10QSB/A 1 form10qsba.txt FORM 10-QSB/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB/A Amendment No. 1 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 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 registrant as specified in its charter) Delaware 22-2306487 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 355 Madison Avenue, Morristown, NJ 07960 (Address of principal executive offices) (Zip Code) (973) 538-4177 (Registrant's telephone number, including area code) NONE (Former name, former address, and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) or 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date. Class Outstanding at April 1, 2001 Common Stock, $0.01 par value 7,630,576 DOMINION RESOURCES, INC. AND SUBSIDIARIES FORM 10-QSB/A QUARTER ENDED March 31, 2001 FINANCIAL INFORMATION PART I Item 1. Financial Statements The attached unaudited financial statements of Dominion Resources, Inc. and its wholly owned subsidiaries (the "Company") reflect all adjustments which are, in the opinion of management, necessary to present a fair statement of the operating results for the interim period presented. Condensed consolidated balance sheets 1-2 Condensed consolidated statements of operations 3-4 Condensed consolidated statements of cash flows 5-6 Notes to condensed consolidated financial statements 7-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K DOMINION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS March 31, September 30, 2001 2000 (Unaudited) (See note below) Current assets: Cash and cash equivalents $ 31,287 $ 26,072 Membership receivables, net of allowance for doubtful accounts of $0 at March 31, 2001 and at September 30, 2000 0 487,333 Prepaid expenses and other assets 12,266 59,568 Investment in marketable securities 7,238 7,279 Accrued interest and other receivables 606,993 586,221 Total current assets 657,784 1,166,473 Property, equipment, furniture and fixtures, net of accumulated depreciation and amortization of $95,287 at March 31, 2001 and $91,458 at September 30, 2000 143,896 147,226 Other assets: Membership receivables, net of allowance for doubtful accounts of $0 at March 31, 2001 and September 30, 2000 0 1,833,299 Mortgage receivables 14,784 20,177 Note receivable - Stonehill Recreation 2,200,000 3,128,787 Note receivable - RiceX, Inc. 0 948,655 Investment in RiceX, Inc. 41,827 24,612 Joint Venture - Condominiums at Stonehill 495,941 0 Real estate and real estate related activities 137,328 875,326 Total other assets 2,889,880 6,830,856 Total assets $3,691,560 $8,144,555 Note: The balance sheet at September 30, 2000, has been taken from the audited financial statements at that date and condensed. See accompanying notes. 1 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) March 31, September 30, 2001 2000 (Unaudited) (See note below) Current Liabilities: Secured debt, current portion $ 523,150 $ 775,240 Notes payable, current portion 14,576 33,955 Accounts payable and accrued liabilities 1,447,137 1,408,440 Deferred revenue 0 35,210 Total current liabilities 1,984,863 2,252,845 Long-term liabilities: Secured debt, net of current maturities 1,833,922 3,672,707 Resort Club Reserve 0 927,769 Notes Payable 29,947 33,134 Total long-term liabilities 1,863,869 4,633,610 Commitments and Contingencies (Note 5): Redeemable common stock; par value $0.01 per share 358,333 shares outstanding at March 31, 2001 and September 30, 2000; redeemable at $3.00 per share in July 1998 through July 2000 1,075,000 1,075,000 Stockholders' equity (deficit): Common stock, $0.01 par value; Authorized - 25,000,000 Shares; issued and outstanding - 7,630,576 shares at March 31, 2001 and September 30, 2000, respectively 76,306 76,306 Additional paid-in-capital 5,819,484 5,819,484 Accumulated deficit (5,692,213) (4,276,941) Accumulated Other Comprehensive loss (34,836) (34,836) Less: 1,350,646 shares held in treasury at March 31, 2001 and September 30, 2000 (1,400,913) (1,400,913) Total stockholders' equity (deficit) (1,232,172) 183,100 Total liabilities and stockholders' equity (deficit) $ 3,691,560 $ 8,144,555 Note: The balance sheet at September 30, 2000, has been taken from the audited financial statements at that date and condensed. See accompanying notes. 2 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) 2001 2000 Revenues: Other revenue $ 1,499 $ 2,704 Total revenues 1,499 2,704 Expenses: Other operations 39,564 45,905 General and administrative expenses 681,179 756,725 Depreciation and amortization 3,829 5,133 Total expenses 724,572 807,763 Loss from operations (723,073) (805,059) Other income (expenses): Interest income 58,709 318,763 Interest expense (259,982) (333,110) Other income - RiceX 17,215 0 Amortization of deferred financing costs (48,280) (58,517) Gain on sale of marketable securities 0 102,125 Bad Debt Expense(Note 7) (459,861) 0 Total other income (expenses) (692,199) 29,261 Loss from continuing operations before provision for income taxes (1,415,272) (775,798) Provision for income taxes 0 0 Loss from continuing operations (1,415,272) (775,798) Discontinued Operations: Gain on sale of Resort Club (less applicable income taxes of $0 at March 31, 2000) 0 10,302,712 Income from discontinued operations 0 10,302,712 Net income (loss) (1,415,272) 9,526,914 Loss per common share - continuing operations $ (0.19) $ (0.10) Income per common share - discontinued operations $ 0.00 $ 1.35 Net income (loss) per common share $ (0.19) $ 1.25 Weighted average number of share used in computing net income (loss) per share 7,630,576 7,630,576 See accompanying notes. 3 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) 2001 2000 Revenues: Other revenue $ 899 $ 519 Total revenues 899 519 Expenses: Other operations 20,009 16,813 General and administrative expenses 497,251 642,204 Depreciation and amortization 1,915 2,567 Total expenses 519,175 661,584 Loss from operations (518,276) (661,065) Other income (expenses): Interest income 19,680 76,229 Interest expense (101,165) (194,677) Other income - RiceX 17,215 0 Amortization of deferred financing costs (19,021) (29,258) Gain on sale of marketable securities 0 102,125 Bad Debt Expense(Note 7) (459,861) 0 Total other income (expenses) (543,152) (45,581) Loss from continuing operations before provision for income taxes (1,061,428) (706,646) Provision for income taxes 0 0 Loss from continuing operations (1,061,428) (706,646) Discontinued Operations: Loss on sale of Resort Club (less applicable income taxes of $0 at March 31, 2000) 0 (813,032) Loss from discontinued operations 0 (813,032) Net loss (1,061,428) (1,519,678) Loss per common share - continuing operations $ (0.14) $ (0.09) Loss per common share - discontinued operations $ 0.00 $ (0.11) Net loss per common share $ (0.14) $ (0.20) Weighted average number of share used in computing net loss per share 7,630,576 7,630,576 See accompanying notes. 4 DOMINION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) 2001 2000 Cash flows from operating activities: Net Income (loss) $ (1,415,272) $ 9,526,914 Adjustments to reconcile net income (loss) to net cash Provided by (used in) operating activities: Depreciation and amortization 3,829 5,133 Amortization of interest income 0 (60,017) Amortization of deferred financing costs 48,280 58,517 Gain on sale of Resort Club 0 (10,302,712) Bad Debt Expense 459,861 0 Changes in assets and liabilities: Membership receivables 618,643 368,852 Accrued interest receivable and other receivables (20,772) 259,925 Prepaid expenses and other assets (978) (1,334) Accounts payable and accrued expenses (66,165) 275,902 Deferred revenue (35,210) (70,420) Net cash provided by (used in) operating activities (407,784) 60,760 Cash flows from investing activities: Sale of (investment in) real estate and real estate related activities (24,882) (2,003) Sale of (investment in) mutual fund and other marketable securities 41 (99,908) RiceX proceeds 0 1,750,000 RiceX - loan participation 948,655 (943,655) Ricex- Investment (17,215) 108,793 Stonehill Recreation 468,926 0 Capital expenditures (499) 0 Net cash provided by investing activities 1,375,026 813,227 Cash flows from financing activities: Repayment of borrowings (962,027) (835,744) Redemption of Common Stock 0 (75,000) Net cash used in financing activities (962,027) (910,744) Increase (Decrease) in cash and cash equivalents 5,215 (36,757) Cash and cash equivalents balance, beginning of period 26,072 82,110 Cash and cash equivalents balance, end of period $ 31,287 $ 45,353 See accompanying notes. 5 DOMINION RESOURCES, INC. AND SUBSIDIARIES SUPPLEMENTARY SCHEDULE OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) 2001 2000 Total Non-Cash Operating, Investing and Financing Activities Membership Receivables (Note 8) $(1,701,989) $ 0 Real estate related activities (Note 8) (272,332) 0 Accounts Payable (Note 8) 822,907 0 Debt (Note 8) 1,151,414 0 $ 0 $ 0 See accompanying notes. 6 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) NOTE 1 - BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position as of March 31, 2001 and September 30, 2000, the results of operations for the six months ended March 31, 2001 and 2000, and cash flows for the six months ended March 31, 2001 and 2000. Operating results for the six months ended March 31, 2001, are not necessarily indicative of the results which may be expected for the year ending September 30, 2001. These statements should be read in conjunction with Form 10-KSB/A for fiscal 2000 which is on file with the Securities and Exchange Commission. On March 1, 2000, the Company negotiated the sale of its 65% interest in Resort Club, Inc. ("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 of 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. The Company recorded a net gain of approximately $10.3 million on the transaction which included a write-down to net realizable value of the Company's notes receivable in Resort Club of approximately $20.8 million (See Note 3). NOTE 2 - RECLASSIFICATION: Certain fiscal 2000 items have been reclassified to conform with the fiscal 2001 presentation. NOTE 3 - DISCONTINUED OPERATIONS (continued): In September, 1999, the Board of Directors adopted a plan to dispose of Resort Club through sale or liquidation. In connection with the Company's disposal plan, Resort Club ceased operations as of September, 1999. 7 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) NOTE 3 - DISCONTINUED OPERATIONS (continued): On 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 March 31, 2001. 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 liabilities 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 generally accepted accounting principles. NOTE 4 - RELATED PARTY TRANSACTIONS: Since April 1, 1999, 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. NOTE 5 - COMMITMENTS AND CONTINGENCIES: 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 8 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued): 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 disallowance. The Company conceded to the $830,000 compensation deduction referred to above. 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, which could be utilized to offset any unresolved tax adjustments related to this examination. NOTE 6 - FOODCEUTICALS PARTICIPATION: 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, LLC ("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 OTB Bulletin Board under the symbol "RicX". The Company and FoodCueticals' collateral includes certain tangible and intangible assets of RiceX including RiceX's extrusion machines located at two rice mills in California, contract rights, and all of RiceX's intellectual property. These assets represent substantially all of the assets in RiceX . In conjunction with its loan to RiceX, FoodCeuticals received an aggregate of 940,679 shares of RiceX's common stock and a warrant to purchase an aggregate of 3,743,540 shares of RiceX's common stock at an exercise price of $0.75 per share. Collectively, the Company's and FoodCeuticals secured loans of $2 million and $1.85 million, respectively, are hereinafter referred to as the Participation Loan. Pursuant to the Loan Participation Agreement, the Company and FoodCeuticals share pro rata as to the Participation Loan, warrants, shares and collateral due, payable or granted under the December 1998 Loan Agreement to the extent that their participation amount bears to the total Participation Loan. As a result, the Company received 409,421 shares of RiceX common stock and a warrant to purchase 1,429,338 shares of RiceX common stock. In November 1999, RiceX repaid the borrowing incurred in 1996 in the amount of $1.75 million, plus accrued interest of approximately $320,753. Pursuant to the terms of the Loan Participation Agreement, approximately $912,900 was advanced to FoodCeuticals as a 9 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) NOTE 6 - FOODCEUTICALS PARTICIPATION (continued): pro-rata share of the loan proceeds. This amount, along with advances for certain legal and professional fees, has been carried on the Company's Financial Statements as the basis in the FoodCeuticals loan, which was repaid on 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. During the second quarter of fiscal 2001 the Company completed a transaction for the purchase of 48,866 shares and a warrant to purchase 194,470 shares of RiceX Common Stock from FoodCeuticals, LLC. Note 7 - Note Receivable - Stonehill Recreation: During the second quarter of fiscal 2001, the Company finalized a formal restructuring of the Stonehill Recreation note receivable. Pursuant to the restructuring, Stonehill Recreation and The Spa at Crystal Springs had assigned their rights to a real estate tax refund due from the Township of Vernon as a result of a real estate tax appeal. In February 2001, the Company received an aggregate of $468,926 from Stonehill and the Spa at Crystal Springs. In addition to the above, The Spa at Crystal Springs also agreed to indemnify to the Company against any loss on the remaining principal amount of the Stonehill Recreation note receivable in the amount of $2,659,861. Because the indemnity of $2,659,861 does not cover interest, the Company recorded the transaction with a discount of $459,861 in order to yield an effective interest rate of 9.5%, with a balloon payment on March 31, 2003. Accordingly, the carrying value of the Stonehill Recreation note receivable is $2,200,000 as of March 31, 2001. Note 8 - Debt: During the second quarter of fiscal 2001, the Company entered into an agreement with Berkowitz Wolfman whereby in consideration for assigning all the Company's right, title and interest to the Resort Club Trust inventory and Resort Club Membership Receivables, the due date of Berkowitz Wolfman note payable was extended to December 1, 2002 and the interest rate was decreased from 15% to 10%. In addition, the principal amount of the Berkowitz Wolfman note payable was decreased by $1,151,414 resulting from the assignment of the Trust Inventory valued at $272,332 and net Membership Receivables in the amount of $879,082. 10 DOMINION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED MARCH 31, 2001 AND 2000 (Unaudited) Note 9 - Joint Venture - Condominiums at Stonehill: As of March 31, 2001, the Company has invested $495,941 in a joint venture with The Spa at Crystal Springs, Inc. The Company's investment is in the form of the conveyance of 27 condominium lots to the joint venture carried on the Company's balance sheet as of March 31, 2001 at $495,941. The carrying value of the Company's investment at March 31, 2001 was based on cost. The Spa has agreed to contribute to the venture in cash an amount equal to the fair market value of the Company's contribution of the lots, or $495,941. The joint venture, known as Condominiums at Stonehill is to be utilized as a vehicle to rent condominiums, when constructed, on a daily fee basis to third party individuals visiting the Mountain Creek resort area and the Crystal Springs Golf and Spa Resort located in Sussex County, New Jersey. Both the Company and the Spa at Crystal Springs, Inc. each have a 50% interest in the joint venture. The Company's investment will be accounted for under the equity method. Under APB No. 18, the Company is required to recognize its share of income and loss from the Joint Venture by the application of the equity method. NOTE 10 - SUBSEQUENT EVENTS: The Company is in dispute with Debra Tierney ("Tierney"), the Company's former President with respect to the purchase price paid by the Company to Tierney and her family for their shares of the Company's Common Stock. On or about February 16, 1996, Tierney and the Company confirmed that, the Company would repurchase all of the Company's shares of Common Stock owned by the Tierneys. Pursuant to the terms of the agreement, the Company purchased 943,411 shares of the Company's Common Stock from the Tierneys at a purchase price equal to $500,000 in cash and 182,500 shares of PriCellular Common Stock. During the third quarter of fiscal 2001, the company negotiated a tentative agreement with Tierney. Pursuant to the terms of the tentative agreement, the Company will be obligated to make a cash payment in the amount of $183,094, assign a mortgage receivable in the principal amount of $100,000, and conveyance of title to five condominiums. Accordingly, the Company accrued a $350,000 reserve in connection with this transaction. 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. In the third quarter of fiscal 2001, the Company and the holder of the Company's redeemable common stock have agreed to enter into a definitive agreement effective May 15, 2001. As part of the definitive agreement, the Company will issue 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 June 1, 2001 through November 30, 2001. 11 DOMINION RESOURCES, INC. AND SUBSIDIARIES ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the accompanying unaudited financial statements and the notes thereto included in Item I of this quarterly report, and the financial statements and the notes thereto and management's discussion and analysis of financial condition and results of operations contained in the Company's Annual Report on Form 10-KSB for the year ended September 30, 2000. A. Liquidity and Capital Resources During the first six months of fiscal 2001, the Company had a net loss of approximately $1,415,000. Included in the net loss is depreciation of $3,829, amortization of deferred financing costs of $48,280, and a write off of the Stonehill Recreation Note Receivable of $459,861 all of which are non-cash expenses. Also during the first six months of the fiscal 2001, changes in assets and liabilities included a decrease in cash resulting from changes in prepaid expenses and other assets of $978, deferred revenue of $35,210, accounts payable and accrued liabilities of $66,165 and accrued interest and other receivables of $20,772 offset by an increase in cash resulting from changes in membership receivables of $618,643. After reflecting the net changes in assets and liabilities, net cash used in operations was approximately $408,000. During the first six months of the fiscal 2001, investing activities provided net cash of approximately $1,375,000 and includes primarily the proceeds of the FoodCeuticals loan of $948,655 and proceeds from the Stonehill Recreation Note of $468,926. During the first six months of the fiscal 2001, financing activities used net cash of $962,027 which resulted from the repayment of borrowings. Accordingly, during the first six months of fiscal 2001, the Company's cash increased by approximately $5,200. 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. As of the end of the fiscal year ended September 30, 2000, these operations are treated as discontinued. 12 DOMINION RESOURCES, INC. AND SUBSIDIARIES ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A. Liquidity and Capital Resources (continued) Future Business Plans (continued) 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 venture or in some other form. In addition, the Company is also researching several Internet opportunities. Despite the foregoing, management reserves the right to apply the Company's resources in other businesses as opportunities present themselves. B. Results of Operations Continuing Operations: Six months ended March 31, 2001 compared with six months ended March 31, 2000. Other revenue was $1,499 in the first six months of fiscal 2001 compared with $2,704 in the first six months of fiscal 2000 for an decrease of $1,205. The decrease in revenues was primarily the result of decreased rental income from the company's condominiums in Fort Lee, New Jersey. Other operations expenses were $39,564 in the first six months of 2001 compared with $45,905 in the first six months of fiscal 2000, for a decrease of $6,341 or 13.81%. The decrease was primarily the result of additional charges incurred in fiscal 2000 related to moving the Company's brewery equipment located in Vernon, New Jersey to storage. General and administrative expenses were $681,179 in the first six months of fiscal 2001 compared with $756,725 in the first six months of fiscal 2000, or by $75,546 or 9.98% primarily as a result of lower legal and professional fees. Included in fiscal 2001 is an accrual of $350,000 reserve relating to the Tierney settlement. Included in fiscal 2000 is an accrual relating to an additional assessment from the State of Alabama in the amount of $346,000. Depreciation and amortization was $3,829 in the first six months of fiscal 2001 compared to $5,133 in the first six months of fiscal 2000, resulting in a decrease of $1,304. This decrease is the result of certain assets becoming fully depreciated. Interest income was $58,709 in the first six months of fiscal 2001, compared with $318,763 in the first six months of fiscal 2000. The decrease of $260,054 was primarily the result of a reserve of interest income relating to the Stonehill Recreation loan receivable. Interest expense was $259,982 in the first six months of fiscal 2001, compared with $333,110 in the first six months of fiscal 2000. The decrease of $73,128 was the result of a decrease in debt for the comparable periods. Other income - RiceX was $17,215 in the first six months of fiscal 2001. The increase of $17,215 was the result of a transaction relating to the purchase of 48,866 shares of RiceX Common Stock and a warrant to purchase 194,470 shares of RiceX Common Stock. 13 DOMINION RESOURCES, INC. AND SUBSIDIARIES ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS B. Results of Operations (continued) Continuing Operations (continued): Amortization of deferred financing costs consist primarily of deferred financing costs associated with the Company's borrowings from Binghamton Savings Bank and Public Loan Corp. These costs were $48,280 and $58,517 in the first six months of fiscal 2001 and 2000, respectively. Gain on sale of marketable securities was $102,125 during the first six months of fiscal 2000. The Company recorded no gain or loss from the sale of marketable securities during the first six months of fiscal 2001. During the first six months of fiscal 2001 the Company recorded a write off of $459,861 in connection with the restructuring of its Note Receivable due from Stonehill Recreation. Discontinued Operations: On 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 which aggregate approximately $11,483,000 at March 31, 2001. 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 liabilities 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 liabilities were previously included in the consolidated financial statements of the Company in accordance with generally accepted accounting principles. 14 DOMINION RESOURCES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Part II Item 6. Exhibits and Reports on Form 8-K During the quarter ended March 31, 2001: None. 15 DOMINION RESOURCES, INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Commission 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 Joseph R. Bellantoni President, Chief Executive Officer and Chief Financial Officer 16