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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2000
JANUS HOTELS AND RESORTS, INC.
(Exact name of registrant as specified in its charter)
Delaware Commission File Number: 0-22745 13-2572712
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
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) 997-2325
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)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
form 10-K. |_|
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer was approximately $6,648,000, as of March 16, 2001.
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 16, 2001: 8,437,673
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement relating to the 2001
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission, are incorporated by reference in Part III, Items 10-13 of the Annual
Report on Form 10-K as indicated herein.
Forward Looking Statements
Certain information contained or incorporated by reference in this Annual Report
on Form 10-K is forward-looking in nature. All statements included or
incorporated by reference in this Annual Report on Form 10-K or made by
management of Janus Hotels and Resorts, Inc. and its subsidiaries (the "Company"
or "Janus"), other than statements of historical fact, are forward-looking
statements. Examples of forward-looking statements include statements regarding
the Company's future financial results, operating results, business strategies,
projected costs, competitive positions and plans and objectives of management
for future operations. In some cases, forward-looking statements can be
identified by terminology such as "may," "will," "should," "would," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"continue," or the negative of these terms or other comparable terminology. Any
expectations based on these forward-looking statements are subject to risks and
uncertainties and other important factors, including those discussed in the
sections titled "Item 1: Business - the Hospitality Business; - Certain Business
Considerations" and " "Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations." Actual results may differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to release publicly 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.
PART I
Item 1. Business.
Introduction
Janus Hotels and Resorts, Inc. (the "Company" or "Janus"), a Delaware
corporation, is in the business of operating and managing hotels. The Company
has ownership interests in 15 hotels (the "Owned Hotels") and manages an
additional 37 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) 997-2325.
Background 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 " History of the Company's
Reorganization."
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.
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, which was subsequently terminated based
on a merger, and the other of which is secured by a first mortgage on a
campground, which is 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.
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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.
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.
The Hospitality Business
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 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. Except for the Days Inn, Pompano Beach, Florida, the Owned Hotels are
wholly owned by the Company. An unrelated party holds a 25% interest in the Days
Inn, Pompano Beach, Florida. Each of the Owned Hotels is subject to mortgage
indebtedness. 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
in the Cornerstone Hotel Group, which is cross-collateralized by such hotels.
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 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."
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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.
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
nine of the Hotels and enables the Company to monitor a broad spectrum of the
operations of each Hotel covered by the system, including the occupancy and
revenues of the Hotels. The agreement with Computel has a term of one year and
automatically renews for successive terms of one year, unless one party notifies
the other to the contrary at least three months prior to the termination date.
Computel is paid a monthly fee of $275 per 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. Beginning in 1998, due to 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.
Employees
As of December 31, 2000, approximately thirty-three full-time employees of the
Company were engaged in management, business operations and administration of
its hospitality business. In addition, at that date approximately 2,380
individuals employed by HELP provided services at the Hotels under a service
agreement between HELP and the Company.
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,
2000, 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 the difficulties
associated with raising capital or obtaining debt financing.
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
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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, 2000, 4,635,583 shares have been distributed by the Reorganization Trust to
former creditors.
The balance of 364,416 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.
The Trust Agreement provides for the Reorganization Trust to contribute to Janus
and JI Subsidiary from time to time 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 2000, 1999 and 1998. Through December 31, 2000,
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, 2000, the Reorganization Trust reported total cash and cash
equivalents of $2,499,925 of which $418,316 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.
5
Certain Business Considerations
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
Independent business interests of Messrs. Beck and Yeaggy may 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, which they
hold, 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
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 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.
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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. In addition, 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.
Ownership of Hotel Real Estate
The Company currently owns 15 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
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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 of
Financial Condition and Results of Operations --Liquidity and Capital
Resources."
Control of the Company by Principal Officers
Messrs. Beck and Yeaggy beneficially own approximately 46% 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.
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 and Chief Executive Officer, Louis S. Beck, its Vice
Chairman, Harry Yeaggy, and its President, Michael M. 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 3,100 shares of preferred stock outstanding with an
annual dividend expense of $232,500. The Company was current in the payment of
dividends on the preferred stock as of December 31, 2000.
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.
8
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. Properties.
As of December 31, 2000, the Company owned the following 15 hotels in five
different states with a total of 2,457 rooms:
Year of Last
No. of Renovation/
Hotel Name Rooms Location Construction
- ------------------------------------ ---------- ----------------------- ----------------
Best Western Cambridge 95 Cambridge, OH 1999 / 1973
Best Western Kings Quarters 248 Doswell, VA 2000 / 1977
Comfort Inn West 134 Akron, OH 2000 / 1989
Days Inn Cambridge 103 Cambridge, OH 1999 / 1973
Days Inn Cincinnati 142 Sharonville, OH 2000 / 1974
Days Inn Kings Island 124 Mason, OH 2000 / 1976
Days Inn Pompano Beach 183 Pompano Beach, FL 1999 / 1974
Days Inn Raleigh 126 Raleigh, NC 2000 / 1979
Days Inn RTP 110 Morrisville, NC 2000 / 1987
Holiday Inn Express 110 Juno Beach, FL 2000 / 1989
Holiday Inn Hudson 288 Hudson, OH 1999 / 1967
Holiday Inn Independence 364 Independence, OH 1999 / 1974
Holiday Inn North Canton 194 North Canton, OH 2000 / 1970
Knights Inn Lafayette 112 Lafayette, IN 2000 / 1987
Red Roof Kings Island 124 Mason, OH 1999 / 1979
The Company conducts its corporate and business operations activities from
offices in Cincinnati, OH and Boca Raton, FL. The Company occupies 4,300 square
feet of office space in Cincinnati, OH under a sublease, which terminates in
April 2001 and occupies 2,200 square feet of office space in Boca Raton, FL
under a sublease, which terminates in April 2001. Both subleases are from an
affiliate of Messrs. Beck and Yeaggy, and are expected to be renewed.
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 2000.
9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Market Information:
The Company's Common Stock is traded on the Nasdaq Stock Market SmallCap Market
under the symbol "JAGI".
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 the Nasdaq SmallCap
Market.
High Low
Quarter ended December 31, 2000 $3.63 $1.16
Quarter ended September 30, 2000 $2.92 $1.03
Quarter ended June 30, 2000 $3.50 $2.03
Quarter ended March 31, 2000 $3.94 $2.00
Quarter ended December 31, 1999 $2.13 $1.00
Quarter ended September 30, 1999 $2.50 $1.38
Quarter ended June 30, 1999 $3.88 $1.94
Quarter ended March 31, 1999 $4.00 $2.19
Holders:
As of March 16, 2001, there were approximately 5,793 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.
10
Item 6. Selected Financial Data
Years ended December 31,
-----------------------------------------------------------------------
2000 1999 1998 1997
------------ ------------ ------------ -----------
Total revenues $ 49,768,643 $ 51,173,422 $ 29,056,825 $10,275,638
Operating income 6,937,064 8,493,864 4,968,391 1,323,091
Income from
continuing operations 996,588 1,632,584 1,751,055 423,965
Net income (loss) $ 1,074,246 $ 1,172,784 $ 1,887,241 $ (562,744)
Income (loss) per
common share -
basic and diluted:
Income (loss) from
contining operations $ (0.03) $ 0.04 $ 0.11 $ (0.02)
Net income (loss) $ (0.02) $ (0.01) $ 0.13 $ (0.15)
Total assets $124,162,685 $127,692,489 $110,569,666 $61,404,126
Long-term debt 64,946,400 67,933,460 60,582,883 17,866,318
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited operating results of each of
the eight prior quarters. This information is unaudited, but in the opinion of
management includes all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of the results of operations of such periods.
Fiscal 2000
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Total revenues $10,929,450 $13,396,556 $15,108,836 $10,333,801
Net income (loss) 110,990 428,077 1,377,820 (842,641)
Net income (loss) applicable
to common stock $ (203,787) $ 115,021 $ 1,060,456 $(1,160,006)
Income (loss) per common
share - basic and diluted $ (0.02) $ 0.01 $ 0.12 $ (0.13)
Fiscal 1999
---------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
Total revenues $10,597,818 $13,660,680 $16,247,761 $10,667,163
Net income (loss) (595,555) 909,536 2,719,753 (1,860,950)
Net income (loss) applicable
to common stock $ (864,357) $ 595,622 $ 2,405,839 $(2,181,763)
Income (loss) per common
share - basic and diluted $ (0.10) $ 0.07 $ 0.28 $ (0.25)
11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The operations of the Company are comprised primarily of the operations of
Hotels.
The following charts present a summary of the operations of the Owned Hotels for
the calendar years ended December 31, 2000 and 1999.
2000
HOTEL AND LOCATION RMS AVAIL.1 OCC%2 ADR3 Rev PAR4
- ------------------ ----------- ----- ---- --------
Days Inn, Sharonville, OH 52,338 61% $41.23 $25.34
Best Western Kings Quarters, Doswell, VA 90,768 47% $66.30 $31.20
Knights Inn, Lafayette, IN 40,992 70% $38.29 $26.74
Days Inn Crabtree, Raleigh, NC 44,652 68% $45.44 $30.93
Days Inn RTP, Raleigh, NC 40,626 89% $70.78 $63.20
Holiday Inn, Independence, OH 133,224 61% $91.36 $55.42
Holiday Inn, North Canton, OH 71,004 80% $65.57 $52.78
Holiday Inn, Hudson, OH 105,408 52% $82.46 $43.21
Comfort Inn, Akron, OH 48,312 59% $59.53 $34.88
Days Inn East, Cincinnati, OH5 15,531 64% $41.08 $26.16
Holiday Inn Express, Juno Beach, FL 39,528 78% $62.36 $48.81
Red Roof Kings Island, Mason, OH 45,384 45% $48.63 $21.77
Days Inn Kings Island, Mason, OH 45,384 54% $52.30 $28.03
Days Inn Cambridge, Cambridge, OH 37,332 36% $53.24 $19.35
Best Western Cambridge, Cambridge, OH 34,770 62% $39.79 $24.54
Days Inn Pompano, Pompano Beach, FL 63,684 66% $36.88 $24.36
1999
HOTEL AND LOCATION RMS AVAIL.(1) OCC% (2) ADR (3) Rev PAR (4)
- ------------------ ----------- ----- ---- --------
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, OH6 29,539 57% $36.60 $20.92
Knights Inn, Lafayette, IN 40,880 71% $39.92 $28.14
Knights Inn, Michigan City, IN7 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
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 June 15, 2000
6 Hotel was sold September 29, 1999.
7 Hotel was sold December 29, 1999.
12
Year Ended December 31, 2000 Compared To Year Ended December 31, 1999
Room and related services revenue decreased 7.3% to $34,947,912 in 2000 from
$37,712,563 in 1999. The decrease was attributable primarily to dispositions of
hotel properties. The average daily room rate, excluding dispositions, decreased
to $62.26 for 2000 from $62.32 in 1999. The comparable occupancy rate decreased
to 60.9% in 2000 from 61.4% in 1999. Excluding the dispositions made in 2000 and
late 1999, room and related services revenue decreased 1.3%.
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 decreased 0.3% to $10,544,317 in 2000 from $10,578,433 in 1999. This
decrease is related primarily to decreased occupancy and catering sales. The
properties disposed of in 2000 and 1999 had no effect on food and beverage
revenues.
Management fee income increased 59.2% to $3,246,814 in 2000 from $2,039,565 in
1999. This increase is due to the addition of new third party management
contracts.
Total direct operating expenses decreased 0.6% to $19,381,404 in 2000 from
$19,502,095 in 1999 but increased as a percentage of room and related services
and food and beverage revenues to 42.6% from 40.4%. Excluding the dispositions
of hotel properties made in 2000 and late 1999, total direct operating expenses
increased 3.4%.
Occupancy expenses decreased 1.4% to $6,673,326 in 2000 from $6,768,557 in 1999.
Excluding the dispositions made in 2000 and 1999, occupancy expenses increased
6.5% primarily due to increases in real estate taxes.
Selling, general and administrative expenses decreased 2.8% to $12,017,409 in
2000 from $12,363,035 in 1999 and decreased as a percentage of total revenues to
24.1% from 24.2 %. Excluding the dispositions of hotel properties made in 2000
and late 1999, selling, general and administrative expenses increased 0.6%.
Depreciation increased to $3,900,642 in 2000 from $3,688,997 in 1999. The
increase is due to an adjustment made to record depreciation of $569,344 on
property reclassified to property used in operations but offset by dispositions
of hotel properties made in 2000 and late 1999.
Interest income increased to $846,792 in 2000 from $808,560 in 1999.
Interest expense decreased to $6,053,127 in 2000 from $6,597,088 in 1999. The
decrease was attributable to the dispositions made in 2000 and 1999.
Minority interest increased to $74,034 in 2000 from $34,606 in 1999 reflecting
the results of operations from the Kings Dominion partnership and the Days Inn
Pompano hotel in 2000. During the first quarter of 2001, the Company purchased
the minority interest in the Kings Dominion partnership.
The Company's effective tax rate was 36.5% in 2000 compared to 40.9% in 1999.
This decrease is due to the tax loss on hotel properties sold and the greater
impact of the Reorganization Trust loss.
Year Ended December 31, 1999 Compared To Year Ended December 31, 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
13
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%.
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 Beck II 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.
The Company's effective tax rate was 40.9% in 1999 compared to 27.7% in 1998.
This increase was due to the Federal tax refund and goodwill write-off in 1998
that did not repeat 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. 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 decreased from $127,692,489 at December 31, 1999 to $124,162,685 at
December 31, 2000. The decrease in total assets was the result of the
dispositions of hotel properties made in 2000.
Net cash provided by operating activities decreased to $4,193,648 for the year
ended December 31, 2000 from $5,496,405 in the year ended December 31, 1999. The
decrease is primarily the result of lower net income and the increase in other
assets due to replacement reserves.
During the year ended December 31, 2000, the Company invested $2,633,994 in
capital improvements for the Owned Hotels as part of its operating plan. The
Company plans to spend $2,106,000 on capital improvements during the year ending
December 31, 2001 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
aggregate lines of credit totaling $2,200,000. There is no outstanding balance
on the lines of credit at December 31, 2000. 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.
14
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
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, 2000 totals $68,605,641. Mortgage
debt totals $68,025,426, which consists of $64,588,761 in fixed rate mortgage
loans and $3,436,665 in adjustable rate (3-5 year adjustment periods) mortgage
loans. Such adjustable rate loans have maturity dates ranging from August 2001
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, 2000. The approximate
scheduled repayments of principal on the long-term debt of the Company for the
next five years are: 2001 -- $3,659,241; 2002 -- $3,825,104; 2003 -- $2,144,520;
2004 -- $1,694,980; 2005 -- $1,775,972. 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.
Effective January 1, 2001, 13,688.08 shares of preferred stock were redeemed by
the Company. The aggregate redemption price of $13,688,080 was paid in the form
of promissory notes maturing on December 31, 2011. The notes bear interest at
the rate of 7.5% per annum. Interest only is payable on a quarterly basis. If
the redemption had occurred on January 1, 2000, income from continuing
operations, on a pro forma basis, would have been $342,527, or $0.01 per basic
and diluted common shares. Long-term debt, net of current portion, at December
31, 2000, would have been $78,634,480 and total stockholders' equity would have
been $32,897,304.
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
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.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements required by this item appear under the caption "Index
to Financial Statements" and are included elsewhere herein.
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosures.
None.
15
PART III
Item 10. Directors and Executive Officers of the Registrant
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 June 7, 2001 is
hereby incorporated by reference.
Item 11. 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 June
7, 2001 is hereby incorporated by reference.
Item 12. 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 June 7, 2001 is hereby incorporated by reference.
Item 13. 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 June 7, 2001 is hereby incorporated by reference.
PART IV
Item 14. Exhibits, Lists and Reports on Form 8-K.
(a) Exhibits: The exhibits listed in the accompanying index are filed as part
of this report.
Exhibit No. Description
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 to Form 10-KSB
filed with the Securities and Exchange Commission on
March 22, 1999.
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 Commission 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 Commission 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 Commission on June 24, 1997.
10.11 Client Service Agreement between Hospitality Employee
Leasing Program, Inc. and the Company incorporated by
reference to Exhibit 10.11 to Form 10-SB of the Company
filed with the Securities and Exchange Commission 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.
16
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 Commission 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 Commission 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
Commission 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 dated
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.
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 Capital,
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.
10.33 Stock Appreciation Right Certificate incorporated by
reference to Exhibit 10.33 to 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.
17
10.36 Stock Appreciation Right Agreement with Paul Tipps dated as
of December 18, 1998 incorporated by reference to Exhibit
10.36 to Form 10-KSB for the year ended December 31, 1998.
10.37 Conversion Agreement dated as of January 1, 2001 among Janus
Hotels and Resorts, Inc., Harry G. Yeaggy, Louis S. Beck,
Elbe Financial Group, LLC. and Beck Hospitality, Inc. III,
with forms of promissory notes as exhibits incorporated by
reference to Exhibit 10.37 to Form 8-K for the event dated
January 31, 2001.
10.38 Purchase Agreement dated as of March 1, 2001 between Elbe
Properties and JAGI Doswell, LLC incorporated by reference
to Exhibit 10.38 to Form 8-K for the event dated March 1,
2001.
21 Subsidiaries of the Company.
24 Powers of Attorney.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the period October 1, 2000
through December 31, 2000.
18
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 30, 2001 /s/ Louis S. Beck
----------------------------------------
Louis S. Beck
Chairman and Chief Executive Officer
Dated: March 30, 2001 /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 30, 2001
*
----------------------------------------
Michael M. Nanosky
President and Director
Dated: March 30, 2001
*
----------------------------------------
Harry G. Yeaggy
Vice Chairman
Dated: March 30, 2001
*
----------------------------------------
Arthur Lubell
Director
Dated: March 30, 2001
*
----------------------------------------
Richard P. Lerner
Director
Dated: March 30, 2001
*
----------------------------------------
Vincent W. Hatala, Jr.
Director
Dated: March 30, 2001
*
----------------------------------------
Lucille Hart-Brown
Director
Dated: March 30, 2001
*
----------------------------------------
C. Scott Bartlett, Jr.
Director
Dated: March 30, 2001
*
----------------------------------------
Stephen Grossman
Director
Dated: March 30, 2001
*
----------------------------------------
Paul Tipps
Director
Dated: March 30, 2001
*
----------------------------------------
Howard Nusbaum
Director
* /s/ Richard A. Tonges
--------------------------------
Richard A. Tonges
Attorney-in-Fact
20
JANUS HOTELS AND RESORTS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-2
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
2000,1999 AND 1998 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
DECEMBER 31, 2000, 1999 AND 1998 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31,
2000, 1999 AND 1998 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7
F-1
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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Janus Hotels and
Resorts, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
February 8, 2001, except for the second
paragraph of Note 17 as to which the
date is March 1, 2001
F-2
JANUS HOTELS AND RESORTS, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND 1999
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,244,481 $ 8,859,888
Restricted cash 1,330,350 1,251,297
Accounts receivable 2,126,152 1,743,241
Current portion of notes receivable 100,384 182,226
Other current assets 208,362 212,082
----------- -----------
Total current assets 12,009,729 12,248,734
----------- -----------
Property held for sale - 12,641,199
Property and equipment, net 93,311,684 84,059,513
Mortgage notes receivable 3,138,345 3,392,709
Goodwill, net 7,334,064 7,542,376
Deferred tax asset 2,566,000 2,566,000
Other assets 5,802,863 5,241,958
----------- -----------
$124,162,685 $127,692,489
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 3,659,241 $ 3,776,846
Accounts payable 2,342,183 2,215,039
Accrued expenses 1,921,449 1,959,960
----------- -----------
Total current liabilities 7,922,873 7,951,845
----------- -----------
Long-term debt, net of current portion 64,946,400 67,933,460
Deferred tax liabilities 2,250,000 2,345,275
Minority interest 2,540,028 2,465,994
Stockholders' equity:
Preferred stock, series B; par value $0.01 per share; 20,000 shares authorized;
16,788.08 shares issued and outstanding at December 31,
2000 and 1999, respectively 168 168
Common stock, par value $0.01 per share; 15,000,000 shares authorized;
11,883,220 shares issued at December 31, 2000 and 1999, respectively 118,833 118,833
Additional paid-in capital 52,582,257 52,582,257
Accumulated deficit (4,477,159) (4,288,844)
Treasury stock, at cost, 3,412,347 and 3,212,128 common shares at
December 31, 2000 and 1999, respectively (1,720,715) (1,416,499)
----------- -----------
Total stockholders' equity 46,503,384 46,995,915
----------- -----------
$124,162,685 $127,692,489
=========== ===========
See notes to consolidated financial statements.
F-3
JANUS HOTELS AND RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- ----------
Revenues:
Room and related services $34,947,912 $37,712,563 $20,489,850
Food and beverage 10,544,317 10,578,433 6,298,770
Management fees 3,246,814 2,039,565 1,754,610
Other 1,029,600 842,861 513,595
---------- ---------- ----------
Total revenues 49,768,643 51,173,422 29,056,825
---------- ---------- ----------
Operating expenses:
Direct:
Room and related services 9,027,084 9,341,472 4,918,908
Food and beverage 8,235,163 8,113,617 5,122,426
Selling and general 2,119,158 2,047,006 1,495,796
---------- ---------- ----------
Total direct expenses 19,381,405 19,502,095 11,537,130
---------- ---------- ----------
Occupancy expenses 6,673,326 6,768,557 3,451,122
Selling, general and administrative expenses 12,017,409 12,363,032 6,484,960
Severance arrangement of former president 500,000 - -
Depreciation 3,900,642 3,688,997 2,392,300
Amortization 358,797 356,877 222,922
---------- ---------- ----------
Total operating expenses 42,831,579 42,679,558 24,088,434
---------- ---------- ----------
Operating income 6,937,064 8,493,864 4,968,391
Other income (expense):
Interest expense (6,053,127) (6,597,088) (3,565,053)
Interest income 846,792 808,650 1,137,506
Other (45,107) 115,565 -
---------- ---------- ----------
Income from continuing operations before income taxes and minority interest 1,685,622 2,820,991 2,540,844
Provision for income taxes 615,000 1,153,801 704,798
---------- ---------- ----------
Income from continuing operations before minority interest 1,070,622 1,667,190 1,836,046
Minority interest 74,034 34,606 84,991
---------- ---------- ----------
Income from continuing operations 996,588 1,632,584 1,751,055
Gain (loss) on disposal of discontinued operations, net of taxes 77,658 (459,800) 136,186
---------- ---------- ----------
Net income 1,074,246 1,172,784 1,887,241
Less preferred dividend requirement 1,262,561 1,217,443 783,891
---------- ---------- ----------
Net income (loss) applicable to common stock $ (188,315) $ (44,659) $ 1,103,350
========== ========== ==========
Basic income per common share:
Income from continuing operations $ (0.03) $ 0.04 $ 0.11
Gain (loss) on disposal of discontinued operations 0.01 (0.05) 0.02
---------- ---------- ----------
Net income (loss) $ (0.02) $ (0.01) $ 0.13
========== ========== ==========
Diluted income per common share:
Income from continuing operations $ (0.03) $ 0.04 $ 0.11
Gain (loss) on disposal of discontinued operations 0.01 (0.05) 0.02
---------- ---------- ----------
Net income (loss) $ (0.02) $ (0.01) $ 0.13
========== ========== ==========
Weighted average common shares:
Basic 8,659,846 8,673,996 8,693,545
========== ========== ==========
Diluted 8,659,846 8,673,996 8,693,545
========== ========== ==========
See notes to consolidated financial statements.
F-4
JANUS HOTELS AND RESORTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
Preferred Stock Common Stock
---------------------- -----------------------
Number of Number of Additional Accumulated
Shares Amount Shares Amount Paid-in Capital Deficit
--------- ------ ---------- -------- --------------- -----------
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)
Net income 1,074,246
Purchases of treasury stock
Preferred stock dividends (1,262,561)
--------- ---- ---------- ------- ---------- ----------
16,788.08 $ 168 11,883,220 $118,833 $52,582,257 $(4,477,159)
========= ==== ========== ======= ========== ==========
Treasury Stock
--------------------------
Number of
Shares Amount Total
--------- ------------ -----------
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
Net income 1,074,246
Purchases of treasury stock 200,219 (304,216) (304,216)
Preferred stock dividends (1,262,561)
--------- ---------- ----------
3,412,347 $(1,720,715) $46,503,384
========= ========== ==========
See notes to consolidated financial statements.
F-5
JANUS HOTELS AND RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
---------- ----------- -----------
Operating activities:
Net income $1,074,246 $ 1,172,784 $ 1,887,241
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 3,900,642 3,688,997 2,392,300
Amortization of intangible assets 358,797 356,877 222,922
Deferred taxes (95,275) 967,401 695,874
Minority Interest 74,034 34,606 84,992
(Gain) loss on sale of hotel property 45,107 (110,787) -
Discontinued operations - 499,800 (73,948)
Changes in operating assets and liabilities, excluding acquisitions:
Accounts receivable (382,911) (320,914) (1,013,853)
Other current assets 3,720 27,124 342,043
Other assets (711,390) 638,526 (4,348,888)
Accounts payable and accrued expenses (73,322) (1,458,009) 1,716,232
--------- ---------- ----------
Net cash provided by operating activities 4,193,648 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 (2,633,994) (4,953,847) (42,595,244)
Proceeds from sale of property 2,700,000 4,250,000 14,161
Collections of notes receivable 261,206 233,599 127,884
--------- ---------- ----------
Net cash (used in) provided by investing activities 327,212 (258,240) (42,457,475)
--------- ---------- ----------
Financing activities:
Dividends paid (1,262,561) (1,217,443) (981,474)
Increase in restricted cash (79,053) (448,551) (470,382)
Repurchase of common stock (304,216) - (100,000)
Conversion of warrants to common stock - - 8,823
Proceeds from long-term borrowings - - 44,000,000
Repayments of long-term borrowings (3,490,437) (7,096,024) (712,147)
--------- ---------- ----------
Net cash (used in) provided by financing activities (5,136,267) (8,762,018) 41,744,820
--------- ---------- ----------
Increase (decrease) in cash and cash equivalents (615,407) (3,523,853) 1,192,260
Cash and cash equivalents, beginning of period 8,859,888 12,383,741 11,191,481
--------- ---------- ----------
Cash and cash equivalents, end of period $8,244,481 $ 8,859,888 $ 12,383,741
========= ========== ===========
Supplemental disclosure of cash flow data:
Interest paid $6,053,127 $ 6,597,088 $ 3,565,053
========= ========== ===========
Income taxes paid $ 493,909 $ 757,880 $ 130,750
========= ========== ===========
Noncash investing and financing transactions:
Acquisitions of equipment through capital leases $ 385,772 $ - $ -
========= ========== ===========
Noncash transactions:
Acquisition of hospitality business
Assets acquired $ - $27,192,451 $ -
Liabilities assumed - 20,856,251 -
--------- ---------- -----------
Value of stock issued $ - $ 6,336,200 $ -
========= ========== ===========
See notes to consolidated financial statements.
F-6
JANUS HOTELS AND RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization:
As of December 31, 2000, the continuing operations of Janus Hotels and Resorts,
Inc. and its Subsidiaries ("Janus" or the "Company") were comprised primarily of
the operations of fifteen hotels (of which thirteen 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 10, management decided during December 1997 to
discontinue and dispose of all of the Company's operations related to the
provision of engineering and wireline logging services to companies in the oil
and gas industry (the "oil and gas services operations").
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.
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.
F-7
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 applies 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, 2000, 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 $951,758 in 2000,
$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 is 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
December 31, December 31, December 31,
2000 1999 1998
-------------- -------------- -------------
Average shares outstanding-basic 8,659,846 8,673,996 8,693,545
Effect of dilutive securities- dilutive shares
contingently issuable upon the exercise of
stock options and warrants - - -
--------- --------- ---------
Average shares outstanding- Assuming dilution 8,659,846 8,673,996 8,693,545
========= ========= =========
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 unrelated 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.
(in thousands, except per
share amounts) 1998
---------------------------- -------------
Revenues $51,514,669
Net income from continuing
operations 952,444
Earnings per share:
Basic $0.11
Diluted $0.11
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
Note 4 - Mortgage notes receivable:
The mortgage note at December 31, 2000 is secured by a campground in Kissimmee,
Florida. The campground is owned by an entity controlled by Messrs. Beck and
Yeaggy. Messrs. Beck and Yeaggy have personally guaranteed the mortgage note.
The note secured by the Westerville property was paid off early. The early pay
off reflected a $75,000 discount which was included in other income. The
balances at December 31, 2000 and 1999 consisted of the following:
2000 1999
---- ----
Note secured by campground, with interest at 8% $3,238,729 $3,331,419
Note secured by Westerville hotel property, with interest at 10.0% - 243,516
--------- ---------
Total long-term receivable 3,238,729 3,574,935
Less current portion 100,384 182,226
--------- ---------
Long-term portion, net of current portion $3,138,345 $3,392,709
========= =========
The mortgage note is 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:
The property held for sale at December 31, 1999, has been reclassified to
property used in operations as of December 31, 2000. The decision to take the
property off the market was influenced by a downturn in the economy. Management
feels that the maximum value cannot be obtained in the present economic
environment. 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 ("SFAS 121"), an adjustment was made to record
depreciation of $569,344 not taken during the period the property was held for
sale. Further, as provided by SFAS 121, an evaluation of the carrying value of
the property was performed. Because the hotel is presently performing at optimum
standards in the current state of the economy, the estimated fair market value
of the property is in excess of its carrying value. No reserve is considered
necessary at December 31, 2000.
Note 6 -- Property and equipment:
Property and equipment at December 31, 2000 and December 31, 1999 consisted of
the following:
December 31, December 31,
2000 1999
------------- -------------
Land $ 15,538,359 $12,952,015
Hotels 72,758,745 65,100,455
Hotel furniture and fixtures 14,317,153 11,707,571
Equipment and vehicles 1,003,791 383,629
----------- ----------
103,618,048 90,143,670
Less accumulated depreciation and amortization 10,306,364 6,084,157
----------- ----------
Totals $ 93,311,684 $84,059,513
=========== ==========
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 ability to sell rooms at competitive rates
within respective markets. 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
Note 7 -- Long-term debt:
Long-term debt at December 31 consisted of the following:
2000 1999
---- ----
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 2001 through March 2016 $63,822,094 $66,792,508
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, 2000 ranged from 8.52%
to 10.0%); the mortgage notes mature from
August 2001 through April 2006 4,203,332 4,394,854
Equipment notes with various maturities through
December 2003 and interest at rates ranging from
8.98% to 15% 580,215 522,944
---------- ----------
Total long-term debt 68,605,641 71,710,306
Less current portion 3,659,241 3,776,846
---------- ----------
Long-term debt, net of current portion $64,946,400 $67,933,460
========== ==========
Long-term debt is secured by the Company's notes, property and equipment.
Principal payments in years subsequent to December 31, 2000 are as follows:
Year Ending December 31 Amount
------------------------- ------------------
2001
$3,659,241
2002 3,825,104
2003 2,144,520
2004 1,694,980
2005 1,775,972
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.
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.
F-11
Note 9 - Income taxes:
For financial statement purposes, there was a provision for Federal income taxes
at December 31, 2000, 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, 2000, 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:
2000 1999 1998
---- ---- ----
Federal income tax provision:
Current $ 16,000 $ 259,171 $(219,449)
Deferred for net operating loss carryforward 404,000 628,000 463,100
------- ------- --------
Total federal income tax provision 420,000 887,171 243,651
------- ------- --------
State and local income tax provision:
Current 290,275 356,496 228,373
Deferred (95,275) (89,866) 232,774
------- ------- --------
Total state and local provision 195,000 266,630 461,147
------- ------- --------
Provision for income taxes $615,000 $1,153,801 $ 704,798
======= ========= ========
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:
2000 1999 1998
--------- --------- ---------
Statutory rate 34.0% 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 1.0 0.4 1.6
State and local tax 8.0 6.2 5.9
Gain (loss) on hotel properties sold (2.1) 1.4
Reorganization Trust loss (3.6) (1.8) (1.4)
Other (0.8) 0.7 (1.3)
---- ---- ----
Total 36.5% 40.9% 27.7%
==== ==== ====
(a) Refund of taxes for prior years after IRS review.
F-12
Deferred taxes at year-end were comprised of the following:
2000 1999
----------- -----------
Deferred tax liabilities:
Depreciation and other $ 2,250,000 $ 2,345,275
---------- ----------
Deferred tax assets:
Net operating loss carryforwards 81,600,000 81,898,000
Valuation allowance 79,034,000 79,332,000
---------- ----------
Net deferred tax assets 2,566,000 2,566,000
---------- ----------
Net deferred tax (liability) asset $ 316,000 $ 220,725
========== ==========
Net operating loss carryforwards consist of federal carryforwards of
$240,000,000 principally expiring in years 2001 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 was not made, the note would 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. During 2000,
the Company received $121,658 as a recovery on the note.
At December 31, 1998, the Company recognized liquidating income from
discontinued operations of $136,186.
Note 11 -- Fair value of financial instruments:
The Company assumes that the fair values of current assets and current
liabilities are equal to their reported carrying amounts due to their relatively
short period of maturity. The fair values of noncurrent financial assets and
liabilities are as follows:
2000 1999
------------------------------ -------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Mortgage notes receivable $ 3,238,729 $ 3,129,524 $ 3,574,935 $ 3,438,205
Long-term debt 68,605,641 66,174,083 71,710,306 68,933,192
Mortgage notes receivable and fixed rate long-term debt are valued based on the
expected future cash flows discounted at risk adjusted rates. Variable rate
mortgage notes are valued at their carrying amounts since they bear current
interest rates. Equipment notes are valued at carrying amounts since
determination of the fair value of capital lease is not practicable.
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, 2000 and
December 31, 1999 and the changes in the minority interest are set forth below:
JIS HOTEL PARTNERSHIPS TOTAL
--------- ------------------ -----------
Balance at December 31, 1998 $91,113 $1,682,848 $1,773,961
Acquisition 657,427 657,427
Net Income 34,606 34,606
------ --------- ---------
Balance at December 31, 1999 91,113 2,374,881 2,465,994
Net Income 74,034 74,034
------ --------- ---------
Balance at December 31, 2000 $91,113 $2,448,915 $2,540,028
====== ========= =========
F-13
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 and
none outstanding at December 31, 2000 and 1999; and
Preferred stock, par value $.01 per share; 20,000 shares authorized at
December 31, 2000 and 1999, respectively; 16,788.08 shares of Series B
preferred stock were issued and outstanding at December 31, 2000 and 1999,
respectively.
Common stock, par value $.01 per share; 15,000,000 shares authorized; and
11,883,220 shares issued at December 31, 2000 and 1999; and 3,412,347 and
3,212,128 shares held as treasury shares at December 31, 2000 and 1999,
respectively. At December 31, 2000 and 1999, 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.
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.
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, 2000 and 1999, 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.
F-14
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. During 2000, these options
were forfeited.
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.
During 2000, these SARs were forfeited at the time the executive resigned his
position. It also granted SARs in 1997 with respect to a total of 35,000 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:
The Company continually monitors general economic conditions and the local
economies where its hotels are located. When purchase offers for hotel
properties present sufficient economic benefits over ownership or other market
changes reduce economic returns, the properties are sold.
On June 15, 2000, the Company disposed of a hotel property located in
Cincinnati, Ohio. The hotel was sold for cash of $2,700,000 and resulted in a
gain of $29,893.
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 had an interest rate of 10%. During the third quarter of 2000, an early
payoff of the note receivable was received. The early payoff reflected a $75,000
discount which was included in other income.
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 2000, 1999 and 1998 include
revenues and expenses derived from related party transactions as follows:
2000 1999 1998
-------- -------- -------
Personnel leasing fees (a) $213,979 $216,600 $ 57,279
Management systems fees (b) 38,137 68,202 50,022
Rent for office facilities and equipment 54,520 54,268 44,582
Management fee income (c) -0- 136,761 434,316
Reimbursement for management expenses (d) -0- -0- 993,124
(a) 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.
(b) 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.
F-15
(c) 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.
(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.
Note 17 - Subsequent events
Effective January 1, 2001, 13,688.08 shares of preferred stock were redeemed by
the Company. The aggregate redemption price of $13,688,080 was paid in the form
of promissory notes maturing on December 31, 2011. The notes bear interest at
the rate of 7.5% per annum. Interest only is payable on a quarterly basis. The
following shows the unaudited pro forma condensed balance sheet as of December
31, 2000 and the unaudited pro forma results of continuing operations of the
Company for the year 2000 as though the redemption had occurred on January 1,
2000:
December 31, 2000
-------------------------------------------------
Pro forma
Actual Adjustments Pro forma
------------ ----------- ------------
Current assets $ 12,009,729 $ - $ 12,009,729
Property and equipment, net 93,311,684 93,311,684
Goodwill, net 7,334,064 7,334,064
Other assets 11,507,208 11,507,208
----------- ---------- -----------
Total assets $124,162,685 $ - $124,162,685
=========== ========== ===========
Crrent liabilities $ 7,922,873 $ (82,000) $ 7,840,873
Long-term debt, net 64,946,400 13,688,080 78,634,480
Deferred taxes 2,250,000 2,250,000
Minority interest 2,540,028 2,540,028
Stockholders' equity 46,503,384 (13,606,080) 32,897,304
----------- ---------- -----------
Total liabilities and stockholders' equity $124,162,685 $ - $124,162,685
=========== ========== ===========
For The Year Ended December 31, 2000
-------------------------------------------------
Total revenues $ 49,768,643 $ - $ 49,768,643
Direct expenses 19,381,405 19,381,405
Occupancy expense 6,673,326 6,673,326
Selling, general and administrative 12,517,409 12,517,409
Depreciation and amortization 4,259,439 4,259,439
----------- ---------- -----------
Operating income 6,937,064 - 6,937,064
Interest expense (6,053,127) (1,030,061) (7,083,188)
Other income, net 801,685 801,685
Income before income taxes
----------- ---------- -----------
and minority interest 1,685,622 (1,030,061) 655,561
Provision for income taxes 615,000 (376,000) 239,000
----------- ---------- -----------
Income before minority interest 1,070,622 (654,061) 416,561
Minority interest 74,034 74,034
----------- ---------- -----------
Income from continuing operations $ 996,588 $ (654,061) $ 342,527
=========== ========== ===========
Basic and diluted income (loss)
from continuing operations per share $ (0.03) $ 0.01
=========== ===========
Effective March 1, 2001, the Company acquired the 15% of the Kings Dominion
partnership that it did not own from an affiliate of Messrs. Beck and Yeaggy.
The purchase price of $600,000 was financed through the issuance of a demand
note with an interest rate of 7.5% per annum.
F-16