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, 1998
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 (973) 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, 1998, the issuer's revenues were
$1,396,383.
On August 1, 1999, 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 $7,630,576 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 7,630,576 shares of Common Stock of the Issuer
outstanding.
Transitional Small Business Disclosure Format Yes No X
PART I
Item 1. Business
GENERAL:
Dominion Resources, Inc. (the "Company") has been, since February
1996, principally engaged, through a wholly owned subsidiary,
Resort Club, Inc. ("Resort Club"), in the business of offering
membership interests to the general public which allows its members
to vacation in resort condominiums. The interest 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 summer
participation theme park known as Mountain Creek located in Vernon,
New Jersey (previously 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 addition, the Company from time to time acquires real property
or other assets where it believes there are favorable investment
opportunities. At September 30,1998, these investments included
certain real estate assets including 27 vacant condominium lots
located in Great Gorge Village, a condominium development
comprising a total of approximately 1,300 units situated adjacent
to the ski area and summer participation theme park near Vernon,
New Jersey. The Company intends to construct condominiums on these
properties for sale. In addition, the Company owns three
condominium units which it is currently renting located in Fort
Lee, New Jersey. The Company also owns an approximately 1560
square foot building in Selma, Alabama which it is renting.
In March 1996, the Company entered into a $1.75 million secured
loan with RiceX, Inc. ("RiceX"). In December 1998, the Company
entered into a Loan Participation Agreement with FoodCeuticals,
L.L.C. ("FoodCeuticals") whereby the Company contributed its
secured loan with RiceX including accrued interest due from RiceX
in the aggregate of approximately $2 million and FoodCeuticals
contributed its secured loan due from RiceX in the amount of $1.85
million. The Company and FoodCeuticals' collateral includes
certain tangible and intangible assets of RiceX including RiceX's
extrusion machines located at two rice mills in California,
contract rights, and all of RiceX's intellectual property. These
assets represent substantially all of the assets in RiceX. In
addition, FoodCeuticals received an aggregate of 940,679 shares of
RiceX's common stock and a warrant to purchase an aggregate of
3,743,540 shares of RiceX's common stock at an exercise price of
$0.75 per share. Collectively, the Company's and FoodCeuticals
secured loans of $2 million and $1.85 million, respectively, are
hereinafter referred to as the Participation Loan. Pursuant to the
Loan Participation Agreement, the Company and FoodCeuticals share
pro rata as to the Participation Loan, warrants, shares and
collateral due, payable or granted under the Loan Agreement to the
extent that their participation amount bears to the total
Participation Loan. As a result, the Company received 409,421
shares of RiceX common stock and a warrant to purchase 1,429,338
shares of RiceX common stock.
The Company is currently engaged in a review of its future business
objectives and plans. In that regard, it may dispose of certain of
its assets, acquire additional assets or enter into business
combination or other transactions with others. No agreements or
agreements in principal have been entered into with respect to such
transactions as of August 9, 1999.
VACATION MEMBERSHIPS:
The following table illustrates certain statistics regarding the
Company's vacation membership sales activities during the three
fiscal years ended September 30, 1998:
<TABLE>
<S> <C> <C> <C>
Fiscal 1998 Fiscal 1997 Fiscal 1996
Maximum number of membership
interests available 2,183 2,069 1,453
Net number of membership
interests sold 2,133 1,970 1,403
Percentage sold 98% 95% 97%
Net number of membership interests
sold during fiscal period 163 567 718
Gross sales of membership interests
during fiscal period $1,430,716 $6,389,292 $6,666,979
Annual fulfillment assessments per
membership interests $470,451 $426,171 $329,555
</TABLE>
The accommodation usage is administered through a "points" based
system. 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. In particular, due to the
Great Gorge Resort's close proximity to members' homes, a number of
short-term getaways of one, two, or three nights versus a full
week, is available.
As of September 30, 1998, Resort Club has 38 condominium units in
Vernon, New Jersey, three units in Brigantine, New Jersey and one
unit in Palmas Del Mar, Puerto Rico. The Company is negotiating to
acquire two additional units in Vernon, New Jersey.
The purchase price for the memberships was generally financed, with
the down payment received by the Company for such sale equal to at
least 10% of the sales price. The financing for the balance is
generally evidenced by non-recourse installment sales contracts.
The down payment is often less than the direct expense of
commissions and selling expenses plus the cost of acquiring the
related condominium and administrative expenses. The difference is
financed either by borrowings by the Company or paid out of the
Company's other funds. Through fiscal 1997 and 1998, the Company
advanced approximately $10,637,000 and $12,410,000, respectively,
for the consideration for these for a payment equal to 10% of the
gross sales price of the Resort Club memberships.
During fiscal 1998 sales prices ranged from $5,544 to $25,000 per
membership , based on the number of points purchased. Annual
fulfillment assessments for operating costs ranged from $268.40 to
$618.00 during fiscal 1998.
For the three fiscal years ended September 30, 1998, 1997, 1996,
Resort Club's gross revenue from sales of membership interests was
$1,430,716, $6,389,292, and $6,666,979, respectively.
Commencing in June 1993, Resort Club entered into arrangements with
Great American Recreation, Inc. and certain of its subsidiaries and
affiliates (collectively, "Great American") to provide amenities
and access to certain properties for the benefit of Resort Club
members. Under amended and restated agreements entered into in
March 1996, the consideration paid for the use of these amenities
was a payment equal to 10% of the gross sales price of the Resort
Club memberships. The amenities included admission passes to the
Vernon Valley and Great Gorge ski facilities, admission passes to
the summer participation theme park and admission passes to the
Mountain Top Recreation Center for a period of 35 years. In
addition, commencing in 1993, Stonehill Recreation Corporation, the
owner of a health club and spa facility contiguous to the Great
American ski facilities and summer participation theme park, agreed
to provide access to the Resort Club members to its health club and
spa facility (the "Spa"). Under amended and restated agreements
entered into in March 1996, the consideration for these Spa
amenities was the payment of $25,000 for each condominium unit
controlled by Resort Club in the adjacent Great Gorge Village
condominium development. On April 2, 1996, Great American and its
subsidiaries, filed voluntary petitions with the United States
Bankruptcy Court for the District of New Jersey seeking
reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Chapter 11 Proceedings"). In order to attempt to
ensure the collectability of the advances made by the Company to
Resort Club, which aggregated approximately $9,719,900 at June 30,
1997, and maintain the viability of Resort Club's future business
operations, including the continued payment of its outstanding
membership receivables, management determined that it was in the
Company's best interest to assist Great American in resolving the
Chapter 11 Proceedings for the reason that the majority of the
Resort Club amenity package was owned and operated by Great
American and the failure of Great American to continue to provide
these amenities to the Resort Club members would jeopardize the
continued operation of the Resort Club. In the event the Resort
Club's operations failed to continue, management of the Company
believed the Company was exposed to claims by Club Members for
recission of their membership purchase agreements, aggregating
approximately $18,417,500. At June 30, 1997, under the amended and
restated agreements described above, the Company owed approximately
$540,000 to Great American on account of the amenities it agreed to
provide to Resort Club members and owed approximately $738,000 to
Stonehill Recreation Corporation on account of the amenities it
agreed to provide. On July 10, 1997, the Company and its wholly-
owned subsidiaries entered into an agreement pursuant to which the
Company agreed to make certain contributions to resolve the Chapter
11 Proceedings of Great American and received certain benefits
described below:
A. The Company repaid in full the claims of Summit Bank
("Summit"), and Lakeview Savings Bank ("Lakeview") and Public
Loan Corporation against Great American in the aggregate amount
of approximately $4.7 million.
B. Paid $1.8 million in cash to Great American, which included
$100,000 allocated for costs in connection with soliciting the
Great American Plan of Reorganization.
C. Agreed to allocate 100% of the Resort Club net cash flow to pay
the notes of professionals, indenture trustees and others, which
aggregated approximately $4 million (the "Resort Club Notes"),
and a $7.5 million unsecured creditors' note (the "Resort Club
Unsecured Creditors' Note"). Any proceeds dividended to Great
American subsequent to the conclusion Chapter 11 Proceedings
from Stonehill Recreation also will be used to pay the Resort
Club Notes and the Resort Club Unsecured Creditors' Note. Such
net cash flow and dividends will be allocated and distributed
with the first $1,000,000 of such net cash flow allocated to pay
the Resort Club Notes in partial satisfaction of unpaid allowed
professional fees and expenses and other administrative claims.
After distribution of the first $1,000,000 of net cash flow, 50%
of net cash flow thereafter will be paid pro rata under the
Resort Club Notes and 50% of such net cash flow will be paid in
satisfaction of the Resort Club Unsecured Creditors' Note. The
Resort Club Notes and Resort Club Unsecured Creditors' Note are
non-interest bearing. As a result, the Company has imputed an
interest rate of 24% and recorded as liabilities both notes at a
discounted value of $7,505,210.
D. Transferred to Great American the piston bullies used on the
Vernon Valley ski area previously leased to Vernon Valley by the
Company and 54 building lots owned by the Company prior to the
sale of Great American's assets in its Chapter 11 Proceedings.
E. Great American received from the Company (i) 35% of the common
equity of Resort Club and 35% of the common equity of Stonehill
Recreation and (ii) the Resort Club Unsecured Creditors Note
described above.
F. Resort Club received 275 excess capacity passes per day (the
"Excess Passes") for use at the Great Gorge Resort by actual
Resort Club members. Daily usage of the Excess Passes is
limited to such number of Excess Passes that will not interfere
with the usage of the Great Gorge Resort in greater than an
agreed capacity.
G. Resort Club is permitted to purchase additional passes but is
not, under any circumstances, permitted to use such passes to
solicit new Resort Club members.
H. Resort Club was granted (i) a 25 year license to use six of the
existing cabins and four lots on the Mountaintop Recreation
Center and (ii) a lease of the Mountaintop Recreation Center
for a nominal price for an initial term of one (1) year, with
twenty-four (24) automatic one year extensions.
I. Resort Club was granted a five year lease to operate on the ski
area and summer recreational theme park property a winter time-
share sales offices at two specified locations and a summer
time-share sales office at one specified location at an
aggregate rental of $100 per month.
J. Resort Club was granted a ten (10) year lease to operate a time-
share "closing house" at a rental of $500 per month.
K. Resort Club assumed the defense of, and assumed the liabilities
associated with, post-petition personal injury claims arising
out of the post-petition operation of Great American's
businesses to the date of the consummation of the sale of the
Great American assets in the Chapter 11 Proceedings; provided,
however, that to the extent possible, payment of such
liabilities is first to be made from a $300,000 amusement bond
held by Great American.
L. Praedium Phoenix LLC ("Praedium") was granted a $3.2 million
first mortgage lien on the assets of Stonehill Recreation
Corporation, including, but not limited to, the Spa (the "Spa
Mortgage"), which lien has been satisfied.
M. Great American transferred to Stonehill Recreation Corporation a
9-hole executive golf course and clubhouse adjacent to the Spa.
In consideration for the Company's contributions, ownership of
Stonehill Recreation was transferred to the Company
contemporaneously with a 35% interest in Stonehill Recreation being
transferred to Great American at the conclusion of the Chapter 11
Proceedings. Subsequently, the Company exchanged its 65% ownership
interest in Stonehill Recreation, effective October 16, 1997, for
100% of the capital stock of Billhill, Inc., a real estate holding
company affiliated with Mr. Gene Mulvihill, the Company's former
Chairman of the Board and Chief Executive Officer. Billhill, Inc.
held an approximately 153.51 acre parcel of vacant land on the top
of Hamburg Mountain in Vernon, New Jersey. This property was sold
to Intrawest Corporation ("Intrawest") on February 17, 1998 for
$840,000. See Note 11 of the Notes to the Consolidated Financial
Statements).
Accordingly, as of October 16, 1997, the Company recorded a loss as
a consequence of its participation in the settlement of the Great
American Chapter 11 Proceedings as follows:
<TABLE>
<S> <C>
Repayment of Lakeview and Summit Mortgage $ 2,649,467
Contribution of land 2,070,000
Cash payout 1,855,000
Sale of Space Shot 65,651
Transfer of Piston Bullies 176,600
Legal and contingency reserve 605,384
Contribution of condominiums 245,476
Contribution of Great Gorge Note 50,000
Issuance of Unsecured Notes 7,505,210
Less:
Forgiveness of amenities debt (1,544,778)
Receipt of leasehold and contract rights (782,000)
Release of mortgages and real estate (469,500)
Net recorded loss $ 12,426,510
</TABLE>
Subsequent to the conclusion of the Chapter 11 Proceedings, the
entity providing Resort Club members with admission to its summer
participation theme park and skiing facilities is Great Gorge
Resort, Inc. ("Resort"), a subsidiary of Intrawest which owns and
operates the summer participation theme park and a winter
recreational ski area in Vernon Township, Sussex County, New
Jersey. The summer participation theme park and skiing facilities
is hereinafter referred to as "the Great Gorge Resort". Stonehill
Recreation is negotiating with Resort Club with respect to the
future use of amenities at the Spa by Resort Club members.
As of September 30, 1998, the Company had sold 278,461 membership
points. Based on the number of membership points sold, the Company
is required to purchase a minimum inventory of 40 condominium
units. Currently, the Company owns 12 condominium units free and
clear, and has purchased 26 condominium units which are subject to
mortgages in the principal amount of $1,271,276 as of September 30,
1998. In addition, the Company is in negotiations to purchase the
remaining two condominium units for a purchase price of
approximately $180,000.
Management determined that in order to adequately assure to the
members the availability of the Resort Club accommodations, title
to certain of the Company's resort condominium properties needed to
be conveyed to and held by a trustee. The trustee holds title to
36 condominiums units including 25 units that are the subject of
mortgages aggregating $1,052,702. The trustee will administer the
collection of certain of the Company's member notes receivable
aggregating approximately $2.5 million due over a period of two to
seven years and the annual maintenance assessments from membership
owners. Out of the receivables, the trustee will pay the principal
of even amount with interest payments on the mortgages, 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. The trust will continue until the expiration date
of the last membership interest. Under the terms of the trust, the
trust assets will revert to the Company upon the expiration of the
term of the trust.
Subsequent to September 30, 1998, management of the Company
substantially reduced its operating activities with respect to
selling new membership interests through Resort Club primarily as a
result of its inability to obtain third party financing necessary
to finance the unpaid portion of the purchase price for the
membership interests.
OTHER INVESTMENT ACTIVITIES
In addition, the Company from time to time acquires real property
or other assets where it believes there are favorable investment
opportunities. At September 30,1998, these investments included
certain real estate assets including 27 vacant condominium lots
located in Great Gorge Village, a condominium development
comprising a total of approximately 1,300 units situated adjacent
to the ski area and summer participation theme park in Vernon, New
Jersey. The Company intends to construct condominiums on these
properties for sale. In addition, the Company owns three
condominium units which it is currently renting located in Fort
Lee, New Jersey. The Company also owns an approximately 1,560
square foot building in Selma, Alabama which it is renting.
In March 1996, the Company entered into a $1.75 million secured
loan with the RiceX Company ("RiceX"). In December 1998, the
Company entered into a Loan Participation Agreement with
FoodCeuticals, L.L.C. ("FoodCeuticals") whereby the Company
contributed its secured loan with RiceX including accrued interest
due from RiceX in the aggregate of approximately $2 million and
FoodCeuticals contributed its secured loan due from RiceX in the
amount of $1.85 million. The Company and FoodCeuticals' collateral
includes certain tangible and intangible assets of RiceX including
RiceX's extrusion machines located at two rice mills in California,
contract rights, and all of RiceX's intellectual property. These
assets represent substantially all of the assets in RiceX. In
addition, FoodCeuticals received an aggregate of 940,679 shares of
RiceX's common stock and a warrant to purchase an aggregate of
3,743,540 shares of RiceX's common stock at an exercise price of
$0.75 per share. Collectively, the Company's and FoodCeuticals
secured loans of $2 million and $1.85 million, respectively, are
hereinafter referred to as the Participation Loan. Pursuant to the
Loan Participation Agreement, the Company and FoodCeuticals share
pro rata as to the Participation Loan, warrants, shares and
collateral due, payable or granted under the Loan Agreement to the
extent that their participation amount bears to the total
Participation Loan. As a result, the Company received 409,421
shares of RiceX common stock and a warrant to purchase 1,429,338
shares of RiceX common stock.
ORGANIZATION AND DEVELOPMENT
The Company was incorporated under the laws of the State of
Delaware on October 11, 1979. In August 1989, the Company 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 the Company's application to construct a cellular
system in the Bibb, Alabama RSA. The cellular system commenced
operations in November 1991. On November 7, 1995, the Company
completed the sale of its cellular telephone system to PriCellular
Corporation. On February 1, 1996 the Company acquired through a
wholly owned subsidiary 100% of the outstanding common stock of
Resort Club, of which a 35% interest was transferred to Great
American subsequent to the Chapter 11 Proceedings. Prior to August
1989, the Company was engaged in milling non-ferrous minerals.
Through fiscal 1998, the Company's primary business operations were
in connection with the sale of membership interests through Resort
Club. During the third quarter of fiscal 1999, the Company's
management determined to curtail substantially the sale of
additional memberships in the Resort Club because of the continuing
need to fund the cash requirements of the Resort Club arising out
of the sale of these memberships. As opportunities arise,
management intends to sell memberships utilizing the existing pool
of condominium units and the units it intends to acquire.
As used herein, unless the context otherwise requires, the term
(the "Company") refers to Dominion Resources, Inc. and its wholly-
owned subsidiaries.
COMPETITION
Competitors to Resort Club include vacation membership 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. In addition, the Company's vacation
membership activities compete with a wide range of other forms of
vacation accommodations throughout New Jersey, the Mid-Atlantic
states and elsewhere.
SEASONALITY
Usage of membership interests are primarily seasonal which
correlates with the summer and winter seasons of Great Gorge
Resort's summer participation theme park and winter ski operations,
respectively. For the last three fiscal years ended September 30,
1998, 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.
EMPLOYEES
As of September 30, 1998, the Company had approximately seven year-
round employees, six of whom are involved in the Resort Club
operations. Throughout the year, primarily in connection with the
operation of its membership program, the Company employs as many as
108 persons, the substantial majority of which are employed on a
part-time basis. The Company believes it enjoys a satisfactory
relationship with its employees.
During January and February 1998, the Company significantly
downsized its sales and marketing operations and has entered into
sales and marketing arrangements with two entities owned and
controlled by a former employee of Resort Club. The agreements
provide for a commission equal to 50% of gross revenues.
Management believes that the current arrangement is advantageous to
the Company for the reason that the Company is not burdened with a
fixed overhead. At a point when Intrawest defines its operational
and strategic game plan, management may operate its sales and
marketing program internally.
Item 2. Properties
The Company's executive offices are at 355 Madison Avenue,
Morristown, New Jersey. The Company entered into a lease agreement
with St. Marks Associates, a real estate partnership 50% owned by
Mr. Gene Mulvihill, the Company's former Chairman of the Board and
Chief Executive Officer. The lease provided for a lease term of 5
years commencing December 1, 1995 with a total rent of $2,077per
month including the Company's proportionate share of operating and
other expenses. In fiscal 1999, the Company terminated its lease
with St. Mark's Associates and entered into a new lease for less
space expiring November 30, 2000 with a total rent of $500 per
month. The lease provides for rental adjustments for changes in the
Consumer Price Index.
The Company owns and leases to a non-affiliated person an
approximately 1,560 square foot office building located in Selma,
Alabama. The lease is for a period of two years expiring on July
31, 2001 and the rental is $1,000 per month.
See Item 1. Business for a description of other real estate assets
owned by the Company.
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, 1998.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's 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, Inc.
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Bid Asked
High Low High Low
December 31, 1996 $ .75 $ .625 $ 1.00 $ .75
March 31, 1997 .625 .625 .813 .813
June 30, 1997 .75 .50 1.00 .813
September 30, 1997 1.031 .75 1.125 .875
December 31, 1997 .8125 .8125 1.031 1.031
March 31, 1998 .25 .25 .50 .50
June 30, 1998 .1875 .1875 .50 .50
September 30, 1998 .1875 .1875 .375 .375
</TABLE>
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, 1998, the number of record holders of the
Company's Common Stock was 2,562. The Company 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
Company's consolidated financial statements and accompanying notes.
Results of Operations
Fiscal Year 1998 compared with Fiscal Year 1997
The Company's income during the three fiscal years ended September
30, 1998 was derived from membership revenue, membership annual fee
revenue, and ski rental shop revenue and other revenue. Membership
revenue consists of revenue from the sale of vacation memberships.
Membership annual fee revenue consists of the annual membership
dues established to cover each member's pro rata share of the
estimated annual maintenance and operating expenses, including
reserves, for all of the units, facilities, and amenities of the
Resort Club program. Other revenue in fiscal 1998 and 1997
consists primarily of lease income from its office building in
Selma, Alabama and overnight rental income generated by vacant
Resort Club condominiums.
Sales of membership interests are recognized and included in
Revenues after certain "down payment" and other "continuing
investment" criteria are met. 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 free and clear of all
encumbrances. 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. During
fiscal 1998, the Company recognized approximately $681,000 in
membership revenue as compared to $2,933,000 in fiscal 1997.
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. Deferred 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 1998,
the Company had adjusted Deferred Membership Interests Held for
Sale for items over budget in the aggregate amount of
approximately, $2,207,000 as compared to $2,936,000 in fiscal 1997.
Management believes that the 1997 over budget was primarily due to
the deteriorating conditions of the Great Gorge Resort during the
summer of 1997 and the winter of 1997/1998 which has had a
devastating impact on Resort Club's ability to sell membership
interests.
Membership revenue was $681,151 in fiscal 1998 compared with
$2,933,175 in fiscal 1997. The decline in revenues was the result
of the sale of fewer memberships in fiscal 1998. This decline in
sale of memberships was the result of the adverse impact on the
Company resulting from the Great American Chapter 11 Proceedings.
Membership annual fee revenue was $421,359 in fiscal 1998 compared
with $476,792 in fiscal 1997, or a decrease of $55,433 (11.63%).
This decline was primarily the result of establishing a reserve for
uncollected fees.
Other revenue was $293,873 in fiscal 1998 compared with $301,162 in
fiscal 1997 or a decline of $7,289 (2.4%). The decline in revenues
was the result of the loss of revenues generated from lease income
from its former Clanton, Alabama office building which was sold in
fiscal 1997.
Other operations expenses were $216,023 in fiscal 1998 compared
with $77,104 in fiscal 1997, or an increase of $138,919 (180%).
The increase was the result of non-recurring operating expenses in
connection with certain real estate the Company acquired in
connection with its investment in certain RTC mortgages and land
acquired in connection with the resolution of the Great American
Chapter 11 Proceedings.
Membership operations expenses decreased in fiscal 1998 to
$1,539,000 from $2,639,025 in fiscal 1997, or by $1,100,025 (42%)
as a result of the decrease in the sale of membership interests.
In addition, the Company reserved $1,219,829 for overbudget
operating expenses which represent expenses that exceed the
budgeted amount of expenses in relation to revenues generated for
the same period as compared to a reserve for overbudget operating
expenses of $1,470,373 in fiscal 1997.
Membership maintenance expenses increased in fiscal 1998 to
$749,511 from $23,633 in fiscal 1997, or by $725,878 as a result of
a decrease to the fulfillment reserve in 1997 of $861,750. Annual
membership fees referred to above are based on membership interests
sold and amounted to $470,451 in fiscal 1998 compared to $428,171
in fiscal 1997. 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 submitted to a vote
of all Resort Club members and approved by a majority of the points
voted. As of September 30, 1998, management has determined that
based on the average per point assessment, annual membership fees
are insufficient to cover operating expenses such as maintenance,
check-in services and real estate taxes and, as a result, a deficit
of $1.49 per point exists. Based on an aggregate of 278,461 points
sold through September 30, 1998, a $444,336 per year deficit exists
which is the obligation of Resort Club. Management has calculated
the net present value of this obligation to be $3,236,047. As of
September 30, 1997, Management calculated the per point deficit to
be $0.93. The $0.56 increase is primarily attributed to lower maid
fees and hotel income in addition to higher reservation costs.
Marketing and selling expenses were $1,231,155 in fiscal 1998
compared with $2,638,563 in fiscal 1997, a decrease of $1,407,408.
This decrease was the result of the implementation of the Company's
current business plan which involves engaging third parties to sell
membership interests as opposed to selling the memberships through
Company personnel. In addition, the Company reserved $986,680 for
overbudget sales and marketing expenses which represent expenses
that exceed the budgeted amount of expenses in relation to revenues
generated for the same period as compared to a reserve for
overbudget sales and marketing expenses in fiscal 1997 of
$1,465,293.
General and administrative expenses increased to $873,255 in fiscal
1998 from $708,779 in fiscal 1997, or by $164,476 as a result of
increased payroll, legal expenses, and real estate taxes.
Depreciation and amortization was $34,307 in fiscal 1998 compared
to $192,702 in fiscal 1997 resulting in a decrease of $158,395
(82.2%). This decrease is a result of the Company recording a full
year's depreciation on its Space Shot ride purchased in fiscal
1997. In connection with the resolution of the Chapter 11
proceedings, ownership of the Space Shot was transferred to
Praedium in October 1997. Accordingly, depreciation on the Space
Shot was not recorded in fiscal 1998.
The Company's loss from operations was $3,246,868 in fiscal 1998,
an increase of $678,191 over the loss from operations of $2,568,677
in fiscal 1997.
Interest income was $730,932 in fiscal 1998 compared with $445,384
in fiscal 1997. The increase of $285,548 was the result of
interest income on a loan to Stonehill Recreation which was
$1,560,134 as of September 30, 1998. As of September 10, 1997 the
Company was indebted to Stonehill Recreation in the amount of
$200,000.
Interest expense increased to $2,362,957 in fiscal 1998 compared
with $328,140 in fiscal 1997. The increase of $2,034,817 was the
result of interest expense on the notes the Company issued in
connection with the resolution of the Great American Chapter 11
Proceedings and a full year's interest on the Company's loans from
Binghamton Savings Bank.
Amortization of deferred financing costs consists primarily of
deferred financing costs associated with the Company obtaining its
loan from Binghamton Savings Bank. These costs increased to
$116,602 in fiscal 1998 from $55,216 in fiscal 1997, or an increase
of $61,386.
In fiscal 1998, the Company recorded a gain on the sale of
marketable securities of $1,139,995 primarily resulting from a gain
on the sale of PriCellular stock of $145,521 and a gain on the sale
of Food Extrusion, Inc. of $994,473 as compared to a gain on the
sale of marketable securities in fiscal 1997 of $2,341,508
primarily resulting from a gain on the sale of PriCellular stock of
approximately $1.4 million and a gain on the sale of Food
extrusion, Inc. stock of approximately $1.1 million.
During fiscal 1998, the Company recorded a gain on Sale of Real
Estate and RTC Mortgages of $174,979, as compared to a loss in 1997
of $511,105 which included a loss in connection with the sale of
its Clanton, Alabama office building of approximately $93,000 with
the remaining balance relating to the sale of certain of its RTC
Mortgages.
In fiscal 1998, the Company had a gain of $840,000 from the sale of
the Billhill, Inc. real estate and a gain of $345,000 from the sale
of Resort Club contracts. The Resort Club contracts sold were the
Company's one-time 5-year leases of winter timeshare sales offices
at two locations, a summer timeshare sales office at one location,
as well as the Company's 10-year lease of a timeshare closing
house, all located within the ski facility and summer participation
theme park located in Vernon, New Jersey. In addition, it
recognized an expense of $12,426,510 as a result of contributions
it made in the resolution of the Chapter 11 Proceedings. This
expense is further discussed below under Liquidity and Capital
Resources.
Fiscal Year 1997 compared with Fiscal Year 1996
The Company's income during the two fiscal years ended September
30, 1997 was derived from membership revenue, membership annual fee
revenue, and ski rental shop revenue and other revenue. Membership
revenue consists of revenue from the sale of vacation memberships.
Membership annual fee revenue consists of the annual membership
dues established to cover each member's pro rata share of the
estimated annual maintenance and operating expenses, including
reserves, for all of the units, facilities, and amenities of the
Resort Club program. Ski rental shop revenue and other revenue
consists of lease income from its office building in Selma, Alabama
and overnight rental income generated by vacant Resort Club
condominiums. Other revenue in fiscal 1996 included revenues
generated from the operation of ski rental shops in the Vernon
Valley/Great Gorge ski facilities located in Vernon, New Jersey.
Sales of membership interests are recognized and included in
Revenues after certain "down payment" and other "continuing
investment" criteria are met. 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 free and clear of all
encumbrances. 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. During
fiscal 1997, the Company recognized approximately $2,933,175 in
membership revenue as compared to $2,479,294 in fiscal 1996.
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. Deferred 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 1998,
the Company had adjusted Deferred Membership Interests Held for
Sale for items over budget in the aggregate amount of
approximately, $2,207,000 as compared to $2,936,000 in fiscal 1997.
Management believes that the 1997 over budget was primarily due to
the deteriorating conditions of the Great Gorge Resort during the
summer of 1997 and the winter of 1997/1998 which has had a
devastating impact on Resort Club's ability to sell membership
interests.
Membership revenue was $2,933,175 in fiscal 1997 compared with
$2,479,294 in fiscal 1996. The increase in revenues was the result
of the realization of revenues associated with Memberships
purchased relating to additional condominium units being held free
and clear of mortgage liens for the use by Resort Club members.
Membership annual fee revenue was $476,792 in fiscal 1997 compared
with $379,447 in fiscal 1996, or an increase of $97,345 (25.6%).
This increase was the result of an increase in cumulative
membership interests.
Ski rental shop revenue and other revenue was $301,162 in fiscal
1997 compared with $1,142,069 in fiscal 1996 or a decline of
$840,907. The decline in revenues was primarily the result of the
Company not operating the Vernon Valley/Great Gorge rental shops in
1997. In 1996 the Company generated approximately $984,000 from
the operation of the rental shops.
Ski rental shop and other operations expenses were $77,104 in
fiscal 1997 compared with $1,095,596 in fiscal 1996, or a decrease
of $1,018,492. The decrease was primarily the result of the
Company not operating the Vernon Valley/Great Gorge rental shops in
1997. In 1996 the Company paid $950,000 to Vernon Valley/Great
Gorge as a rental fee.
Membership operations expenses decreased in fiscal 1997 to
$2,639,025 from $4,904,595 in fiscal 1996, or by $2,265,570 as a
result of a reserve for overbudget membership operating expenses in
1997 of $1,470,373 as compared to an initial reserve set for
overbudget membership operating expenses in 1996 of $3,820,048.
Membership maintenance expenses decreased in fiscal 1997 to $23,633
from $4,235,001 in fiscal 1996, or by $4,211,368 as a result of a
decrease of the fulfillment reserve in 1997 of approximately
$861,750 as compared to an initial reserve established in fiscal
1996 of $3,818,371.
Marketing and selling expenses were $2,638,563 in fiscal 1997
compared with $3,424,185 in fiscal 1996, a decrease of $785,622.
This decrease was the result of a reserve for overbudget sales and
marketing expenses in 1997 of $1,465,293 as compared to an initial
reserve set for overbudget sales and marketing expenses in 1996 of
$2,427,813.
General and administrative expenses decreased to $708,779 in fiscal
1997 from $1,132,537 in fiscal 1996, or by $423,758 as a result of
decreased legal and professional fees.
Depreciation and amortization was $192,702 in fiscal 1997 compared
to $107,979 in fiscal 1996 resulting in an increase of $84,723.
This increase is a result of the Company recording a full year's
depreciation on its Space Shot ride purchased in fiscal 1997 not
recorded in fiscal 1996.
The Company's loss from operations was $2,568,677 in fiscal 1997, a
decrease of $8,330,406 over the loss from operations of $10,899,083
in fiscal 1996.
Interest income was $445,384 in fiscal 1997 compared with $449,292
in fiscal 1996. Interest income was essentially unchanged.
Interest expense decreased to $328,140 in fiscal 1997 compared with
$527,055 in fiscal 1996. The decrease of $198,915 was primarily
the result of a charge-off of capitalized interest by Resort Club
in fiscal 1996.
In fiscal 1997, the Company recorded a gain on the sale of
marketable securities of $2,341,508 primarily resulting from a gain
on the sale of PriCellular stock of $1.4 million and a gain on the
sale of Food Extrusion, Inc. stock of $1.1 million as compared to a
gain on the sale of marketable securities in fiscal 1996 of
$3,811,938 primarily resulting from a gain on the sale of
PriCellular stock of approximately $3.6 million.
During fiscal 1997, the Company recorded a loss on Sale of Real
Estate and RTC Mortgages of $511,105, as compared to -0- in 1996.
Liquidity and Capital Resources
During fiscal 1998, the Company had a net loss from operations of
approximately $14,801,800. Included in the net loss from
operations is depreciation of approximately $34,300, amortization
of interest expense of approximately $1,351,000 and amortization of
deferred financing costs of $116,602, all of which are non-cash
expenses. Amortization of interest income of $87,344 offset these
items. The Company had a gain on the sale of marketable securities
of approximately $1,207,000, a gain on the sale of the Billhill
property of $840,000 and a gain on the sale of Resort Club
contracts of $345,000, all of which are non-recurring. In
addition, the net loss includes a loss of approximately $12,426,500
resulting from the Company's contributions to resolve the Chapter
11 Proceedings. These items included:
<TABLE>
<S> <C>
Repayment of Lakeview and Summit Mortgage $ 2,649,467
Contribution of land 2,070,000
Cash payout 1,855,000
Sale of Space Shot 65,651
Transfer of Piston Bullies 176,600
Legal and contingency reserve 605,384
Contribution of condominiums 245,476
Contribution of Great Gorge Note 50,000
Issuance of Unsecured Notes 7,505,210
Less:
Forgiveness of amenities debt (1,544,778)
Receipt of leasehold and contract rights (782,000)
Release of mortgages and real estate (469,500)
Net recorded loss $ 12,426,510
</TABLE>
Changes in assets and liabilities included an increase in
membership receivables of $1,440,978. an increase in accrued
interest and other receivables of $955,515, an increase in prepaid
expenses and other assets of $191,535, an increase in deferred
member expenses of $1,004,151 offset by reductions in accounts
payable and accrued expenses of $45,509 and deferred membership
revenue of $74,062. After reflecting the net changes in assets and
liabilities, net cash used by operations was approximately
$119,400.
Investing activities provided net cash of approximately $1,963,500
and includes primarily the sale of marketable securities of
$1,584,000 and the sale of real estate related assets of
approximately $1,547,500 offset by a note receivable from Stonehill
Recreation of approximately $1,689,600.
Financing activities used net cash of approximately $1,581,082
which resulted primarily from borrowings of $1,039,431 offset by
the repayment of borrowings in the amount of $2,610,513, offset by
$40,000 proceeds from the exercise of warrants. The purchase of
redeemable common stock required $50,000.
Accordingly, during fiscal 1998, the Company's cash increased by
approximately $501,800.
Management determined that in order to adequately assure to the
members the availability of the Resort Club accommodations, title
to certain of the Company's resort condominium properties needed to
be conveyed to and held by a trustee. The trustee holds title to
36 condominiums units including 25 units that are the subject of
mortgages aggregating $1,052,702. The trustee will administer the
collection of certain of the Company's member notes receivable
aggregating approximately $2.5 million due over a period of two to
seven years and the annual maintenance assessments from membership
owners. Out of the receivables, the trustee will pay the principal
of even amount with interest payments on the mortgages 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. The trust will continue until the expiration date
of the last membership interest. Under the terms of the trust, the
trust assets will revert to the Company upon the expiration of the
term of the trust.
Future Business Plans
Through fiscal 1998, the Company's primary business operations were
in connection with the sale of membership interests through Resort
Club. During the third quarter of fiscal 1999, the Company
substantially reduced its operating activities with respect to
selling new Membership Interests through Resort Club primarily as a
result of its inability to obtain financing. In the event
financing can be obtained, Resort Club may resume these activities
in the future.
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. The Company's involvement may
be as a sole principal, a partner, a joint venturer or in some
other form.
As of September 30, 1998, 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 2 of the Notes to the Consolidated Financial Statements).
In addition, as of September 30, 1998, the Company had made an
investment in RiceX, Inc. (see Note 4 of the Notes to the
Consolidated Financial Statements).
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. See pages F-1, et seq.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
During the two fiscal years ended September 30, 1998, the
Company has not filed any Current Report on Form 8-K reporting any
change in accountants in which there was a reported disagreement on
any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
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:
<TABLE>
<S> <C> <C> <C>
Name Age Principal Occupation Director Since
Joseph R. Bellantoni* 36 Treasurer; Chief Financial 1995
Officer; Chief Executive officer;
President and Director
Maureen Kosminsky 33 Vice President and Secretary ----
Paul J. Donahue (()* 65 Director 1995
Thomas Conlin (() 64 Director 1996
Other Significant Employees of the Company are the following:
Christina Riker 32 Chief Financial Officer, ----
Resort Club
</TABLE>
(*) Member of the Executive Committee. The Executive Committee is
responsible for oversight with respect to executive decisions.
(() Member of the Audit Committee.
Directors and Executive Officers.
Mr. Bellantoni is a Director and President of the Company. Mr.
Bellantoni joined the Company as a Director and Treasurer in April,
1995. He devotes approximately 50% of his time to the Company.
Mr. Bellantoni was previously employed by Great American
Recreation, Inc., the former owner/operator of Vernon Valley/Great
Gorge ski area and Action Park located in Vernon, New Jersey,
through October 1996. Mr. Bellantoni 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.
Mr. Bellantoni is currently a director and Chief Financial Officer
of reorganized Great American, GAR, Inc. From May 1987 to February
1989, Mr. Bellantoni 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 from November 1983 through May 1987.
Maureen Kosminsky is Vice President and Secretary of the Company.
Mr. Donahue is currently employed by Ballyowen Golf Club as a Pro
Shop Manager. Prior to working at Ballyowen, 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.
Other Significant Employees.
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.
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 GAR, Inc. and
RiceX, Inc.
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 1998, 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 1998.
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,
1998 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
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Annual Compensation Long-Term Compensation
Principal Fiscal Other Optn Restr LTIP Other
Position Year Salary Bonus Annual SARs Stock Pay Compens
Compensation Awards
Joseph R.
Bellantoni
Chief Executive
Officer (1) 1998 $100,000 $-0- $-0- -0- -0- $-0- $-0-
1997 $108,185 $-0- $-0- -0- -0- $-0- $-0-
1996 $ 78,000 $-0- $-0- -0- -0- $-0- $-0-
Andrew Mulvihill
Exec. Officer,
Resort
Club (4) 1998 $-0- $-0- $218,858 -0- -0- $-0- $-0-
1997 $-0- $-0- $166,447 -0- -0- $-0- $-0-
1996 $-0- $-0- $191,392 -0- -0- $-0- $-0-
Gene W. Mulvihill
Chief Executive
Officer (2) 1997 $-0- $-0- $-0- -0- -0- $-0- $-0-
1996 $-0- $-0- $-0- -0- -0- $-0- $-0-
Robert Harris
President, Resort
Club (3) 1998 $ 8,654 $-0- $29,879 -0- -0- $-0- $-0-
1997 $119,287 $30,000 $-0- -0- -0- $-0- $-0-
1996 $ 44,759 $30,048 $-0- -0- -0- $-0- $-0-
</TABLE>
(1) During fiscal 1997, Mr. Bellantoni performed consulting services on
behalf of the Company for Seasons Investment Corporation, a portion
of which if collected will be reimbursed to the Company.
(2) On January 1, 1999, Mr. Gene W. Mulvihill resigned as a Director and
Chief Executive Officer.
(3) On January 23, 1998, Mr. Harris resigned as President of Resort
Club.
(4) Mr. Andrew Mulvihill resigned as an executive officer of Resort Club
in 1999.
Employment Agreements
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 Christina Riker, the Chief
Financial Officer of Resort Club.
No options were granted or exercised during fiscal 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of August 1, 1999, 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 the
Company's Common Stock as well as the number of shares of Common Stock
beneficially owned by all Directors of the Company and all Directors and
officers of the Company as a group. The percentages have been
calculated on the basis of treating as outstanding for a particular
holder, all shares of the Company's 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.
<TABLE>
<S> <C> <C>
Amount and Nature of Percent
Name of Beneficial Owner Beneficial Ownership of Class
Directors:
Joseph R. Bellantoni -0- -0-
Paul J. Donahue -0- -0-
Thomas Conlin -0- -0-
Maureen Kosminsky -0- -0-
All Officers and Directors
as a Group -0- -0-
(seven persons)
Amos Phillips 1,111,111 14%
Venturetek, LP 555,555 7%
Kinder Investments, Inc. 555,555 7%
Significant Employees:
Christina Riker -0- -0-
</TABLE>
Parent of the Company
Gene W. Mulvihill, the former Chief Executive Officer and a former
Director of the Company, continues to render services to the Company and
may be deemed to be an "affiliate" of the Company as defined under the
Securities Exchange Act of 1934, as amended.
Item 12. Certain Relationships and Related Transactions
Certain of the Company's executive officers, Directors, and principal
stockholders have been at various times, including during the two years
ended September 30, 1998, officers, Directors, and principal
stockholders of Great American and its affiliates. Mr. Bellantoni, the
Chief Executive and Financial Officer and a Director of the Company was
Vice President and Chief Financial Officer of Great American and is
currently the Treasurer and a Director of Great American subsequent to
the Chapter 11 Proceedings. Gene Mulvihill, the former Chairman of the
Board and Chief Executive Officer of the Company is a former Officer of
Great Mountain Development Corporation ("GMD") and former Chairman of
the Board and Chief Executive Officer of Great American. Mr. Gene
Mulvihill's son, Andrew Mulvihill, is a former Executive Officer of
Resort Club and a former officer of GMD. Mr. Gene Mulvihill may also be
deemed to be an affiliate of Stonehill Recreation and Berkowitz Wolfman
Assoc., Inc.
Commencing in June 1993, Resort Club entered into arrangements with
Great American to provide amenities and access to certain properties for
the benefit of Resort Club members. Under amended and restated
agreements entered into in March 1996, the consideration paid for the
use of these amenities was a payment equal to 10% of the gross sales
price of the Resort Club memberships. The amenities included admission
passes to the Vernon Valley and Great Gorge ski facilities, admission
passes to the summer participation theme park and admission passes to
the Mountain Top Recreation Center for a period of 35 years. In
addition, commencing in 1993, Stonehill Recreation Corporation, the
owner of a health club and spa facility contiguous to the Great American
ski facilities and summer participation theme park, agreed to provide
access to the Resort Club members to its health club and spa facility
(the "Spa"). Under amended and restated agreements entered into in
March 1996, the consideration for these Spa amenities was the payment of
$25,000 for each condominium unit controlled by Resort Club in the
adjacent Great Gorge Village condominium development. On April 2, 1996,
Great American and its subsidiaries, filed voluntary petitions with the
United States Bankruptcy Court for the District of New Jersey seeking
reorganization under Chapter 11 of the United States Bankruptcy Code
(the "Chapter 11 Proceedings"). In order to attempt to ensure the
collectability of the advances made by the Company to Resort Club, which
aggregated $9,719,900 at June 30, 1997, and maintain the viability of
Resort Club's future business operations, including the continued
payment of its outstanding membership receivables, management determined
that it was in the Company's best interest to assist Great American in
resolving the Chapter 11 Proceedings for the reason that the majority of
the Resort Club amenity package was owned and operated by Great American
and the failure of Great American to continue to provide these amenities
to the Resort Club members would jeopardize the continued operation of
the Resort Club. In the event the Resort Club's operations failed to
continue, management of the Company believed the Company was exposed to
claims by Club Members for recission of their membership purchase
agreements, aggregating approximately $18,417,500. At June 30, 1997,
under the amended and restated agreements described above, the Company
owed approximately $540,000 to Great American on account of the
amenities it agreed to provide to Resort Club members and owed
approximately $738,000 to Stonehill Recreation Corporation on account of
the amenities it agreed to provide. On July 10, 1997, the Company and
its wholly-owned subsidiaries entered into an agreement pursuant to
which the Company agreed to make certain contributions to resolve the
Chapter 11 Proceedings of Great American and received certain benefits
described below:
A. The Company repaid in full the claims of Summit Bank
("Summit"), and Lakeview Savings Bank ("Lakeview") and Public
Loan Corporation against Great American in the aggregate amount
of approximately $4.7 million.
B. Paid $1.8 million in cash to Great American, which included
$100,000 allocated for costs in connection with soliciting the
Great American Plan of Reorganization.
C. Agreed to allocate 100% of the Resort Club net cash flow to pay
the notes of professionals, indenture trustees and others, which
aggregated approximately $4 million (the "Resort Club Notes"),
and a $7.5 million unsecured creditors' note (the "Resort Club
Unsecured Creditors' Note"). Any proceeds dividended to Great
American subsequent to the conclusion Chapter 11 Proceedings
from Stonehill Recreation also will be used to pay the Resort
Club Notes and the Resort Club Unsecured Creditors' Note. Such
net cash flow and dividends will be allocated and distributed
with the first $1,000,000 of such net cash flow allocated to pay
the Resort Club Notes in partial satisfaction of unpaid allowed
professional fees and expenses and other administrative claims.
After distribution of the first $1,000,000 of net cash flow, 50%
of net cash flow thereafter will be paid pro rata under the
Resort Club Notes and 50% of such net cash flow will be paid in
satisfaction of the Resort Club Unsecured Creditors' Note. The
Resort Club Notes and Resort Club Unsecured Creditors' Note are
non-interest bearing. As a result, the Company has imputed an
interest rate of 24% and recorded as liabilities both notes at a
discounted value of $7,505,210.
D. Transferred to Great American the piston bullies used on the
Vernon Valley ski area previously leased to Vernon Valley by the
Company and 54 building lots owned by the Company prior to the
sale of Great American's assets in its Chapter 11 Proceedings.
E. Great American received from the Company (i) 35% of the common
equity of Resort Club and 35% of the common equity of Stonehill
Recreation and (ii) the Resort Club Unsecured Creditors Note
described above.
F. Resort Club received 275 excess capacity passes per day (the
"Excess Passes") for use at the Great Gorge Resort by actual
Resort Club members. Daily usage of the Excess Passes is
limited to such number of Excess Passes that will not interfere
with the usage of the Great Gorge Resort in greater than an
agreed capacity.
G. Resort Club is permitted to purchase additional passes but is
not, under any circumstances, permitted to use such passes to
solicit new Resort Club members.
H. Resort Club was granted (i) a 25 year license to use six of the
existing cabins and four lots on the Mountaintop Recreation
Center and (ii) a lease of the Mountaintop Recreation Center
for a nominal price for an initial term of one (1) year, with
twenty-four (24) automatic one year extensions.
I. Resort Club was granted a five year lease to operate on the ski
area and summer recreational theme park property a winter time-
share sales offices at two specified locations and a summer
time-share sales office at one specified location at an
aggregate rental of $100 per month.
J. Resort Club was granted a ten (10) year lease to operate a time-
share "closing house" at a rental of $500 per month.
K. Resort Club assumed the defense of, and assumed the liabilities
associated with, post-petition personal injury claims arising
out of the post-petition operation of Great American's
businesses to the date of the consummation of the sale of the
Great American assets in the Chapter 11 Proceedings; provided,
however, that to the extent possible, payment of such
liabilities is first to be made from a $300,000 amusement bond
held by Great American.
L. Praedium Phoenix LLC ("Praedium") was granted a $3.2 million
first mortgage lien on the assets of Stonehill Recreation
Corporation, including, but not limited to, the Spa (the "Spa
Mortgage"), which lien has been satisfied.
M. Great American transferred to Stonehill Recreation Corporation a
9-hole executive golf course and clubhouse adjacent to the Spa.
In consideration for the Company's contributions, ownership of Stonehill
Recreation was transferred to the Company contemporaneously with a 35%
interest in Stonehill Recreation being transferred to Great American at
the conclusion of the Chapter 11 Proceedings. Subsequently, the Company
exchanged its 65% ownership interest in Stonehill Recreation, effective
October 16, 1997, for 100% of the capital stock of Billhill, Inc., a
real estate holding company affiliated with Mr. Gene Mulvihill, the
Company's former Chairman of the board and Chief Executive Officer.
Billhill, Inc. held an approximately 153.51 acre parcel of vacant land
on the top of Hamburg Mountain in Vernon, New Jersey. This property was
sold to Intrawest Corporation ("Intrawest") on February 17, 1998 for
$840,000. See Note 11 of the Notes to the Consolidated Financial Statements.
Accordingly, as of October 16, 1997, the Company recorded a loss as a
consequence of its participation in the settlement of the Great American
Chapter 11 Proceedings as follows:
<TABLE>
<S> <C>
Repayment of Lakeview and Summit Mortgage $ 2,649,467
Contribution of land 2,070,000
Cash payout 1,855,000
Sale of Space Shot 65,651
Transfer of Piston Bullies 176,600
Legal and contingency reserve 605,384
Contribution of condominiums 245,476
Contribution of Great Gorge Note 50,000
Issuance of Unsecured Notes 7,505,210
Less:
Forgiveness of amenities debt (1,544,778)
Receipt of leasehold and contract rights (782,000)
Release of mortgages and real estate (469,500)
Net recorded loss $ 12,426,510
</TABLE>
In March 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. During the two years ended September 30, 1998,
Resort Club paid approximately $219,000 and $166,000, respectively, to
Mr. Mulvihill pursuant to these arrangements. As a consequence of the
Company discontinuing the sale of Resort Club memberships, Mr. Mulvihill
is not currently providing services pursuant to this agreement.
The Company is obligated to Mr. Gene Mulvihill in the amount of $257,480
as of September 30, 1998 on mortgage indebtedness arising out of the
Company's purchase in March 1996 of nine condominium units. The
mortgage indebtedness is due in equal monthly installments of principal
and interest through December 2000 and bears interest at 10.25% per
annum.
The Company's executive office premises are leased in a building owned
by a general partnership in which Mr. Gene Mulvihill is a 50% partner.
During each of the two years ended September 30, 1998 and September 30,
1997, the Company paid to the partnership $24,927 pursuant to the terms
of the lease.
During the year ended September 30, 1997, the Company leased certain ski
facility maintenance equipment to the Great American ski area. Rental
payments were structured so that the Company earned a 28% return;
however, Great American did not make any payments under the agreement.
This equipment was transferred to Great American as part of the
resolution of Great American's Chapter 11 Proceedings having a carrying
value of $176,600 at the time.
The Company also leased from Great American the ski rental shops and
related equipment located at the Vernon Valley-Great Gorge ski area.
During the year ended September 30, 1997, the Company paid rental of
$950,000 to Great American pursuant to these arrangements. This lease
was terminated in connection with the resolution of Great American's
Chapter 11 Proceedings.
At September 30, 1997, the Company was owed $97,134 by Great American as
the balance outstanding on $269,500 loaned by the Company to Great
American in January 1996, prior to the Chapter 11 Proceedings. In
connection with the resolution of the Chapter 11 Proceedings, the
Company accepted a payment of $46,000 in satisfaction of this
obligation.
In conjunction with the resolution of Great American's Chapter 11
Proceedings, the Company sold for $900,000 to Praedium, a Space Shot
amusement attraction, formerly leased to Great American. Such assets
had a carrying value at the time of $965,651.
Prior to September 30, 1997, in connection with the Company's decision
to assist Great American in resolving its Chapter 11 Proceedings, the
Company had paid an aggregate of $2,739,782 to Summit and Lakeview in
consideration of their forbearance agreements with respect to loans to
Great American that had gone into default and that had been guaranteed
by Mr. Gene Mulvihill and two of his associates. These loans were
repaid in full by the Company as part of the resolution of Great
American's Chapter 11 Proceedings.
At September 30, 1998, Stonehill Recreation owed the Company $1,560,134,
plus accrued interest, arising out of cash advances from the Company to
Stonehill Recreation. The obligation bears interest at 18% per annum
and is due on demand.
Also at September 30, 1998, the Company is obligated to Berkowitz
Wolfman Assoc., Inc. in the amount of $1,039,431 arising out of cash
advances from Berkowitz Wolfman Assoc., Inc. Such obligation bears
interest at 15% per annum and is due on demand, but if no demand is
made, then on October 1, 1999.
In February 1998, the Company deposited in escrow with Lakeview the sum
of $500,000 as additional collateral on a first mortgage loan to
Stonehill Recreation from Lakeview. The mortgage loan is due to be
repaid on June 30, 1999.
The Company is currently engaged in negotiations with Stonehill
Recreation with respect to compensation to be paid by the Company to
Stonehill Recreation for the use of the Spa facility by Resort Club
members.
In March 1996, Mr. Bellantoni purchased from the Company for $15,625 a
total of 25,000 shares of Common stock of The RiceX Company. The shares
were purchased at the Company's cost of $0.625 per share which
approximated fair market value at the time due to the trading
restrictions placed on the stock. In addition, Mr. Bellantoni is
indebted to the Company in the amount of $13,660. The loan bears
interest at 8% and is due to be repaid on demand.
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, 1998 S-2-3
Consolidated Statements of Operations -
years ended September 30, 1998 and 1997 S-4
Consolidated Statements of Stockholders'
Equity - years ended September 30, 1998 and 1997 S-5
Consolidated Statements of Cash Flows -
years ended September 30, 1998 and 1997 S-6-7
Notes to Consolidated Financial Statements S-8-25
(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, 1998.
(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. Delaware
Diamond World Funding Corp. New Jersey
Resort Club, Inc. New Jersey
Star II Leasing Corporation New Jersey
Billhill, Inc. New Jersey
(c) 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: August 16, 1999 By:/s/ Joseph R. Bellantoni
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.
<TABLE>
<S> <C> <C>
Signature Title Date
/s/ Joseph R. Bellantoni President, Chief Executive August 16, 1999
Joseph R. Bellantoni Officer, Chief Financial
Officer and Director
/s/ Maureen Kosminsky Vice President and August 16, 1999
Maureen Kosminsky Secretary
/s/Paul J. Donahue Director August 16, 1999
Paul J. Donahue
/s/Thomas Conlin Director August 16, 1999
Thomas Conlin
/s/Christina Riker Chief Financial Officer, August 16, 1999
Christina Riker Resort Club
</TABLE>
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: August 16, 1999 By:
Joseph R. Bellantoni
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.
<TABLE>
<S> <C> <C>
Signature Title Date
President, Chief Executive August 16, 1999
Joseph R. Bellantoni Officer, Chief Financial
Officer and Director
Vice President and August 16, 1999
Maureen Kosminsky Secretary
Director August 16, 1999
Paul J. Donahue
Director August 16, 1999
Thomas Conlin
Chief Financial Officer, August 16, 1999
Christina Riker Resort Club
</TABLE>
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, 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of
the two fiscal years ended September 30, 1998.
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, 1998, and the results of its operations and
its cash flows for the two fiscal years ended September 30,
1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As discussed in Note 1 to the financial statements, the
Company has suffered recurring losses from operations and
has a net capital deficiency that raise substantial doubt
about its ability to continue as a going concern.
Management's plans in regard to these matters are also
described in Note 1. The financial statements do not
include any adjustments that might result from the
outcome of this uncertainty.
Liebman, Goldberg, & Drogin, L.L.P.
December 23, 1998
S-1
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 628,159
Investment in mutual fund and other marketable
securities 115,242
Membership Receivables, net (including allowance for
doubtful accounts of $393,423 at September 30, 1998)
(Note 1) 1,254,793
Accrued interest and other receivables 933,292
Prepaid expenses and other assets 336,060
Deferred Membership Interests Held for Sale (Note 1) 8,381,774
Total current assets 11,649,320
Property, equipment, furniture, and fixtures,
net of accumulated depreciation and amortization
of $160,494 at September 30, 1998 (Note 1) 201,755
Other assets:
Membership Receivables, net (including allowance for
doubtful accounts of $1,480,021 at September 30, 1998)
(Note 1) 4,720,415
RTC Mortgages receivables 155,791
Note Receivable - Stonehill Recreation (Note 2) 1,689,573
Note Receivable - RiceX, Inc. (Note 4) 1,602,639
Real estate and real estate related activities
(Note 2) 560,000
Total other assets 8,728,418
Total assets $20,579,493
</TABLE>
See accompanying notes
S-2
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Current liabilities:
Accounts payable and accrued liabilities (Note 5) $ 4,796,550
Secured Debt, current portion (Note 7) 800,615
Unsecured notes payable, (Note 7) 1,680,000
Deferred Membership Revenue (Note 1) 11,658,639
Total current liabilities 18,935,804
Long-term liabilities:
Secured Debt, net of current maturities (Note 7) 3,100,381
Unsecured Notes Payable, net of current maturities
(Note 7) 8,434,327
Total long-term liabilities 11,534,708
Redeemable common stock, par value $0.01
per share; 483,333 shares outstanding
redeemable at $3.00 per share in July
1998 through July 2000 1,450,000
Stockholders' equity:
Common stock, $0.01 par value;
Authorized - 25,000,000 shares;
issued and outstanding - 5,058,354
shares at September 30, 1998 50,584
Additional paid-in capital 5,270,206
Accumulated deficit (15,260,896)
Less: 1,350,646 shares held in treasury (Note 9) (1,400,913)
Total stockholders' equity (11,341,019)
Total liabilities and stockholders' equity $20,579,493
</TABLE>
See accompanying notes
S-3
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<S> <C> <C>
1998 1997
Revenues
Membership revenue $ 681,151 $ 2,933,175
Membership annual fee revenue 421,359 476,792
Ski rental shop revenue
and other revenue 293,873 301,162
Total revenues 1,396,383 3,711,129
Expenses:
Ski rental shop and other operations 216,023 77,104
Membership operations 1,539,000 2,639,025
Membership maintenance 749,511 23,633
Marketing and selling 1,231,155 2,638,563
General and administrative expenses 873,255 708,779
Depreciation and amortization 34,307 192,702
Total expenses 4,643,251 6,279,806
Loss from operations (3,246,868) (2,568,677)
Other income (expenses):
Interest income 730,932 445,384
Interest expense (2,362,957) (328,140)
Amortization of deferred financing costs (116,602) (55,216)
Gain on Sale of marketable securities 1,139,995 2,341,508
Gain on Sale of real estate and RTC
Mortgages 174,979 (511,105)
Gain on Sale of Bill Hill property 840,000 -0-
Gain on Sale of Resort Club contracts 345,000 -0-
Great American Settlement (12,426,510) -0-
Total other income (expenses) (11,675,163) 1,892,431
Loss from operations before income taxes (14,922,031) (676,246)
Income taxes (Note 6) 120,214 243,451
Net income (loss) $(14,801,817) $ (432,795)
Net Income (loss) per common share $ (2.86) $ (0.10)
Weighted average number of share used in
computing net income per share 5,172,601 4,293,206
</TABLE>
See accompanying notes
S-4
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1998 and 1997
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Retained
Capital Earnings/
Common Par in Excess Accum Treasury
Stock Value of Par Deficit Stock Total
Balance -
September
30,
1996 4,229,354 $42,294 $5,058,706 $(26,284) $(1,383,295) $3,691,421
Issuance of
800,000 shares
in connection
with financing
(Note 9) 800,000 8,000 312,000 -0- -0- 320,000
Issuance of
150,000 shares
in connection
with financing
(Note 9) 150,000 1,500 58,500 -0- -0- 60,000
Purchase of
Treasury
Stock (21,000) (210) -0- -0- (17,618) (17,828)
Net Loss -0- -0- -0- (432,795) -0- (432,795)
Balance -
September
30, 1997 5,158,354 $51,584 $5,429,206 $(459,079) $(1,400,913) $3,620,798
Issuance of
400,000 shares
in connection
with exercise
of warrant
(Note 9) 400,000 4,000 36,000 -0- -0- 40,000
Transfer of
Common Stock
to Redeemable
Common Stock
(Note 9) (500,000) (5,000) (195,000) -0- -0- (200,000)
Net loss -0- -0- -0- (14,801,817) -0- (14,801,817)
Balance -
September
30,
1998 5,058,354 $50,584 $5,270,206 $(15,260,896) $(1,400,913)$(11,341,019)
</TABLE>
See accompanying notes
S-5
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<S> <C> <C>
1998 1997
Cash flows provided by (used in) operating activities:
Net (loss) $(14,801,817) $ (432,795)
Adjustments to reconcile net income to net cash
provided by continuing operating activities:
Depreciation and amortization 34,307 192,702
Amortization of deferred financing costs 116,602 55,216
Amortization of interest income (87,344) -0-
Amortization of interest expense 1,350,936 -0-
Gain on sale of Bill Hill property (840,000) -0-
Gain on sale of marketable securities (1,207,383) (2,341,508)
Gain on sale of Resort club contracts (345,000) -0-
Great American Settlement 12,426,510 -0-
Changes in assets and liabilities:
Membership receivables 1,440,978 (1,460,958)
Accrued interest and other receivables 955,515 (548,917)
Prepaid expenses and other assets 191,535 (233,024)
Deferred member expenses 1,004,151 (1,417,214)
Accounts payable and accrued expenses (45,509) (1,168,718)
Deferred membership revenue (74,062) 2,405,835
Net cash used in operations 119,419 (4,949,381)
Cash flows from investing activities:
Sale of Marketable Securities 1,583,669 2,705,857
Note Receivable - Related Party (1,689,573) (500,165)
GAR Settlement -0- (4,493,592)
Investment in real estate and real estate
related activities 1,547,494 (127,246)
Investment in mortgages receivables 153,999 1,213,792
Sale of Resort Club Contracts 345,000 -0-
Sale of Clanton Office Building -0- 125,743
Capital expenditures 22,865 (137,989)
Net cash provided by(used in) investing
Activities 1,963,454 (1,213,600)
Cash flows from financing activities:
Proceeds from borrowings 1,039,431 5,900,300
Repayment of borrowings (2,610,513) (896,782)
Exercise of warrants 40,000 -0-
Purchase of redeemable common stock (50,000) -0-
Purchase of treasury stock -0- (17,828)
Net cash provided by (used in) financing
activities (1,581,082) 4,985,690
Increase (Decrease) in cash 501,791 (1,177,291)
Cash balance, beginning of year 126,368 1,303,659
Cash balance, September 30, 1998 $ 628,159 $ 126,368
</TABLE>
See accompanying notes
S-6
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE
OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<S> <C> <C>
1998 1997
Great American Settlement $ 8,805,210 $ -0-
Unsecured Notes Payable (7,505,210) -0-
Common Stock 5,000 -0-
Additional paid-in capital 195,000 -0-
Redeemable Common Stock (1,500,000) -0-
Deferred Financing Costs -0- 380,000
Issuance of Common Stock -0- (380,000)
Total Non-Cash Operating, Investing
and Financing Activities $ -0- $ -0-
</TABLE>
See accompanying notes.
S-7
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying Consolidated Financial Statements include
the accounts of Dominion Resources, Inc. and the accounts of
all majority-owned subsidiaries, hereinafter referred to as
the "Company". 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.
Going Concern
The Company's consolidated financial statements are prepared
in conformity with generally accepted accounting principles,
which contemplates continuation of the Company as a going
concern. The Company has incurred a net loss for the year
ended September 30, 1998 of $14,801,817, of which
$12,426,510 represents a non-recurring loss in connection
with the Great American Settlement (Note 2). In addition,
the Company's current liabilities exceeded its current
assets by $4,009,619, excluding Deferred Membership
Interests Held for Sale and Deferred Membership Revenue.
These factors create uncertainty whether the Company can
continue as a going concern. The Company's plans to
mitigate the effects of the uncertainties of the Company's
continued existence are: 1) to seek to restructure its
existing debt with GAR, Inc.; 2) to improve profitability
by reducing operating costs; 3) to substantially reduce the
Company's capital spending; and 4) to continue to seek
additional funding through private sources to supplement the
Company's cash needs. Management believes that these plans
can be effectively implemented in the next twelve month
period. The Company's ability to continue as a going
concern is dependent on the implementation and success of
these plans. The financial statements do not include any
adjustments in the event the Company is unable to continue
as a going concern.
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,
fixtures and equipment, and thirty years for buildings and
improvements.
Property, furniture, and fixtures consisted of the following
at September 30, 1998:
<TABLE>
<S> <C>
Buildings and improvements $ 145,152
Furniture, fixtures and equipment 217,097
Subtotal 362,249
Less: Accumulated depreciation and amortization 160,494
Net property, furniture, fixtures and equipment $ 201,755
</TABLE>
S-8
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1. Summary of Significant Accounting Policies (continued):
@
Income Per Common Share
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.
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.
As of September 30, 1998, the Company has sold 278,461
membership points. Based on the number of membership
points sold, the Company is required to purchase a minimum
inventory of 40 condominium units. Currently, the Company
owns 12 condominium units free and clear, and has purchased
26 condominium units which are subject to mortgages in the
principal amount of approximately $1,271,300 as of
September 30, 1998. In addition, the Company is in
negotiations to purchase the remaining 2 condominium units
for a purchase price of approximately $180,000.
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 1998
and 1997, the Company had adjusted Deferred Membership
Interest Held for Sale over budget in the aggregate amount
of approximately, $2,207,000 and $2,936,000, respectively.
S-9
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
1. Summary of Significant Accounting Policies (Continued)
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 free and clear of all
encumbrances. 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. During fiscal 1998
and 1997, the Company recognized approximately $681,000 and
$2,930,000 in membership revenue, respectively.
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 marketable securities
sold is based on the earliest acquisition cost of each
security held at the time of sale.
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.
S-10
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
2. Related Party Transactions
Certain of the Company's executive officers, Directors, and
principal stockholders have been at various times, including
during the two years ended September 30, 1998, officers,
Directors, and principal stockholders of Great American and
its affiliates. Mr. Bellantoni, the Chief Executive and
Financial Officer and a Director of the Company was Vice
President and Chief Financial Officer of Great American and
is currently the Treasurer and a Director of Great American
subsequent to the Chapter 11 Proceedings. Gene Mulvihill,
the former Chairman of the Board and Chief Executive Officer
of the Company is a former Officer of Great Mountain
Development Corporation ("GMD") and former Chairman of the
Board and Chief Executive Officer of Great American. Mr.
Gene Mulvihill's son, Andrew Mulvihill, is an Executive
Officer of Resort Club and a former officer of GMD. Mr.
Gene Mulvihill may also be deemed to be an affiliate of
Stonehill Recreation and Berkowitz Wolfman Assoc., Inc.
Commencing in June 1993, Resort Club entered into
arrangements with Great American to provide amenities and
access to certain properties for the benefit of Resort Club
members. Under amended and restated agreements entered into
in March 1996, the consideration paid for the use of these
amenities was a payment equal to 10% of the gross sales
price of the Resort Club memberships. The amenities
included admission passes to the Vernon Valley and Great
Gorge ski facilities, admission passes to the summer
participation theme park and admission passes to the
Mountain Top Recreation Center for a period of 35 years. In
addition, commencing in 1993, Stonehill Recreation
Corporation, the owner of a health club and spa facility
contiguous to the Great American ski facilities and summer
participation theme park, agreed to provide access to the
Resort Club members to its health club and spa facility (the
"Spa"). Under amended and restated agreements entered
into in March 1996, the consideration for these Spa
amenities was the payment of $25,000 for each condominium
unit controlled by Resort Club in the adjacent Great gorge
Village condominium development. On April 2, 1996, Great
American and its subsidiaries, filed voluntary petitions
with the United States Bankruptcy Court for the District of
New Jersey seeking reorganization under Chapter 11 of the
United States Bankruptcy Code (the "Chapter 11
'Proceedings'"). In order to attempt to ensure the
collectability of the advances made by the Company to Resort
Club, which aggregated $9,719,900 at June 30, 1997, and
maintain the viability of Resort Club's future business
operations, including the continued payment of its
outstanding membership receivables, management determined
that it was in the Company's best interest to assist Great
American in resolving the Chapter 11 Proceedings for the
reason that the majority of the Resort Club amenity package
was owned and operated by Great American and the failure of
Great American to continue to provide these amenities to the
Resort Club members would jeopardize the continued operation
of the Resort Club. In the event the Resort Club's
operations failed to continue, management of the Company
believed the Company was exposed to claims by Club Members
for recession of their membership purchase agreements,
aggregating $18,417,500. At June 30, 1997, under the amended
and restated agreements described above, the Company owed
approximately $540,000 to Great American on account of the
amenities it agreed to provide to Resort Club members and
owed approximately $738,000 to Stonehill Recreation
Corporation on account of the amenities it agreed to
provide. On July 10, 1997, the Company and its wholly-owned
subsidiaries entered into an agreement pursuant to which the
Company agreed to make certain contributions to resolve the
Chapter 11 Proceedings of Great American and received
certain benefits described below:
A. The Company repaid in full the claims of Summit Bank
("Summit"), Lakeview Savings Bank ("Lakeview")
Savings and Public Loan Corporation against Great
American in the aggregate amount of approximately
$4,700,000.
S-11
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
2. Related Party Transactions (Continued)
B. Paid $1.8 million in cash to Great American, which
included $100,000 allocated for costs in connection with
soliciting the Great American Plan of Reorganization.
C. Agreed to allocate 100% of the Resort Club net cash flow
to pay the notes of professionals, indenture trustees and
others, which aggregated approximately $4,000,000 (the
"Resort Club Notes"), and a $7.5 million unsecured
creditor's note (the "Resort Club Unsecured Creditors'
Note"). Any proceeds dividended to Great American
subsequent to the Conclusion Chapter 11 Proceedings from
Stonehill Recreation also will be used to pay the Resort
Club Notes and the Resort Club Unsecured Creditors' Note.
Such net cash flow and dividends will be allocated and
distributed with the first $1,000,000 of such net cash
flow allocated to pay the Resort Club Notes in partial
satisfaction of unpaid allowed professional fees and
expenses and other administrative claims. After
distribution of the first $1,000,000 of net cash flow,
50% of net cash flow thereafter will be paid pro rata
under the Resort Club Notes and 50% of such net cash flow
will be paid in satisfaction of the Resort Club Unsecured
Creditors' Note. The Resort Club Notes and Resort Club
Unsecured Creditors' Note are non-interest bearing. As a
result, the Company has imputed an interest rate of 24%
and recorded as liabilities both notes at a discounted
value of $7,505,210.
D. Transferred to Great American certain ski facility
maintenance equipment used on the Vernon Valley ski area
previously leased to Vernon Valley by the Company and 54
building lots owned by the Company prior to the sale of
Great American's assets in its Chapter 11 Proceedings.
E. Great American received from the Company (i) 35% of the
common equity of Resort Club and 35% of the common equity
of Stonehill Recreation and (ii) the Resort Club
Unsecured Creditors' Note described above.
F. Resort Club received 275 excess capacity passes per day
(the "Excess Passes") for use at the Great Gorge Resort
by actual Resort Club members. Daily usage of the Excess
Passes is limited to such number of Excess Passes that
will not interfere with the usage of the Great Gorge
Resort in greater than an agreed capacity.
G. Resort Club is permitted to purchase additional passes
but is not, under any circumstances, permitted to use
such passes to solicit new Resort Club members.
H. Resort Club was granted (i) a 25 year license to use six
of the existing cabins and four lots on the Mountaintop
Recreation Center and (ii) a lease of the Mountaintop
Recreation Center for a nominal price for an initial term
of one (1) year, with twenty-four (24) automatic one year
extensions.
I. Resort Club was granted a five year lease to operate on
the ski area and summer recreational theme park property
a winter time-share office at two specified locations and
a summer time-share sales office at one specified
location at an aggregate rental of $100 per month.
J. Resort Club was granted a ten (10) year lease to
operate a time-share "closing house" at a rental of
$500 per month.
S-12
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
2. Related Party Transactions (Continued)
K. Resort Club assumed the defense of, and assumed the
liabilities associated with, post-petition personal
injury claims arising out of the post-petition operation
of Great American's businesses to the date of the
consummation of the sale of the Great American assets in
the Chapter 11 Proceedings; provided, however, that to
the extent possible, payment of such liabilities is first
to be made from a $300,000 amusement bond held by Great
American.
L. Praedium Phoenix, L.L.C. ("Praedium") was granted a
$3.2 million first mortgage lien on the assets of
Stonehill Recreation Corporation, including, but not
limited to, the Spa (the "Spa Mortgage"), which lien
has been satisfied.
M. Great American transferred to Stonehill Recreation
Corporation a 9-hole executive golf course and clubhouse
adjacent to the Spa.
In consideration for the Company's contributions, ownership
of Stonehill Recreation was transferred to the Company
contemporaneously with a 35% interest in Stonehill
Recreation being transferred to Great American at the
conclusion of the Chapter 11 Proceedings. Subsequently, the
Company exchanged its 65% ownership interest in Stonehill
Recreation, effective October 16, 1997, for 100% of the
capital stock of Billhill, Inc., a real estate holding
company affiliated with Mr. Gene Mulvihill, the Company's
former Chairman of the Board and Chief Executive Officer.
Billhill, Inc. held an approximately 153.51 acre parcel of
vacant land on the top of Hamburg Mountain in Vernon, New
Jersey. This property was sold to Intrawest Corporation
("Intrawest") on February 17, 1998 for $840,000. (Note
10).
Accordingly, as of October 16, 1997, the Company recorded a
loss as a consequence of its participation in the settlement
of the Great American Chapter 11 Proceedings as follows:
<TABLE>
<S> <C>
Repayment of Lakeview and Summit Mortgage $ 2,649,467
Contribution of land 2,070,000
Cash payout 1,855,000
Sale of Space Shot 65,651
Transfer of Piston Bullies 176,600
Legal and contingency reserve 605,384
Contribution of condominiums 245,476
Contribution of Great Gorge Note 50,000
Issuance of Unsecured Notes 7,505,210
Less:
Forgiveness of amenities debt (1,544,778)
Receipt of leasehold and contract rights (782,000)
Release of mortgages and real estate (469,500)
Net recorded loss $ 12,426,510
</TABLE>
In March 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;
S-13
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
2. Related Party Transactions (Continued)
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.
During the two years ended September 30, 1998, Resort Club
paid $219,000 and $166,000, respectively, to Mr. Mulvihill
pursuant to these arrangements. As a consequence of the
Company discontinuing the sale of Resort Club memberships,
Mr. Mulvihill is not currently providing services pursuant
to this agreement.
The Company is obligated to Mr. Gene Mulvihill in the amount
of $257,480 as of September 30, 1998 on mortgage
indebtedness arising out of the Company's purchase in March
1996 of nine condominium units. The mortgage indebtedness
is due in equal monthly installments of principal and
interest through December 2000 and bears interest at 10.25%
per annum.
The Company's executive office premises are leased in a
building owned by a general partnership in which Mr. Gene
Mulvihill is a 50% partner. During the two years ended
September 30, 1998, the Company paid to the partnership
$24,927 pursuant to the terms of the lease.
During the year ended September 30, 1997, the Company leased
certain ski facility maintenance equipment to the Great
American ski area. Rental payments were structured so that
the Company earned a 28% return; however, Great American did
not make any payments under the agreement. This equipment
was transferred to Great American as part of the resolution
of Great American's Chapter 11 Proceedings having a carrying
value of $176,600 at the time.
The Company also leased from Great American the ski rental
shops and related equipment located at the Vernon Valley-
Great Gorge ski area. During the year ended September 30,
1997, the Company paid rental of $950,000 to Great American
pursuant to these arrangements. This lease was terminated
in connection with the resolution of Great American's
Chapter 11 Proceedings.
At September 30, 1997, the Company was owed $97,134 by Great
American as the balance outstanding on $269,500 loaned by
the Company to Great American in January 1996, prior to the
Chapter 11 Proceedings. In connection with the resolution
of the Chapter 11 Proceedings, the Company accepted a
payment of $46,000 in satisfaction of this obligation.
In conjunction with the resolution of Great American's
Chapter 11 Proceedings, the Company sold for $900,000 to
Praedium, a Space Shot amusement attraction, formerly leased
to Great American. Such assets had a carrying value at the
time of $965,651.
Prior to September 30, 1997, in connection with the
Company's decision to assist Great American in resolving its
Chapter 11 proceedings, the Company had paid an aggregate of
$2,739,782 to Summit and Lakeview in consideration of their
forbearance agreements with respect to loans to Great
American that had gone into default and that had been
guaranteed by Mr. Gene Mulvihill and two of his associates.
These loans were repaid in full by the Company as part of
the resolution of Great American's Chapter 11 Proceedings.
At September 30, 1998, Stonehill Recreation owed the Company
$1,560,134 including accrued interest arising out of cash
advances from the Company to Stonehill Recreation. The
obligation bears interest at 18% per annum and is due on
demand.
S-14
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
2. Related Party Transactions (Continued)
Also at September 30, 1998, the Company is obligated to
Berkowitz Wolfman Assoc., Inc. in the amount of $1,039,431
arising out of cash advances from Berkowitz Wolfman Assoc.,
Inc. Such obligation bears interest at 15% per annum and is
due on demand but if no demand is made, then on October 1,
1999.
In February 1998, the Company deposited in escrow with
Lakeview the sum of $500,000 as additional collateral on a
first mortgage loan to Stonehill Recreation from Lakeview.
The mortgage loan is due to be repaid on June 30,1999.
The Company is currently engaged in negotiations with
Stonehill Recreation with respect to compensation to be paid
by the Company to Stonehill Recreation for the use of the
Spa facility by Resort Club members.
In March 1996, Mr. Bellantoni purchased from the Company
for $15,625 a total of 25,000 shares of common stock of The
RiceX Company. The shares were purchased at the Company's
cost of $0.625 per share which approximated a fair market
value at the time due to trading restrictions placed on the
stock. In addition, Mr. Bellantoni is indebted to the
Company in the amount of $13,660. The loan bears interest
at 8% and is due to be repaid on demand.
3. Investment in Silver Shield Mill
During fiscal 1998, the Company sold 10 acres of land in
Ouray, Colorado, with the "Silver Shield" Mill located
thereon for a selling price of $300,000 and recorded a gain
of approximately $73,100 on the transaction.
4. 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.
S-15
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
4. Extrusion Note (Continued)
During fiscal 1997, the Company sold 315,400 shares of Food
Extrusion for an aggregate purchase price of approximately
$1.1million and recorded a gain of approximately $923,600 on
the transactions.
During fiscal 1998, the Company sold its remaining 262,600
shares of Food Extrusion for approximately $1,138,000 and
recorded a gain of approximately $994,470 on the
transactions.
5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 30,
1998 consist of the following:
Accounts Payable $ 417,971
Accrued payroll and payroll taxes 34,893
Accrued condo purchase (Note 8) 180,000
Accrued income taxes (Note 6) 575,215
Accrued fulfillment deficit (Note 8) 3,236,047
Accrued interest 91,956
Accrued other 260,468
$ 4,796,550
S-16
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
6. Income Taxes
The tax expense (benefit) for the years ended September 30,
1998 and 1997 consists of the following components:
For the year ended September 30,
1998 1997
Current
Federal $ (120,214) $ (243,451)
State -0- -0-
(120,214) (243,451)
Deferred
Federal (3,957,738) -0-
State (1,701,120) -0-
(5,658,858) -0-
$ (5,779,072) $ (243,451)
The income tax benefit for the year does not bear the expected
relationship between pretax loss and the federal corporate income tax
rate of 34% because of the direct effect of state and local income
taxes.
The reconciliation between the actual and expected federal tax is as
follows:
<TABLE>
<S> <C> <C>
Federal corporate tax rate of 34% and applicable
AMT applied to pretax loss $ 4,617,968 $ 179,961
State and local taxes, net of federal benefit 1,122,740 -0-
Effect of capital loss over capital gain -0- (1,645)
Effect of non-deductible entertainment (6,934) (7,231)
Effect of tax vs. book depreciation 244 (10,407)
Effect of capital loss carry forward 45,054 45,054
Effect of NOL limitation -0- 37,718
Total tax benefit $ 5,779,072 $ 243,450
</TABLE>
S-17
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
6. Income Taxes (continued)
Deferred income taxes as reported on the balance sheet
consists of:
September 30,
1998 1997
Deferred tax assets $ 5,858,858 $ -0-
Deferred tax liabilities (200,000) -0-
Valuation allowance (5,658,858) -0-
$ -0- $ -0-
As at September 30, 1998 the Company had net operating
losses (NOL) of $13,096,520. This amount is available to be
carried back three years to offset past taxable income. Any
remaining NOL after the carry back is available to offset
future taxable income. The carry forwards begin to expire
for the year ended September 30, 1999. The company has
provided a full 100% valuation allowance on the deferred tax
assets as at September 30, 1998 and 1997 to reduce such
deferred income tax assets to zero as it is the management's
belief that realization of such amounts do not meet the
criteria required by generally accepted accounting
principles. Management will review the valuation allowance
required periodically and make adjustments as warranted.
7. Debt
Secured Debt
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, 1998, the Company has a
remaining balance due on the purchase of approximately
$257,480, 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
was due and payable on June 10, 1997. On May 13, 1997, the
Resort Club entered into a second amendment whereby the
maturity date has been extended to June 10, 2000 in
consideration of a $100,000 renewal fee as well as Resort
Club's continuing obligation to provide collateral in the
aggregate amount of $1.1 million.
During fiscal 1996, 1997 and 1998 the Company purchased
condominiums in the Great Gorge Village, Vernon, New Jersey,
from unrelated individuals. The condominiums are used as
accommodation inventory in connection with the sale of
membership interests through Resort Club. The purchase of
the condominiums typically required a down payment with the
balance payable through a purchase money mortgage. The
terms of the mortgages varied with interest ranging from 8%
to 10.25%. As of September 30, 1998, the aggregate
remaining balance on these mortgages was approximately
$1,013,790.
S-18
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
7. Debt (Continued)
Secured Debt (Continued)
On May 18, 1997 the Company entered into a loan agreement
with Binghamton Savings Bank ("Binghamton"), the Company's
primary lender in the principal amount of $2,000,000.
Pursuant to the loan agreement, the amount owed from the
Company is collateralized by a first mortgage on
substantially all of the Company's assets. The loan bears
interest at 12.5% and is due and payable as follows:
17 consecutive monthly interest payments, beginning
June 13, 1997, with interest calculated on the unpaid
principal balance at an interest rate of 12.5% per
annum 6 consecutive monthly principal payments of
$50,000.00 each, beginning June 13, 1997, with
interest calculated on the unpaid principal balances
at an interest rate of 12.25% per annum; 6 consecutive
monthly principal payments of $75,000.00 each,
beginning December 13, 1997, with interest calculated
on the unpaid principal balance at an interest rate of
12.25% per annum, 5 consecutive monthly principal
payments of $100,000.00 each, beginning June 12, 1998,
with interest calculated on the unpaid principal
balance at an interest rate of 12.25% per annum; and 1
principal and interest payment of $757,911.46 on
November 13, 1998, with interest calculated on the
unpaid principal balance at an interest rate of 12.25%
per annum.
On August 6, 1997, the Company entered into a third loan
agreement with Binghamton in the principal amount of
$1,500,000. The loan bears interest at 12.25%
Simultaneously with the closing of the third loan agreement,
the Company entered into a Mortgage Modification and
Consolidation Agreement, whereby the first mortgage and the
second mortgage were combined, consolidated, and made equal
and coordinate in lien on the collateral without priority of
one over another, so that together they are one first
mortgage. As of August 6, 1997, the balance due and owing
on this loan was $3,025,000 payable as follows:
The principal sum of $50,000 plus accrued interest on
the 13th day of each month commencing September 13,
1997 and on the 13th day of each month thereafter
until March 13, 2000, when the entire unpaid principal
balance plus accrued interest is due and payable.
As of September 30, 1998, the principal balance outstanding
on this loan was $1,545,000.
S-19
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
7. Debt (Continued)
Secured Debt (Continued)
Secured Debt as of September 30, 1998 is summarized as
follows:
Building and land purchased, August 1992
10%, principal and interest of $901 payable
monthly to August 2001, balloon payment of
$77,962 at September 1, 2001 $ 84,720
Condominiums purchased, December 1995
through September 1997 with interest ranging
from 8.00% to 10.25%, monthly principal and interest
payments ranging from $484 to $2,055
payable monthly to December 2000 1,271,276
Loan Agreement dated June 6, 1994,
15% interest due monthly, balloon payment
of $1,000,000 on June 10, 2000 1,000,000
Loan Agreements dated May 18, 1997 and
August 6, 1997, 12.25% interest due monthly
with monthly principal payments of $50,000,
balance due March 13, 2000 1,545,000
Total mortgages 3,900,996
Less total current portion 800,615
Total noncurrent portion $ 3,100,381
S-20
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
7. Debt (Continued)
Unsecured Notes Payable
On July 30, 1997, the Company entered into an agreement to
purchase and accept by assignment from an unaffiliated
entity ("Public Loan Company"), Public Loan Company's
entire right, title and interest in a loan in the principal
amount of $1,668,300 and accrued and unpaid interest of
$1,302,717. The loan is collateralized by certain land on
top of the Vernon Valley/Great Gorge ski areas. The
purchase price of the loan was comprised of 800,000 shares
of the Company's common stock and an interest free note in
the principal amount of $540,000 payable in 36 equal monthly
installments of $15,000 commencing June 15, 1997. The loan
was discounted to $450,000 and yields an effective interest
rate of 12.25%. As of September 30, 1998, the principal
balance of this loan was approximately $219,000.
In connection with the Great American Settlement (see Note
2), Resort Club agreed to allocate 100% of its net cash flow
to pay the notes of professionals, indenture trustees,
Richard Wright and Matt Harrison, both restructuring
officers of Great American ("Resort Club Notes"), and a
$7.5 million unsecured creditors' note (the "Resort Club
Unsecured Creditors' Note"). Similarly, any proceeds
dividended to reorganized Great American from Stonehill
Recreation will be used to pay the Resort Club Notes and the
Resort Club Unsecured Creditors' Note. Such net cash flow
and dividends will be allocated and distributed as follows:
The first $1,000,000 of such net cash flow will be allocated
and distributed to pay the Resort Club Notes in partial
satisfaction of unpaid allowed professional fees and
expenses and unpaid allowed indenture trustee administrative
claims, and unpaid claims of Richard Wright and Matt
Harrison. After distribution of the first $1,000,000 of net
cash flow, 50% of net cash flow thereafter will be paid pro
rata under the Resort Club Notes and 50% of such net cash
flow will be paid in satisfaction of the Resort Club
Unsecured Creditors' Note; and provided further, that the
amount and the terms of the Resort Club Notes and Resort
Club Unsecured Creditors' Note shall be reasonably
satisfactory to the holders of such notes and be limited in
a matter so as not to materially impair the operation of the
business of the Resort Club. The Resort Club Notes and
Resort Club Unsecured Creditor's Note are non-interest
bearing. As a result, the company has imputed an interest
rate of 24% and recorded the notes at a discounted value of
$7,505,210. As of September 30, 1998, the carrying value of
these notes was approximately $8,856,100.
At September 30, 1998, the Company is obligated to Berkowitz
Wolfman Assoc., Inc. in the amount of $1,039,431 arising out
of cash advances from Berkowitz Wolfman Assoc., Inc.. Such
obligation bears interest at 15% per annum and is due on
demand but if no demand is made, then on October 1, 1999.
Other Information
Aggregate principal reductions of debt as of September 30,
1998 are summarized as follows (000's omitted):
Unsecured
Secured Notes
Fiscal Year Debt Payable Total
1999 $ 800,615 $1,680,000 $2,480,615
2000 $2,161,316 $2,578,181 $4,739,497
2001 and
thereafter $ 939,065 $5,856,146 $6,795,211
S-21
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
8. Commitments and Contingencies
Subsequent to the sale of the Company's former Cellular
Phone 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
which management believes approximates fair market value.
The lease provides for rental adjustments for changes in the
Consumer Price Index.
As of September 30, 1998, the Company has sold 278,461
membership points. Based on the number of membership points
sold, the Company is required to purchase a minimum
inventory of 40 condominium units. Currently, the Company
owns 12 condominium units free and clear, and has purchased
26 condominium units which are subject to mortgages in the
principal amount of $1,271,276. In addition, the Company is
in negotiations to purchase the remaining 2 condominium
units for a purchase price of approximately $180,000.
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, 1998, management has determined that
based on the average per point assessment, annual membership
fees are insufficient to cover operating expenses such as
maintenance, check-in services and real estate taxes and, as
a result, a deficit of $1.49 per point exists. Based on an
aggregate of 278,461 points sold through September 30, 1998,
a $444,336 per year deficit exists which is the obligation
of Resort Club. Management has calculated the net present
value of this obligation to be approximately $3,236,047.
S-22
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
9. Common Stock
On July 30, 1997, the Company entered into an agreement to
purchase and accept by assignment from Public Loan Company,
Public Loan Company's entire right, title and interest in a
loan in the principal amount of $1,668,300 and accrued and
unpaid interest of $1,302,717. The loan is collateralized
by certain land on top of the Vernon Valley/Great Gorge ski
areas. The purchase price of the loan was comprised of
800,000 shares of the Company's common stock and an interest
free note in the principal amount of $540,000 payable in 36
equal monthly installments of $15,000 commencing June 15,
1997. The loan was discounted to $450,000 and yields an
effective interest rate of 12.25%. In connection with the
issuance of the 800,000 shares, the Company has agreed to
repurchase 500,000 shares in the event Public Loan Company
is unable to sell 500,000 shares at $3.00 per share over a
twelve month period following the full execution of the
agreement or the delivery of the shares to Public Loan
Company, whichever is earlier, then in that event, the
Public Loan Company shall have an option over the following
twelve months to require the Company to repurchase the
500,000 shares from Public Loan Company at $3.00 per share
over a two year period commencing on the date Public Loan
Company exercises this option in such amounts as Public Loan
Company and the Company mutually agree, provided, however,
such shares are fully repurchased within the said subsequent
two year period and Public Loan Company repurchases such
number of shares on a monthly basis such that the proceeds
payable to Public Loan Company by the Company are not less
than the sum of $62,500 per month, thereby resulting in
Public Loan Company receiving the sum of $1,500,000 from the
Company.
On September 22, 1997, the Company entered into a loan
agreement with an unaffiliated party in the principal amount
of $700,000. Pursuant to the loan agreement, the amount
owed by the Company is collateralized by a second mortgage
on substantially all of the Company's assets. The loan
bears interest at 12.25% and is due and payable on February
19, 1998. As additional consideration, the Company issued
150,000 shares of its common stock to the lender.
On September 18, 1998, Mr. Gene Mulvihill, the Company's
former Chairman of the Board and Chief Executive Officer,
exercised a warrant to purchase 400,000 shares of the
Company's common stock at an exercise price of $0.10 per
share.
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, 1998, no options had been issued under the
plan.
S-23
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
10. Intrawest Transaction
The entity presently providing Resort Club members with
admission to its summer participation theme park and skiing
facilities is Great Gorge Resort, Inc. ("Resort"), a
subsidiary of Intrawest, which owns and operates the summer
participation theme park and a winter recreational ski area
in Vernon Township, Sussex County, New Jersey. Resort
completed the purchase of the ski area and the summer
participation theme park on February 17, 1998 from Angel
Projects, L.L.C. ("Angel"). Angel, an affiliate of
Praedium, purchased the summer participation theme park and
skiing facilities pursuant to a section 363 sale under the
Federal Bankruptcy Rules whereby the summer participation
theme park and ski area were purchased "free and clear" of
all liens from Great American.
On February 19, 1998, the Company, along with certain
entities affiliated with Mr. Gene Mulvihill, completed the
sale of certain assets to Intrawest pursuant to an Asset
Purchase Agreement dated December 31, 1997 and subsequently
amended on February 5, 1998. Pursuant to the agreement, the
Company agreed to enter into a non-compete agreement whereby
it agreed to stop selling membership interests within a
designated vicinity specifically Great Gorge Village.
Management believes that there is sufficient condominium
inventory in the Great Gorge Resort Area such as Seasons
Hotel, Hidden Valley ski area and neighboring facilities to
fulfill its long-term operational objectives.
Management also believes that due to the deteriorating
conditions of the Great Gorge Resort during the summer of
1997 and the winter of 1997/1998 which has had a devastating
impact on Resort Club's ability to sell membership interests
it was necessary that a professional and experienced
operator take over the operations of the Great Gorge Resort.
Management believes that unless a professional and
experienced operator managed the Great Gorge Resort, Resort
Club would have been in jeopardy of maintaining its
operations.
11. Bill Hill Transaction
During the second quarter of fiscal 1998, the Company
exchanged its 65% equity interest in Stonehill Recreation
for 100% equity interest in Bill Hill, Inc., a real estate
holding company with land holdings in Vernon, New Jersey.
On February 19, 1998, the Company sold these land holdings
to Intrawest realizing net proceeds of $840,000. The
Company is currently negotiating with Stonehill Recreation
with respect to future use of amenities by Resort Club
members.
12. Subsequent Events (Unaudited) Not Covered By
Independent Auditor's Report
On or about December 28, 1998, the Company sold 555,555
shares of the Company's common stock to two unaffiliated
corporations and 1,111,111 shares to an unaffiliated
individual at a per share price of $0.18.
During the third quarter of fiscal 1999, the Company
negotiated a restructuring of its $7.5 million Unsecured
Creditors Note with GAR, Inc. Pursuant to the terms of the
agreement, the Company will issue $750,000 fair market value
of its common stock in return for the cancellation of the
$7.5 million Unsecured Creditors Note. The agreement is
subject to Bankruptcy Court approval.
S-24
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
12. Subsequent Events (Unaudited) Not Covered By
Independent Auditor's Report (continued)
On January 15, 1999, the Company entered into a third loan
agreement with Binghamton in the principal amount of
$500,000. The loan bears interest at 12.25%
Simultaneously with the closing of the third loan agreement,
the Company entered into a Mortgage Modification and
Consolidation Agreement, whereby the first, second and the
third mortgage were combined, consolidated, and made equal
and coordinate in lien on the collateral without priority of
one over another, so that together they are one first
mortgage. As of January 15, 1999, the balance due and owing
on this loan was $1,845,000 payable as follows:
The principal sum of $50,000.00 plus accrued interest
on the 13th day of each month commencing September 13,
1997 and on the 13th day of each month thereafter
until December 13, 2000, when the entire unpaid
principal balance plus accrued interest is due and
payable.
In March 1996, the Company entered into a $1.75 million
secured loan with the RiceX Company ("RiceX"). In
December 1998, the Company entered into a Loan Participation
Agreement with FoodCeuticals, L.L.C. ("FoodCeuticals")
whereby the Company contributed its secured loan with RiceX
including accrued interest due from RiceX in the aggregate
of approximately $2 million and FoodCeuticals contributed
its secured loan due from RiceX in the amount of $1.85
million. The Company and FoodCeuticals' collateral includes
certain tangible and intangible assets by RiceX including
RiceX's intellectual property. These assets represent
substantially all of the assets in RiceX. In addition,
FoodCeuticals received an aggregate of 940,679 shares of
RiceX's common stock and a warrant to purchase an aggregate
of 3,743,540 shares of RiceX's common stock at an exercise
price of $0.75 per share. Collectively, the Company's and
FoodCeuticals secured loans of $2 million and $1.85 million,
respectively, are hereinafter referred to as the
Participation Loan. Pursuant to the Loan Participation
Agreement, the Company and FoodCeuticals share pro rata as
to the Participation Loan, warrants, shares and collateral
due, payable or granted under the Loan Agreement to the
extent that their participation amount bears to the total
Participation Loan. As a result, the Company received
$409,421 shares of RiceX common stock and a warrant to
purchase 1,429,338 shares of RiceX common stock.
S-25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
9/30/1998 FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 629,159
<SECURITIES> 115,242
<RECEIVABLES> 1,648,216
<ALLOWANCES> 393,423
<INVENTORY> 0
<CURRENT-ASSETS> 11,649,320
<PP&E> 362,249
<DEPRECIATION> 160,494
<TOTAL-ASSETS> 20,579,493
<CURRENT-LIABILITIES> 18,935,804
<BONDS> 11,534,708
0
0
<COMMON> 50,584
<OTHER-SE> (11,391,603)
<TOTAL-LIABILITY-AND-EQUITY> 20,579,493
<SALES> 1,396,383
<TOTAL-REVENUES> 1,396,383
<CGS> 0
<TOTAL-COSTS> 4,643,251
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,362,957
<INCOME-PRETAX> (14,922,031)
<INCOME-TAX> 120,214
<INCOME-CONTINUING> (14,801,817)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,801,817)
<EPS-BASIC> (2.86)
<EPS-DILUTED> (2.86)
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