SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
---------------------------------------------
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: 1-8356
DVL, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-2892858
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
24 River Road, Bogota, New Jersey 07603
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 487-1300
--------------
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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) 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at August 13, 1997
- ----------------------------- ------------------------------
Common Stock, $.01 par value 15,679,450
DVL, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.'s
----------
Consolidated Balance Sheets -
June 30, 1997 (unaudited) and December 31, 1996 1-2
Consolidated Statements of Operations -
Three Months Ended June 30, 1997 (unaudited)
and 1996 (unaudited) 3
Six Months Ended June 30, 1997 (unaudited)
and 1996 (unaudited) 4
Consolidated Statement of Shareholders' Equity
for the period ended June 30, 1997 (unaudited) 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1997 (unaudited)
and 1996 (unaudited) 6-7
Notes to Consolidated Financial Statements 8-10
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-15
Part II. Other Information:
Item 1 - Legal Proceedings 16
Item 4 - Submission of Matters to a Vote 16
of Security Holders
Item 6 - Exhibits and Reports on Form 8-K 16-17
Part I - Financial Information
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
------
June 30, December 31,
1997 1996
--------- ------------
(unaudited)
Loans receivable, including amounts maturing
after one year - principally pledged
Affiliates:
Wrap around and other mortgages due from
affiliated partnerships (net of underlying
liens of $47,338 and $49,749, respectively) $ 36,937 $ 42,163
Unearned interest (10,552) (12,325)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $3,862 and $5,104 of
non-performing loans, respectively) 26,385 29,838
Others:
Non-performing loans collateralized by limited
partnership interests due from limited partners 2,773 3,066
-------- --------
Total loans receivable 29,158 32,904
Allowance for loan losses (11,554) (12,854)
-------- --------
Net loans receivable 17,604 20,050
Cash (including restricted cash of $77 for 1997
and 1996) 364 355
Due from affiliated partnerships (net of an allowance
for loss of $1,727 for 1997 and 1996) 137 114
Investments
Real estate at cost - pledged (net of an allowance
for loss of $208 for 1997 and 1996) 289 289
Real estate lease interests 1,663 1,965
Affiliated limited partnerships (net of an allowance
for loss of $1,523 and $1,342, respectively) 968 2,221
Other investments (net of an allowance for loss
of $400 for 1997 and 1996) 667 667
Other assets 991 973
-------- --------
Total assets $ 22,683 $ 26,634
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
Liabilities:
Long-term debt - NPM Capital LLC $ 6,181 $ 7,502
Long-term debt - Other 3,745 6,203
Notes payable - litigation settlement 7,196 6,635
Convertible subordinated debentures 5 334
Accrued liability for indebtedness of Kenbee
Management, Inc. and affiliates - 115
Accounts payable and accrued liabilities 1,883 1,942
-------- --------
Total liabilities 19,010 22,731
-------- --------
Deferred credits 321 321
-------- --------
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock $10.00 par value, authorized -
100 shares, issued 100 shares 1 1
Common stock, $.01 par value, authorized -
40,000,000 shares, issued and to be issued -
15,679,450 and 15,479,450, respectively 157 155
Additional paid-in capital 95,174 95,146
Deficit (91,980) (91,720)
-------- --------
Total shareholders' equity 3,352 3,582
-------- --------
Total liabilities and shareholders'
equity $ 22,683 $ 26,634
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
(unaudited)
Three Months Ended
June 30,
-----------------------
1997 1996
---------- ----------
Income from affiliates
Interest on mortgage loans $ 305 $ 265
Partnership management fees 110 104
Transaction and other fees from partnerships 242 75
Rent income 32 9
Other income - 24
Income from others
Interest on mortgage loans - 25
Interest on loans to limited partners
collateralized by limited partnership interests - 10
Other interest 2 5
Other income - 30
---------- ----------
691 547
---------- ----------
Operating expenses
General and administrative 366 607
Asset servicing fee - NPO Management LLC 150 -
Legal and professional fees 62 97
Interest expense
NPM Capital LLC 233 -
Others 427 608
---------- ----------
1,238 1,312
---------- ----------
(Loss) before extraordinary gain (547) (765)
Extraordinary gain on the settlement of
indebtedness 651 809
---------- ----------
Net income $ 104 $ 44
========== ==========
Earnings (loss) per share:
(Loss) before extraordinary gain $ (.03) $ (.05)
Extraordinary gain on the settlement of
indebtedness .04 .06
---------- ----------
Net income $ .01 $ . 01
========== ==========
Weighted average shares outstanding 15,679,450 14,279,287
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
(unaudited)
Six Months Ended
June 30,
-----------------------
1997 1996
---------- ----------
Income from affiliates
Interest on mortgage loans $ 595 $ 542
Partnership management fees 212 217
Transaction and other fees from partnerships 266 169
Rent income 41 18
Other income - 26
Income from others
Interest on mortgage loans - 56
Interest on loans to limited partners
collateralized by limited partnership interests - 14
Other interest 4 8
Other income 36 40
---------- ----------
1,154 1,090
---------- ----------
Operating expenses
Provision for losses - 56
General and administrative 744 1,044
Asset servicing fee - NPO Management LLC 300 -
Legal and professional fees 112 136
Interest expense
NPM Capital LLC 475 -
Others 887 1,317
---------- ----------
2,518 2,553
---------- ----------
(Loss) before extraordinary gain (1,364) (1,463)
Extraordinary gain on the settlement of
indebtedness 1,104 1,855
---------- ----------
Net (loss) income $ (260) $ 392
========== ==========
Earnings (loss) per share:
(Loss) before extraordinary gain $ (.09) $ (.10)
Extraordinary gain on the settlement of
indebtedness .07 .13
---------- ----------
Net (loss) income $ (.02) $ . 03
========== ==========
Weighted average shares outstanding 15,679,450 14,022,137
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
4
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands except share data)
(unaudited)
Preferred Stock Common Stock Additional
--------------- -------------------- paid-in
Shares Amount Shares Amount capital Deficit Total
-------- ------ ----------- -------- ---------- --------- --------
Balance-January 1, 1997 100 $ 1 15,479,450 $ 155 $ 95,146 $(91,720) $ 3,582
Issuance of common stock in satisfaction
of certain claims 50,000 1 7 8
Issuance of common stock in connection
with the Loan from NPM Capital LLC 150,000 1 21 22
Net loss (260) (260)
-------- ------ ---------- ------- -------- -------- -------
Balance-June 30, 1997 100 $ 1 15,679,450 $ 157 $ 95,174 $(91,980) $ 3,352
======== ====== ========== ======= ======== ======== =======
<FN>
See notes to consolidated financial statements.
</FN>
5
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
---------------------
1997 1996
-------- --------
Cash flows from operating activities
Net (loss) before extraordinary gain $ (1,364) $ (1,463)
Adjustments to reconcile net (loss) to
net cash (used in) operating activities
Provision for losses - 55
Accrued interest added to indebtedness 185 198
Amortization of unearned interest on
loan receivable (100) (29)
Amortization of deferred charges 114 227
Imputed interest on notes and debentures 561 481
Amortization of debt discount 98 -
Net (increase) in other assets (132) (123)
Net (increase) in due from affiliated
partnerships (23) -
Net (decrease) in accounts payable
and accrued liabilities (7) (68)
-------- --------
Net cash (used in) operating activities (668) (722)
-------- --------
Cash flows from investing activities
Collections on loans receivable (net of
payments on underlying loans) 2,546 8,350
Net reductions in real estate lease
interests 302 160
Distributions received on affiliated
limited partnership interests and
other investments 1,253 186
-------- --------
Net cash provided by investing
activities $ 4,101 $ 8,696
-------- --------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
(continued)
Six Months Ended
June 30,
--------------------
1997 1996
-------- --------
Cash flows from financing activities
Proceeds from new borrowings $ 2,537 $ -
Repayment of indebtedness (5,517) (7,897)
Payments on subordinated debentures (329) -
Payments on guaranteed indebtedness (115) (66)
-------- --------
Net cash (used in) financing activities (3,424) (7,963)
-------- --------
Net increase in cash 9 11
Cash - beginning of year 355 1,042
-------- --------
Cash - end of period $ 364 $ 1,053
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest,
excluding amounts paid on underlying loans $ 370 $ 529
======== ========
Supplemental disclosure of non-cash
investing and financing activities:
Investments in affiliated partnerships
transferred to settle litigation claims $ - $ 108
======== ========
Net reduction in indebtedness pursuant
to creditor settlements $ 1,104 $ 1,855
======== ========
Reduction in accrued liabilities upon
issuance of common stock $ 22 $ 160
======== ========
Common stock issued in connection with
a creditor settlement $ 8 $ -
======== ========
Increase in other assets upon issuance
of common stock $ - $ 46
======== ========
Prepaid extension fee added to
indebtedness $ - $ 100
======== ========
Reduction in loans due from limited partners
upon receipt of investments in affiliated
partnerships $ - $ 6
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
7
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Financial Condition
(A) In the opinion of DVL, Inc. ("DVL"), the accompanying financial
statements contain all adjustments (consisting of only normal accruals)
necessary for a fair presentation of the financial position and the results
of operations for the periods presented. The results of operations for the
six months ended June 30, 1997 should not be regarded as necessarily
indicative of the results that may be expected for the full year.
(B) DVL continues to experience liquidity problems primarily as a result of
the limited cash flow generated by its restructured mortgage portfolio, as the
mortgage debt service is used to pay senior liens before cash flow on such
mortgages is available to DVL. DVL's cash flow provided by current operations
is insufficient to meet its cash requirements, and DVL continues to liquidate
and/or refinance its assets in order to meet its operating cash flow
deficiency. There can be no assurance that the cash flow generated by DVL's
potential asset liquidations or refinancings will be sufficient to meet any
future operating cash flow deficiencies or future mandatory debt repayments.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and mandatory debt payments, (2) the realization of the
estimated value of its loan portfolio over an extended period of time rather
than the value of the assets on a liquidation basis, (3) the return to
profitable operations and (4) availability of additional borrowings. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
2. Loans Receivable/Long Term Debt
(A) In January 1997, DVL, refinanced four underlying mortgages and generated
$821,000 in proceeds in excess of the existing underlying mortgage loans. The
excess proceeds were used to repay the NPM Loan, as required by the NPM loan
agreement.
(B) In February 1997, DVL repaid a creditor $1,474,000 in full satisfaction
of a loan which had a principal amount due of $1,901,000. This repayment
resulted in an extraordinary gain of approximately $406,000 in the first
quarter of 1997. The payment was made by refinancing that creditor's
collateral with a new unaffiliated lender in the principal sum of $2,000,000.
The new loan requires monthly payments of principal and interest equal to cash
flow, as defined, from the loan's collateral. Interest on the outstanding
balance of the loan shall accrue at 12% per annum. The principal amount of
the loan, and all accrued interest, is due February 27, 2000. The loan may
be prepaid prior to maturity, with certain prepayment penalties. From this
loan refinancing, DVL remitted approximately $406,000 to NPM to repay the NPM
Loan, as required by the NPM loan agreement.
8
(C) In February 1997, DVL settled a creditor claim, which resulted in an
extraordinary gain of $47,000, in the quarter ended March 31, 1997.
(D) During the three months ended March 31 and June 30, 1997, NPM advanced
aggregate amounts of approximately $250,000 and $87,500, respectively, to pay
certain creditors of DVL, as required by the NPM loan agreement.
(E) In March and April 1997, NPM advanced DVL an aggregate of $200,000.
These advances, which were not required under the original NPM loan documents,
bear interest at 15% per annum and will be paid pari passu with the original
NPM loan.
(F) In April 1997, DVL paid approximately $358,000, including principal and
interest, in satisfaction of its subordinated debenture obligations, as
required by the terms thereof.
(G) In May 1997, DVL, as the general partner of a certain limited
partnership, negotiated the sale of the partnership's property which resulted
in net proceeds of approximately $625,000 to DVL in satisfaction of the
partnership's mortgage indebtedness. All of the proceeds were used to pay
interest and principal on the NPM Loan, as required by the NPM loan agreement.
(H) In June 1997, DVL repaid a creditor $1,037,335 in cash and transferred
its rights and economic interests in two mortgage loan receivables from
affiliated limited partnerships, as well as its ownership interest in a
limited partnership, in exchange for full satisfaction of its long-term debt
obligation to this creditor in the amount of $2,173,000. This transaction
resulted in an extraordinary gain of approximately $650,000 in the second
quarter ended June 30, 1997. The source of the cash payment was the sale of
a partnership property in which DVL held a 55% limited partnership interest.
3. Shareholders' Equity
In January 1997, DVL issued 150,000 shares of stock to an investment
banker for services rendered in connection with the NPM loan transaction and
issued 50,000 shares of stock to certain unrelated individuals in exchange for
100,000 warrants which such individuals received in connection with a prior
transaction with DVL.
4. Legal Proceedings
(A) A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL. ("LEVY"),
originally filed in New Castle County, Delaware on February 13, 1991, on
behalf of certain individual shareholders alleged breaches of fiduciary duty
of care and candor. The defendants prevailed on a motion for summary judgment
and plaintiffs filed an appeal. On appeal, the court reopened discovery for
the plaintiffs. Plaintiffs in IN RE DEL-VAL, the shareholder class action
case, which settled in 1995 permitted the Plaintiffs in LEVY to participate
in their settlement with certain third party defendants. As of June 1997, the
parties to the action agreed in principle as to the terms of a settlement
pursuant to which DVL will deliver 500,000 shares of DVL common stock of which
the company will issue approximately 228,000 shares of new stock. The
settlement documents are now being circulated for signature.
9
(B) Federal Insurance Company ("Federal"), which carried DVL's directors and
officers insurance policy, declined to cover DVL for any legal costs or
liability. DVL commenced an action against its insurance broker and Federal
entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V. FEDERAL INSURANCE COMPANY
ET AL. ("FEDERAL INSURANCE") on September 23, 1991 in the Supreme Court of the
State of New York, County of New York in which DVL alleged negligence against
its broker and sought declaratory and injunctive relief against Federal. The
New York Court in this matter has held that the Settling Defendants' insurance
excluded coverage of these matters. DVL has filed a notice of appeal of that
decision. DVL and the broker have agreed to the terms of a settlement
pursuant to which DVL will receive after legal fees and other costs, of
approximately $24,000. The settlement documents are now being circulated for
signature.
(C) DVL was named in an action entitled VANGUARD CAPITAL V. KENBEE
MANAGEMENT, INC. ET AL. ("VANGUARD"), which was filed in 1994 in the Superior
Court of the State of California, in which Vanguard sought contractual
indemnity, equitable indemnity and declaratory relief on certain matters filed
against Vanguard in the Superior Court, State of California, by an investor.
This action is based on complaints by an investor with a $350,000 investment
in an affiliated limited partnership who alleged that the investor's broker
sold to her unsuitable investments. DVL defended the case and Vanguard
voluntarily dismissed the action without prejudice. On March 22, 1996, the
investor in the underlying matter against VANGUARD filed in the Superior Court
of Los Angeles, a motion to vacate an NASD Arbitration award made in July 1995
in favor of VANGUARD and has named DVL as an additional respondent in that
Petition.
5. Subsequent Events
(A) In July 1997, DVL received net proceeds of approximately $210,000 in
satisfaction of a partnership's mortgage indebtedness to DVL.
(B) In July 1997, DVL realized net cash proceeds of approximately $372,000
in full satisfaction of a certain limited partnership's mortgage indebtedness.
In connection therewith, as a result of a prior settlement agreement, an
affiliate of DVL released all of its rights under a certain master lease
agreement. From these cash proceeds, DVL repaid a long-term creditor
approximately $219,000.
(C) In July 1997, DVL as the general partner of a certain limited
partnership, negotiated the sale of the partnership's property. The sale
resulted in net cash proceeds of $1,075,000 to DVL in satisfaction of the
partnership's mortgage indebtedness to DVL. All of these proceeds were paid
to one of DVL's long-term creditors, as required.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DVL continues to experience liquidity problems principally as a result
of the reduced cash flow received on the restructured and non-performing
portions of its loan portfolio. Although the limited partner settlement
substantially reduced the non-performing portion of DVL's loan portfolio, this
reclassification has not resulted, nor is it expected to result, in
significant income or cash flow on the majority of the restructured mortgages,
as the mortgage debt service is used to pay liens senior to DVL's.
To enable DVL to meet its short-term operating needs, DVL must continue
to augment its cash flow with the proceeds from the sale or refinancing of
assets and borrowings. There is a risk that DVL may not be able to raise the
necessary funds with which to continue operations.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and mandatory debt payments; (2) the realization of the
estimated value of the assets collateralizing its loan portfolio over an
extended period of time rather than the value of the assets on a liquidation
basis; (3) the return to profitable operations and (4) availability of
additional borrowings.
Results of Operations
- ---------------------
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
- ----------------------------------------------------------------------------
DVL realized net income of $104,000 for the three months ended June 30,
1997, compared to net income of $44,000 for the corresponding 1996 period, a
change of $60,000. The income in 1997 was a result of an operating loss of
$547,000 offset by extraordinary gains realized upon the restructuring of
indebtedness which aggregated $651,000. The income in 1996 was primarily a
result of the extraordinary gains realized upon DVL's prepayments to a
creditor principally offset by DVL's continued operating losses including a
reduction in transaction fees. The operating loss decreased by $218,000 in
1997. The effects of these items and the other factors contributing to the
net income are as follows:
Interest income on mortgage loans due from affiliates increased from 1996
to 1997. The increase in income is attributable to adjustments to unearned
interest resulting from loan payoffs, refinancings, etc. There was a
reduction in the amount of interest income on loans to affiliated partnerships
due to the satisfaction of certain loans upon the sale of partnership
properties. However, this decrease was offset by a corresponding decrease in
interest expense on the underlying debt obligations.
Transaction and other fees from partnerships aggregating $242,000 in 1997
and $75,000 in 1996 principally represent the fees received upon the sale of
certain partnership properties.
11
Rent income from affiliated partnerships increased from 1996 to 1997,
primarily as a result of the collection of amounts due DVL that was not
accrued for in the prior year.
Interest income on non-affiliate mortgage loans decreased due to the fact
that as of December 31, 1996 the mortgage loan matured that generated this
income.
General and administrative expenses decreased by $241,000, primarily as
a result of a decrease in payroll and operating costs incurred in 1997.
However, this decrease was partially offset by a $150,000 asset service fee
to NPO.
Legal and professional fees decreased by $35,000 as a result of decreased
legal, accounting and other professional costs as compared to the same period
of the prior year.
Interest expense for the quarter ended June 30, 1997 aggregated $660,000
compared to $608,000 for the same period in 1996. During 1997 and 1996, there
was a significant amount of refinancings and restructurings of existing debt,
which resulted in substantial reductions in long-term debt obligations.
However, this is offset by $48,000 of amortization expense on the long-term
debt discount, that arose from the issuance of the NPM warrants. Also,
included in the other interest expense, is interest on the notes issued in
connection with the shareholder class action litigation settlement of
approximately $286,000. All the interest on the litigation settlement is
deferred.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
- -------------------------------------------------------------------------
DVL realized a net loss of $260,000 for the six months ended June 30,
1997, as compared to a net income of $392,000 for the corresponding 1996
period, a change of $652,000. The loss in 1997 was a result of an operating
loss of $1,364,000 offset by extraordinary gains realized upon the
restructuring of indebtedness which aggregated $1,104,000. The income in 1996
was primarily a result of the extraordinary gains realized upon DVL's
prepayments to a creditor and the discount received upon the payoff of
indebtedness to another creditor partially offset by DVL's continued operating
losses including a reduction in transaction fees. The operating loss decreased
by $99,000 in 1997. The effects of these items and the other factors
contributing to the loss are as follows:
Interest income on mortgage loans due from affiliates increased from 1996
to 1997. The increase in income is attributable to adjustments to unearned
interest resulting from loan payoffs, refinancing, etc. There was a reduction
in the amount of interest income on loans to affiliated partnerships due to
the satisfaction of certain loans upon the sale of partnership properties.
However, this decrease was offset by a corresponding decrease in interest
expense on the underlying debt obligations.
12
Transaction and other fees from partnerships aggregating $266,000 in 1997
and $169,000 in 1996 principally represent the fees received upon the sale of
certain partnership properties.
Rent income from affiliated partnerships increased from 1996 to 1997,
primarily as a result of the collection of old amounts due DVL that were not
accrued for in the prior year.
Interest income on non-affiliate mortgage loans decreased due to the fact
that as of December 31, 1996 the mortgage loan matured that generated this
income.
Other income in 1997 primarily represents a cash collection in the amount
of $35,000 received from the settlement of a lawsuit in February 1997.
General and administrative expenses decreased by $300,000 primarily as
a result of a decrease in payroll and operating costs incurred in 1997.
However, this decrease was offset by a $300,000 asset service fee to NPO.
Legal and professional fees decreased by $24,000 primarily as a result
of decreased legal, accounting and other professional costs as compared to the
same period of the prior year.
Interest expense for the six months ended June 30, 1997 aggregated
$1,362,000 compared to $1,317,000 for the same period in 1996. During 1997
and 1996, there was a significant amount of refinancings and restructurings
of existing debt, which resulted in substantial reductions in long-term debt
obligations. However, this is offset by $98,000 of amortization expense on
the long-term debt discount, that arose from the issuance of the NPM warrants.
Also, included in the other interest expense, is interest on the notes issued
in connection with the shareholder class action litigation settlement of
approximately $560,000. All the interest on the litigation settlement is
deferred.
Liquidity and Capital Resources
- -------------------------------
DVL continues to experience liquidity problems and its cash flow provided
by operations is not sufficient to meet its operating needs. DVL is
attempting to augment its cash flow with the proceeds from the sale or
refinancing of assets. There is a risk that DVL may not be able to raise the
necessary funds with which to continue operations.
DVL has the right to refinance a number of mortgage loans underlying its
wrap-around mortgages due from affiliated partnerships and arrange senior
financing secured by properties on which it holds first or second mortgage
loans by subordinating its mortgage position. During the quarter ended March
31, 1997, DVL refinanced four underlying mortgages and generated $821,000 in
proceeds in excess of the existing underlying mortgage loans. The excess
proceeds were used to repay the NPM loan as required by the NPM loan
agreement. The amounts obtained from these refinancings were primarily based
13
on the value of the base rents during the period of the base lease term
subsequent to the payoff of the existing first mortgages. As a result of
DVL's prior and current refinancings, DVL's asset base available for future
refinancings has diminished. No additional mortgage loans were refinanced in
the quarter ended June 30, 1997.
In the quarter ended March 31, 1997, DVL entered into a new loan for an
initial principal amount of $2,000,000. From the proceeds of this financing,
DVL repaid an existing creditor $1,474,000 in full satisfaction of a loan
which had a principal amount due of $1,901,000. This payment resulted in an
extraordinary gain, net of other amounts, of approximately $406,000 in the
first quarter of 1997. DVL used the $406,000 of excess proceeds to pay
interest and principal on the NPM loan, as required by the NPM Loan Agreement.
For the six months ended June 30, 1997, DVL borrowed $200,000 from NPM.
These advances were not required by the original NPM loan agreement. In
addition, NPM made advances, as required by the NPM Loan Agreement, in the
amount of $337,500.
In the quarter ended June 30, 1997, DVL paid aggregate amounts of
approximately $358,000, including principal and interest, in satisfaction of
its subordinated debenture obligations, as required by the terms thereof.
In May 1997, DVL, as the general partner of a certain limited partnership,
negotiated the sale of the partnership's property which resulted in net
proceeds of approximately $625,000 to DVL in satisfaction of the partnership's
mortgage indebtedness. All of the proceeds were used to pay interest and
principal on the NPM loan to NPM, as required by the NPM loan agreement. In
addition, DVL earned approximately $82,000 in fees on the sale transaction.
In June 1997, DVL repaid a creditor $1,037,000 in cash and transferred its
rights and economic interest in two mortgage loan receivables from affiliated
limited partnerships, as well as its ownership interest in a limited
partnership, in exchange for full satisfaction of its long-term debt
obligation to this creditor. This transaction resulted in an extraordinary
gain of approximately $651,000 in the second quarter ended June 30, 1997. The
source of the cash payment was the sale of a partnership's property in which
DVL held a 55% limited partnership interest. In addition, DVL realized fees
on the sale of this property of approximately $153,000.
The following three transactions occurred subsequent to the quarter ended
June 30, 1997:
In July 1997, DVL received net proceeds of approximately $210,000 in
satisfaction of a partnership's mortgage indebtedness to DVL. In addition,
DVL earned approximately $23,000 in fees from the sale.
14
In July 1997, DVL realized net cash proceeds of approximately $372,000
in full satisfaction of a certain limited partnership's mortgage indebtedness.
In connection therewith, as a result of a prior settlement agreement, an
affiliate of DVL released all its rights under a certain master lease
agreement. From these cash proceeds, DVL repaid a long-term creditor
approximately $219,000.
In July 1997, DVL as the general partner of a certain limited partnership,
negotiated the sale of the partnership's property. The sale resulted in net
cash proceeds of $1,075,000 to DVL, in satisfaction of the partnership's
mortgage indebtedness. All of these proceeds were paid to one of DVL's long-
term creditors, as required. In addition, DVL earned approximately $45,000
in fees from this sale.
15
Part II - Other Information
Item 1. Legal Proceedings
-----------------
The information set forth in Note 4 [Legal Proceedings] of the Notes
to the Financinal Statements included in Part I of this Report, regarding the
settlement of LEVY and FEDERAL litigations, is incorporated by reference
herein in response to this Item 1.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of DVL, for the election of
directors, was held on June 20, 1997. All of the incumbent directors were
nominated for re-election, and were so elected. The votes cast were as
follows:
Nominee Votes For Votes Withheld
- ----------------------- ----------- --------------
Myron Rosenberg 10,673,945 245,377
Frederick E. Smithline 10,675,753 243,569
Allen Yudell 10,678,581 240,741
<FN>
There were no broker non-votes.
</FN>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) There were no reports on Form 8-K filed during the three months ended
June 30, 1997.
(B) Exhibits:
11 - Computation of Per Share Data
10.1 - Employment Agreement, and Indemnification Agreement
comprising Exhibit A thereto, between DVL and Daniel
Baldwin, dated March 14, 1997 (effective as of April
7, 1997)
10.2 - Employment Agreement, and Indemnification Agreement
comprising Exhibit A thereto, between DVL and Gary
Flicker, dated April 16, 1997 (effective as of said
date)
10.3.1 - Amendment dated as of July 10, 1996, to Amended and
Restated Loan Agreement dated as of March 27, 1996
between DVL Inc. and NPM Capital LLC
10.3.2 - Second Amendment dated as of September 27, 1996,
to Amended and Restated Loan Agreement dated as of
March 27, 1996 between DVL Inc. and NPM Capital LLC
10.3.3 - Third Amendment dated as of March 6, 1997, to
Amended and Restated Loan Agreement dated as of
March 27, 1996 between DVL Inc. and NPM Capital LLC
and Promissory Note dated as of March 6, 1997,
comprising Exhibit A-1 thereto.
27 - Financial Data Schedule
16
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DVL, INC.
By: /s/ Gary Flicker
------------------------------
Gary Flicker, Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
August 13, 1997
17