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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                 Annual Report Pursuant to Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 1997
Commission File Number:  0-22745

                           JANUS AMERICAN GROUP, INC.
                 (Name of Small Business Issuer in its Charter)

          Delaware                                          13-2572712
(State or Other Jurisdiction of                            (IRS Employer
incorporation or organization)                           Identification No.)

2300 Corporate Blvd., N.W., Suite 232
Boca Raton, Florida                                         33431-8596
(Address of principal executive offices)                    (Zip Code)

       Registrant's telephone number, including area code: (561) 994-4800

  Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:

        Title of Class                Name of each exchange on which registered
______________________________        __________________________________________

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange  Act during the  preceding 12
months (or for such shorter period that the registrant was required to file such
reports)  and (2) has been subject to such filing  requirements  for the past 90
days: Yes |X|   No |_|

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of  Regulations  S-B is not contained in this form,  and no  disclosure  will be
contained,  to the best of  registrant's  knowledge,  in a  definitive  proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.  |_|

The Registrant's revenues for its most recent fiscal year were $11,573,353.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  was  approximately  $19,566,945,  as of March  17,  1998.  It is the
position of the Company that the United  States  Lines,  Inc. and United  States
Lines (S.A.), Inc. Reorganization Trust is not an affiliate.

Number of shares of common stock outstanding as of March 30, 1998:  8,691,735

Transitional Small Business Disclosure Format: Yes |_|   No |X|

                      DOCUMENTS INCORPORATED BY REFERENCE:

  Document Incorporated                                    Part of Report
       By Reference                                   Into Which Incorporated
       ------------                                   -----------------------
Proxy Statement for Annual Meeting                           Part III
 to be held on May 29, 1998

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<PAGE>

                                     PART I

Item 1.  Description of Business.

Background of the Company

      Janus American Group,  Inc. (the "Company" or "Janus") is the successor to
United  States Lines,  Inc.  ("U.S.  Lines"),  which once was one of the largest
containerized  cargo  shipping  companies  in the world.  On November  24, 1986,
McLean  Industries,  Inc., First Colony Farms, Inc. and their  subsidiaries U.S.
Lines and United States Lines (S.A.), Inc. ("U.S. Lines (S.A.)") filed petitions
for  relief  under  Chapter  11 of  the  United  States  Bankruptcy  Code.  Soon
thereafter,  the shipping operations of U.S. Lines and U.S. Lines (S.A.) ceased.
U.S. Lines and U.S. Lines (S.A.) emerged from bankruptcy in 1990 under the terms
of the First Amended and Restated  Joint Plan of  Reorganization  dated February
23, 1989 (the "Plan").  At that time,  names of U.S. Lines and U.S. Lines (S.A.)
were  changed  to  Janus   Industries,   Inc.  and  JI  Subsidiary,   Inc.  ("JI
Subsidiary"),  respectively.  On September  29, 1997 the name of the Company was
changed to Janus  American  Group,  Inc.  Since  emerging from  bankruptcy,  the
Company  and JI  Subsidiary  were  engaged  in  attempting  to  find a  suitable
acquisition or acquisitions.  The Company has completed two acquisitions,  which
are described  below.  JI Subsidiary  has not  completed  any  acquisitions  and
currently  has  no  business  activities.  The  Company  and JI  Subsidiary  are
incorporated  under  the laws of the  State of  Delaware.  See  "Description  of
Business--History of the Company's Reorganization."

      On April 24, 1997, the Company acquired,  from affiliates of Louis S. Beck
("Beck")  and  Harry  G.  Yeaggy  ("Yeaggy"),  certain  assets  relating  to the
hospitality business comprised of (i) six hotels and an 85% partnership interest
in a partnership that owns one hotel (collectively,  the "Owned Hotels"); (ii) a
hotel management company, with 21 hotels under management inclusive of the Owned
Hotels  (hereinafter the hotels that are managed,  but not owned by the Company,
are  referred to as the  "Managed  Hotels" and the Owned  Hotels and the Managed
Hotels are  collectively  referred to as the  "Hotels");  (iii) a management fee
sharing  arrangement with Summit Hotel Management Company  ("Summit");  and (iv)
two loans,  one of which is secured by a first mortgage on a hotel and the other
of which is  secured  by a first  mortgage  on a  campground,  both of which are
personally  guaranteed by Messrs.  Beck and Yeaggy (the acquired  businesses and
assets are  collectively the "Beck-Yeaggy  Group").  In consideration  therefor,
Messrs.   Beck  and  Yeaggy  and  Beck  Hospitality  III,  Inc.,  a  corporation
wholly-owned by them,  received shares of the Company's  common stock, par value
$.01 per share (the "Common Stock"), representing approximately 43% of the total
outstanding shares of Common Stock and shares of the Series B preferred stock of
the  Company,  par  value  $.01 per share  (the  "Series  B  Preferred  Stock"),
representing 100% of the total outstanding shares of Series B Preferred Stock.

      Messrs.  Beck and Yeaggy  have been  engaged in the  hospitality  business
since 1972.  After giving effect to the transactions  with the Company,  Messrs.
Beck and Yeaggy  continue to hold  controlling  equity  interests  in 12 hotels,
seven of which are now managed by the Company  (such seven  hotels are the "Beck
Yeaggy  Affiliates")  and,  through  another  entity,   continue  to  manage  an
additional  two hotels.  With the exception of these existing  businesses,  they
have  contractually  agreed with the Company not to engage in any business  that
competes with the business of the Company.

      In July 1996,  the  Company  acquired  substantially  all of the assets of
Pre-Tek Wireline Service Company, Inc.  ("Pre-Tek"),  an oil and gas engineering
services and wireline logging company based in Bakersfield,  California.  During
1997  the  Company  determined  to  discontinue  this  line of  business  and is
presently negotiating the sale of Pre-Tek to management.


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<PAGE>

The Hospitality Business

      General

      The Company's  business is the  management  and  ownership of  hospitality
properties.

      Owned Hotels

      The Owned  Hotels are located in four states and operate  under  franchise
agreements  that  provide for the use of the brand names Days Inn,  Best Western
and  Knights  Inn.  One of the Owned  Hotels is  located  at the Kings  Dominion
amusement park near Richmond, Virginia and has been designated as the host hotel
for the  amusement  park.  The  remaining  Owned Hotels are located  either near
office  parks,  interstate  highways  or  airports  in Ohio,  Indiana  and North
Carolina.  The Owned Hotels  generally offer remote control cable television and
swimming  pool,  and in  some  cases,  restaurants.  Most  do not  have  meeting
facilities  nor do they offer in-room food service.  They are designed to appeal
primarily  to  business  travelers  and  vacationers  seeking  lower  cost hotel
accommodations.

      The Owned Hotels are owned in fee, either directly or through consolidated
entities.  With the  exception  of the Best Western  hotel  located at the Kings
Dominion  amusement park, the properties are  wholly-owned  by the Company.  The
Best Western Kings Quarters  hotel is owned by Kings  Dominion  Lodge, a general
partnership  in which the  Company  has an 85%  interest  and  Messrs.  Beck and
Yeaggy, through a partnership,  have a 15% interest. Each of the Owned Hotels is
subject  to  mortgage  indebtedness  which  is  described  below.  All  of  such
indebtedness,  is secured solely by the applicable  hotel property and fixtures,
and is non-recourse to the other assets of the Company.

      The  following  chart  presents a summary of the  operations  at the Owned
Hotels for calendar years ended December 31, 1997 and 1996.

                                                      1997
--------------------------------------------------------------------------------
         HOTEL AND LOCATION           RMS AVAIL.(1) OCC %(2)  ADR(3)   RevPAR(4)
--------------------------------------------------------------------------------
    DAYS INN, SHARONVILLE, OHIO         52,195        52%     $46.15     $23.84

    BEST WESTERN KINGS QUARTERS,        91,264        50%     $56.01     $27.70
         DOSWELL, VIRGINIA

   KNIGHTS INN, WESTERVILLE, OHIO       39,785        71%     $34.06     $24.05

  KNIGHTS INN, LAFAYETTE, INDIANA       40,880        71%     $37.23     $26.57

KNIGHTS INN, MICHIGAN CITY, INDIANA     37,595        59%     $36.74     $21.78

         DAYS INN CRABTREE,             44,500        70%     $50.46     $35.51
      RALEIGH, NORTH CAROLINA

           DAYS INN RTP,                40,382        91%     $67.57     $61.41
      RALEIGH, NORTH CAROLINA

----------
(1)   Calculation is based on number of hotel rooms multiplied by number of days
      in a year.

(2)   Total  number of rooms sold during a year divided by total number of rooms
      available in such year.

(3)   Average Daily Rate equals total room revenue (exclusive of taxes) during a
      year divided by rooms sold.

(4)   Revenue Per Available Room equals total room revenues (exclusive of taxes)
      during a year, divided by rooms available for sale during such year.


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                                                         1996
--------------------------------------------------------------------------------
         HOTEL AND LOCATION             RMS AVAIL.   OCC%      ADR       RevPAR
--------------------------------------------------------------------------------
    DAYS INN, SHARONVILLE, OHIO           52,338      59%     $45.10     $26.50

    BEST WESTERN KINGS QUARTERS,          91,016      52%     $53.86     $27.86
         DOSWELL, VIRGINIA

   KNIGHTS INN, WESTERVILLE, OHIO         39,894      72%     $34.24     $24.80

  KNIGHTS INN, LAFAYETTE, INDIANA         40,942      75%     $35.88     $26.98

KNIGHTS INN, MICHIGAN CITY, INDIANA       37,633      59%     $58.93     $20.47

         DAYS INN CRABTREE,               44,652      71%     $50.03     $33.62
      RALEIGH, NORTH CAROLINA

           DAYS INN RTP,                  40,260      97%     $60.33     $57.12
      RALEIGH, NORTH CAROLINA

      The following is a description of each of the Owned Hotels:

      Days Inn Hotel, Raleigh, North Carolina. Built in 1979, the 122 room hotel
is located on 2.79 acres on the south side of  Glenwood  Avenue in the  Crabtree
area of  Raleigh.  Glenwood  Avenue  is a major  roadway  through  the  area and
connects the  Raleigh-Durham  airport  (approximately  11 miles northwest of the
property) and  Interstate  Highway 440 (one mile  southeast).  The hotel is well
located  relative to the area's  universities  and  freeways.  The  improvements
consist  of two  two-story,  concrete  block  buildings  with  brick  and  glass
exteriors,  an outdoor swimming pool and a one-story building  consisting of the
hotel lobby and a 65 seat restaurant. Access to the guest rooms is from exterior
corridors.

      The hotel is subject to a first  mortgage  with a balance of $2,781,671 as
of December 31, 1997, which amount is to be amortized on a monthly basis through
its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of
8.875% per annum.  At December  31,  1997,  the loan was in its third loan year.
Under the terms of the mortgage, the loan may not be prepaid prior to the eighth
loan year.  Prepayment  in loan  years 8 through  14 is subject to a  prepayment
penalty of 7% in year 8 decreasing by 1% each year thereafter.

      In 1997 the Company spent approximately  $81,000 on capital  improvements.
Such  improvements  were paid from  working  capital  and  existing  replacement
reserves.  The replacement reserve balance was $260,715 as of December 31, 1997.
Improvements to be made in 1998 total approximately  $432,000. Such improvements
will be funded from existing replacement reserves and from working capital.

      Best Western Kings  Quarters,  Doswell,  Virginia.  Built in 1977, the 248
room hotel is located on 10.5 acres on the eastern side of Interstate Highway 95
and the south side of Route 30 in Hanover County (Doswell),  Virginia,  20 miles
north of Richmond,  Virginia.  The hotel is the "Host Facility" for the adjacent
Paramount Kings Dominion theme park.

      The improvements consist of two-story, brick hotel buildings with exterior
corridors and pitched  roofs.  The hotel's lobby is attached to one of the guest
buildings.  The adjacent 140 seat Denny's  restaurant is owned by Kings Dominion
Lodge,  the  partnership  that owns the hotel.  The  amenities  also  include an
outdoor  swimming  pool,  two  tennis  courts,  a putting  green,  shuffleboard,
volleyball,  ping-


                                       4
<PAGE>

pong, horseshoes,  children's playground,  video arcade, guest laundry,  meeting
room, lounge, exterior lighting and a paved parking lot for 360 cars.

      The hotel is subject to a first  mortgage  with a balance of $5,046,067 as
of December 31, 1997, which amount is to be amortized on a monthly basis through
its maturity date of January 1, 2016. The mortgage carries a fixed interest rate
of 9.75% per annum.  At December 31, 1997, the loan was in its second loan year.
Under the terms of the mortgage, the loan may not be prepaid prior to the eighth
loan year.  Prepayment  in loan  years 8 through  14 is subject to a  prepayment
penalty of 7% in year 8 decreasing by 1% each year thereafter.

      The Company spent approximately  $308,000 for improvements to the property
in 1997 and underwent a design review.  That design review resulted in plans for
approximately  $220,000 in  additional  improvements  to be made during the year
1998.

      Improvements  during  1997 were,  and  improvements  during  1998 will be,
financed from working capital and existing replacement reserves. The replacement
reserve balance as of December 31, 1997 was $546,292.

      Days Inn, Sharonville,  Ohio. Built in 1974, the 142 room hotel is located
along the southwest  quadrant of the  Interstate  Highway Loop 275/State Road 42
intersection.   The  property's  visibility  from  the  two  major  highways  is
considered to be  excellent.  Improvements  consist of three two story  concrete
buildings.  The  buildings  have  both  interior  and  exterior  corridors.  The
lobby/reception area is part of one of the guest buildings.  Additionally, there
is a one-story  restaurant located on the property.  The restaurant is leased to
and is operated by an unrelated third party.

      The hotel is subject to a first  mortgage  with a balance of $2,698,148 as
of December 31,  1997.  The mortgage  requires  monthly  payments and matures on
September  1,  2002  with  a  remaining  balance,  assuming  no  prepayment,  of
approximately  $2,134,000.  The mortgage  carries an interest  rate of 9.50% per
annum  subject to  adjustment  on September 1, 1999 to a rate equal to 300 basis
points  above the weekly  average  yield on United  States  Treasury  Securities
adjusted to a constant maturity of three years. Under the terms of the mortgage,
the loan has a "marked to market" prepayment penalty.

      In 1995, the Company, in concert with Days Inn of America,  Inc., prepared
a two-year product  improvement plan. Phase I was completed in 1996 and Phase II
was completed in the fourth  quarter of 1997.  The Company  spent  approximately
$212,000 for improvements to the property in 1997 financed from working capital.
During 1998 the Company expects to spend  approximately  $363,000 to upgrade the
exterior  of the  premises.  This  expenditure  is to be financed  from  working
capital.

      Days Inn (Research Triangle),  Morrisville, North Carolina. Built in 1987,
the 110 room  hotel is  located on  approximately  3.47 acres on Airport  Blvd.,
south of Interstate Highway 40 and the Raleigh-Durham  Airport.  The three-story
concrete  block  building  is faced  with a brick and glass  facade  and is well
located relative to area  universities,  research  facilities and freeways.  The
building has interior  corridors and a port cochere for  convenient  loading and
unloading  of guests,  and which  provides a  protected  entry into the  hotel's
lobby.  Amenities include a fitness room, two meeting rooms, an outdoor swimming
pool and two airport shuttle vans.

      The hotel is subject to a first  mortgage  with a balance of $2,852,995 as
of December 31, 1997, which amount is to be amortized on a monthly basis through
its maturity date of July 1, 2015. The mortgage carries a fixed interest rate of
8.875% per annum.  At December  31,  1997,  the loan was in its


                                       5
<PAGE>

third loan year.  Under the terms of the  mortgage,  the loan may not be prepaid
prior to the eighth loan year.  Prepayment in loan years 8 through 14 is subject
to a  prepayment  penalty  of 7% in  year  8  decreasing  by  1%  in  each  year
thereafter.

      The Company spent approximately  $60,000 for capital improvements in 1997.
Capital   expenditures  were  financed  from  working  capital  and  replacement
reserves.  As of  December  31,  1997,  the balance in the  replacement  reserve
account was $179,898. The Company expects to spend approximately $200,000 on the
renovation of 30 rooms and property common areas during 1998.  This  expenditure
will be financed from working capital and the replacement reserve account.

      Knights  Inn,  Westerville,  Ohio.  Built in 1985,  the 109 room  hotel is
located on  approximately  2.85 acres at the northern line of Heather Down Road,
approximately  155 feet west of State Highway 10.  Improvements  consist of four
one-story  modular buildings with wood trimmed stone and stucco exteriors and an
outdoor pool.  The buildings  have exterior  corridors.  The lobby consists of a
reception area and an office.

      The hotel is subject to a first  mortgage  with a balance of $1,026,103 as
of December  31, 1997.  The mortgage  matures at August 1, 2001 with a remaining
balance, assuming no prepayment, of approximately $867,000. The mortgage carries
a fixed interest rate of 8.91% per annum.  Under the terms of the mortgage,  the
loan may be prepaid in whole or part at any time without penalty.

      The Company spent approximately  $39,000 for capital improvements in 1997.
Capital  expenditures were financed from working capital. The Company expects to
spend  approximately  $110,000 on the renovation of 30 rooms and property common
areas during 1998. This expenditure will be financed from working capital.

      Knights Inn, Michigan City, Indiana.  Built in 1987, the 103 room hotel is
located  on  approximately  3.45  acres  on  the  north  side  of  Kieffer  Road
approximately  1/4 mile west of U.S. Highway 421. The property is highly visible
from U.S. Highway 421.  Improvements  consist of 5 one-story  modular  buildings
with wood  trimmed  stone and stucco  exteriors.  The  buildings  have  exterior
corridors. The lobby consists of a reception area and an office.

      The hotel is subject to a first  mortgage  with a balance of $1,628,362 as
of December 31,  1997.  The mortgage  requires  monthly  payments and matures at
April 1, 2006 with a remaining balance, assuming no prepayment, of approximately
$1,097,000.  The mortgage  carries an interest rate of 9.5% per annum subject to
adjustment  every three years to a rate 100 basis points above the prime rate of
Provident  Bank.  Such  bank's  prime rate is 8.50% as of August 20,  1997.  The
interest rate on the mortgage was last adjusted  April 1, 1997.  Under the terms
of the mortgage, the loan may be prepaid in whole or in part at any time without
penalty.

      The Company spent approximately  $44,000 for capital improvements in 1997.
Capital  improvements were financed from working capital. The Company expects to
spend  approximately  $120,000 on the renovation of 30 rooms and property common
areas during 1998. This expenditure will be financed from working capital.

      Knights  Inn,  Lafayette,  Indiana.  Built in 1987,  the 112 room hotel is
located  on  approximately  3.24  acres  on the  north  side  of  State  Road 26
approximately  1/2 mile west of  Interstate  Highway  65.  The  property  is not
visible  from  the  interstate  highway,  but is  visible  from  State  Road 26.
Improvements consist of four one-story modular buildings with wood trimmed stone
and stucco  exteriors and an


                                       6
<PAGE>

outdoor swimming pool. The buildings have exterior corridors. The lobby consists
of a reception area and an office.

      The hotel is  subject to a mortgage  with a balance  of  $2,157,580  as of
December  31,  1997.  The  mortgage  matures  at April 1, 2006 with a  remaining
balance,  assuming no  prepayment,  of  approximately  $1,453,000.  The mortgage
carries an interest rate of 9.50% per annum  subject to  adjustment  every three
years to a rate 100 basis points above the original  lending  bank's prime rate.
The interest  rate on the mortgage was last  adjusted  April 1, 1997.  Under the
terms of the  mortgage,  the loan may be prepaid in whole or in part at any time
without penalty.

      The Company spent approximately  $65,000 for capital improvements in 1997.
Capital  improvements were financed from working capital. The Company expects to
spend  approximately  $85,000 on the  renovation of the lobby during 1998.  This
expenditure will be financed from working capital.


                                       7
<PAGE>

      The Managed Hotels

      The Company operates the Managed Hotels pursuant to management  agreements
(the  "Management  Agreements")  with the owners of such Managed  Hotels.  As of
December   31,   1997,   15  of  the   Managed   Hotels  were   operated   under
nationally-recognized  brand  names and 3 were  non-franchised  properties.  The
brand names of the Managed Hotels include Best Western,  Days Inn,  Knights Inn,
Comfort  Suites,  Howard  Johnson,  Quality Inn and Holiday Inn. There are three
categories of properties from which the Company derives management fees: (i) the
Beck-Yeaggy Affiliates managed by the Company; (ii) third-party owned properties
managed by the Company;  and (iii) third-party  owned properties  managed by the
Company's  marketing  partners,  Summit and DePalma Hotel  Corporation of Dallas
("DePalma").

      The Beck-Summit  Hotel  Management  Group, a Florida  general  partnership
("Beck-Summit"),  was organized in 1992.  Each of the Company and Summit holds a
50% partnership  interest in  Beck-Summit.  The purpose of the partnership is to
market  management  services  jointly and divide the  management  fees resulting
therefrom.  Under the terms of the agreement between the parties, the party that
identifies  a  management  opportunity  acts as the manager  for the  applicable
property and receives 80% of the management  fees payable by the property owner.
The  remaining 20% of the  management  fees are retained by  Beck-Summit.  Funds
retained  by the  partnership  that are in excess of its cash  requirements  are
distributed  to  the  Company  and  Summit  equally.  Upon  termination  of  the
partnership,  each party  retains the  management  rights to the  properties  it
originally identified.

      The  Company  and  DePalma  organized  DePalma-Janus, Partners,  a Florida
general partnership ("D-J Partners") in 1997. The purposed of the partnership is
to manage two Days Inn hotels in Florida.  The actual  management  services  are
provided by DePalma. Each of the Company and DePalma holds a 50% interest in D-J
Partners.  The Company through D-J Partners also has a 5% equity interest in the
underlying hotels.

      The  Company is  responsible  for all matters  relating to the  day-to-day
operations of the Managed Hotels and is required to prepare an annual  operating
budget,  use its  reasonable  best  efforts  to market  the  hotels  and  ensure
compliance with the terms of any applicable  franchise  agreements.  As manager,
the Company is also  responsible for the retention and supervision of personnel,
necessary  for the operation of the hotel  property.  The Company has a contract
with a third party for this purpose. See "Operations--Hotel Personnel."

      Under the terms of the Management Agreements, management fees are based on
a fixed  percentage of a property's  total revenues  and/or  incentive  payments
based upon net operating  income.  Additional  fees are also  generated from the
rendering of accounting services. Each of the Management Agreements with respect
to the Beck-Yeaggy  Affiliates has fixed management fees of 5% of total revenues
of the Managed Hotel.  The Management  Agreements for properties  owned by third
parties provide for a base management fee ranging from approximately 3% to 5% of
the total revenues of the Managed Hotel or a flat fee per month and an incentive
fee based upon a percentage of profits.

      The Management Agreements with respect to the Beck-Yeaggy  Affiliates have
a term which expires in the year 2007. The Management  Agreements for properties
owned by third parties  generally  have terms of one year to three years and are
automatically  renewed for successive  one-year  periods after the initial term,
unless either party decides not to renew the same. The Management Agreements for
properties  owned  by  third  parties  allow  either  party  to  terminate  such
agreements prior to the stated expiration date for cause and two such Management
Agreements provide for termination prior to the stated expiration date without


                                       8
<PAGE>

cause. All of the Management  Agreements permit the owners of the Managed Hotels
to  terminate  such  agreements  prior  to the  stated  expiration  dates if the
applicable  hotel is  sold.  The  Management  Agreements  with  the  Beck-Yeaggy
Affiliates  provide that in the event of a sale of the  underlying  hotels,  the
Company is entitled to a  termination  payment equal to the present value of the
average of total fees for the prior three years (or such shorter period that the
Management  Agreement was in effect) times the number of years  remaining on the
term of the Management Agreement. The Management Agreements for properties owned
by third parties do not provide for a termination payment in the event of a sale
of the underlying hotel.

      Operations

      The Company operates each Hotel according to a business plan  specifically
tailored  to the  characteristics  of the  Hotel  and  its  market  and  employs
centralized  management,  accounting  and  purchasing  systems to enhance  hotel
operations,  reduce  the costs of goods  purchased  for the  Hotel and  increase
operating margins.

      Computerized  Reporting Systems. The Company has a service agreement for a
hotel property  management  information  system with Computel  Computer Systems,
Inc. ("Computel"),  a corporation  wholly-owned by Messrs. Beck and Yeaggy. This
agreement  provides a computerized  system that tracks all services  provided by
most of the Hotels and enables  the  Company to monitor a broad  spectrum of the
operations  of each Hotel  covered by the system,  including  the  occupancy and
revenues of the Hotels.  The agreement  with Computel has a term of one year and
automatically renews for successive terms of one year, unless one party notifies
the other to the contrary at least three months prior to the  termination  date.
Computel  is paid a  monthly  fee of $275  per  hotel  for  its  basic  property
management  software package and one computer terminal.  Additional monthly fees
are charged for  additional  terminals and add-on  software for services such as
guest  messaging,  call  accounting  interface,  franchise  central  reservation
interface and movie interface. On each annual renewal of the agreement, Computel
is entitled to adjust its fees to the Company commensurate with the fees charged
to other  customers.  During  1998,  as a result of  requirements  of one of the
Company's franchisors,  the Company anticipates that a substantial number of the
Hotels  will  change  to a  computer  reporting  system  controlled  by a  party
unaffiliated  with the Company.  This change is expected to reduce the Company's
cost of data processing services to the Company.

      Hotel  Personnel.  Personnel  at the Hotels are  provided  by  Hospitality
Employee Leasing Program,  Inc. ("HELP"), a corporation  wholly-owned by Messrs.
Beck and Yeaggy,  pursuant to an agreement with the Company. The agreement has a
term of one year and  automatically  renews  for  successive  terms of one year,
unless one party  notifies the other to the contrary at least three months prior
to the termination date. The Company pays HELP the actual costs of the personnel
provided  to it to operate the Hotels  plus an  administrative  fee of $8.15 per
bi-monthly pay period per person provided.

      Franchise Agreements

      The Company has entered into non-exclusive multi-year franchise, licensing
or  membership  agreements,  which allow the Company to utilize the franchise or
brand name of the  franchiser  or  licensor  for the Owned  Hotels.  The Company
believes that its relationships with nationally recognized  franchisers provides
significant  benefits for its existing  Owned Hotels.  The franchise  agreements
require the Company to pay annual fees,  to maintain  certain  standards  and to
implement certain programs that require  additional  expenditures by the Company
such as remodeling or redecorating.  The payment of


                                       9
<PAGE>

annual  fees,  which  typically  total from 8% to 12% of room  revenues,  covers
royalties and the costs of marketing and  reservation  services  provided by the
franchisers.  Franchise agreements, at their inception,  generally provide for a
term of 15 years and for an initial fee in  addition  to annual fees  payable to
the franchiser.

      The Company currently has franchise or membership  relationships with Days
Inn,  Knights Inn and Best Western.  Franchise  agreements may be terminated if,
among other reasons,  the Company breaches its obligations  under the agreement,
the hotel is not  operated  in the  ordinary  course of  business or the Company
becomes  financially  unstable.  There  can be no  assurance  that  a  desirable
replacement  could be available if any of the  franchise  agreements  were to be
terminated.  Upon such  termination  with respect to Owned  Hotels,  the Company
would  incur the costs of signage  removal  and other  expenses,  possible  lost
revenues and the costs incidental to establishing new associations.  Through the
Managed Hotels and Beck-Summit,  the Company has additional  relationships  with
other  franchisors,  including  Hutton,  Quality Inns,  Howard Johnson,  Comfort
Suites, Marriott, Radisson and Holiday Inn.

      Employment and Other Government Regulation

      The  lodging  industry  is subject to  numerous  federal,  state and local
government regulations,  including those relating to the preparation and sale of
food and  beverages  (such as health and liquor  license  laws) and building and
zoning  requirements.  Also,  the Company and HELP are subject to laws governing
relationships  with employees,  including minimum wage  requirements,  overtime,
working conditions and work permit requirements. The failure to obtain or retain
liquor licenses or an increase in overall wage rates,  employee benefit costs or
other costs associated with employees, could adversely affect the Company. Under
the   Americans   with   Disabilities   Act  of  1990  (the  "ADA")  all  public
accommodations  are required to meet  certain  federal  requirements  related to
access and use by disabled  persons.  While the Company  believes its hotels are
substantially in compliance with these  requirements,  a determination  that the
Company is not in  compliance  with the ADA could  result in the  imposition  of
fines or an award  of  damages  to  private  litigants.  These  and  other  such
initiatives could adversely affect the Company.

      Under various federal,  state and local environmental laws, ordinances and
regulations,  a current or previous  owner or operator of real  property  may be
liable for the costs of removal or remediation of hazardous or toxic  substances
on, under or in such property.  Such laws often impose liability  whether or not
the owner or operator  knew of, or was  responsible  for,  the  presence of such
hazardous or toxic substances.  In connection with the ownership or operation of
the Hotels, the Company may be potentially  liable for any such costs.  Although
the Company is not currently aware of any material  environmental claims pending
or   threatened   against  it,  no  assurance  can  be  given  that  a  material
environmental  claim will not be  asserted  against  the  Company or against the
Company and the Hotels.  The cost of defending against claims of liability or of
remediating a contaminated  property could have a material adverse effect on the
results of operations of the Company.

      Competition

      The lodging  industry is highly  competitive  both in terms of  geographic
markets  and market  segmentation.  The Owned  Hotels are in the market  segment
known generally as economy and limited service hotels. The Company competes with
other franchisers of Days Inn hotels, Knights Inn hotels and Best Western hotels
within the geographic  markets of the  applicable  Owned Hotels and operators of
other economy and limited service hotels.  The Managed Hotels cover the spectrum
of market segments and include limited service hotels,  full service  mid-market
hotels and higher rated luxury  properties.


                                       10
<PAGE>

Like the Owned Hotels,  the Managed Hotels  compete,  within their  geographical
markets,  with other properties  operating under the same franchise names,  with
properties operating under other franchise names and with independent operators.
Several owners/managers of multiple hotel properties are larger than the Company
and have greater  financial and other resources and better access to the capital
markets than the Company.  Performance  of the hotel  industry has been cyclical
and is affected by general  economic  conditions  and by the local economy where
each hotel is  located.  In  addition,  to remain  competitive,  hotels  must be
periodically  renovated  and  modernized  in order to compete with newer or more
recently  renovated  facilities.  Furthermore,  shifts in  demographics or other
local market changes can reduce the economic returns from a hotel.

      Employees

      As of December 31,  1997,  five  full-time  employees  and four  part-time
employees of the Company were engaged in  management,  business  operations  and
administration  of  its  hospitality   business.   In  addition,  at  that  date
approximately  940 individuals  employed by HELP provided services at the Hotels
under a service  agreement  between HELP and the Company.  See "The  Hospitality
Business--Operations."

      Growth Strategy

      Management  of the Company  intends to pursue a program of  expanding  its
business of the management and/or acquisition of hospitality (including hotels),
recreation,  health care,  entertainment  or other related  entities through the
marketing  of  its  services  to  properties  not  owned  by the  Company  or by
affiliates of Messrs.  Beck and Yeaggy and through the acquisition of properties
either by  itself  or with  others.  The  Company  is  engaged  in a  continuous
marketing program to expand the number of hotels that it manages. Since entering
the  hospitality  business in April 1997,  and prior to December 31,  1997,  the
Company  increased  its  number of  Managed  Hotels by four.  The  Company  also
continues to review possible  acquisitions of hotels.  There can be no assurance
that the Company will be successful  in pursuing its growth  strategy due to the
highly competitive nature of the market and current limitations on the Company's
ability to raise capital  through the issuance of Common Stock and certain types
of preferred stock. See "Risk  Factors--Competition";  and -- "Possible Need for
Additional  Financing"  and  "Management's  Discussion  and  Analysis or Plan of
Operation--Liquidity and Capital Resources."

      Investment Policies

      Generally.   The  Company's  core  business  is  the   management   and/or
acquisition  of  hospitality  (including  hotels),   recreation,   health  care,
entertainment  or other related  entities that the Company  believes may benefit
from the Company's management expertise.

      Investments  in Real Estate or Interests in Real  Estate.  Investments  in
properties may include the acquisition and redevelopment of existing properties,
the  acquisition  of  existing   properties  in  concert  with  a  third  party,
acquisition  of existing or new  management  contracts  related to  hospitality,
recreation,  health care or entertainment  properties or, in  circumstances  the
Company deems potentially  advantageous,  the acquisition of unimproved property
and the subsequent development or sale of such property.

      There is no limitation on the percentage of the Company's  assets that may
be invested in any one  investment or in any one type of  investment,  including
the  geographic  location or  distribution  of such  investments.  The Company's
investment  policy  may be  changed  without  a vote of the  Company's


                                       11
<PAGE>

security  holders.  The  primary  purpose  of  the  Company's   acquisition  and
investment  policy is to acquire assets that will provide income to the Company.
Capital  gains  related to the  disposition  of assets  held by the Company is a
secondary consideration.

      While the Company is  unrestricted  in terms of the type of  properties in
which it may invest, the Company intends to focus its real estate investments on
hospitality or  entertainment-related  properties  without  specific  geographic
limitations.  Financing  for  any  acquisitions  undertaken  by the  Company  is
expected  to be  provided  through  a  combination  of cash on hand,  internally
generated  cash,  capital stock  transactions  (to the extent such capital stock
transactions  can  be  accomplished   without  jeopardizing  the  Company's  net
operating loss carryforwards) and through borrowings.  There can be no assurance
that the  enumerated  sources of financing will be available to the Company on a
timely basis nor that  borrowings  by the Company will be available on terms the
Company deems acceptable,  or at all. There is no limitation as to the amount of
indebtedness  the Company may incur nor the amount or number of  mortgages  that
the Company may place on any one piece of property.

      Investments  in Real Estate  Mortgages.  The Company does not,  within its
core business, intend to invest in real estate mortgages, except as ancillary to
the acquisition of other assets. It is not the Company's intention to service or
to warehouse real estate mortgages,  nor is it the Company's intention to invest
in real estate mortgages as a passive investor in such instruments.

      Securities  of or  Interests in Persons  Primarily  Engaged in Real Estate
Activities.  The  Company  does not  intend to invest in  securities  of persons
primarily engaged in real estate activities, except where such investment may be
ancillary or incidental to  transactions  involving  hospitality,  recreation or
entertainment-related  properties or management agreements to be acquired by the
Company. In this respect,  the Company may acquire positions in corporate common
stock,  real  estate  investment  trusts,   partnerships  or  limited  liability
companies.

The Energy Service Business

      In July 1996 the Company  acquired the assets and  liabilities  of Pre-Tek
Wireline  Service  Company,  Inc.  and  all of  the  stock  of its  wholly-owned
subsidiary,  KFE  Wireline,  Inc.  (collectively  "Pre-Tek").  Pre-Tek  provides
customers  in the  oil  and  gas  industry  with  integrated  well  testing  and
production  logging  services.  Pre-Tek also  provides  precision  downhole data
acquisition  systems,  and also uses  advanced  computer  software  to provide a
complete  analysis  service  including well test design and  interpretation  and
simulation.  Pre-Tek's  operations are primarily in California.  The Company has
determined  to dispose of this  business and is currently  in  discussions  with
management of Pre-Tek to sell the business to them.

      Pre-Tek has 13 full time employees,  of which nine are field personnel who
are responsible for the labor and technical aspects of downhole well testing and
logging, two are management,  one is clerical and one is a salesperson.  Pre-Tek
retains part-time employees on an as needed basis.


                                       12
<PAGE>

History of the Company's Reorganization

      Under the terms of the Plan, (i) The United States Lines,  Inc. and United
States Lines (S.A.), Inc.  Reorganization Trust (the "Reorganization Trust") was
created for the benefit of  unsecured  creditors  of U.S.  Lines and U.S.  Lines
(S.A.);  (ii) certain assets and liabilities of U.S. Lines and U.S. Lines (S.A.)
were  transferred  to the  Reorganization  Trust;  and (iii) U.S. Lines and U.S.
Lines (S.A.) were discharged of all liabilities.

      The  agreement   establishing   the   Reorganization   Trust  (the  "Trust
Agreement")  provided  for  shares  of stock of Janus  and JI  Subsidiary  to be
distributed  to the unsecured  creditors as their claims were allowed.  See "The
Reorganization  Trust." The Plan provided for the unsecured  creditors to hold a
majority  of the  outstanding  stock of the  reorganized  companies  through the
Reorganization Trust and further provided for a sale of stock to an investor who
would identify investment opportunities for the reorganized companies.

      A  principal  objective  of the Plan  revealed  in the Second  Amended and
Restated  Disclosure  Statement of McLean Industries,  Inc., First Colony Farms,
Inc.,  United States Lines and United States Lines (S.A.),  Inc.  dated February
23, 1989 (the  "Disclosure  Statement") was the preservation and maximization of
substantial  net operating  loss  carryforwards  ("NOLs") of U.S. Lines and U.S.
Lines (S.A.) for Federal  income tax  purposes.  The Plan designed the Company's
post-reorganization  capital structure in order to comply with the net operating
loss  provisions of the Internal  Revenue Code of 1986, as amended (the "Code"),
and to ensure  that at least one half of the common  stock of Janus was owned by
creditors whose claims were "old and cold". The term "Net NOLs" means the amount
of NOLs of U.S.  Lines and U.S.  Lines  (S.A.) for federal  income tax  purposes
adjusted to reflect reductions and related  adjustments  required under Code ss.
382(l)(5) but subject to Internal Revenue Service audits,  subsequent changes in
the ownership of the Company and effects under Code ss. 382, the  application of
Code Sections 269 and 384, and the consolidated  return  regulations  under Code
Section 1502. See "The Net Operating Loss Carryforwards--Application of Code ss.
382 Under the Chapter 11  Reorganization".  Management  of the Company  believes
that after taking into account these reductions and related  adjustments the Net
NOLs currently are at least $500 million. See "Risk Factors--Net  Operating Loss
Carryforwards".

      Indebtedness of creditors was deemed "old and cold" by the  Reorganization
Trust if the indebtedness (i) was held by a particular  creditor for at least 18
months before the date of the filing of the Chapter 11 case or (ii) arose in the
ordinary  course of the trade or  business of the old loss  corporation  and was
held by the  person who at all times held a  beneficial  interest  in that debt.
Common  Stock was issued to  creditors  with "old and cold"  indebtedness  and a
class of 4,000 shares of 12% preferred stock, having a liquidation value of $100
per share (the  "Series A Preferred  Stock"),  was created for  distribution  to
those  creditors  whose  claims  did not meet the "old and cold"  criteria.  The
Company redeemed the outstanding  shares of Series A Preferred Stock in December
1996.

      Under the terms of the Plan,  reorganized  U.S.  Lines  (S.A.)  remained a
separate  entity  under  the  name  JI  Subsidiary.  Approximately  90%  of  the
outstanding common stock of JI Subsidiary is owned by Janus. As another means of
preserving  the Federal  income tax attributes of both U.S. Lines and U.S. Lines
(S.A.), the  Reorganization  Trust was issued both common stock of JI Subsidiary
and a class of  preferred  stock of JI  Subsidiary  (the "JIS Series A Preferred
Stock") for the benefit of the separate former unsecured creditors of U.S. Lines
(S.A.). JI Subsidiary  redeemed the outstanding shares of JIS Series A Preferred
Stock in December 1996.


                                       13
<PAGE>

      The Dyson-Kissner-Moran Corporation, through a subsidiary ("DKM"), was the
investor that acquired  stock of Janus as part of the Plan. DKM purchased 36% of
the stock of Janus for $3,000,000 and received a warrant to buy an additional 9%
of the stock.  In  addition,  DKM  purchased  shares of the  common  stock of JI
Subsidiary  and  shares of JIS Series A  Preferred  Stock.  Under the Plan,  DKM
controlled  the board of directors of Janus and  provided  managerial  services.
Three  representatives  of the unsecured  creditors of U.S. Lines also served on
the board.  After five years, DKM was unable to make an acquisition for Janus or
JI Subsidiary. DKM's stock in Janus and JI Subsidiary was redeemed effective May
15, 1995 for less than half of DKM's original investment.

      Effective upon the redemption, the representatives of the former creditors
of U.S.  Lines on the Janus Board of Directors  assumed  responsibility  for the
management of the Company and JI Subsidiary. The Board thereafter retained James
E. Bishop, an individual with experience in mergers, acquisitions and investment
banking as a senior officer and charged him with the  responsibility of carrying
out the Company's and JI Subsidiary's acquisition objectives.

The Reorganization Trust

      The  Reorganization  Trust  was  created  by the Plan for the  purpose  of
resolving the disputed  claims of former  unsecured  creditors of U.S. Lines and
U.S. Lines (S.A.), marshalling the remaining assets of U.S. Lines and U.S. Lines
(S.A.), such as claims against third parties, and acting as the disbursing agent
for  distributions to the former  creditors.  The Trustee of the  Reorganization
Trust is John T.  Paulyson,  who has been employed by the  Reorganization  Trust
since its inception.

      The Reorganization  Trust was issued stock by both Janus and JI Subsidiary
which was intended by the Plan to be distributed to the former creditors of U.S.
Lines and U.S. Lines (S.A.) as their claims were  resolved.  Five million shares
of the Company's Common Stock was originally issued to the Reorganization Trust,
all  ultimately to be  distributed  to allowed  creditors of U.S.  Lines.  As of
December  31,  1997,  3,942,952  of such  shares  have been  distributed  by the
Reorganization Trust to former creditors.

      The balance of 1,057,048  shares,  inclusive of a fixed reserve of 352,850
shares of Common  Stock  established  by order of the United  States  Bankruptcy
Court for the  Southern  District of New York (the  "Bankruptcy  Court") for the
benefit  of  asbestos-related  and other  late-manifesting  claimants,  is to be
distributed  to former  creditors of U.S.  Lines.  The former  creditors of U.S.
Lines whose claims have yet to be resolved include,  in addition to non-asbestos
related  claimants,  more than 10,800 individuals who have asserted asbestos and
other  late-manifesting  personal injury claims.  The resolution of these claims
(and any future  late-manifesting  asbestos and other personal injury claims) is
delayed,  in  part,  by a  dispute  between  the  Reorganization  Trust  and the
insurance  carriers of U.S.  Lines over certain  aspects of insurance  coverage.
This dispute has no impact upon the Company other than  delaying  identification
of individual  shareholders and prolonging the activities of the  Reorganization
Trust the  operations  of which  utilize cash that the Company and JI Subsidiary
might receive as a distribution.

      The  Trust  Agreement  provides  for  the  Reorganization  Trust  to  make
contributions  of cash to Janus and JI  Subsidiary  from time to time of cash on
hand that exceeds its projected  liabilities  and  administrative  requirements.
Such  contributions  are to be made 90% to Janus  and 10% to JI  Subsidiary.  In
accordance  with  this  provision,   the  Reorganization  Trust  transferred  an
aggregate of $7,491,020 to Janus and JI Subsidiary during 1997. Of the foregoing
amount, $5,736,020 was attributable to the settlement of an adversary proceeding
commenced by the  Reorganization  Trust on September 18, 1989 against the United
States  Maritime  Administration  ("MARAD")  relating to a sum of money that was
subject to an alleged preferential security interest received by MARAD. The full
amount of the


                                       14
<PAGE>

settlement proceeds received by the Reorganization  Trust was contributed to the
Company and JI Subsidiary.

      As of December 31, 1997, the Reorganization  Trust reported total cash and
cash equivalents of $4,951,425 of which $1,896,853 was identified as "restricted
funds".  While there is no objective  formula to  determine  the extent to which
Reorganization  Trust assets exceed  projected  liabilities  and  administrative
requirements, management of the Company believes that more monies may ultimately
be  available  for  contribution  to  the  Company  and  JI  Subsidiary  by  the
Reorganization Trust. During 1997 the administrative costs of the Reorganization
Trust decreased through  reductions in personnel and office space,  attributable
to the decreasing  volume of unsettled claims of former  unsecured  creditors of
U.S. Lines and U.S. Lines (S.A.). Also, the MARAD litigation was concluded.  The
principal  unknown  variable  that  could  cause  substantial  depletion  of the
unrestricted  available  cash and cash  equivalents  is the remaining  period of
Reorganization   Trust  activity  necessary  to  resolve   outstanding   claims,
particularly,  the asbestos and other  late-manifesting  personal injury claims,
and the amount of professional fees associated with this activity.  No assurance
can be given,  nor is any assurance  intended,  that additional cash will become
available to the Company and JI Subsidiary from the Reorganization  Trust or the
amount of such additional cash, if any.

 The Net Operating Loss Carryforwards

      The following  description of the NOLs is based upon management's analysis
of the  application of the relevant  sections of the Code to the historical NOLs
of U.S. Lines and U.S. Lines (S.A.). There can be no assurance that the Internal
Revenue Service or the courts will agree with management's  analysis.  There are
substantial  risks  associated  with the Company's  utilization of its NOLs. See
"Risk Factors--Net Operating Loss Carryforwards."

      In the Disclosure  Statement,  it was estimated that the NOLs available to
U.S. Lines and U.S. Lines (S.A.) (collectively,  the "U.S. Lines Group") were in
the  range of $900  million  to $1.15  billion  dollars.  For  purposes  of this
Registration  Statement,  unless otherwise defined or modified,  the term "Gross
NOLs"  means the total NOLs  reported  to the  Internal  Revenue  Service on the
federal income tax returns of U.S.  Lines and U.S.  Lines (S.A.),  including any
filed amended  returns,  before the  application  of any  reductions and related
adjustments  described in the following  paragraphs  under this heading "The Net
Operating Loss  Carryforwards".  Based on its federal income tax returns for the
years  of  1985  through  1996,   Janus  reported   cumulative   Gross  NOLs  of
approximately  $970,000,000.  Under  Code ss.  172(b)  as in effect  during  the
relevant years,  unused NOLs expire after fifteen taxable years from the taxable
year of a loss. Therefore,  minor amounts of these Gross NOLs will expire before
1999  (approximately  $1,700,000) and material  amounts of these Gross NOLs will
expire  beginning in 1999  (approximately  $122,000,000  in 1999,  approximately
$623,000,000  in  2000,   approximately   $201,000,000  in  2001,  approximately
$9,000,000 in 2002 and smaller amounts in later years).

      After  taking into  account  the  reorganization  of the U.S.  Lines Group
pursuant  to  the  Plan  (especially  because  of  the  reductions  and  related
adjustments imposed by Code ss. 382(l)(5)),  as described in more detail in this
section  "The Net  Operating  Loss  Carryforwards",  management  of the  Company
believes the Net NOLs are currently at least $500 million, although no assurance
can be given that the Company will be able to utilize  these NOLs.  The Net NOLs
may be affected by Internal  Revenue Service audits,  subsequent  changes in the
ownership of the Company and effects under Code ss. 382, the application of Code
Sections 269 and 384, and the consolidated return regulations under Code Section
1502,  which are described  below in this section.  See "Risk  Factors--The  Net
Operating Loss Carryforwards".


                                       15
<PAGE>

      Cancellation  of  Debt  Income.  Under  the  Plan,  as  described  in  the
Disclosure  Statement,  unsecured  indebtedness  of the U.S. Lines Group with an
aggregate face amount of approximately $1 billion to $1.35 billion was canceled.
Generally,  the Code provides that a debtor whose  indebtedness is canceled must
include the amount of canceled  indebtedness  in gross  income to the extent the
indebtedness canceled exceeds any consideration given for the cancellation.  The
Code  further  provides,  however,  that  if a  taxpayer  is  the  subject  of a
bankruptcy case and the  cancellation  of indebtedness  ("COD") is pursuant to a
plan approved by the Bankruptcy Court, the amount canceled is not required to be
included in gross income.  Instead,  if the  creditors  receive cash or property
other than stock of the debtor, any amounts so excluded from gross income reduce
prescribed  tax  attributes of the debtor,  including  NOLs and the bases of the
assets of the debtor,  in a specified order of priority  beginning with NOLs. As
described in the  Disclosure  Statement,  since it was expected  that  creditors
would receive some stock of the debtor (discussed in the following  paragraphs),
it was  anticipated  that the amount of NOLs that would be reduced  pursuant  to
these provisions would be relatively small.

      Provided  two "de minimis"  requirements  were  satisfied,  if a debtor in
bankruptcy  satisfied  its debt by issuing its own stock prior to the  effective
date of the Revenue  Reconciliation  Act of 1993,  the debtor  generally did not
recognize  COD income nor did it suffer NOL  reduction.  To satisfy these two de
minimis requirements former Code ss. 108(e)(8) required that (i) a creditor must
have received  more than nominal or token  shares,  and (ii) with respect to any
unsecured  creditor,  the  ratio  of the  value  of the  stock  received  by the
unsecured  creditor to the amount of its indebtedness  canceled or exchanged for
the stock must not have been less than 50% of a similar  ratio  computed for all
unsecured  creditors  participating in the  restructuring.  For purposes of this
ratio,  secured  creditors  were  treated as  unsecured  to the extent they were
under-secured.

      It had been hoped that the U.S.  Lines Group could meet the two de minimis
tests by issuing  stock of U.S.  Lines to the  creditors of both U.S.  Lines and
U.S.  Lines (S.A.)  because this approach would have provided a simpler and more
flexible  capital  structure for the U.S. Lines Group.  U.S.  Lines  requested a
private letter ruling from the Internal  Revenue  Service asking it to rule that
the U.S.  Lines Group could be  considered a single  entity both in applying the
stock for debt exception to COD and in applying Code ss. 382 (discussed  below).
A favorable  ruling on this  issue,  however,  could not be obtained  because on
policy grounds the Internal  Revenue Service was unwilling at that time to allow
a  subsidiary  to utilize  its  parent's  stock in  applying  the stock for debt
exception  of Code ss. 382.  Therefore,  both U.S.  Lines and U.S.  Lines (S.A.)
issued  stock to their  respective  unsecured  creditors  to  minimize  any COD.
Because  the  Reorganization  Trust  represented  and  acted  on  behalf  of the
creditors of both U.S. Lines and U.S.  Lines (S.A.),  stock of both entities was
issued to the  Reorganization  Trust in order to settle  claims of  creditors of
both entities.

      The Plan was confirmed in 1989. Pursuant to the Plan, the then outstanding
common stock of U.S. Lines was canceled. Sixty-four percent of the issued shares
of Common  Stock (55% after  dilution  for the warrant  issued to DKM) and 2,200
shares of the Series A Preferred  Stock,  was distributed to the  Reorganization
Trust  for  the  benefit  of  creditors  of  U.S.  Lines  in  exchange  for  the
cancellation  of their  debt and a $3 million  cash  capital  contribution.  DKM
contributed  $3 million  dollars in exchange for 36% of the issued Common Stock,
1,800  shares of the Series A Preferred  Stock,  that  qualified  under Code ss.
1504(a)(4),  which is discussed below, and a warrant to acquire an additional 9%
of the Common  Stock at a nominal  exercise  price (the  "Warrant").  All of the
interests of DKM in Janus and JI  Subsidiary  were  redeemed  effective  May 15,
1995.


                                       16
<PAGE>

      Code ss. 382 in General. If a corporation undergoes an "ownership change",
Code ss.  382  limits  the  corporation's  right to use its NOLs each year to an
annual percentage  (based on the federal long-term  tax-exempt rate) of the fair
market  value  of the  corporation  at the  time of the  ownership  change  (the
"Section  382  Limitation").  If an  ownership  change  under  Code  ss.  382 is
triggered,  a corporation may also be restricted from utilizing certain built-in
losses and built-in deductions  recognized during a five-year recognition period
after the ownership change. A corporation is considered to undergo "an ownership
change"  if,  as a result  of  changes  in the  stock  ownership  by  "5-percent
shareholders" or as a result of certain  reorganizations,  the percentage of the
corporation's stock owned by those 5-percent  shareholders has increased by more
than 50  percentage  points over the lowest  percentage  of stock owned by those
shareholders at any time during a prescribed  prior  three-year  testing period.
Five-percent  shareholders  are  persons  who hold 5% or more of the  stock of a
corporation  at any  time  during  the  testing  period  as  well as  groups  of
shareholders who are not individually  5-percent  shareholders.  Stock ("Section
1504(a)(4)  stock")  that is limited and  preferred  as to  dividends,  does not
participate in corporate  growth to any significant  extent,  has redemption and
liquidation  rights  that do not  significantly  exceed  the issue  price of the
stock, is not  convertible  into another class of stock and is not entitled to a
vote (except as a result of dividend  arrearages)  is not  considered  stock for
this purpose.

      Application  of  Code  ss.  382  Under  the  Chapter  11   Reorganization.
Management does not believe that the U.S. Lines Group was subject to the Section
382 Limitation  because although a 50% ownership change was expected to occur as
a  result  of  the  transfer  of  stock  of  Janus  and  JI  Subsidiary  to  the
Reorganization  Trust for the  benefit of the  former  unsecured  creditors,  an
exception  under Code ss.  382(l)(5) is believed to have applied as described as
follows.  Code ss.  382(l)(5)  provides that the Section 382 Limitation will not
apply to a loss  corporation  if (1) the  corporation,  immediately  before  the
ownership  change,  is under the jurisdiction of a court in a United States Code
Title 11 or similar  case,  and (2) the  shareholders  and  creditors of the old
corporation own at least 50% of the total voting power and value of the stock of
the corporation after the "ownership  change" as a result of being  shareholders
and creditors before the change. Stock transferred to such creditors counts only
if it is  transferred  with respect to "old and cold"  indebtedness  (as defined
above). The debtor company U.S. Lines requested a private letter ruling from the
Internal  Revenue  Service to the effect that if a  corporation  or other entity
held  indebtedness  of U.S.  Lines  that  was  otherwise  "old  and  cold",  the
indebtedness would not lose its  characterization  as "old and cold" as a result
of changes in ownership of the  corporation or entity.  Such a ruling was issued
on  December  22,  1989 (the "IRS  Ruling").  The IRS Ruling  also held that the
ownership  change of U.S. Lines was covered by Code ss.  382(l)(5) and therefore
the  Section 382  Limitation  was not  triggered  as a result of the owner shift
associated with the reorganization.

      Consistent  with the IRS Ruling,  the Company's  management  believes that
Code ss.  382(l)(5)  applied to the  transfer of Janus  stock to the U.S.  Lines
creditors and JI Subsidiary's  stock to the U.S. Lines (S.A.)  creditors.  Under
former Code ss.  382(l)(5)(C),  although  the Section  382  Limitation  does not
apply,  the  Gross  NOLs  originally  available  to the U.S.  Lines  Group  must
nevertheless  be reduced by Janus and JI  Subsidiary to the extent of 50% of the
COD income not taken into  account by virtue of the stock for debt  exception of
former Code ss. 108(e)(10)(B) (see "Cancellation of Debt Income",  above in this
section).  Based on a review of its accounting  and tax records  related to this
unrecognized  COD  income  conducted  by  the  Company's   management  with  the
assistance of outside tax professionals,  the Company's management believes that
its Gross NOLs must be reduced and adjusted  under former Code ss.  382(l)(5)(C)
in an amount of approximately $450,000,000.  The calculation of the unrecognized
COD income amount depends on the  characterization  of certain  historical loans
and  other  financial  relationships  as  well  as on  certain  assumptions  and
estimates.  While  management of the Company  believes it has a reasonable basis
for this  calculation,  no assurance can be provided  that the Internal  Revenue
Service  would agree with the  Company's  analysis.  In addition,  the Company's
management  is


                                       17
<PAGE>

not  aware  of any  authority  published  by the  Internal  Revenue  Service  or
otherwise  that  describes the proper method of allocating  the reduction  under
Code ss.  382(l)(5)(C) among the particular NOLs according to source year. Under
Code ss.  382(l)(5)(B),  the Gross NOLs  originally  available to the U.S. Lines
Group  must also be  reduced  by Janus and JI  Subsidiary  to the  extent of the
amount of interest  accrued with respect to such  canceled debt during the three
taxable years prior to the taxable year of the "ownership change" and during the
taxable year of the  "ownership  change" (up to the change  date.) This Code ss.
382(l)(5)(B)  adjustment  is  relatively  minor  (i.e.  no more than $5 million)
because Janus filed its bankruptcy petition in 1986 and had substantially ceased
to accrue interest expense on its federal income tax returns.  After taking into
account these reductions and related  adjustments to the Gross NOLs,  management
of the Company  believes  that the Net NOLs were, at December 31, 1997, at least
$500 million, subject to Internal Revenue Service audits,  subsequent changes in
the ownership of the Company and effects under Code ss. 382, the  application of
Code Sections 269 and 384, and the consolidated  return  regulations  under Code
Section 1502, which are described below in this section.  See "Risk Factors--The
Net Operating Loss Carryforwards."

      Redemption of DKM.  Management of the Company believes that the redemption
of stock held by DKM did not cause an  ownership  change under Code ss. 382. DKM
held 36% of the stock of Janus,  based on a determination that the Warrant would
not be deemed exercised  pursuant to the option attribution rules under Internal
Revenue Service regulations.  At least one former creditor,  Daewoo Corporation,
became a 5-percent shareholder of the Company based upon its claims against U.S.
Lines as settled by the Reorganization Trust. The remaining beneficiaries of the
Reorganization Trust, which individually were not 5-percent shareholders through
the   Reorganization   Trust,  were  collectively  a  "public  group"  5-percent
shareholder for purposes of Code ss. 382.

      The interests of the Daewoo  Corporation and the public group increased by
a total of 36 percentage  ownership  points as a result of the redemption of the
Common Stock held by DKM.  This was less than the 50% necessary for an ownership
change under Code ss. 382.

      The  redemption of the interests of DKM also gave rise to the emergence of
several new 5-percent  shareholders based upon their respective interests in the
Reorganization  Trust.  As a result of  restrictions  contained in the Company's
Restated Certificate of Incorporation,  as amended, Daewoo Corporation and these
5-percent  shareholders are presently precluded from acquiring additional shares
of Common Stock.

      Code ss. 382 and Subsequent  Events and  Investors.  After the issuance of
Common Stock in the acquisitions completed by the Company in 1997, management of
the Company believes that the Company's current cumulative ownership shift under
Code ss. 382 is only a few  percentage  points  short of a 50  percentage  point
ownership  change.  If a  future  ownership  change  under  Code  ss.  382  were
triggered, the Company would be allowed to use its NOLs only up to the amount of
its Section 382 Limitation on an annual basis.  More  specifically,  this annual
amount  would  equal the fair  market  value of the  Company  at the time of the
ownership change multiplied by the federal long-term tax-exempt rate. Therefore,
it will be necessary for Janus to monitor,  and Janus has taken certain steps to
so monitor, any further transfers of Common Stock by its 5-percent  shareholders
and further issuances or redemptions of Common Stock. Because Code ss. 382 tests
whether a 50 percentage  point  ownership  change has occurred over a three-year
testing  period,  Janus'  capacity to issue more Common  Stock  during the three
years subsequent to these recent transactions will be severely curtailed.


                                       18
<PAGE>

      If the Company issues stock in connection  with  acquisitions  or to raise
cash,  the new  shareholders  generally  will be treated as either new 5-percent
shareholders or a new public group under Code ss. 382.

      Certain Transferability Restrictions. In accordance with authority granted
by the Company's Restated Certificate of Incorporation,  as amended, the Company
has  imposed  certain  transferability  restrictions  upon  Daewoo  Corporation,
Mitsubishi Corporation,  General Electric Capital Corporation and The Prudential
Insurance Company of America,  each of whom is presently a 5-percent shareholder
for purposes of Code ss. 382.  These  restrictions  provide that until April 24,
2001, the specified  shareholders shall be prohibited from transferring,  in any
manner,  any shares of Common Stock,  without the consent of the Company's Board
of  Directors.  The Company  shall have no  obligation  to consent to a transfer
unless it shall have  received  an opinion of legal  counsel  acceptable  to the
Company  to the effect  that the  transfer  does not give rise to an  "ownership
change" under Code ss. 382 or otherwise  affect the  availability to the Company
of its NOLs and any other  applicable  tax  attributes  for  Federal  income tax
purposes. In addition to such imposed transferability restrictions, Messrs. Beck
and Yeaggy have agreed to equivalent transferability  restrictions. In the event
that the  Company's  Board of  Directors  is willing to consent to a transfer of
Common Stock by any one shareholder subject to transferability restrictions, the
other shareholders  subject to equivalent  restrictions,  including Messrs. Beck
and Yeaggy, will be offered the opportunity to engage in a transfer on a ratable
basis.

      Impact of Consolidated Return  Regulations.  Under the consolidated return
regulations  pursuant to the Code, the  consolidated  return change of ownership
("CRCO")  rule may limit the carryover of NOLs from a  consolidated  return year
ending before the year of a CRCO ownership change. The Company believes that the
changes to the U.S. Lines Group former  consolidated  group's capital  structure
caused a CRCO  ownership  change on or about  December 30, 1988 when U.S.  Lines
left its former consolidated  group. To the extent the CRCO rule applies,  Janus
and JI  Subsidiary  may carry over NOLs  incurred in tax years prior to the CRCO
change of ownership  only to the extent of the  consolidated  taxable  income of
Janus and JI Subsidiary in the particular year after the CRCO ownership  change.
The CRCO rule should not adversely  affect the use of NOLs against the income of
a business  acquired  directly by Janus  through  merger or the  purchase of the
acquired entities assets. The CRCO rule may prevent the Janus consolidated group
from  utilizing its pre-CRCO NOLs against  income  generated by a newly acquired
business that is held in a subsidiary other than JI Subsidiary. Even with a CRCO
ownership   change  in  1988,  the  CRCO  rule  should  not  prevent  the  Janus
consolidated  group from  utilizing  its NOLs that were  generated in 1988 or in
later years against income of a new subsidiary.

      Effect of Code ss. 384. Congress adopted Code ss. 384 in 1987 to prevent a
loss  corporation  from using its  pre-acquisition  NOLs and net built-in losses
against any net built-in gains of a corporation the control of which  (utilizing
an 80% test of Code ss. 1504(a)(2)) is acquired by the loss corporation or whose
assets are acquired by the loss corporation in certain types of reorganizations.
The limitation of Code ss. 384 applies to built-in gains  recognized  within the
five-year  recognition  period  after the  acquisition  date.  Code ss. 384 will
prevent Janus from utilizing its NOLs against  built-in gains  recognized by any
acquired  companies  (assuming the control test is met) within five years of the
acquisition date,  including Janus' recent entry into the hospitality  business.
Any future  acquisitions  by Janus will need to be analyzed  for the impact that
Code ss. 384 may have on the  utilization  of Janus' NOLs against any recognized
built-in  gains.  The interaction of the five-year rule of Code ss. 384 with the
impending expiration of most of the NOLs of Janus under the general rule of Code
ss. 172 reduces the possible tax benefit Janus can expect from its NOLs.


                                       19
<PAGE>

      Effect of Code ss. 269. Code ss. 269(a) provides that if:

            (1) any  person or  persons  acquire  ...  directly  or  indirectly,
            control of a corporation, or

            (2) any corporation  acquires ..., directly or indirectly,  property
            of  another  corporation,  ... the basis of which  property,  in the
            hands of the  acquiring  corporation,  is determined by reference to
            the basis in the hands of the transferor corporation,

and the principal  purpose of such  acquisition  was the evasion or avoidance of
Federal  income tax by securing  the benefit of a  deduction,  credit,  or other
allowance that such person or corporation  would not otherwise  enjoy,  then the
Internal  Revenue  Service  may  disallow  such  deduction,   credit,  or  other
allowance. Control is defined to mean the ownership of stock possessing at least
50% of the total combined  voting power of all classes of stock entitled to vote
or at least 50% of the total  value of  shares  of all  classes  of stock of the
corporation.

      Under Treas.  Reg. ss.  1.269-3(a),  the  determination of the purpose for
which an acquisition was made requires a scrutiny of the entire circumstances in
which the transaction or course of conduct occurred,  in connection with the tax
result claimed to arise therefrom.

      The Disclosure  Statement states that Code ss. 269 should not apply to the
transactions  provided for under the Plan. The Disclosure  Statement  points out
that  the  creditors'  receipt  of  Common  Stock  of the  Company  was a direct
consequence  of their  having  extended  credit to the debtor U.S.  Lines.  This
credit was not extended to achieve  control of the debtor in bankruptcy and thus
avoid or evade federal income tax. Presumably,  because of the 50% control test,
Code ss. 269 would not have  applied  to the DKM  transaction.  It is  uncertain
whether the Internal  Revenue  Service would attempt to apply Code ss.269 to any
acquisition  by Janus that met the 50% control  test  because,  in part,  of the
difficulty in determining whether the principal purpose for which an acquisition
was made was evasion or avoidance of federal income tax.

Risk Factors

      The Common  Stock of the Company is  speculative  in nature and involves a
high  degree  of  risk.  The  risk  factors  below  are not  listed  in order of
importance.

      Possible Need for Additional Financing

      The Company has been  substantially  dependent upon mortgage loans for the
financing of its real estate  activities  and internal cash flow for its working
capital  requirements.  The Company  anticipates  that in the absence of further
acquisitions  of hotels  and/or  management  agreements,  and based on currently
proposed  plans  and  assumptions  relating  to its  operations,  its  available
resources,  including its current cash  balances,  will be sufficient to satisfy
the Company's  contemplated cash requirements for its current  operations for at
least the next 24 months.  In the event that the  Company  acquires  one or more
hotels or a  significant  number of  additional  management  agreements,  or its
assumptions  change or prove to be inaccurate,  the Company could be required to
seek additional financing or curtail its activities.  The Company has no current
arrangements  with respect to, or sources of, additional  financing.  Any equity
financing  may involve  substantial  dilution to the  interest of the  Company's
stockholders,  and any debt  financing  could result in operational or financial
restrictions  on the  Company.  There can be no  assurance


                                       20
<PAGE>

that any  additional  financing  will be available to the Company on  acceptable
terms or at all. There are also  restrictions on the Company's  ability to issue
Common  Stock and certain  kinds of  preferred  stock if the  Company  wishes to
preserve  its  NOLs.  See  "Description  of  Business--The  Net  Operating  Loss
Carryforwards."

      Conflicts of Interest

      Messrs.  Beck and Yeaggy  continue to own and/or  manage hotel  properties
independent  of the Company which are located in markets in which the Company is
operating.  While  under  the  terms of  their  employment  agreements  with the
Company,  Messrs.  Beck and  Yeaggy are  prohibited  from  acquiring  additional
interests in hotels or hotel  management  companies while they serve as officers
of  the  Company,   their  present  independent  businesses  give  rise  to  the
possibility of conflicts of interest in common markets.

      The Company  relies upon  Computel  and HELP,  which are  wholly-owned  by
Messrs.  Beck and  Yeaggy,  for  administrative  and  personnel  services at the
Hotels.

      The Company also has management  agreements covering seven hotels that are
owned by affiliates of Messrs.  Beck and Yeaggy which  accounted for $414,902 or
45% of the pro  forma  management  fee  revenues  of Janus  for the  year  ended
December 31, 1997. See "Unaudited Pro Forma Combined  Statement of  Operations."
Loss of these contracts would be materially adverse to the Company.

      Conflicts  may arise  between the  Company and Messrs.  Beck and Yeaggy in
connection with the exercise of any rights or the conduct of any negotiations to
extend,  renew,  terminate or amend the agreements  between each of Computel and
HELP and the Company,  any of the management  agreements between the Company and
affiliates of Messrs.  Beck and Yeaggy or the subleases for the offices occupied
by the Company in Boca Raton and  Cincinnati  which are sublet from an affiliate
of Messrs.  Beck and Yeaggy.  Conflicts  may also arise  between the Company and
Messrs. Beck and Yeaggy in connection with certain mortgage  indebtedness of the
Company  that is  personally  guaranteed  by  Messrs.  Beck  and  Yeaggy,  or in
connection  with the  exercise by the Company of its rights with  respect to two
mortgage notes and related  mortgages  that were among the assets  acquired from
the Beck Yeaggy Group.

      In  addition,  certain  key  personnel  of the  Company  work  for and are
compensated by both the Company and affiliates of Messrs.  Beck and Yeaggy.  The
allocation of compensation expenses of these individuals between the Company and
such affiliates could lead to conflicts of interest.

      Although  management's  recommendations on matters  potentially  involving
conflicts  of interest  will be referred to the Audit  Committee of the Board of
Directors for review,  there can be no assurance that any such conflicts will be
resolved in favor of the Company.

      Operating Risks

      The  Company's  business  is subject to all of the risks  inherent  in the
lodging industry.  These risks include,  among other things,  adverse effects of
general  and local  economic  conditions,  changes in local  market  conditions,
cyclical  overbuilding  of hotel  space,  a reduction  in local demand for hotel
rooms,  changes  in  travel  patterns,   the  recurring  need  for  renovations,
refurbishment  and improvements of hotel  properties,  changes in interest rates
and the other terms and availability of credit. Changes in


                                       21
<PAGE>

demographics  or other  changes  in a hotel's  local  market  could  impact  the
convenience  or  desirability  of a hotel,  which,  in turn,  could  affect  the
economic  returns from the operation of a hotel.  The operational  expenses of a
hotel cannot be reduced when circumstances result in a reduction of revenue.

      Competition

      The  lodging  industry  is highly  competitive.  Several of the  Company's
competitors  are larger than it and possess greater  financial,  operational and
managerial resources. There can be no assurance that in the markets in which the
Company's Hotels operate, competing hotels will not pose greater competition for
guests than presently exists, or that new hotels will not be constructed in such
locales.  New or existing  competitors could  significantly lower rates or offer
greater conveniences, services or amenities, or significantly expand, improve or
introduce  new  facilities  in  markets  in which the  Hotels  compete,  thereby
adversely affecting the Company's operations.  See "Description of Business--The
Hospitality Business--Competition."

      Geographic Concentration of Hotels

      Many of the  Company's  Hotels  are  located  in  Florida  and Ohio.  Such
geographic  concentration  exposes the Company's  operating results to events or
conditions  that  specifically  affect those  areas,  such as local and regional
economic,  weather and other conditions.  Adverse developments that specifically
affect  those  areas  may have a  material  adverse  effect  on the  results  of
operations of the Company.

      Relationships with Franchisers

      The Company enters into non-exclusive  agreements with certain franchisers
for the franchise or license of brand names, which allows the Company to benefit
from  franchise  name  recognition  and loyalty.  The Company  believes that its
relationships  with  nationally  recognized   franchisers  provides  significant
benefits  for its  existing  Owned  Hotels and  acquisitions  it may make in the
future.  While the Company believes that it currently enjoys good  relationships
with its  franchisers,  there can be no assurance  that a desirable  replacement
would be available if any of the  franchise  agreements  were to be  terminated.
Upon termination of any franchise  agreement,  the Company would incur the costs
of  signage  removal  and other  costs,  possible  lost  revenues  and the costs
incidental to establishing new associations.

      Compliance with Government Regulation

      The  lodging  industry  is subject to  numerous  federal,  state and local
government regulations,  including those relating to the preparation and sale of
food and  beverages  (such as health and liquor  license  laws) and building and
zoning  requirements.  Also,  the  Company  is  subject  to laws  governing  its
relationships  with employees,  including minimum wage  requirements,  overtime,
working conditions and work permit requirements. The failure to obtain or retain
liquor licenses or an increase in the minimum wage rate,  employee benefit costs
or other costs  associated with employees,  could adversely  affect the Company.
Under the  Americans  with  Disabilities  Act of 1990  (the  "ADA")  all  public
accommodations  are required to meet  certain  federal  requirements  related to
access and use by disabled  persons.  While the Company believes that the Hotels
are substantially in compliance with these  requirements,  a determination  that
the Company is not in compliance  with the ADA could result in the imposition of
fines or an award of damages to private  litigants.  These and other initiatives
could adversely affect the Company.


                                       22
<PAGE>

      Under various federal,  state and local environmental laws, ordinances and
regulations,  a current or previous  owner or operator of real  property  may be
liable for the costs of removal or remediation of hazardous or toxic  substances
on, under or in such property.  Such laws often impose liability  whether or not
the owner or operator  knew of, or was  responsible  for,  the  presence of such
hazardous or toxic substances.  In connection with the ownership or operation of
the Hotels, the Company may be potentially  liable for any such costs.  Although
the Company is not currently aware of any material  environmental claims pending
or   threatened   against  it,  no  assurance  can  be  given  that  a  material
environmental  claim will not be  asserted  against  the  Company or against the
Company and the Hotels.  The cost of defending against claims of liability or of
remediating a contaminated  property could have a material adverse effect on the
results of operations of the Company.

      Litigation

      The  Company's  Hotels are visited by  thousands  of  invitees  each year.
Injuries incurred by any invitees on the hotel premises may result in litigation
against the Company.  While the Company maintains  general liability  insurance,
there can be no assurance that a claim will be covered by such insurance or that
claims  made  against  insurers  by the  Company  will not  result in  increased
premiums or cancellation of insurance coverage.

      Ownership of Hotel Real Estate

      The  Company  currently  owns seven  hotels.  Accordingly,  the Company is
subject to the risks  associated with the ownership of real estate.  These risks
include,  among  others,  changes in  national,  regional  and local  economies,
changes in real  estate  market  conditions,  changes  in the  costs,  terms and
availability of credit, the potential for uninsured casualty or other losses and
changes in or enactment of new laws or regulations  affecting real estate.  Many
of these risks are beyond the control of the  Company.  Real estate is generally
illiquid which could result in limitations on the ability of the Company to sell
any one or more Owned Hotels if business conditions so required.

      Hotel Renovation Risks

      The renovation of hotels involves risks  associated with  construction and
renovation of real property,  including the  possibility of  construction  cost-
overruns and delays due to various  factors  (including  the inability to obtain
regulatory  approvals,  inclement  weather,  labor or material shortages and the
unavailability  of  construction  or  permanent  financing)  and  market or site
deterioration  after  acquisition or  renovation.  Any  unanticipated  delays or
expenses  in  connection  with the  renovation  of hotels  could have an adverse
effect on the results of operations and financial condition of the Company.

      No Limits on Indebtedness

      Neither the Company's Restated  Certificate of Incorporation,  as amended,
nor its  by-laws  limit the amount of  indebtedness  that the Company may incur.
Subject to limitations it may agree to in debt instruments,  the Company expects
to incur additional debt in the future to finance  acquisitions and renovations.
The  Company's   continuing   substantial   indebtedness   could   increase  its
vulnerability  to general economic and lodging  industry  conditions  (including
increases in interest  rates) and could impair the  Company's  ability to obtain
additional financing in the future and to take advantage of significant business
opportunities  that may arise.  The Company's  indebtedness  is, and will likely
continue  to be,  secured  by  mortgages  on all of  the  Owned  Hotels.  Future
indebtedness may require the Company to secure indebtedness with other assets of
the Company, including its Management Agreements. There


                                       23
<PAGE>

can be no  assurance  that the  Company  will be able to meet  its debt  service
obligations  and,  to the extent that it cannot,  the Company  risks the loss of
some or all of its assets,  including the Owned Hotels, to foreclosure.  Adverse
economic  conditions could cause the terms on which borrowings  become available
to be unfavorable.  In such circumstances,  if the Company is in need of capital
to repay  indebtedness  in accordance  with its terms or otherwise,  it could be
required to liquidate  one or more  investments  in hotels at times that may not
permit realization of the maximum return on such investments.  See "Management's
Discussion and Analysis or Plan of Operation--Liquidity and Capital Resources."

      Control of the Company by Principal Officers

      Messrs.  Beck  and  Yeaggy  beneficially  own  approximately  43%  of  the
outstanding  shares of the  Common  Stock.  As a result,  such  persons,  acting
together,  have the ability to exercise  significant  influence over all matters
requiring stockholder  approval.  Messrs. Beck and Yeaggy are also directors and
executive officers of the Company. The concentration of ownership could delay or
prevent a change in control of the Company.

      No Public Trading Market;  Possible  Volatility of Stock Price; No Listing
      of Securities on an Exchange; Potential Effects of "Penny Stock" Rules

      While the Common Stock is currently  listed on the Nasdaq SmallCap Market,
in order to maintain  qualification for such listing,  the Company must continue
to satisfy  certain  listing  criteria.  The failure to meet and  maintain  such
criteria may result in the Common Stock being  ineligible for continued  listing
on the Nasdaq SmallCap  Market.  In addition,  if the Common Stock has a trading
price of less than $5.00 per share,  trading in the Common  Stock  would also be
subject to the  requirements of certain rules  promulgated  under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),  which require additional
disclosure by  broker-dealers  in connection  with any trades  involving a stock
defined as a penny stock  (generally,  any non-Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain exceptions).  Such
rules  require  the  delivery,  prior  to  any  penny  stock  transaction,  of a
disclosure  schedule  explaining the penny stock market and the risks associated
therewith,  and impose various sales practice requirements on broker-dealers who
sell penny stocks to persons other than  established  customers  and  accredited
investors  (generally  institutions).  For  these  types  of  transactions,  the
broker-dealer  must make a special  suitability  determination for the purchaser
and must have received the purchaser's  written consent to the transaction prior
to sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage them from effecting transactions in the Common Stock, which could
severely limit the liquidity of the Common Stock.


                                       24
<PAGE>

      Irregular Trading Market

      The  actual  "float"  of  shares  available  for  sale  in the  market  is
approximately  23% of the 8,691,735 shares  outstanding as of December 31, 1997.
Approximately  5,658,060  shares,  comprised of 3,799,999 shares held by Messrs.
Beck and Yeaggy and their  affiliate and  1,858,061  shares held by five percent
shareholders  for  purposes  of the  NOL  preservation  rules,  are  subject  to
transferability   restrictions   until  April  24,  2001.  See  "Description  of
Business--The   Net  Operating   Loss   Carryforwards--Certain   Transferability
Restrictions." In addition, as of December 31, 1997, 1,057,048 shares were still
held by the Reorganization  Trust for the benefit of former unsecured  creditors
of  U.S.  Lines.  See  "Description  of  Business--The   Reorganization  Trust."
Moreover,  among the  approximately  4,000 holders of record of the Common Stock
there are numerous holders of very small numbers of shares.

      When the transferability  restrictions  expire, and as a result of certain
registration rights that have been granted to Messrs. Beck and Yeaggy,  sales of
substantial  amounts of Common Stock,  or the  perception  that such sales could
occur, would adversely affect prevailing market prices for the Common Stock.

      Dependence on Key Personnel

      The Company believes that its success will depend to a significant  extent
on the efforts and abilities of certain of its senior  management,  particularly
those of its  Chairman of the Board,  Louis S. Beck,  its Vice  Chairman,  Harry
Yeaggy,  its President,  James E. Bishop and its President of Hotel  Operations,
Michael  M.  Nanosky.  Although  the  Company  has  entered  into an  employment
agreement with each of Messrs. Beck, Yeaggy, Bishop and Nanosky, the loss of any
one of them or  other  key  management  or  operations  employees  could  have a
material  adverse  effect  on the  Company's  operating  results  and  financial
condition.  There is strong competition for qualified management personnel,  and
the loss of key  personnel  or an inability  on the  Company's  part to attract,
retain and motivate key personnel could adversely affect the Company's business,
operating  results and financial  condition.  There can be no assurance that the
Company will be able to retain its existing key personnel or attract  additional
qualified personnel. The Company does not presently carry and does not intend to
carry "key man" insurance on the lives of any of its key personnel.

      Potential Effects of Preferred Stock Issuance

      The Board of Directors  has the  authority,  without  further  stockholder
approval,  to issue up to 5,000,000  shares of preferred  stock,  in one or more
series,  and to fix the  number  of  shares  and  the  rights,  preferences  and
privileges of any such series.  The issuance of preferred  stock by the Board of
Directors  could  affect the rights of the  holders  of the  Common  Stock.  For
example, such an issuance could result in a class of securities outstanding that
would have  dividend,  liquidation,  or other  rights  superior  to those of the
Common  Stock  or  could  make a  takeover  of the  Company  or the  removal  of
management of the Company more difficult.

      Dividends Unlikely

      Since reorganization,  the Company has never declared or paid dividends on
the  Common  Stock  and  currently  does  not  intend  to pay  dividends  in the
foreseeable  future.  The  payment of  dividends  in the  future  will be at the
discretion of the Board of Directors.  In addition,  the Company may not pay any
dividends  on the Common Stock unless  dividends  on the  outstanding  preferred
stock are current. The Company presently has 10,451.88 shares of preferred stock
outstanding with an annual dividend expense


                                       25
<PAGE>

of  $783,891.  The  Company  was  current  in the  payment of  dividends  on the
preferred stock as of December 31, 1997.

      Net Operating Loss Carryforwards

      While  management  believes that the Net NOLs are at least $500 million at
December  31,  1997  (see  "Description  of  Business--The  Net  Operating  Loss
Carryforwards--Application    of   Code   ss.   382   Under   The   Chapter   11
Reorganization"),  there are risks associated with the Company's use of its NOLs
to reduce  Federal  income tax  payments,  including  the  possibility  that the
Internal Revenue Service may seek to challenge such use, that the Company may be
unable to produce  significant  levels of taxable income prior to the expiration
of the NOLs and that a "change in ownership" of the Company may occur that would
cause the  Company  to lose a  substantial  portion  of the NOLs.  Although  the
Company has taken steps to restrict  transfers of Common Stock in order to avoid
a "change in  ownership,"  there can be no  assurance  that these  steps will be
successful.  See "Description of Business--The Net Operating Loss Carryforwards"
and  Consolidated  Financial  Statements.  Code ss. 384 will prevent  Janus from
utilizing its NOLs against built-in gains  recognized by any acquired  companies
(assuming a control test is met) within five years of the acquisition  date. The
interaction of this five-year rule of Code ss. 384 with the impending expiration
of most of the NOLs of Janus under the general  rule of Code ss. 172 reduces the
possible  tax  benefit  Janus can  expect  from its NOLs.  See  "Description  of
Business--The  Net  Operating  Loss  Carryforwards--Effect  of Code ss. 384". In
addition, the reductions and related adjustments to the Gross NOLs calculated by
the Company pursuant to Code ss. 382(l)(5)(C) may be successfully  challenged by
the Internal  Revenue  Service  which would result in larger  reductions  of the
Gross NOLs than the  Company  has  currently  estimated.  The  Internal  Revenue
Service  could  also  challenge  the  manner  in which  the  Company  eventually
allocates the reductions under Code ss.  382(l)(5)(C)  among the source years so
as to  reduce  the Net NOLs  available  to the  Company  in  later  years as the
Company's  most  recent NOLs  expire.  See  "Description  of  Business--The  Net
Operating Loss  Carryforwards--Application  of Code ss. 382 Under The Chapter 11
Reorganization."

      Year 2000 Issues

      The Company has conducted a review of its computer systems to identify the
systems  that could be affected by the "Year  2000" issue and has  initiated  an
implementation plan to resolve the issue. The Year 2000 problem is the result of
computer  programs being written using the two digits rather than four to define
the  applicable  year.  Any of the Company's  programs that have  time-sensitive
software  may  recognize a date using "00" as the year 1900 rather than the year
2000.  This  could  result in a major  system  failure or  miscalculations.  The
Company  presently  believes that, with  modifications to existing  software and
converting  to new  software,  the Year 2000 problem  will not pose  significant
operational  problems  for the  Company's  computer  systems as so modified  and
converted.  Additionally,  the Company  does not expect the Year 2000 problem to
have a material  effect on its  financial  position  or  results of  operations.
However,  if such  modifications and conversions are not completed  timely,  the
Year 2000  problem  may have a  material  impact on the  financial  position  or
operations of the Company.

      Seasonality; Quarterly Fluctuations

      The lodging industry is seasonal in nature. Generally,  hotel revenues are
greater in the second and third quarters than in the first and fourth  quarters.
This seasonality can be expected to cause quarterly fluctuations in the revenues
of the Company.  Quarterly  earnings  may also be  adversely  affected by events
beyond the  Company's  control,  such as extreme  weather  conditions,  economic
factors and other considerations affecting travel.


                                       26
<PAGE>

Item 2. Description of Property.

      The Company conducts its corporate and business operations activities from
offices in Cincinnati,  Ohio and Boca Raton, Florida. The Company occupies 4,300
square  feet of  office  space  in  Cincinnati,  Ohio  under a  sublease,  which
terminates  in April 2000 and  occupies  2,200  square feet of office space Boca
Raton, Florida under a sublease, which terminates in April, 1999. Both subleases
are from an affiliate of Messrs. Beck and Yeaggy.

      See "Description of Business--The  Hospitality Business" for a description
of the properties that are owned and operated by the Company.

Item 3. Legal Proceedings.

      [The Company is not involved in any material legal proceedings.]

Item 4. Submission of Matters to a Vote of Security Holders.

      On September 29, 1997, the Company held an annual meeting of shareholders.
At the meeting,  the following  matters were approved by the shareholders by the
following votes:

      1. Election of Directors:

               Name                             For              Withheld
               ----                             ---              --------
         Louis S. Beck                      6,392,228                 0
         Richard P. Lerner                  6,392,228                 0
         C. Scott Bartlett, Jr.             6,392,228                 0
         Lucille Hart-Brown                 6,392,228                 0

      2. Ratification  of the  appointment  of J.H.  Cohn LLP as  independent
         public accountants:

            For                               Against             Abstain
            ---                               -------             -------
         6,005,588                              0                 386,640

      3. Approval of the grant of stock  appreciation  rights to  non-officer
         directors:

            For                               Against             Abstain
            ---                               -------             -------
         6,005,588                               0                386,640

      4. Approval of  amendment  to the  Company's  Restated  Certificate  of
         Incorporation,  as  amended to change  the  Company's  name to Janus
         American Group, Inc.:

               For                               Against             Abstain
               ---                               -------             -------
            6,005,588                               0                386,640


                                       27
<PAGE>

                                     PART II

Item 5. Market for Common Equity and Related Stockholder Matters.

      Holders:

      As of March 23, 1998, there were approximately  4,000 holders of record of
the Company's Common Stock.

      Dividends:

      Since  reorganization  the Company has never declared or paid dividends on
its  Common  Stock  and  currently  does  not  intend  to pay  dividends  in the
foreseeable  future.  The  payment of  dividends  in the  future  will be at the
discretion of the Board of Directors.

      Market Information:

      Quotation of the Common Stock on the Nasdaq SmallCap  Market  commenced on
January  22,  1998.  The  Nasdaq  Stock  Market or Nasdaq is a  highly-regulated
electronic  securities market comprised of competing market makers whose trading
is   supported   by  a   communications   network   linking  them  to  quotation
dissemination,  trade  reporting and order execution  systems.  This market also
provides  specialized  automation  services  for  screen-based  negotiations  of
transactions,  online  comparison of transactions,  and a range of informational
services  tailored  to the  needs  of the  securities  industry,  investors  and
issuers.  The Nasdaq Stock Market  consists of two distinct  market  tiers:  the
Nasdaq National Market and the Nasdaq SmallCap  Market.  The Nasdaq Stock Market
is operated by The Nasdaq Stock Market,  Inc., a wholly-owned  subsidiary of the
National  Association of Securities Dealers,  Inc. The Company is not aware that
there  were  any  publicly  available  quotations  of the  Common  Stock  in the
over-the-counter market prior to January 22, 1998.

Item 6. Management's Discussion and Analysis of Plan of Operation

Overview

Year Ended December 31, 1997 Compared To Year Ended December 31, 1996

      Historical and Pro forma Results of Operations

      The acquisition of the Beck-Yeaggy  Group was accounted for as a purchase.
Accordingly,  the Company's historical results of operations for the years ended
December 31, 1997 and 1996 included the results of operations of the Beck-Yeaggy
Group  subsequent  to April 30,  1997 (the  effective  date of  acquisition  for
accounting  purposes).  For that reason,  the  Company's  historical  results of
operations for the year ended  December 31, 1997 are not directly  comparable to
those for 1996.

      The Company had a net loss of $562,744 for 1997  compared to a net loss of
$1,193,981  in 1996.  Included in the net loss for 1997 and 1996 was a loss from
discontinued oil and gas services operations of Pre-Tek of $986,709 and $269,970
respectively.  As  discussed  in  Notes 1 and 12 of the  Notes  to  Consolidated
Financial Statements elsewhere herein, the Company adopted a plan to discontinue
and


                                       28
<PAGE>

dispose of Pre-Tek's  operations in December 1997.  Accordingly,  the results of
operations of Pre-Tek in 1997 and 1996 and the estimated  loss to be incurred in
connection  with the disposal  have been  classified  as separate  components of
discontinued operations in the consolidated  statements of operations.  The loss
from discontinued  operations of $986,709 in 1997 was comprised of the loss from
Pre-Tek  operations of $349,353,  the write-off of remaining goodwill related to
Pre-Tek of $801,356,  a provision  for the  estimated  loss to be incurred  from
January 1, 1998  through  March 31, 1998 of $150,000 and the  estimated  loss on
sale of the  remaining net assets of Pre-Tek of $15,000,  net of the  applicable
credit for income taxes of $329,000.

      The  continuing  operations of the Company are comprised  primarily of the
operations and management of the Hotels. To present more comparable  information
related to continuing  operations,  the discussion of results of operations will
relate to the  Company's  unaudited  pro forma  combined  results of  continuing
operations for the years ended December 31, 1997 and 1996. Pro forma  statements
of  continuing  operations  are included in Note 3 of the Notes to  Consolidated
Financial Statements.

      The unaudited pro forma  operating  information  included in Note 3 of the
consolidated  Financial  Statements is based on the  assumptions and adjustments
described in the Note and below which  management  believes are reasonable.  The
unaudited pro forma combined  information does not purport to represent what the
combined results of operations actually would have been if the Beck-Yeaggy Group
acquisition  referred to above had occurred as of January 1, 1996 instead of the
actual  date of  consummation  or what the  financial  position  and  results of
operations  would be for any future  periods.  The unaudited pro forma  combined
information should be read in conjunction with the audited historical  financial
statements of Janus and its subsidiaries included elsewhere herein.

      In addition to combining the historical  results of continuing  operations
of the Company and the historical  pre-acquisition  results of operations of the
Beck-Yeaggy  Group for the  periods  from  January 1, 1997 to April 30, 1997 and
January 1, 1996 to December 31, 1996 as if the acquisition had been  consummated
on January 1, 1996,  the pro forma  results of  operations  include  adjustments
that,  among other things,  reflect the elimination of the net revenues  derived
from management contracts of the Beck-Yeaggy Group that were not acquired by the
Company;  depreciation  of property  and  equipment  based on the fair values of
assets  acquired;  the  amortization of goodwill;  the net effects of changes to
compensation  and related expenses based on revised lease agreements and expense
sharing arrangements with a related party and revised employment agreements; and
the issuance of shares of preferred and common stock (net of shares returned) as
part of the consideration for the acquisition. The provision for income taxes is
based upon pro forma income from continuing operations and the statutory Federal
and  state  rates.  As  discussed  in  Note  2  of  the  Consolidated  Financial
Statements,  any actual  income tax credits  attributable  to benefits  from net
operating  loss  carryforwards  that  existed  at the time the  Company  adopted
fresh-start  accounting  will be reflected as a  contribution  to  stockholders'
equity in the period in which the tax benefits are realized.

      The pro forma combined  income from  continuing  operations of the Company
was  $335,258 for the year ended  December 31, 1997,  as compared to income from
continuing  operations  of $245,168 for the year ended  December  31, 1996.  The
increase  in income  was  primarily  the  result of  decreases  in  compensation
expense, an increase in hotel revenues,  other income, interest income and state
tax refunds from prior years that were received in 1997.

      Room and related  services  revenue  increased  $40,613 to  $10,968,056 in
1997. The increase was attributable  primarily to an increase in room rates from
Owned Hotels.  The average rate increased from $46.50 in 1996 to $48.69 for 1997
as occupancy decreased 2.8% in 1997 to 63.3% from 66.1% in 1996.

      Food and  beverage  revenues are  principally  a function of the number of
guests who stay at each Owned Hotel,  local walk-in business and catering sales.
The $33,518  increase in food and beverage  sales from  $1,617,775  for the year
ended  December  31, 1996 to  $1,651,293  for the  comparable  period in 1997 is
related to increased  walk-in  business at Best Western Kings  Quarters and Days
Inn Raleigh.


                                       29
<PAGE>

      Management  fee income  decreased  from  $1,037,404 in 1996 to $921,217 in
1997 as an owner of eleven hotels,  managed by the Company's  marketing partner,
Summit, found it economically advantageous to sell five properties.

      Other hotel related  revenues  increased  for the year ended  December 31,
1997 from $245,801 in 1996 to $321,629. The increase was directly related to the
co-marketing of Kings Island and Kings Dominion amusement park tickets with room
rentals.

      Direct hotel operating  expenses  increased by $165,558 from $4,434,536 in
1996 to  $4,600,094  in 1997.  Direct  room and  related  services  and food and
beverage costs increased at a marginally  higher percentage rate than room, food
and  beverage  revenue.  The  increase in the  percentage  rate of such costs to
related  revenues was a result of the cost of maintaining a competent work force
in tightening labor markets.

      Occupancy and other operating expenses remained stable in 1997.

      Selling,  general  and  administrative  expenses  decreased  by $29,648 to
$4,537,086  in 1997  from  $4,566,734  in 1996 as a  result  of a  reduction  in
compensation expenses, which was offset by an increase in professional fees.

      Depreciation  increased by $80,321 in 1997 from  $1,187,482  in 1996.  The
increase was  attributable  to the additional  depreciation in 1997 of furniture
and fixture additions subsequent to the acquisition.

      Interest  income  increased  $136,024 to $858,423 in 1997 from $722,399 in
1996 as the amount of funds invested increased in 1997.

      Interest  expense  decreased from  $1,935,877 in 1996 to  $1,861,619.  The
decrease was related to the scheduled  amortization of long-term debt secured by
the Owned Hotels.

      Minority  interest  decreased  from $78,811 in 1996 to $17,048 in 1997. In
1996  the  minority  interest  included  the  accrued  dividends  on the  J.  I.
Subsidiary Series A Preferred Stock which was redeemed in 1996.

      The  decrease in  preferred  stock  dividends  from  $808,603  for 1996 to
$783,891 for 1997 resulted  from the effects of the  redemption of the Company's
Series A Preferred Stock during 1996.

Liquidity and Capital Resources

      The following  discussion  reflects the liquidity and capital resources of
the Company  after the  acquisition  of the  Beck-Yeaggy  Group.  The  Company's
principal  sources of liquidity are cash on hand (including  escrow deposits and
replacement reserve), cash from operations,  earnings on invested cash and, when
required,  principally in connection with acquisitions,  borrowings  (consisting
primarily of loans secured by mortgages on real property owned or to be acquired
by the Company).  The Company's  continuing  operations  are funded through cash
generated from its hotel  operations.  Acquisitions of hotels are expected to be
financed  through a  combination  of cash on hand,  internally  generated  cash,
issuance of equity  securities of Janus and borrowings,  some of which is likely
to be secured by assets of the Company.  The Company has no  committed  lines of
credit  and there can be no  assurance  that  credit


                                       30
<PAGE>

will be  available  to the  Company or if  available  that such  credit  will be
available on terms and in amounts  satisfactory  to the Company.  The ability of
the Company to issue its common or preferred  stock is materially  restricted by
the  requirements  of the Code if the Company  wishes to preserve its NOLs.  See
"Description  of  Business--The  Net  Operating  Loss  Carryforwards"  and "Risk
Factors--Net Operating Loss Carryforwards."

      Historical Changes in Liquidity and Capital Resources

      Total assets increased from $9,047,317 at December 31, 1996 to $61,404,126
at  December  31,  1997.  The  increase  in total  assets  was the result of the
acquisition of the Beck-Yeaggy  Group as described in Note 3 of the Consolidated
Financial Statements.

      Accounts  receivable,   property  and  equipment,  other  current  assets,
goodwill,  notes receivable,  other assets, accounts payable,  accrued expenses,
long-term debt, paid-in-capital,  preferred stock and common stock all increased
as a result  of the  acquisition.  (See  Note 3) The  increase  in cash and cash
equivalents  from  $6,580,836 in 1996 to  $11,191,481  in 1997 is  predominantly
attributable to contributions from the Reorganization Trust.

      At  December  31,  1997  the  Company  had  $11,191,481  in cash  and cash
equivalents.

      During the year ended December 31, 1997, the Company and its  predecessors
invested  approximately  $937,000 in capital improvements in connection with the
Owned  Hotels.  The  Company  plans to spend an  additional  $1,500,000  on such
capital improvements during the year ending December 31, 1998.

      Capital for  improvements  to Owned  Hotels has been and is expected to be
provided by a  combination  of internally  generated  cash and, if necessary and
available, borrowings. The Company expects to spend annually approximately 4% to
5% of revenues from Owned Hotels for ongoing capital  expenditures in each year.
The additional anticipated  improvements in excess of the 4% to 5% are necessary
to reposition the properties in the marketplace. The additional expenditures are
mainly a result of the costs for new facilities at Days Inn Sharonville and Days
Inn Raleigh. The Company believes, based on its operating experience, that these
types of capital investments will enhance the competitive  position of the Owned
Hotels and thereby enhance the Company's  competitive  position.  Changes in the
competitive  environment  for a specific Owned Hotel may dictate higher or lower
capital expenditures.

      The Company  maintains a number of commercial  banking  relationships  but
does not  currently  have any  committed  lines of  credit,  but it is in active
negotiations  with lending  institutions  that might extend credit facilities to
the Company for capital  purposes  including  capital that might be required for
the acquisition of additional  hotels or management  contracts.  There can be no
assurance such negotiations will be successful.

      The  Company  anticipates  that it will be  able  to  secure  the  capital
required to pursue its  acquisition  program through a combination of borrowing,
internally  generated cash and utilization of its common and/or  preferred stock
to the extent such  utilization  does not  jeopardize  the Company's  NOLs.  See
"Description  of  Business--The  Net  Operating  Loss  Carryforwards"  and "Risk
Factors--Net  Operating Loss  Carryforwards."  There can be no assurance however
that the Company will be able to negotiate  sufficient  borrowings to accomplish
its acquisition program on terms and conditions acceptable to the Company, or at
all. Further,  any such borrowings may contain covenants that impose limitations
on the  Company  that could  constrain  or  prohibit  the  Company  from  making
additional acquisitions as well as its


                                       31
<PAGE>

ability  to pay  dividends  or to make  other  distributions,  incur  additional
indebtedness or obligations or to enter into other transactions that the Company
may deem  beneficial.  Additionally,  factors  outside of the Company's  control
could affect its ability to secure  additional  funds on terms acceptable to the
Company. Those factors include, without limitation,  any increase in the rate of
inflation and/or interest rates, localized or general economic dislocations,  an
economic  down-turn and regulatory  changes  constricting  the  availability  of
credit.

      The Company has  benefited  and  continues to benefit as the  recipient of
moneys  disbursed  by  the  Reorganization  Trust  as the  Reorganization  Trust
accumulates  moneys in excess of its reasonably  required reserves and projected
operating   expenses.   During  1996,   the  Company   received   $7,621,980  in
contributions from the Reorganization Trust.  Additional amounts of $755,000 and
$6,736,020 were transferred on April 25, 1997 and August 19, 1997, respectively.
While  there  is  no  objective   formula  to  determine  the  extent  to  which
Reorganization  Trust assets exceed  projected  liabilities  and  administrative
requirements  thereby making  additional cash available for  contribution to the
Company,   management  of  the  Company  believes  that  there  will  be  future
contributions.  This  belief is based upon the  decrease  of the  Reorganization
Trust's  administrative  expenses  through  reductions  in personnel  and office
space,  which is related to the decreasing  volume of unsettled claims of former
unsecured  creditors of U.S. Lines and U.S.  Lines (S.A.).  The amount of excess
cash  available  for  contribution  to the Company  will be  dependent  upon the
remaining  duration  of  Reorganization  Trust  activity  necessary  to  resolve
outstanding  claims,   particularly  the  asbestos  and  other  late-manifesting
personal injury claims, and the amount of professional fees associated with this
activity.  Accordingly,  no assurance can be given as to the amount or timing of
additional contributions from the Reorganization Trust, if in fact there are any
additional contributions.

      The  Company's  long-term  debt at December  31,1997  totals  $19,978,533.
Mortgage debt totals  $19,812,217,  which consists of $10,717,718 in fixed rate,
fully self-amortizing mortgage loans and $9,171,483 in adjustable rate (3-5 year
adjustment  period)  mortgage  loans.  Such  adjustable rate loans have maturity
dates  ranging from August 1998 to April 2006.  Interest  rates on mortgage debt
range  from  8.875%  to 9.75%  with a  weighted  average  interest  rate of 9.3%
effective  at  December  31,  1997.  The  approximate  scheduled  repayments  of
principal on the long-term debt of the Company for the next five years are: from
1998 -- $2,112,000; 1999 -- $571,000; 2000 -- $621,000; 2001 -- $1,503,000; 2002
-- $2,717,000.  Management of the Company currently  believes that the cash flow
from the  Company's  hotel  operations  will be  sufficient to make the required
amortization  payments.  Balloon payments required to be made at the maturity of
the  non-self-amortizing  loans are expected to be made from cash on hand at the
time or from the proceeds of  refinancing.  There can be no  assurance  that the
Company will be able to obtain financing,  or financing on terms satisfactory to
it.

      Demand at many of the hotels is affected by seasonal patterns.  Demand for
hotel rooms in the  industry  generally  tends to be lower  during the first and
fourth  quarters and higher in the second and third quarters.  Accordingly,  the
Company's revenues reflect this seasonality.

Inflation

      Although  inflation has been relatively stable over the past two years and
has not had any discernible effect on the Company's  operations,  an increase in
the  inflation  rate and  related  higher  interest  rates could have a negative
effect on the  Company's  ability to secure  additional  capital under terms and
conditions  acceptable to the Company or refinance  indebtedness  secured by the
Owned  Hotels.  Increase  in the rate of  inflation  and  interest  rates  could
materially  adversely affect the ability of the Company to expand its operations
through the acquisition of Owned Hotels.


                                       32
<PAGE>

Forward Looking Statements

      When used in this and in future filings by the Company with the Securities
and Exchange Commission,  in the Company's press releases and in oral statements
made with the approval of an authorized  executive  officer of the Company,  the
words or phrases "will likely result,"  "expects," "plans," "will continue," "is
anticipated,"   "estimated,"  "project"  or  "outlook"  or  similar  expressions
(including  confirmations by an authorized  executive  officer of the Company of
any such  expressions  made by a third party with  respect to the  Company)  are
intended to identify forward-looking  statements.  The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made.  Such statements are subject to certain
risks and  uncertainties  that could cause actual  results to differ  materially
from  historical  earnings and those  presently  anticipated or projected.  Such
risks and other aspects of the Company's  business and  operations are described
in "Description of Business" and  "Management's  Discussion and Analysis or Plan
of Operation."  The Company has no obligation to publicly  release the result of
any  revisions  that may be made to any  forward-looking  statements  to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.

Item 7. Financial Statements.

      The  Financial  Statements  required by this item appear under the caption
"Index to Financial Statements" and are included elsewhere herein.


                                       33
<PAGE>

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act.

      The material  contained in "Election of Directors"  and in "Section  16(a)
Beneficial  Ownership  Reporting  Compliance" of the Company's  definitive proxy
statement  (to be filed  pursuant to the  Securities  Exchange  Act of 1934,  as
amended) for the annual  meeting of  stockholders  to be held on May 29, 1998 is
hereby incorporated by reference.

Item 10. Executive Compensation.

      The  material  contained  in  "Compensation  of  Directors  and  Executive
Officers",  "Compensation  Committee  Report on Executive  Compensation"  of the
Company's  definitive  proxy  statement (to be filed  pursuant to the Securities
Exchange Act of 1934, as amended) for the annual meeting of  stockholders  to be
held on May 29, 1998 is hereby incorporated by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management.

      The  material  contained  in  "Voting  Securities  and  Principal  Holders
Thereof" of the Company's  definitive  proxy  statement (to be filed pursuant to
the  Securities  Exchange  Act of 1934,  as amended)  for the annual  meeting of
stockholders to be held on May 29, 1998 is hereby incorporated by reference.

Item 12. Certain Relationships and Related Transactions.

      The material contained in "Certain Relationships and Related Transactions"
of the  Company's  definitive  proxy  statement  (to be  filed  pursuant  to the
Securities  Exchange  Act of  1934,  as  amended)  for  the  annual  meeting  of
stockholders to be held on May 29, 1998 is hereby incorporated by reference.


                                       34
<PAGE>

                                     PART IV

Item 13. Exhibits, Lists and Reports on Form 8-K.

Exhibit
  No.     Description
-------   -----------

3.1       Restated Certificate of Incorporation, as amended, incorporated by
          reference to Exhibit 3.1 to Form 10-QSB of the Registrant for the
          quarter ended September 30, 1997.

3.2       By-Laws incorporated by reference to Exhibit 3.2 to Form 10-SB of the
          Registrant filed with the Securities and Exchange Commission on June
          24, 1997.

10.1      Employment Agreement with James E. Bishop dated April 4, 1997
          incorporated by reference to Exhibit 10.1 to Form 10-SB of the
          Registrant filed with the Securities and Exchange Commission on June
          24, 1997.

10.2      Employment Agreement with Louis S. Beck dated April 24, 1997
          incorporated by reference to Exhibit 10.3 to Form 10-SB of the
          Registrant filed with the Securities and Exchange Commission on June
          24, 1997.

10.3      Employment Agreement with Harry G. Yeaggy dated April 24, 1997
          incorporated by reference to Exhibit 10.4 to Form 10-SB of the
          Registrant filed with the Securities and Exchange Commission on June
          24, 1997.

10.4      Employment Agreement with Michael M. Nanosky dated April 24, 1997
          incorporated by reference to Exhibit 10.5 to Form 10-SB of the
          Registrant filed with the Securities and Exchange Commission on June
          24, 1997.

10.5      1996 Stock Option Plan incorporated by reference to Exhibit 10.6 to
          Form 10-SB of the Registrant filed with the Securities and Exchange
          Commission on June 24, 1997.

10.6      Form of Stock Option Agreement incorporated by reference to Exhibit
          10.7 to Form 10- SB of the Registrant filed with the Securities and
          Exchange Commission on June 24, 1997.

10.7      Form of Stock Appreciation Right Certificate incorporated by reference
          to Exhibit 10.8 to Form 10-SB of the Registrant filed with the
          Securities and Exchange Commission on June 24, 1997.

10.8      Form of Registration Rights Agreement incorporated by reference to
          Exhibit 10.9 to Form 10-SB of the Registrant filed with the Securities
          and Exchange Commission on June 24, 1997.

10.9      Form of Investor Agreement incorporated by reference to Exhibit 10.10
          to Form 10-SB of the Registrant filed with the Securities and Exchange
          Commission on June 24, 1997.


                                       35
<PAGE>

10.10     Form of Management Agreement incorporated by reference to Exhibit
          10.11 to Form 10- SB of the Registrant filed with the Securities and
          Exchange Commission on June 24, 1997.

10.11     Form of Client Service Agreement between Hospitality Employee Leasing
          Program, Inc. and Janus Industries, Inc. incorporated by reference to
          Exhibit 10.12 to Form 10-SB of the Registrant filed with the
          Securities and Exchange Commission on June 24, 1997.

10.12     Form of Product Lease and Service Agreement between Computel Systems,
          Inc. and Janus Industries, Inc. incorporated by reference to Exhibit
          10.13 to Form 10-SB of the Registrant filed with the Securities and
          Exchange Commission on June 24, 1997.

10.13     Sublease Agreement between Beck Hospitality Inc. III and Janus
          Industries, Inc. (Cincinnati premises) incorporated by reference to
          Exhibit 10.14 to Form 10-SB of the Registrant filed with the
          Securities and Exchange Commission on June 24, 1997.

10.14     Sublease Agreement between Beck Hospitality Inc. III and Janus
          Industries, Inc. (Boca Raton premises) incorporated by reference to
          Exhibit 10.15 to Form 10-SB of the Registrant filed with the
          Securities and Exchange Commission on June 24, 1997.

10.15     Partnership Agreement of Beck Summit Hotel Management Group, as
          amended incorporated by reference to Exhibit 10.16 to Form 10-SB of
          the Registrant filed with the Securities and Exchange Commission on
          June 24, 1997.

10.16     Partnership Agreement of Kings Dominion Lodge, G.P. incorporated by
          reference to Exhibit 10.17 to Form 10-SB of the Registrant filed with
          the Securities and Exchange Commission on June 24, 1997.

10.17     Form of Franchise Agreement with Days Inn of America, Inc.
          incorporated by reference to Exhibit 10.17 to Amendment No. 1 to Form
          10-SB of the Registrant filed with the Securities and Exchange
          Commission on August 22, 1997.

10.18     Form of Franchise Agreement with Knights Franchise Systems, Inc.
          incorporated by reference to Exhibit 10.18 to Amendment No. 1 to Form
          10-SB of the Registrant filed with the Securities and Exchange
          Commission on August 22, 1997.

10.19     Membership with Best Western International, Inc. incorporated by
          reference to Exhibit 10.19 to Amendment No. 1 to Form 10-SB of the
          Registrant filed with the Securities and Exchange Commission on August
          22, 1997.

24.1      Power of Attorney

27.1      Financial Data Schedule

          Reports on Form 8-K:

      There were no reports on Form 8-K filed by the Company during the quarter
ended December 31, 1997.


                                       36
<PAGE>

                                   SIGNATURES

      In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          JANUS AMERICAN GROUP, INC.

Dated:  March 31, 1998                    /s/  James E. Bishop
                                          --------------------------------
                                          James E. Bishop
                                          President

Dated:  March 31, 1998                    /s/  Richard A. Tonges
                                          --------------------------------
                                          Richard A. Tonges
                                          Treasurer and Vice President of
                                          Finance (Principal Financial and
                                          Accounting Officer)

      In accordance with the Securities Exchange Act of 1934, this report been
signed by the following persons in the capacities and on the dates indicated.

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Louis S. Beck
                                          Chairman

Dated:  March 31, 1998                    /s/James E. Bishop
                                          --------------------------------
                                          James E. Bishop
                                          President and Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Harry G. Yeaggy
                                          Vice Chairman

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Arthur Lubell
                                          Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Richard P. Lerner
                                          Director


                                       37
<PAGE>

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Vincent W. Hatala, Jr.
                                          Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Lucille Hart-Brown
                                          Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Anthony Pacchia
                                          Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          C. Scott Bartlett, Jr.
                                          Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Michael M. Nanosky
                                          President of Hotel Operations
                                          and Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Paul Tipps
                                          Director

Dated:  March 31, 1998                    /s/     *
                                          --------------------------------
                                          Peter G. Aylward
                                          Director

*      /s/  James E. Bishop
--------------------------------
James E. Bishop
Attorney-in-Fact


                                       38

<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                          INDEX TO FINANCIAL STATEMENTS

                                                                          PAGE
                                                                        --------
  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                 F-2

  CONSOLIDATED BALANCE SHEETS
    DECEMBER 31, 1997 AND 1996                                             F-3

  CONSOLIDATED STATEMENTS OF OPERATIONS
    YEARS ENDED DECEMBER 31, 1997 AND 1996                                 F-4

  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
    YEARS ENDED DECEMBER 31, 1997 AND 1996                                 F-5

  CONSOLIDATED STATEMENTS OF CASH FLOWS
    YEARS ENDED DECEMBER 31, 1997 AND 1996                                 F-6

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                              F-7/31

                                      * * *


                                      F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors
Janus American Group, Inc.

We have audited the accompanying  consolidated  balance sheets of JANUS AMERICAN
GROUP, INC. (formerly,  Janus Industries,  Inc.) AND SUBSIDIARIES as of December
31,  1997 and 1996,  and the  related  consolidated  statements  of  operations,
stockholders'  equity and cash flows for the years then ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Janus  American
Group, Inc. and Subsidiaries as of December 31, 1997 and 1996, and their results
of  operations  and cash  flows for the years then  ended,  in  conformity  with
generally accepted accounting principles.

                                                    J. H. COHN LLP

Roseland, New Jersey
February 20, 1998


                                      F-2
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1996

                     ASSETS                              1997            1996
                     ------                           -----------    ----------
Current assets:
    Cash and cash equivalents                         $11,191,481    $6,580,836
    Cash restricted for payments to redeem
        preferred stock of subsidiary                                   673,200
    Accounts receivable                                   408,474        83,100
    Current portion of mortgage notes receivable          123,022
    Other current assets                                  913,616       184,734
                                                      -----------    ----------
          Total current assets                         12,636,593     7,521,870
Property and equipment, net of accumulated
  depreciation                                         34,803,291       582,693
Mortgage notes receivable, net of current
    portion                                             5,558,755
Goodwill, net of accumulated amortization               6,707,506       860,966
Deferred costs of proposed acquisition                                   74,692
Other assets                                            1,697,981         7,096
                                                      -----------    ----------
          Totals                                      $61,404,126    $9,047,317
                                                      ===========    ==========

     LIABILITIES AND STOCKHOLDERS' EQUITY
     ------------------------------------

Current liabilities:
    Payable for redemption of preferred stock
        of subsidiary                                               $   673,200
    Current portion of long-term debt                 $ 2,112,215
    Accounts payable                                      903,234       149,020
    Accrued expenses                                      827,405       159,655
    Dividends payable on preferred stock                  197,583
                                                      -----------    ----------
          Total current liabilities                     4,040,437       981,875
Long-term debt, net of current portion                 17,866,318
Deferred tax liabilities, net                           1,190,000
                                                      -----------    ----------
           Total liabilities                           23,096,755       981,875
                                                      -----------    ----------
Minority interest                                       1,688,969        43,837
                                                      -----------    ----------
Commitments and contingencies
Stockholders' equity:
    Preferred stock, par value $.01 per share:
        5,000,000 shares authorized:
        Series A; 4,000 shares authorized; none issued
        Series B; 12,000 shares authorized; 10,451.88
          shares issued and outstanding                       105
    Common stock, par value $.01 per share;
        15,000,000 shares authorized; 11,880,867
        and 8,080,868 shares issued in 1997 and
        1996                                              118,809        80,809
    Additional paid-in capital                         43,163,320    13,061,256
    Accumulated deficit                                (5,347,533)   (4,245,730)
    Treasury stock - 3,189,132 and 2,849,850
        common shares in 1997 and 1996, at cost        (1,316,299)     (874,730)
                                                      -----------    ----------
           Total stockholders' equity                  36,618,402     8,021,605
                                                      -----------    ----------
           Totals                                     $61,404,126    $9,047,317
                                                      ===========    ==========

See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                        1997           1996
                                                    ------------    -----------
Hotel revenues:
    Room and related services                       $  8,213,514
    Food and beverage                                  1,222,680
    Management fees                                      566,824
    Other                                                272,620
                                                    ------------
           Total hotel revenues                       10,275,638
                                                    ------------
Costs and expenses:
    Direct hotel operating expenses:
        Room and related services                      1,841,215
        Food and beverage                              1,115,954
        Selling and general                              353,829
                                                    ------------
           Total direct hotel operating expenses       3,310,998
    Occupancy and other operating expenses             1,174,951
    Selling, general and administrative expenses       3,480,117    $ 1,116,222
    Depreciation of property and equipment               873,581          4,815
    Amortization of goodwill                             112,900
                                                    ------------    -----------
           Total costs and expenses                    8,952,547      1,121,037
                                                    ------------    -----------
Operating income (loss)                                1,323,091     (1,121,037)
Other income (expense):
    Interest income                                      708,783        247,516
    Other income                                          30,002
    Interest expense                                  (1,248,869)
                                                    ------------    -----------
Income (loss) before income taxes and
    minority interest                                    813,007       (873,521)
Provision for income taxes                               331,000
                                                    ------------    -----------
Income (loss) before minority interest                   482,007       (873,521)
Minority interest in income of subsidiary                 58,042         50,490
                                                    ------------    -----------
Income (loss) from continuing operations                 423,965       (924,011)
                                                    ------------    -----------
Discontinued oil and gas services operations:
    Loss from operations, net of credit for
        income taxes of $136,000 in 1997                (213,353)      (269,970)
    Loss on disposal, net of credit for income
        taxes of $193,000 in 1997                       (773,356)
                                                    ------------    -----------
           Total discontinued operations                (986,709)      (269,970)
                                                    ------------    -----------
Net loss                                                (562,744)    (1,193,981)
Preferred dividend requirements                          539,059         24,712
                                                    ------------    -----------
Net loss applicable to common stock                 $ (1,101,803)   $(1,218,693)
                                                    ============    ===========
Basic loss per common share:
    Continuing operations                           $       (.02)   $      (.19)
    Discontinued operations                                 (.13)          (.05)
                                                    ------------    -----------
    Net loss                                        $       (.15)   $      (.24)
                                                    ============    ===========
Basic weighted average common shares out-
    standing                                           7,534,248      5,119,634
                                                    ============    ===========

See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>

                              Preferred Stock     Common Stock      Additional                    Treasury Stock
                              ----------------  ----------------     Paid in     Accumulated    -------------------
                              Shares    Amount  Shares     Amount     Capital      Deficit      Shares       Amount        Total
                              ------    ------  ------     ------     -------      -------      ------       ------        -----
<S>                         <C>         <C>   <C>         <C>       <C>          <C>           <C>        <C>           <C>
Balance, January 1, 1996     2,200.00   $ 22   7,812,500  $ 78,125  $ 4,967,763  $(3,027,037)  2,812,500  $  (772,017)  $ 1,246,856
Net loss                                                                          (1,193,981)                            (1,193,981)
Contributions to capital
   from reorganization
   trust                                                              7,578,143                                           7,578,143
Shares and warrants
   issued to acquire
   oil and gas services
   business                                      268,368     2,684      735,328                                             738,012
Shares returned as a
   result of post-closing
   adjustments in
   connection with
   acquisition of oil
   and gas services
   business                                                                                       37,350     (102,713)     (102,713)
Redemption of preferred
   stock                    (2,200.00)   (22)                          (219,978)                                           (220,000)
Preferred stock
   dividends                                                                         (24,712)                               (24,712)
                            ---------   ----  ----------  --------  -----------  -----------   ---------  -----------   -----------
Balance, December 31, 1996       --      --    8,080,868    80,809   13,061,256   (4,245,730)  2,849,850     (874,730)    8,021,605
Net loss                                                                            (562,744)                              (562,744)
Contributions to capital
   from reorganization
   trust                                                              7,440,930                                           7,440,930
Shares issued to acquire
   hospitality business     10,451.88    105   3,799,999    38,000   22,763,772                                          22,801,877
Repurchase of 276,400
   warrants                                                            (102,638)                                           (102,638)
Repurchase of common stock                                                                       339,282     (441,569)     (441,569)
Preferred stock dividends                                                           (539,059)                              (539,059)
                            ---------   ----  ----------  --------  -----------  -----------   ---------  -----------   -----------
Balance, December 31, 1997  10,451.88   $105  11,880,867  $118,809  $43,163,320  $(5,347,533)  3,189,132  $(1,316,299)  $36,618,402
                            =========   ====  ==========  ========  ===========  ===========   =========  ===========   ===========
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1997 AND 1996

                                                          1997          1996
                                                     ------------   ------------

Operating activities:
  Net loss                                           $  (562,744)   $(1,193,981)
  Adjustments to reconcile net loss to net
      cash provided by (used in) operating
      activities:
      Depreciation                                       993,394         61,434
      Amortization of goodwill                           172,442         30,375
      Effects of discontinued operations                 966,356
      Minority interest in income of subsidiary           58,042         50,490
      Changes in operating assets and liabilities:
         Accounts receivable                             (94,425)        17,229
         Other current assets                           (511,857)       (89,393)
         Other assets                                   (447,191)         7,547
         Accounts payable and accrued expenses           158,322        (85,593)
                                                     -----------    -----------
             Net cash provided by (used in)
                operating activities                     732,339     (1,201,892)
                                                     -----------    -----------
Investing activities:
  Acquisitions of businesses, net of noncash
      consideration and cash acquired                 (1,646,541)      (701,631)
  Purchases of property and equipment                   (846,953)      (101,854)
  Proceeds from sales of equipment                        45,000          9,000
  Costs of proposed acquisition                                         (74,692)
  Proceeds from payments of notes receivable              76,505
                                                     -----------    -----------
             Net cash used in investing activities    (2,371,989)      (869,177)
                                                     -----------    -----------
Financing activities:
  Increase (decrease) in restricted cash                 631,962       (673,200)
  Repayments of long-term borrowings                    (355,042)
  Redemption of preferred stock                                        (220,000)
  Redemption of preferred stock of subsidiary           (631,962)
  Repurchase of common stock                            (441,569)
  Repurchase of warrants                                (102,638)
  Preferred stock dividends                             (341,476)      (130,312)
  Contributions to capital from reorganization
      trust, including $50,090 and $43,837 at-
      tributable to minority interest                  7,491,020      7,621,980
                                                     -----------    -----------
             Net cash provided by financing activi-
                ties                                   6,250,295      6,598,468
                                                     -----------    -----------
Increase in cash and cash equivalents                  4,610,645      4,527,399
Cash and cash equivalents, beginning of year           6,580,836      2,053,437
                                                     -----------    -----------
Cash and cash equivalents, end of year               $11,191,481    $ 6,580,836
                                                     ===========    ===========
Supplemental disclosure of cash flow data:
  Interest paid                                      $ 1,246,732    $     1,476
                                                     ===========    ===========
  Income taxes paid                                  $   187,200
                                                     ===========

See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization:

      As of December 31,  1997,  the  continuing  operations  of Janus  American
      Group, Inc. ("Janus"), which until September 29, 1997 had been named Janus
      Industries,  Inc., and its  subsidiaries  were comprised  primarily of the
      operations  of seven  hotels  (of  which six are  wholly-owned  and one is
      85%-owned) and a hotel management company. Janus, its subsidiaries and its
      predecessor entities are referred to collectively herein as the "Company."

      The  Company's  owned and  managed  hotels are  located  primarily  in the
      Midwestern and Southeastern parts of the United States and are designed to
      appeal primarily to business travelers and vacationers on limited budgets.
      As further  described  in Note 3, the hotel  operations  and two  mortgage
      notes  receivable  were acquired,  effectively,  as of April 30, 1997 in a
      transaction  that  was  accounted  for  as a  purchase.  Accordingly,  the
      accompanying  consolidated  financial  statements reflect the accounts for
      the  hotel  operations  from the  date of  acquisition  and the  financial
      statements for periods prior to that date are not comparable.

      As further described in Note 12,  management  decided during December 1997
      to discontinue and dispose of all of the Company's  operations  related to
      the provision of engineering and wireline logging services to companies in
      the oil and gas  industry  (the  "oil and gas  services  operations").  As
      further  described in Note 3, those  operations  were acquired on July 15,
      1996 in a transaction that was accounted for as a purchase.

      From February 1990,  when it emerged from the  reorganization  proceedings
      described below,  until July 15, 1996, the Company did not actively engage
      in any trade or  business.  Income  consisted  primarily  of  interest  on
      temporary  investments.  Expenses consisted primarily of professional fees
      and other  costs  incurred in  connection  with the  Company's  efforts to
      acquire businesses, and record retention and other administrative expenses
      incurred to satisfy existing financial reporting requirements.

      In November 1986, the Company's  predecessors,  United States Lines,  Inc.
      ("USL") and United States Lines (S.A.) Inc. ("USL-SA"),  together with two
      related  companies,  filed petitions under Chapter 11 of the United States
      Bankruptcy  Code. In May 1989, the United States  Bankruptcy Court for the
      Southern District of New York (the "Bankruptcy Court") confirmed a plan of
      reorganization with respect to such companies, which was later amended and
      modified  pursuant to an order of the Bankruptcy Court entered in February
      1990 (the "Plan").


                                      F-7
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization (continued):

      Pursuant to the Plan and the order of the Bankruptcy  Court confirming the
      Plan:

        a.  USL and USL-SA changed their names to Janus Industries,  Inc. and JI
            Subsidiary, Inc. ("JIS"), respectively;

        b.  The United  States  Lines,  Inc. and United States Lines (S.A.) Inc.
            Reorganization  Trust (the  "Reorganization  Trust") was established
            for the purpose of administering the Plan and liquidating and paying
            claims  of former  creditors  of USL and  USL-SA;  it will also make
            contributions  of cash to Janus and JIS from time to time of amounts
            in  excess  of  its   projected   liabilities   and   administrative
            requirements;

        c.  All claims of former creditors of USL and USL-SA were discharged; as
            a result,  such former creditors may look only to the Reorganization
            Trust  (and not Janus or JIS) for  payment  of amounts in respect of
            their discharged claims;

        d.  The  interests of all holders of shares of the capital  stock of USL
            and USL-SA were  extinguished  and the former  creditors  of USL and
            USL-SA became entitled to receive all of the shares of capital stock
            issuable by Janus and JIS, except for shares issuable to Janus and a
            subsidiary of Dyson-Kissner-Moran ("DKM"), a new investor; shares of
            capital  stock  issuable to such  former  creditors  were  initially
            issued to the Reorganization Trust as recordholder for reissuance to
            such creditors; and

      e.    The  Reorganization  Trust contributed  $3,000,000 of USL and USL-SA
            cash to  capitalize  Janus and JIS on February 23, 1990 and provided
            Janus and JIS with certain books and records, and all tax attributes
            and tax benefits, of USL and USL-SA; it also made cash contributions
            of  approximately  $7,491,000 and $7,622,000 to the capital of Janus
            and JIS in 1997 and 1996, respectively.

      At the  time  the  Plan  was  approved,  Janus  and JIS had no  commercial
      operations.  However,  they had  substantial  Federal net  operating  loss
      carryforwards  (see Note 11). Under the Plan, DKM purchased  approximately
      36% of the Company's  common stock and a warrant to purchase an additional
      9% of the Company's common stock for $3,000,000.  In addition,  DKM was to
      control  the  Board of  Directors  of Janus and was  required  to seek and
      assist the Company in the  consummation  of the acquisition of one or more
      operating businesses while preserving the Federal income tax attributes of
      Janus  and  JIS.  However,  DKM was not  able to  assist  the  Company  in
      consummating any acquisitions  and, as a result,  the Company  repurchased
      and redeemed all of DKM's interests in Janus and JIS.


                                      F-8
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization (concluded):

      The  Company  obtained  new  management  during 1995 and  consummated  the
      acquisition  of the oil and gas services  operations in 1996 and the hotel
      operations in 1997.

Note 2 - Summary of significant accounting policies:

        Use of estimates:

            The preparation of financial statements in conformity with generally
            accepted accounting principles requires management to make estimates
            and   assumptions   that  affect   certain   reported   amounts  and
            disclosures.  Accordingly,  actual  results  could differ from those
            estimates.

        Fresh-start accounting:

            The  Company  adopted  fresh-start  accounting  at the  time  of its
            reorganization in February 1990 (see Note 1). The Company's opening
            balance sheet  consisted of  $6,000,000  in cash and capital  stock.
            Accordingly,  the reorganization  value of the Company  approximated
            book value.

        Principles of consolidation:

            The consolidated  financial statements include the accounts of Janus
            and its majority-owned  subsidiaries.  All significant  intercompany
            balances and transactions have been eliminated in consolidation.

        Cash equivalents:

            Cash equivalents generally consist of highly liquid investments with
            maturities of three months or less when acquired.

        Property and equipment:

            Property and equipment is stated at cost.  Depreciation  is computed
            using the  straight-line  method over the estimated  useful lives of
            the assets.

        Goodwill:

            Goodwill,  which  represents  the  excess of the  costs of  acquired
            businesses  over the fair  value of the net assets  acquired  at the
            respective   dates  of   acquisition,   is   amortized   using   the
            straight-line method over the estimated useful lives of the assets.


                                      F-9
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of significant  accounting policies (continued):

        Impairment of long-lived assets:

            The Company has adopted the  provisions  of  Statement  of Financial
            Accounting  Standards  No. 121,  Accounting  for the  Impairment  of
            Long-Lived Assets and for Long-Lived Assets to be Disposed of ("SFAS
            121"). Under SFAS 121,  impairment losses on long-lived assets, such
            as property and equipment and goodwill,  are recognized  when events
            or changes in  circumstances  indicate  that the  undiscounted  cash
            flows  estimated  to be generated by such assets are less than their
            carrying value and,  accordingly,  all or a portion of such carrying
            value may not be recoverable. Impairment losses are then measured by
            comparing the fair value of assets to their carrying amounts.

        Deferred loan costs:

            Costs  incurred  to obtain  long-term  financing  are  deferred  and
            amortized using the  straight-line  method (which  approximates  the
            interest method) over the terms of the loans.

        Revenue recognition:

            The Company recognizes  revenues from room and related services and
            management  fees on an accrual  basis as earned.  Food and  beverage
            revenues  are  recognized   when  goods  are  sold.   Revenues  from
            discontinued  engineering  and  wireline  logging  services are also
            recognized on an accrual basis as earned.

        Advertising costs:

            The costs of  advertising  and  promotion  are expensed as incurred.
            Advertising   costs  charged  to  operations,   all  of  which  were
            attributable to the Company's hotel operations, amounted to $191,000
            in 1997.

        Income taxes:

            The  Company  accounts  for income  taxes  pursuant to the asset and
            liability method which requires  deferred tax assets and liabilities
            to be  computed  annually  for  temporary  differences  between  the
            financial  statement  and tax bases of assets and  liabilities  that
            will result in taxable or deductible  amounts in the future based on
            enacted  tax laws and rates  applicable  to the periods in which the
            temporary   differences  are  expected  to  affect  taxable  income.
            Valuation  allowances  are  established  when  necessary  to  reduce
            deferred  tax  assets to the amount  expected  to be  realized.  The
            income tax provision or credit is the tax payable or refundable  for
            the period  plus or minus the change  during the period in  deferred
            tax  assets and  liabilities.  Income tax  credits  attributable  to
            benefits from net operating loss  carryforwards  or other  temporary
            differences that existed at the time the Company adopted fresh-start
            accounting are reflected as a contribution to  stockholders'  equity
            in the period in which the tax benefits are realized.


                                      F-10
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of significant  accounting policies  (continued):

        Income taxes (concluded):

            As explained in Note 1, the assets and liabilities of USL and USL-SA
            were initially  transferred to the Reorganization  Trust in February
            1990. The  Reorganization  Trust is considered to be a grantor trust
            for income tax  purposes.  Accordingly,  any taxable  income or loss
            associated  with the  disposition  of assets and the  settlement  of
            liabilities by the Reorganization  Trust are recorded in the Federal
            and state  income tax returns of the Company;  however,  such assets
            and  liabilities are not presented in these  consolidated  financial
            statements.

        Stock options:

            In accordance  with the  provisions of Accounting  Principles  Board
            Opinion  No.  25,  Accounting  for Stock  Issued to  Employees,  the
            Company  will  recognize  compensation  costs  as a  result  of  the
            issuance of stock options  based on the excess,  if any, of the fair
            value of the  underlying  stock at the date of grant or award (or at
            an  appropriate  subsequent  measurement  date)  over the amount the
            employee must pay to acquire the stock. Therefore,  the Company will
            not be required to recognize compensation expense as a result of any
            grants of stock  options at an exercise  price that is equivalent to
            or greater  than fair value.  The  Company  will also make pro forma
            disclosures,  as  required  by  Statement  of  Financial  Accounting
            Standards No. 123,  Accounting for Stock-Based  Compensation  ("SFAS
            123"),  of net  income or loss as if a fair  value  based  method of
            accounting  for stock  options  had been  applied,  if such  amounts
            differ materially from the historical amounts.

        Income (loss) per common share:

            Effective  December 31, 1997, the Company  adopted the provisions of
            Statement of Financial  Accounting  Standards No. 128,  Earnings per
            Share ("SFAS 128"), which replaces the presentation of "primary" and
            "fully-diluted"  income  (loss)  per  common  share  required  under
            previously promulgated accounting standards with the presentation of
            "basic" and "diluted" income (loss) per common share.

            Basic net income  (loss) per common share is  calculated by dividing
            net  income  or loss,  as  adjusted  for  required  preferred  stock
            dividends,   by  the  weighted   average  number  of  common  shares
            outstanding during the period. The calculation of diluted net income
            (loss)  per  common  share is  similar  to that of basic net  income
            (loss) per common share, except that the denominator is increased to
            include the number of additional  common shares that would have been
            outstanding if all potentially  dilutive common shares,  principally
            those issuable upon the exercise of stock options and warrants, were
            issued during the period.


                                      F-11
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of significant  accounting policies (concluded):

        Income (loss) per common share (concluded):

            Since the Company had losses  applicable to common stock in 1997 and
            1996,  the  assumed  effects of the  exercise of  outstanding  stock
            options and warrants were anti-dilutive and,  accordingly,  dilutive
            per  share  amounts  have not  been  presented  in the  accompanying
            consolidated  statements of operations.  In addition,  the basic per
            share amounts presented in the accompanying  consolidated statements
            of operations which were computed in accordance with SFAS 128 do not
            differ from those computed under previously  promulgated  accounting
            standards.

        Other recent accounting pronouncements:

            In June  1997,  the  Financial  Accounting  Standards  Board  issued
            Statement  of  Financial  Accounting  Standards  No. 130,  Reporting
            Comprehensive  Income  ("SFAS  130"),  and  Statement  of  Financial
            Accounting  Standards  No.  131,  Disclosures  about  Segments of an
            Enterprise and Related Information ("SFAS 131"), which could require
            the  Company  to  make  additional   disclosures  in  its  financial
            statements no later than for the year ending December 31, 1998. SFAS
            130 defines  comprehensive  income, which includes items in addition
            to those  reported in the  statement  of  operations,  and  requires
            disclosures  about  its  components.  Management  believes  that the
            adoption  of  SFAS  130  will  not  have a  material  impact  on the
            Company's  disclosures.  SFAS  131  requires  disclosures  for  each
            segment of a business and the determination of segments based on its
            internal  management  structure.  Management  is in the  process  of
            evaluating  whether  SFAS 131 will  require  the Company to make any
            additional disclosures.

Note 3 - Acquisitions:

      On April 24,  1997,  the  Company  entered  the  hospitality  business  by
      acquiring the following from  affiliates of Louis S. Beck and Harry Yeaggy
      (the  "Sellers"):  (i) seven hotels (of which six are wholly-owned and one
      is owned by an 85%-owned partnership), (ii) a hotel management company and
      substantially  all of the  assets  thereof  other  than  seven  management
      contracts and (iii) financial  participations  in the form of mortgages on
      one additional hotel and a campground (the  "Mortgages").  The hotels, the
      management  company and the  Mortgages  are also referred to herein as the
      "Hotel Group." The Sellers also own controlling interests in other hotels,
      certain  of which  are  managed  by the  management  company.  Each of the
      Sellers  became an  executive  officer  of the  Company  as of the date of
      acquisition.


                                      F-12
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Acquisitions (continued):

      The consideration  exchanged by the Company for the assets and liabilities
      of the Hotel Group and the other direct  acquisition  costs were comprised
      as follows:

      Issuance of:

         10,451.88  shares  of  Series B  preferred  stock
            with a liquidating and estimated fair value
            of $1,000 per share (Note 8)                            $10,451,880
         3,799,999 shares of Janus common stock with
            an estimated fair value of $3.25 per share               12,349,997
                                                                    -----------
                Total value of shares issued                         22,801,877
      Cash paid to the Sellers to repay short-term
         loans                                                          793,803
      Legal, accounting and other costs related to
         the purchase                                                 1,007,424
                                                                    -----------
                Total purchase price to be allocated                $24,603,104
                                                                    ===========

      The  acquisition  was accounted for as a purchase  and,  accordingly,  the
      results  of  operations  of the  Hotel  Group  have been  included  in the
      accompanying consolidated statements of operations subsequent to April 30,
      1997 (the effective date of the acquisition for accounting  purposes).  In
      addition,  total  acquisition  costs were allocated to the assets acquired
      and  liabilities  assumed based on their estimated fair values on the date
      of acquisition, with the excess of cost over such fair values allocated to
      goodwill, as shown below:

      Cash                                                         $    79,994
      Accounts receivable                                              230,011
      Other current assets                                             217,024
      Property and equipment                                        34,400,000
      Mortgage notes receivable                                      5,758,282
      Goodwill                                                       6,820,406
      Other assets                                                   1,256,672
      Accounts payable                                                (579,115)
      Other current liabilities                                       (519,595)
      Long-term debt                                               (20,333,575)
      Deferred tax liabilities                                      (1,190,000)
      Minority interest in the 85%-owned hotel
         partnership                                                (1,537,000)
                                                                   -----------
             Total purchase price allocated                        $24,603,104
                                                                   ===========


                                      F-13
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Acquisitions (continued):

      Although the Company has a substantial  amount of estimated  available net
      operating  loss  carryforwards  for  Federal  income  tax and  alternative
      minimum tax purposes,  the deferred tax assets potentially  available from
      such  carryforwards  have been  reduced by a  valuation  allowance  due to
      uncertainties   related  to  their  future   realization  (see  Note  11).
      Accordingly,   the  amounts   allocated   to  goodwill  and  deferred  tax
      liabilities  shown above in connection  with the  acquisition of the Hotel
      Group  have  each  been  reduced  by  approximately  $8,134,000,  which is
      equivalent to the reduction in the valuation allowance attributable to the
      portion of the net operating loss carryforwards that management  estimates
      will be offset by temporary  differences  attributable to the acquired net
      assets of the Hotel Group.

      The issuance of Janus common and preferred  shares in connection  with the
      acquisition  was a  noncash  transaction  that  is  not  reflected  in the
      accompanying  1997  consolidated  statement  of cash flows.  The  goodwill
      attributable  to the  acquisition  of the Hotel  Group is being  amortized
      based on an estimated useful life of 40 years.

      The  following  unaudited  pro  forma  information  shows the  results  of
      continuing  operations  for 1997 and 1996 (and,  accordingly,  exclude the
      results of the discontinued oil and gas services operations) as though the
      Hotel Group had been acquired as of January 1, 1996:

                                                               PRO FORMA
                                                       ------------------------
                                                           1997         1996
                                                       -----------  -----------
      Hotel revenues:
          Room and related services                    $10,968,056  $10,927,443
          Food and beverage                              1,651,293    1,617,775
          Management fees                                  921,217    1,037,404
          Other                                            321,629      245,801
                                                        ----------   ----------
                 Total hotel revenues                   13,862,195   13,828,423
                                                        ----------   ----------
      Costs and expenses:
          Direct hotel operating ex-
             penses:
             Room and related services                   2,586,017    2,492,438
             Food and beverage                           1,475,257    1,412,193
             Selling and general                           538,820      529,905
                                                        ----------   ----------
                 Total direct hotel operat-
                   ing expenses                          4,600,094    4,434,536
          Occupancy and other operating
             expenses                                    1,742,975    1,730,704
          Selling, general and admini-
             strative expenses                           4,537,086    4,566,734
          Depreciation of property and
             equipment                                   1,267,803    1,187,482
          Amortization of goodwill                         169,737      170,510
                                                        ----------   ----------
                 Total costs and expenses               12,317,695   12,089,966
                                                        ----------   ----------


                                      F-14
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Acquisitions (continued):

                                                           1997        1996
                                                       -----------  -----------
      Operating income                                 $ 1,544,500  $ 1,738,457
      Other income (expense):
          Interest income                                  858,423      722,399
          Other income                                      30,002
          Interest expense                              (1,861,619)  (1,935,877)
                                                       -----------  -----------
      Income before income taxes and
          minority interest                                571,306      524,979
      Provision for income taxes                           219,000      201,000
                                                       -----------  -----------
      Income before minority interest                      352,306      323,979
      Minority interest                                     17,048       78,811
                                                       -----------  -----------
      Income from continuing opera-
          tions                                            335,258      245,168
      Less preferred dividend require-
          ments                                            783,891      808,603
                                                       -----------  -----------
      Net loss from continuing opera-
          tions applicable to common
          stock                                        $  (448,633) $  (563,435)
                                                       ===========  ===========
      Basic loss per common share
          from continuing operations                   $      (.05) $      (.06)
                                                       ===========  ===========
      Basic weighted average number
          of common shares outstanding                   8,783,563    9,031,017
                                                       ===========  ===========

      In addition to  combining  the  historical  results of  operations  of the
      Company (which did not have any active operations prior to the Hotel Group
      acquisition  other than the discontinued  oil and gas services  operations
      not  included  above)  and  the  historical   pre-acquisition  results  of
      operations of the Hotel Group, the pro forma results of operations include
      adjustments that, among other things, reflect:

        --  The  elimination  of  the   net  revenues  derived  from  management
            contracts of the Hotel Group that were not acquired by the Company;

        --  Depreciation  of property and equipment  based on the fair values of
            assets acquired;

        --  Amortization of the additional goodwill arising from the Hotel Group
            acquisition;

        --  The net  effects of changes to  compensation  and  related  expenses
            based on revised lease  agreements and expense sharing  arrangements
            with a related party and revised employment agreements;


                                      F-15
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Acquisitions (continued):

        --  The  provision  for income taxes is based upon pro forma income from
            continuing operations and the statutory Federal and state rates. Any
            actual  income  tax  credits   attributable  to  benefits  from  net
            operating  loss  carryforwards  that existed at the time the Company
            adopted  fresh-start  accounting will be reflected as a contribution
            to stockholders'  equity in the period in which the tax benefits are
            realized; and

        --  The effects of the issuance of shares of preferred  and common stock
            as part of the  consideration for the acquisition on preferred stock
            dividends and weighted average common shares.

      The unaudited  pro forma results of operations  shown above do not purport
      to represent what the combined  results of operations  actually would have
      been if the  acquisition  of the Hotel Group had occurred as of January 1,
      1996  instead of the actual  date of  consummation  or what the results of
      operations would be for any future periods.

      On July 15, 1996,  the Company  commenced oil and gas services  operations
      when it  acquired  certain  assets and  liabilities  of  Pre-Tek  Wireline
      Service Company,  Inc. ("PTWSC") and its wholly-owned  subsidiary,  K.F.E.
      Wireline,  Inc. ("KFE"), for consideration comprised of cash, common stock
      and  warrants.  PTWSC  and KFE are  referred  to  collectively  herein  as
      "Pre-Tek."  The oil and  gas  services  operations  were  discontinued  in
      December 1997.

      The consideration exchanged by the Company for such assets and liabilities
      and the other direct acquisition costs were comprised as follows:

      Cash payments to certain creditors and
          former stockholders of Pre-Tek                            $   605,413
      Issuance of 268,368 shares of Janus
          common  stock,  with a fair value of $2.75 per share,
          and 500,000  warrants to purchase Janus common stock,
          to stockholders and
          former stockholders of Pre-Tek                                738,012
      Return of 37,350 shares of Janus common
          stock as a result of post-closing
          adjustments                                                  (102,713)
      Other acquisition costs                                           182,092
                                                                    -----------
            Total                                                   $ 1,422,804
                                                                    ===========


                                      F-16
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Acquisitions (concluded):

      The  acquisition  was accounted for as a purchase  and,  accordingly,  the
      results  of  Pre-Tek's  operations  have  been  included  as  discontinued
      operations in the accompanying  consolidated statements of operations from
      July 15, 1996, the effective date of the acquisition.  In addition,  total
      acquisition  costs were allocated to the assets  acquired and  liabilities
      assumed based on their  estimated fair values on the date of  acquisition,
      with the excess of cost over such fair values  allocated to  goodwill,  as
      shown below:

         Equipment                                                  $  543,995
         Goodwill                                                      891,341
         Other assets                                                  247,599
         Accounts payable and other current
             liabilities                                              (260,131)
                                                                    ----------
         Cost of acquisition                                        $1,422,804
                                                                    ==========

      The  issuance  and return of Janus common  shares in  connection  with the
      acquisition  were  noncash  transactions  that  are not  reflected  in the
      accompanying  1996  consolidated  statement  of cash flows.  The  goodwill
      attributable to the  acquisition of Pre-Tek was initially  amortized based
      on an estimated useful life of 15 years.  However, the unamortized balance
      of  approximately  $800,000  was written off and included in the loss from
      discontinued operations in 1997 (see Note 12).

      Unaudited pro forma information showing the results of operations for 1997
      and 1996 as though the oil and gas services  operations  had been acquired
      as of January 1, 1996 is not presented  because such  operations have been
      discontinued.


                                      F-17
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Mortgage notes receivable:

      The  Mortgages,  which were acquired on April 24, 1997 in connection  with
      acquisition of the Company's hotel  operations,  are secured by a hotel in
      Juno Beach, Florida and a campground  in Kissimmee, Florida, both of which
      are owned by entities  controlled  by the  Sellers.  The Sellers have also
      personally  guaranteed the Mortgages.  The balances receivable at December
      31, 1997 consisted of the following:

         Note secured  by  hotel  property,  with  interest
             at .5% above a specified  prime rate (an
             effective  rate of 9.0% at December 31, 1997)           $2,185,744
         Note secured by campground, with interest
             at 8%                                                    3,496,033
                                                                     ----------
         Total long-term debt                                         5,681,777
         Less current portion                                           123,022
                                                                     ----------
         Long-term portion, net of current portion                   $5,558,755
                                                                     ==========

      The  Mortgages  are  payable  in monthly  installments  of  principal  and
      interest  through  April  2003 and  final  installments  of all  remaining
      principal and interest in May 2003.

      Principal  payments on the Mortgages in each of the five years  subsequent
      to December 31, 1997 are receivable as follows:

         Year Ending
         December 31,                                                Amount
         ------------                                                ------
            1998                                                    $123,022
            1999                                                     133,708
            2000                                                     145,326
            2001                                                     157,958
            2002                                                     171,690

      The Company derived  interest income of $320,516 from the Mortgages during
      the period from May 1, 1997 to December 31, 1997.


                                      F-18
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Property and equipment:

      Property  and  equipment  at December  31, 1997 and 1996  consisted of the
      following:

                                        Years of
                                         Useful
                                          Life          1997           1996
                                        --------        ----           ----
        Land                                        $ 6,035,000
        Hotels                             30        26,942,000
        Hotel furniture and
            fixtures                        5         2,232,941
        Equipment and vehicles              5           648,147       $642,908
        Other                               5            11,724         25,890
                                                    -----------       --------
                                                     35,869,812        668,798
        Less accumulated depre-
            ciation and amortiza-
            tion                                      1,066,521         86,105
                                                    -----------       --------
              Totals                                $34,803,291       $582,693
                                                    ===========       ========

Note 6 - Long-term debt:

      Long-term debt at December 31, 1997 consisted of the following:

      Fixed   rate   mortgage    notes   payable   in   monthly
          installments,  including  interest  at rates  ranging
          from 8.875% to 10%;  the  mortgage  notes mature from
          August 2000 through January 2016                           $10,717,718

      Variable  rate   mortgage   notes   payable   in  monthly
          installments,  including  interest  at rates  varying
          with the prime commercial lending rate, rates on U.S.
          Treasury  securities  and other defined  indexes (the
          effective  rates at  December  31,  1997  ranged from
          8.73% to 9.5%); the mortgage notes mature from August
          1998 through April 2006                                      9,094,499

      Equipment notes with various maturities through December
          2001 and interest at rates ranging from 8.98% to 15%           166,316
                                                                     -----------
      Total long-term debt                                            19,978,533
      Less current portion                                             2,112,215
                                                                     -----------
      Long-term debt, net of current portion                         $17,866,318
                                                                     ===========

      Long-term debt is secured by the Company's Mortgages and substantially all
      of its property and equipment.


                                      F-19
<PAGE>

                  JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Long-term debt (concluded):

      Principal  payments  in  years  subsequent  to  December  31,  1997 are as
      follows:

           Year Ending
           December 31,                                         Amount
           ------------                                         ------
               1998                                           $2,112,215
               1999                                              570,665
               2000                                              620,790
               2001                                            1,502,792
               2002                                            2,717,123


Note 7 - Commitments and contingencies:

        Employment agreements:

            During 1997, the Company entered into employment  agreements whereby
            it  will  be  obligated  to pay  minimum  salaries  to  four  of its
            executive  officers,  including  each  of the  Sellers,  aggregating
            $750,000 during 1998 and 1999 and $250,000 in 2000.

        Concentration of credit risk:

            Financial  instruments  that  potentially  subject  the  Company  to
            concentrations of credit risk consist  principally of cash in banks,
            accounts receivable and the Mortgages.

            The Company  maintains  its cash  balances in bank deposit  accounts
            which,  at  times,   may  exceed  the  Federal   Deposit   Insurance
            Corporation  coverage limits thereby  exposing the Company to credit
            risk. The Company reduces its exposure to credit risk by maintaining
            such deposits with financial  institutions which management believes
            are high quality.

            Exposure to credit risk with respect to trade receivables is limited
            by  the  short  payment  terms  and,  generally,  the  low  balances
            applicable to such instruments and the Company's  routine assessment
            of the financial strength of its customers.  Exposure to credit risk
            with respect to the Mortgages is limited because they are secured by
            real estate.

        Litigation:

            The Company is a party to various legal proceedings.  In the opinion
            of management, these actions are routine in nature and will not have
            any  material   adverse  effects  on  the  Company's    consolidated
            financial statements in subsequent years.


                                      F-20
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Stockholders' equity:

        Capital stock:

            Information regarding the capital stock of Janus follows:

              --  Preferred  stock,  par value $.01 per share;  5,000,000 shares
                  authorized of which 4,000 shares were designated as "Series A"
                  (the "Janus  Series A preferred  stock") at December  31, 1997
                  and 1996,  respectively,  and 12,000 shares were designated as
                  "Series B" (the "Janus Series B preferred  stock") at December
                  31, 1997;  the 2,200  shares of Series A preferred  stock that
                  were issued and outstanding at December 31, 1995 were redeemed
                  during 1996; the 10,451.88  shares of Series B preferred stock
                  outstanding at December 31, 1997 were issued during 1997; and

              --  Common  stock,  par value  $.01 per share;  15,000,000  shares
                  authorized; 11,880,867 and 8,080,868 shares issued at December
                  31,  1997 and  1996,  respectively;  3,189,132  and  2,849,850
                  shares held as treasury  shares at December 31, 1997 and 1996,
                  respectively.  At December 31, 1997, the Reorganization  Trust
                  held  1,057,048  shares of Janus  common  stock  for  possible
                  future  distribution  under the Plan which the  Reorganization
                  Trust was  originally  required to vote in  proportion  to the
                  votes cast by the Company's other stockholders.

                  On April  14,  1997,  the  Bankruptcy  Court  issued  an order
                  modifying the terms under which the Reorganization Trust votes
                  the shares of Janus  common stock it holds.  As a result,  the
                  Reorganization  Trust is now  required  to vote such shares in
                  proportion  to  the  votes  cast  by  other  stockholders  who
                  acquired their shares prior to March 17, 1997.

            Information regarding the capital stock of JIS follows:

              --  Preferred  stock,  par value $.01 per share;  5,000,000 shares
                  authorized  at December  31, 1997 and 1996,  respectively,  of
                  which  7,650  shares were  designated  as "Series A" (the "JIS
                  Series A  preferred  stock");  the  4,207  shares  of Series A
                  preferred  stock that were issued and  outstanding at December
                  31, 1995 were redeemed during 1996; and

              --  Common  stock,  par value  $.01 per share;  15,000,000  shares
                  authorized;  5,000,000  shares issued at December 31, 1997 and
                  1996, respectively;  409,000 shares held as treasury shares at
                  December 31, 1997 and 1996, respectively.


                                      F-21
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Stockholders' equity (continued):

        Capital stock (continued):

            The  capitalization  of Janus and JIS upon  confirmation of the Plan
            was determined  pursuant to the Stock Purchase  Agreement  dated May
            16, 1989, as amended pursuant to the Supplemental Agreement dated as
            of February  23, 1990 (the "Stock  Purchase  Agreement"),  among the
            subsidiary of DKM, USL and USL-SA.  The Stock Purchase Agreement was
            an integral part of the Plan.

            On May 15, 1995, the Company  repurchased and redeemed from DKM, all
            of its  interests  in Janus and JIS  (comprised  of 1,800  shares of
            Janus  Series A preferred  stock,  2,812,500  shares of Janus common
            stock and 3,443  shares of JIS Series A  preferred  stock) for total
            consideration  of  $1,430,525  and DKM's  waiver of its right to any
            unpaid dividends. Additionally, DKM and its affiliates were released
            from all of their obligations under the Stock Purchase Agreement.

            The  shares of Janus and JIS  common  stock and  Series A  preferred
            stock  acquired by the  Reorganization  Trust were  acquired for the
            benefit of former  holders of claims  against USL and  USL-SA.  Such
            shares will be distributed by the Reorganization  Trust from time to
            time to such  former  creditors  as  their  claims  are  liquidated.
            However,  shares of Janus or JIS common  stock will be issued by the
            Reorganization  Trust  only to  creditors  in a manner  designed  to
            preserve the Company's net operating  losses in accordance  with the
            requirements of the Internal Revenue Code.

            The restated  Certificate of  Incorporation of each of Janus and JIS
            contain restrictions on the "transfer" (as defined) of shares of the
            Janus and JIS  capital  stock which are  intended  to  preserve  and
            maintain  the Federal  income tax  attributes  of Janus and JIS. The
            restated  Certificates  of  Incorporation  of each of Janus  and JIS
            prohibit  the  acquisition  of any  shares of the  capital  stock or
            securities of Janus or JIS if, at the date of such acquisition, such
            purchaser  would  be a  holder  of 5% or  more  of  the  issued  and
            outstanding  capital stock of Janus or JIS,  determined based on the
            fair market value of the capital  stock of Janus or JIS or the votes
            represented  by the  shares  of the  capital  stock  of Janus or JIS
            entitled  to vote  for the  election  of  directors.  However,  such
            transfers  and  issuances  can be made if  approved  by the Board of
            Directors.


                                      F-22
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Stockholders' equity (continued):

        Capital stock (continued):

            The Janus  Series A  preferred  stock and the JIS Series A preferred
            stock were substantially identical in their terms. The Janus and JIS
            Series A  preferred  stock  entitled  the  holders  thereof  to cash
            dividends,  payable on the last day of each June and December, at an
            annual rate equal to 12% of the liquidation  preference value of the
            Janus or JIS Series A preferred  stock.  Shares of the Janus and JIS
            Series A  preferred  stock  were  redeemable  at a price of $100 per
            share.  Holders of the Janus and JIS Series A  preferred  stock were
            not entitled to vote except as required by law.

            The Series B preferred stock has a par value of $.01 per share and a
            liquidating and redemption price of $1,000 per share. Holders of the
            Series B preferred stock are entitled to cumulative dividends at the
            annual rate of $75 per share.  Unless  dividends remain unpaid for a
            specified period, holders will not derive any voting rights from the
            Series B preferred stock.

            In December  1996,  the  remaining  2,200  shares of Janus  Series A
            preferred stock then  outstanding  were redeemed through the payment
            of the  aggregate  redemption  price of $220,000  and the  aggregate
            balance of accrued and unpaid dividends of $130,312.

            In December 1996, the Company  notified the holders of the remaining
            4,207 shares of JIS Series A preferred stock then  outstanding  that
            such  shares were being  redeemed.  Those  shares  were  effectively
            redeemed  through the transfer of the aggregate  redemption price of
            $420,750 and the aggregate  balance of accrued and unpaid  dividends
            of $252,450 to a restricted  cash account which can only be used for
            such  redemption  payments.  The restricted  cash and  corresponding
            liability of $673,200 are reflected  separately in the  accompanying
            consolidated  balance  sheet as of December 31, 1996.  The remaining
            balances at December 31, 1997 were immaterial.

            During 1996, the Reorganization  Trust transferred cash in excess of
            its projected  liabilities and administrative  requirements totaling
            $7,621,980 to the Company,  of which $6,859,784 was deemed a capital
            contribution to Janus and $762,196 was deemed a capital contribution
            to JIS (including  $43,837  attributable to the minority interest in
            the JIS common stock - see Note 14).

            In July 1996,  the Company  issued  268,368  shares of Janus  common
            stock with a fair value of  $738,012,  as part of the  consideration
            for the  acquisition  of  Pre-Tek  (see  Note 3). A total of  37,350
            shares  were  subsequently  returned  to the  Company as a result of
            post-closing adjustments to the purchase price.


                                      F-23
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Stockholders' equity (concluded):

        Capital stock (concluded):

            In April 1997, the Company issued 10,451.88 shares of Janus Series B
            preferred   stock  and  3,799,999   shares  of  Janus  common  stock
            (approximately  43% of the Janus common stock outstanding after such
            issuance) as  consideration  for the  acquisition of the Hotel Group
            (see Note 3).

            Based on the provisions of Janus'  corporate  charter and a separate
            agreement between Janus and the Sellers,  the Sellers are prohibited
            from purchasing  additional shares of Janus common stock without the
            prior approval of the Board of Directors.

            During 1997, the Company  repurchased 339,282 shares of Janus common
            stock for $441,569.

            During 1997, the Reorganization  Trust transferred cash in excess of
            its projected  liabilities and administrative  requirements totaling
            $7,491,020 to the Company,  of which $7,031,054 was deemed a capital
            contribution to Janus and $459,966 was deemed a capital contribution
            to JIS (including  $50,090  attributable to the minority interest in
            the JIS common stock - see Note 14).

        Warrants:

            In July 1996, the Company also issued  warrants to purchase  500,000
            shares of Janus  common  stock,  which were deemed to have a nominal
            fair value,  as part of the  consideration  for the  acquisition  of
            Pre-Tek.  All of the warrants  will expire on July 15, 2001.  During
            1997,  warrants to purchase  276,400  shares  were  repurchased  for
            $102,638.  At December 31, 1997, warrants to purchase 111,803 shares
            were  exercisable  at $3.00 per share;  warrants to purchase  55,900
            shares were exercisable at $4.00 per share; and warrants to purchase
            55,897  shares were  exercisable  at $5.00 per share.  However,  the
            warrants,  or the shares issuable upon the exercise of the warrants,
            may only be sold  pursuant to an  effective  registration  statement
            under the  Securities  Act of 1933,  as  amended, or an  appropriate
            exemption from such registration.

            Commencing in May 1999, the warrants become subject to redemption by
            the Company at $.25 per warrant on 30 days' prior written  notice if
            the market price of the Janus common stock equals or exceeds  $10.00
            per share for 10 consecutive trading days.


                                      F-24
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Stock options and stock appreciation rights:

      During 1996, the  stockholders of the Company approved the adoption of the
      Janus  Industries,  Inc.  1996 Stock  Option  Plan (the  "1996  Plan") and
      approved  the  adoption  and  termination  of the Janus  Industries,  Inc.
      Directors' Stock Option Plans (the "Directors' Plan").

      The 1996 Plan provides for grants of incentive stock options  ("ISOs") and
      nonstatutory  stock  options  ("NSOs").  ISOs  may be  issued  to any  key
      employee or officer of the Company; NSOs may be issued to any key employee
      or officer of the Company or any of the Company's independent contractors,
      agents or consultants other than nonemployee  directors. A committee of at
      least two directors  (the  "Committee")  will determine the dates on which
      options become  exercisable  and terminate  (provided that options may not
      expire  more than ten  years  after the date of  grant).  All  outstanding
      options will become  immediately  exercisable in the event of a "change in
      control" (as defined) of the Company.  The exercise  price of any ISO must
      be at least 100% of the fair  market  value on the date of grant (110% for
      an optionee that holds more than ten percent of the combined  voting power
      of all  classes  of stock of the  Company).  NSOs  may be  granted  at any
      exercise  price  determined  by the Committee.  The  Company has  reserved
      300,000 shares of common stock for issuance under the 1996 Plan.

      The 1996 Plan  permits the  Committee to grant stock  appreciation  rights
      ("SARs") in connection  with any option granted under the 1996 Plan.  SARs
      enable an optionee to surrender an option and to receive a payment in cash
      or common stock, as determined by the Committee, with a value equal to the
      difference  between the fair market  value of the common stock on the date
      of surrender of the related option and the option price.

      During 1996, the Company granted options for the purchase of 20,000 shares
      of common  stock at an  exercise  price of $2.75 per  share.  There was no
      public market for the Janus common stock during 1996 and 1997.  Management
      estimates  that  the  exercise  price  for  the  options  granted  in 1996
      approximated  the  fair  value on the date of  grant.  All of the  options
      remained outstanding and exercisable at December 31, 1997 and 1996.

      The  Directors'  Plan provided for annual grants of a specified  number of
      stock  options  to  each  nonemployee  director  beginning  in  1997 at an
      exercise  price equal to the fair market  value of the common stock on the
      date of grant.  No options were granted under the Directors' Plan prior to
      its termination.


                                      F-25
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9 - Stock options and stock appreciation rights (concluded):

      During 1997,  the Company  granted SARs with respect to 100,000  shares of
      Janus common stock to an executive  officer at an exercise  price of $3.25
      per share which will vest at the rate of 20,000 shares per year commencing
      on April 23, 1997.  It also granted SARs with respect to a total of 40,000
      shares of Janus common  stock to  directors at an exercise  price of $3.25
      per share  which will be  exercisable  at any time  during the period from
      October 25, 1997 through April 23, 2003;  however,  the appreciated  value
      paid with respect to the SARs issued to the  directors  will be limited to
      $7.00 per share.  Appreciation  upon  any  exercise  of the SARs issued in
      1997 must be paid in cash.  Management  estimates  that the exercise price
      for the SARs granted in 1997 approximated the fair value on the respective
      dates of grant and throughout the remainder of the year. Accordingly,  the
      Company made no charges to compensation expense related to the SARs during
      1997.

      The SARs issued in 1997 were not issued in conjunction with the 1996 Plan.
      Accordingly, 280,000 shares of Janus common stock were available for grant
      under the 1996 Plan at December 31, 1997.

      The 1997 and 1996 pro forma loss from continuing  operations applicable to
      common stock and the related per share information determined using a fair
      value based method of accounting for the stock options and SARs granted in
      1997 and 1996, as required by SFAS 123, do not differ  materially from the
      corresponding historical amounts.

Note 10- Other related party transactions:

      In addition to interest  income  derived from the Mortgages  (see Note 4),
      results of operations in 1997 include  revenues and expenses  derived from
      related party transactions as follows:

      Management fee income:
          Hotels managed for the Sellers (a)                           $265,940
          Hotels managed for a marketing partner (b)                    268,947
      Expenses:
          Personnel leasing fees (c)                                     33,709
          Management systems fees (d)                                    32,417
          Rent for office facilities and equipment (e)                   38,292

      (a)  The Company  managed  seven  hotels for  entities  controlled  by the
           Sellers during the period from May 1, 1997 to December 31, 1997.


                                      F-26
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Other related party transactions (concluded):

        (b) The Company  receives a portion of the  management  fees from hotels
            managed  by  a  marketing  partner  and  shares  a  portion  of  the
            management  fees it earns from certain of the hotels it manages with
            the marketing partner.

        (c) The Company pays administrative fees to Hospitality Employee Leasing
            Program,  Inc. ("HELP"), a corporation  wholly-owned by the Sellers.
            HELP provides the Company with  personnel for the hotels it owns and
            manages.  In addition,  the Company  reimburses  HELP for the actual
            payments it makes to or on behalf of such employees.

        (d) The  Company  pays  management  systems  fees for the use of a hotel
            property   management  system  and  related  computer  hardware  and
            software under an agreement with Computel Computer Systems,  Inc., a
            corporation wholly-owned by the Sellers.

        (e) The leases,  which are either on a month-to-month basis or expire no
            later than April 2000. Minimum future rentals under the leases as of
            December 31, 1997 were immaterial.

      At December 31, 1997,  accounts  receivable includes $131,645 arising from
      management  services  provided to affiliated  entities,  and other current
      assets includes $40,232 for accrued  interest  receivable on the Mortgages
      and $146,408  receivable as a result of certain adjustments related to the
      acquisition of the Hotel Group.

Note 11- Income taxes:

      The net provision for income taxes  attributable to income from continuing
      operations for 1997 is comprised of the following provisions (credits):

          Current - state (including the effects of refunds of
                 $67,000 from prior years)                             $  1,000
                                                                       --------
          Deferred:
              Federal                                                   332,000
              State                                                      (2,000)
                                                                       --------
                     Total                                              330,000
                                                                       --------
                     Total                                             $331,000
                                                                       ========


                                      F-27
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11- Income taxes (concluded):

      A  reconciliation  of the statutory  Federal income tax rate of 34% to the
      effective  tax rate for the  provision  for income taxes  attributable  to
      income from continuing operations in 1997 follows:

          Statutory tax rate                                             34.0%
          Nondeductible amortization of goodwill                          4.7
          Other                                                           2.0
                                                                         ----
              Total                                                      40.7%
                                                                         ====

      Additional  information  as to the components of the Company's loss before
      income  taxes,  net  provision  for income taxes and net loss is set forth
      below:

                                    Continuing     Discontinued
                                    Operations      Operations          Total
                                    ----------      ----------          -----
      Income (loss) before
          income taxes and
          minority interest          $813,007      $(1,315,709)      $(502,702)
      Minority interest                58,042                           58,042
                                     --------      -----------       ---------
      Income (loss) before
          income taxes                754,965       (1,315,709)       (560,744)
      Provision (credit)
          for income taxes            331,000         (329,000)          2,000
                                     --------      -----------       ---------
      Net income (loss)              $423,965      $  (986,709)      $(562,744)
                                     ========      ===========       =========

      For financial statement  purposes,  there was no net provision for Federal
      income taxes in 1997 and 1996 as a result of the net pre-tax loss incurred
      by the Company  during  each year.  In  addition,  there was no credit for
      Federal  income  taxes  in 1997  and  1996  because  all of the  tax  loss
      attributes  referred to above have been fully reserved through a valuation
      allowance  rather than reflected as deferred tax assets due to the lack of
      a  historical  taxable  income  stream and the  uncertainties  referred to
      above. Future benefits, if any, to be realized from the utilization of the
      net  operating  loss  carryforwards   generated  prior  to  the  Company's
      reorganization  in  February  1990  will be  reported  as an  increase  in
      additional paid-in capital and not as a credit to results of operations.

      Additionally,  Section 382 of the Internal Revenue Code limits the amounts
      of net operating loss  carryforwards  usable by a corporation  following a
      change of more than 50% in the ownership of the corporation during a three
      year  period.  As of December 31, 1997,  management  believes  that such a
      change in ownership has not occurred.


                                      F-28
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12- Discontinued operations:

      In December 1997, the Company adopted a plan to discontinue and dispose of
      the oil and gas services operations that it had acquired in July 1996 (see
      Note 3).  Accordingly,  the results of the oil and gas services operations
      through  December  31,  1997  and the  estimated  loss to be  incurred  in
      connection with the disposal have been  classified as separate  components
      of discontinued operations in the accompanying  consolidated statements of
      operations.  Management  estimates  that the  Company  will  complete  the
      disposal  through  the sale of the net assets of the oil and gas  services
      operations by March 31, 1998.

      The  assets  and  liabilities  of the  discontinued  operations  have been
      included  with  those  of  the  Company's  continuing  operations  in  the
      accompanying  balance  sheets  at  December  31,  1997  and  1996  and are
      comprised as follows:


                                                         1997           1996
                                                       --------       --------
        Equipment, net of accumulated
            depreciation of $192,209 and
            $55,702                                    $455,938       $574,845

        Goodwill, net of amortization of
            $30,375                                                    860,966

        Other current and noncurrent assets             212,827        194,606

        Accounts payable and accrued expenses:
            Estimated loss on disposal                 (165,000)
            Other                                      (119,950)      (195,604)
                                                      ---------     ----------
        Net assets of discontinued operations         $ 383,815     $1,434,813
                                                      =========     ==========

      The oil and gas services operations  generated net sales of $1,297,715 and
      $381,055 for the year ended December 31, 1997 and the period from July 15,
      1996 (the date of acquisition) through December 31, 1996, respectively.

      The  loss on  disposal  of  discontinued  operations  for the  year  ended
      December 31, 1997 was comprised as follows:

        Write-off of remaining goodwill                                $801,356
        Estimated loss to be incurred from January 1, 1998
          through estimated date of disposal                            150,000
        Estimated loss on sale of the remaining net assets               15,000
        Credit for income taxes                                        (193,000)
                                                                       --------
        Loss on disposal                                               $773,356
                                                                       ========


                                      F-29
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12- Discontinued operations (concluded):

      The loss on disposal is based on management's best estimate of the results
      of the discontinued  operations through the estimated date of disposal and
      the amounts to be realized from the sale of the remaining net assets.  The
      actual loss the Company will ultimately realize could differ materially in
      the near  term  from the  amounts  estimated  in  arriving  at the loss on
      disposal of the discontinued operations.

Note 13- Fair value of financial instruments:

      The  Company's  financial  instruments  at  December  31, 1997 and/or 1996
      consisted  of  cash,  accounts  receivable,   mortgage  notes  receivable,
      accounts  payable and fixed and variable rate mortgage and equipment notes
      payable.  In the opinion of management,  (i) cash, accounts receivable and
      accounts  payable  were  carried at values  that  approximated  their fair
      values  because of their  short-term  maturities  and (ii) mortgage  notes
      receivable and mortgage and equipment notes payable were carried at values
      that  approximated  their fair  values  because  they had  interest  rates
      equivalent to those currently  prevailing for financial  instruments  with
      similar characteristics.

Note 14- Minority interest:

      The Company owns an interest of  approximately  90% in JIS and an interest
      of 85% in a hotel  partnership that it acquired as part of the acquisition
      of the Hotel Group  during 1997 (see Note 3). The balance of the  minority
      interest in these  consolidated  subsidiaries  at the beginning and end of
      1997 and 1996 and the  changes in the  minority  interest  during  each of
      those years are set forth below:


                                      F-30
<PAGE>

                   JANUS AMERICAN GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14- Minority interest (concluded):
                                                        Hotel
                                         JIS         Partnership        Total
                                         ---         -----------        -----
     Balance, January 1, 1996          $622,710                      $  622,710
     Accrued dividends on
         the JIS Series A
         preferred stock                 50,490                          50,490
     Redemption of the JIS
         Series A preferred
         stock                         (673,200)                       (673,200)
     Effect of contributions
         to capital from the
         Reorganization Trust (a)        43,837                          43,837
                                       --------                      ----------
     Balance, December 31, 1996          43,837                          43,837
     Initial allocation at
         the date of acquisi-
         tion of the Hotel
         Group                                        $1,537,000      1,537,000
     Effect of contributions
         to capital from the
         Reorganization Trust (a)        50,090                          50,090
     Net income (loss)                   (2,814)          60,856         58,042
                                       --------       ----------     ----------
     Balance, December 31, 1997        $ 91,113       $1,597,856     $1,688,969
                                       ========       ==========     ==========

        (a) As  a  result  of  prior  cumulative   losses,   distributions   and
            redemptions,  the minority interest in JIS had been eliminated as of
            December 31, 1995 and, since the minority  stockholders do not incur
            any obligations as a result of losses and distributions in excess of
            their  equity in JIS, a portion of such excess was  charged  against
            the  majority  interest  in the JIS  common  stock  held  by  Janus.
            Accordingly,  a portion  of each  capital  contribution  made by the
            Reorganization  Trust to JIS in 1997 and 1996 was reallocated to the
            capital of the majority interest.


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                                      F-31