<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-10176
DOMINION RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2306487
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
355 Madison Avenue, Morristown, NJ 07960
(Address of principal executive offices)
(Zip Code)
(201) 538-4177
(Registrant's telephone number, including area code)
NONE
(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the latest practicable date.
Class Outstanding at January 31, 1996
Common Stock, $0.01 par value 5,369,100
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
FORM 10-QSB
QUARTER ENDED DECEMBER 31, 1995
FINANCIAL INFORMATION
PART I
PART I
ITEM 1. FINANCIAL STATEMENTS
The attached unaudited financial statements of Dominion Resources, Inc. and its
wholly owned subsidiaries (the "Company") reflect all adjustments which are, in
the opinion of management, necessary to present a fair statement of the
operating results for the interim period presented.
<TABLE>
<CAPTION>
<S> <C>
Condensed consolidated balance sheets 1 - 2
------
Condensed consolidated statements of operations 3
Condensed consolidated statements of cash flows 4 - 5
-------
Notes to condensed consolidated financial statements 6 -24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. 25-33
PART II
OTHER INFORMATION
PART II 34-35
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
</TABLE>
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(Unaudited) (See note below)
<S> <C> <C>
Current assets:
Cash $ 1,054,388 $ 666,697
Cash held in escrow (Note 3) 400,000 -0-
Investment in mutual fund 250,000 -0-
Accounts receivable - trade (net of allowance
for doubtful accounts of $-0- at December 31,
1995 and $133,070 at September 30, 1995
(Note 3 ) -0- 808,780
Investment in PriCellular Corporation (Note 8) 7,497,063 -0-
Note Receivable - Resort Club, Inc. (Note 4) -0- 1,129,062
Other receivables 9,298 9,298
Accrued interest receivable 275,674 92,687
Inventories (Note 3) -0- 43,535
Deferred expenses of sale (Note 3) -0- 346,003
Prepaid expenses and other assets (Note 6) 704,948 10,886
Total current assets 10,191,371 3,106,948
Property, equipment, furniture, and fixtures, net
of accumulated depreciation and amortization
of $27,866 at December 31, 1995 and
$1,147,312 at September 30, 1995. (Note 3) 243,732 4,435,417
Other assets:
Mortgages receivables (Note 7) 1,600,000 -0-
Note Receivable - Resort Club, Inc. (Note 4) 3,262,108 -0-
Related party receivable - MAFC
participation note (Note 4) -0- 529,440
Deposit on condominiums (Note 4) 529,440 -0-
Cellular telephone license costs - net of
accumulated amortization of $-0-
at December 31, 1995 and $154,460 at
September 30, 1995 (Note 3) -0- 49,976
Investment in Silver Shield Mill 142,684 142,684
Total other assets 5,534,232 722,100
Total assets $ 15,969,335 $ 8,264,465
</TABLE>
Note: The balance sheet at September 30, 1995, has been taken from audited
financial statements at that date and condensed.
See accompanying notes.
1
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
(Unaudited) (See note below)
<S> <C> <C>
Current liabilities:
Long-term debt, current portion (Note 3) $ -0- $ 2,986,057
Mortgages payable, current portion 96,706 23,365
Notes payable (Note 9) 1,570,000 125,000
Notes payable - PriCellular (Note 3) -0- 2,000,000
Accounts payable (Note 3) 33,902 322,779
Income taxes payable (Notes 3 and 5) 4,116,264 -0-
Payable to former President (Note 3) 1,568,626 -0-
Accrued interest and other 48,167 447,253
Total current liabilities 7,433,665 5,904,454
Long-term liabilities:
Mortgages payable, net of current maturities 41,445 138,089
Total long-term liabilities 41,445 138,089
Stockholders' equity:
Common stock, $0.01 par value; authorized - 25,000,000 shares; issued and
outstanding - 5,534,500 shares at December 31, 1995 and
5,559,000 at September 30, 1995 (Note 10) 55,345 55,590
Additional paid-in capital 5,058,706 5,058,706
Retained earnings (deficit) 4,969,522 (2,892,374)
Reserve for purchase of stock from former
President (Note 3) (1,568,626) -0-
Less: 24,500 shares held in treasury (Note 10) (20,722) -0-
Total stockholders' equity 8,494,225 2,221,922
Total liabilities and stockholders' equity $ 15,969,335 $ 8,264,465
</TABLE>
Note: The balance sheet at September 30, 1995, has been taken from audited
financial statements at that date and condensed.
See accompanying notes.
2
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues:
Cellular telephone operations $ -0- $ 1,140,492
Total revenues -0- 1,140,492
Expenses:
Cellular system operations -0- 592,090
Marketing and selling -0- 37,348
General and administrative expenses 232,752 100,639
Depreciation and amortization 1,773 113,356
Bad debt expense -0- 5,000
Total expenses 234,525 848,433
Income (loss) from operations (234,525) 292,059
Other income (expenses):
Interest income 174,047 12,219
Interest expense (53,687) (97,884)
Amortized discount on warrants and deferred
financing costs -0- (145,833)
Total other income (expenses) 120,360 (231,498)
Income from continuing operations before
income taxes (114,165) 60,561
Income tax (benefit) (Note 5) (720,666) -0-
Net Income from continuing operations 606,501 60,561
Discontinued operations (Note 3):
Loss from operations of Cellular Telephone
System (less applicable income tax (benefit) of
$29,555) (44,332) -0-
Gain on Sale of Cellular Telephone System
(less applicable income taxes of $4,866,485) 7,299,727 -0-
Income from discontinued operations 7,255,395 -0-
Net income $ 7,861,896 $ 60,561
Net income from continuing operations
per common share $ 0.11 $ 0.01
Net income from discontinued operations
per common share $ 1.31 $ 0.00
Net Income per common share $ 1.42 $ 0.01
Weighted average number of share used
in computing net income per share 5,554,739 4,542,696
</TABLE>
See accompanying notes.
3
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Cash flows provided by (used in) continuing operating activities:
Net Income $ 606,501 $ 60,561
Adjustments to reconcile net income to net cash provided by continuing operating
activities:
Depreciation and amortization 1,773 113,356
Amortization of discount on warrants and
deferred financing costs -0- 145,833
Provision for doubtful accounts -0- 5,000
Utilization of tax benefit (720,666) -0-
Changes in assets and liabilities:
Trade receivables -0- (39,406)
Accrued interest receivable (182,987) 21,777
Inventories -0- (41,789)
Prepaid expenses and other assets (704,948) (1,520)
Accounts payable and accrued expenses (210,724) 267,104
Net cash provided by (used in) continuing operations (1,211,051) 530,916
Cash flows provided by discontinued operating activities:
Net (loss) (44,332) -0-
Adjustments to reconcile net (loss) to net cash provided by discontinued
operating activities:
Depreciation and amortization 109,601 -0-
Utilization of tax benefit (29,555)
Changes in assets and liabilities:
Trade receivables 3,986 -0-
Inventories (892) -0-
Prepaid expenses and other assets 31,216 -0-
Accounts payable and accrued expenses 154,460 -0-
Gain on Sale of Cellular Assets 9,342,631 -0-
Net cash provided by discontinued operations 9,567,115 -0-
Cash flows from investing activities:
Increase in related party receivable (2,133,046) (96,661)
Investment in mutual fund (250,000) -0-
Investment in mortgages receivables (1,600,000) -0-
Capital expenditures -0- (434,234)
Net cash (used in) investing activities (3,983,046) (530,895)
Cash flows from financing activities:
Proceeds from borrowings 1,750,000 -0-
Repayment of borrowings (5,314,360) (55,246)
Purchase of treasury stock (20,967) -0-
Proceeds from issuance of common stock and
warrants -0- 78,125
Net cash provided by (used in ) financing activities (3,585,327) 22,879
Increase in cash 787,691 22,900
Cash balance, beginning of year 666,697 293,393
Cash balance, December 31, 1995 $ 1,454,388 $ 316,293
</TABLE>
See accompanying notes.
4
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE
OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C> <C>
Investment in PriCellular $ 7,497,063 $ -0-
Retained Earnings (7,497,063) -0-
Payable to former President (1,568,626) -0-
Equity Adjustment 1,568,626 -0-
Total Non-Cash
Operating, Investing and Financing Activities $ -0- $ -0-
</TABLE>
See accompanying notes.
5
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial reporting. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, the
accompanying condensed consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present fairly the
financial position as of December 31, 1995 and September 30, 1995, the results
of operations for the three months ended December 31, 1995 and 1994, and cash
flows for the three months ended December 31, 1995 and 1994. Operating results
for the three months ended December 31, 1995, are not necessarily indicative of
the results which may be expected for the year ended September 30, 1996. These
statements should be read in conjunction with Form 10-KSB for fiscal 1995 which
is on file with the Securities and Exchange Commission.
On November 7, 1995, the Company completed the sale of its cellular telephone
system. The cellular telephone system was substantially the Company's only
source of revenues. After November 7, 1995, the Company had no significant
operations. Accordingly, the Company's condensed consolidated balance sheet at
December 31, 1995 is not comparable to the condensed consolidated balance sheet
at September 30, 1995 and the Company's condensed consolidated statement of
operations and cash flows for the three months ended December 31, 1995 are not
comparable to the three months ended December 31, 1994.
NOTE 2 - RECLASSIFICATION:
Certain fiscal 1996 items have been reclassified to conform with the fiscal 1995
presentation.
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS:
On November 16, 1994, the Company announced that it's wholly owned subsidiary,
Dominion Cellular, Inc. ("DCI") had retained an independent broker on an
exclusive basis to attempt to find a potential purchaser for DCI's AL-4 RSA
cellular telephone system operated by DCI in the Bibb, Alabama RSA (hereinafter
referred to as the "System"), or a possible merger partner with DCI. Management
of the Company determined to seek a purchaser because it believed that DCI's
System had been developed to a point where it represented an attractive
acquisition for potential acquirers in the cellular industry at a price, based
on current market conditions, substantially in excess of DCI's costs in
developing the System.
6
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
On May 8, 1995, the Company and DCI executed an Asset Purchase Agreement
(subsequently amended on August 14, 1995 and December 14, 1995) with two
unaffiliated entities, PriCellular Corporation ("PriCellular") and PriCellular's
wholly-owned subsidiary Northland Cellular Corporation ("Northland"), providing
for the sale to Northland of the System. The System was substantially the
Company's only source of revenues. Immediately after completion of the sale of
the System, the Company had no significant operations.
Public announcement of the execution of the Asset Purchase Agreement was
disseminated by the Company and by PriCellular on May 8, 1995. On May 5, 1995,
the trading day immediately preceding the date of the announcement, the high and
low bid and asked prices for the Company's former Common stock as quoted in the
over-the-counter market were $1, $.75, $1.75 and $1.06 respectively and the high
and low sales prices for PriCellular Class A Common Stock as traded on the
American Stock Exchange were $10.16 and $9.85 respectively.
In anticipation of the execution of the Asset Purchase Agreement, PriCellular
extended a $2,000,000 loan to DCI on April 7, 1995. From the $2,000,000 of loan
proceeds, the Company (a) made a $1,417,598 loan to Resort Club, Inc. ("Resort
Club") an entity of which the Company's principal stockholder is a creditor; (b)
paid $250,000 to a corporation owned by the Company's former president and her
husband in payment of bills rendered for previously completed cell site and
tower construction for the System; and (c) prepaid $125,000 of indebtedness owed
to an entity owned by members of the principal stockholder's immediate family.
The balance was applied to legal and professional fees related to the sale of
the System.
The sale of the System was contingent upon obtaining the consent of the FCC to
the assignment by DCI of the licenses to operate the System to Northland (which
consent was obtained on June 9, 1995), and upon obtaining the approval of the
sale from holders of a majority of the outstanding shares of the Company's
Common Stock (which approval was obtained on November 6, 1995).
The assets sold (subject to certain current liabilities related to the System
and being assumed by the purchaser) included the FCC nonwireline license for the
System, the cellular sites, towers and related equipment used by the System, the
real property on which the cellular sites are located, and the bulk of DCI's
current assets.
7
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
The parties also agreed that effective August 1, 1995, PriCellular would become
the manager of the System pursuant to a management agreement providing for a
management fee to be paid to PriCellular equal to 7% of the gross revenues of
the System during the term of the management agreement. Through November 7,
1995, the Company accrued $114,600 in connection with the management agreement.
The original purchase price of the system was $19,900,000 (after a $100,000
reduction for the amount by which certain liabilities assumed by the purchaser
at the closing exceeded DCI's current assets) payable as follows: (a) $6,000,000
in cash, payable at the closing which occurred on November 7, 1995, (b)
$3,900,000 in cash payable 30 days following the closing (the "Second Payment
Date") and (c) $10,000,000 by delivery at the closing of PriCellular's
five-year, 4% Convertible Subordinated Note in the principal amount of
$10,000,000 (also referred herein as the "PriCellular Note"). The PriCellular
Note was convertible into shares of PriCellular Class A Common Stock at $8.51
per share (i) at the option of the holder and (ii) at the option of PriCellular
if the closing price for PriCellular Class A Common Stock (then trading on the
American Stock Exchange) was $10.60 or higher for ten consecutive trading days.
At the closing, the initial $6,000,000 cash portion of the purchase price was
reduced to the extent required to repay DCI's outstanding debt to Motorola
incurred to finance construction of the System (approximately $2,864,000), and
to repay the 8%, $2,000,000 loan extended to DCI by PriCellular on April 7, 1995
in anticipation of the execution of the Asset Purchase Agreement. At the second
closing, the $4,000,000 cash portion of the purchase price was decreased by
$100,000, the amount by which assumed current liabilities exceeded DCI's current
assets. An aggregate $400,000 of the $3,900,000 balance of the purchase price
was required to be held in escrow for a one year period following the closing,
to ensure the accuracy of the Company's representations and warranties.
Also at the closing, PriCellular elected to force conversion of its five-year,
4%, $10,000,000 Convertible Subordinated Note to DCI into 1,175,088 shares of
its Class A Common Stock. The high and low sales prices for PriCellular Class A
Common Stock, as traded on the American Stock Exchange on November 7, 1995, were
$13.125 and $12.75, respectively. As a result, the Company recorded the
1,175,088 converted shares at a value of $7,497,063 an amount which reflects a
50% discount of the closing sales price of PriCellular Class A Common Stock on
November 7, 1995 of $12.75. The Company recorded a 50% discount because of the
trading restrictions placed on the stock.
8
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
In connection with the second closing, the Company entered into a second
amendment to the Asset Purchase Agreement dated December 14, 1995 whereby the
Company and PriCellular resolved certain disputes with respect to the adjusted
purchase price of the System. As amended, the Company received $3,500,000 at the
second closing, with the $400,000 balance being held in escrow. As part of the
second amendment, the Company retained ownership of certain accounts receivable
deemed to be uncollectable as of August 1, 1995 in the aggregate principal
amount of approximately $124,000. In addition, the Company reserved the right to
the proceeds of any insurance claim arising from a loss that took place in the
month of August 1995.
Pursuant to a separate registration rights agreement, PriCellular granted the
holders of at least 50% of the Class A Common Stock issuable or issued upon
conversion of the PriCellular Note, one "demand" right of registration requiring
PriCellular to register such shares of Class A Common Stock for public offer and
sale under the Securities Act of 1933. The "demand" registration right was
exercisable after the earlier of June 30, 1996 or the effective date of the
first registration statement for an underwritten public offering of PriCellular
securities. The registration rights agreement also granted the holders of the
PriCellular Note or the underlying Class A Common Stock certain "piggy-back"
registration rights permitting it to have such Class A Common Stock included in
other registration statements filed by PriCellular with respect to a public
offering of its securities at PriCellular's expense, so as to permit public
offer and sale of such shares, subject to the right of any underwriter of such
public offering to limit the number of shares so included.
On January 30, 1996, DCI entered into an agreement with PriCellular whereby DCI
agreed to sell to PriCellular 600,000 shares of its PriCellular Class A Common
Stock for $10.50 per share. The closing of this transaction occurred on February
9, 1996. At the closing, DCI entered into an agreement pursuant to which the
"demand" registration rights of the holders of the Company's PriCellular
registrable securities were waived.
USE OF PROCEEDS FOR THE SYSTEM SALE
In addition to receipt of the PriCellular Class A Common Stock, the Company
received an aggregate of approximately $9,900,000 (less closing costs and
associated expenses) in cash payments from PriCellular at the initial closing
and at the Second Payment Date (of which $400,000 is being held in escrow for a
one year period as previously described).
9
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
USE OF PROCEEDS FOR THE SYSTEM SALE (CONTINUED)
Through December 31, 1995, the cash payments were applied substantially as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
a) Repayment of Motorola debt and accrued interest incurred to
finance construction of the System...... $ 2,864,226
b) Repayment of PriCellular loan and accrued interest $ 2,040,000
c) Closing costs.................................. $ 747,955
d) Escrow account deposit......................... $ 400,000
e) Advance to Resort Club......................... $ 608,046
f) Investment in mutual fund...................... $ 250,000
g) Investment in mortgages........................ $ 1,600,000
h) Prepaid lease.................................. $ 704,948
Subtotal: $ 9,215,175
i) Amounts payable to the former president of the Company to
repurchase all of the shares of the Company's Common Stock
owned by the former president, her son and her
husband........................................ $ 1,568,626*
Total: $ 10,783,801
</TABLE>
*In lieu of a severance payment and in appreciation for her services in
developing the System, the Board of Directors has agreed in principle with Ms.
Evers-Tierney that in the event of consummation of the proposed sale of the
System, the Company will repurchase all of the shares of the Company's Common
Stock owned by Ms. Evers-Tierney, her son and her husband, at a price equal to
the "book value" of such shares computed as of the first business day after the
Closing. The determination of "book value" shall be made by the Company's
auditors and shall be computed on an accrual basis giving effect to the sale and
the expenses and taxes to be incurred in connection with the sale, but without
deducting any severance payment obligations to
10
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
USE OF PROCEEDS FOR THE SYSTEM SALE (CONTINUED)
Ms. Evers-Tierney (which will be waived) or the stock repurchase obligation to
Ms. Evers-Tierney and her family. Pro rata payment will be made to
Ms. Evers-Tierney and her family when received by the Company. Ms. Evers-Tierney
and her family have the right to obtain part of such payments in PriCellular
notes. On February 29, 1996, Debra Evers-Tierney advised the Company of her
intention to review the Company's determination of net "book value" as of
November 7, 1995. In addition, the Company and the former president are
currently negotiating to determine the proportion of the amount to be paid in
cash and in PriCellular Class A Stock. With the exception of the above described
payments to the Company's former president and members of her family, no portion
of the sale proceeds will be distributed directly to the Company's shareholders.
FUTURE BUSINESS PLANS
The System was substantially the Company's only source of revenues. Immediately
after completion of the sale of the System, the Company had no significant
operations. Although management had not determined with any degree of
specificity the allocation of the Company's resources to future business
activities, management presently intends to apply the bulk of the Company's
resources in some or all of the following real estate development activities:
residential, commercial and resort development. Some of such activities may be
conducted with entities affiliated with management such as Great American
Recreation, Inc. ("Great American") and affiliated companies. The Company's
involvement may be as a sole principal, a partner, a joint venture or in some
other form.
Through March 31, 1996, the Company invested an additional $2,300,000 in the
Resort Club in the form of an additional loan on terms substantially similar to
the previous $1,417,598 loan arrangement with the Resort Club, paid $1,025,000
to lease the Vernon Valley/Great Gorge Ski Area Rental Shops and all fixtures
located thereon as well as the ski rental equipment from a wholly owned
subsidiary of Great American, an entity in which certain of the Company's
officers and directors have present and prior affiliations, loaned $269,500 to
Great American, assumed $750,000 of indebtedness of its principal stockholder
repayable from Resort Club receivables and paid $1,600,000 to purchase mortgages
with a face value of approximately $3,000,000 from the Resolution Trust Company.
With respect to the aforementioned $269,500 loan from the Company to Great
American, a payment of $150,000 has been received by the Company, with the
remaining balance of $119,000 collateralized by an assignment of certain
insurance proceeds from Great American to the Company (see Note 4, Related Party
Transactions and Note 11, Subsequent Events).
11
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
FUTURE BUSINESS PLANS (CONTINUED)
On February 14, 1996, an involuntary bankruptcy petition was filed against Great
American by three creditors in the United States Bankruptcy Court, Newark, New
Jersey. On April 2, 1996, Great American and its subsidiaries and GMD filed
voluntary petitions with the United States Bankruptcy Court for the District of
New Jersey seeking reorganization under Chapter 11 of the Unites States
Bankruptcy Code. There can be no assurance that Great American will be
successful in its efforts to be reorganized under Chapter 11 of the Unites
States Bankruptcy Code and that it may not be forced to liquidate its assets and
distribute the proceeds to its creditors. Management of the Company believes
that these filings will have no material impact on its investments in Great
American or entities affiliated with Great American or the Resort Club for the
reason that Praedium Phoenix, L.L.C. ("Praedium"), Great American's primary
lender, issued a Non-Disturbance Agreement to Great American for the benefit of
the first 754 Resort Club membership sales which secures the viability of the
Resort Club and provides an additional source of revenues to Great American and
otherwise prevents the impairment of a majority of the Company's collateral.
The Company may also seek to pursue real estate development activities on its
"Silver Shield" Mill property in Colorado. Despite the foregoing, management
reserves the right to apply the Company's assets in other businesses as
opportunities present themselves.
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Immuno Therapeutics, Inc. ("Immuno"), a company engaged in research, development
and commercialization of immunopharmaceutical agents for the treatment of cancer
through macrophage activation. Pursuant to the Stock Purchase Agreement, the
Company agreed to purchase and Immuno agreed to sell 5,000,000 shares of
Immuno's Common Stock at a purchase price per share of $.065. The Purchase
Agreement contains various representations and warranties concerning Immuno and
its activities and also various affirmative and negative covenants, including a
covenant to elect as a Director of Immuno one person designated by the Company.
Mr. William McManus serves as the Company's designee to Immuno's Board of
Directors. The Purchase Agreement also grants to the Company the right to have
registered under the Securities Act of 1993, as amended, the shares sold to the
Company to enable the public offer and sale of those shares. The shares
purchased by the Company are equal to approximately 54.8% of the shares
outstanding.
12
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 3 - DISCONTINUED OPERATIONS - SALE OF CELLULAR ASSETS (CONTINUED):
FUTURE BUSINESS PLANS (CONTINUED)
On March 21, 1996, the Company loaned $1.75 million to Food Extrusion, Inc.
(hereinafter referred to as the "Extrusion Note."). Food Extrusion, Inc. is a
non-affiliated nutriceutical corporation engaged in a revolutionary
stabilization process which converts rice bran (one of the world's largest
wasted food resources) into a highly nutritious food with cholesterol-lowering
properties. The Extrusion Note bears interest at 5% per annum, is due on
November 21, 1996 and is secured by a first lien on certain food processing
assets and related contract rights. The parties are currently engaged in
negotiations whereby in consideration for the surrender of the Extrusion Note
and a commitment to loan to the borrower an additional $3.25 million on November
1, 1996, the Company will receive an approximately 15% common stock interest in
the borrower and a note in the principal amount equal to the funds loaned by the
Company to the borrower (including the Extrusion Note amount of $1.75 million).
The note is intended to bear interest at 6% per annum and will be due on May 22,
1999. The note is intended to be secured by the same assets as the Extrusion
Note. In the event the borrower realizes net proceeds of $5 million on or before
November 1, 1996 from a public offering of its securities, the Company's
obligation to loan the additional $3.25 million is discharged. In the event such
a public offering occurs on or before November 1, 1996, the amount loaned under
the note (including the Extrusion Note amount of $1.75 million) is to be prepaid
out of the net proceeds of the offering.
On March 19, 1996, Diamond Leasing and Management Corporation, a wholly owned
subsidiary of the Company, agreed to purchase 92 condominium lots (hereinafter
referred to as the "Property") from the real estate development corporation,
Great Mountain Development Corporation (hereinafter referred to as "GMD"), at a
price of One Million Eight Hundred Twenty Thousand and 00/100 Dollars
($1,820,000) payable as follows: (i) Two Hundred Seventy Thousand Five Hundred
and 00/100 Dollars ($270,500.00) on or before April 1, 1996; (ii) the assumption
of any and all filed liens affecting the Property; and (iii) the balance from
the net cash flow realized from the development of the Property. Each of the
parties agreed to seek Bankruptcy Court approval for this transaction. The
closing occurred on April 1, 1996 with the Company acquiring good and marketable
title to the property insurable at regular rates and with customary adjustments
made at the closing.. Finally, the Company offered GMD the Option to participate
in the development of the Property. A Director and Officer of the Company is a
principal shareholder and Officer of GMD; in addition, a Director and Officer of
the Company is an Officer of GMD (see Note 4 - Related Party Transactions).
13
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 4 - RELATED PARTY TRANSACTIONS
During the period of October 1, 1994 through April 30, 1996, the Company engaged
in various transactions with certain of its officers, directors, principal
stockholders and certain of their affiliated entities. Specifically, the Company
has entered into transactions with Resort Club., Great American, Madison Avenue
Financial Corporation ("MAFC") and GMD of which the Company's Directors and
Officers are either principal shareholders and/or Officers and Directors. In
this regard, William McManus, a Director of the Company and its President, is
also an Officer of GMD, a Director of Immuno and the President of MAFC. Mr.
Bellantoni, the former Secretary, Treasurer and Director of the Company (Mr.
Bellantoni resigned on March 19, 1996) is also Vice President and Chief
Financial Officer of Great American; Gene Mulvihill, the Chairman of the Board
and Chief Executive Officer of the Company is a principal shareholder and
Officer of GMD and former Chairman of the Board and Chief Executive Officer of
Great American and his daughter is a Director and Chief Operating Officer of
such corporation.
In connection with the $2,000,000 loan extended by PriCellular to DCI on April
7, 1995 in anticipation of the execution of the Asset Purchase Agreement (See
Note 3), an aggregate $1,417,598 of the loan proceeds were applied by the
Company to the extension of a loan to the Resort Club. The Resort Club Loan was
repayable on April 20, 1996 together with interest thereon at an annual rate of
18%, the interest payable quarterly (said loan was extended for the period of
one year to April 20, 1997). Resort Club is engaged in the business of offering
membership interests in the Great Gorge Resort to the general public. The
membership entitles the member to the use of certain accommodations for a
defined period of time each year of the membership term and the right to utilize
certain amenities such as skiing, admission to a participation theme park known
as "Action Park," a health club and other forms of outdoor recreation on certain
leased lands. The accommodations are provided in the form of condominiums.
The average Resort Club membership sales price is $10,000 of which between 10%
and 20% is paid initially and the balance is payable over an average seven-year
term with interest at an annual rate of 14%. As collateral to secure repayment
of the Resort Club Loan, a security interest in membership promissory notes in
the aggregate principal amount of $1,417,598 was assigned by Resort Club to the
Company. Approximately $200,000 principal amount of such notes are payable by
December 31, 1996. In the event an individual promissory note goes into default,
Resort Club is obligated to replace the promissory note with a performing
promissory note similar in amount.
The security interests granted to the Company in the Resort Club membership
promissory notes are junior in priority to security interests in such notes
granted to an unaffiliated creditor holding
14
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED):
Resort Club senior indebtedness in the approximate amount of $1,000,000.00. An
entity of which Mr. Mulvihill is affiliated with is also owed $1,000,000 by
Resort Club, payable June 30, 1996 and has been granted a security interest in
the Resort Club membership promissory notes to secure repayment of indebtedness.
However, such security interest is subordinate to the Company's security
interest in such notes.
On October 16, 1995, the Company entered into a second loan agreement with the
Resort Club whereby the Company provided a loan facility of $2,300,000 on terms
substantially similar to the previous loan arrangement with the Resort Club. The
loan is due and payable to the Company on October 16, 1996.
Based upon the foregoing, the principal amount of indebtedness due the Company
from the Resort Club is $3,262,108 At December 31, 1995 in the aggregate which
is collateralized by membership Promissory Notes. In the event an individual
Promissory Note goes into default, Resort Club is obligated to replace the
Promissory Note with a performing Promissory Note similar in amount. The Resort
Club continues to generate sales and provide additional collateral.
On November 27, 1995, the Company borrowed $1 million from Donaldson, Lufkin &
Jenrette ("DLJ"). The terms of the loan require that the Company pay a rate of
interest equal to the broker's rate as established by DLJ from time to time. The
loan is due and payable on demand and is collateralized with 300,000 shares of
the Company's PriCellular Class A Common Stock.
The entity presently providing Resort Club members with admission to its "Action
Park" and skiing facilities is Great American, a New Jersey corporation which,
together with its subsidiaries, owns and operates the summer Action Park and
winter recreational ski area in Vernon Township, Sussex County, New Jersey.
In May 1995, First Fidelity Bank N.A., a National Banking Association ("First
Fidelity"), instituted a Complaint in foreclosure against Great American based
on an alleged default under certain promissory notes representing aggregate
outstanding principal amount of indebtedness of approximately $17,000,000. Gene
W. Mulvihill was a guarantor of repayment of approximately $5,000,000 of this
indebtedness. As of September 30, 1995, the Company owned a $600,000 secured
position in a $1,400,000 junior participation held by a third party, MAFC, with
respect to one of the notes representing an aggregate principal amount of
indebtedness of approximately $14,900,000 (as of February of 1996, the Company's
interest in the aforementioned junior participation was discounted by 13% and in
consideration of the Company agreeing to the said discount, the Company received
the sum of $529,440).
15
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED):
In June 1995, First Fidelity commenced an action (The "Guaranty Action") in the
Superior Court of New Jersey, Law Division, Morris County, against Great
American, substantially all of its subsidiaries, Princeton New York Parent,
Inc., a New Jersey corporation, and its subsidiaries and others including Mr.
Mulvihill seeking to recover judgments against the defendants on the
indebtedness and on the guarantees of the indebtedness owing to First Fidelity.
The Foreclosure Action and the Guaranty Action are collectively referred to as
the "Litigation".
Pursuant to an option agreement entered into with First Fidelity on September
13, 1995, on October 27, 1995, First Fidelity assigned to Noramco (NJ), Inc.
("Noramco") its interest in First Fidelity's loans to Great American, the
related loan documents, the related liens and security interest, its interest in
participations in the loan, and the Litigation. Herein such assets as were
assigned by First Fidelity to Noramco are referred to as the "Indebtedness".
Also on October 27, 1995, Noramco assigned its interest in the Indebtedness to
Praedium. At the time the transaction was competed, neither Noramco nor Praedium
were affiliated with either Great American or its officers or directors.
Also on October 27, 1995, Great American entered into agreements with Praedium
to amend the terms of the Indebtedness so as to provide, among other things,
that the principal thereof would be due and payable on January 26, 1996, and
that interest would be payable monthly at the rate of 11% per annum prior to any
default on the Indebtedness and after default at the rate of 18% per annum.
As part of the transaction, Great American released First Fidelity from any
claims and agreed to indemnify First Fidelity against claims asserted against
it. Great American entered into a settlement agreement (the "Settlement")
relating to the Litigation whereby Great American agreed that, in the event of a
default under the Indebtedness, a judgment could be entered against it in both
the Foreclosure Action and the Guaranty Action in the amount of $19,683,328.
Accordingly, in the event Great American defaults in payment of the principal or
accrued interest on the Indebtedness, or otherwise defaults in its obligations
under the terms of the Indebtedness, Praedium would be able, under the terms of
the Settlement, to enter a judgment against Great American in the Foreclosure
Action and the Guaranty Action and promptly seek a foreclosure sale of Great
American's properties securing the loan which could result in a change in
ownership of substantially all of Great American's assets without any assumption
of Great American's liabilities.
16
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED):
Also on October 27, 1995, Praedium entered into an agreement with Skival
Enterprises, Inc. ("Skival"), a non-affiliated entity, pursuant to which
Praedium granted Skival an option exercisable through the earlier of fifteen
months from the date of the option agreement or the day before a Sheriff's Sale
of the property is to be held, to purchase all of the Indebtedness.
The lands which are the subject of the Praedium foreclosure suit against Great
American include certain lands upon which certain amenities provided by the
Resort Club to its members are located.
Consequently, in the event Praedium exercises its rights including the right of
foreclosure of its mortgages and security interests, the Resort Club's ability
to fulfill certain of its contractual obligations to its members could become
impaired and could thereby have a substantial adverse effect on the
collectability of the members' notes assigned as security to insure repayment of
the Resort Club loans due to the Company.
In recognition of the foregoing risk, the Resort Club, Great American and
Praedium recently concluded the negotiation of a Non-Disturbance Agreement for
the benefit of the initial 754 initial membership sales thereby reducing the
risk to the Company's collateral. Moreover, Resort Club, Praedium, Great
American and certain of Great American's wholly owned subsidiaries have agreed
to continue negotiation with an eye toward entering into a further
Non-Disturbance Agreement substantially in the form of the original
Non-Disturbance Agreement for the benefit of additional membership sales at such
time as a mutually satisfactory arrangement can be made among Praedium, Resort
Club and Great American and certain of its wholly owned subsidiaries regarding
payment or the giving of other financial inducement to Praedium in consideration
of Praedium's providing non-disturbance protection to additional Memberships
which would result in the Company's Resort Club Promissory Notes assigned as
collateral enjoying all the benefits of a Non-Disturbance Agreement. In
conclusion, management believes a further Non-Disturbance Agreement will be
concluded although there can be no assurance of same.
On December 1, 1995, the Company entered into a lease agreement with Vernon
Valley Recreation Association, Inc. ("Vernon Valley"), a wholly-owned subsidiary
of Great American. The lease term commenced on December 15, 1995 and expired on
March 15, 1996. Pursuant to the lease, the Company leased the Vernon
Valley/Great Gorge Ski Area Rental Shops and all fixtures located thereon as
well as the ski rental equipment. In consideration for this lease, the Company
agreed to: 1) pay a base rent of $950,000; 2) pay additional rent of $75,000
which represents an unallocated payment for services provided by Vernon Valley
including but not limited to security, maintenance of the leased premises, and
general administrative services; and 3)
17
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED):
pay a percentage of gross revenue equal to 50% of gross revenue in excess of
$1,000,000. The Lease provided for a cap limitation equal to a 28% rate of
return to the Company. Proceeds received in excess of a 28% rate of return are
required to be remitted to Vernon Valley. The Lease also provided the Company
with the absolute right of renewal for an additional three consecutive December
15 - March 15 lease terms. Through March 31, 1996, the Company received net
proceeds of approximately $984,000 (excluding the $75,000 additional rent which
was paid directly to Vernon Valley from ski rental receipts) on this transaction
and owes no further obligation to Vernon Valley and consequently had a net gain
on the transaction.
On November 10, 1995, the Company entered into an assumption agreement with Mr.
Gene Mulvihill whereby the Company assumed indebtedness of $750,000 for a loan
previously advanced to Mr. Mulvihill by his two partners in St. Marks
Associates, the Company's current landlord, on or about May 19, 1995. The
Company assumed the said indebtedness in exchange for an equal amount of Resort
Club receivables. The Resort Club receivables were incorporated into the second
loan agreement with the Resort Club described above. The loan was paid in full
on February 15, 1996 together with interest at 15%.
Subsequent to the sale of the System, the Company transferred its executive
offices to 355 Madison Avenue, Morristown, New Jersey. In connection with this
move, the Company entered into a lease agreement with St. Marks Associates, a
real estate partnership owned 50% by Mr. Gene Mulvihill. The lease provides for
a lease term of 5 years commencing December 1, 1995 with a base rent of
$2,764.58 per month and a monthly payment of $774.08 for the Company's
proportionate share of impositions and operating expenses. The lease provides
for rental adjustments for changes in the Consumer Price Index.
At July 24, 1992, Great American and a subsidiary were indebted to the Company
for prior loans, in the aggregate amount of approximately $680,000. At such
date, the Company agreed to reduce the amount of the indebtedness to $600,000 in
return for a $600,000 secured position in a junior participation hereinafter
described held by a third party, MAFC. MAFC held a second junior participation
in a loan agreement between Great American and First Fidelity. MAFC's second
junior participation was limited to receiving a pro rata share of the interest
paid by Great American to First Fidelity under a secured promissory note (the
"Term Note") until First Fidelity and a prior participant had received full
payment on the indebtedness totaling approximately $11,750,000 owed to them. The
Term Note was secured by a lien on Great American's assets. At July 24, 1992,
the total principal indebtedness owed on the Term Note was $14,450,000 with
approximately $1,400,000 of such amount owed to MAFC. Interest on the Term Note
was payable monthly at an annual rate equal to 2-1/2% above First Fidelity's
prime rate. By virtue of its agreement to reduce the indebtedness owed to it to
$600,000 for a participation in MAFC's
18
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED):
position, the Company became entitled to 6/14ths of each monthly interest
payment received by MAFC subsequent to July 24 1992. The Company had filed a
financing statement and held a secured position in the payments made to MAFC
under the Term Note.
In October 1995, Noramco and Skival entered into an agreement with MAFC whereby
MAFC agreed to accept 88.24% or $1,235,360 of the $1,400,000 second junior
participation in the Great American indebtedness. Thereafter, MAFC agreed to
accept approximately 50% of the amount due and owing in cash and the balance in
the form of a note from Noramco in consideration of MAFC receiving a secured
position in Skival's option agreement with Praedium. Accordingly, the Company
adjusted its carrying value of the MAFC investment to $529,440 as of September
30, 1995. The Company accepted a discount on its participation in consideration
for being immediately repaid the $529,440 in cash payment made by Noramco. The
proceeds were utilized as a down payment on nine condominiums purchased from GMD
for an aggregate purchase price of $815,000, an amount which approximates fair
market value. The balance of $285,560 was paid at closing of title on April 1,
1996. GMD, of which Mr. McManus is an officer, is owned 50% by Mr. Mulvihill. On
April 2, 1996, GMD filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.
On February 14, 1996, an involuntary bankruptcy petition was filed against Great
American by three creditors in the United States Bankruptcy Court, Newark, New
Jersey. On April 2, 1996, Great American and its subsidiaries and GMD filed
voluntary petitions with the United States Bankruptcy Court for the District of
New Jersey seeking reorganization under Chapter 11 of the Unites States
Bankruptcy Code. There can be no assurance that Great American will be
successful in its efforts to be reorganized under Chapter 11 of the Unites
States Bankruptcy Code and that it may not be forced to liquidate its assets and
distribute the proceeds to its creditors. Management of the Company believes
that these filings will have no material impact on its investments in Great
American or entities affiliated with Great American or the Resort Club for the
reason that Praedium Phoenix, L.L.C. ("Praedium"), Great American's primary
lender, issued a Non-Disturbance Agreement to Great American for the benefit of
the first 754 Resort Club membership sales which secures the viability of the
Resort Club and provides an additional source of revenues to Great American and
otherwise prevents the impairment of a majority of the Company's collateral.
NOTE 5 - INCOME TAXES:
As of December 31, 1995, the Company had available for federal income tax
purposes approximately $1,690,000 of net operating loss carryforwards, which
would have expired in fiscal
19
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 5 - INCOME TAXES (CONTINUED):
1997 to 2007 and investment tax credit carryforwards of approximately $8,000
which would have expired in fiscal 1996 to 2000.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". This statement adopts a
balance sheet approach to accounting for income taxes and requires, among other
things, that deferred assets and liabilities be adjusted to reflect the rate at
which the applicable timing items will reverse based on current enacted law. The
effect of adopting this statement in 1993 was not significant to the Company.
The principal effect of adopting this statement for the three months ended
December 31, 1995, is that utilization of net operating loss carryforwards is
reflected as a reduction of the tax provision rather than an extraordinary item.
As a result of the gain on the sale of the Company's System, the Company
recognized a $676,000 tax benefit from prior period net operating loss
carryforwards.
NOTE 6 - PREPAID EXPENSES AND OTHER ASSETS:
As of December 31, 1995, prepaid expenses and other assets consist of prepaid
rent expenses of $704,948. On December 1, 1995, the Company entered into a lease
agreement with Vernon Valley. The lease term commenced on December 15 ,1995 and
expired on March 15, 1996. Pursuant to the lease, the Company leased the Vernon
Valley/Great Gorge Ski Area Rental Shops and all fixtures located thereon as
well as the ski rental equipment. In consideration for this lease, the Company
agreed to: 1) pay a base rent of $950,000; 2) pay additional rent of $75,000
which represents an unallocated payment for services provided by Vernon Valley
including but not limited to security, maintenance of the lease premises, and
general administrative services; and 3) pay a percentage of gross revenue equal
to 50% of gross revenue in excess of $1,000,000. The Lease provides for a cap
limitation equal to a 28% rate of return to the Company.
Proceeds received in excess of a 28% rate of return are required to be remitted
to Vernon Valley. The Lease also provides the Company with the absolute right of
renewal for an additional three consecutive December 15 - March 15 lease terms.
Through March 31, 1996, the Company received net proceeds of approximately
$984,000 (excluding the $75,000 additional rent which was paid directly to
Vernon Valley from ski rental receipts) on this transaction and owes no further
obligation to Vernon Valley and consequently had a net gain on the transaction..
NOTE 7 - MORTGAGES RECEIVABLES:
On December 13, 1995, the Company entered into a purchase agreement with the
Resolution Trust Corporation for the purchase of 28 mortgages in New Jersey and
one mortgage in Florida.
20
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 7 - MORTGAGES RECEIVABLES (CONTINUED):
The purchase price of $1,600,000 represents approximately 51% of the principal
amount of indebtedness on single family residential properties. As of March 31,
1996, all of the above mortgages were nonperforming. It is the intention of the
Company to restructure these loans or to commence foreclosure proceedings in
order to realize a return on this investment.
NOTE 8 - INVESTMENT IN PRICELLULAR CORPORATION:
At the November 7, 1995 closing of the System, PriCellular elected to force
conversion of its five-year, 4%, $10,000,000 Convertible Subordinated Note to
DCI into 1,175,088 shares of its Class A Common Stock. The high and low sales
prices for PriCellular Class A Common Stock, as traded on the American Stock
Exchange on November 7, 1995, were $13.125 and $12.75, respectively. As a
result, the Company recorded the 1,175,088 converted shares at a value of
$7,497,063 an amount which reflects a 50% discount of the closing sales price of
PriCellular Class A Common Stock on November 7, 1995 of $12.75. The Company
recorded a 50% discount because of the trading restrictions placed on the stock.
On January 30, 1996, DCI entered into an agreement with PriCellular whereby DCI
agreed to sell to PriCellular 600,000 shares of its PriCellular Class A Common
Stock for $10.50 per share. The closing of this transaction occurred on February
9, 1996. At the closing, DCI entered into an agreement pursuant to which the
demand registration rights of the holders of the Company's PriCellular
registrable securities were waived.
NOTE 9 - DEBT:
On November 10, 1995, the Company entered into an assumption agreement with Mr.
Gene Mulvihill whereby the Company assumed indebtedness of $750,000 for a loan
previously advanced to Mr. Mulvihill by his two partners in St. Marks
Associates, the Company's current landlord, on or about May 19, 1995. The
Company assumed the said indebtedness in exchange for an equal amount of Resort
Club receivables. The Resort Club receivables were incorporated into the second
loan agreement with the Resort Club described above. The loan was paid in full
on February 15, 1996 together with interest at 15%.
On November 27, 1995, the Company borrowed $1 million from Donaldson, Lufkin &
Jenrette ("DLJ"). The terms of the loan require that the Company pay a rate of
interest equal to the broker's rate as established by DLJ from time to time. The
loan is due and payable on demand and is collateralized with 300,000 shares of
the Company's PriCellular Class A Common Stock.
NOTE 10 - COMMON STOCK:
In November, 1995, the Company's Board of Directors authorized the purchase of
up to 2,000,000 shares of its' Common Stock by the Company with established
limits. The shares acquired will be held as treasury shares. Through December
31, 1995, the Company has repurchased 24,500 shares of Common Stock at an
average price of $85.58 per share.
NOTE 11 - SUBSEQUENT EVENTS:
On January 30, 1996, DCI entered into an agreement with PriCellular whereby DCI
agreed to sell to PriCellular 600,000 shares of its PriCellular Class A Common
Stock for $10.50 per share. The closing of this transaction occurred on February
9, 1996. At the closing, DCI entered into an agreement pursuant to which the
demand registration rights of the holders of the Company's PriCellular
registrable securities were waived.
The Company entered into a capital lease for two Piston Bullys with Bombardier
Capital, Inc. ("Bombardier") commencing January 1, 1996 for a term of 18 months
ending September 1, 1997. Piston Bully's are snow grooming machines used for
grooming ski trails. The lease provides for 11 payments with aggregate rental
payments of $165,703.60 and has a $1.00 purchase option at the end of the lease
term. Concurrent with entering into the lease agreement with Bombardier, the
Company entered into a sublease agreement with Vernon Valley on similar terms
with the Company's lease agreement with Bombardier except that the rental
payment has been adjusted to reflect a rate of return to the Company of 28%. In
connection with the lease agreement, Bombardier filed financing statements to
protect its security interest. In addition, the Company pledged 10,000 shares of
its PriCellular Class A Common Stock with Bombardier as additional collateral.
On January 26, 1996, the Company entered into a loan agreement and advanced
$269,500 to Great American in connection with a loss suffered by Great American
resulting from a flood that occurred on January 12, 1996. As collateral for the
$269,500 loan, Great American assigned to the Company its interest in the
insurance proceeds to the extent of $269,500 together with interest at 9% per
annum. As further consideration, the Company and Vernon Valley amended the ski
rental shop lease to provide that prior to any "additional rent" being paid to
Vernon Valley pursuant to the lease agreement funds will be paid to the Company
until the principal amount of the loan is fully paid with accrued interest. On
February 27, 1996, the Company received a partial payment of $150,000 on this
loan pursuant to the assignment of $119,500 which remains outstanding.
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Immuno, a company engaged in research, development and commercialization of
immunopharmaceutical
21
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 11 - SUBSEQUENT EVENTS (CONTINUED):
agents for the treatment of cancer through macrophage activation. Pursuant to
the Stock Purchase Agreement, the Company agreed to purchase and Immuno agreed
to sell 5,000,000 shares of Immuno's Common Stock at a purchase price per share
of $.065. The Purchase Agreement contains various representations and warranties
concerning Immuno and its activities and also various affirmative and negative
covenants, including a covenant to elect as a Director of Immuno one person
designated by the Company. Mr. William McManus serves as the Company's designee
to Immuno's Board of Directors. The Purchase Agreement also grants to the
Company the right to have registered under the Securities Act of 1993, as
amended, the shares sold to the Company to enable the public offer and sale of
those shares. The shares purchased by the Company are equal to approximately
54.8% of the shares outstanding.
On March 21, 1996, the Company loaned $1.75 million to Food Extrusion, Inc., a
non-affiliated nutriceutical corporation engaged in a revolutionary
stabilization process which converts rice bran (one of the world's largest
wasted food resources) into a highly nutritious food with cholesterol-lowering
properties. The Extrusion Note bears interest at 5% per annum, is due on
November 21, 1996 and is secured by a first lien on certain food processing
assets and related contract rights. The parties are currently engaged in
negotiations whereby in consideration for the surrender of the Extrusion Note
and a commitment to loan to the borrower an additional $3.25 million on November
1, 1996, the Company will receive an approximately 15% common stock interest in
the borrower and a note in the principal amount equal to the funds loaned by the
Company to the borrower (including the Extrusion Note amount of $1.75 million).
The note is intended to bear interest at 6% per annum and will be due on May 22,
1999. The note is intended to be secured by the same assets as the Extrusion
Note. In the event the borrower realizes net proceeds of $5 million on or before
November 1, 1996 from a public offering of its securities, the Company's
obligation to loan the additional $3.25 million is discharged. In the event such
a public offering occurs on or before November 1, 1996, the amount loaned under
the note (including the Extrusion Note amount of $1.75 million) is to be prepaid
out of the net proceeds of the offering.
On March 19, 1996, Diamond Leasing and Management Corporation, a wholly owned
subsidiary of the Company, agreed to purchase 92 condominium lots from the real
estate development corporation, GMD, at a price of One Million Eight Hundred
Twenty Thousand and 00/100 Dollars ($1,820,000) payable as follows: (i) Two
Hundred Seventy Thousand Five Hundred and 00/100 Dollars ($270,500.00) on or
before April 1, 1996; (ii) the assumption of any and all filed liens affecting
the Property; and (iii) the balance from the net cash flow realized from the
development of the Property. Each of the parties agreed to seek Bankruptcy Court
approval for this transaction. The closing occurred on April 1, 1996 with the
Company acquiring good and marketable title to the property insurable at regular
rates and with customary adjustments made at the closing.. Finally, the Company
offered GMD the Option to participate in the development of
22
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
NOTE 11 - SUBSEQUENT EVENTS (CONTINUED):
the Property. A Director and Officer of the Company is a principal shareholder
and Officer of GMD; in addition, a Director and Officer of the Company is an
Officer of GMD (see Note 4 - Related Party Transactions).
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the accompanying
unaudited financial statements and the notes thereto included in Item I of this
quarterly report, and the financial statements and the notes thereto and
management's discussion and analysis of financial condition and results of
operations contained in the Company's Annual Report on Form 10-KSB for the year
ended September 30, 1995.
On November 7, 1995, the Company completed the sale of its System. The System
was substantially the Company's only source of revenues. After November 7, 1995,
the Company had no significant operations. Accordingly, the Company's condensed
consolidated balance sheet at December 31, 1995 is not comparable to the
condensed consolidated balance sheet as of September 30 1995, and the Company's
condensed consolidated statement of operations and cash flows for the three
months ended December 31, 1995 are not comparable to the three months ended
December 31, 1994.
A. LIQUIDITY AND CAPITAL RESOURCES
During the first three months of fiscal 1996, the Company had income from
continuing operations of approximately $606,500. Included in income from
continuing operations is depreciation of approximately $1,773, which is a
noncash expense and an income tax benefit of $720,666 which is a noncash
increase to income. After reflecting the net change in assets and liabilities
which included primarily the prepayment of a lease of approximately $705,000,
net cash used by operations was approximately $1,211,000. In addition, income
from discontinued operations provided net cash of approximately $9,567,000 as a
result of the sale of the Company's cellular telephone system. Investing
activities include primarily investments in mortgages of approximately
$1,600,000 and loans to a related party of approximately $2,133,000. Financing
activities used net cash of approximately $3,585,000 which resulted from the
repayment of borrowings of approximately $5,314,360, purchase of treasury stock
of $20,967 offset by additional loans of approximately $1,750,000. Accordingly,
during the first three months of fiscal 1996, the Company's cash increased by
approximately $788,000.
SALE OF CELLULAR ASSETS
On November 16, 1994, Resources announced that DCI had retained an independent
broker on an exclusive basis to attempt to find a potential purchaser for DCI's
System or a possible merger partner with DCI. Management of the Company
determined to seek a purchaser because it believed that DCI's System had been
developed to a point where it represented an attractive acquisition for
potential acquirers in the cellular industry at a price, based on current market
conditions, substantially in excess of DCI's costs in developing the System.
23
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
SALE OF CELLULAR ASSETS (CONTINUED)
On May 8, 1995, the Company and DCI executed an Asset Purchase Agreement
(subsequently amended on August 14, 1995 and December 14, 1995) with two
unaffiliated entities, PriCellular Corporation ("PriCellular") and PriCellular's
wholly-owned Northland subsidiary, providing for the sale to Northland of the
System. The System was substantially the Company's only source of revenues.
Immediately after completion of the sale of the System, the Company had no
significant operations.
Public announcement of the execution of the Asset Purchase Agreement was
disseminated by the Company and by PriCellular on May 8, 1995. On May 5, 1995,
the trading day immediately preceding the date of the announcement, the high and
low bid and asked prices for the Company's Common stock as quoted in the
over-the-counter market were $1, $.75, $1.75 and $1.06 respectively and the high
and low sales prices for PriCellular Class A Common Stock as traded on the
American Stock Exchange were $10.16 and $9.85 respectively.
In anticipation of the execution of the Asset Purchase Agreement, PriCellular
extended a $2,000,000 loan to DCI on April 7, 1995. From the $2,000,000 of loan
proceeds, the Company (a) made a $1,417,598 loan to Resort Club, an entity of
which the Company's principal stockholder is a creditor; (b) paid $250,000 to a
corporation owned by the Company's former president and her husband in payment
of bills rendered for previously completed Cell Site and Tower construction for
the System; and (c) prepaid $125,000 of indebtedness owed to an entity owned by
members of the principal stockholder's immediate family. The balance was applied
to legal and professional fees related to the sale of the System.
The sale of the System was contingent upon obtaining the consent of the FCC to
the assignment by DCI of the licenses to operate the System to Northland (which
consent was obtained on June 9, 1995), and upon obtaining the approval of the
sale from holders of a majority of the outstanding shares of the Company's
Common Stock (which approval was obtained on November 6, 1995).
The Assets sold (subject to certain current liabilities related to the System
and being assumed by the Purchaser) included the FCC nonwireline license for the
System, the cellular sites, towers and related equipment used by the System, the
real property on which the cellular sites are located, and the bulk of DCI's
current assets.
The parties also agreed that effective August 1, 1995, PriCellular would become
the manager of the System pursuant to a management agreement providing for a
management fee to be paid to PriCellular equal to 7% of the gross revenues of
the System during the term of the management
24
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) SALE OF CELLULAR ASSETS
(CONTINUED)
agreement. Through November 7, 1995, the Company accrued $114,600 in connection
with the management agreement.
The original purchase price of the system was $19,900,000 (after a $100,000
reduction for the amount by which certain liabilities assumed by the purchaser
at the closing exceeded DCI's current assets) payable as follows: (a) $6,000,000
in cash, payable at the Closing which occurred on November 7, 1995, (b)
$3,900,000 in cash payable 30 days following the Closing (the "Second Payment
Date") and (c) $10,000,000 by delivery at the Closing of PriCellular's
five-year, 4% Convertible Subordinated Note in the principal amount of
$10,000,000 (also referred herein as the "PriCellular Note"). The PriCellular
Note was convertible into shares of PriCellular Class A Common Stock at $8.51
per share (i) at the option of the holder and (ii) at the option of PriCellular
if the closing price for PriCellular Class A Common Stock when trading on the
American Stock Exchange (or such other exchange which at such time may be the
principal exchange where such stock is traded) is $10.60 or higher for ten
consecutive trading days.
At the closing, the initial $6,000,000 cash portion of the purchase price was
reduced to the extent required to repay DCI's outstanding debt to Motorola
(approximately $2,864,000) incurred to finance construction of the System, and
to repay the 8%, $2,000,000 loan extended to DCI by PriCellular on April 7, 1995
in anticipation of the execution of the Asset Purchase Agreement. At the second
closing, the $4,000,000 cash portion of the purchase price was decreased by
$100,000, the amount by which assumed current liabilities exceeded DCI's current
assets. An aggregate $400,000 of the $3,900,000 balance of the purchase price
was required to be held in escrow for a one year period following the closing,
to ensure the accuracy of the Company's representations and warranties.
Also at the closing, PriCellular elected to force conversion of its five-year,
4%, $10,000,000 Convertible Subordinated Note to DCI into 1,175,088 shares of
its Class A Common Stock. The high and low sales prices for PriCellular Class A
Common Stock, as traded on the American Stock Exchange on November 7, 1995, were
$13.125 and $12.75, respectively. As a result, the Company recorded the
1,175,088 converted shares at a value of $7,497,063 an amount which reflects a
50% discount of the closing sales price of PriCellular Class A Common Stock on
November 7, 1995 of $12.75. The Company recorded a 50% discount because of the
trading restrictions placed on the stock.
In connection with the second closing, the Company entered into a second
amendment to the Asset Purchase Agreement dated December 14, 1995 whereby the
Company and PriCellular resolved certain disputes with respect to the adjusted
purchase price of the System. As amended,
25
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
SALE OF CELLULAR ASSETS (CONTINUED)
the Company received $3,500,000 at the second closing, with the $400,000 balance
being held in escrow. As part of the second amendment, the Company retained
ownership of certain accounts receivable deemed to be uncollectable as of August
1, 1995 in the aggregate principal amount of approximately $124,000. In
addition, the Company reserved the right to the proceeds of any insurance claim
arising from a loss that took place in the month of August 1995.
Pursuant to a separate registration rights agreement, PriCellular granted the
holders of at least 50% of the Class A Common Stock issuable or issued upon
conversion of the PriCellular Note, one "demand" right of registration requiring
PriCellular to register such shares of Class A Common Stock for public offer and
sale under the Securities Act of 1933. The "demand" registration right was
exercisable after the earlier of June 30, 1996 or the effective date of the
first registration statement for an underwritten public offering of PriCellular
securities. The registration rights agreement also granted the holders of the
PriCellular Note or the underlying Class A Common Stock certain "piggy-back"
registration rights permitting it to have such Class A Common Stock included in
other registration statements filed by PriCellular with respect to a public
offering of its securities at PriCellular's expense, so as to permit public
offer and sale of such shares, subject to the right of any underwriter of such
public offering to limit the number of shares so included.
On January 30, 1996, DCI entered into an agreement with PriCellular whereby DCI
agreed to sell to PriCellular 600,000 shares of its PriCellular Class A Common
Stock for $10.50 per share. The closing of this transaction occurred on February
9, 1996. At the closing, DCI entered into an agreement pursuant to which the
demand registration rights of the holders of the Company's PriCellular
registrable securities were waived.
USE OF PROCEEDS FROM THE SYSTEM SALE
In addition to receipt of the PriCellular Class A Common Stock, the Company
received an aggregate of approximately $9,900,000 (less closing costs and
associated expenses) in cash payments from PriCellular at the initial closing
and at the Second Payment Date (of which $400,000 is being held in escrow for a
one year period as previously described).
26
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
USE OF PROCEEDS FROM THE SYSTEM SALE (CONTINUED)
Through December 31, 1995, the cash payments were applied substantially as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
a) Repayment of Motorola debt and accrued interest incurred
to finance construction of the
System.................................................................. $ 2,864,226
b) Repayment of PriCellular loan and accrued
interest................................................................. $ 2,040,000
c) Closing costs........................................................... $ 747,955
d) Escrow account deposit................................................... $ 400,000
e) Advance to Resort Club................................................... $ 608,046
f) Investment in mutual fund................................................ $ 250,000
g) Investment in mortgages.................................................. $ 1,600,000
h) Prepaid lease............................................................ $ 704,948
Subtotal: $ 9,215,175
i) Amounts payable to the former president of the Company to
repurchase all of the shares of the Company's common stock
owned by the former president, her son and her
husband....................... $ 1,568,626*
Total: $ 10,783,801
</TABLE>
*In lieu of a severance payment and in appreciation for her services in
developing the System, the Board of Directors has agreed in principle with Ms.
Evers-Tierney that in the event of consummation of the proposed sale of the
System, the Company will repurchase all of the shares of the Company's Common
Stock owned by Ms. Evers-Tierney, her son and her husband, at a price equal to
the "book value" of such shares computed as of the first business day after the
Closing. The determination of "book value" shall be made by the Company's
auditors and shall be computed on an accrual basis giving effect to the sale and
the expenses and taxes to be incurred in connection with the sale, but without
deducting any severance payment obligations to Ms. Evers-Tierney (which will be
waived) or the stock repurchase obligation to Ms. Evers-Tierney and her
27
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
USE OF PROCEEDS FROM THE SYSTEM SALE (CONTINUED)
family. Pro rata payment will be made to Ms. Evers-Tierney and her family when
received by the Company. Ms. Evers-Tierney and her family have the right to
obtain part of such payments in PriCellular notes On February 29, 1996, Debra
Evers-Tierney advised the Company of her intention to review the Company's
determination of net "book value" as of November 7, 1995. In addition, the
Company and the former president are currently negotiating to determine the
proportion of the amount to be paid in cash and in PriCellular Class A Stock.
With the exception of the above described payments to the Company's former
president and members of her family, no portion of the sale proceeds will be
distributed directly to the Company's shareholders.
FUTURE BUSINESS PLANS
The System was substantially the Company's only source of revenues. Immediately
after completion of the sale of the System, the Company had no significant
operations. Although management had not determined with any degree of
specificity, the allocation of the Company's resources to future business
activities, management presently intends, to apply the bulk of the Company's
resources in some or all of the following real estate development activities;
residential, commercial and resort development. Some of such activities may be
conducted with entities affiliated with management such as Great American
Recreation, Inc. ("Great American") and affiliated companies. The Company's
involvement may be as a sole principal, a partner, a joint venturer or in some
other form.
Through March 31, 1996, the Company invested an additional $2,300,000 in the
Resort Club in the form of an additional loan on terms substantially similar to
the previous $1,417,598 loan arrangement with the Resort Club, paid $1,025,000
to lease the Vernon Valley/Great Gorge Ski Area Rental Shops and all fixtures
located thereon as well as the ski rental equipment from a wholly owned
subsidiary of Great American Recreation, Inc. ("Great American"), an entity in
which certain of the Company's officers and directors have present and prior
affiliations, loaned $269,500 to Great American, assumed $750,000 of
indebtedness of its principal stockholder repayable from Resort Club receivables
and paid $1,600,000 to purchase mortgages with a face value of approximately
$3,000,000 from the Resolution Trust Company. With respect to the aforementioned
$269,500 loan from the Company to Great American, a payment of $150,000 has been
received by the Company, with the remaining balance of $119,000 collateralized
by an assignment of certain insurance proceeds from Great American to the
Company (see Note 4, Related Party Transactions and Note 11, Subsequent Events).
On February 14, 1996, an involuntary bankruptcy petition was filed against Great
American by three creditors in the United States Bankruptcy Court, Newark, New
Jersey. On April 2, 1996,
28
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
FUTURE BUSINESS PLANS (CONTINUED)
Great American and its subsidiaries filed voluntary petitions with the United
States Bankruptcy Court for the District of New Jersey seeking reorganization
under Chapter 11 of the United States Bankruptcy Code. There can be no assurance
that Great American will be successful in its efforts to be reorganized under
Chapter 11 of the United States Bankruptcy Code and that it may not be forced to
liquidate its assets and distribute the proceeds to its creditors. Management of
the Company believes that these filings will have no material impact on its
investments in Great American or entities affiliated with Great American or the
Resort Club for the reason that Praedium Phoenix, L.L.C., Great American's
primary lender, has agreed to grant a non disturbance to Great American for the
benefit of the Resort Club and its members which secures the viability of the
Resort Club and provides an additional source of revenues to Great American and
otherwise prevents the impairment of the collateral.
The Company may also seek to pursue real estate development activities on its
"Silver Shield" Mill property in Colorado. Despite the foregoing, management
reserves the right to apply the Company's assets in other businesses as
opportunities present themselves.
On March 1, 1996, the Company entered into a Stock Purchase Agreement with
Immuno Therapeutics, Inc. ("Immuno"), a company engaged in research, development
and commercialization of immunopharmaceutical agents for the treatment of cancer
through macrophage activation. Pursuant to the Stock Purchase Agreement, the
Company agreed to purchase and Immuno agreed to sell 5,000,000 shares of
Immuno's Common Stock at a purchase price per share of $.065. The Purchase
Agreement contains various representations and warranties concerning Immuno and
its activities and also various affirmative and negative covenants, including a
covenant to elect as a Director of Immuno one person designated by the Company.
Mr. William McManus serves as the Company's designee to Immuno's Board of
Directors. The Purchase Agreement also grants to the Company the right to have
registered under the Securities Act of 1993, as amended, the shares sold to the
Company to enable the public offer and sale of those shares. The shares
purchased by the Company are equal to approximately 54.8% of the shares
outstanding.
On March 21, 1996, the Company loaned $1.75 million to Food Extrusion, Inc.
(hereinafter referred to as the "Extrusion Note."). Food Extrusion, Inc. is a
non-affiliated nutriceutical corporation engaged in a revolutionary
stabilization process which converts rice bran (one of the world's largest
wasted food resources) into a highly nutritious food with cholesterol-lowering
properties. The Extrusion Note bears interest at 5% per annum, is due on
November 21, 1996 and is secured by a first lien on certain food processing
assets and related contract rights. The parties are currently engaged in
negotiations whereby in consideration for the surrender of the
29
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
FUTURE BUSINESS PLANS (CONTINUED)
Extrusion Note and a commitment to loan to the borrower an additional $3.25
million on November 1, 1996, the Company will receive an approximately 15%
common stock interest in the borrower and a note in the principal amount equal
to the funds loaned by the Company to the borrower (including the Extrusion Note
amount of $1.75 million). The note is intended to bear interest at 6% per annum
and will be due on May 22, 1999. The note is intended to be secured by the same
assets as the Extrusion Note. In the event the borrower realizes net proceeds of
$5 million on or before November 1, 1996 from a public offering of its
securities, the Company's obligation to loan the additional $3.25 million is
discharged. In the event such a public offering occurs on or before November 1,
1996, the amount loaned under the note (including the Extrusion Note amount of
$1.75 million) is to be prepaid out of the net proceeds of the offering.
On March 19, 1996, Diamond Leasing and Management Corporation, a wholly owned
subsidiary of the Company, agreed to purchase 92 condominium lots (hereinafter
referred to as the "Property") from the real estate development corporation,
Great Mountain Development Corporation (hereinafter referred to as "GMD"), at a
price of One Million Eight Hundred Twenty Thousand and 00/100 Dollars
($1,820,000) payable as follows: (i) Two Hundred Seventy Thousand Five Hundred
and 00/100 Dollars ($270,500.00) on or before April 1, 1996; (ii) the assumption
of any and all filed liens affecting the Property; and (iii) the balance from
the net cash flow realized from the development of the Property. Each of the
parties agreed to seek Bankruptcy Court approval for this transaction. The
closing occurred on April 1, 1996 with the Company acquiring good and marketable
title to the property insurable at regular rates and with customary adjustments
made at the closing.. Finally, the Company offered GMD the Option to participate
in the development of the Property. A Director and Officer of the Company is a
principle shareholder and Officer of GMD; in addition, a Director and Officer of
the Company is an Officer of GMD (see Note 4 - Related Party Transactions).
B. RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 1994.
The net income from continuing operations applicable to common shareholders for
the first three months of fiscal 1996 was $606,501 ($0.11 per share) as compared
to net income from continuing operations applicable to common shareholders of
$60,561 ($0.01 per share) in the comparable prior year period.
30
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
B. RESULTS OF OPERATIONS (CONTINUED)
The net income from discontinued operations applicable to common shareholders
for the first three months of fiscal 1996 was $7,255,395 ($1.31 per share) as
compared to net income from discontinued operations applicable to common
shareholders of $0.00 ($0.00 per share) in the comparable prior year period.
On November 7, 1995, the Company completed the sale of its cellular telephone
system. The System was substantially the Company's only source of revenues.
After November 7, 1995, the Company had no significant operations. Accordingly,
the Company's condensed consolidated balance sheet at December 31, 1995 is not
comparable to the condensed consolidated balance sheet as of September 30 1995,
and the Company's condensed consolidated statement of operations and cash flows
for the three months ended December 31, 1995 are not comparable to the three
months ended December 31, 1994.
31
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held a special meeting of stockholders on
Monday, November 6, 1995.
(c) At the meeting, 3,355,048 shares were voted in favor and
38,950 shares were voted against a proposal to authorize and
approve the sale of the System operated by the Company's
wholly owned subsidiary, DCI, to Northland, a wholly-owned
subsidiary of PriCellular, in accordance with the terms of an
Asset Purchase Agreement dated as of May 8, 1995 among the
Company, DCI, PriCellular and Northland, so that the proposal
was duly adopted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
During the quarter ended December 31, 1995, the Company filed
a current report on Form 8-K dated November 7, 1995, reporting
the following:
Item 2 - Acquisition on Disposition of Assets - The sale of
System to Northland.
Item 5 - Other Information - The resignation of Debra
Evers-Tierney as President, Chief Operating Officer and a
Director of the Company and the election of William E.
McManus, II, as President and Chief operating Officer.
Item 7 - Financial Statements - The financial statements of
PriCellular and its subsidiaries and of the Company and its
subsidiaries were incorporated by reference from the Proxy
Statement for the November 6, 1995 special meeting of the
stockholders, previously filed.
32
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Commission Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOMINION RESOURCES, INC.
Dated: ____________________ By: _____________________________________
Gene Mulvihill
Chief Executive Officer
Dated: ____________________ By: _____________________________________
William E. McManus, II
President, Treasurer and Chief
Financial Officer
33
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 1,454,388
<SECURITIES> 7,747,063
<RECEIVABLES> 284,972
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,191,371
<PP&E> 271,598
<DEPRECIATION> 27,866
<TOTAL-ASSETS> 15,969,335
<CURRENT-LIABILITIES> 7,443,665
<BONDS> 0
0
0
<COMMON> 55,345
<OTHER-SE> 8,438,880
<TOTAL-LIABILITY-AND-EQUITY> 15,969,335
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 234,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,687
<INCOME-PRETAX> (114,165)
<INCOME-TAX> (720,666)
<INCOME-CONTINUING> 606,501
<DISCONTINUED> 7,255,395
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,861,896
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
