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, 1999
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 X No
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, 1999, the issuer's revenues were
$23,367.
On December 31, 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
$1,907,644 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") was, commencing February
1996 through September 1999, 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. In
September, 1999, the Board of Directors adopted a plan to dispose
of the Resort Club through sale or liquidation. In connection
with the Company's disposal plan, Resort Club ceased operations as
of September, 1999 and is treated in this Annual Report as a
discontinued operation.
From time to time, the Company has acquired real property or other
assets where it believes there are favorable investment
opportunities. At September 30,1999, 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 1,560
square foot building in Selma, Alabama.
In March 1996, the Company entered into a $1.75 million secured
loan with The RiceX Company ("RiceX"). Subsequently, in
December 1998, the Company entered into a Loan Participation
Agreement with FoodCeuticals, L.L.C. ("FoodCeuticals") whereby
the Company contributed its secured loan, 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. FoodCeuticals had made its
loan to RiceX in December 1998. RiceX is an agribusiness food
technology company which has developed a proprietary process to
stabilize rice bran. Its shares of Common Stock are quoted on the
OTC Bulletin Board under the symbol "RICX.." 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 conjunction with its loan to RiceX,
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 December 1998 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. In November 1999, RiceX
repaid the borrowing incurred in 1996 in the amount of $1.75
million, plus accrued interest of approximately $320,753.
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 December 31, 1999.
On October 5, 1999, the Company entered into an agreement to
convert 366,655 shares of the Company's redeemable common stock,
par value $0.01 per share for 1,622,000 shares of the Company's
common stock, par value $0.01 per share and a warrant to purchase
a number of shares of common stock equal to 25% of all shares of
common stock issued by the Company from October 1, 1999 through
March 31, 2000.
The Company is currently in negotiations to sell its 65% interest
in Resort Club to an unaffiliated entity. The transaction as
proposed to be structured will be effective as of December 31,
1999 and requires the Company to use its best efforts to
restructure certain notes payable of GAR which aggregate
approximately $11,483,000 at September 30, 1999. The Company is
currently negotiating the selling price which is expected to be in
the form of a royalty payment based on future sales revenues.
DISCONTINUED ACTIVITIES -- VACATION MEMBERSHIPS:
The Resort Club membership 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. Subsequent to September 30,
1998, management of the Company substantially reduced Resort
Club's operating activities with respect to selling new membership
interests 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. See Note 2-- to
Notes to Consolidated Financial Statements.
The following table illustrates certain statistics regarding
Resort Club's vacation membership sales activities during the
three fiscal years ended September 30, 1999. These activities are
treated as a discontinued operation in this Annual Report.
<TABLE>
<S> <C> <C> <C>
Fiscal Fiscal Fiscal
1999 1998 1997
Maximum number of membership interests available 2,268 2,183 2,069
Net number of membership interests sold 2,222 2,133 1,970
Percentage sold 98% 98% 95%
Net number of membership interests sold
during fiscal period 89 163 567
Gross sales of membership interests
during fiscal period $424,999 $1,430,716 $6,389,292
Annual fulfillment assessments per membership
Interests $562,481 $470,451 $426,171
</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, 1999, Resort Club had 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 three additional units in Vernon, New Jersey.
The purchase price for the memberships was generally financed,
with the down payment received by Resort Club 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 Resort Club or paid out of
Resort Club's other funds. Through fiscal 1998 and 1999, the
Company advanced approximately $12,410,000 and $14,064,000,
respectively, for the consideration for these for a payment equal
to 10% of the gross sales price of the Resort Club memberships.
During fiscal 1999 sales prices ranged from $7,935 to $14,630 per
membership , based on the number of points purchased. Annual
fulfillment assessments for operating costs ranged from $250.98
to $641.23 during fiscal 1999.
For the three fiscal years ended September 30, 1999, 1998, 1997,
Resort Club's gross revenue from sales of membership interests was
$424,999, $1,430,716, and $6,389,292, respectively.
The net liabilities of Resort Club (as an unconsolidated entity)
at September 30, 1999 are as follows:
<TABLE>
<S> <C> <C>
1999 1998
Cash $72,642 $86,784
Member receivables, net 1,266,167 5,975,208
Accounts receivable other, net 179,798 37,780
Deferred membership expense -0- 8,381,774
Other assets 235,566 241,302
Fixed assets, net 91,412 72,295
Accounts payable and accrued liabilities (1,560,157) (3,970,464)
Deferred revenue -0- (11,658,639)
Secured debt (2,193,797) (2,271,276)
Unsecured debt (11,631,593) (8,856,145)
Net Liabilities $(13,539,962) $(11,961,381)
</TABLE>
Net liabilities of Resort Club exclude debt owed to its parent and
an affiliated corporation, Dominion Resources, Inc. and Diamond
Leasing and Management Corp., a subsidiary of Dominion Resources,
Inc. of $19,983,355 and $17,857,969 as of September 30, 1999 and
1998, respectively. This debt and corresponding receivable has
been eliminated in the consolidated financial statements of the
Company. Of the outstanding indebtedness of Resort Club as of
September 30, 1999 aggregating $15,385,574, Dominion Resources,
Inc. and its subsidiaries other than Resort Club are liable on an
aggregate of $1,393,797 of the secured debt of Resort Club. To
the extent these liabilities of $1,393,797 are not paid out of the
liquidated assets of Resort Club, Dominion Resources, Inc. will
remain liable for the balance.
Management determined that in order to adequately assure to the
members the availability of the Resort Club accommodations, title
to certain of the resort condominium properties needed to be
conveyed to and held by a trustee. A trustee holds title to 42
condominium units including 27 units that are the subject of
mortgages aggregating as of September 30, 1999 $1,193,952. These
mortgages will be repaid out of the net member receivables of
Resort Club aggregating $1,266,167 as of September 30, 1999. The
trustee will administer the collection of the annual maintenance
assessments from membership owners which will be applied to the
payment of insurance, taxes, maintenance fees and capital
improvements. The trustee will pay the balance of the collections
over to the Company on a regular basis. Under the trust agreement
and a management agreement, 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.
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 Great American 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. At September 30,
1999, these activities were treated as a discontinued operation.
As used herein, unless the context otherwise requires, the term
(the "Company") refers to Dominion Resources, Inc. and its
majority-owned subsidiaries.
COMPETITION
In general, the Company experiences no competition in its limited
continuing operations.
Competitors to Resort Club, a discontinued activity, 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
The Company believes there are no seasonal aspects to its
continuing operations.
With respect to its discontinued Resort Club activities, 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, 1999,
quarterly sales as a percentage of annual sales, for each of the
fiscal quarters averaged: quarters ended December 31 - 27%,
quarters ended March 31 - 38%, quarters ended June 30 - 17%, and
quarters ended September 30 - 18%. Resort Club 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, 1999, the Company had two year-round employees
involved in its continuing operations and eight employees involved
in the discontinued Resort Club operations.
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
$2,077 per 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 approximately 1,560 square foot office building
located in Selma, Alabama. The property is currently for sale.
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, 1999.
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> <C> <C>
Quarter Ended Bid Asked
High Low High Low
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
December 31, 1998 $1.375 $.6875 $2.125 $1.4375
March 31, 1999 .25 .25 .625 .625
June 30, 1999 1.00 1.00 1.00 1.375
September 30, 1999 1.00 1.00 1.25 1.25
December 31, 1999 $.25 $.25 $.4375 $.4375
</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, 1999, 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 1999 compared with Fiscal Year 1998
The Company's income during the three fiscal years ended
September 30, 1999 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
1999 and 1998 consists primarily of lease income from its office
building in Selma, Alabama and overnight rental income generated
by vacant Resort Club condominiums.
Continuing Operations
Other revenue was $23,367 in fiscal 1999 compared with
$25,470 in fiscal 1998 or a decline of $2,103 or 8.26%. The
decline in revenues was primarily the result of decreased rental
income from the Company's building in Selma, Alabama.
Other operations expenses were $24,865 in fiscal 1999
compared with $216,023 in fiscal 1998, or a decrease of $191,158
or 88.49%. The decrease was the result of certain non-recurring
operating expenses that the Company recorded in fiscal 1998.
General and administrative expenses decreased to $819,247 in
fiscal 1999 from $873,255 in fiscal 1998, or by $54,008 or 6.18%
as a result of decreased legal fees in connection with the GAR
restructuring and certain non-recurring items.
Depreciation and amortization was $14,926 in fiscal 1999,
compared to $34,307 in fiscal 1998, resulting in a decrease of
$19,381 or 56.49%. This decrease was the result of certain assets
being fully depreciated at September 30, 1998.
Interest income was $1,448,117 in fiscal 1999, compared with
$407,943 in fiscal 1998. The increase of $1,040,174 was the
result of the increased principal balance due from Stonehill
Recreation.
Interest expense increased to $652,009 in fiscal 1999,
compared with $557,861 in fiscal 1998. The increase of $94,148
was the result of the increase in the Berkowitz Wolfman Assoc.,
Inc. loan and the increased loan facility with Binghamton Savings
Bank.
During fiscal 1999, the Company recognized financing fee
income of $531,714 in connection with the FoodCeuticals
transaction.
Amortization of deferred financing costs consists primarily
of deferred financing costs associated with the Company obtaining
its loans from Binghamton Savings Bank and Public Loan Corp.
These costs decreased to $102,709 in fiscal 1999 from $116,602 in
fiscal 1998, or a decrease of $13,893, which was the result of the
varying maturities of these loans.
In fiscal 1999, the Company incurred a loss on the sale of
its marketable securities of $38,832 as compared to a gain on the
sale of marketable securities in fiscal 1998 of $1,139,995
primarily resulting from a gain on the sale of RiceX, Inc. stock.
In fiscal 1999, the Company incurred a gain on the sale of
Real Estate and RTC Mortgages of $11,764 as compared to $174,979
in fiscal 1998. The decrease was primarily a result from the
Company's gain recorded from the sale of its property in Ouray,
Colorado and sale of RTC Mortgages in fiscal 1998.
During fiscal 1998, the Company had a gain of $840,000 from
the sale of the Billhill, Inc. real estate.
Discontinued Operations
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 1999, the Company recognized approximately $12,053,000 in
membership revenue as compared to approximately $681,000 in fiscal
1998.
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 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 Real Estate Projects."
During fiscal 1999, the Company had adjusted Deferred Membership
Interests Held for Sale for items over budget in the aggregate
amount of approximately $0, as compared to approximately
$2,207,000 in fiscal 1998.
Membership revenue was $12,052,709 in fiscal 1999 compared
with $681,151 in fiscal 1998. The increase of membership revenue
was the result of the Resort Club's accounting treatment resulting
from recognizing the remaining deferred membership revenue, a non-
cash revenue item, of approximately $11,748,000 as a result of the
transfer of the Resort Club condominium inventory to a trust and
reserving certain membership receivables for the payment of the
remaining purchase money mortgages encumbering certain
condominiums in the trust.
Membership annual fee revenue was $486,118 in fiscal 1999
compared with $421,359 in fiscal 1998, or an increase of $64,759
or 15.37%. This increase was primarily the result of additional
memberships, as well as an increase in maintenance fees per
membership in accordance with an increase in the consumer price
index.
Membership operations expenses increased in fiscal 1999 to
$3,775,458 from $1,539,000 in fiscal 1998, or by $2,236,458 or
163.02% as a result of the Resort Club recognizing the remaining
deferred membership expenses resulting from the Resort Club
recognizing the remaining deferred membership revenue.
Membership maintenance expenses increased in fiscal 1999 to
$893,399 from $749,511 in fiscal 1998, or by $143,888 as a result
of increased real estate taxes, condominium fees, check-in
services and repairs and maintenance.
Marketing and selling expenses were negative $4,633,622 in
fiscal 1999 compared with $1,231,155 in fiscal 1998, an increase
of $3,402,467. This increase was the result of the Resort Club
recognizing the remaining deferred membership expenses resulting
from the Resort Club recognizing the remaining deferred membership
revenue.
The Company recorded 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 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 Great American Chapter 11 Proceedings. This
expense is further discussed below under Liquidity and Capital
Resources.
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.
Continuing Operations
Other revenue was $25,470 in fiscal 1998 compared with
$36,783 in fiscal 1997 or a decline of $11,313 or 30.76%. The
decline in revenues was the result of the loss of revenue
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
(180.17%). 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.
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.
Interest income was $407,943 in fiscal 1998 compared with
$253,680 in fiscal 1997. The increase of $154,263 was the result
of interest income on a loan to Stonehill Recreation which was
increased to $1,560,134 as of September 30, 1998 from $200,000 as
of September 10, 1997.
Interest expense increased to $557,861 in fiscal 1998
compared with $190,525 in fiscal 1997. The increase of $367,336
was primarily the result of 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.
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 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.
In fiscal 1998, the Company had a gain of $840,000
from the sale of the Billhill, Inc. real estate.
Discontinued Operations
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 provision 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.
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 e
increased by Resort Club as of each fiscal year by a percentage
not to exceed the percentage, 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.
In fiscal 1998, the Company had 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 Great American
Chapter 11 Proceedings. This expense is further discussed below
under Liquidity and Capital Resources.
Liquidity and Capital Resources
During fiscal 1999, the Company had net income of approximately
$2,968,582. Included in net income from operations is
depreciation of approximately $14,900, amortization of interest
expense of approximately $1,351,000 as well as the acceleration of
unamortized interest expense of approximately $1,277,000 resulting
from Resort Club's failure to make the first installment payment
on its notes owing to certain creditors of GAR and amortization of
deferred financing costs of $102,707, all of which are non-cash
expenses. Amortization of interest income of $87,344 and non-cash
income from its transaction with RiceX in the amount of $531,714
offset these items.
Changes in assets and liabilities included an increase in
membership receivables of $1,209,041. a decrease in accrued
interest and other receivables of $1,454,168, a decrease in
prepaid expenses and other assets of $3,709, an increase in
deferred member expenses of $8,109,431 offset by reductions in
accounts payable and accrued expenses of $2,230,105 and deferred
membership revenue of $11,482,588. After reflecting the net
changes in assets and liabilities, net cash used by operations was
approximately $757,000.
Investing activities used net cash of approximately $1,329,000 and
includes primarily the sale of marketable securities of $42,115
and the sale of real estate related assets of approximately
$91,500 offset by a note receivable from Stonehill Recreation of
approximately $1,439,000.
Financing activities provided net cash of approximately $1,539,900
which resulted primarily from borrowings of $2,283,300 and
proceeds from the sale of common stock of $400,000 offset by the
repayment of borrowings in the amount of $843,400 and the purchase
of redeemable common stock of $300,000.
Accordingly, during fiscal 1998, the Company's cash decreased by
approximately $546,000.
Future Business Plans
Through fiscal 1999, 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. At the end of the
fiscal year ended September 30, 1999, these operations were
treated as discontinued.
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, 1999, the Company had engaged in various
transactions with certain of its officers, directors, principal
stockholders and certain of their affiliated entities (see Item 12
and Note 3 of the Notes to the Consolidated Financial Statements).
In addition, as of September 30, 1999, 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, 1999, 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* 37 Treasurer; Chief Financial
Officer; Chief Executive
Officer and Director 1995
Maureen Kosminsky 34 Vice President and Secretary ----
Paul J. Donahue (()* 66 Director 1995
Thomas Conlin (() 65 Director 1996
Other Significant Employees of the Company are the following:
Christina Riker 33 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,
1999 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>
Annual Compensation Long-Term Compensation
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name and Other Options Restr All
Principal Fiscal Annual and Stock LTIP Other
Position Year Salary Bonus Compens SARs Awards Payouts Compensation
Joseph R.
Bellantoni
Chief
Executive
Officer (1) 1999 $100,000 $-0- $-0- -0- -0- $-0- $-0-
1998 $100,000 $-0- $-0- -0- -0- $-0- $-0-
1997 $108,185 $-0- $-0- -0- -0- $-0- $-0-
Andrew
Mulvihill(3)
Exec. Officer,
Resort Club 1999 $-0- $-0- $-0- -0- -0- $-0- $-0-
1998 $-0- $-0- $218,858 -0- -0- $-0- $-0-
1997 $-0- $-0- $166,447 -0- -0- $-0- $-0-
Robert
Harris (2)
President,
Resort Club 1999 $-0- $-0- $-0- -0- -0- $-0- $-0-
1998 $8,654 $-0- $29,879 -0- -0- $-0- $-0-
1997 $119,287 $-0- $-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 23, 1998, Mr. Harris resigned as President of
Resort Club.
(3) Mr. Andrew Mulvihill resigned as an executive officer of
Resort Club in the first quarter of fiscal 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 1999.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, as of December 31, 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>
Name of Beneficial Owner Amount and Nature of Percent
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, 1999, 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"), Lakeview Savings Bank ("Lakeview") Savings 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 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 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.
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:
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
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,
1999, Resort Club paid approximately $-0- and $219,000,
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
$184,358 as of September 30, 1999 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,
1999, the Company paid to the partnership $6,000 and $24,927,
respectively, 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.
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, 1999, Stonehill Recreation owed the Company
$3,128,832, 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, 1999, the Company is obligated to Berkowitz
Wolfman Assoc., Inc. in the amount of $2,614,134 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 which sum was applied
to the outstanding principal amount of the loan in fiscal 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
$20,831. 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, 1999 S-2-3
Consolidated Statements of Operations -
years ended September 30, 1999 and 1998 S-4
Consolidated Statements of Stockholders'
Deficit - years ended September 30, 1999 and 1998 S-5
Consolidated Statements of Cash Flows -
years ended September 30, 1999 and 1998 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, 1999.
(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 Incorporation 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
(d) Financial statements omitted from annual report to
shareholders filed herewith - None.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DOMINION RESOURCES, INC.
Dated: February 14, 2000 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
Joseph R. Bellantoni Treasurer, Chief Financial
Officer, Chief Executive
Officer and Director February 14, 2000
/s/ Maureen Kosminsky
Maureen Kosminsky Vice President and Secretary February 14, 2000
/s/Paul J. Donahue
Paul J. Donahue Director February 14, 2000
/s/Thomas Conlin
Thomas Conlin Director February 14, 2000
/s/Christina Riker
Christina Riker Chief Financial Officer,
Resort Club February 14, 2000
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,
1999, and the related consolidated statements of operations,
stockholders' deficit and cash flows for each of the two fiscal
years ended September 30, 1999. 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,
1999, and the results of its operations and cash flows for the two
fiscal years ended September 30, 1999, 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.
Garden City, New York
January 6, 2000
S-1
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
ASSETS
</TABLE>
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents $ 82,110
Investment in mutual fund and other marketable securities 73,127
Membership Receivables, net of allowance for doubtful
accounts of $396,373 (Note 2) 1,000,895
Accrued interest and other receivables 2,387,460
Prepaid expenses and other assets 412,062
Total current assets 3,955,654
Property, equipment, furniture, and fixtures, net
of accumulated depreciation and amortization of
$227,122 (Note 1) 209,707
Other assets:
Membership Receivables, net of allowance for doubtful
accounts of $1,491,119 (Note 2) 3,765,272
RTC Mortgages 25,099
Note Receivable - Stonehill Recreation (Note 3) 3,128,832
Note Receivable - RiceX, Inc. (Note 4) 1,689,983
Investment in RiceX, Inc. (Note 4) 813,396
Real estate and real estate related activities (Notes 2 and 3) 871,526
Total other assets 10,294,108
Total assets $ 14,459,469
</TABLE>
See accompanying notes
S-2
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<S> <C>
Current liabilities:
Accounts payable and accrued liabilities (Note 5) $ 2,848,127
Secured Debt, current portion (Note 7) 1,816,316
Notes payable, (Note 7) 11,747,123
Deferred Revenue 176,051
Total current liabilities 16,587,617
Long-term liabilities:
Secured Debt, net of current maturities (Note 7) 4,519,289
Notes Payable, net of current maturities (Note 7) -0-
Total long-term liabilities 4,519,289
Commitments and contingencies (Note 8)
Redeemable common stock, par value $0.01 per share; 383,333
shares outstanding redeemable at $3.00 per share in July 1998
through July 2000 1,150,000
Stockholders' deficit:
Common stock, $0.01 par value;
Authorized - 25,000,000 shares;
issued and outstanding - 7,630,576 shares 76,306
Additional paid-in capital 5,819,484
Accumulated deficit (12,292,314)
Less: 1,350,646 shares held in treasury (1,400,913)
Total stockholders' deficit (7,797,437)
Total liabilities and stockholders' deficit $ 14,459,469
</TABLE>
See accompanying notes
S-3
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<S> <C> <C>
1999 1998
Revenues
Ski rental shop revenue and other revenue $ 23,367 $ 25,470
Total revenues 23,367 25,470
Expenses:
Ski rental shop and other operations 24,865 216,023
General and administrative expenses 819,247 873,255
Depreciation and amortization 14,926 34,307
Total expenses 859,038 1,123,585
Loss from operations (835,671) (1,098,115)
Other income (expenses):
Interest income 1,448,117 407,943
Interest expense (652,009) (557,861)
Financing fee income 531,714 -0-
Amortization of deferred financing costs (102,709) (116,602)
Gain (loss) on Sale of marketable securities (38,832) 1,139,995
Gain on Sale of real estate and RTC Mortgages 11,764 174,979
Gain on Sale of Bill Hill property -0- 840,000
Total other income (expenses) 1,198,045 1,888,454
Income from continuing operations before
income taxes 362,374 790,339
Income taxes (Note 6) -0- -0-
Net income from continuing operations 362,374 790,339
Discontinued Operations:
Income (loss) from operations of Resort Club
less applicable tax benefit of $-0- in 1999 and
$120,214 in 1998 2,606,208 (15,592,156)
Net income (loss) $ 2,968,582 $ (14,801,817)
Net income (loss) per common share -
continuing operations $ 0.05 $ 0.15
Net income (loss) per common share -
discontinued operations 0.37 (3.01)
Net Income (loss) per common share $ 0.42 $ (2.86)
Weighted average number of share used in
computing net income (loss) per share 6,993,164 5,172,601
</TABLE>
See accompanying notes
S-4
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED SEPTEMBER 30, 1999 and 1998
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital
Common Par in Excess Accum Treasury
Stock Value of Par Deficit Stock Total
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 400,000 4,000 36,000 40,000
Transfer of
Common Stock to
Redeemable
Common Stock
(Note 9) (500,000) (5,000) (195,000) (200,000)
Net loss (14,801,817) (14,801,817)
Balance -
September
30, 1998 5,058,354 50,584 5,270,206 (15,260,896) (1,400,913) (11,341,019)
Sale of
2,222,222
shares of
common
stock 2,222,222 22,222 377,778 400,000
Issuance of
350,000
shares for
consulting
services 350,000 3,500 171,500 175,000
Net income 2,968,582 2,968,582
Balance -
September
30, 1999 7,630,576 $76,306 $5,819,484 $(12,292,314) $(1,400,913) $(7,797,437)
</TABLE>
See accompanying notes
S-5
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<S> <C> <C>
1999 1998
Cash flows provided by (used in) operating activities activities:
activities
Net income (loss) $ 2,968,582 $(14,801,817)
Adjustments to reconcile net income (loss)
to net cash provided by continuing operating activities:
to net cash provided by (used in) operating activities
Depreciation and amortization 14,926 34,307
Amortization of deferred financing costs 102,707 116,602
Amortization of interest income (87,344) (87,344)
Acceleration of unamortized interest expense 1,276,551 -0-
Amortization of interest expense 1,350,936 1,350,936
Financing fee income (RiceX) (531,714) -0-
Gain on sale of Bill Hill property -0- (840,000)
Gain on sale of marketable securities -0- (1,207,383)
Gain on sale of Resort club contracts -0- (345,000)
Great American Settlement -0- 12,426,510
Changes in assets and liabilities:
Membership receivables 1,209,041 1,440,978
Accrued interest and other receivables (1,454,168) 955,515
Prepaid expenses and other assets (3,709) 191,535
Deferred membership interests held for sale 8,109,431 1,004,151
Accounts payable and accrued liabilities (2,230,105) (45,509)
Deferred membership revenue (11,482,588) (74,062)
Net cash provided by (used in) operating
activities (757,454) 119,419
Cash flows from investing activities:
Sale of Marketable Securities 42,115 1,583,669
Note Receivable - Related Party (1,439,259) (1,689,573)
Investment in real estate and real estate
related activities (39,183) 1,547,494
Investment in mortgages receivables 130,692 153,999
Sale of Resort Club Contracts -0- 345,000
Capital expenditures (22,878) 22,865
Net cash provided by (used in)
investing activities (1,328,513) 1,963,454
Cash flows from financing activities:
Proceeds from borrowings 2,283,299 1,039,431
Repayment of borrowings (843,381) (2,610,513)
Proceeds from sale of common stock 400,000 -0-
Exercise of warrants -0- 40,000
Purchase of redeemable common stock (300,000) (50,000)
Net cash provided by (used in)
financing activities 1,539,918 (1,581,082)
Increase (Decrease) in cash (546,049) 501,791
Cash balance, October 1, 628,159 126,368
Cash balance, September 30, $ 82,110 $ 628,159
</TABLE>
See accompanying notes
S-6
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE
OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<S> <C> <C>
1999 1998
Great American Settlement $ -0- $ 8,805,210
Unsecured Notes Payable -0- (7,505,210)
Common Stock (3,500) 5,000
Additional paid-in capital (171,500) 195,000
Redeemable Common Stock -0- (1,500,000)
Investment in RiceX 813,396 -0-
Financing fee income (531,714) -0-
Deferred interest income (281,682) -0-
Deferred financing costs 175,000 -0-
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
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
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 had incurred a net loss for the year ended September 30,
1998 of $14,801,817, of which $12,426,510 represented a non-
recurring loss in connection with the Great American Settlement
(Note 3). Although the Company had net income of $2,968,582 in
fiscal 1999, $2,606,208 was from discontinued operations.
Included in the $2.6 million gain from discontinued operations is
a non cash gain of approximately $3.8 million. In addition, the
Company used net cash from operating activities of approximately
$757,000 during the year ended September 30, 1999. As of
September 30, 1999, the Company's current liabilities exceeded its
current assets by $12,631,963.
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, Fixtures, and Equipment
Property, furniture, fixtures, and equipment 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, fixtures, and equipment consisted of the
following at September 30, 1999:
Buildings and improvements $ 145,152
Furniture, fixtures and equipment 291,677
Subtotal 436,829
Less: Accumulated depreciation and amortization (227,122)
Net property, furniture, fixtures and equipment $ 209,707
S-8
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
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.
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-9
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
2. Discontinued Operations - Resort Club
In September, 1999, the Board of Directors adopted a plan to
dispose of the Resort Club through sale or liquidation. In
connection with the Company's disposal plan, Resort Club ceased
operations as of September, 1999. Net liabilities of the Resort
Club at September 30, 1999 are as follows:
<TABLE>
<S> <C> <C>
1999 1998
Cash $ 72,642 $ 86,784
Member receivables, net 1,266,167 5,975,208
Accounts receivable other, net 179,798 37,780
Deferred membership expense -0- 8,381,774
Other assets 235,566 241,302
Fixed assets, net 91,412 72,295
Accounts payable and accrued liabilities (1,560,157) (3,970,464)
Deferred revenue -0- (11,658,639)
Secured debt (2,193,797) (2,271,276)
Unsecured debt (11,631,593) (8,856,145)
Net liabilities $(13,539,962) $ (11,961,381)
</TABLE>
Net liabilities of Resort Club exclude debt owed to its parent
and an affiliated corporation, Dominion Resources, Inc. and
Diamond Leasing and Management Corp., a subsidiary of Dominion
Resources, Inc. of $19,983,355 and $17,857,969 as of September 30,
1999 and 1998 respectively. This debt and corresponding
receivable has been eliminated in the consolidated financial
statements of the Company. Of the outstanding indebtedness of
Resort Club as of September 30, 1999 aggregating $15,385,547,
Dominion Resources, Inc. and its subsidiaries other than Resort
Club are liable on an aggregate of $1,393,797 of the secured debt
of Resort Club. To the extent these liabilities of $1,393,797 are
not paid out of the liquidated assets of Resort Club, Dominion
Resources, Inc. will remain liable for the balance.
Resort Club Accommodation Inventory Held in Trust
Management determined that in order to adequately assure to the
members the availability of the Resort Club accommodations, title
to certain of the resort condominium properties needed to be
conveyed to and held by a trustee. A trustee holds title to 42
condominium units including 27 units that are the subject of
mortgages aggregating as of September 30, 1999 $1,193,797. These
mortgages will be repaid out of the net member receivables of
Resort Club aggregating $1,266,167 as of September 30, 1999. The
trustee will administer the collection of the annual maintenance
assessments from membership owners which will be applied to the
payment of insurance, taxes, maintenance fees and capital
improvements. The trustee will pay the balance of the collections
over to the Company on a regular basis. Under the trust agreement
and a management agreement, 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. The net present value of the condominiums in trust
have been recorded on the Company's books in the amount of
$272,343 as of September 30, 1999.
S-10
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
2. Discontinued Operations - Resort Club (continued)
Resort Club Accommodation Inventory Held in Trust
(continued)
As of September 30, 1999, the Company has sold 303,217 membership
points. Based on the number of membership points sold, the
Company is required to purchase a minimum inventory of 43
condominium units. Currently, the Company owns 13 condominium
units free and clear, and has purchased 27 condominium units
which are subject to mortgages in the principal amount of
approximately $1,194,000 as of September 30, 1999. In addition,
the Company is in negotiations to purchase the remaining 3
condominium units for a purchase price of approximately $200,000.
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, $-0- and $2,207,000, respectively.
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 1999 and 1998, the Company recognized approximately
$12,053,000 and $681,000 in membership revenue, respectively. The
increase of membership revenue was the result of the Resort Club's
accounting treatment resulting from recognizing the remaining
deferred membership revenue, a non-cash revenue item, of
approximately $11,748,000 as a result of the transfer of the
Resort Club condominium inventory to a trust and reserving certain
membership receivables for the payment of the remaining purchase
money mortgages encumbering certain condominiums in the trust.
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.
S-11
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
3. 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, 1999, 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-12
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
3. 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 of
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-13
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
3. 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:
Repayment of Lakeview and Summit Mortgage $2,649,467
Contribution of land (Public Loan) 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
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-14
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
3. 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,
1999, Resort Club paid $0 and $219,000, 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
$184,358 as of September 30, 1999 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, 1999, the
Company paid to the partnership $6,000 and $24,923, respectively
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.
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, 1999, Stonehill Recreation owed the Company
$3,128,832 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-15
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
3. Related Party Transactions (Continued)
Also at September 30, 1999, the Company is obligated to Berkowitz
Wolfman Assoc., Inc. in the amount of $2,614,134 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, 2000.
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 which sum was applied
to the outstanding principal amount of the Loan in fiscal 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 $20,831. The loan bears interest at 8% and is due to be repaid
on demand.
4. RiceX Note
In March 1996, the Company entered into a $1.75 million secured
loan with The RiceX Company ("RiceX"). Subsequently, in
December 1998, the Company entered into a Loan Participation
Agreement with FoodCeuticals, L.L.C. ("FoodCeuticals") whereby
the Company contributed its secured loan, 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. FoodCeuticals had made its
loan to RiceX in December 1998. RiceX is an agribusiness food
technology company which has developed a proprietary process to
stabilze rice bran. Its shares of Common Stock are quoted on the
OTC Bulletin Board under the symbol "RICX". 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 conjunction with its loan to RiceX,
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 December 1998 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. In November 1999, RiceX
repaid the borrowing incurred in the amount of $1.75 million, plus
accrued interest of approximately $320,753.
S-16
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 30, 1999
consist of the following:
Accounts Payable $ 403,379
Accrued payroll and payroll taxes 33,628
Accrued condo purchase (Note 8) 200,000
Accrued income taxes (Note 6) 575,214
Accrued fulfillment deficit (Note 8) 827,434
Accrued interest 719,888
Accrued other 88,584
$ 2,848,127
S-17
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
6. Income Taxes
The tax expense (benefit) for the years ended September 30, 1999
and 1998 consists of the following components:
For the year ended September 30,
1999 1998
Current
Federal $ 145,266 $ (120,214)
State 45,615 -0-
190,881 (120,214)
Deferred
Federal -0- (3,957,738)
State -0- (1,701,120)
-0- (5,658,858)
$ 190,881 $(5,779,072)
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 $ 150,305 $ (4,617,968)
State and local taxes, net of federal benefit 26,259 (1,122,740)
Effect of non-deductible entertainment 14,317 6,934
Effect of tax vs. book depreciation -0- (244)
Effect of capital loss carry forward -0- (45,054)
Effect of NOL limitation -0- -0-
Total tax benefit $ 190,881 $ (5,779,072)
</TABLE>
S-18
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
6. Income Taxes (continued)
Deferred income taxes as reported on the balance sheet consists
of:
September 30,
1999 1998
Deferred tax assets $ 5,667,977 $ 5,858,858
Deferred tax liabilities -0- (200,000)
Valuation allowance (5,667,977) (5,658,858)
$ -0- $ -0-
As of September 30, 1998 the Company had net operating losses
(NOL) of $12,853,093. 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, 2000. The company has provided a full 100% valuation
allowance on the deferred tax assets as at September 30, 1999 and
1998 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
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, 1999, the
aggregate remaining balance on these mortgages was approximately
$1,193,797.
At September 30, 1999, the Company is obligated to Berkowitz
Wolfman Assoc., Inc. in the amount of $2,614,134 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, 2000.
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:
S-19
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
7. Debt (continued)
Secured Debt (continued)
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 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 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 January 15, 1999, the
balance due and owing on this loan was $1,845,000 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, 1999, the principal balance outstanding on
this loan was $1,445,000.
S-20
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
7. Debt (Continued)
Secured Debt (Continued)
Secured Debt as of September 30, 1999 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 $ 82,674
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 1,193,797
Loan Agreement dated June 6, 1994,
15% interest due monthly, balloon payment
of $1,000,000 on June 10, 2000 1,000,000
Loan Agreement, 15% interest due October 1, 2000 2,614,134
Loan Agreements dated May 18, 1997, August 6, 1997,
and January 15, 1999, 12.25% interest due monthly
with monthly principal payments of $50,000,
balance due March 13, 2000 1,445,000
Total mortgages 6,335,605
Less total current portion 1,816,316
Total noncurrent portion $4,519,289
S-21
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
7. Debt (Continued)
Notes Payable
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, 1999, the carrying value of
these notes was approximately $11,483,000.
Other Information
Aggregate principal reductions of debt as of September 30, 1999
are summarized as follows (000's omitted):
Secured Notes
Fiscal Year Debt Payable Total
2000 $1,816 $11,747 $13,563
2001 $3,760 $ -0- $ 3,760
2002 and thereafter $ 759 $ -0- $ 759
S-22
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
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, 1999, the Company has sold 303,217 membership
points. Based on the number of membership points sold, the
Company is required to purchase a minimum inventory of 43
condominium units. Currently, the Company owns 13 condominium
units free and clear, and has purchased 27 condominium units which
are subject to mortgages in the principal amount of approximately
$1,194,000. In addition, the Company is in negotiations to
purchase the remaining 3 condominium units for a purchase price of
approximately $200,000.
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, 1999, 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. Based on an aggregate of
303,217 points sold through September 30, 1999, management has
calculated the net present value of this obligation to be
approximately $827,434.
S-23
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
9. Common Stock
On or about December 28, 1998, the Company sold an aggregate
1,111,111 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.
On or about January 15, 1999, the Company issued 350,000 shares of
its $0.01 par value common stock to three unaffiliated
corporations in connection with their efforts in assisting the
Company in various financing transactions. Due to the trading
restrictions placed on the stock, the Company recorded the
transaction at a discount of 75% or a per share price of $0.50.
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, 1999, no options had been issued under the plan.
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.
S-24
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
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
The Company is negotiating 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.
In October, 1999, the Company received a Letter and Examination
Report from the District Director of the Internal Revenue Service
that proposed a tax deficiency based on an audit of the Company's
consolidated 1995 tax return. The Examination Report proposed
adjustments that the Company does not agree to.
The adjustments included disallowed deductions from the Company's
principal subsidiary in the amount of $5,124,000 which represented
accruals and deductions related to membership fulfillment expense
and membership product cost (see Note 2). The Internal Revenue
Service's position was that these deductions should have been
capitalized. Additionally, approximately $498,000 of deductions
representing a write down of packaged loans acquired from
Resolution Trust Company and certain normal business deductions
were disallowed. The Internal Revenue Service also disallowed
$830,000 as a compensation deduction related to a former officer's
stock redemption, claiming the disallowed deduction should have
been classified as treasury stock.
The Company does not agree with the proposed adjustments and is
contesting the proposed tax assessment of $2,164,000 (not
including interest and penalties) at the appeals level of the
service. The Company believes that when final resolution, the
proposed tax deficiencies will be substantially reduced. No
provision has been made in the accompanying financial statements
for the proposed additional taxes and interest. Additionally, the
Company has adequate net operating losses (see Note 6) which could
be utilized to offset any unresolved tax adjustments related to
this examination.
On October 5, 1999, the Company entered into an agreement to
convert 366,655 of the Company's redeemable common stock, par
value $0.01 per share for 1,622,000 shares of the Company's common
stock, par value $0.01 per share and a warrant to purchase a
number of shares of common stock equal to 25% of all shares of
common stock issued by the Company from October 1, 1999 through
March 31, 2000.
The Company is currently in negotiations to sell its 65% interest
in Resort Club to an unaffiliated entity. The transaction as
proposed to be structured will be effective December 31, 1999 and
requires the Company to use its best efforts to restructure
certain notes payable of GAR which aggregate approximately
$11,483,000 at September 30, 1999. The restructuring as
contemplated is limited to the issuance of the Company's common
stock not to exceed more than 7% of the issued and outstanding
common stock of the Company. The Company is currently negotiating
the selling price which will be in the form of a royalty payment
based on future sales revenues.
S-25
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