Best Western Cambridge, Cambridge, OH 34,675 57% $42.08 $24.05
Days Inn Pompano, Pompano Beach, FL 63,145 60% $37.78 $22.60
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3
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1998
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HOTEL AND LOCATION RMS AVAIL. 1 OCC% 2 ADR 3 Rev PAR 4
- ------------------ ----------- ----- ---- --------
Days Inn, Sharonville, OH 52,195 60% $44.37 $26.45
Best Western Kings Quarters, Doswell, VA 90,520 48% $63.24 $30.32
Knights Inn, Westerville, OH 39,785 63% $36.22 $22.81
Knights Inn, Lafayette, IN 40,880 71% $37.18 $26.52
Knights Inn, Michigan City, IN 37,595 56% $40.96 $23.08
Days Inn Crabtree, Raleigh, NC 44,530 68% $47.94 $32.66
Days Inn RTP, Raleigh, NC 40,515 88% $68.44 $60.28
Holiday Inn, Independence, OH 132,860 65% $84.01 $54.63
Holiday Inn, North Canton, OH 70,810 79% $59.72 $46.97
Holiday Inn, Hudson, OH 105,534 63% $76.85 $48.29
Comfort Inn, Akron, OH 48,910 64% $56.76 $36.32
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1 Calculation is based on number of hotel rooms in service multiplied by
number of days in a year.
2 Total number of rooms sold during a year divided by the 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.
5 Hotel was sold September 29, 1999.
6 Hotel was sold December 29, 1999.
The following is a description of each of the Owned Hotels at December 31, 1999:
Days Inn Hotel, Raleigh, NC. 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 $2,637,561 as of
December 31, 1999, 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, 1999, the loan was in its fifth 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.
Capital improvements of $675,299 were made to the property in 1999. Such
improvements were paid from working capital and replacement reserves. The
capital expenditures for 2000 are anticipated to cost approximately $266,000.
All expenditures will be paid from existing replacement reserves and working
capital.
Best Western Kings Quarters, Doswell, VA. 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 located adjacent to the Paramount Kings
Dominion theme park.
The hotel's lobby is incorporated into one of the guest buildings. There is a
140 seat Denny's restaurant adjacent to the hotel that is owned by the
partnership that owns the hotel. The amenities also include an outdoor swimming
pool, two tennis courts, a putting green, shuffleboard, volleyball, ping-pong,
horseshoes, children's playground, video arcade, 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 $4,820,218 as of
December 31, 1999, which amount is to be amortized on a monthly basis through
January 1, 2016. The mortgage carries a fixed interest rate of 9.75% per annum.
At December 31, 1999, the loan was in its fourth 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 completed capital improvements in 1999 of $236,157. The expenditures
were financed from existing replacement reserves and working capital. The
capital expenditures for 2000 are anticipated to cost approximately $202,000.
All expenditures will be paid from existing replacement reserves and working
capital.
4
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Days Inn, Sharonville, OH. 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 excellent. The property consists of three two story concrete
buildings. The buildings have both interior and exterior corridors. The
lobby/reception area is integrated into one of the guest buildings.
Additionally, there is a one-story restaurant located on the property. The
restaurant is leased to and managed by an unrelated third party.
The hotel is subject to a first mortgage with a balance of $2,498,186 as of
December 31, 1999. The mortgage requires monthly payments and matures on
September 1, 2002 with a remaining balance, assuming no prepayment, of
approximately $2,119,000. The mortgage carries an interest rate of 7.75% per
annum.
The Company spent $242,333 in capital expenditures at the hotel in 1999. These
expenditures were financed from working capital. The capital expenditures for
2000 are anticipated to be approximately $64,000.
Days Inn (Research Triangle), Morrisville, NC. 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, 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 $2,705,191 as of
December 31, 1999, 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, 1999, the loan was in its fifth 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 $194,496 in capital expenditures at the hotel in 1999. These
expenditures were financed from replacement reserve funds and working capital.
The capital expenditures for 2000 are anticipated to be approximately $119,000,
and all expenditures will be paid from existing replacement reserves and working
capital.
Knights Inn, Lafayette, IN. 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 highly visible from State
Road 26. The property consists of four one-story modular buildings with wood
trimmed stone and stucco exteriors and an outdoor swimming pool. The building
has exterior corridors. The lobby consists of a reception area and an office.
The hotel is subject to a first mortgage with a balance of $2,056,673 as of
December 31, 1999. The mortgage matures on April 1, 2006 with a remaining
balance, assuming no prepayment, of approximately $1,453,000. The mortgage
carries an interest rate of 9.5% per annum subject to adjustment every three
years to a rate equal to 100 basis points above the defined prime rate. The
interest rate on the mortgage was last adjusted on April 1, 1997. Under the
terms of the mortgage, the loan may be prepaid in whole or in part at any time
with no prepayment penalty.
The Company spent $97,219 on capital expenditures at the hotel in 1999. Such
expenditures were financed from working capital. The capital expenditures for
2000 are anticipated to be approximately $96,000, and all expenditures will be
paid from working capital.
Holiday Inn, Independence, OH. Built in 1974, the 364-room hotel is located on
approximately 8.5 acres on Rockside Road approximately 11 miles from Cleveland
Hopkins International Airport and approximately 8 miles from downtown Cleveland.
The property is situated at the junction of Interstate Highway 480 and
Interstate Highway 77. The property consists of two five-story concrete block,
brick and stucco buildings with 14 meeting rooms, 1 Grand Ballroom (or 4
separate Ballrooms), business center, gift shop, restaurant, lounge and a
full-size indoor swimming pool.
The hotel is subject to a first mortgage with a balance of $21,475,143 as of
December 31, 1999. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of approximately $18,059,054. The mortgage
carries an interest rate of 8.09% per annum. Under the terms of the mortgage,
the loan may be prepaid in whole.
The Company spent $1,001,111 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to cost approximately $428,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Holiday Inn, North Canton, OH. Built in 1970, the 196-room hotel is located on
approximately 4.75 acres on Everhard Road approximately 5 miles from the
5
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Akron-Canton Regional Airport and approximately 5 miles from downtown Canton.
The property is situated off Interstate Highway 77. The property consists of two
three-story concrete block and stucco buildings with one Grand Ballroom (or 4
separate Ballrooms), two meeting rooms, restaurant, lounge, full-size outdoor
swimming pool, fitness center and game room.
The hotel is subject to a first mortgage with a balance of $5,319,531 as of
December 31, 1999. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of approximately $4,473,343. The mortgage
carries an interest rate of 8.09% per annum. Under the terms of the mortgage,
the loan may be prepaid in whole.
The Company spent $411,899 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $218,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Holiday Inn, Hudson, OH. Built in 1967, the 289-room hotel is located on
approximately 15 acres on Hines Hill Road approximately 22 miles from downtown
Cleveland and approximately 14 miles from downtown Akron. The property is
situated at the junction of the Ohio Turnpike and Route 8. The property consists
of two two-story concrete block and stucco buildings with one Grand Ballroom (or
6 separate Ballrooms), six banquet rooms, three meeting rooms, a restaurant,
lounge, game room, an indoor swimming pool, outdoor swimming pool, basketball
courts, tennis courts, volleyball courts and fitness center.
The hotel is subject to a first mortgage with a balance of $13,101,808 as of
December 31, 1999. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of $12,017,680. The mortgage carries an
interest rate of 8.09%. Under the terms of the mortgage, the loan may be prepaid
in whole.
The Company spent $903,980 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $112,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Comfort Inn, Akron, OH. Built in 1989, the 134-room hotel is located on
approximately 3.5 acres on Montrose West Avenue at the intersection of
Interstate Highway 77 and Route 18. The property consists of two two-story
concrete block and brick buildings with an indoor swimming pool.
The hotel is subject to a first mortgage with a balance of $3,447,844 as of
December 31, 1999. The mortgage matures on September 1, 2008 with a remaining
balance, assuming no prepayment, of $2,899,390. The mortgage carries an interest
rate of 8.09% per annum. Under the terms of the mortgage, the loan may be
prepaid in whole.
The Company spent $73,165 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $169,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Days Inn East, Cincinnati, OH. Built in 1979, the 93-room hotel is located on
approximately 4.3 acres on Mt. Carmel-Tobasco Road near Interstate 275. The
property consists of one three-story concrete block and brick building with an
outdoor swimming pool.
The hotel is subject to a first mortgage with a balance of $1,541,753 as of
December 31, 1999. The mortgage matures on August 1, 2001 with a remaining
balance, assuming no prepayment, of $1,486,675. The mortgage carries an interest
rate of 8.0% per annum. Under the terms of the mortgage, the loan may be prepaid
in whole or in part subject to a prepayment penalty.
The Company spent $44,269 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $220,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Holiday Inn Express, Juno Beach, FL. Built between 1961 and 1989; the 106-room
hotel is located on approximately 3.6 acres on U.S. Highway 1. The property
consists of two two-story and one three-story concrete block and stucco
buildings.
The hotel is subject to a mortgage with a balance of $424,945 as of December 31,
1999. The mortgage matures on August 1, 2000. The mortgage carries an interest
rate of 8.52% per annum.
The Company spent $203,236 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $157,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
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Red Roof Kings Island, Mason, OH. Built between 1973 and 1979, the 124 room
hotel is located on approximately 4.8 acres on Bardes Road. The property
consists of two two-story concrete block and brick buildings.
The hotel is subject to a first mortgage with a balance of $2,448,124 as of
December 31, 1999. The mortgage matures on October 1, 2015. The mortgage carries
an interest rate of 9.74% per annum. 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 $98,823 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $77,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Days Inn Kings Island, Mason, OH. Built in 1976, the 124 room hotel is located
on approximately 4.2 acres on Mason-Montgomery Road. The property consists of
two two-story concrete block and brick motel buildings and a one-story brick
office.
The hotel is subject to a first mortgage with a balance of $1,985,955 as of
December 31, 1999. The mortgage matures on October 1, 2015. The mortgage carries
an interest rate of 9.74% per annum. 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 $127,499 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $93,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Days Inn Cambridge, Cambridge, OH. Built in 1973, the 103 room hotel is located
on approximately 3.6 acres on the east side of Southgate Parkway north of
Interstate 70. The property consists of one four-story concrete block and brick
building.
The hotel is subject to a first mortgage with a balance of $2,039,951 as of
December 31, 1999. The mortgage matures on October 1, 2015. The mortgage carries
an interest rate of 9.74% per annum. 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 $75,950 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $29,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Best Western Cambridge, Cambridge, OH. Built in 1973, the 95 room hotel is
located on approximately 10.4 acres on the east side of Southgate Parkway north
of Interstate 70. The property consists of four buildings of brick, wood and
masonry construction. One building contains the lobby and lounge.
The hotel is subject to a first mortgage with a balance of $2,104,929 as of
December 31, 1999. The mortgage matures on October 1, 2015. The mortgage carries
an interest rate of 9.74% per annum. 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 $38,422 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $130,000, and all
expenditures will be paid from existing replacement reserves and working
capital.
Days Inn Pompano, Pompano Beach, FL. Built in 1974, the 183 room hotel is
located on approximately 4.9 acres on NW 31st Avenue. The property consists of
two three-story concrete block and brick buildings.
The hotel is subject to a first mortgage with a balance of $238,231 as of
December 31, 1999. The mortgage matures on January 1, 2001. The mortgage carries
an interest rate of 8.78% per annum. Under the terms of the mortgage, the loan
may be prepaid in whole subject to a prepayment penalty.
The Company spent $84,316 on capital expenditures at the hotel in 1999. Such
expenditures were financed from the replacement reserve. The capital
expenditures for 2000 are anticipated to be approximately $96,000, and all
expenditures will be paid from working capital.
7
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Franchise Agreements
The Company has entered into non-exclusive multi-year franchise, licensing or
membership agreements, which allow the Company to utilize the franchise brand
name of the franchiser or licensor for the Hotels. The Company believes that its
relationships with nationally recognized franchisers provide significant
benefits for its 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 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 Bass Hotels
(Holiday Inn), Days Inn, Knights Inn, Best Western, Choice Hotels (Comfort Inn)
and Red Roof. 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 would be
available if any franchise agreements were to be terminated. Upon such
termination with respect to the Company's 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,
the Company has additional relationships with other franchisers, including
Howard Johnson, Ramada, Wingate and Radisson.
Managed Hotels
The Company operates the Managed Hotels pursuant to management agreements (the
"Management Agreements") with the owners of such Managed Hotels. Managed Hotels
are operated primarily under nationally recognized brand names. Four Managed
Hotels are non-franchised properties.
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 applicable franchise agreements. The Company is also responsible for
the retention and supervision of personnel necessary for the operation of the
hotel. 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 either are a fixed
amount or are based on a percentage of a property's total revenues, ranging from
3% to 5%, and/or incentive payments based upon net operating income. Additional
fees are generated from accounting services. The Management Agreements generally
have terms of one year to five years and are automatically renewed for
successive similar terms, unless either party decides not to renew prior to the
expiration of the current term. Either party may terminate a Management
Agreement for cause prior to a stated expiration date, except in the case of two
Management Agreements, which permit termination at any time without cause.
Generally, the owner of a property has the right to terminate a Management
Agreement upon sale of the Hotel to an unrelated third party, subject to the
payment of a termination fee to the Company.
In 1998, the Company derived management fee income from a marketing joint
venture with Summit Hotel Management Company. The Company also derived
management fee income through a management joint venture with DePalma Hotel
Corporation of Dallas. In an effort to increase profitability, the joint venture
with Summit Hotel Management Company was terminated in December 1998 and the
joint venture with DePalma Hotel Corporation of Dallas was terminated in
February 1999.
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, food and beverages 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. The
agreement provides a computerized system that tracks all services provided by
eleven 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
8
<PAGE>
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 property 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, because of requirements of one of the Company's
franchisors, the Company significantly decreased the number of Hotels utilizing
the Computel system, thereby substantially decreasing the service fees to
Computel.
Hotel Personnel. The majority of the personnel at the Hotels is 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
one-year terms, unless one party notifies the other to the contrary at least
three months prior to the expiration date. The Company pays HELP the actual cost
of the personnel provided to it to operate the Hotels plus an administrative fee
of $10.15 per bi-monthly pay period per person provided.
Employment and Other Governmental 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 the Hotels are
substantially in compliance with these requirements, a determination that the
Company does not comply 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 a claim of liability or of
remediating a contaminated property could have a material adverse effect on the
results of operations for the Company.
Competition
The lodging industry is highly competitive in terms of both geographic markets
and market segmentation. The Hotels are in the market segments known generally
as full service, limited service and economy hotels. The Company competes with
other franchisers of Bass Hotels (Holiday Inn), Days Inn, Knights Inn, Best
Western, Choice Hotels (Comfort Inn) and Red Roof within the geographic markets
of the applicable Hotels and operators of other similar service type hotels. The
Managed Hotels cover the spectrum of market segments and include economy,
limited service, full service mid-market hotels and higher rated luxury
properties. Like the Company's Hotels, the Managed Hotels compete, within their
geographical markets, with other properties 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
historically cyclical and is affected by general economic conditions and by the
local economy where each hotel is located. In addition, to remain competitive,
hotels periodically must be 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, 1999, approximately twenty-five full-time employees of the
Company were engaged in management, business operations and administration of
its hospitality business. In addition, at that date approximately 2,010
individuals employed by HELP provided services at the Hotels under a service
agreement between HELP and the Company. See "The Hospitality
Business--Operations."
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<PAGE>
Growth Strategy
Management of the Company intends to pursue a program of expanding its business
of the management and/or acquisition of hotels, recreation, resorts,
entertainment or other related entities through the marketing of its services to
the owners of properties not owned by the Company and through the acquisition of
properties either by itself or with other investors. The Company is engaged in a
marketing program to expand selectively the number of hotels that it manages.
Since entering the hospitality business in April 1997, and through December 31,
1999, the Company increased its number of Managed Hotels by sixteen. The Company
also continues to review possible acquisitions of hospitality properties. 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
Factor--Competition"; and -- "Possible Need for Additional Financing" and
"Management's Discussion and Analysis or Plan of Operation--Liquidity and
Capital Resources."
Public Service
The Company has a one-year agreement with America Responds With Love, Inc.
("America Responds") under which it provides lodging at no charge at a number of
its Hotels. While this program will from time to time increase the Company's
costs of operations without a corresponding increase in revenues, management
believes that the impact upon profitability will be immaterial, and regards its
participation in the program as a marketing opportunity. The Company has the
right to cancel this agreement at any time with notice to America Responds.
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 anticipated that the reorganized companies would acquire operating
businesses.
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
distribution 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, 1999, 4,183,056 shares have been distributed by the Reorganization Trust to
former creditors. During 1999, 8,114 shares previously issued in the name of
certain creditors, whose claims were expunged in 1998, were returned to the
Reorganization Trust.
The balance of 816,944 shares includes 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 more
than 14,673 individuals who have asserted asbestos-related 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.
10
<PAGE>
The Trust Agreement provides for the Reorganization Trust to make contributions
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. The Company did not receive a
contribution from the Trust in 1999 and 1998. Through December 31, 1999, an
aggregate of approximately $15 million was transferred by the Reorganization
Trust to the Company. No additional transfers from the Reorganization Trust are
anticipated until there is a resolution of the insurance coverage issues.
As of December 31, 1999, the Reorganization Trust reported total cash and cash
equivalents of $3,252,693 of which $438,480 was identified as "restricted
funds". While there is no objective formula to determine the extent to which the
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. 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 and the amount of
professional fees necessary to resolve outstanding claims, particularly, any
asbestos or other late-manifesting personal injury claims. No assurance can be
given, nor is any assurance intended, that additional cash will become available
to the Company from the Reorganization Trust or the amount of such additional
cash, if any.
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 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 its assumptions change or
prove to be inaccurate, the Company could be required to seek additional
financing or curtail its activities. 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 that any additional financing will be available to the
Company on acceptable terms or at all.
Conflicts of Interest
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.
The Company relies upon Computel and HELP, which are wholly owned by Messrs.
Beck and Yeaggy, for administrative and personnel services at the Hotels.
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, the mortgage on the Days Inn Pompano Beach 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 a mortgage note and related mortgage on the KOA
Campground in Kissimmee, Florida, which is owned by Messrs. Beck and Yeaggy.
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
11
<PAGE>
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 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 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 Owned 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 Regulations
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
comply with these requirements, a determination that the Company does not comply
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.
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.
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<PAGE>
Ownership of Hotel Real Estate
The Company currently owns sixteen 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 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 44% 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.
Irregular Trading Market
The actual "float" of shares available for sale in the market is approximately
25% of the 8,671,092 shares outstanding as of December 31, 1999. 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 federal income tax net operating loss preservation rules, are
subject to transferability restrictions until April 24, 2001. In addition, as of
December 31, 1999, 816,944 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 3,700
holders of record of the Common Stock there are numerous holders of very small
numbers of shares.
When the transferability restrictions expire, and because 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.
13
<PAGE>
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 16,788.08 shares of preferred stock outstanding with
an annual dividend expense of $1,259,106. The Company was current in the payment
of dividends on the preferred stock as of December 31, 1999.
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. However, the Company is
working on gaining ownership and management agreements in various geographic
areas throughout the United States, where the "busy" seasons are during the less
"busy" seasons of the Company's currently owned and managed hotels, thereby
lessening the seasonality affect of the Company's net income.
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 2000. Both subleases
are from an affiliate of Messrs. Beck and Yeaggy, and are expected to be
renewed.
See "Description of Business--The Hospitality Business" for a description of the
Hotels.
Investment Policies
General. The Company's business is the management and/or acquisition of hotels,
recreation, 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 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.
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<PAGE>
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 however,
intends to acquire properties and obtain management contracts that will
eventually put it in all large market cities in the United States. The Company
may also seek to acquire resort properties outside of the United States. The
Company's investment policy may be changed without a vote of the Company's
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 are 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.
Investment in Real Estate Mortgages. The Company does not intend, within its
core business, 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 investments. In 1997, the
Company acquired a mortgage on the Holiday Inn Express, Juno Beach, Florida and
on the KOA Campground in Kissimmee, Florida. Effective January 1, 1999, the
Company acquired the Juno Beach property. As of December 31, 1999, the balance
on the Kissimmee mortgage was $3,331,419.
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.
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.
No matters were submitted to stockholders for a vote during the fourth quarter
of 1999.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information:
Quotation of the Common Stock on the Nasdaq Stock Market SmallCap Market
(symbol: JAGI) commenced on January 22, 1998. 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.
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<PAGE>
The following table sets forth, for the periods indicated, the range of the high
and low sales prices for the Common Stock as reported by Nasdaq SmallCap.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Quarter ended December 31, 1999 $2.125 $1.00
Quarter ended September 30, 1999 $2.50 $1.375
Quarter ended June 30, 1999 $3.875 $1.9375
Quarter ended March 31, 1999 $4.00 $2.1875
Quarter ended December 31, 1998 $5.00 $1.8125
Quarter ended September 30, 1998 $5.00 $2.4375
Quarter ended June 30, 1998 $6.00 $3.50
January 22, 1998-March 31, 1998 $7.00 $3.00
</TABLE>
Holders:
As of March 21, 2000, there were approximately 3,672 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.
Item 6. Management's Discussion and Analysis or Plan of Operation
Year Ended December 31, 1999 Compared To Year Ended December 31, 1998
Overview
The operations of the Company are comprised primarily of the operations of
Hotels.
The Company had net income of $1,172,784 for 1999 compared to $1,887,241 for
1998.
Room and related services revenue increased 84.1% to $37,712,563 in 1999 from
$20,489,850 in 1998. The increase was attributable primarily to acquisitions.
The average daily room rate increased to $60.48 for 1999 from $60.11 in 1998.
Occupancy decreased to 61.5% in 1999 from 64.3% in 1998 partly due to
management's decision to increase room rates in segments of various markets.
Excluding the acquisitions made in 1998 and 1999, room and related services
revenue decreased 0.2%.
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. These
revenues increased 67.9% to $10,578,433 in 1999 from $6,298,770 in 1998. This
increase is related primarily to acquisitions. Excluding the acquisitions made
in 1998 and 1999, food and beverage revenues decreased 2.4%.
Management fee income increased 16.2% to $2,039,565 in 1999 from $1,754,610 in
1998. This increase is due to the addition of new third party management
contracts.
Total direct operating expenses increased 69.0% to $19,502,095 in 1999 from
$11,537,130 in 1998 but decreased as a percentage of room and related services
and food and beverage revenues to 40.4% from 43.1%. Excluding the acquisitions
made in 1998 and 1999, total direct operating expenses decreased 7.6%.
Occupancy expenses increased 96.1% to $6,768,557 from $3,451,122 in 1998.
Excluding the acquisitions made in 1998 and 1999, occupancy expenses decreased
0.5%.
16
<PAGE>
Selling, general and administrative expenses increased 90.6% to $12,363,035 in
1999 from $6,484,960 in 1998 and increased as a percentage of total revenues to
24.2% from 22.3 %. Excluding the acquisitions made in 1998 and 1999, selling,
general and administrative expenses increased 32.0%. This increase is
attributable to additional regional management salaries and commissions on
management contracts.
Depreciation increased to $3,688,997 in 1999 from $2,392,300 in 1998 primarily
due to the acquisition on January 1, 1999. However, the increase was less than
expected due to the change in estimated useful lives, the adjustment of the
purchase allocation for four hotel properties based on an acquisition appraisal,
and the cessation of depreciation on three hotel properties held for sale, two
of which were sold as of December 31, 1999. These changes reduced 1999
depreciation approximately $1,593,000.
Interest income decreased to $808,560 in 1999 from $1,137,506 in 1998. The
decrease was attributable to the elimination of a note receivable as a result of
the Company's acquisition of the underlying hotel property effective January 1,
1999.
Interest expense increased to $6,597,088 in 1999 from $3,565,053 in 1998. The
increase was attributable to the debt assumed in connection with the
acquisitions effective January 1, 1999.
Minority interest decreased to $34,606 in 1999 from $84,991 in 1998 reflecting
the results of operations from the Kings Dominion partnership and the Days Inn
Pompano hotel in 1999.
Liquidity and Capital Resources
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.
Historical Changes in Liquidity and Capital Resources
Total assets increased from $108,683,792 at December 31, 1998 to $127,692,489 at
December 31, 1999. The increase in total assets was the result of the
acquisition of the Beck II properties 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 because of
the acquisitions. The decrease in cash and cash equivalents from $12,383,741 in
1998 to $8,859,888 in 1999 is attributable to operations.
During the year ended December 31, 1999, the Company invested $4,953,847 in
capital improvements for the Owned Hotels as part of its operating plan. The
Company plans to spend $2,476,000 on capital improvements during the year ending
December 31, 2000 as part of its continuing improvement plans for the Owned
Hotels.
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
approximately 4% to 5% of annual revenues from Owned Hotels for ongoing capital
expenditures.
The Company maintains a number of commercial banking relationships and has an
aggregate $2,200,000 line of credit with two financial institutions. There is no
outstanding balance on the lines of credit at December 31, 1999. The Company 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. 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
17
<PAGE>
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
downturn and regulatory changes constricting the availability of credit.
The Company's long-term debt at December 31, 1999 totals $71,710,307. Mortgage
debt totals $71,187,363, which consists of $67,659,175 in fixed rate mortgage
loans and $3,528,188 in adjustable rate (3-5 year adjustment period) mortgage
loans. Such adjustable rate loans have maturity dates ranging from August 2000
to April 2006. Interest rates on mortgage debt range from 7.75% to 9.75% with a
weighted average interest rate of 8.3% at December 31, 1999. The approximate
scheduled repayments of principal on the long-term debt of the Company for the
next five years are: 2000 -- $3,776,846; 2001 -- $3,332,590; 2002 -- $3,738,095;
2003 -- $1,627,644; 2004 -- $1,754,602. 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
at the maturity of the non-self-amortizing loans will 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 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. An 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
The Company conducted a review of its computer systems to identify the systems
that could be affected by the "Year 2000" issue and executed a plan to resolve
the issue. In addition, the Company worked with each of its hotel property
general managers to complete a plan to ensure that all of the computerized
operations at each of the hotels continue to run properly on and after January
1, 2000. All hotels had a Year 2000 test prior to September 30, 1999 to ensure
that the Year 2000 problem would not disrupt the hotels' reservation systems.
Since the date rollover on January 1, 2000, the Company has not experienced any
material adverse impacts due to the Year 2000 issue. While the primary risk to
the Company with respect to the Year 2000 issue continues to be the inability of
external parties to provide goods and services in a timely and accurate manner,
to date, the Company is not aware of any such disruption. As a result, the
Company does not expect any remaining Year 2000 risks to have a material adverse
impact to the Company.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "will likely result," "expects," "plans," "will continue," "is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify forward-looking statements. 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" "Risk Factors" 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.
18
<PAGE>
Item 7. Financial Statements.
The Financial Statements required by this item appear under the caption "Index
to Financial Statements" and are included elsewhere herein.
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 19, 2000 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
19, 2000 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 19, 2000 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 19, 2000 is hereby incorporated by reference.
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits: The exhibits listed in the accompanying index are filed as part
of this report.
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
3.1 Restated Certificate of Incorporation, as amended,
incorporated by reference to Exhibit 3.1 to Form 10-QSB of
the Company for the quarter ended September 30, 1997.
3.2 By-Laws incorporated by reference to Exhibit 3.2 to Form
10-SB of the Company filed with the Securities and
Exchange Commission on June 24, 1997.
3.3 Certificate of Amendment to Certificate of Designation,
incorporated by reference to Exhibit 3.3 Form 10-KSB filed
with the Securities and Exchange Commission on March 22,
1999.
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 Company filed with the Securities and
Exchange Commission on June 24, 1997.
10.3 Employment Agreement with Louis S. Beck dated April 24, 1997
incorporated by reference to Exhibit 10.3 to Form 10-SB of
the Company filed with the Securities and Exchange
Commission on June 24, 1997.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.4 Employment Agreement with Harry G. Yeaggy dated April 24,
1997 incorporated by reference to Exhibit 10.4 to Form 10-SB
of the Company filed with the Securities and Exchange
Commission on June 24, 1997.
10.5 Employment Agreement with Michael M. Nanosky dated April 24,
1997 incorporated by reference to Exhibit 10.5 to Form
10-SB of the Company filed with the Securities and Exchange
Commision on June 24, 1997.
10.6 1996 Stock Option Plan incorporated by reference to Exhibit
10.6 to Form 10-SB of the Company filed with the Securities
and Exchange Commision on June 24, 1997.
10.7 Stock Option Agreement incorporated by reference to Exhibit
10.7 to Form 10-SB of the Company filed with the Securities
and Exchange Commision on June 24, 1997.
10.9 Investor Agreement incorporated by reference to Exhibit 10.9
to Form 10-SB of the Company filed with the Securities and
Exchange Commision on June 24, 1997.
10.11 Client Service Agreement between Hospitality Employee
Leasing Program, Inc. and the Company incorporated by
reference to Exhibit 10.12 to Form 10-SB of the Company
filed with the Securities and Exchange Commision on June 24,
1997.
10.12 Product Lease and Service Agreement between Computel
Systems, Inc. and the Company incorporated by reference to
Exhibit 10.12 to Form 10-SB of the Company filed with the
Securities and Exchange Commission on June 24, 1997.
10.13 Sublease Agreement between Beck Hospitality Inc. III and the
Company (Cincinnati premises) incorporated by reference to
Exhibit 10.13 to Form 10-SB of the Company filed with the
Securities and Exchange Commision on June 24, 1997.
10.14 Sublease Agreement between Beck Hospitality Inc. III and the
Company (Boca Raton premises) incorporated by reference to
Exhibit 10.14 to Form 10-SB of the Company filed with the
Securities and Exchange Commision on June 24, 1997.
10.16 Partnership Agreement of Kings Dominion Lodge, G.P.
incorporated by reference to Exhibit 10.16 to Form 10-SB of
the Company filed with the Securities and Exchange Commision
on June 24, 1997.
10.20 Consulting Agreement by and between the Company and The
Cornerstone Company incorporated by reference to Exhibit
10.20 to Form 10-QSB for the quarter ended June 30, 1998.
10.25 Loan Agreement dated as of August 14, 1998 by and among JAGI
Cleveland - Hudson, LLC; JAGI Cleveland - Independence, LLC;
JAGI Montrose West, LLC, JAGI North Canton, LLC; and
Amresco Capital, L.P. incorporated by reference to Exhibit
10.25 to Form 8-K for the event dated August 14, 1998.
10.26 Note (Fixed Rate) of JAGI Cleveland - Hudson, LLC dated
August 14, 1998 in the principal sum of $13,300,000 and
Schedule of Other Notes (Fixed Rate) incorporated by
reference to Exhibit 10.26 to Form 8-K for the event August
14, 1998.
10.27 Mortgage and Security Agreement dated as of August 14, 1998
by and between JAGI Cleveland - Hudson, LLC and Amresco
Capital, L.P. and Schedule of Other Mortgage and Security
Agreements incorporated by reference to Exhibit 10.27 to
Form 8-K for the event dated August 14, 1998.
10.28 Security Agreement dated as of August 14, 1998 by JAGI
Cleveland - Hudson, LLC and Amresco Capital L.P. and
Schedule of Other Security Agreements incorporated by
reference to Exhibit 10.28 to Form 8-K for the event dated
August 14, 1998.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.29 Second Mortgage and Security Agreement dated as of August
14, 1998 by and between JAGI Cleveland - Hudson, LLC and
Amresco Capital, L.P. and Schedule of Other Second Mortgage
and Security Agreements incorporated by reference to Exhibit
10.29 to Form 8-K for the event dated August 14, 1998.
10.30 Second Security Agreement dated as of August 14, 1998 by and
between JAGI Cleveland - Hudson, LLC and Amresco Captial,
L.P. and Schedule of Other Second Security Agreements
incorporated by reference to Exhibit 10.30 to Form 8-K for
the event dated August 14, 1998.
10.31 Guaranty dated as of August 14, 1998 by and between the
Company and Amresco Capital, L.P. and Schedule of Other
Guaranties incorporated by reference to Exhibit 10.31 to
Form 8-K for the event dated August 14, 1998.
10.32 Asset Purchase and Agreement and Plan of Merger by and among
the Company, Beck Hospitality Inc. II, Beck Hospitality Inc.
III, Louis S. Beck and Harry Yeaggy dated as of January 1,
1999 incorporated by reference to Exhibit 10.32 to Form
8-K for the event dated February 2, 1999.
10.33 Stock Appreciation Right Certificate incorporated by
reference to Exhibit 10.33 t o Form 10-KSB for the year
ended December 31, 1998.
10.34 Amended and Restated Registration Rights Agreement dated as
of January 1, 1999 with Louis S. Beck incorporated by
reference to Exhibit 10.34 to Form 10-KSB for the year
ended December 31, 1998.
10.35 Amended and Restated Registration Rights Agreement dated as
of January 1, 1999 with Harry G. Yeaggy incorporated by
reference to Exhibit 10.35 to Form 10-KSB for the year
ended December 31, 1998.
10.36 Stock Appreciation Right Agreement with Paul Tipps dated as
of December 18, 1998 incorporated by referenc to Exhibit
10.36 to Form 10-KSB for the year ended December 31, 1998.
21 Subsidiaries of the Company.
24 Powers of Attorney.
27 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the period October 1, 1999
through December 31, 1999.
21
<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 HOTELS AND RESORTS, INC.
Dated: March 29, 2000 /s/ James E. Bishop
-----------------------------------------
James E. Bishop
President
Dated: March 29, 2000 /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 has been
signed by the following persons in the capacities and on the dates indicated.
Dated: March 29, 2000 *
----------------------------------------
Louis S. Beck
Chairman
Dated: March 29, 2000 *
----------------------------------------
James E. Bishop
President and Director
Dated: March 29, 2000 *
----------------------------------------
Harry G. Yeaggy
Vice Chairman
Dated: March 29, 2000 *
----------------------------------------
Arthur Lubell
Director
Dated: March 29, 2000 *
----------------------------------------
Richard P. Lerner
Director
Dated: March 29, 2000 *
----------------------------------------
Vincent W. Hatala, Jr.
Director
Dated: March 29, 2000 *
----------------------------------------
Lucille Hart-Brown
Director
Dated: March 29, 2000 *
----------------------------------------
C. Scott Bartlett, Jr.
Director
22
<PAGE>
Dated: March 29, 2000 *
----------------------------------------
Michael M. Nanosky
President of Hotel Operation and Director
Dated: March 29, 2000 *
----------------------------------------
Paul Tipps
Director
* /s/ James E. Bishop
-------------------------
James E. Bishop
Attorney-in-Fact
23
<PAGE>
JANUS HOTELS AND RESORTS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Janus Hotels and Resorts, Inc.
We have audited the accompanying consolidated balance sheets of Janus Hotels and
Resorts, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1999. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Janus Hotels and Resorts, Inc.
as of December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1999, in
conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
March 7, 2000
F-2
<PAGE>
JANUS HOTELS AND RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
December 31, December 31,
1999 1998
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,859,888 $ 12,383,741
Restricted cash 1,251,297 802,746
Accounts receivable 1,743,241 1,422,327
Current portion of notes receivable 182,226 322,043
Other current assets 212,082 239,206
----------- -----------
Total current assets 12,248,734 15,170,063
----------- -----------
Property held for sale 12,641,199 -
Property and equipment, net 84,059,513 74,550,300
Notes receivable 453,194
Mortgage notes receivable 3,392,709 5,425,046
Goodwill, net 7,542,376 6,536,996
Deferred tax asset 2,566,000 2,566,000
Other assets 5,241,958 5,868,067
----------- -----------
$127,692,489 $110,569,666
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable for redemption of preferred stock $ 35,621 $ 41,370
Current portion of long-term debt 3,776,846 2,683,504
Accounts payable 2,179,417 1,495,253
Accrued expenses 1,959,960 1,910,248
----------- -----------
Total current liabilities 7,951,844 6,130,375
----------- -----------
Long-term debt, net of current portion 67,933,460 60,582,883
Deferred tax liabilities 2,345,275 1,885,874
Minority interest 2,465,995 1,773,960
Stockholders' equity:
Preferred stock, series B; par value $0.01 per share; 20,000 shares authorized;
16,788.08 and 10,451.88 shares issued and outstanding at December 31,
1999 and 1998, respectively 168 105
Common stock, par value $0.01 per share; 15,000,000 shares authorized;
11,883,220 shares issued at December 31, 1999 and 1998, respectively 118,833 118,833
Additional paid-in capital 52,582,257 45,738,120
Accumulated deficit (4,288,844) (4,244,185)
Treasury stock, 3,212,128 and 3,192,128 common shares, at cost (1,416,499) (1,416,299)
----------- -----------
Total stockholders' equity 46,995,915 40,196,574
----------- -----------
$127,692,489 $110,569,666
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
JANUS HOTELS AND RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 and 1998
1999 1998
--------------- ---------------
<S> <C> <C>
Revenues:
Room and related services $37,712,563 $20,489,850
Food and beverage 10,578,433 6,298,770
Management fees 2,039,565 1,754,610
Other 842,861 513,595
---------- ----------
Total revenues 51,173,422 29,056,825
---------- ----------
Operating expenses:
Direct:
Room and related services 9,341,472 4,918,908
Food and beverage 8,113,617 5,122,426
Selling and general 2,047,006 1,495,796
---------- ----------
Total direct expenses 19,502,095 11,537,130
---------- ----------
Occupancy expenses 6,768,557 3,451,122
Selling, general and administrative expenses 12,363,032 6,484,960
Depreciation 3,688,997 2,392,300
Amortization 356,877 222,922
---------- ----------
Total operating expenses 42,679,558 24,088,434
---------- ----------
Operating income 8,493,864 4,968,391
Other income (expense):
Interest expense (6,597,088) (3,565,053)
Interest income 808,650 1,137,506
Other 115,565 -
---------- ----------
Income from continuing operations before income taxes and minority interest 2,820,991 2,540,844
Provision for income taxes 1,153,801 704,798
---------- ----------
Income from continuing operations before minority interest 1,667,190 1,836,046
Minority interest 34,606 84,991
---------- ----------
Income from continuing operations 1,632,584 1,751,055
Gain (loss) on disposal of discontinued operations, net of taxes (459,800) 136,186
---------- ----------
Net income 1,172,784 1,887,241
Less preferred dividend requirement 1,217,443 783,891
---------- ----------
Net income applicable to common stock $ (44,659) $ 1,103,350
========== ==========
Basic income (loss) per common share:
Income from continuing operations $ 0.04 $ 0.11
Gain (loss) on disposal of discontinued operations (0.05) 0.02
------ -----
Net income (loss) $ (0.01) $ 0.13
====== =====
Diluted income (loss) per common share:
Income from continuing operations $ 0.04 $ 0.11
Gain (loss) on disposal of discontinued operations (0.05) 0.02
------ -----
Net income (loss) $ (0.01) $ 0.13
====== =====
Weighted average common shares:
Basic 8,673,996 8,693,545
========= =========
Diluted 8,673,996 8,693,545
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
JANUS HOTELS AND RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Preferred Stock Common Stock
----------------------- ----------------------
Number of Number of Additional Accumulated
Shares Amount Shares Amount Paid-in Capital Deficit
---------- ------- ---------- --------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 10,451.88 $ 105 11,880,867 $ 118,809 $ 43,163,321 $ (5,347,535)
Net income 1,887,241
Decrease in net operating loss valuation
allowance 2,566,000
Conversion of warrants and payout of puts 2,353 24 8,799
Preferred stock dividends (783,891)
--------- ---- ---------- -------- ----------- -----------
Balance December 31, 1998 10,451.88 105 11,883,220 118,833 45,738,120 (4,244,185)
Net income 1,172,784
Decrease in net operating loss valuation
allowance 508,000
Shares issued for acquisition 6,336.20 63 6,336,137
Common stock returned from Pre-Tek
purchase for non-performance of earn out
Preferred stock dividends (1,217,443)
--------- ---- ---------- -------- ----------- -----------
Balance December 31, 1999 16,788.08 $ 168 11,883,220 $ 118,833 $ 52,582,257 $ (4,288,844)
========= ==== ========== ======== =========== ===========
Treasury Stock
----------------------------
Number of
Shares Amount Total
---------- ------------- ------------
<S> <C> <C> <C>
Balance January 1, 1998 3,189,132 $ (1,316,299) $ 36,618,401
Net income 1,887,241
Decrease in net operating loss valuation
allowance 2,566,000
Conversion of warrants and payout of puts 2,996 (100,000) (91,177)
Preferred stock dividends (783,891)
--------- ----------- -----------
Balance December 31, 1998 3,192,128 (1,416,299) 40,196,574
Net income 1,172,784
Decrease in net operating loss valuation
allowance 508,000
Shares issued for acquisition 6,336,200
Common stock returned from Pre-Tek
purchase for non-performance of earn out 20,000 (200) (200)
Preferred stock dividends (1,217,443)
--------- ----------- -----------
Balance December 31, 1999 3,212,128 $ (1,416,499) $ 46,995,915
========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
JANUS HOTELS AND RESORTS, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
--------------- --------------
<S> <C> <C>
Operating activities:
Net income $ 1,172,784 $ 1,887,241
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 3,688,997 2,392,300
Amortization of intangible assets 356,877 222,922
Deferred taxes 967,401 695,874
Minority Interest 34,606 84,992
Gain on sale of property (110,787)
Discontinued operations 499,800 (73,948)
Changes in operating assets and liabilities, excluding acquisitions:
Accounts receivable (320,914) (1,013,853)
Other current assets 27,124 342,043
Other asset 638,526 (4,348,888)
Accounts payable and accrued expenses (1,458,009) 1,716,232
---------- ----------
Net cash provided by operating activities 5,496,405 1,904,915
---------- ----------
Investing activities:
Acquisition of hospitality business, net of noncash consideration
and cash acquired 462,008 -
Increase in notes receivable (250,000) (4,276)
Purchases of property and equipment (4,953,847) (42,595,244)
Proceeds from sale of property 4,250,000 14,161
Collections of notes receivable 233,599 127,884
---------- ----------
Net cash used in investing activities (258,240) (42,457,475)
---------- ----------
Financing activities:
Dividends paid (1,217,443) (981,474)
Increase in restricted cash (448,551) (470,382)
Repurchase of common stock - (100,000)
Conversion of warrants to common stock - 8,823
Proceeds from long-term borrowings - 44,000,000
Repayments of long-term borrowings (7,096,024) (712,147)
---------- ----------
Net cash (used in) provided by financing activities (8,762,018) 41,744,820
---------- ----------
Increase (decrease) in cash and cash equivalents (3,523,853) 1,192,260
Cash and cash equivalents, beginning of period 12,383,741 11,191,481
---------- ----------
Cash and cash equivalents, end of period $ 8,859,888 $12,383,741
========== ==========
Supplemental disclosure of cash flow data:
Interest paid $ 6,597,088 $ 3,565,053
========== ==========
Income taxes paid $ 757,880 $ 130,750
========== ==========
Noncash transactions:
Acquisition of hospitality business
Assets acquired $27,192,451
Liabilities assumed 20,856,251
----------
Value of stock issued $ 6,336,200
==========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
JANUS HOTELS AND RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization:
As of December 31, 1999, the continuing operations of Janus Hotels and Resorts,
Inc. and its Subsidiaries ("Janus" or the "Company"), which until May 21, 1999
had been named Janus American Group, Inc., were comprised primarily of the
operations of sixteen hotels (of which fourteen are wholly-owned, one is
85%-owned and one 75% owned) and a hotel management company which manages hotels
for unrelated parties.
The Company's owned and managed hotels are located primarily in the Midwestern
and Southeastern United States. As further described in Note 3, four hotels were
acquired on August 14, 1998 and seven hotels were acquired January 1, 1999 in
transactions that were accounted for as purchases. Accordingly, the accompanying
consolidated financial statements reflect the accounts for the hotel operations
for the years ended December 31, 1999 and 1998 from the applicable acquisition
dates. The financial statements for periods prior to those dates are not
comparable.
As further described in Note 9, 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").
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").
Pursuant to the Plan and the order of the Bankruptcy Court confirming the Plan:
(a) USL and USL-SA changed their names to Janus Industries, Inc. and JI
Subsidiary, Inc. ("JIS"), respectively;
(b) The United States Lines, Inc. and United States Lines (S.A.) Inc.
Reorganization Trust (the "Reorganization Trust") was established for the
purpose of administering the Plan and liquidating and paying claims of former
creditors of USL and USL-SA; it will also make contributions of cash to Janus
and JIS from time to time of amounts in excess of its projected liabilities and
administrative requirements;
(c) All claims of former creditors of USL and USL-SA were discharged; as a
result, such former creditors may look only to the Reorganization Trust (and not
to Janus or JIS) for payment of amounts in respect of their discharged claims;
(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.
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 in the
consolidated financial statements. Changes in such estimates may affect amounts
reported in future periods.
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.
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.
F-7
<PAGE>
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 (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 December 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.
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 $814,322 in 1999 and
$415,400 in 1998.
Income taxes: The Company accounts for income taxes pursuant to the asset and
liability method which requires deferred tax assets and liabilities to be
computed annually for temporary differences between the financial statement and
tax bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the temporary differences are expected to affect taxable
income. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amount expected to be realized. The income tax provision or
credit is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities. Income tax credits
attributable to benefits from net operating loss carryforwards or other
temporary differences that existed at the time the Company adopted fresh-start
accounting are reflected as a contribution to stockholders' equity in the period
in which the tax benefits are realized.
As explained in Note 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 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 because of any grants of stock
options at an exercise price that is equivalent to or greater than fair value.
Reclassification: Certain prior year amounts have been reclassified to conform
to current year presentation.
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
stockholders 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.
F-8
<PAGE>
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
<S> <C> <C>
Averages shares outstanding-basic 8,673,996 8,693,545
Effect of dilutive securities- dilutive shares
contingently issuable upon the exercise of
stock options and warrants - -
--------- ---------
Averages shares outstanding- Assuming dilution 8,673,996 8,693,545
========= =========
</TABLE>
Note 3 - Acquisitions:
Effective January 1, 1999 the Company acquired all of the outstanding shares of
Beck Hospitality, Inc. II ("Beck II"), which owned seven hotels and two 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. The purchase price of $6,336,200 approximated the fair value of the
net assets acquired. The acquisition was accounted for under the purchase
method. The results of operations of the acquired business are included in the
consolidated financial statements from the effective date of acquisition. The
consideration exchanged by the Company pursuant to the merger agreement with
Beck II was the issuance of 6,336.20 shares of Series B preferred stock with a
liquidation preference of $1,000 per share for a total value of $6,336,200.
On August 14, 1998, the Company acquired four 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. During the third quarter of 1999, the Company finalized the
allocation of the purchase price based on appraised values between land,
buildings, equipment, and furniture and fixtures. As a result, depreciation
expense was reduced by approximately $549,000 in 1999.
The following unaudited information shows the pro forma results of continuing
operations of the Company for the twelve months ended December 31, 1998 as
though each of the Beck II and the Cornerstone Hotel Group had been acquired as
of January 1, 1998. In each case, the results of the discontinued oil and gas
services operations are excluded.
<TABLE>
<CAPTION>
(in thousands, except per
share amounts) 1998
------------------------------- ------------------------
<S> <C>
Revenues $51,514,669
Net income from continuing
operations 952,444
Earnings per share:
Basic $0.11
Diluted $0.11
</TABLE>
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 Beck II and the Cornerstone Hotel Group had occurred as
of January 1, l998 instead of the actual dates of consummation or what the
results of operations will be for any future periods.
F-9
<PAGE>
Note 4 - Mortgage notes receivable:
The mortgage notes are secured by a campground in Kissimmee, Florida and a hotel
property in Westerville, Ohio. The campground is owned by an entity controlled
by Messrs. Beck and Yeaggy. Messrs. Beck and Yeaggy have personally guaranteed
the mortgage note. The balances at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Note secured by campground, with interest at 8% $3,331,419 $3,417,006
Note secured by Westerville hotel property, with interest at 10.0% 243,516
Note secured by Juno Beach hotel property, with interest at 0.5% above the
prime rate (an effective rate of 9.0% at December 31, 1998) - 2,141,749
--------- ---------
Total long-term receivable 3,574,935 5,558,755
Less current portion 182,226 133,709
--------- ---------
Long-term portion, net of current portion $3,392,709 $5,425,046
========= =========
</TABLE>
The mortgage notes are payable in monthly installments of principal and interest
through April 2003 with final installments of remaining principal and interest
due in May 2003.
Note 5 - Property Held for Sale:
At December 31, 1999, the Company held one hotel property for sale which was
determined by the board of directors and management to be performing at optimum
standards but located in a market where the growth potential in real estate
value is limited and not conducive to the long range plans of the Company. In
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed
Of, a property is considered to be held for sale when the Company has made the
decision to dispose of the property. At that time, the Company discontinues
depreciating the asset and estimates the fair value of such asset. If the fair
value of a hotel property held for sale is less than net book value, a reserve
for losses is established. Because the hotel is presently performing at optimum
standards the estimated fair market value of the property is in excess of its
carrying value. No reserve is considered necessary at December 31, 1999. Company
management and the board of directors designated three hotel properties held for
sale prior to July 1, 1999, of which two were sold prior to December 31, 1999.
As a result, depreciation in the amount of approximately $368,000 was not
recorded. The Company expects to dispose of the remaining property within the
next twelve months.
Note 6 -- Property and equipment:
Property and equipment at December 31, 1999 and December 31, 1998 consisted of
the following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Land $12,952,015 $10,167,507
Hotels 65,100,455 56,004,760
Hotel furniture and fixtures 11,707,571 11,541,553
Equipment and vehicles 383,629 103,098
---------- ----------
90,143,670 77,816,918
Less accumulated depreciation and amortization 6,084,157 3,266,618
---------- ----------
Totals $84,059,513 $74,550,300
========== ==========
</TABLE>
Effective July 1, 1999, Janus completed significant renovations of its portfolio
of properties in accordance with its operating plan. These renovations upgraded
the facilities and improved the average daily room rate. The Company provided
the liquidity to perform these renovations and management continues to
anticipate that further acquisitions will be subjected to the same operating
plan. The result of these improvements is that the useful life of the previously
acquired properties was increased to reflect the upgrades. Building and
mechanical improvement lives were changed to reflect this renovation and are now
depreciated from 15 to 40 years. The equipment has a life range of 5 to 10
years. Management believes the revised estimated useful lives provide a better
matching of costs and revenues. The effect of this change on income from
continuing operations for the year ended December 31, 1999 was to increase it by
approximately $605,000 or $0.07 per diluted share.
F-10
<PAGE>
Note 7 -- Long-term debt:
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Fixed rate mortgage notes payable in monthly
installments, including interest at rates ranging
from 7.75% to 9.75%; the mortgage notes
mature from August 2000 through March 2016 $67,659,174 $54,320,332
Variable rate mortgage notes payable in monthly
installments, including interest at rates varying
with the prime commercial lending rate and
rates on U.S. Treasury securities (the effective
rates at December 31, 1999 ranged from 8.52%
to 9.5%); the mortgage notes mature from
August 2000 through April 2006 3,528,188 8,823,009
Equipment notes with various maturities through
December 2003 and interest at rates ranging
from 8.98% to 15% 522,944 123,046
---------- ----------
Total long-term debt 71,710,306 63,266,387
Less current portion 3,776,846 2,683,504
---------- ----------
Long-term debt, net of current portion $67,933,460 $60,582,883
========== ==========
</TABLE>
Long-term debt is secured by the Company's notes, property and equipment.
Principal payments in years subsequent to December 31, 1999 are as follows:
Year Ending December 31 Amount
------------------------- ------------
2000 $3,776,846
2001 3,322,590
2002 3,738,095
2003 1,627,644
2004 1,754,602
Note 8 -- Commitments and contingencies:
Concentration of credit risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash in banks,
accounts receivable and the mortgages.
The Company maintains its cash balances in bank deposit accounts which, at
times, may exceed the Federal Deposit Insurance Corporation coverage limits
thereby exposing the Company to credit risk. The Company reduces its
exposure to credit risk by maintaining such deposits with financial
institutions which management believes are high quality.
Exposure to credit risk with respect to trade receivables is limited by the
short payment terms and, generally, the low balances applicable to such
instruments and the Company's routine assessment of the financial strength
of its customers.
Exposure to credit risk with respect to the mortgages is limited because
they are secured by real estate with an estimated market value in excess of
the mortgage balance.
F-11
<PAGE>
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 effect 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 December 31, 1999 and 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 1999 and 1998,
the Company increased paid-in-capital by $508,000 and $2,566,000, respectively,
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 December
31, 1999, management believes that such a change in ownership has not occurred.
During the period ended December 31, 1998, the Company received $261,215 in
refunds from the Internal Revenue Service (the "Service") attributable to
amended returns filed for previous years, plus interest of $154,280. The Company
recorded such refunds as income upon receipt as such amended returns were
subject to review by the Service and accepted in the current year.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Federal income tax provision:
Current $ 259,171 $(219,449)
Deferred for net operating loss carryforward 628,000 463,100
--------- --------
Total federal income tax provision 887,171 243,651
--------- --------
State and local income tax provision:
Current 356,496 228,373
Deferred (89,866) 232,774
--------- --------
Total state and local provision 266,630 461,147
--------- --------
Provision for income taxes $1,153,801 $ 704,798
========= ========
</TABLE>
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>
1999 1998
------------- -------------
<S> <C> <C>
Statutory rate 34.0% 34.0%
Write-off of goodwill related to Pretek (2.5)
Refund of Federal income tax (a) (8.6)
Nondeductible amortization of goodwill 2.1 1.6
State and local tax 5.3 5.9
Other (0.5) (2.7)
---- ----
Total 40.9% 27.7%
==== ====
</TABLE>
(a) Refund of taxes for prior years after IRS review.
F-12
<PAGE>
Deferred taxes at year-end were comprised of the following:
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and other $ 2,345,275 $ 1,885,874
---------- -----------
Deferred tax assets:
Net operating loss carryforwards 81,898,000 165,355,000
Valuation allowance 79,332,000 162,789,000
---------- -----------
Net deferred tax assets 2,566,000 2,566,000
---------- -----------
Net deferred tax asset $ 220,725 $ 680,126
========== ===========
</TABLE>
Net operating loss carryforwards consist of federal carryforwards of
$240,876,000 principally expiring in years 2000 through 2011.
Note 10 -- Discontinued operations:
In April 1998, the Company entered into an agreement for the sale of its oil and
gas services operations. An amendment to this agreement was completed in
September 1999. As part of the amended agreement, the buyers had the right to
make a payment of $356,372 on or before December 31, 1999 in settlement of a
$500,000 note. If the payment is not made, the note shall be paid out over a
period of sixty months at an 8% rate of interest. As a result, a loss from
disposal of discontinued operations of $500,000 has been accrued.
At December 31, 1998, the Company recognized liquidating income from
discontinued operations of $136,186.
Note 11 -- Fair value of financial instruments:
The Company's financial instruments at December 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 12 -- Minority interest:
The Company owns an interest of approximately 90% in JIS and interests of 85%
and 75% in a hotel partnership and corporation, respectively. The balance of the
minority interest in these consolidated subsidiaries at December 31, 1999 and
December 31, 1998 and the changes in the minority interest are set forth below:
<TABLE>
<CAPTION>
JIS HOTEL PARTNERSHIPS TOTAL
------------ ------------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997 $91,113 $1,597,856 $1,688,969
Net Income -0- 84,992 84,992
------ --------- ---------
Balance at December 31, 1998 91,113 1,682,848 1,773,961
Acquisition 657,427 657,427
Net Income -0- 26,031 26,031
------ --------- ---------
Balance at December 31, 1999 $91,113 $2,366,306 $2,457,419
====== ========= =========
</TABLE>
F-13
<PAGE>
Note 13 - 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
December 31, 1999 and 1998, respectively, of which 4,000 shares were
designated as "Series A" (the "Janus Series A preferred stock"); the 2,200
shares of Series A preferred stock that were issued and outstanding at
December 31, 1995 were redeemed during 1996; and
Preferred stock, par value $.01 per share; 20,000 and 12,000 shares
authorized at December 31, 1999 and 1998, respectively; 16,788.08 and
10,451.88 shares of Series B preferred stock were issued and outstanding at
December 31, 1999 and 1998, respectively.
Common stock, par value $.01 per share; 15,000,000 shares authorized; and
11,883,220 shares issued at December 31, 1999 and 1998; and 3,212,128 and
3,192,128 shares held as treasury shares at December 31, 1999 and 1998,
respectively. At December 31, 1999 and 1998, 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.
Information regarding the capital stock of JIS follows: Preferred stock, par
value $.01 per share; 5,000,000 shares authorized at December 31, 1999 and 1998,
of which 7,650 shares were designated as "Series A" (the "JIS Series A preferred
stock"); and Common stock, par value $.01 per share; 15,000,000 shares
authorized; 5,000,000 shares issued at December 31, 1999 and 1998; 409,000
shares held as treasury shares at December 31, 1999 and 1998.
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.
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 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.
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 preferred stocks 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.
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.
F-14
<PAGE>
During 1998, the Company was obligated to repurchase 2,996 shares of Janus
common stock for $100,000 under a put agreement.
Warrants:
In July 1996, the Company 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. At December 31, 1999 and 1998, warrants to purchase 110,627
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 55,308 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.
In May 1999, the warrants became 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 14 -- 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 " Plan"). The 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 an 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 Plan.
The 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.
The Company granted options for the purchase of 4,000 shares of common stock at
an exercise price of $2.75 per share during 1996, all of which remained
outstanding and exercisable at December 31, 1999 and 1998.
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 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 Plan. 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. These SARs were not issued in conjunction
with the Plan.
Note 15 -- Disposal of Hotel Properties:
On December 29, 1999, the Company disposed of a hotel property located in
Michigan City, Indiana. The hotel was sold for $2,000,000 cash resulting in a
gain of approximately $279,000.
On September 29, 1999, the Company disposed of a hotel property located in
Westerville. Ohio. The hotel was sold for $2,500,000 resulting in a loss of
approximately $168,000. The consideration was $2,250,000 cash and a $250,000
note receivable that is collectible through monthly payments over three years.
The note has an interest rate of 10%.
F-15
<PAGE>
Note 16 -- 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 4), results of operations in 1999 and 1998 include revenues
and expenses derived from related party transactions as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Management fee income (a) $136,761 $434,316
Personnel leasing fees (b) 216,600 57,279
Management systems fees (c) 68,202 50,022
Rent for office facilities and equipment 54,268 44,582
Reimbursement for management expenses -0- 993,124
</TABLE>
(a) The Company managed two hotels and six hotels for entities controlled by
Messrs. Beck and Yeaggy in 1999 and 1998, respectively. The two hotels managed
in 1999 were sold prior to December 31, 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 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.
(d) In 1999 the Company, by merger, acquired Beck II and assumed direct
responsibility for the operating costs of the management. In 1998, the Company
paid 50% of the operating costs associated with shared expenses and personnel.
F-16
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Entity Jurisdiction of Formation
<S> <C>
Envoy Inns of Morrisville, LLC Delaware
JAGI Cleveland - Hudson, LLC Delaware
JAGI Cleveland - Independence, LLC Delaware
JAGI Montrose West, LLC Delaware
JAGI North Canton, LLC Delaware
Janus American Services Corp. Delaware
Janus Cleveland - Independence, Inc. Delaware
Janus Hospitality I, L.L.C. Delaware
JI Subsidiary, Inc. Delaware
Kings Dominion Lodge, G.P. Virginia
Beckelbe, Inc. Delaware
Beckelbe, Ltd. Ohio
JAGI Juno, L.L.C. Delaware
Motel Associates of Pompano Beach, Inc. Florida
JAGI Pompano, LLC Delaware
</TABLE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
under the heading "Signature" constitutes and appoints James E. Bishop as
his/her true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him/her and in his/her name, place and
stead, in any and all capacities to sign the Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1999, including amendments, if any, and to
deliver and file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in connection with
the foregoing, as fully for all intents and purposes as he/she might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/Louis S. Beck
- --------------------------
Louis S. Beck Chairman of the Board March 21, 2000
/s/Harry G. Yeaggy
- --------------------------
Harry G. Yeaggy Vice Chairman of the Board March 9, 2000
/s/Arthur Lubell
- --------------------------
Arthur Lubell Director March 8, 2000
/s/Richard P. Lerner
- --------------------------
Richard P. Lerner Director March 10, 2000
/s/Vincent W. Hatala, Jr.
- --------------------------
Vincent W. Hatala, Jr. Director March 10, 2000
/s/Lucille Hart-Brown
- --------------------------
Lucille Hart-Brown Director March 27, 2000
/s/C. Scott Bartlett, Jr.
- --------------------------
C. Scott Bartlett, Jr. Director March 20, 2000
/s/Michael M. Nanosky
- --------------------------
Michael M. Nanosky President of Hotel Operations And Director March 24, 2000
/s/Paul Tipps
- --------------------------
Paul Tipps Director March 27, 2000
</TABLE>
STATE OF OHIO)
) ss.:
COUNTY OF HAMILTON)
On the 21st day of March, 2000, before me personally came Louis S. Beck, to me
known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Charles W. Thornton
-------------------------
Notary Public
<PAGE>
STATE OF OHIO)
) ss.:
COUNTY OF HAMILTON)
On the 9th day of March, 2000, before me personally came Harry G. Yeaggy, to me
known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Mary Ellen Steck
--------------------------
Notary Public
STATE OF NEW YORK)
) ss.:
COUNTY OF NEW YORK)
On the 8th day of March, 2000, before me personally came Arthur Lubell, to me
known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Mary Tedesco
--------------------------
Notary Public
STATE OF NEW YORK)
) ss.:
COUNTY OF NEW YORK)
On the 10th day of March, 2000, before me personally came Richard P. Lerner, to
me known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Margaret Bruno
-------------------------
Notary Public
STATE OF DELAWARE)
) ss.:
COUNTY OF SUSSEX)
On the 10th day of March, 2000, before me personally came Vincent W. Hatala,
Jr., to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/Karen L. Mumford
-------------------------
Notary Public
<PAGE>
STATE OF NEW YORK)
) ss.:
COUNTY OF NEW YORK)
On the 27th day of March, 2000, before me personally came Lucille Hart-Brown, to
me known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Jack P. Kolman
-------------------------
Notary Public
STATE OF NEW YORK)
) ss.:
COUNTY OF NEW YORK)
On the 20th day of March, 2000, before me personally came C. Scott Bartlett,
Jr., to me known, and known to me to be the individual described in and who
executed the foregoing instrument, and he acknowledged to me that he executed
the same.
/s/Gary S. Kendler
-------------------------
Notary Public
STATE OF FLORIDA)
) ss.:
COUNTY OF PALM BEACH)
On the 24th day of March, 2000, before me personally came Michael M. Nanosky, to
me known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Eric L. Glazer
-------------------------
Notary Public
STATE OF OHIO)
) ss.:
COUNTY OF FRANKLIN)
On the 27th day of March, 2000, before me personally came Paul Tipps to me
known, and known to me to be the individual described in and who executed the
foregoing instrument, and he acknowledged to me that he executed the same.
/s/Dianna Jane Harrison
-------------------------
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,859,888
<SECURITIES> 0
<RECEIVABLES> 1,743,241
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,248,734
<PP&E> 90,143,670
<DEPRECIATION> 6,084,157
<TOTAL-ASSETS> 127,692,489
<CURRENT-LIABILITIES> 7,951,844
<BONDS> 0
0
168
<COMMON> 118,833
<OTHER-SE> 46,876,914
<TOTAL-LIABILITY-AND-EQUITY> 127,692,489
<SALES> 0
<TOTAL-REVENUES> 51,173,422
<CGS> 0
<TOTAL-COSTS> 19,502,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,597,088
<INCOME-PRETAX> 2,820,991
<INCOME-TAX> 1,153,801
<INCOME-CONTINUING> 1,632,584
<DISCONTINUED> (459,800)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,172,784
<EPS-BASIC> (.01)
<EPS-DILUTED> (.01)
</TABLE>
