10KSB/A 1 form10-ksba.txt FORM 10-KSB/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A Amendment No. 2 [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] 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. 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. Pursuant to the terms of the transaction, the Company is entitled to receive a 3% royalty payment to be paid out of the net cash flow of Resort Club. No minimum payment of royalty is required under the agreement and the transaction was not conditioned upon the receipt of any payment under the royalty arrangement. When recording this transaction as a sale, the Company took into consideration that the 3% royalty payment is subordinate to the prior payments under the GAR Notes of approximately $11.5 million. The Company concluded, in view of these obligations, that realization of any royalty payment is remote and not a material part of the transaction. 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 2 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. 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. 3 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 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. 4 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.
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. 5 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. 6 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 $14,325 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. 7 As of September 30, 2000, the Company held 39,421 shares of RiceX common stock and a warrant to purchase 1,229,338 shares of RiceX common stock. Based on the market value of the RiceX common stock at September 30, 2000, the Company adjusted the carrying value of these shares and warrants in its financial statements to reflect a valuation allowance of $459,191 which primarily relates to an adjustment to the carrying value in the RiceX warrant of $442,562. This arises because the market value of the RiceX common stock at September 30, 2000 was less than the exercise price of the warrants. 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. Pursuant to the terms of the transaction, the Company is entitled to receive a 3% royalty payment to be paid out of the net cash flow of Resort Club. No minimum payment of royalty is required under the agreement and the transaction was not conditioned upon the receipt of any payment under the royalty arrangement. When recording this transaction as a sale, the Company took into consideration that the 3% royalty payment is subordinate to the prior payments under the GAR Notes of approximately $11.5 million. The Company concluded, in view of these obligations, that realization of any royalty payment is remote and not a material part of the transaction. 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. 8 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. 9 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. 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. 10 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 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. 11 Liquidity and Capital Resources During fiscal 2000, the Company had a loss from operations of approximately $8,015,373. 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 offset by a valuation allowance adjustment to the RiceX investment of $459,191. 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. 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. 12 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. 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:
NAME AGE PRINCIPAL OCCUPATION DIRECTOR SINCE Joseph R. Bellantoni * 38 Treasurer; Chief Financial Officer; Chief 1995 Executive Officer and Director Maureen Kosminsky 35 Vice President and Secretary -- Paul J. Donahue (+)* 67 Director 1995 Thomas Conlin (+) 66 Director 1996
------------ (*) 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 13 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 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. 14 SUMMARY COMPENSATION TABLE
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 -------------------------------------------------------------------------------------------------------------------- Joseph R. Bellantoni, 2000 $75,000 $-0- $-0- $-0- $-0- Chief Executive Officer 1999 $100,000 $-0- $-0- $-0- $-0- 1998 $100,000 $-0- $-0- $-0- $-0-
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 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. 15
Name of Beneficial Owner (1) Number of Shares Beneficially Percentage of Outstanding ------------------------ ------------------------------ ------------------------- Owned(2) Common Stock ----- ------------ 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%
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. 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. 16 (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) Resort Club Inventory Trust dated as of June 15, 1999 among Resort Club, Inc., Comet Management, L.L.C. and Resort Club Fulfillment Corporation 10(j) Amendment dated as of June 15, 1999 to Resort Club Inventory Trust 10(k) Agreement dated as of July 1, 1999 among Diamond Leasing and Management Corp., Dominion Resources, Inc., and Resort Club, Inc. 10(l) Agreement dated as of June 15, 1999 between Resort Club, Inc. and Resort Club Inventory Trust 10(m) Campground and Amenities Trust dated as of June 15, 1999 between Resort Club Inventory Trust and Resort Club, Inc. ------------ (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. 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 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: May 7, 2002 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 May 7, 2002 ------------------------ Officer, Chief Executive Joseph R. Bellantoni Officer and Director /s/ Maureen Kosminsky Vice President and Secretary May 7, 2002 ------------------------ Maureen Kosminsky /s/ Paul J. Donahue Director May 7, 2002 ------------------------ Paul J. Donahue /s/ Thomas Conlin Director May 7, 2002 ------------------------ Thomas Conlin 18 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 (May 14, 2001 as to Notes 3,6 and 11) (May 2, 2002 as to Notes 1 and 2) S-1 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2000 ASSETS Current assets: Cash and cash equivalents $ 26,072 Investment in marketable securities 7,279 Membership Receivables (Note 2) 487,333 Accrued interest and other receivables 586,221 Prepaid expenses and other assets 59,568 Total current assets 1,166,473 Property, equipment, furniture, and fixtures, net of accumulated depreciation and amortization (Note 1) 147,226 Other assets: Membership Receivables (Note 2) 1,833,299 Mortgage receivables 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) 24,612 Real estate and real estate related activities (Note 2) 875,326 Total other assets 6,830,856 Total assets $8,144,555 See accompanying notes S-2 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (CONTINUED) SEPTEMBER 30, 2000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: 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 (4,276,941) Accumulated other comprehensive loss (34,836) Less: 1,350,646 shares held in treasury (1,400,913) Total stockholders' equity 183,100 Total liabilities and stockholders' equity $ 8,144,555 See accompanying notes S-3 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
2000 1999 ---- ---- Revenues 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 Unrealized loss on valuation of RiceX investment (459,191) -0- Stonehill Recreation reserve (532,922) -0- Total other income (expenses) (925,650) 1,198,045 Income from continuing operations before income taxes (2,287,339) 362,374 Income taxes (Note 7) -0- -0- Net (loss) income from continuing operations (2,287,339) 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 $ 8,015,373 $ 2,968,582 Net income (loss) per common share - continuing operations $ (0.30) $ 0.05 Net income per common share - discontinued operations $ 1.35 $ 0.37 Net income per common share $ 1.05 $ 0.42 Weighted average number of share used in computing net income (loss) per share 7,630,576 6,993,164
See accompanying note S-4 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2000 and 1999
Capital Other Common Par in Excess Accum Comprehensive Treasury Stock Value of Par Deficit Loss Stock Total ------ ----- --------- ------- ------------- -------- ----- Balance - September 30, 1998 5,058,354 $ 50,584 $ 5,270,206 $ (15,260,896) $ 0 $ (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) $ 0 (1,400,913) (7,797,437) Net Income 8,015,373 8,015,373 Other Comprehensive Loss (34,836) (34,836) Balance - September 30, 2000 7,630,576 $ 76,306 $ 5,819,484 $ (4,276,941) (34,836) $ (1,400,913) $ 183,100
See accompanying notes S-5 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED SEPTEMBER 30, 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 8,015,373 $ 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- Unrealized loss on valuation of RiceX investment 459,191 -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 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, 2000 1999 ---- ---- Common Stock (Note 10) -0- (3,500) Additional paid-in capital (Note 10) -0- (171,500) Investment in RiceX (Note 5) -0- 813,396 Financing fee income (Note 5) -0- (531,714) Deferred interest income (Note 5) -0- (281,682) Deferred financing costs (Note 10) -0- 175,000 Gain on sale of Resort Club(Note 2) (10,302,712) -0- Membership receivables (Note 2) (1,456,917) -0- Accrued Interest and other receivables (Note 2) (1,065,472) -0- Prepaid expenses and other assets (Note 2) (235,566) -0- Accounts Payable and accrued expenses (Note 2) (673,311) -0- Fixed assets (Note 2) (91,412) -0- Debt (Note 2) 13,825,390 -0- Total Non-Cash Operating, Investing and Financing Activities $ -0- $ -0- See accompanying notes S-7 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 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 Investment securities, which consist principally of common stock, are accounted for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard requires that debt and equity securities be classified as either trading, available-for-sale or held-to-maturity. As of September 30, 2000 all of the Company's securities were available for sale. Securities classified as available for sale are recorded at fair value. Unrealized gains and losses, net of the related tax effects, on available for sale securities are excluded from earnings and are reported in stockholders' equity as a component of accumulated other comprehensive earnings (loss) until realized. The cost of securities sold is based on the specific identification method. Unrealized losses that are other than temporary are recognized in earnings. A loss is recognized to the extent by which the fair market value of the investment security has declined below its carrying value and the value is other than a temporary impairment. Comprehensive Income (Loss) SFAS No. 130 "Reporting Comprehensive Income," requires unrealized gains and losses on the Company's available for sale securities to be included in Other Comprehensive Income. The Company has recorded unrealized losses on securities as Other Comprehensive Loss in the amount of $34,836 for the year ended September 30, 2000. 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, 2000 AND 1999 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: 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. S-10 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 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 fee simple title and leasehold interests 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. Under the trust agreement, the Company has the right to rent unused inventory and collect the rental income. However, the Company has not collected such income. Such income is used to cover the deficiency in meeting the annual maintenance and operating expenses of the properties. It is unlikely, because of the magnitude of the deficiency, that any such rental collections will ever be collected by the Company. Under the trust agreement, the Company has the right to replace the Trustee of the Trust on thirty days notice. 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. 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. Pursuant to the terms of the transaction, the Company is entitled to receive a 3% royalty payment to be paid out of the net cash flow of Resort Club. No minimum payment of royalty is required under the agreement and the transaction was not conditioned upon the receipt of any payment under the royalty arrangement. When recording this transaction as a sale, the Company took into consideration that the 3% royalty payment is subordinate to the prior payments under the GAR Notes of approximately $11.5 million. The Company concluded, in view of these obligations, that realization of any royalty payment is remote and not a material part of the transaction. 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 S-11 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) For Federal Income tax purposes, the Company did 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. 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). S-12 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999 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 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. As of September 30, 2000, the Company held 39,421 shares of RiceX common stock and a warrant to purchase 1,229,338 shares of RiceX common stock. Based on the market value of the RiceX common stock at September 30, 2000, the Company adjusted the carrying value of these shares and warrants in its financial statements to reflect a valuation allowance of $459,191 which primarily relates to an adjustment to the carrying value in the RiceX warrant of $442,562. This arises because the market value of the RiceX common stock at September 30, 2000 was less than the exercise price of the warrants. S-13 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999 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 taxes 46,105 Accrued condo association fees 59,410 Accrued income taxes 921,214 Resort Club reserve (Note 2) 309,257 Accrued interest 13,883 Accrued other 1,834 $1,408,440 The accrued income taxes of $921,214 represent unpaid taxes including interest and penalties due the state of Alabama, which remain unpaid. 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: 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 S-14 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999 7. Income Taxes(continued) 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 S-15 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: S-16 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 S-17 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 S-18 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. In December, 2000, the Company entered into an agreement with Berkowitz Wolfman Assoc., Inc. effective September 30, 2000 which extended the due date of the loan and accrued interest as of September 30, 2000, to December 1, 2001. As a result, the Company recorded this debt as long term as of September 30, 2000. S-19