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
For the fiscal year ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from____________to______________
Commission File Number 0-10176
DOMINION RESOURCES, INC.
(Exact name of 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, 2000, the issuer's revenues were
$8,953
On December 15, 2000, 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 $811,253 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
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PART I
ITEM 1. BUSINESS
GENERAL:
Dominion Resources, Inc. (the "Company") was, commencing February 1996
through September 1999, principally engaged, through a majority-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, 2000, 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,
subject to a contract of sale, an approximately 1,560 square foot building in
Selma, Alabama. On November 1, 2000, the Company entered into a contract to sell
the Selma building for a selling price of $155,000. Pursuant to the terms of the
contract, the Company agreed to take back a mortgage for $130,000 at 9% due in
ten years.
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.
<PAGE>
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 $320,750 and has advised the Company that on
or about December 31, 2000 it intends to repay the balance of the borrowing,
totaling $1,850,000, of which the Company's participation is approximately
$948,660.
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 a business combination or other
transactions with others.
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.
As of March 1, 2000, the Company negotiated the sale of its 65%
interest in Resort Club. The transaction is effective October 1, 1999 and
requires the Company to use its best efforts but is not obligated to restructure
certain notes payable to GAR, Inc., which aggregate approximately $11,483,000 at
September 30, 1999. The sales price is in the form of a royalty payment based on
3% of future sales revenue. As a result of the sale, a gain of $10,302,712 was
recorded which is broken out as follows:
Net liability as of September 30, 1999 $33,523,317
Less: Contingency reserve for mortgages,
fulfillment and GAR, Inc. restructuring 2,424,218
Subtotal $31,099,099
Less: Write-down to net realizable value,
the Company's notes receivable due from
Resort Club 20,796,387
Net gain $10,302,712
For federal income tax purposes, the Company did not include Resort
Club, its former 65% owned subsidiary, in its federal consolidated income tax
return. Accordingly, the Company did not record an income tax expense in
connection with the gain on sale. Such gain was the result of a reduction of net
liabilities of Resort Club, which the Company has no obligation to pay. These
net liabilities were previously included in the consolidated financial
statements of the Company in accordance with the generally accepted accounting
principles.
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For the period ended September 30, 2000, Resort Club sold four
memberships for an aggregate selling price of $45,212 for which the Company
earned a royalty fee of $1,356 which the Company fully reserved.
The Company's operations are currently limited, and therefore it
experiences no competition or seasonal aspects to its activities.
ORGANIZATION
The Company was incorporated under the laws of the State of Delaware on
October 11, 1979.
EMPLOYEES
As of September 30, 2000, the Company had two year-round employees
involved in its continuing operations.
ITEM 2. PROPERTIES
The Company's executive offices are at 355 Madison Avenue, Morristown,
New Jersey. The Company is a tenant under a lease 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. Subsequent to November 30, 2000, the
Company continues to lease the space on a month-to-month basis.
The Company owns, subject to a contract of sale, an approximate 1,560
square foot office building located in Selma, Alabama.
See Item 1. Business for a description of other real estate assets
owned by the Company.
ITEM 3. LEGAL PROCEEDINGS
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
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cost. 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 Internal Revenue Service. To date, the
Appeals Division of the Internal Revenue Service has conceded to approximately
$645,000 of the above disallowances. The Company is continuing the appeal
process. The Company believes that when there is a 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 7 of Notes to Consolidated Financial Statements), which could be utilized
to offset any unresolved tax adjustments related to this examination.
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, 2000.
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 and
quotations appear on the OTC Bulletin Board under the symbol DNIR. 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.
4
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QUARTER ENDED BID ASKED
HIGH LOW HIGH LOW
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
March 31, 2000 * * * *
June 30, 2000 * * * *
September 30, 2000 * * * *
December 31, 2000 $ .11 $ .11 $ .25 $ .25
-------------------
*Quotations for the Common Stock were not published.
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.
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As of December 15, 2000, the number of record holders of the Company's
Common Stock was 2,621. 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 2000 Compared with Fiscal Year 1999
Continuing Operations
Total revenues were $8,953 in fiscal 2000 compared with $23,367 in
fiscal 1999 or a decline of $14,414 or 61.69%. The decline in revenues was
primarily the result of decreased rental income from the Company's condominiums
in Fort Lee, New Jersey.
Other operations expenses were $95,400 in fiscal 2000 compared with
$24,865 in fiscal 1999, or an increase of $70,535 or 283.67%. The increase was
primarily the result of expenses related to moving the Company's brewery
equipment located in Vernon, New Jersey to storage. The Company previously had a
security interest in the equipment and took possession in lieu of payment. The
brewery has not been operational since 1994.
General and administrative expenses increased to $1,264,467 in fiscal
2000 from $819,247 in fiscal 1999, or by $445,220 or 54.35% primarily as a
result of additional taxes due to the State of Alabama, in the amount of
approximately $346,000, offset by decreased legal fees in connection with the
GAR restructuring.
Depreciation and amortization was $10,775 in fiscal 2000, compared to
$14,926 in fiscal 1999, resulting in a decrease of $4,151 or 27.81%. This
decrease was the result of certain assets being fully depreciated at September
30, 1999.
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Interest income was $810,929 in fiscal 2000, compared with $1,448,117
in fiscal 1999. The decrease of $637,188 was primarily the result of reserving
interest income from Stonehill Recreation.
Interest expense increased to $702,417 in fiscal 2000, compared with
$652,009 in fiscal 1999. The increase of $50,408 was the result of the increase
in the Berkowitz Wolfman Assoc., Inc. loan and the increased loan facility with
Binghamton Savings Bank and increased interest rates.
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 increased to $117,034 in fiscal
2000 from $102,709 in fiscal 1999, or an increase of $14,321 which was the
result of a full year's amortization of costs associated with the Binghamton
loan closing on January 15, 1999.
In fiscal 2000, the Company incurred a gain on the sale of its
marketable securities of $74,985 as compared to a loss on the sale of marketable
securities in fiscal 1999 of $38,832.
In fiscal 1999, the Company incurred a gain on the sale of Real Estate
and RTC Mortgages of $11,764.
At September 30, 2000, Stonehill Recreation Corporation ("Stonehill
Recreation") owed the Company $3,128,787 arising out of cash advances from the
Company to Stonehill Recreation. The obligation bears interest at 18% per annum
and is due on demand.
During fiscal 2000, a foreclosure action was commenced against
Stonehill Recreation by Option Holders, Inc. The Company is working with the new
owner of the spa, The Spa at Crystal Springs (the "Spa") in connection with a
restructuring of this loan receivable which may include the conversion of all or
a portion of this receivable into an equity or joint venture investment.
Although the Company believes that the restructuring will be successful, there
can be no assurances that the Company will realize the full carrying value of
this asset. During fiscal 2000, the Company has reserved all interest income
accrued relating to this loan receivable (see Notes 4 and 11 of Notes to
Consolidated Financial Statements.
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Discontinued Operations
As of March 1, 2000, the Company negotiated the sale of its 65%
interest in Resort Club. The transaction is effective October 1, 1999 and
requires the Company to use its best efforts but is not obligated to restructure
certain notes payable to GAR, Inc., which aggregate approximately $11,483,000 at
September 30, 1999. The sales price is in the form of a royalty payment based on
3% of future sales revenue. As a result of the sale, a gain of $10,302,712 was
recorded which is broken out as follows:
Net liability as of September 30, 1999 $33,523,317
Less: Contingency reserve for mortgages,
fulfillment and GAR, Inc. restructuring 2,424,218
Subtotal $31,099,099
Less: Write-down to net realizable value,
the Company's notes receivable due from
Resort Club 20,796,387
Net gain $10,302,712
For federal income tax purposes, the Company did not include Resort
Club, its former 65% owned subsidiary, in its federal consolidated income tax
return. Accordingly, the Company did not record an income tax expense in
connection with the gain on sale. Such gain was the result of a reduction of net
liabilities of Resort Club, which the Company has no obligation to pay. These
net liabilities were previously included in the consolidated financial
statements of the Company in accordance with the generally accepted accounting
principles.
For the period ended September 30, 2000, Resort Club sold four
memberships for an aggregate selling price of $45,212 for which the Company
earned a royalty fee of $1,356 which the Company fully reserved.
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.
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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.
9
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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 145.32% as a result of the
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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.
Liquidity and Capital Resources
During fiscal 2000, the Company had a loss from operations of
approximately $8,475,000. Included in net income from operations is depreciation
of approximately $10,775 and amortization of deferred financing costs of
$117,034, all of which are non-cash expenses. Amortization of interest income of
$60,017 offset these items. In addition, the sale of the Company's 65% interest
in Resort Club resulted in a non-cash gain of $10,302,712.
Changes in assets and liabilities included an increase in membership
receivables of $988,618, an increase in accrued interest and other receivables
of $735,767, offset by a decrease in prepaid expenses and other assets of $106,
accounts payable and accrued liabilities of $91,729 and deferred revenue of
$140,841. After reflecting the net changes in assets and liabilities, net cash
used by operations was approximately $268,600.
Investing activities provided net cash of approximately $1,123,400 and
includes primarily the proceeds of the RiceX Note of $1,750,000, proceeds from
the sale of RiceX common stock of $329,593, offset by the participation in
FoodCeuticals loan of $948,655.
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Financing activities used net cash of approximately $910,800 which
resulted from the repayment of borrowings in the amount of $835,812 and the
purchase of redeemable common stock of $75,000.
Accordingly, during fiscal 2000, the Company's cash decreased by
approximately $56,000.
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.
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, 2000, 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.
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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>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
<S> <C> <C> <C>
Joseph R. Bellantoni * 38 Treasurer; Chief Financial Officer; Chief 1995
Maureen Kosminsky 35 Vice President and Secretary --
Paul J. Donahue (+)* 67 Director 1995
Thomas Conlin (+) 66 Director 1996
<FN>
------------
(*) Member of the Executive Committee. The Executive
Committee is responsible for oversight with respect to executive
decisions.
(+) Member of the Audit Committee.
</FN>
</TABLE>
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.
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
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company under the Investment Company Act of 1940 with the exception of Joseph R.
Bellantoni who is also a director of GAR, 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 2000, 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 2000.
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, 2000 to its Chief
Executive Officer and any other executive officer who received compensation in
excess of $100,000 in any such fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- ------------------------------
BONUS/ANNUAL SECURITIES LONG-TERM
NAME AND INCENTIVE UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL POSITION YEAR SALARY AWARD OPTIONS PAYOUTS COMPENSATION
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph R. Bellantoni, Chief 2000 $75,000 $-0- $-0- $-0- $-0-
Executive Officer 1999 $100,000 $-0- $-0- $-0- $-0-
1998 $100,000 $-0- $-0- $-0- $-0-
</TABLE>
No options were granted or exercised during fiscal 2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 15, 2000, 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
14
<PAGE>
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>
<CAPTION>
Number of Shares Percentage of Outstanding
Name of Beneficial Owner (1) Beneficially Owned(2) Common Stock
---------------------------- --------------------- ------------
<S> <C> <C>
Joseph R. Bellantoni - 0 - - 0 -
Paul J. Donahue - 0 - - 0 -
Thomas Conlin - 0 - - 0 -
All Officers and Directors as a Group - 0 - - 0 -
(three persons)
Amos Phillips 1,111,111 14.0%
Venturetek, LP 555,555 7.0%
Kinder Investments 555,555 7.0%
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since October 1, 1998, the Company has not been a party to any material
transaction with any officer, Director or holder of more than 5% of the
outstanding common stock of the Company.
15
<PAGE>
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, 2000 S-2-3
Consolidated Statements of Operations
years ended September 30, 2000 and 1999 S-4
Consolidated Statements of Stockholders'
Deficit - years ended September 30, 2000 and 1999 S-5
Consolidated Statements of Cash Flows -
years ended September 30, 2000 and 1999 S-6-7
Notes to Consolidated Financial Statements S-8-18
(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, 2000.
(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)
------------
(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.
16
<PAGE>
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
(d) Financial statements omitted from annual report to shareholders filed
herewith - None.
17
<PAGE>
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: January 12, 2001 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.
SIGNATURE TITLE DATE
/s/ Joseph R. Bellantoni Treasurer, Chief Financial January 12, 2001
Joseph R. Bellantoni Officer, Chief Executive
Officer and Director
/s/ Maureen Kosminsky Vice President and Secretary January 12, 2001
Maureen Kosminsky
/s/ Paul J. Donahue Director January 12, 2001
Paul J. Donahue
/s/ Thomas Conlin Director January 12, 2001
Thomas Conlin
18
<PAGE>
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, 2000, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two fiscal years ended September 30, 2000. 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, 2000, and the results of its operations and
cash flows for the two fiscal years ended September 30, 2000, in conformity with
generally accepted accounting principles.
Liebman, Goldberg, & Drogin, L.L.P.
Garden City, New York
December 18, 2000
S-1
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 26,072
Investment in mutual fund and other marketable securities 42,115
Membership Receivables (Note 2) 487,333
Accrued interest and other receivables 586,221
Prepaid expenses and other assets 59,568
Total current assets 1,201,309
Property, equipment, furniture, and fixtures, net
of accumulated depreciation and amortization
(Note 1) 147,226
Other assets:
Membership Receivables (Note 2) 1,833,299
RTC Mortgages 20,177
Note Receivable - Stonehill Recreation (Note 4) 3,128,787
Note Receivable - RiceX, Inc. (Note 5) 948,655
Investment in RiceX, Inc. (Note 5) 483,803
Real estate and real estate related activities (Note 2) 875,326
Total other assets 7,290,047
Total assets $ 8,638,582
</TABLE>
See accompanying notes
S-2
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
<S> <C>
Accounts payable and accrued liabilities (Note 6) $ 1,408,440
Secured Debt, current portion (Note 8) 775,240
Notes payable, (Note 8) 33,955
Deferred Revenue 35,210
Total current liabilities 2,252,845
Long-term liabilities:
Resort Club Reserve (Notes 2 and 6) 927,769
Secured Debt, net of current maturities (Note 8) 3,672,707
Notes Payable (Note 8) 33,134
Total long-term liabilities 4,633,610
Commitments and contingencies (Note 9)
Redeemable common stock, par value $0.01 per share; 358,333
shares outstanding redeemable at $3.00 per share 1,075,000
Stockholders' equity:
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 (3,817,750)
Less: 1,350,646 shares held in treasury (1,400,913)
Total stockholders' equity 677,127
Total liabilities and stockholders' equity $ 8,638,582
</TABLE>
See accompanying notes
S-3
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
2000 1999
Revenues
<S> <C> <C>
Ski rental shop revenue and other revenue $ 8,953 $ 23,367
Total revenues 8,953 23,367
Expenses:
Ski rental shop and other operations 95,400 24,865
General and administrative expenses 1,264,467 819,247
Depreciation and amortization 10,775 14,926
Total expenses 1,370,642 859,038
Loss from operations (1,361,689) (835,671)
Other income (expenses):
Interest income 810,929 1,448,117
Interest expense (702,417) (652,009)
Financing fee income -0- 531,714
Amortization of deferred financing costs (117,034) (102,709)
Gain (loss) on sale of marketable securities 74,985 (38,832)
Gain on Sale of real estate and RTC Mortgages -0- 11,764
Stonehill Recreation reserve (532,922) -0-
Total other income (expenses) (466,459) 1,198,045
Income from continuing operations before
income taxes (1,828,148) 362,374
Income taxes (Note 7) -0- -0-
Net (loss) income from continuing operations (1,828,148) 362,374
Discontinued Operations:
Income from operations of Resort Club
less applicable tax benefit of $-0- in 2000 and
1999 -0- 2,606,208
Gain on sale of Resort Club less applicable
taxes of $-0- 10,302,712 -0-
Net income from discontinued operations 10,302,712 2,606,208
Net income $ 8,474,564 $ 2,968,582
Net income (loss) per common share -
continuing operations $ (0.24) $ 0.05
Net income per common share -
discontinued operations $ 1.35 $ 0.37
Net income per common share $ 1.11 $ 0.42
Weighted average number of share used in
computing net income (loss) per share 7,630,576 6,993,164
</TABLE>
See accompanying note
S-4
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
Capital
Common Par in Excess Accum Treasury
Stock Value of Par Deficit Stock Total
<S> <C> <C> <C> <C> <C> <C>
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)
Net Income 8,474,564 8,474,564
Balance -
September
30, 2000 7,630,576 $76,306 $5,819,484 $(3,817,750) $(1,400,913) $677,127
</TABLE>
See accompanying notes
S-5
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,474,564 $ 2,968,582
Adjustments to reconcile net income
to net cash (used in) operating activities:
Depreciation and amortization 10,775 14,926
Amortization of deferred financing costs 117,034 102,707
Amortization of interest income (60,017) (87,344)
Acceleration of unamortized interest expense -0- 1,276,551
Amortization of interest expense -0- 1,350,936
Financing fee income (RiceX) -0- (531,714)
Gain on sale of Resort club (10,302,712) -0-
Changes in assets and liabilities:
Membership receivables 988,618 1,209,041
Accrued interest and other receivables 735,767 (1,454,168)
Prepaid expenses and other assets (106) (3,709)
Deferred membership interests held for sale -0- 8,109,431
Accounts payable and accrued liabilities (91,729) (2,230,105)
Deferred revenue (140,841) (11,482,588)
Net cash (used in) operating activities (268,647) (757,454)
Cash flows from investing activities:
Sale of Marketable Securities 31,012 42,115
Note Receivable - Related Party 45 (1,439,259)
Investment in real estate and real estate
related activities (3,800) (39,183)
Investment in mortgages receivables 4,922 130,692
RiceX Note Receivable 1,750,000 -0-
RiceX Loan Participation (948,655) -0-
RiceX Investment 329,593 -0-
Capital Expenditures (39,706) (22,878)
Net cash provided by (used in) investing
activities 1,123,411 (1,328,513)
Cash flows from financing activities:
Proceeds from borrowings -0- 2,283,299
Repayment of borrowings (835,802) (843,381)
Proceeds from sale of common stock -0- 400,000
Purchase of redeemable common stock (75,000) (300,000)
Net cash provided by (used in) financing
activities (910,802) 1,539,918
Decrease in cash and cash equivalents (56,038) (546,049)
Cash and cash equivalents, October 1, 82,110 628,159
Cash and cash equivalents, September 30, $26,072 $82,110
</TABLE>
See accompanying notes
S-6
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
SUPPLEMENTARY SCHEDULE
OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES
FOR THE YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Common Stock -0- (3,500)
Additional paid-in capital -0- (171,500)
Investment in RiceX -0- 813,396
Financing fee income -0- (531,714)
Deferred interest income -0- (281,682)
Deferred financing costs -0- 175,000
Gain on sale of Resort Club (10,302,712) -0-
Membership receivables (1,456,917) -0-
Accrued Interest and other
receivables (1,065,472) -0-
Prepaid expenses and other
assets (235,566) -0-
Accounts Payable and accrued
expenses (673,311) -0-
Fixed assets (91,412) -0-
Debt 13,825,390 -0-
Total Non-Cash Operating, Investing
and Financing Activities $ -0- $ -0-
</TABLE>
See accompanying notes
S-7
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
1. Summary of Significant Accounting Policies
Nature of Business
Dominion Resources, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on October 11, 1979. From time to time, the Company has
acquired real property or other assets where it believes there are favorable
investment opportunities.
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 non-current
assets and liabilities. The Company believes that a classified balance sheet
provides a more meaningful presentation consistent with the business cycles of
the Company's operations. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Property, Furniture, 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, 2000:
Buildings and improvements $127,502
Furniture, fixtures and equipment 111,182
Subtotal 238,684
Less: Accumulated depreciation and
amortization (91,458)
Net property, furniture, fixtures and equipment $147,226
Depreciation expense for the years ended September 30, 2000 and 1999 is $10,775
and $14,926, respectively.
Earnings Per Common Share
The Company adopted Financial Standards Board (FASB) Statement No. 128,
"Earnings per Share". The statement established standards for computing and
presenting earnings per share (EPS). It replaced the presentation of primary EPS
with a basic EPS and also requires dual presentation of basic and diluted EPS on
the face of the income statement. Basic income/(loss) per share was computed by
dividing the Company's net income/(loss) by the weighted average number of
common shares outstanding during the period. The weighted average number of
common shares used to calculate income/(loss) per common share during fiscal
2000 and 1999 was 7,630,576 and 6,993,164 respectively.
S-8
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
1. Summary of Significant Accounting Policies (Continued)
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
at various times may 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.
Fair Value of Financial Instruments
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments", requires
disclosures of the fair value information whether or not recognized in the
balance sheet where it is practicable to estimate that value. The carrying value
of cash, cash equivalents, receivables and notes payable approximate fair value.
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:
S-9
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2. Discontinued Operations - Resort Club
1999
Cash $ 72,642
Member receivables, net 1,266,167
Accounts receivable other, net 179,798
Other assets 235,566
Fixed assets, net 91,412
Accounts payable and accrued liabilities (1,560,157)
Secured debt (2,193,797)
Unsecured debt (11,631,593)
Net liabilities $(13,539,962)
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 approximately $19,983,000 as of
September 30, 1999. 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 approximately
$15,386,000, Dominion Resources, Inc. and its subsidiaries other than Resort
Club are liable on an aggregate of approximately $1,394,000 of the secured debt
of Resort Club. To the extent these liabilities of approximately $1,394,000 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 approximately $1,194,000. These
mortgages will be repaid out of the net member receivables of Resort Club
aggregating approximately $1,266,000 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 condominiums in trust have been recorded on the
Company's books in the amount of $272,000 as of September 30,2000.
S-10
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2. Discontinued Operations - Resort Club (continued)
Resort Club Accommodation Inventory Held in Trust (continued)
As of March 1, 2000, the Company negotiated the sale of its 65% interest in
Resort Club. The transaction is effective October 1, 1999 and requires the
Company to use its best efforts but is not obligated to restructure certain
notes payable to GAR, Inc., which aggregate approximately $11,483,000 at
September 30, 1999. The sales price is in the form of a royalty payment based on
3% of future sales revenue. As a result of the sale, a gain of $10,302,712 was
recorded which is broken out as follows:
Net liability as of September 30, 1999 $33,523,317
Less: Contingency reserve for mortgages,
fulfillment and GAR, Inc. restructuring 2,424,218
Subtotal 31,099,099
Less: Write-down to net realizable value,
the Company's notes receivable due from
Resort Club 20,796,387
Net gain $10,302,712
For Federal Income tax purposes, the Company did not include Resort Club, its
former 65% owned subsidiary, in its Federal consolidated income tax return.
Accordingly, the Company did not record an income tax expense in connection with
the gain on sale. Such gain was the result of a reduction of net liabilities of
Resort Club, which the Company has no obligation to pay. These net liabilities
were previously included in the consolidated financial statements of the Company
in accordance with the generally accepted accounting principles.
For the period ended September 30, 2000, Resort Club sold four memberships for
an aggregate selling price of $45,212 for which the Company earned a royalty fee
of $1,356 which the Company fully reserved.
3. Related Party Transactions
Since October 1, 1998, the Company has not been a party to any material
transactions with any officers, directors or holders of more than 5% of the
outstanding common stock of the Company.
4. Note Receivable- Stonehill Recreation Corporation
At September 30, 2000, Stonehill Recreation Corporation ("Stonehill Recreation")
owed the Company $3,128,787 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-11
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
4. Note Receivable- Stonehill Recreation Corporation (continued)
During fiscal 2000, a foreclosure action was commenced against Stonehill
Recreation by Option Holders, Inc. The Company is working with the new owner of
the spa, The Spa at Crystal Springs (the "Spa") in connection with a
restructuring of this loan receivable which may include the conversion of all or
a portion of this receivable into an equity or joint venture investment.
Although the Company believes that the restructuring will be successful, there
can be no assurances that the Company will realize the full carrying value of
this asset. During fiscal 2000, the Company has reserved interest income
relating to this loan receivable (see Note 11).
5. 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 $320,750. Pursuant to the terms
of the Loan Participation Agreement, approximately $912,900 was advanced to
FoodCeuticals as a pro-rata share of the loan proceeds. This amount, along
S-12
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
5. RiceX Note (continued)
with advances for certain legal and professional fees, is carried on the
Company's financial statements as the basis in the FoodCeuticals loan due
December 31, 2000.
6. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at September 30, 2000 consist of the
following:
Accounts Payable $ 56,737
Accrued real estate 46,105
Accrued condo association fees 59,410
Accrued income taxes (Note 7) 921,214
Resort Club reserve (Note 2) 309,257
Accrued interest 13,883
Accrued other 1,834
$ 1,408,440
7. Income Taxes
The tax expense (benefit) for the years ended September 30, 2000 and 1999
consists of the following components:
2000 1999
Current
Federal $ (43,118) $ 145,266
State (22,213) 45,615
(65,331) 190,881
Deferred
Federal -0- -0-
State -0- -0-
-0- -0-
$ (65,331) $ 190,881
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:
S-13
<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
7. Income Taxes (continued)
Federal corporate tax rate of 34% and applicable
AMT applied to pretax loss $ (39,155) $ 150,305
State and local taxes, net of federal benefit (20,418) 26,259
Effect of non-deductible entertainment (5,758) 14,317
Effect of tax vs. book depreciation -0- -0-
Effect of capital loss carry forward -0- -0-
Effect of NOL limitation -0- -0-
Total tax benefit $ (65,331) $ 190,881
Deferred income taxes as reported on the balance sheet consists of:
September 30,
2000 1999
Deferred tax assets $ 5,733,308 $ 5,667,977
Deferred tax liabilities -0- -0-
Valuation allowance (5,733,308) (5,667,977)
$ -0- $ -0-
As of September 30, 2000 the Company had net operating losses (NOL) of
$14,318,867. 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, 2000 and 1999 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.
8. Debt
Secured Debt
At September 30, 2000, the Company is obligated to Berkowitz Wolfman Assoc.,
Inc. in the amount of $3,672,707 including accrued interest 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,
2001.
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
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DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
8. Debt (continued)
Secured Debt (continued)
and payable as follows:
17 consecutive monthly interest payments, beginning June 13, 1997, with
interest calculated on the unpaid principal balance at an interest rate
of 12.5% per annum, 6 consecutive monthly principal payments of
$50,000.00 each, beginning June 13, 1997, with interest calculated on
the unpaid principal balances at an interest rate of 12.25% per annum;
6 consecutive monthly principal payments of $75,000.00 each, beginning
December 13, 1997, with interest calculated on the unpaid principal
balance at an interest rate of 12.25% per annum, 5 consecutive monthly
principal payments of $100,000.00 each, beginning June 12, 1998, with
interest calculated on the unpaid principal balance at an interest rate
of 12.25% per annum; and 1 principal and interest payment of
$757,911.46 on November 13, 1998, with interest calculated on the
unpaid principal balance at an interest rate of 12.25% per annum.
On 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.
The Company has continued to make the $50,000 principal payments subsequent to
March 13, 2000 to Binghamton.
As of September 30, 2000, the principal balance outstanding on this loan was
$695,000.
Secured Debt as of September 30, 2000 is summarized as follows:
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<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
8. Debt (continued)
Secured Debt (continued)
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 $ 80,240
Loan Agreement, 15% interest due October 1, 2001 3,672,707
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 695,000
Total mortgages 4,447,947
Less total current portion 775,240
Total non-current portion $3,672,707
Notes Payable
Note Payable to bank, payable in monthly installments of $832.03 including
interest at 9.25%, final payment due September 2005.
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
2001 $ 775,240 $33,955 $ 809,195
2002 $3,672,707 $ 7,207 $3,679,914
2003 and thereafter $ -0- $25,927 $ 25,927
9. Commitments and Contingencies
The Company's executive offices are at 355 Madison Avenue, Morristown, New
Jersey. The Company is a tenant under a lease, expiring on November 30, 2000
with a total rent of $500 per month. The lease provides for rental adjustments
for changes in the Consumer Price Index. Subsequent to November 30, 2000,the
Company continues to lease the space on a month-to-month basis.
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. 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
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<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
9. Commitments and Contingencies (continued)
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 Internal Revenue Service. To date, the Appeals Division
of the Internal Revenue Service has conceded to approximately $645,000 of the
above disallowances. The Company is continuing the appeal process. The Company
believes that when there is a 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.
10. 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.
On October 5, 1999, the Company entered into an agreement to convert 366,655 of
the Company's redeemable common stock, par value $.01 per share for 1,622,000
shares of the Company's common stock, par value $.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 has not finalized a definitive agreement.
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
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<PAGE>
DOMINION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
10. Common Stock (continued)
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, 2000, no options had
been issued under the plan.
11. Subsequent Events (Unaudited) Not Covered By Independent
Auditor's Report
The Company is negotiating a restructuring of Resort Club's $7.5 million
Unsecured Creditors Note with GAR, Inc. Pursuant to the terms of the agreement,
the Company will issue up to 750,000 shares of its common stock in return for
the cancellation of the $7.5 million Unsecured Creditors Note.
The Company owns, subject to a contract of sale, an approximate 1,560 square
foot building in Selma, Alabama. On November 1, 2000, the Company entered into a
contract to sell the Selma building for $155,000. Pursuant to the terms of the
contract, the Company agreed to take back a mortgage for $130,000 at 9% due in
ten years.
During the fourth quarter of fiscal 2000, a foreclosure action was commenced
against Stonehill Recreation Corporation by Option Holders, Inc. The Company has
negotiated the restructuring of this receivable with the new owner of the Spa,
which includes the assignment proceeds from a real estate tax appeal Stonehill
Recreation Corporation filed against the Township of Vernon. The refund is
estimated to be approximately $500,000 with interest. In addition, the Company
is in the process of finalizing an agreement with the Spa, with respect to
providing amenities to Resort Club members (the "Amenity Agreement"). Pursuant
to the proposed terms, the Spa will provide access to the health club facility
to all members who purchased memberships subsequent to September 30, 2000. The
Spa will charge Resort Club a fee to be determined for each membership. The fee
will be adjusted from time to time in relation to established fees charged to
third parties using the spa facilities. As part of the agreement, the Spa has
agreed to assign the proceeds of the Amenity Agreement to the Company until such
time that the receivable is paid in full. The agreement also proposes that a
credit will be made for all interest accrued through September 30, 2000. The
proposed terms of the agreement also provide for interest at a rate of 7%
subsequent to September 30, 2000.
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