SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from____________to______________
Commission File Number 0-10176
DOMINION RESOURCES INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-2306487
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
355 Madison Avenue, Morristown, New Jersey 07960
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (201) 538-4177
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X .
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained herein, and will
not be contained, to the best of the issuer's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or in any amendment to
this Form 10-KSB. [ ]
For the year ended September 30, 1996, the issuer's revenues were
$4,000,810.
On December 31, 1996, the aggregate market value of the voting
stock of Dominion Resources Inc. (consisting of Common Stock, $.01
par value) held by non-affiliates of the Issuer was approximately
$1,145,033 based upon the high bid price for such Common Stock on
said date in the over-the-counter market as reported by the
National Quotation Bureau. On such date, there were 4,228,354
shares of Common Stock of the Issuer outstanding.
Transitional Small Business Disclosure Format Yes ___ No X
PART I
Item1. Business
Introduction
Dominion Resources Inc. ("Resources") was principally engaged
through a wholly owned subsidiary formed in 1991, Dominion
Cellular, Inc. ("DCI") in the operation of a nonwireline cellular
radio telephone system servicing a six county area in central
Alabama with a population of approximately 150,000 located between
Montgomery and Birmingham, Alabama. In fiscal 1995 and 1996, the
Company formed and/or acquired four wholly owned subsidiaries -
Diamond Leasing and Management Corp. ("Diamond Leasing"), Diamond
World Funding Corp., Star II Leasing Corporation and Resort Club,
Inc. ("Resort Club"). As of September 30, 1996, Diamond Leasing
had extended loans and provided equity to Resort Club in the
aggregate amount of $6,225,442. In connection with these loans,
pursuant to a pledge agreement, Diamond Leasing acquired 100% of
the outstanding common stock of Resort Club. In addition, Diamond
Leasing purchased mortgages on 29 residential properties with the
intention of restructuring the loans or commencing foreclosure
proceedings in order to realize a return. During fiscal 1996,
Star II Leasing Corporation purchased an amusement ride known as
the Space Shot which it concurrently leased to Vernon Valley
Recreation Association, Inc. ("Vernon Valley"). Resort Club is in
the business of offering membership interests in the Great Gorge
Resort, located in Vernon, New Jersey, to the general public.
Through September 30, 1996, Diamond World Funding Corp. had no
material operations or investments. As used herein, the term (the
"Company") shall refer to Resources as well as to Resources and
its wholly owned subsidiaries unless the context otherwise
requires.Resources was incorporated under the laws of the State of
Delaware on October 11, 1979 to engage in the business of milling
non-ferrous metals in the Mohave County region of Arizona.
Management subsequently concluded, based upon declining non-
ferrous metal prices, that a mill project in such region was not
feasible. In August 1989, Resources was awarded a permit by the
Federal Communications Commission ("FCC") pursuant to a lottery
process, to provide nonwireline cellular radio telephone service
in the Bibb, Alabama RSA and in June 1990, the FCC granted
Resources' application to construct a cellular system in the Bibb,
Alabama RSA (also referred herein as the "System"). Construction
commenced in the last quarter of fiscal 1991 after receipt of
required construction permits and the arrangement of financing
with Motorola, Inc. ("Motorola"). The cellular system commenced
operations in November 1991. In fiscal 1994 management of the
Company determined that the cellular telephone system had been
developed to a point where it represented an attractive
acquisition for potential acquirers. On November 7, 1995, the
Company completed the sale of its cellular telephone system to
PriCellular Corporation ("PriCellular"). On February 1, 1996 the
Company, through its wholly owned subsidiary, Diamond Leasing,
pursuant to a pledge agreement acquired 100% of the outstanding
common stock of Resort Club, a company engaged in the business of
offering membership interests in the Great Gorge Resort located in
Vernon, New Jersey to the general public. As of September 30,
1996, the Company's primary business operations are in connection
with the sale of membership interests through Resort Club.
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 cellular system or a possible merger
partner with DCI. Management of the Company determined to seek a
purchaser because it believed that DCI's cellular 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.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 and PriCellular's wholly-owned
Northland subsidiary, providing for the sale to Northland of the
System operated by DCI in the Bibb, Alabama RSA (the "AL-4 RSA").
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.
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 liabilities related to the
System and being assumed by the Purchaser) included the
FCC nonwireline license for the AL-4 RSA, 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 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 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) was $10.60 or higher for ten
consecutive trading days.
Sale of Cellular Assets (Continued)
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
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 $7,497,061
an amount which reflected 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
cellular telephone 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.
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).
Use of Proceeds from the System Sale (Continued)
The cash payments and the proceeds from the sale or distribution
of PriCellular Stock through September 30, 1996 were applied
substantially as follows:
a) Repayment of Motorola debt and accrued
interest incurred to finance construction
of the System. $ 2,864,226
b) Closing costs 747,955
c) Escrow account deposit 400,000
d) Advances to Resort Club 6,225,442
e) Investment in mutual fund and other
marketable securities 381,723
f) Investment in RTC mortgages 1,600,000
g) Prepaid lease 950,000
h) Investment in Food Extrusion 1,750,000
i) Purchase of the Company's common
stock from former President 1,664,450
j) Purchase of the Company's common stock
from unrelated parties 562,343
k) Investments in real estate and real
estate related activities 1,018,740
l) Investment in Space Shot and
Piston Bullies 1,394,710
Total: $19,559,589
Proceeds from the System Sale Payable to Former President
In lieu of a severance payment and in appreciation for her
services in developing the System, the Board of Directors had
agreed in principle with Ms. Evers-Tierney that in the event of
consummation of the sale of the System, the Company would
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" would
be made by the Company's auditors, computed on an accrual basis
giving effect to the sale and the expenses and taxes incurred in
connection with the sale, but without deducting any severance
payment obligations to Ms. Evers-Tierney (which were waived) or
the stock repurchase obligation to Ms. Evers-Tierney and her
family. As a result, pro rata payment was made to Ms. Evers-
Tierney and her family. Ms. Evers-Tierney and her family had the
right to obtain part of such payments in PriCellular notes. As of
September 30, 1996, the Company purchased an aggregate of 943,411
shares of the Company's Common Stock from Ms. Evers-Tierney and
her family at a purchase price equal to approximately $500,000 in
cash and 182,500 shares of PriCellular Common Stock of which 50%
was allocated to the purchase of Treasury stock and 50% as a cost
in connection with the sale of the System. 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 were
distributed directly to the Company's shareholders. In addition,
Ms. Evers-Tierney received approximately $136,000 pursuant to a
consulting arrangement with the Company during fiscal 1996.
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.
On February 1, 1996, the Company, through its wholly owned
subsidiary, Diamond Leasing, pursuant to a pledge agreement,
acquired 100% of the outstanding common stock of Resort Club.
Resort Club is engaged in the business of offering membership
interests in the Great Gorge Resort to the general public. As of
September 30, 1996, the Company's primary business operations are
in connection with the sale of membership interests through Resort
Club.
In addition, 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.
As of September 30, 1996, the Company had engaged in various
transactions with certain of its officers, directors, principal
stockholders and certain of their affiliated entities (see Item 12
and Note 3 of the Notes to the Consolidated Financial Statements).
In addition, as of September 30, 1996, the Company had made an
investment in Food Extrusion, Inc. (see Note 7 of the Notes to the
Consolidated Financial Statements) and purchased mortgages from
the Resolution Trust Company (see Note 6 of the Notes to the
Consolidated Financial Statements).
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 resources in other businesses as opportunities present
themselves.
Resort Club
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 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 a winter recreational ski
area in Vernon Township, Sussex County, New Jersey.
Resort Club (Continued)
On March 29, 1996, but effective as of June 1, 1993, Resort Club
entered into amended and restated agreements with Vernon Valley,
Great Gorge and Great Valley Real Estate Corp. ("Great Valley"),
all subsidiaries of Great American whereby in consideration for an
aggregate payment of 10% of the gross sales price of each Resort
Club membership, these entities will provide amenities and access
to certain properties for the benefit of Resort Club members. The
amenities provided by Great American include admission passes to
the Vernon Valley and Great Gorge ski facilities, admission passes
to the Action Park and admission passes to the Mountain Top
Recreation Center, all for a period of 35 years. As of September
30, 1996, Resort Club has accrued an aggregate of $1,302,487 due
to Great American for the amenities and access to certain property
for which it made payments of approximately $969,846, leaving an
outstanding balance of $332,641 due to Great American as of
September 30, 1996. Also on March 29, 1996, Resort Club entered
into an amended and restated agreement with Stonehill Recreation
Corporation ("Stonehill Recreation"), the entity which owns and
operates the Spa and Country Club at Great Gorge on terms similar
to those that were entered into with Great American, except that
the consideration payable to Stonehill Recreation from Resort Club
represents $25,000 for each condominium controlled by Resort Club.
As of September 30, 1996, Resort Club has accrued an aggregate of
$700,000 due to Stonehill Recreation for amenities which is due
and payable. Andrew J. Mulvihill, an Executive Officer of Resort
Club, is the beneficial owner of 33.3% of Stonehill Recreation and
Christopher Mulvihill, the son of Mr. Gene Mulvihill, is the
beneficial owner of 33.3% of Stonehill Recreation.
During fiscal 1996 sales prices ranged from $6,900 to $12,720 per
membership. Annual fulfillment assessments for operating costs
ranged from $178.25 to $251.10 during fiscal 1996.
For the fiscal years ended September 30, 1996, 1995, 1994, Resort
Club's gross revenue from sales of membership interests was
$6,666,979, $4,858,022 and $1,546,950, respectively.
The following table illustrates certain statistics regarding
membership activities:
Fiscal 1996 Fiscal 1995 Fiscal 1994
Maximum number of
membership interests available 1,453 735 209
Net number of membership
interests sold 1,403 685 159
Percentage sold 97% 93% 76%
Net number of membership
interests sold during fiscal
period 718 526 143
Gross sales of membership
interests during fiscal
period $6,666,979 $4,858,022 $1,546,950
Annual fulfillment assessments
per membership interests $329,555 $168,930 $43,068
Resort Club membership allows its members to vacation in Resort
Condominiums at a significant savings. The accommodation usage is
administrated through a "points" based system, the latest
evolution of timesharing embraced by such industry leaders as
Fairfield, RDI, and Disney. Each member is sold a certain number
of points which are spent on accommodations. Members use a menu
or point chart with a variety of seasons, unit styles and unit
sizes to choose from with varying costs in points. The menu is
broken down with a value established for each day of the year.
The attractiveness of this program is it allows for the ultimate
in flexibility for the member. In particular, due to the Resort's
close
Resort Club (Continued)
proximity to members' homes, a number of short-term getaways of
one, two, or three nights versus a full week, is a useful value.
Resort Club is an affiliate of Interval International, a world-
wide international exchange network. Resort Club has received a
Five Star rating given to only the highest quality resorts within
the Interval International network. This rating gives Resort Club
members a higher trading power to obtain exchanges to other high
quality Resorts such as Marriott or Disney properties. As part of
the purchase price, Resort Club offers the first year's membership
to Interval International as well as one year's membership to
Interval International's benefit package known as World Card
Preferred to each of its members. World Card members obtain
discounts on car rentals, hotel stays, prescriptions, auto
purchase plans and much more.
Resort Club membership also includes access to the Spa and Country
Club, which is owned by Stonehill Recreation, at no charge when
staying within the Great Gorge Village. Access may be obtained
for a fee when not in residency. Members receive complimentary
and discounted greens fees at the Spa Golf Course and members
receive complimentary access to the Mountain Top Recreation
Center. Members also receive complimentary skiing at the Vernon
Valley/Great Gorge Ski Area and Action Park.
As a multi-site points based vacation club, Resort Club offers its
members better value and more flexibility than a traditional
deeded fixed week timeshare project. Resort Club's initial focus
is to provide the New York metropolitan market with affordable
drive-to vacation spots in the Northeast and Mid-Atlantic states.
Emerging social and economic trends see American families taking
more frequent but shorter vacations. With both spouses working it
is often difficult for them to schedule the time off for the
traditional two week vacation. A series of shorter getaways to
nearby drive-to destinations is a growing trend. Resort Club's
program is designed to meet these needs.
Great Gorge Village is both the selling headquarters for Resort
Club and its first resort location. Great Gorge Village is
located within the Great Gorge Resort area of Vernon, New Jersey.
This area possesses a wide variety of very appealing four season
amenities, including: The Vernon Valley/Great Gorge Ski Area with
3 inter-connecting mountains, 2 lodges, 52 trails, 15 lifts with
one of the world's largest snowmaking systems, and a 1,000 plus
foot vertical drop; Hidden Valley Ski Area with 1 mountain and 1
lodge, 12 trails, 3 lifts and a vertical drop of 620 feet; Action
Park Entertainment Center with 75 rides, shows and attractions,
including one of the world's largest water parks; The Spa Country
Club and Conference Center, a $12 million health and fitness club
with restaurant, banquet and conference facilities; The Spa Golf
Course, a Robert Trent Jones executive golf course with club
pavilion; The Great Gorge Golf Course, a 27-hole golf course,
clubhouse and driving range; Black Bear Golf Course, a
championship 18 hole golf course and David Glenz Golf Academy and
clubhouse; Crystal Springs Golf Course, an 18 hole, Van Hagge
designed course and David Glenz Golf Academy and clubhouse; The
Mountain Top Recreation Center, a 1,000 plus acre wilderness park
with miles of trails, 8 lakes with beaches, boating, fishing, and
a children's fort; Seasons Resort and Conference Center, a newly
renovated 600 suite hotel nestled in the Vernon Valley mountains
with state-of-the-art conference facilities; and The Mountain Top
Cabins and Tents, an awe inspiring all pine Finnish cabins and
platform tents located on lakes and ski trails with spectacular
valley views.
Many of Resort Club's units are located either on the slopes of
the Great Gorge Ski Area or the fairways of the Spa Golf Course.
Resort Club (Continued)
The Company provides financing to the purchasers of its membership
interests. This financing is generally evidenced by non-recourse
installment sales contracts. The down payment received by the
Company for such sales is at least 10% of the sales price. The
down payment is often less than the direct expense of commissions
and selling and the difference is financed either by borrowings by
the Company or by the Company's internally generated funds. Thus,
the future sales levels of the Company could be limited by the
availability of funds to finance the initial negative cash flow
that results from sales.
Management has determined that in order to adequately secure the
members' interest in accommodations, title to certain of the
Company's resort properties will be held in trust by trustees.
Trustees will administer the collection of certain of the
Company's notes receivable and annual maintenance assessments from
membership owners and retain funds for the payment of insurance,
taxes and capital improvements. The trustees will pay the balance
of the collections over to the Company on a regular basis, after
deducting certain impounds, provided that annual maintenance
assessments have been disbursed by the Company according to a
budget submitted by the Company. Under the trust and management
agreements, the Company will have the exclusive rights to the
control and management of the facilities held in trust.
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 wholly owned subsidiaries, Vernon Valley, Great
Valley, Great Gorge, Great Heritage, Inc., TAV, Inc., Stonehill
Management Corp., Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc. and Vernon Valley Sewer, Inc. 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 be liquidate its assets and
distribute the proceeds to its creditors.
Competition
Competitors to Resort Club include timeshare operations in the
Poconos and Catskills. They include Shawnee, Tree Tops and Split
Rock in the Poconos, and Villa Roma in the Catskills. Atlantic
City, a three hour drive away, has one very successful project
known as the Flagship. None of the major operators in the
timeshare market have property or sales offices within the New
York metropolitan area.
Seasonality
Sales of membership interests are primarily seasonal which
correlates with the summer and winter seasons of Great Gorge's
Action Park and winter ski operations, respectively. For the last
three fiscal years, quarterly sales as a percentage of annual
sales, for each of the fiscal quarters averaged: quarters ended
December 31 - 15%, quarters ended March 31 - 27%, quarters ended
June 30 - 18%, and quarters ended September 30 - 40%. The Company
is not dependent upon a limited number of customers whose loss
would have a materially adverse effect on the Company.
Resort Club (Continued)
Employees
Throughout the year, primarily in connection with the operation of
its membership program, the Company employs as many as 160
persons, the substantial majority of which are employed on a part-
time basis. The Company believes it enjoys a satisfactory
relationship with its employees. At present, the Company has
approximately 42 year-round employees.
Real Estate Investment Activities
Resort Club Accommodation Inventory Held in Trust. Management has
determined that in order to adequately secure the members'
interest in accommodations, title to certain of the Company's
resort properties will be held in trust by trustees. Trustees
will administer the collection of certain of the Company's notes
receivable and the annual maintenance assessments from membership
owners and retain funds for the payment of insurance, taxes and
capital improvements. The trustees will pay the balance of the
collections over to the Company on a regular basis, after
deducting certain impounds, provided that annual maintenance
assessments have been disbursed by the Company according to a
budget submitted by the Company. Under the trust and management
agreements, the Company will have the exclusive rights to the
control and management of the facilities held in trust.
At September 30, 1996, the Company has sold 215,048 membership
points. Based on the number of membership points sold, the
Company is required to purchase a minimum inventory of 29
condominium units. Currently, the Company owns 6 condominium
units free and clear, and has purchased 12 condominium units which
are subject to mortgages in the principal amount of $577,881. In
addition, the Company has entered into contracts to purchase the
remaining 11 required condominium units for a purchase price of
approximately $815,500. The Company has transferred approximately
$1,400,000 in membership receivables in escrow in order to satisfy
the outstanding mortgage balance and provision established at
September 30, 1996. These membership receivables will be held in
escrow until the required number of condominium units are
purchased free and clear.
Ouray, Colorado Property and Mill. The Company is the owner of 10
acres of land in Ouray, Colorado, with the "Silver Shield" Mill
located thereon. The mill, designed to mill silver, has not been
operated for more than 50 years. The Company paid the balance of
the purchase price for this property early in fiscal 1992 and
listed the property for sale at a price of $239,000 based upon a
listing of comparable neighboring property. Although the listing
expired in October 1993, the Company did not renew the listing
because of an ongoing reconstruction project in the vicinity which
management believes may enhance the value of the Company's
property. It is management's belief that this property will be
sold for an amount at least equal to the Company's $142,000 cost,
although no assurances can be given that such will be the case.
Other Investments. See Item 12 herein and Notes 3, 4, 6, 7, 8,
and 14 of the Notes to the Consolidated Financial Statements as to
investments made by the Company with entities affiliated with
three directors, one of which is also the principal stockholder of
the Company.
Item 2. Properties
In connection with the sale of the System, PriCellular purchased
all of Resources cell site locations and assumed the W. Blockton
lease.
Also in connection with the sale, PriCellular has assumed the
lease of the Company's former principal executive offices
originally from Resources to DCI which are located at 206 7th
Street South in Clanton, Alabama and currently leases the Selma
office from Resources on a month-to-month basis.
Subsequent to the sale of the cellular telephone 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 $1,558 per month and a monthly payment of
approximately $519 for the Company's proportionate share of
impositions and operating expenses. The lease provides for rental
adjustments for changes in the Consumer Price Index.
Item 3. Legal Proceedings
The Company is not a party to any pending legal proceedings which
it regards as material in nature.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the
quarter ended September 30, 1996. At a special meeting of the
Company's stockholders held on November 6, 1995, by a vote of
3,355,048 in favor and 38,950 against, the Company's stockholders
approved the sale of the System to the Northland subsidiary of
PriCellular in accordance with the terms of the Asset Purchase
Agreement dated as of May 8, 1995, the terms of which are
hereinafter described.
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
Resources' Common Stock is traded in the over-the-counter market.
The following table sets forth the range of high and low bid and
asked quotations for the Common Stock during the past two fiscal
years as derived from reports furnished by the National Quotation
Bureau.
Quarter Ended Bid (1) Asked (1)
High Low High Low
December 31, 1994 $1.375 $ .25 $2.00 $ .75
March 31, 1995 1.750 .75 2.00 1.125
June 30, 1995 1.125 .50 1.75 .875
September 30, 1995 .719 .50 1.50 .8125
December 31, 1995 .875 .71875 1.0625 .875
March 31, 1996 1.625 .8125 1.875 1.00
June 30, 1996 1.125 1.00 1.4375 1.25
September 30, 1996 .750 .75 1.00 1.00
____________
(1) The above quotations represent prices between dealers
and do not include retail mark-ups, mark-downs or commissions.
They do not necessarily represent actual transactions.
As of December 31, 1996, the number of record holders of
Resources' Common Stock was 2,643. Resources has never paid a
cash dividend on its Common Stock and anticipated capital
requirements make it unlikely that any cash dividends will be paid
on the Common Stock in the foreseeable future.
Item 6. Management's Discussion and Analysis or Plan of
Operation
Introduction
The following discussions and analysis of financial condition and
results of operations should be read in conjunction with the
consolidated financial statements and accompanying notes.
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. On February 1, 1996, the Company, through its wholly
owned subsidiary Diamond Leasing, pursuant to a pledge agreement,
acquired 100% of the outstanding common stock of Resort Club.
Accordingly, the Company's consolidated balance sheet at September
30, 1996 is not comparable to the consolidated balance sheet as of
September 30 1995, and the Company's consolidated statement of
operations and cash flows for the twelve months ended September
30, 1996 are not comparable to the twelve months ended September
30, 1995.
Results of Operations
Fiscal Year 1996 compared with Fiscal Year 1995
The net loss from continuing operations applicable to common
shareholders for the twelve months of fiscal 1996 was $7,164,908
($1.56 per share) as compared to a net loss from continuing
operations applicable to common shareholders of $703,039 ($0.13
per share) in the comparable prior year period.
The net loss from continuing operations in fiscal 1996 was
primarily a result of the write-off of certain deferred membership
expenses of Resort Club in the aggregate amount of $6,247,862. In
accordance with FASB No. 67, the Company reduced the carrying
amount of deferred membership expenses to net realizable value.
In addition, during fiscal 1996, the Company recorded a provision
of $3,818,371 which represents the net present value of the
estimated annual maintenance and operating expenses, including
reserves, for all the units, facilities and amenities with the
present Resort Club program in excess of the annual membership
dues collected by Resort Club.
In fiscal 1996, the Company recorded membership revenue of
approximately $2,479,000 and corresponding membership expenses of
approximately $2,060,000, excluding the write-off of over budgeted
expenses described above. Membership expense primarily includes
Operating Expenses of $193,100, Marketing and Selling Expenses of
$988,837 and Product Costs of $471,528. In addition, the Company
had other income of approximately $1,142,000 primarily from ski
rental operations offset by $1,095,596 in expenses which primarily
consisted of $1,025,000 in rent expense to Vernon Valley
Recreation Association, Inc. (See Item 12 and Note 3 of the Notes
to the Consolidated Financial Statements)
Also, the Company recorded a gain on sale of marketable securities
of $3,811,938, primarily resulting from the sale of its
PriCellular stock received as part of the proceeds from the sale
of the cellular telephone system.
Net income from discontinued operations applicable to common
shareholders for the twelve months of fiscal 1996 was $10,030,998
($2.19 per share) as compared to net income from discontinued
operations applicable to common shareholders of $1,354,515
($0.25 per share) in the comparable prior year period. The net
income from discontinued operations was primarily a result of the
sale of the Company's cellular phone system. (See Item 1 and Note
2 of the Notes to the Consolidated Financial Statements.)
Fiscal Year 1995 compared with Fiscal Year 1994
Revenue from cellular telephone operations for fiscal 1995
increased $1,742,822 (54.94%) from the comparable fiscal 1994
period. The net income applicable to common shareholders for
fiscal 1995 was $651,476 ($0.12 per share) as compared to a net
loss applicable to common shareholders of $34,051 ($0.01 per
share) in the comparable prior fiscal year. Revenues for fiscal
1995 increased primarily as a result of increased subscriber
revenue of approximately $607,000 and increased roamer traffic
revenue of approximately $1,021,000 over fiscal 1994.
Costs of cellular system operations for fiscal 1995 increased
$854,223 (68.67%) from fiscal 1994 primarily as a result of
increased technical salaries of approximately $34,000, increased
system maintenance of approximately $44,000, increased telephone
switch expense of approximately $138,000, increased costs of
equipment sales of approximately $197,000, increased roamer costs
of approximately $335,000, increased billing expense of
approximately $38,000 and increased commissions of approximately
$42,000 over fiscal 1994.
Marketing and selling expenses for fiscal 1995 decreased $10,950
(11.35%) from fiscal 1994. This decrease is primarily a result of
decreased promotional advertising.
General and administrative expenses for fiscal 1995 increased
$145,433 (29.87%)from fiscal 1994 primarily as a result of
increased office expense.
Depreciation and amortization costs for fiscal 1995 increased
$125,163 (34.91%) from fiscal 1994. The increase in depreciation
and amortization is a result of additions to fixed assets of
approximately $1,174,000 related to the commencement of operations
of four additional cell sites in fiscal 1995.
Bad debt expense for fiscal 1995 decreased $92,428 (68.98%) from
the comparable fiscal 1994 period.
Interest income for fiscal 1995 increased $101,735 (208.15%) from
fiscal 1994 primarily as a result of loans of approximately
$1,129,000 to a related party during the third quarter of fiscal
1995.
Interest expense for fiscal 1995 increased $137,123 (38.95%) from
fiscal 1994 as a result of the loan received from PriCellular in
the third quarter of fiscal 1995 in connection with the sale of
Cellular assets and an increase in the prime rate.
Liquidity and Capital Resources
Fiscal Year 1996
During fiscal 1996, the Company had a loss from continuing
operations of $7,164,908. Included in the loss from
continuing operations is depreciation of approximately $108,000,
which is a noncash expense. After reflecting the net
change in assets and liabilities, net cash used by continuing
operations was $4,034,413. In addition, income from
discontinued operations provided net cash of approximately
$8,210,000 as a result of the sale of the Company's cellular
telephone system. Investing activities provided net cash of
$2,118,839 and primarily includes investments in mortgages of
$1,523,585, investments in a mutual fund and other
marketable securities of approximately $382,000, investments in
real estate and real estate related activities of $1,018,740, an
amusement ride for $1,229,000, and a loan to Food Extrusion, Inc.
of $1,750,000 offset by the sale of PriCellular Stock which
generated cash proceeds of approximately $7.4 million. Financing
activities used net cash of approximately $5,657,000 which
resulted from the repayment of borrowings of approximately
$5,148,000, and purchase of treasury stock of $1,396,591 offset by
the proceeds of additional loans of approximately $887,000
Accordingly, during fiscal 1996, the Company's cash increased by
approximately $637,000.
Fiscal Year 1995
During fiscal 1995, the Company had net income of approximately
$651,000. Included in net income is depreciation and amortization
and allowance for bad debts for an aggregate of approximately
$1,155,000, which are non cash expenses. After reflecting the net
change in assets and liabilities, net cash provided by operations
was approximately $1,122,000. Investing activities included
additions to properties of approximately $1,174,000 and a loan to
a related party of approximately $1,129,000. Financing activities
provided net cash of approximately $1,555,000 which resulted
from the exercise of common stock purchase warrants of
approximately $203,000 and a $2,000,000 loan received in
connection with the sale of the System offset by the repayment of
borrowings of approximately $648,000. Accordingly, during fiscal
1995, the Company's cash increased by approximately $373,000.
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 cellular system or a possible merger
partner with DCI. Management of the Company determined to seek a
purchaser because it believed that DCI's cellular 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.
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 and
PriCellular's wholly-owned Northland subsidiary, providing for the
sale to Northland of the System operated by DCI in the AL-4 RSA.
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.
Sale of Cellular Assets (Continued)
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 liabilities related to the
System and being assumed by the Purchaser) included the FCC
nonwireline license for the AL-4 RSA, 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 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, 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. 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) 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 (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
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 $7,497,061
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.
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
cellular telephone system. As amended, the Company received
$3,500,000 at the second closing, with $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.
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).
The cash payments and the proceeds from the sale of PriCellular
Stock through September 30, 1996 were applied substantially as
follows:
a) Repayment of Motorola debt and
accrued interest incurred to
finance construction of the System. $ 2,864,226
b) Closing costs 747,955
c) Escrow account deposit 400,000
d) Advances to Resort Club 6,225,442
e) Investment in mutual fund and other
marketable securities 381,723
f) Investment in RTC mortgages 1,600,000
g) Prepaid lease 950,000
h) Investment in Food Extrusion 1,750,000
i) Purchase of the Company's common stock
from former President 1,664,450
j) Purchase of the Company's common stock
from unrelated parties 562,343
k) Investments in real estate and real
estate related activities 1,018,740
l) Investment in Space Shot and
Piston Bullies 1,394,710
Total: $19,559,589
Proceeds from the System Sale Payable to Former President
In lieu of a severance payment and in appreciation for her
services in developing the System, the Board of Directors had
agreed in principle with Ms. Evers-Tierney that in the event of
consummation of the sale of the System, the Company would
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" would be
made by the Company's auditors, computed on an accrual basis
giving effect to the sale and the expenses and taxes incurred in
connection with the sale, but without deducting any severance
payment obligations to Ms. Evers-Tierney (which were waived) or
the stock repurchase obligation to Ms. Evers-Tierney and her
family. As a result, pro rata payment was made to Ms. Evers-
Tierney and her family. Ms. Evers-Tierney and her family had the
right to obtain part of such payments in PriCellular notes. As of
September 30, 1996, the Company purchased an aggregate of 943,411
shares of the Company's Common Stock from Ms. Evers-Tierney and
her family at a purchase price equal to approximately $500,000 in
cash and 182,500 shares of PriCellular Common Stock of which 50%
was allocated to the purchase of Treasury stock and 50% as a cost
in connection with the sale of the System. 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 were
distributed directly to the Company's shareholders. In addition,
Ms. Evers-Tierney received approximately $136,000 pursuant to a
consulting arrangement with the Company during fiscal 1996.
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.
On February 1, 1996, the Company, through its wholly owned
subsidiary, Diamond Leasing, pursuant to a pledge agreement,
acquired 100% of the outstanding common stock of Resort Club.
Resort Club is engaged in the business of offering membership
interests in the Great Gorge Resort to the general public. As of
September 30, 1996, the Company's primary business operations are
in connection with the sale of membership interests through Resort
Club.
In addition, 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 and
affiliated companies. The Company's involvement may be as a sole
principal, a partner, a joint venturer or in some other form.
As of September 30, 1996, the Company had engaged in various
transactions with certain of its officers, directors, principal
stockholders and certain of their affiliated entities (see Item 12
and Note 3 of the Notes to the Consolidated Financial Statements).
In addition, as of September 30, 1996, the Company had made an
investment in Food Extrusion, Inc. (see Note 7 of the Notes to the
Consolidated Financial Statements) and purchased mortgages from
the Resolution Trust Company (see Note 6 of the Notes to the
Consolidated Financial Statements).
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 resources in other businesses as opportunities present
themselves.
Item 7. Financial Statements
Financial statements are attached hereto.
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons, Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the Company are as
follows:
Principal Director
Name Age Occupation Since
Gene W. Mulvihill* 62 Director; Chief
Executive Officer 1981
William E. McManus II* 41 President
and Director 1995
Joseph R. Bellantoni* 34 Treasurer; Chief
Financial Officer
and Director 1995
Paul J. Donahue 63 Director 1995
Thomas Conlin 62 Director 1996
Robert Harris 41 President,
Resort Club ----
Christina Riker 30 Chief Financial
Officer, Resort Club ----
Andrew Mulvihill 33 Executive Officer,
Resort Club ----
____________
(*) Member of the Executive Committee. The Executive
Committee is responsible for oversight with respect to executive
decisions.
Mr. Gene W. Mulvihill became CEO of the Company on November 7,
1995. Gene W. Mulvihill is a private investor, involved in
venture capital, golf course and real estate development. Mr.
Mulvihill was one of the founders, in 1983, of American Cellular
Network Corporation (Amcell), a public owner and operator of
cellular telephone systems in the Northeast corridor between New
York City and Washington D.C., and was active in assisting in the
development and financing of Amcell until its acquisition in 1987.
Mr. Mulvihill was founder, Chairman of the Board and the major
stockholder of Ribi ImmunoChem Research, Inc. involved in the
biotechnology industry from 1981 to 1985. Mr. Mulvihill was
founder of NMR of America, Inc., a public company involved in
magnetic resonance imaging and was a primary shareholder from 1985
to 1986. Mr. Mulvihill was Chairman of the Board of Great
American and a principal stockholder from 1981 to January 1991 and
a Director from 1991 to 1994. Great American is involved in the
recreation industry.
Mr. McManus became a Director of the Company in April 1995 and was
elected President in November 1995. He has been employed in the
private practice of law for more than the past five years.
Mr. Bellantoni had been a Director and Treasurer of the Company
from April 1995 through March 19, 1996. He subsequently became a
Director and Treasurer of the Company in October 1996. Mr.
Bellantoni was previously employed by Great American through
October 1996. He had been employed by Great American since
February 1989, where he became Vice President of Administration in
1993 and Chief Financial Officer in June 1994. 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. From May 1987 to February 1989, he was
employed by Jaymont Properties, Inc., an owner, developer, and
manager of commercial real estate as a Project Analyst. Prior to
working with Jaymont, Mr. Bellantoni was employed by KPMG Peat
Marwick from November 1983 through May 1987.
Mr. Donahue is currently employed by Crystal Springs Golf Club as
a Pro Shop Manager. Prior to working at Crystal Springs, Mr.
Donahue was employed as a Bank Examiner with the State of Florida
in 1994 and from 1990 through 1993, he was employed by Midlantic
Bank as a Vice President.
Mr. Conlin became a Director of the Company in November 1996. He
has been engaged in the business of real estate sales for more
than the past five years. Prior to his involvement in real
estate, Mr. Conlin was a member of the New York Stock Exchange.
Mr. Harris became President of Resort Club in May 1996. He has
been engaged in the business of vacation membership sales for more
than 15 years. Prior to Resort Club, Mr. Harris owned and
operated Resort Marketing and Travel as a broker selling
exclusively for Vacation Internationale. Vacation Internationale
had previously employed Mr. Harris from May 1993 through May 1996.
Ms. Riker became Chief Financial Officer of Resort Club in
September 1996. She was previously employed by BFI (Browning-
Ferris Industries) as a controller for New Jersey operations from
May 1992 to September 1996. Prior to working for BFI, Ms. Riker
was employed by Electro-Alloys Corporation as Controller of East
coast operations.
On or about March 1, 1993, Mountain Resort Properties,
Inc.("MRP"), a corporation wholly owned and controlled by Andrew
Mulvihill, the son of Gene Mulvihill, entered into an agreement
with Resort Club, whereby in return for compensation of 3% of the
gross sales of Resort Club, MRP is responsible for providing the
following services to Resort Club: 1) develop a club membership
program; 2) develop accommodation inventory; 3) develop and
construct the Mountain Top Recreation Area and all inclusive
amenities; 4) acquire and renovate condominium inventory for
Resort Club; 5) recruit and manage a sales, marketing,
administrative, and fulfillment team; 6) develop and implement a
business plan; and 7) manage collections. In furtherance of
discharging the aforementioned obligations, Andrew Mulvihill works
with and otherwise directs the efforts of Robert Harris, the
President, and Christina Riker, the Chief Financial Officer of
Resort Club. In this capacity, Andrew Mulvihill will make a
significant contribution to the business of Resort Club and the
establishment and the implementation of Resort Club policy
decisions. Andrew Mulvihill may be deemed to be an executive
officer of Resort Club, as that term is defined under the
Securities Exchange Act of 1934. Andrew Mulvihill is currently
the President and Owner of MRP, a New Jersey licensed real estate
brokerage firm in Vernon, New Jersey. Andrew Mulvihill is also
the manager of Crystal Springs Builders, L.L.C. formed in June of
1995, which is a New Jersey licensed builder who designs,
develops, and constructs single family homes, commercial
buildings, golf courses and other related facilities. Prior to
managing Crystal Springs Builders, Andrew Mulvihill was the
developer/builder for the Great Gorge Village condominium complex
which consists of 1,400 units. Andrew Mulvihill is a graduate of
Stanford University.
No Director is a director of any other company with a class of
securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934 or subject to the requirements of Section
15(d) of that Act or any company registered as an investment
company under the Investment Company Act of 1940 with the
exception of Joseph R. Bellantoni who is also a director of Great
American.
Compliance with Section 16(a) of the Exchange Act
Based solely on a review of Forms 3 and 4 and any amendments
thereto furnished to the Company pursuant to Rule 16a-3(e) under
the Securities Exchange Act of 1934, or representations that no
Forms 5 were required, the Company believes that with respect to
fiscal 1996, all Section 16(a) filing requirements applicable to
its officers, directors and beneficial owners of more than 10% of
its equity securities were timely complied with in fiscal 1996.
Item 10. Executive Compensation
The following table sets forth all cash compensation paid or
accrued by the Company during the three years ended September 30,
1996 to its Chief Executive Officer and any other executive
officer who received compensation in excess of $100,000 in any
such fiscal year. The Company's group life, health and
hospitalization plans do not discriminate in favor of the
executive officers and directors of the Company and are generally
available to all salaried employees.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Name and Fiscal Salary Bonus Other Option Restricted LTIP All
Principal Year Annual SARs Stock Payouts Other
Position Compensation Awards Compensation
Andrew Mulvihill,
Exec.Officer,
Resort Club 1996 $ - 0 - $ - 0 - $200,009 - 0 - - 0 - $ - 0 - $ - 0 -
Gene W. Mulvihill,
Chief Executive
Officer 1996 $ - 0 - $ - 0 - $ - 0 - - 0 - - 0 - $ - 0 - $ - 0 -
Debra Evers-Tierney,
President and
Chief Executive
Officer 1995 $112,333 $ - 0 - $ - 0 - - 0 - - 0 - $ - 0 - $ - 0 -
Debra Evers-Tierney
President and
Chief Executive
Officer 1994 $108,849 $82,837(1)$ - 0 - 25,000 - 0 - $ - 0 - $ - 0 -
__________
(1) On June 26, 1994, the Board of Directors in
consideration for the operating results achieved by DCI in fiscal
1992 and 1993 which it determined was largely due to the efforts
of Ms. Evers-Tierney, authorized the payment to Ms. Evers-Tierney
of a bonus of $40,608 with respect to fiscal 1992 and a bonus of
$42,229 with respect to fiscal 1993, or an aggregate bonus of
$82,837. The bonus, payable in January 1995, was based on a
percentage of the improvement in DCI's operating results for the
particular fiscal year as contrasted with the previously
forecasted operating results for such periods.
Employment Agreements
On February 25, 1991, the board of directors approved an
employment agreement with Debra Evers-Tierney, effective
retroactively to October 1, 1990, employing Ms. Evers-Tierney as
president, chief executive and chief financial officer of the
Company through September 30, 1995, at an annual salary of
$100,000 subject to annual percentage increases based upon
percentage increases in the Consumer Price Index. Ms. Evers-
Tierney agreed to devote not less than 90% of her working time
to the business of the Company and on or before June 30, 1991, to
transfer her principal residence to Alabama in order to supervise
development of the Company's Bibb County, Alabama cellular
telephone business (at which time she agreed to devote all of her
working time to the business of the Company).
In the event of termination due to a Change in Control of the
Company, Ms. Evers-Tierney was entitled to be paid a Severance
Payment equal to 2.99 times her average annual salary during the
preceding five years (or such shorter period during which she was
employed by the Company). Ms. Evers-Tierney subsequently
transferred her principal residence to Alabama and through
November 7, 1995 devoted all of her working time to the business
of the Company. In June 1994, the board of directors in
consideration for the operating results achieved by DCI through
fiscal 1993, authorized the payment of a bonus to Ms. Evers-
Tierney of $82,637 payable January 1995.
In lieu of the severance payment described above and in
appreciation for her services in developing the System, the Board
of Directors agreed in principle with Ms. Evers-Tierney that upon
consummation of the sale of the System (see Item 1 herein and
Note 2 of the Notes to the Consolidated Financial Statements), the
Company would 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" was made by the Company's auditors and was 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 was
waived) or the stock repurchase obligation to Ms. Evers-Tierney
and her family. As a result, pro rata payments were made to Ms.
Evers-Tierney and her family.Ms. Evers Tierney and her family had
the right to obtain part of such payments in PriCellular notes.
As of September 30, 1996, the Company purchased an aggregate of
943,411 shares of the Company's Common Stock from Ms. Evers-
Tierney and her family at an aggregate purchase price equal to
approximately $500,000 in cash and 182,500 shares of PriCellular
Common Stock of which 50% was allocated to the purchase of
Treasury stock and 50% as a cost in connection with the sale of
the System. 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 were distributed directly to the
Company's shareholders. In addition, Ms. Evers-Tierney received
approximately $136,000 pursuant to a consulting arrangement with
the Company during fiscal 1996.
Employment Agreements(Continued)
On or about March 1, 1993, MRP, a corporation wholly owned and
controlled by Andrew Mulvihill, the son of Gene Mulvihill, entered
into an agreement with Resort Club, whereby in return for
compensation of 3% of the gross sales of Resort Club, MRP is
responsible for providing the following services to Resort Club:
1) develop a club membership program; 2) develop accommodation
inventory; 3) develop and construct the Mountain Top Recreation
Area and all inclusive amenities; 4) acquire and renovate
condominium inventory for Resort Club; 5) recruit and manage a
sales, marketing, administrative, and fulfillment team; 6) develop
and implement a business plan; and 7) manage collections. In
furtherance of discharging the aforementioned obligations, Andrew
Mulvihill works with and otherwise directs the efforts of Robert
Harris, the President, and Christina Riker, the Chief Financial
Officer of Resort Club. In this capacity, Andrew Mulvihill will
make a significant contribution to the business of Resort Club and
the establishment and the implementation of Resort Club policy
decisions. Andrew Mulvihill may be deemed to be an executive
officer of Resort Club, as that term is defined under the
Securities Exchange Act of 1934. As of September 30, 1996,
MRP has earned approximately $354,200
($200,009 during fiscal 1996) pursuant to its agreement with
Resort Club, of which approximately $222,400 remains unpaid.
Stock Options Granted in Fiscal 1996
No options were granted during fiscal 1996.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of December 31, 1996,
information with respect to each person (including any "group" as
that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934) who is known to the Company to be the beneficial
owner of more than five percent of Resources' Common Stock as well
as the number of shares of Common Stock beneficially owned by all
Directors of Resources and all Directors and officers of Resources
as a group. The percentages have been calculated on the basis of
treating as outstanding for a particular holder, all shares of
Resources' Common Stock outstanding on said date and all shares
issuable to such holder in the event of exercise of outstanding
options owned by such holder at said date.
Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
Directors:
Gene W. Mulvihill 2,396,300(1) 57%
William E. McManus II -0- -0-
Joseph R. Bellantoni -0- -0-
Paul J. Donahue -0- -0-
Thomas Conlin -0- -0-
Robert Harris -0- -0-
Christina Riker -0- -0-
Andrew Mulvihill -0- -0-
All Officers and
Directors as a Group 2,396,300(1) 57%
(four persons)
_____________
(1) Includes 625,000 shares owned by Blue Horizon
Corporation as well as 400,000 shares issuable upon exercise of
outstanding Warrants. Blue Horizon Corporation is owned by
members of Mr. Mulvihill's immediate family.
Item 12. Certain Relationships and Related Transactions
During the period of October 1, 1994 through September 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"), Stonehill Recreation, and Great
Mountain Development Corporation ("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 a former
Officer of GMD, and the President of MAFC. Mr. Bellantoni, the
Secretary, Treasurer and Director of the Company was Vice
President and Chief Financial Officer of Great American and is
currently a Director of Great American; Gene Mulvihill, the
Chairman of the Board and Chief Executive Officer of the Company
is a principal shareholder and former Officer of GMD and former
Chairman of the Board and Chief Executive Officer of Great
American and his daughter is a Director, and the President and
Chief Operating Officer of such corporation. Mr. Gene Mulvihill's
son, Andrew Mulvihill is the Chief Executive Officer of Resort
club and a former officer of GMD.
Item 12. Certain Relationships and Related Transactions
(Continued)
An entity beneficially owned by Gene Mulvihill is also owed
$147,960 by Resort Club, currently due and owing and has been
granted a security interest in Resort Club membership promissory
notes to secure repayment of indebtedness. However, such security
interest is subordinate to all security interests in such notes.
On March 29, 1996, but effective as of June 1, 1993, Resort Club
entered into amended and restated agreements with Vernon Valley,
Great Gorge and Great Valley, all subsidiaries of Great American
whereby in consideration for an aggregate payment of 10% of the
gross sales price of each Resort Club membership, these entities
will provide amenities and access to certain properties for the
benefit of Resort Club members. The amenities provided by Great
American include admission passes to the Vernon Valley and Great
Gorge ski facilities, admission passes to the Action Park and
admission passes to the Mountain Top Recreation Center, all for a
period of 35 years. As of September 30, 1996, Resort Club has
accrued an aggregate of $1,302,487 due to Great American for the
amenities and access to certain property for which it made
payments of approximately $969,846, leaving an outstanding balance
of $332,641 due to Great American as of September 30, 1996. Also
on March 29, 1996, Resort Club entered into an amended and
restated agreement with Stonehill Recreation, the entity which
owns and operates the Spa and Country Club at Great Gorge on terms
similar to those that were entered into with Great American,
except that the consideration payable to Stonehill Recreation from
Resort Club represents $25,000 for each condominium controlled by
Resort Club. As of September 30, 1996, Resort Club has accrued an
aggregate of $700,000 due to Stonehill Recreation for amenities
which is due and payable. Andrew J. Mulvihill, an Executive
Officer of Resort Club is the beneficial owner of 33.3% of
Stonehill Recreation and Christopher Mulvihill, the son of Mr.
Gene Mulvihill, is the beneficial owner of 33.3% of Stonehill
Recreation.
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. Resort Club receivables were
incorporated into the second loan agreement with Resort Club
described above. The loan was paid in full on February 15, 1996
together with interest at 15%.
On March 31, 1996, the Company entered into an agreement to
purchase 9 condominiums from Mr. Gene Mulvihill which are used in
connection with Resort Club for an aggregate purchase price of
$878,500. Of the condominiums purchased, eight are located in the
Great Gorge Resort and one is located in the Resort of Palmas Del
Mar, Puerto Rico. As of September 30, 1996, the Company has a
remaining balance due on the purchase of $378,530 which is
evidenced by a promissory note bearing interest at 10.25%.
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
$1,558 per month and a monthly payment of approximately $519 for
the Company's proportionate share of impositions and operating
expenses. The lease provides for rental adjustments for changes
in the Consumer Price Index.
Item 12. Certain Relationships and Related Transactions
(Continued)
On December 1, 1995, Diamond Leasing 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, Diamond Leasing 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, Diamond
Leasing 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) pay a percentage of gross
revenue equal to 50% of gross revenues in excess of $1,000,000.
The Lease provided for a cap limitation equal to a 28% rate of
return to Diamond Leasing. Proceeds received in excess of a 28%
rate of return were required to be remitted to Vernon Valley. The
Lease also provided Diamond Leasing with the absolute right of
renewal for three additional consecutive December 15 - March 15
lease terms. Through September 30, 1996, Diamond Leasing 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.
Diamond Leasing entered into a capital lease for two Piston
Bullies with Bombardier Capital, Inc. ("Bombardier") commencing
January 1, 1996 for a term of 18 months ending September 1, 1997.
Piston Bullies are snow grooming machines used for grooming ski
trails. The lease provides for 11 payments with aggregate rental
payments of approximately $165,700 and has a $10,901 purchase
option at the end of the lease term. Concurrent with entering
into the lease agreement with Bombardier, Diamond Leasing entered
into a sublease agreement with Vernon Valley on similar terms with
Diamond Leasing's lease agreement with Bombardier except that the
rental payment had 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. As of September 30, 1996, the outstanding balance due
Bombardier was $76,498.
On January 15, 1996, Vernon Valley failed to make the required
payments pursuant to the Piston Bully Lease Agreement causing a
default. As a consequence of the default, Diamond Leasing
accelerated the amount due under the Lease Agreement. Presently,
Diamond Leasing has a claim against Vernon Valley for all sums due
under the Lease Agreement, including any and all costs and
expenses, including reasonable attorney fees, incurred by Diamond
Leasing to collect the claim.
On January 26, 1996, Diamond Leasing 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 Diamond Leasing its interest in the insurance
proceeds to the extent of $269,500 together with interest at 9%
per annum. As further consideration, Diamond Leasing 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 Diamond Leasing until the
principal amount of the loan is fully paid with accrued interest.
As of September 30, 1996, Diamond Leasing received payments of
$172,366 on this loan pursuant to the assignment and "additional
rent" described above with a remaining balance of $97,134
outstanding as of September 30, 1996.
Item 12. Certain Relationships and Related Transactions
(Continued)
On March 19, 1996, Diamond Leasing agreed to purchase 92
condominium lots from GMD, at a price of $1,820,000 payable as
follows: (i) $270,500 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 Diamond Leasing acquiring good and
marketable title to the property insurable at regular rates and
with customary adjustments made at the
closing. Finally, Diamond Leasing offered GMD the Option to
participate in the development of the Property.
On or about July 24, 1992, Great American and one of its
subsidiaries 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 MAFC. MAFC held a
second junior participation in a loan agreement between Great
American and First Fidelity Bank, N.A. ("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. On
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 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 (NJ) Inc. ("Noramco") and Skival, Inc.
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, Inc.'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 $805,000, an amount which approximates fair
market value. The balance of $285,560 was paid at closing of
title on April 1, 1996.
On April 5, 1996, the Company, through a wholly owned subsidiary,
Star II Leasing Corporation, agreed to purchase an attraction
known as the Space Shot from S & S Sports Power, Inc. for the sum
of $1,250,000. Concurrently, Diamond agreed to lease the Space
Shot to Vernon Valley at an annual rental equal to $300,000 for a
term of four (4) years subject, however, to Vernon Valley
achieving a certain level of revenues, failing which no payment
will be made to the Company, but will accrue and be due and
payable to the Company in the subsequent years of the said Lease
Agreement. Mr. Mulvihill, an officer and director of the Company,
is a 50% owner of S & S Sports Power, Inc. In connection with the
acquisition of this ride, Mr. Mulvihill has agreed to forfeit all
allocated profits and direct same to the Company. No payments
were made in fiscal 1996 pursuant to this lease agreement.
Item 12. Certain Relationships and Related Transactions
(Continued)
As of September 30, 1996, the Company, through Diamond Leasing,
advanced $882,090 to Summit Bank ("Summit") and Lakeview Savings
Bank ("Lakeview") in connection with a limited forbearance
agreement entered into between Summit, Lakeview, Eugene Mulvihill
and Robert and Stanley Holuba.
On March 1, 1994, loans made by Summit and Lakeview to Vernon
Valley had matured and were immediately due and payable. Vernon
Valley failed to fully pay the loan obligations which constituted
a material default under the Vernon Valley loan documents, and
together with the filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the Vernon Valley
loan documents.
As part of the original loan transactions, Mr. Mulvihill and Mr.
Stanley and Robert Holuba (the "guarantors") guaranteed the Summit
and Lakeview loans. The outstanding loan balance, including
principal, interest, and other costs, at September 30, 1996 was
approximately $4,607,184. The payment made by the Company to
Summit and Lakeview was made in connection with a limited
forbearance agreement for which the banks agreed to forebear from
exercising their respective rights and remedies under the Vernon
Valley loan documents.
Simultaneously with Diamond Leasing's advance of $882,090, the
guarantors assigned their rights of subrogation to Diamond
Leasing. Under the rights of subrogation, Diamond Leasing has a
security interest in the collateral, the Great Gorge South Summit
Lodge and ski facility. Management believes that the value of the
collateral is in excess of the Summit and Lakeview liens. In
addition, management believes there is an advantage to working
with Summit and Lakeview since they hold a first mortgage lien on
the Great Gorge South Summit Lodge and ski facility. This
facility currently provides amenities to Resort Club members.
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 wholly owned subsidiaries, Vernon Valley, Great
Valley, Great Gorge, Great Heritage, Inc., TAV, Inc., Stonehill
Management Corp., Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc., Vernon Valley Sewers, Inc. and GMD
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.
Parent of the Company
Gene W. Mulvihill, the Chief Executive Officer and a Director of
the Company and beneficial owner of approximately 57% of the
outstanding Common Stock may be deemed the "parent" or controlling
person of the Company as that term is defined in the Regulations
promulgated under the Securities Act of 1933.
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
Page
(a) (1) Financial Statements.
Independent Auditors' Report S-1
Consolidated Balance Sheet - September 30, 1996 S-2-3
Consolidated Statements of Operations -
years ended September 30, 1996 and 1995 S-4
Consolidated Statements of Stockholders'
Equity - years ended September 30, 1996 and 1995 S-5
Consolidated Statements of Cash Flows -
years ended September 30, 1996 and 1995 S-6-7
Notes to Consolidated Financial Statements S-8-26
(2) Financial Statement Exhibits - None
(b) Reports on Form 8-K. The Company did not file any
reports on Form 8-K during the quarter ended September 30, 1996.
(c) Exhibits:
3(a) Certificate of Incorporation of
Registrant and Amendment No.1 thereto(1)
(b) Certificate of Amendment dated June 24,
1992 to Certificate of Incorpor-ation reducing the authorized
shares of Common Stock to 25,000,000, increasing the par value to
$.01 per share and effecting a one-for-four reverse stock split(2)
(c) By-laws of Registrant(1)
4(d) Specimen Common Stock Certificate, $.01 par value(2)
10(h) Consulting Agreement and First Amendment to the
Consulting Agreement dated November 11, 1989 between the
Registrant and Gene W. Mulvihill(3)
10(i) Employment Agreement dated as of October
1, 1990 between the Registrant and Debra Evers-Tierney(4)
10(j) Contract for Sale of Vernon Valley Brewery
Incorporated dated March 21, 1990 (but effected in June, 1990)
between Empire State Brewing Company Inc. as Buyer and the
Stockholders of the Brewery including the Registrant as Sellers
including $400,000 Promissory Note issued by the Buyer to the
Registrant(4)
10(k) Cellular System Purchase Agreement dated as of June
28, 1991 between Resources and Motorola and assignment by
Resources on September 3, 1991 to DCI(5)
10(l) Cellular System Financing Agreement dated June 27,
1991 between DCI and Motorola(5)
10(m) Building Lease as of September 1, 1991 between
Resources and DCI as amended effective September 1, 1992(2)
Item 13. Exhibits, Financial Statement Schedules and Reports
on Form 8-K (Continued)
10(n) Cell Site and Tower Lease as of September
1, 1991 between Resources and DCI as amended effective September
1, 1992(2)
10(o) Form of 5% Promissory Note and Warrant
sold in the Registrant's October 1993 private placement
____________
(1) Filed as an exhibit to the Registration Statement on Form S-
1 (File No. 2-66471) of the Registrant and incorporated herein by
reference.
(2) Filed as an exhibit to the Registrant's annual report on
Form 10-KSB for the year ended September 30, 1992 and incorporated
herein by reference.
(3) Filed as an exhibit to the Registrant's annual report on
Form 10-K for the year ended September 30, 1989 and incorporated
herein by reference.
(4) Filed as an exhibit to the Registrant's annual report on
Form 10-K for the year ended September 30, 1990 and
incorporated herein by reference.
(5) Filed as an exhibit to the Registrant's current report
on Form 8-K for October 9, 1991 and incorporated herein by
reference.
22. Subsidiaries of Registrant:
Name State of Incorporation
Dominion Cellular, Inc. New Jersey
Diamond Leasing and Management Corp. New Jersey
Diamond World Funding Corp. New Jersey
Resort Club, Inc. New Jersey
Star II Leasing Corporation New Jersey
(d) Financial statements omitted from annual
report to shareholders filed herewith - None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange 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: February 28, 1997 By:/s/ Gene Mulvihill
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the date indicated.
Signature Title Date
/s/ Gene Mulvihill
Gene Mulvihill Chief Executive
Officer and Director February 14, 1997
/s/ William E. McManus II
William E. McManus II President and Director February 14, 1997
/s/ Joseph R. Bellantoni
Joseph R. Bellantoni Treasurer; Chief
Financial Officer
and Director February 14, 1997
/s/Paul J. Donahue Director February 14, 1997
Paul J. Donahue
/s/Thomas Conlin Director February 14, 1997
Thomas Conlin
/s/Robert Harris President, Resort Club February 14, 1997
Robert Harris
/s/Christina Riker Chief Financial Officer,
Christine Riker Resort Club February 14, 1997
/s/Andrew Mulvihill Executive Officer,
Andrew Mulvihill Resort Club February 14, 1997
INDEPENDENT AUDITORS' REPORT
Dominion Resources, Inc. and Subsidiaries
Morristown, New Jersey
We have audited the accompanying consolidated balance
sheet of Dominion Resources, Inc. and Subsidiaries as of
September 30, 1996, and the related consolidated
statements of operations, stockholders' equity and cash
flows for each of the two fiscal years ended September 30,
1996. These consolidated financial statements are the
responsibility of the Company's management. Our
responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Dominion Resources, Inc. and Subsidiaries as
of September 30, 1996, and the results of its operations
and its cash flows for the two fiscal years ended
September 30, 1996, in conformity with generally accepted
accounting principles.
ELLIOT H. GOLDBERG, CPA, P.C.
December 20, 1996
S-1
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
ASSETS
Current assets:
Cash and cash equivalents (Note 1) $ 903,659
Cash held in escrow (Note 2) 400,000
Investment in mutual fund
and other marketable securities (Note 1) 381,723
Investment in PriCellular
Corporation (Note 4) 112,213
Membership Receivables, net
(including allowance for doubtful
accounts of $261,798 at September
30,1996) (Note 1) 1,335,268
Accrued interest and other receivables 235,269
Prepaid expenses and other assets 86,389
Deferred Membership Interests
Held for Sale (Note 1) 7,105,621
Total current assets 10,560,142
Property, equipment, furniture,
and fixtures, net of accumulated
depreciation and amortization of
$137,736 at September 30, 1996
(Note 1) 1,486,121
Other assets:
Membership Receivables, net
(including allowance for doubtful
accounts of $928,191 at September
30,1996 (Note 1) 4,619,960
Note Receivable - Great Gorge (Note 3) 97,135
Mortgages receivables (Note 6) 1,523,585
Note Receivable and accrued
interest - Food Extrusion, Inc. (Note 7) 1,474,861
Investment in Food Extrusion, Inc. (Note 7) 361,941
Asset held for sale (Note 8) 165,700
Real estate and real
estate related activities
(Notes 3 and 5) 1,690,864
Total other assets 9,934,046
Total assets $21,980,309
See accompanying notes
S-2
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities (Note 9) $ 6,950,172
Mortgages payable, current portion
(Note 11) 29,117
Notes payable, current portion
(Note 11) 1,611,490
Capital Lease (Note 11) 76,498
Deferred Membership Revenue (Note 1) 9,326,866
Total current liabilities 17,994,143
Long-term liabilities:
Mortgages payable, net of
current maturities (Note 11) 294,745
Total long-term liabilities 294,745
Stockholders' equity:
Common stock, $0.01 par value;
authorized -25,000,000 shares;
issued and outstanding -4,229,354
shares at September 30, 1996 42,294
Additional paid-in capital 5,058,706
Accumulated deficit (26,284)
Less: 1,326,646 shares held
in treasury (Note 13) (1,383,295)
Total stockholders' equity 3,691,421
Total liabilities and stockholders'
equity $21,980,309
See accompanying notes
S-3
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Revenues
Membership revenue $2,479,294 $ 0
Membership annual fee
revenue 379,447 0
Ski rental shop revenue
and other revenue 1,142,069 98,536
Total revenues 4,000,810 98,536
Expenses:
Ski rental shop and other
operations 1,095,596 135,723
Membership operations 4,904,595 0
Member maintenance 4,235,001 0
Marketing and selling 3,424,185 1,486
General and administrative
expenses 1,132,537 101,566
Depreciation and
amortization 107,979 22,144
Total expenses 14,899,893 260,919
Income (loss) from operations (10,899,083) (162,383)
Other income (expenses):
Interest income 449,292 73,721
Interest expense (527,055) (30,579)
Amortized discount on
warrants and deferred
financing costs 0 (583,798)
Gain on Sale of PriCellular
Stock and other marketable
securities 3,811,938 0
Total other income
(expenses) 3,734,175 (540,656)
Income from continuing operations
before income taxes (7,164,908) (703,039)
Income taxes (Note 10) 0 0
Income from continuing
operations (7,164,908) (703,039)
Discontinued operations (Note 2):
Gain (loss) from operations
of Cellular Telephone
System(less applicable
income tax (benefit) of
$24,294 at September
30, 1996) (36,442) 1,354,515
Gain on Sale of Cellular
Telephone System (less
applicable income taxes
of $728,294 at September
30, 1996) 10,067,440 0
Income from discontinued
operations 10,030,998 1,354,515
Net income $ 2,866,090 $ 651,476
Net income (loss) from
continuing operations per
common share $ (1.56) $ (0.13)
Net income from discontinued
operations per common
share $ 2.19 $ 0.25
Net Income per common share $ 0.63 $ 0.12
Weighted average number of
share used in computing
net income per share 4,588,939 5,260,369
See accompanying notes
S-4
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1996 and 1995
Retained
Capital Earnings/
Common Par in Excess Accumulated Treasury
Stock Value of Par Deficit Stock Total
Balance -
September
30,1994 4,434,000 $44,340 $4,866,831 $(3,543,850) $0 $1,367,321
Warrants
exercised 1,125,000 11,250 191,875 0 0 203,125
Net Income 0 0 0 651,476 0 651,476
Balance -
September
30, 1995 5,559,000 $ 55,590 $5,058,706 $(2,892,374) $ 0 $ 2,221,922
Purchase of
1,329,646
shares of
Treasury
stock
(including
943,411
shares
purchased
from the
Company's
former
President)(1,329,646) (13,296) 0 0 (1,383,295) (1,396,591)
Net Income 0 0 0 2,866,090 0 2,866,090
Balance -
September
30, 1996 4,229,354 $ 42,294 $5,058,706 $ (26,284) $(1,383,295) $3,691,421
See accompanying notes
S-5
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Cash flows provided by (used in)
continuing operating activities:
Net loss $ (7,164,908) $ (703,039)
Adjustments to reconcile net
income to net cash provided
by continuing operating activities:
Depreciation and amortization 107,979 59,476
Amortization of discount on
warrants and deferred financing
costs 0 583,798
Provision for doubtful accounts 0 (91,498)
Provision for MAFC Participation
Note 0 45,560
Changes in assets and liabilities:
Membership receivable (2,948,449) 0
Trade receivables 0 91,498
Accrued interest and other
receivables (110,491) (41,471)
Inventories 0 25,692
Prepaid expenses and other assets (86,389) 1,937
Deferred expenses of sale 0 (346,003)
Deferred member expenses (2,589,268) 0
Accounts payable and accrued
expenses 3,963,029 230,571
Deferred membership revenue 4,794,084 0
Net cash used in continuing
operations (4,034,413) (143,479)
Cash flows provided by discontinued
operating activities:
Net income (loss) (36,442) 1,354,515
Adjustments to reconcile net
(loss) to net cash provided by
discontinued operating activities:
Depreciation and amortization 109,601 424,227
Provision to doubtful accounts 0 133,070
Utilization of tax benefit (24,294) 0
Changes in assets and liabilities:
Trade receivables 3,986 (447,735)
Accrued interest and other receivables 0 (23,556)
Inventories (892) 24,898
Prepaid expenses and other assets 31,216 16,349
Accounts payable and accrued
expenses 154,460 (216,568)
Gain on Sale of Cellular Assets 7,972,155 0
Net cash provided by
discontinued operations 8,209,790 1,265,200
Cash flows from investing activities:
Sale of PriCellular Stock 7,384,850 0
Convert related party receivable
to equity investment 1,019,467 (1,129,062)
Note Receivable - Food
Extrusion (1,750,000) 0
Note Receivable - Great Gorge (97,135) 0
Investment in real estate and
real estate related activities (1,018,740) 0
Purchase of Amusement Ride (1,229,010) 0
Purchase of Piston Bullies (165,700) 0
Investment in mutual fund and
other marketable securities (381,723) 0
Investment in mortgages
receivables (1,523,585) 0
Capital expenditures (119,585) (1,174,399)
Net cash provided by(used in)
investing activities 2,118,839 (2,303,461)
Cash flows from financing activities:
Proceeds from borrowings 887,337 2,000,000
Repayment of borrowings (5,148,000) (445,203)
Repayment to related parties 0 (202,878)
Purchase of treasury stock (1,396,591) 0
Proceeds from issuance of common
stock and warrants 0 203,125
Net cash provided by (used in )
financing activities (5,657,254) 1,555,044
Increase (Decrease) in cash 636,962 373,304
Cash balance, beginning of year 666,697 293,393
Cash balance, September 30, 1996 $1,303,659 $ 666,697
See accompanying notes
S-6
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE
OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
Investment in PriCellular $ 7,497,063 $ -0-
Retained Earnings (7,497,063) -0-
Resort Club assets acquired 7,523,132 -0-
Resort Club liabilities assumed (7,523,132) $ -0-
Total Non-Cash Operating,
Investing and Financing
Activities $ -0- $ -0-
See accompanying notes.
S-7
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying Consolidated Financial Statements include the
accounts of Dominion Resources, Inc. ("the Company") and the
accounts of all majority-owned subsidiaries. The consolidated
balance sheet is a classified presentation which distinguishes
between current and noncurrent assets and liabilities. The Company
believes that a classified balance sheet provides a more meaningful
presentation consistent with the business cycles of the Company's
operations. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Property, Furniture, and Fixtures
Property, furniture, and fixtures are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of seven years for furniture and fixtures,
and thirty years for buildings and improvements.
Property, furniture, and fixtures consisted of the following at
September 30, 1996:
Buildings and improvements $ 289,248
Furniture and fixtures 105,599
Amusement Ride 1,229,010
Subtotal 1,623,857
Less: Accumulated depreciation
and amortization 137,736
Net property, furniture and fixtures $1,486,121
In connection with the sale of the Company's Cellular Telephone
System described in Note 2 ownership of the Company's Property,
Equipment, Furniture, and Fixtures relating to the operation of
the Company's Cellular Telephone System was transferred to the
purchaser on the date of closing which took place in the first
quarter of fiscal 1996.
On April 5, 1996, the Company, through a wholly owned subsidiary,
Star II Leasing Corporation, agreed to purchase an attraction
known as the Space Shot from S & S Sports Power, Inc. for the sum
of $1,250,000. Concurrently, Diamond agreed to lease the Space
Shot to Vernon Valley at an annual rental equal to $300,000 for a
term of four (4) years subject, however, to Vernon Valley
achieving a certain level of revenues, failing which no payment
will be made to the Company, but will accrue and be due and
payable to the Company in the subsequent years of the said Lease
Agreement. Mr. Mulvihill, an officer and director of the Company,
is a 50% owner of S & S Sports Power, Inc. In connection with the
acquisition of this ride, Mr. Mulvihill has agreed to forfeit all
allocated profits and direct same to the Company.
Income Per Common Share
Primary income per share of common stock was computed by dividing
income for the period by the weighted average number of shares of
common stock and common stock equivalents outstanding for each
year. Common stock equivalents are not included where the effect
would be anti-dilutive. In computing the weighted average number
of shares of common stock and common stock equivalents outstanding
for the respective years, shares issuable upon exercise of
warrants and options have been reduced by shares of common stock
assumed to be purchased with the proceeds from the exercise at the
average market price of the Company's common stock during the
year.
S-8
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies (Continued)
Real Estate Investment Activities
The Company owns a non-operating silver mill and adjacent land in
Colorado (See Note 5 of the Notes to the Consolidated Financial
Statements).
Membership Interests Held for Sale
Costs incurred in connection with preparing membership interests
for sale are capitalized and include all costs of acquisition,
renovation and furnishings of condominiums as well as operating,
marketing and selling expenses. Membership interests held for
sale are valued at the lower of cost or net realizable value in
accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 67, "Accounting for Costs and
Initial Rental Operations of Real Estate Projects". During fiscal
1996, the Company had adjusted Deferred Membership Interest Held
for Sale over budget in the aggregate amount of approximately,
$6,248,000.
Revenue and Profit Recognition
Sales of membership interests are recognized and included in
Revenues after certain "down payment" and other "continuing
investment" criteria are met. Revenue recognition is in
accordance with the provisions of SFAS No. 66 "Accounting for
Sales of Real Estate". The agreement for sale generally provides
for a down payment and a note payable to the Company in monthly
installments, including interest, over a period of up to 7 years.
Revenue is recognized after the requisite rescission period has
expired and at such time as the purchaser has paid at least 10% of
the sales price for sales of membership interests and the
condominium is placed in service. The sales price, less a
provision for cancellation, is recorded as revenue and the cost
related to such net revenue of the membership interest is charged
against income in the year that revenue is recognized. If a
purchaser defaults under the terms of the contract, after all
rescission and inspection periods have expired, payments are
generally retained by the Company. As of September 30, 1996, the
Company recognized $2,479,294 in membership revenue.
Notes receivable with payment delinquencies of 90 days or more
have been considered in determining the Allowance for
cancellation. Cancellations occur when the note receivable is
determined to be uncollectible and related collateral, if any, has
been recovered.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers
all highly liquid investments purchased with an original maturity
of three months or less to be cash equivalents.
Concentration of Credit Risk
The Company currently maintains cash accounts with financial
institutions which exceed the maximum insured by the Federal
Depository Insurance Corporation.
Investments
Marketable equity securities are recorded at the lower of
aggregate cost or market. The cost of the marketable securities
sold is based on the earliest acquisition cost of each security
held at the time of sale.
S-9
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1. Summary of Significant Accounting Policies (Continued)
Accounting Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
2. Discontinued Operations
On November 16, 1994, Resources announced that Dominion Cellular,
Inc. ("DCI") had retained an independent broker on an exclusive
basis to attempt to find a potential purchaser for DCI's cellular
system (also referred herein 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 cellular 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.
On May 8, 1996, 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
operated by DCI in the Bibb, Alabama RSA (the "AL-4 RSA"). 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.
The sale of the System was contingent upon obtaining the consent
of the Federal Communications Commission ("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 liabilities related to the
System and being assumed by the Purchaser) included the FCC
nonwireline license for the AL-4 RSA, 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 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, 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.
S-10
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
2. Discontinued Operations (Continued)
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 $7,497,061
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
cellular telephone 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
uncollectible 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.
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). The cash payments were applied
substantially as follows:
S-11
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
2. Discontinued Operations (Continued)
The cash payments and the proceeds from the Sale of PriCellular
Stock through September 30, 1996 were applied substantially as
follows:
a) Repayment of Motorola debt and
accrued interest incurred to finance
construction of the System. $ 2,864,226
b) Closing costs 747,955
c) Escrow account deposit 400,000
d) Advances to Resort Club 6,225,442
e) Investment in mutual fund and
other marketable securities 381,723
f) Investment in RTC mortgages 1,600,000
g) Prepaid lease 950,000
h) Investment in Food Extrusion 1,750,000
i) Purchase of the Company's common
stock from former President 1,664,450
j) Purchase of the Company's common
stock from unrelated parties 562,343
k) Investments in real estate and real
estate related activities 1,018,740
l) Investment in Space Shot and
Piston Bullies 1,394,710
Total: $19,559,589
Proceeds from the System Sale to Former President
In lieu of a severance payment and in appreciation for her
services in developing the System, the Board of Directors had
agreed in principle with Ms. Evers-Tierney that in the event of
consummation of the 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" would be
made by the Company's auditors, 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 family. Pro rata payment was made to Ms. Evers-Tierney
and her family. Ms. Evers-Tierney and her family had the right to
obtain part of such payments in PriCellular notes. As of
September 30, 1996, the Company purchased an aggregate of 943,411
shares of the Company's Common Stock from Ms. Evers-Tierney and
her family at a purchase price equal to approximately $500,000 in
cash and 182,500 shares of PriCellular Common Stock of which 50%
was allocated to the purchase of Treasury stock and 50% as a cost
in connection with the sale of the System. With the exception of
the described payments to the Company's former president and
members of her family, no portion of the sale proceeds were
distributed directly to the Company's shareholders. In addition,
Ms. Evers-Tierney received approximately $136,000 pursuant to a
consulting arrangement with the Company during fiscal 1996.
S-12
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
2. Discontinued Operations (Continued)
Summary results of the Company's former cellular telephone
operation's prior to its sale, which have been classified
separately, were as follows:
Years Ended September 30
1996 1995
Revenue $ 574,741 $4,816,690
Expenses 611,183 3,462,175
Net Income (loss) $ (36,442) $1,354,515
3. Related Party Transactions
During the period of October 1, 1994 through September 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, Inc. ("Resort Club"), Great
American Recreation, Inc. ("Great American"), Madison Avenue
Financial Corporation ("MAFC"), Stonehill Recreation Corporation
("Stonehill Recreation"), and Great Mountain Development
Corporation ("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 a former Officer of GMD, and the President of
MAFC. Mr. Bellantoni, the Secretary, Treasurer and Director of
the Company was Vice President and Chief Financial Officer of
Great American and is currently a Director of Great American; Gene
Mulvihill, the Chairman of the Board and Chief Executive Officer
of the Company is a principal shareholder and former Officer of
GMD and former Chairman of the Board and Chief Executive Officer
of Great American and his daughter is a Director, and the
President and Chief Operating Officer of such corporation. Mr.
Gene Mulvihill's son, Andrew Mulvihill is an Executive Officer of
Resort Club and a former officer of GMD.
An entity beneficially owned by Gene Mulvihill is also owed
$147,960 by Resort Club, currently due and owing and has been
granted a security interest in Resort Club membership promissory
notes to secure repayment of indebtedness. However, such security
interest is subordinate to all security interests in such notes.
On March 29, 1996, but effective as of June 1, 1993, Resort Club
entered into amended and restated agreements with Vernon Valley,
Great Gorge and Great Valley Real Estate Corp., all subsidiaries
of Great American whereby in consideration for an aggregate
payment of 10% of the gross sales price of each Resort Club
membership, these entities will provide amenities and access to
certain properties for the benefit of Resort Club members. The
amenities provided by Great American include admission passes to
the Vernon Valley and Great Gorge ski facilities, admission
passes to the Action Park and admission passes to the Mountain
Top Recreation Center, all for a period of 35 years. As of
September 30, 1996, Resort Club has accrued an aggregate of
$1,302,487 due to Great American for the amenities and access to
certain property for which it made payments of approximately
$969,846, leaving an outstanding balance of $332,641 due to Great
American as of September 30, 1996.
S-13
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
3. Related Party Transactions (Continued)
Also on March 29, 1996, Resort Club entered into an amended and
restated agreement with Stonehill Recreation, the entity which
owns and operates the Spa and Country Club at Great Gorge on
terms similar to those that were entered into with Great
American, except that the consideration payable to Stonehill
Recreation from Resort Club represents $25,000 for each
condominium controlled by Resort Club. As of September 30, 1996,
Resort Club has accrued an aggregate of $700,000 due to Stonehill
Recreation for the amenities which is due and payable. Andrew J.
Mulvihill, an Executive Officer of Resort Club is the beneficial
owner of 33.3% of Stonehill Recreation and Christopher Mulvihill,
the son of Mr. Gene Mulvihill, is the beneficial owner of 33.3%
of Stonehill Recreation.
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. Resort Club receivables were
incorporated into the second loan agreement with Resort Club
described above. The loan was paid in full on February 15, 1996
together with interest at 15%.
On March 31, 1996, the Company entered into an agreement to
purchase 9 condominiums from Mr. Gene Mulvihill for an aggregate
purchase price of $878,500. Of the condominiums purchased, eight
condominiums are located in the Great Gorge Resort and one is
located in the Resort of Palmas Del Mar, Puerto Rico. As of
September 30, 1996, the Company has a remaining balance due on the
purchase of $378,530 which is evidenced by a promissory note
bearing interest at 10.25%.
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
$1,558 per month and a monthly payment of approximately $519 for
the Company's proportionate share of impositions and operating
expenses. The lease provides for rental adjustments for changes
in the Consumer Price Index.
On December 1, 1995, Diamond Leasing 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, Diamond Leasing 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, Diamond
Leasing 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) pay a percentage of gross
revenue equal to 50% of gross revenues in excess of $1,000,000.
The Lease provided for a cap limitation equal to a 28% rate of
return to Diamond Leasing. Proceeds received in excess of a 28%
rate of return were required to be remitted to Vernon Valley. The
Lease also provided Diamond Leasing with the absolute right of
renewal for three additional consecutive December 15 - March 15
lease terms. Through September 30, 1996, Diamond Leasing 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.
S-14
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
3. Related Party Transactions (Continued)
Diamond Leasing entered into a capital lease for two Piston
Bullies with Bombardier Capital, Inc. ("Bombardier") commencing
January 1, 1996 for a term of 18 months ending September 1, 1997.
Piston Bullies are snow grooming machines used for grooming ski
trails. The lease provides for 11 payments with aggregate rental
payments of approximately $165,700 and has a $10,901 purchase
option at the end of the lease term. Concurrent with entering
into the lease agreement with Bombardier, Diamond Leasing entered
into a sublease agreement with Vernon Valley on similar terms with
Diamond Leasing's lease agreement with Bombardier except that the
rental payment had 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. As of September 30, 1996, the outstanding balance due
Bombardier was $76,498.
On January 15, 1996, Vernon Valley failed to make the required
payments pursuant to the Piston Bully Lease Agreement causing a
default. As a consequence of the default, Diamond Leasing
accelerated the amount due under the Lease Agreement. Presently,
Diamond Leasing has a claim against Vernon Valley for all sums due
under the Lease Agreement, including any and all costs and
expenses, including reasonable attorney fees, incurred by Diamond
Leasing to collect the claim.
On January 26, 1996, Diamond Leasing 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 Diamond Leasing its interest in the insurance
proceeds to the extent of $269,500 together with interest at 9%
per annum. As further consideration, Diamond Leasing 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 Diamond Leasing until the
principal amount of the loan is fully paid with accrued interest.
As of September 30, 1996, Diamond Leasing received payments of
$172,366 on this loan pursuant to the assignment and "additional
rent" described above with a remaining balance of $97,134
outstanding as of September 30, 1996.
On March 19, 1996, Diamond Leasing agreed to purchase 92
condominium lots from GMD, at a price of $1,820,000 payable as
follows: (i) $270,500 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 Diamond Leasing acquiring good and
marketable title to the property insurable at regular rates and
with customary adjustments made at the closing. Finally,
Diamond Leasing offered GMD the Option to participate in the
development of the property.
S-15
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
3. Related Party Transactions (Continued)
On or about July 24, 1992, Great American and one of its
subsidiaries 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 MAFC. MAFC held a
second junior participation in a loan agreement between Great
American and First Fidelity Bank, N.A. ("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. On
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 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 (NJ) Inc. ("Noramco") and Skival, Inc.
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, Inc.'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 $805,000, an amount which approximates fair
market value. The balance of $285,560 was paid at closing of
title on April 1, 1996.
On April 5, 1996, the Company, through a wholly owned subsidiary,
Star II Leasing Corporation, agreed to purchase an attraction
known as the Space Shot from S & S Sports Power, Inc. for the sum
of $1,250,000. Concurrently, Diamond agreed to lease the Space
Shot to Vernon Valley at an annual rental equal to $300,000 for a
term of four (4) years subject, however, to Vernon Valley
achieving a certain level of revenues, failing which no payment
will be made to the Company, but will accrue and be due and
payable to the Company in the subsequent years of the said Lease
Agreement. Mr. Mulvihill, an officer and director of the Company,
is a 50% owner of S & S Sports Power, Inc. In connection with the
acquisition of this ride, Mr. Mulvihill has agreed to forfeit all
allocated profits and direct same to the Company. No payments
have been made in fiscal 1996 pursuant to this lease agreement.
As of September 30, 1996, the Company, through Diamond Leasing,
advanced $882,090 to Summit Bank ("Summit") and Lakeview Savings
Bank ("Lakeview") in connection with a limited forebearance
agreement entered into between Summit, Lakeview, Eugene Mulvihill
and Robert and Stanley Holuba.
On March 1, 1994, loans made by Summit and Lakeview to Vernon
Valley had matured and were immediately due and payable. Vernon
Valley failed to fully pay the loan obligations which constituted
a material default under the Vernon Valley loan documents, and
together with the filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the Vernon Valley
loan documents.
S-16
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
3. Related Party Transactions (Continued)
As part of the original loan transactions, Mr. Mulvihill and Mr.
Stanley and Robert Holuba (the "guarantors") guaranteed the Summit
and Lakeview loans. The outstanding loan balance due Summit and
Lakeview, including principal, interest, and other costs at
September 30, 1996 was $4,607,184. The payment made by the
Company to Summit and Lakeview was made in connection with a
limited forebearance agreement for which the banks agreed to
forebear from exercising their respective rights and remedies
under the Vernon Valley loan documents.
Simultaneously with Diamond Leasing's advance of $882,090, the
guarantors assigned their rights of subrogation to Diamond
Leasing. Under the rights of subrogation, Diamond Leasing has a
security interest in the collateral, the Great Gorge South Summit
Lodge and ski facility. Management believes that the value of the
collateral is in excess of the Summit and Lakeview liens. In
addition, management believes there is an advantage to working
with Summit and Lakeview since they hold a first mortgage lien on
the Great Gorge South Summit Lodge and ski facility. This
facility currently provides amenities to Resort Club members
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 wholly owned subsidiaries, Vernon Valley, Great
Valley, Great Gorge, Great Heritage, Inc., TAV, Inc. , Stonehill
Management Corp., Stonehill Maintenance Corp., Stonehill Sewer,
Inc., Stonehill Water, Inc., Vernon Valley Sewer, Inc. and GMD
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.
4. 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 reflected 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 registerable securities were waived.
On August 5, 1996, DCI consummated the sale of an additional
450,000 shares of Class A Common Stock of PriCellular in an
underwritten public offering pursuant to a Registration Statement
on Form S-3 (File No. 333-03737) declared effective by the
Securities and Exchange Commission on July 30, 1996. Of the
450,000 shares sold, 75,000 shares were sold on behalf of the
Company's former President. As of September 30, 1996, an
additional 107,500 shares were issued to Ms. Evers-Tierney
pursuant to her agreement (see Note 2). The shares were sold at a
price of $10.00 per share less a $.55 per share underwriting
discount for a net price of $9.45 per share or $4,252,500 in the
aggregate to an underwriting group comprised of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Paine Webber Incorporated,
Nat West Securities Limited and Wasserstein Perella Securities,
Inc. As of September 30, 1996, DCI was the beneficial owner of
201,700 shares of PriCellular Class A Common Stock, which includes
189,112 shares DCI received from the issuance of additional shares
from PriCellular as a result of two five for four stock splits
during the fiscal year.
S-17
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
5. Investment in Silver Shield Mill
The Company is the owner of 10 acres of land in Ouray, Colorado,
with the "Silver Shield" Mill located thereon. The Mill, designed
to mill silver, has not been operated for more than 50 years. The
Company paid the balance of the purchase price for this property
early in fiscal 1992 and listed the property for sale at a price
of $239,000 based upon a listing of comparable neighboring
property. Although the listing expired in October 1993, the
Company did not renew the listing because of an ongoing
reconstruction project in the vicinity which management believes
may enhance the value of the Company's property. It is
management's belief that the Company will realize the carrying
value of this property of $142,684 at September 30, 1996 when the
property is sold.
6. Mortgages Receivable
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. The
purchase price of $1,600,000 represents approximately 51% of the
principal amount of indebtedness on single family residential
properties. As of September 30, 1996, all of the above mortgages
were non-performing. 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.
7. Extrusion Note
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. On
July 30, 1996, the Company restructured the Extrusion Note. The
Extrusion Note, as restructured, bears interest at 5% per annum,
with principal and interest due on November 21, 1999 and is
secured by a first lien on certain food processing assets and
related contract rights. As additional consideration, the Company
received 578,000 shares of Common Stock which represents less than
3.5% of the issued and outstanding shares of common stock of Food
Extrusion, Inc. At the issuance, the 5% stated interest rate on
the Extrusion Note was considered a below market interest rate.
Accordingly, a valuation discount of $361,941 was applied to the
Extrusion Note to be amortized over the life of its term so that
the effective yield of the Notes would be 12%. The difference
between the face value of the Extrusion Notes and its discounted
value is referred to as an original issue discount. The value of
the original issue discount has been assigned to the 578,000
shares of Food Extrusion, Inc. common stock.
8. Asset Held for Sale
Diamond Leasing entered into a capital lease for two Piston
Bullies with Bombardier commending January 1, 1996 for a term of
18 months ending September 1, 1997. Piston Bullies are snow
grooming machines used for grooming ski trails. The lease
provides for 11 payments with aggregate rental payments of
approximately $165,700 and has a $10,901 purchase option at the
end of the lease term. Concurrent with entering into the lease
agreement with Bombardier, Diamond Leasing entered into a sublease
agreement with Vernon Valley on similar terms with Diamond
Leasing's lease agreement with Bombardier except that the rental
payment had 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. As of September 30, 1996, the outstanding balance due
Bombardier was $76,498.
S-18
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
8. Asset Held for Sale (Continued)
On January 15, 1996, Vernon Valley failed to make the required
payments pursuant to the Piston Bully Lease Agreement causing a
default. As a consequence of the default, Diamond Leasing
accelerated the amount due under the Lease Agreement. Presently,
Diamond Leasing has a claim against Vernon Valley for all sums due
under the Lease Agreement, including any and all costs and
expenses, including reasonable attorney fees incurred by Diamond
Leasing to collect the claim.
9. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September
30, 1996 consist of the following:
Accounts Payable $ 290,816
Accrued payroll and payroll taxes 73,697
Accrued condo purchase (Note 12) 815,500
Accrued income taxes (Note 10) 204,000
Accrued amenity usage (Note 12) 1,038,551
Accrued fulfillment deficit (Note 12) 3,818,371
Accrued other 709,237
$6,950,172
10. Income Taxes
As of September 30, 1996, the Company had available for federal
income tax purposes approximately $1,690,000 of net operating loss
carryforwards, which would have expired in fiscal 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 fiscal year ended September 30, 1996, 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 utilized the tax benefit from the prior period
net operating loss carryforwards resulting in the following:
Provision for Income Taxes $1,380,000
Tax benefit from loss
carryforward utilization (676,000)
Net Tax Provision $ 704,000
S-19
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
11. Debt
Mortgages Payable
In connection with the operation of its former cellular telephone
business, the Company purchased two office buildings. These
buildings are currently leased to third parties. In addition, the
Company purchased three condominiums used in connection with its
membership program in the form of accommodation inventory. The
related mortgages on these properties at September 30, 1996
consist of the following:
Building and land purchased, July 1991
11.5%, principal and interest of
$1,739 payable monthly to August 1998 $ 35,735
Building and land purchased, August 1992
9%, principal and interest of $901 payable
monthly to August 1998, balloon payment of
$84,508 at September 1, 1998 88,776
Condominium purchased, December 1995
10%, principal and interest of $956 payable
monthly to December 2000 40,213
Condominium purchased, April 1996
8.5%, principal and interest of $483.72
payable monthly with a balloon payment
of $60,950 at April 25, 1999 62,717
Condominium purchased, April 1996
8%, principal and interest of $709.92
payable monthly with a balloon payment
of $93,444 at May 1, 1999 96,421
Total mortgages 323,862
Less total current portion 29,117
Total noncurrent portion $ 294,745
Notes Payable
On March 31, 1996, the Company entered into an agreement to
purchase 9 condominiums from Mr. Gene Mulvihill for an aggregate
purchase price of $878,500. Of the condominiums purchased, eight
condominiums are located in the Great Gorge Resort and one is
located in the Resort of Palmas Del Mar, Puerto Rico. As of
September 30, 1996, the Company has a remaining balance due on the
purchase of $378,530, which is evidenced by a note payable bearing
interest at 10.25%.
On June 10, 1994, Resort Club entered into a loan agreement with
an unaffiliated party in the principal amount of $1,000,000.
Pursuant to the loan agreement, the amount owed from Resort Club
to the lender 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 loan bears
interest at 15% and is due and payable on June 10, 1997.
S-20
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
11. Debt (Continued)
Capital Lease
Diamond Leasing entered into a capital lease for two Piston
Bullies with Bombardier commencing January 1, 1996 for a term of
18 months ending September 1, 1997. Piston Bullies are snow
grooming machines used for grooming ski trails. The lease provides
for 11 payments with aggregate rental payments of approximately
$165,700 and has a $10,901 purchase option at the end of the lease
term. Concurrent with entering into the lease agreement with
Bombardier, Diamond Leasing entered into a sublease agreement with
Vernon Valley on similar terms with Diamond Leasing's lease
agreement with Bombardier except that the rental payment had 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. As of September
30, 1996, the outstanding balance due Bombardier was $76,498.
Other Information
Aggregate principal reductions of debt as of September 30, 1996
are summarized as follows (000's omitted):
Mortgages Capital Notes
Fiscal Year Payable Lease Payable Total
1997 $ 29,117 $ 76,498 $1,611,490 $1,717,105
1998 112,959 0 0 112,959
1999 and 181,786 0 0 181,786
thereafter $ 323,862 $ 76,498 $1,611,490 $ 2,011,850
12. Commitments and Contingencies
In lieu of a severance payment and in appreciation for her
services in developing the System, the Board of Directors had
agreed in principle with Ms. Evers-Tierney that in the event of
consummation of the sale of the System, the Company would
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" would be
made by the Company's auditors, computed on an accrual basis
giving effect to the sale and the expenses and taxes incurred in
connection with the sale, but without deducting any severance
payment obligations to Ms. Evers-Tierney (which were waived) or
the stock repurchase obligation to Ms. Evers-Tierney and her
family. As a result, pro rata payment was made to Ms. Evers-
Tierney and her family. Ms. Evers-Tierney and her family had the
right to obtain part of such payments in PriCellular notes. As of
September 30, 1996, the Company purchased an aggregate of
943,411 shares of the Company's Common Stock from Ms. Evers-
Tierney and her family at a purchase price equal to approximately
$500,000 in cash and 182,500 shares of PriCellular Common Stock of
which 50% was allocated to the purchase of Treasury stock and 50%
as a cost in connection with the sale of the System. 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 were distributed directly to the Company's shareholders.
In addition, Ms. Evers-Tierney received approximately $136,000
pursuant to a consulting arrangement with the Company during
fiscal 1996.
S-21
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
12. Commitments and Contingencies (Continued)
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
$1,558 per month and a monthly payment of approximately $519 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 September 30, 1996, the Company has sold 215,048 membership
points. Based on the number of membership points sold, the
Company is required to purchase a minimum inventory of 29
condominium units. Currently, the Company owns 6 condominium
units free and clear, and has purchased 12 condominium units which
are subject to mortgages in the principal amount of $577,881. In
addition, the Company has entered into contracts to purchase the
remaining 11 required condominium units for a purchase price of
approximately $815,500. In order to secure the purchase of the
required minimum condominium inventory as of September 30, 1996
the Company has transferred approximately $1,400,000 in membership
receivables in escrow.
On March 29, 1996, but effective as of June 1, 1993, Resort Club
entered into amended and restated agreements with Vernon Valley
Recreation Association, Inc. ("Vernon Valley"), Great Gorge and
Great Valley Real Estate Corp., all subsidiaries of Great American
Recreation, Inc. ("Great American"), whereby in consideration for
an aggregate payment of 10% of the gross sales price of each
Resort Club membership, these entities will provide amenities and
access to certain properties for the benefit of Resort Club
members. The amenities provided by Great American include
admission passes to the Vernon Valley and Great Gorge ski
facilities, admission passes to the Action Park and admission
passes to the Mountain Top Recreation Center, all for a period of
35 years. As of September 30, 1996, Resort Club has accrued an
aggregate of $1,302,487 due to Great American for the amenities
and access to certain property for which it made payments of
approximately $969,846, leaving an outstanding balance of $332,641
due to Great American as of September 30, 1996. Also on March 29,
1996, Resort Club entered into an amended and restated agreement
with Stonehill Recreation Corporation, ("Stonehill Recreation"),
the entity which owns and operates the Spa and Country Club at
Great Gorge on terms similar to those that were entered into with
Great American, except that the consideration payable to Stonehill
Recreation from Resort Club represents $25,000 for each
condominium controlled by Resort Club. As of September 30, 1996,
Resort Club has accrued an aggregate of $700,000 due to Stonehill
Recreation for amenities which is due and payable. Andrew J.
Mulvihill, an Executive Officer of Resort Club, is the beneficial
owner of 33.3% of Stonehill Recreation and Christopher Mulvihill,
the son of Mr. Gene Mulvihill, is the beneficial owner of 33.3% of
Stonehill Recreation.
In connection with the purchase of a Resort Club membership, a
member is obligated to pay annual membership dues. Annual
membership dues have been established to cover each club member's
pro rata share of the estimated annual maintenance and operating
expenses, including reserves, for all of the units, facilities,
and amenities with the present Resort Club program. Each Resort
Club member's pro rata share of the annual expenses is based on
the ratio of Resort Club member's total contract points to the
total contract points in Resort Club program. The initial annual
membership dues may be increased by Resort Club as of each fiscal
year by a percentage not to exceed the percentage increase, if
any, in the Consumer Price Index ("CPI"). The annual membership
dues may be increased by an amount greater than the CPI if the
increase is put to a vote of all Resort Club members and approved
by a majority of the points voted.
As of September 30, 1996, management has determined that based on
the average per point assessment as of September 30, 1996, a
deficit of $1.41 per point exists. Based on an aggregate of
215,048 points sold through September 30, 1996, a $304,244 per
year deficit exists which is the obligation of Resort Club.
Management has calculated the net present value of this obligation
to be $3,818,371.
S-22
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
12. Commitments and Contingencies (Continued)
Diamond Leasing entered into a capital lease for two Piston
Bullies with Bombardier commencing January 1, 1996 for a term of
18 months ending September 1, 1997. Piston Bullies are snow
grooming machines used for grooming ski trails. The lease provides
for 11 payments with aggregate rental payments of approximately
$165,700 and has a $10,901 purchase option at the end of the lease
term. Concurrent with entering into the lease agreement with
Bombardier, Diamond Leasing entered into a sublease agreement with
Vernon Valley on similar terms with Diamond Leasing's lease
agreement with Bombardier except that the rental payment had 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. As of September
30, 1996, the outstanding balance due Bombardier was $76,498.
On January 15, 1996, Vernon Valley failed to make the required
payments pursuant to the Piston Bully Lease Agreement causing a
default. As a consequence of the default, Diamond Leasing
accelerated the amount due under the Lease Agreement. Presently,
Diamond Leasing has a claim against Vernon Valley for all sums due
under the Lease Agreement, including any and all costs and
expenses, including reasonable attorney fees, incurred by Diamond
Leasing to collect the claim.
On January 26, 1996, Diamond Leasing 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 Diamond Leasing its interest in the insurance
proceeds to the extent of $269,500 together with interest at 9%
per annum. As further consideration, Diamond Leasing 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 Diamond Leasing until the
principal amount of the loan is fully paid with accrued interest.
As of September 30, 1996, Diamond Leasing received payments of
$172,366 on this loan pursuant to the assignment and "additional
rent" described above with a remaining balance of $97,134
outstanding as of September 30, 1996.
On March 19, 1996, Diamond Leasing agreed to purchase 92
condominium lots from the real estate development corporation, GMD
at a price of $1,820,000 payable as follows: (i) $270,500 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 Diamond
Leasing acquiring good and marketable title to the property
insurable at regular rates and with customary adjustments made at
the closing. Finally, Diamond Leasing 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.
On April 5, 1996, the Company, through a wholly owned subsidiary,
Star II Leasing Corporation, agreed to purchase an attraction
known as the Space Shot from S & S Sports Power, Inc. for the sum
of $1,250,000. Concurrently, Diamond agreed to lease the Space
Shot to Vernon Valley at an annual rental equal to $300,000 for a
term of four (4) years subject, however, to Vernon Valley
achieving a certain level of revenues, failing which no payment
will be made to the Company, but will accrue and be due and
payable to the Company in the subsequent years of the said Lease
Agreement. Mr. Mulvihill, an officer and director of the Company,
is a 50% owner of S & S Sports Power, Inc. In connection with the
acquisition of this ride, Mr. Mulvihill has agreed to forfeit all
allocated profits and direct same to the Company. No payments
were made in fiscal 1996 pursuant to this lease agreement.
S-23
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
12. Commitments and Contingencies (Continued)
As of September 30, 1996, the Company, through Diamond Leasing,
advanced $882,090 to Summit and Lakeview in connection with a
limited forebearance agreement entered into between Summit,
Lakeview, Eugene Mulvihill and Robert and Stanley Holuba.
On March 1, 1994, loans made by Summit and Lakeview to Vernon
Valley had matured and were immediately due and payable. Vernon
Valley failed to fully pay the loan obligations which constituted
a material default under the Vernon Valley loan documents, and
together with the filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the Vernon Valley
loan documents.
As part of the original loan transactions, Mr. Mulvihill and Mr.
Stanley and Robert Holuba (the "guarantors") guaranteed the Summit
and Lakeview loans. The outstanding loan balance due Summit and
Lakeview, including principal, interest and other costs at
September 30, 1996 was approximately $4,607,184. The payment made
by the Company to Summit and Lakeview was made in connection with
a limited forebearance agreement for which the banks agreed to
forebear from exercising their respective rights and remedies
under the Vernon Valley loan documents.
Simultaneously with Diamond Leasing's advance of $882,090, the
guarantors assigned their rights of subrogation to Diamond
Leasing. Under the rights of subrogation, Diamond Leasing has a
security interest in the collateral, the Great Gorge South Summit
Lodge and ski facility. Management believes that the value of the
collateral is in excess of the Summit and Lakeview liens. In
addition, management believes there is an advantage to working
with Summit and Lakeview since they hold a first mortgage on the
Great Gorge South Summit Lodge and ski facility. This facility
currently provides amenities to Resort Club members.
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 wholly owned subsidiaries, Vernon Valley, Great
Valley, Great Gorge, Great Heritage, Inc., TAV, Inc., Stonehill
Management Corp., Stonehill Maintenance Corp., Stonehill Water,
Inc., Stonehill Sewer, Inc., Vernon Valley Sewer, Inc. and GMD
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.
13. 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 September 30, 1996, the Company has
repurchased (excluding the 943,411 shares repurchased from Ms.
Evers-Tierney described below) 386,235 shares of its Common Stock
at an average price of $1.46 per share.
S-24
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
13. Common Stock (Continued)
In lieu of a severance payment and in appreciation for her
services in developing the System, the Board of Directors had
agreed in principle with Ms. Evers-Tierney that in the event of
consummation of the proposed sale of the System, the Company would
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" would be
made by the Company's auditors, computed on an accrual basis
giving effect to the sale and the expenses and taxes incurred in
connection with the sale, but without deducting any severance
payment obligations to Ms. Evers-Tierney (which were waived) or
the stock repurchase obligation to Ms. Evers-Tierney and her
family. As a result, pro rata payment was made to Ms. Evers-
Tierney and her family. Ms. Evers-Tierney and her family had the
right to obtain part of such payments in PriCellular notes. As of
September 30, 1996, the Company purchased an aggregate of 943,411
shares of the Company's Common Stock from Ms. Evers-Tierney and
her family at a purchase price equal to approximately $500,000 in
cash and 182,500 shares of PriCellular Common Stock of which 50%
was allocated to the purchase of Treasury stock and 50% as a cost
in connection with the sale of the System. 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 were
distributed directly to the Company's shareholders.
Non-qualified Stock Option Plan and Option to Purchase Common Stock
The Company has adopted a non-qualified stock option plan and
reserved 125,000 shares for issuance pursuant thereto. Options
are non-transferable; expire if not exercised after five years;
may not be exercised until after the completion of one year of
service with the Company by the employee; are exercisable at the
rate of one-fifth of the shares optioned per year and are issuable
to employees in such amounts and at such prices as determined by
the Board of Directors, provided that no single employee may be
granted options to purchase more than 7,500 shares and persons
owning more than 10% of the Company's outstanding shares are
excluded from participation in the plan. Options are protected
against dilution resulting from stock recapitalization. As of
September 30, 1996, no options had been issued under the plan.
14. Business Acquisition
On February 1, 1996, the Company, through its wholly owned
subsidiary, Diamond Leasing, pursuant to a pledge agreement,
acquired 100% of the outstanding common stock of Resort Club. The
acquisition has been accounted for as a purchase, and,
accordingly, the net assets and results of operations are included
in the Consolidated Financial Statements, for financial reporting
purposes, beginning in Feburary, 1996. 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.
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 2), an aggregate $1,417,598 of the
loan proceeds were applied by the Company through its wholly owned
subsidiary Diamond Leasing to the extension of a loan to Resort
Club. The Resort Club loan was repayable on April 20, 1996,
together with interest thereon at an annual rate of 18% and
payable quarterly (said loan was extended for a period of one year
to April 20, 1997).
On October 16, 1995, the Company entered into a second loan
agreement with Resort Club whereby the Company through its wholly
owned subsidiary, Diamond Leasing, provided an additional loan
facility of $2,300,000 on terms substantially similar to the
previous loan agreement with Resort Club. The loan was due and
payable on October 16, 1996 (said loan was extended for a period
of one year to October 16, 1997).
S-25
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996 AND 1995
14 Business Acquisition (Continued)
On February 1, 1996, Diamond Leasing entered into a third loan
agreement with Resort Club, whereby it provided an additional loan
facility of $4,000,000 on terms substantially similar to the
previous loan agreements with Resort Club. The loan is due and
payable on February 1, 1997
As additional consideration in connection with the above
financing, Diamond Leasing acquired certain interests in Resort
Club, subject to the satisfaction of certain conditions. In this
regard, on February 1, 1996, the Company, through its wholly owned
subsidiary, Diamond Leasing, pursuant to a pledge agreement,
acquired 100% of the outstanding common stock of Resort Club. As
of September 30, 1996, the Company's primary business operations
are in connection with the sale of membership interests through
Resort Club. Diamond Leasing acquired all of the common stock of
Resort Club from Whitehorse Enterprises, Inc., a non-affiliated
entity.
Subsequent Events (Unaudited) Not Covered By Independent Auditor's
Report
On November 18, 1996, the Company borrowed $1,000,000 from
Donaldson, Lufkin & Jenrette ("DLJ"). The terms of the loan
require that the Company pay a rate of interest equal to 12%. The
loan is due and payable on demand and is collateralized with
196,700 shares of the Company's PriCellular Class A common stock.
In December 1996, the Company entered into a First Amendment to
the Limited Forebearance Agreement dated September 20, 1996 (See
Note 3). The terms of the amended agreement required the Company
to make a lump sum payment to Summit for $253,729 and six monthly
payments to Lakeview for $79,150.13 and a lump sum payment of
$174,900.78 on July 1, 1997.
On March 1, 1994, loans made by Summit and Lakeview to Vernon
Valley had matured and were immediately due and payable. Vernon
Valley failed to fully pay the loan obligations which constituted
a material default under the Vernon Valley loan documents, and
together with the filing of bankruptcy by Vernon Valley, also
constituted a material event of default under the Vernon Valley
loan documents.
As part of the original loan transactions, Mr. Mulvihill and Mr.
Stanley and Robert Holuba (the "guarantors") guaranteed the Summit
and Lakeview loans. The outstanding loan balance due Summit and
Lakeview, including principal, interest and other costs at
September 30, 1996 was $4,607,184. The payment made by the
Company to Summit and Lakeview was made in connection with a
limited forebearance agreement for which the banks agreed to
forebear from exercising their respective rights and remedies
under the Vernon Valley loan documents.
S-26
mw\fin.doc\dr10k6S1.doc
114619
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
FORM 10KSB AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,303,659
<SECURITIES> 381,723
<RECEIVABLES> 1,597,066
<ALLOWANCES> 261,798
<INVENTORY> 0
<CURRENT-ASSETS> 10,560,142
<PP&E> 1,623,857
<DEPRECIATION> 137,736
<TOTAL-ASSETS> 21,980,309
<CURRENT-LIABILITIES> 17,994,143
<BONDS> 0
<COMMON> 42,294
0
0
<OTHER-SE> 3,649,127
<TOTAL-LIABILITY-AND-EQUITY> 21,980,309
<SALES> 4,000,810
<TOTAL-REVENUES> 4,000,810
<CGS> 0
<TOTAL-COSTS> 14,899,893
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 527,055
<INCOME-PRETAX> (7,164,908)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,164,908)
<DISCONTINUED> 10,030,998
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,866,090
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
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