UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY PURSUANT TO UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2008
or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
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)
70 East 55th Street, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 350-9900
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(Registrant's telephone number, including area code)
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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. |X| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer" "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer |_| Accelerated filer |_|
Non-accelerated filer |_| Smaller reporting company |X|
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). |_| Yes |X| No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at August 14, 2008
- ---------------------------- ------------------------------
Common Stock, $.01 par value 45,292,845
DVL, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information:
Item 1 - Financial Statements: Pages
-----
Consolidated Balance Sheets -
June 30, 2008 (unaudited) and December 31, 2007 1 - 2
Consolidated Statements of Operations -
Three Months Ended June 30, 2008 (unaudited) and
2007 (unaudited) 3
Consolidated Statements of Operations -
Six Months Ended June 30, 2008 (unaudited) and
2007 (unaudited) 4 - 5
Consolidated Statement of Shareholder's Equity -
Six Months Ended June 30, 2008 (unaudited) 6
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2008 (unaudited) and
2007 (unaudited) 7 - 8
Notes to Consolidated Financial Statements (unaudited) 9 - 16
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 17 - 28
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk 28
Item 4 - Controls and Procedures 28
Part II. Other Information:
Item 1. Legal Proceedings 29
Item 1A. Risk Factors 29
Item 2. Unregistered Sales of Equity Securities and Use
of Proceeds 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits 29 - 35
Signature 30
Part I - Financial Information
Item 1. Financial Statements
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
2008 2007
----------- ------------
(unaudited)
ASSETS
Residual interests in securitized portfolios $ 45,518 $ 47,705
--------- ---------
Mortgage loans receivable from affiliated partnerships (net
of unearned interest of $12,622 for 2008 and $16,845 for 2007)
18,951 20,187
Allowance for loan losses 3,719 3,448
--------- ---------
Net mortgage loans receivable 15,232 16,739
--------- ---------
Cash (including restricted cash of $23 and $108 for 2008 1,682 1,028
and 2007 respectively)
Investments
Real estate at cost (net of accumulated depreciation and
amortization of $1,244 for 2008 and $1,150 for 2007) 7,338 7,329
Affiliated limited partnerships (net of allowance for
losses of $448, for 2008 and 2007) 771 781
Net deferred tax asset 2,565 2,743
Other assets 2,037 1,828
Other assets of discontinued operations 1,596 1,474
--------- ---------
Total assets $ 76,739 $ 79,627
========= =========
(continued)
See notes to consolidated financial statements.
1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
(continued)
June 30, December 31,
2008 2007
----------- ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable - residual interests $ 35,136 $ 38,425
Underlying mortgages payable 4,582 5,682
Debt - other 11,198 10,570
Debt - affiliates 1,437 2,154
Redeemed notes payable-litigation settlement 775 775
Deferred income 381 20
Security deposits, accounts payable and accrued
liabilities 3 139
Liabilities of discontinued operations -- 176
-------- --------
Total liabilities 53,512 57,941
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized, issued
and outstanding 100 shares for 2008 and 2007 1 1
Preferred stock, $.01 par value, authorized 5,000,000
shares for 2008 and 2007, issued and outstanding -0-
Common stock, $.01 par value, authorized - 90,000,000
shares issued and outstanding 45,292,845 for 2008 and
45,284,845 for 2007 453 453
Additional paid-in capital 97,060 97,060
Deficit (74,287) (75,828)
-------- --------
Total shareholders' equity 23,227 21,686
-------- --------
Total liabilities and shareholders' equity $ 76,739 $ 79,627
======== ========
See notes to consolidated financial statements.
2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Three Months Ended
June 30,
------------------
2008 2007
---- ----
Income from affiliates:
Interest on mortgage loans $ 566 $ 657
Gain on satisfaction of mortgage loans 365 44
Partnership management fees 63 67
Management fees 98 66
Transaction and other fees from partnerships 39 23
Distributions from partnerships 42 --
Income from others:
Interest income - residual interests 1,476 1,411
Net rental income (including depreciation and
amortization of $45 for 2008 and $48 for 2007) 106 197
Other income and interest 22 30
------- -------
2,777 2,495
------- -------
Operating expenses:
General and administrative 451 371
Asset servicing fee - NPO Management LLC 195 188
Legal and professional fees 66 76
Provision for loan losses 150 100
Interest expense:
Underlying mortgages 88 141
Notes payable - residual interests 717 775
Affiliates 45 60
Others 300 254
------- -------
2,012 1,965
------- -------
Income from continuing operations before income tax (expense)
benefit 765 530
Income tax (expense) benefit (179) 13
------- -------
Income from continuing operations 586 543
Loss from discontinued operations - net of tax of $-0- in
both periods (18) (15)
------- -------
Net income $ 568 $ 528
======= =======
(continued)
See notes to consolidated financial statements.
3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Six Months Ended
June 30,
--------
2008 2007
------- -------
Income from affiliates:
Interest on mortgage loans $ 1,241 $ 1,374
Gain on satisfaction of mortgage loans 999 476
Partnership management fees 124 133
Management fees 196 124
Transaction and other fees from partnerships 88 45
Distributions from partnerships 54 40
Income from others:
Interest income - residual interests 2,964 2,789
Net rental income (including depreciation and
amortization of $93 for 2008 and $97 for 2007) 267 370
Other income and interest 38 39
------- -------
5,971 5,390
------- -------
Operating expenses:
General and administrative 921 807
Asset Servicing Fee - NPO Management LLC 383 372
Legal and professional fees 172 151
Provision for loan losses 300 350
Interest expense:
Underlying mortgages 187 301
Notes payable - residual interests 1,472 1,535
Affiliates 97 102
Others 568 495
------- -------
4,100 4,113
------- -------
Income from continuing operations before income tax
benefit 1,871 1,277
Income tax (expense) benefit (243) 32
------- -------
Income from continuing operations 1,628 1,309
Loss from discontinued operations - net of tax of $-0-
in both periods (87) (152)
------- -------
Net income $ 1,541 $ 1,157
======= =======
(continued)
See notes to consolidated financial statements.
4
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share data)
(unaudited)
(continued)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2008 2007 2008 2007
-------------- -------------- -------------- --------------
Basic earnings per share:
Income from continuing operations $ .01 $ .02 $ .04 $ .04
Loss from discontinued operations .00 .00 .00 .00
-------------- -------------- -------------- --------------
Net Income $ .01 $ .02 $ .04 $ .04
============== ============== ============== ==============
Diluted earnings per share:
Income from continuing operations $ .01 $ .01 $ .04 $ .03
Loss from discontinued operations .00 .00 .00 .00
-------------- -------------- -------------- --------------
Net Income $ .01 $ .01 $ .04 $ .03
============== ============== ============== ==============
Weighted average shares outstanding - basic 45,292,845 32,909,353 45,289,442 35,209,191
Effect of dilutive securities 121,097 16,489,120 104,885 18,742,604
-------------- -------------- -------------- --------------
Weighted average shares outstanding - diluted 45,413,942 49,398,473 45,394,327 53,951,795
============== ============== ============== ==============
See notes to consolidated financial statements.
5
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS 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, 2008 100 $ 1 45,284,845 $ 453 $ 97,060 $ (75,828) $ 21,686
Exercise of stock options -- -- 8,000 -- -- -- --
Net income -- -- -- -- -- 1,541 1,541
--- ---------- ---------- ---------- ---------- ---------- ----------
Balance - June 30, 2008 100 $ 1 45,292,845 $ 453 $ 97,060 $ (74,287) $ 23,227
=== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements.
6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
--------
2008 2007
---- ----
Cash flows from operating activities:
Continuing operations:
Income from continuing operations $ 1,628 $ 1,309
Adjustments to reconcile income to net cash used in
operating activities from continuing operations
Interest income deducted from (accreted on) residual
Interests 1,034 (576)
Accrued interest (subtracted from) added to indebtedness (20) 96
Depreciation 93 93
Provision for loan losses 271 350
Write-off of loans receivable 4,159 44
Amortization of unearned interest on loan receivables (4,223) (1,277)
Net decrease (increase) in deferred tax asset 178 (82)
Net (increase) decrease in other assets (209) 45
Net decrease in accounts payable, security
deposits and accrued liabilities (136) (80)
Net increase in deferred income 361 249
------- -------
Net cash (used in) provided by continuing operations 3,136 171
------- -------
Discontinued operations:
Loss from discontinued operations - net of tax (87) (152)
Net decrease in assets and liabilities of discontinued
operations (298) (346)
------- -------
Cash used in discontinued operations (385) (498)
------- -------
Net cash used in operating activities 2,751 (327)
------- -------
(continued)
See notes to consolidated financial statements
7
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
(continued)
Six Months Ended
June 30,
--------
2008 2007
---- ----
Cash flows from investing activities:
Collections on loans receivable $ 1,300 $ 2,390
Real estate acquisitions and capital improvements (102) --
Net decrease in affiliated limited partnership
interest and other investments 10 95
------- -------
Net cash provided by investing activities 1,208 2,485
------- -------
Cash flows from financing activities:
Proceeds from new borrowings 4,050 650
Principal payments on debt (4,119) (482)
Repurchase of outstanding common stock -- (649)
Payments on underlying mortgages payable (1,100) (1,451)
Payments on notes payable - residual interest (2,136) (288)
Payments related to debt redemptions -- (2)
------- -------
Net cash used in financing activities (3,305) (2,222)
------- -------
Net increase (decrease) in cash 654 (64)
Cash, beginning of period 1,028 891
------- -------
Cash, end of period $ 1,682 $ 827
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,153 $ 2,395
======= =======
Cash paid for income taxes $ 123 $ 50
======= =======
Supplemental disclosure of non-cash investing and
financing activities:
Residual interests in securitized portfolios -
increase/(decrease) $(1,153) $ 1,392
======= =======
Notes payable - residual interests -
Increase/(decrease) $(1,153) $ 1,392
======= =======
See notes to consolidated financial statements.
8
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in thousands unless otherwise noted
(except share and per share amounts)
1. Basis of Presentation
In the opinion of DVL, Inc. ("DVL" or the "Company"), the accompanying
consolidated financial statements contain all adjustments (consisting of only
normal accruals) necessary in order to present a fair presentation of the
consolidated financial position of DVL and the consolidated results of its
operations for the periods set forth herein. The results of the Company's
operations for the three and six months ended June 30, 2008 should not be
regarded as indicative of the results that may be expected from its operations
for the full year. For further information, refer to the consolidated financial
statements and the accompanying notes included in DVL's Annual Report on Form
10-KSB for the year ended December 31, 2007.
2. Reclassifications
Certain amounts from 2007 have been reclassified to conform to the
presentation for the six months ended June 30, 2008.
3. Residual Interests in Securitized Portfolios
In accordance with the purchase agreements entered into with respect to
the residual interests from the acquisition dates through June 30, 2008, the
residual interest in securitized portfolios and the notes payable were increased
by approximately $6,316 as a result of purchase price adjustments. Adjustments
to the receivables based on the performance of the underlying periodic payment
receivables, both increases and decreases, could be material in the future.
Permanent impairments are recorded immediately through results of operations.
Favorable changes (increases) in future cash flows are recognized through
results of operations as interest over the remaining life of the retained
interest.
The Company's wholly owned subsidiary, S2 Holdings, Inc. ("S2"), owns
99.99% Class B member interests in Receivables II-A, LLC, a limited liability
company ("Receivables II-A") and Receivables II-B, LLC, a limited liability
company ("Receivables II-B) which own five securitized receivable pools.
Receivables II A, LLC and Receivables II B, LLC are consolidated into S2 for
financial statement reporting purposes.
The Company considered Financial Accounting Standards Board Interpretation
No. 46R "Consolidation of Variable Interest Entities" when consolidating S2's
ownership of its member interests. The Company determined that S2's member
interests do not meet the definition of variable interest entities.
9
4. Real Estate
The Company, currently owns eight buildings totaling 347,000 square feet
on eight and one half acres located in an industrial park in Kearny, NJ leased
to various unrelated tenants. This site represents a portion of the Passaic
River Development area designated for redevelopment by the town of Kearny, New
Jersey (the "Property"). The Company continues to lease such property to
multiple tenants and receives a positive cash flow from the property until such
time as it can redevelop the Property as described below.
In connection with the redevelopment of the Property, on December 11,
2007, DVL, and it's wholly owned subsidiary, DVL Kearny Holdings, LLC ("DVL
Holdings"), entered into a Redeveloper Agreement (the "Redeveloper Agreement")
with the Town of Kearny, a body corporate and politic of the state of New
Jersey, County of Hudson (the "Town of Kearny"). Pursuant to the Redeveloper
Agreement, the Town of Kearny has agreed to designate DVL and DVL Holdings
(collectively, the "Redeveloper") as the redeveloper of the Property, a
substantial portion of which is currently owned by the Redeveloper. The
Redeveloper Agreement supersedes the Conditional Agreement entered into on
October 24, 2006. Pursuant to the Redeveloper Agreement, the Redeveloper is
obligated to redevelop the Property, at its expense, in accordance with the
plans and specifications described therein, subject to review and approval of
the Planning Board of the Town of Kearny. The initial plans and specifications
provide for the development of up to approximately 150,000 square feet of retail
space.
The term of the Redeveloper Agreement along with the Redeveloper's rights
thereunder, automatically expire on December 31, 2009 unless extended in writing
by the Town of Kearny. If the Redeveloper is in default of any terms or
conditions of the Redeveloper Agreement and does not cure within the appropriate
time as set forth in the agreement (to the extent that a cure period is provided
for such default), the Town of Kearny is afforded a number of rights including
the right to terminate the Redeveloper Agreement.
The payment obligations and the completion of all work to be performed by
the Redeveloper under the Redeveloper Agreement are jointly and severally
guaranteed by Alan Casnoff, the President of the Company, and Lawrence J. Cohen,
a stockholder and affiliate of the Company. Messrs. Casnoff and Cohen are
principals of P&A Associates and Pemmil Management, LLC ("Pemmil"),
respectively, which have entered into a Developer Services Agreement with the
Company with respect to the development of the Property, as described below. The
Company has agreed to indemnify Messrs. Cohen and Casnoff from any liability
related to the Redeveloper Agreement.
In connection with the Redeveloper Agreement, the Company previously
entered into a Developer Services Agreement (the "Developer Services Agreement")
with P&A Associates and Pemmil (collectively the "Developer"). Under the
Developer Services Agreement, the Company retained the Developer to provide
developer services with respect to the development, construction and leasing of
the Property. The Developer's obligations under the Developer Services Agreement
terminates upon the substantial completion of construction and occupancy by the
tenants of at least 95% of the retail space to be developed on the Property.
Pursuant to the Developer Services Agreement, the Developer will be paid a
development fee of 4% of all project costs associated with the development of
the Property (excluding financing costs) as specified in the Developer Services
Agreement. Additionally, the Developer will be paid 20% of the net cash flow
generated by the project as a result of operations, refinancing and/or sale
after Owner receives from operations a 15% return on its net cash investment and
in the event of a refinancing or sale, the return of its net cash investment
plus a 15% return on such investment.
10
If the Developer is in default of any terms or conditions of the Developer
Services Agreement and does not cure within the appropriate time as set forth in
the agreement (to the extent that a cure period is provided for such default),
the Company is afforded a number of rights including the right to terminate the
Developer Services Agreement.
In the current economic environment there is no assurance that the Company
will be able to find tenants on acceptable economic terms or be able to finance
the construction of the project. The current construction lender has advised the
Company that they want to be repaid. The Company is currently pursuing
alternative financing sources.
Discontinued Operations
(1) In October 2004, DVL entered into an Agreement with Bogota Associates and
Industrial Associates, the owners of the land underlying the Bogota New Jersey
leasehold, pursuant to which the leasehold was cancelled in consideration of the
aforementioned partnerships agreeing to repay to DVL certain out-of-pocket
expenses including real estate taxes and environmental remediation costs as well
as $50 upon completion of a sale of the property to a third party. In addition
DVL owns a 8.25% limited partner interest in each of these partnerships. DVL
will also receive a percentage of the net sales proceeds. As of June 2008, the
sale has not yet been consummated and the third party continues to lease space.
The total expenses to be reimbursed to DVL are approximately $849 as of June 30,
2008 not including the $50 fee or any amounts to be received as a limited
partner. Activity related to the real estate lease interest is included in
discontinued operations.
(2) The Company owns a vacant 31,000 square foot former Grand Union Supermarket
and approximately six acres of land underlying the building located in Fort
Edward, NY. The entire property, which was acquired through foreclosure on a
mortgage, was recorded at $416, which was the net carrying value of the mortgage
at the date of foreclosure and was less than the fair value at that date.
As of June 30, 2008 the Company has capitalized approximately $1,000 of
environmental remediation costs in connection with the cleaning of the site. The
Company anticipates that it will eventually recover a substantial portion of the
capitalized remediation costs on the property through the net proceeds received
from any potential future sale and reimbursement from certain companies that it
believes dumped chemicals on the site. Litigation on this issue is proceeding
through the judicial system. However, the Company's ability to recover such
costs depends on many factors, including the outcome of litigation and there can
be no assurance that the Company will recover all of the costs of such
remediation within the foreseeable future or at all. Such inability to recover
all of such remediation costs could have an adverse effect on the Company's
financial condition. The Company currently accounts for the property as an
"other asset from discontinued operations" in its consolidated financial
statements at a carrying value of $747.
11
5. Transactions with Affiliates
Monies Received
The Company has provided management, accounting, and administrative
services to certain entities which are affiliated with NPO Management, LLC
("NPO") which are entities engaged in real estate lending and management
transactions and are affiliated with certain stockholders and insiders of the
Company. The fee income from the management service contract is as follows:
Fee Income Fee Income Fee Income Fee Income
For The Three For The Three For The Six For The Six
Months Ended Months Ended Months Ended Months Ended
Affiliate 06/30/08 06/30/07 06/30/08 06/30/07
--------- -------- -------- -------- --------
NPO $ 98 $ 66 $ 196 $ 124
Monies Paid
A. The Company recorded fees to NPO of $383 and $372 for the Six Months Ended
June 30, 2008 and 2007, respectively, under an Asset Servicing Agreement (the
"Asset Servicing Agreement") between the Company and NPO, pursuant to which NPO
provides the Company with asset management, advisory and administrative services
relating to the assets of the Company and its Affiliated Limited Partnerships.
During 2008 and 2007 the Company provided office space required under the Asset
Servicing Agreement to NPO consisting of approximately 500 square feet of the
Company's New York location.
B. Millennium Financial Services, an affiliate of NPO, received fees from the
Company representing compensation and reimbursement of expenses for collection
services as follows:
Fees Recorded Fees Recorded Fees Recorded Fees Recorded
For The Three For The Three For The Six For The Six
Months Ended Months Ended Months Ended Months Ended
06/30/08 06/30/07 06/30/08 06/30/07
-------- -------- -------- --------
$ 27 $ 27 $ 54 $ 54
C. Interest expense on amounts due to affiliates was as follows:
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
06/30/08 06/30/07 06/30/08 06/30/07
-------- -------- -------- --------
Pemmil Funding $ 45 $ 60 $ 97 $ 102
6. Contingent Liabilities
During the Six Months Ended June 30, 2008 and 2007 the Company expensed
approximately $40 and $80, respectively, during each period, for amounts due to
the Limited Partnership Settlement Fund, of which $23 and $157 was accrued at
June 30, 2008 and 2007, respectively. These costs have been netted against the
interest on mortgage loans.
12
7. Shareholder's Equity
On March 19, 2007, the Company entered into a Stock Repurchase Agreement
(the "Stock Repurchase Agreement") dated March 16, 2007 with Blackacre Bridge
Capital, L.L.C., a New York limited liability company ("Blackacre Bridge") and
Blackacre Capital Group, L.P., a Delaware limited partnership ("Blackacre
Capital" and collectively with Blackacre Bridge, the "Sellers"). Pursuant to the
Stock Repurchase Agreement, in a private transaction, the Company repurchased
4,753,114 shares of its common stock from Blackacre Bridge and 653,000 shares
of its common stock from Blackacre Capital (collectively referred to herein as
the "Shares"). The Company purchased the Shares for a cash purchase price of
$0.12 per Share for an aggregate cash purchase price of $649. The Shares
represented all of the shares of the Company's common stock owned by the Sellers
and their respective affiliates, including Stephen Feinberg. All such parties,
including Sellers, beneficially owned in excess of 10% of the Company's
outstanding common stock prior to the repurchase of all such Shares by the
Company.
On March 16, 2007, the Company entered into Amendment No. 1 to the Pemmil
Loan Agreement, dated March 15, 2007 with Pemmil, pursuant to which Pemmil
loaned the Company $650 on March 16, 2007 to fund the Company's purchase of the
Shares under the Stock Repurchase Agreement.
In September 1996, in connection with a loan by NPM Capital, LLC ("NPM")
to DVL (the "Company"), the Company issued to and for the benefit of, each of
the members of NPM, warrants (the "Warrants") to purchase such number of shares
of the Company's Common Stock, which when added to the 1,000,000 shares of
Common Stock issued to such parties contemporaneously with the issuance of the
warrants, amount to up to 49% of the outstanding Common Stock of the Company on
a fully diluted basis. The Warrants became exercisable after September 27, 1999
and expired at 5:00 p.m. New York time on December 31, 2007 (the "Expiration
Time"). As of December 31, 2007, all of such warrants represented the right to
purchase a total of 29,706,045 shares of Common Stock at the purchase price of
$0.0695 per share.
On December 31, 2007, prior to the Expiration Time, eight holders of the
Warrants (certain of whom currently are significant stockholders or affiliates
of the Company) exercised Warrants to purchase a total of 21,467,169 shares of
Common Stock, of which Warrants to purchase 2,000,000 shares were exercised for
cash and the remainder of which were exercised on a cashless basis (by
forfeiture of a portion of the Warrants) pursuant to the terms of the Warrants.
As a result of such exercise of the Warrants, a total of 12,325,492 shares of
Common Stock were issued to such eight individuals and the Company received a
total of $139,000 as a result of the exercise of a portion of the Warrants for
cash. All of the unexercised Warrants (including the Warrants forfeited as a
result of the cashless exercises) expired and terminated as of the Expiration
Time and no Warrants remain outstanding.
RESTRICTION ON CERTAIN TRANSFERS OF COMMON STOCK: Each share of the stock
of the Company includes a restriction prohibiting sale, transfer, disposition or
acquisition of any stock until March 31, 2009 without the prior consent of the
Board of Directors of the Company by any person or entity that owns or would own
5% or more of the issued and outstanding stock of the Company if such sale,
purchase or transfer would, in the opinion of the Board, jeopardize the
Company's preservation of its federal income tax attributes under Section 382 of
the Internal Revenue Code.
13
8. Earnings per share (unaudited)
The following table presents the computation of basic and diluted per share data
for the Three and Six Months Ended June 30, 2008 and 2007.
Three Months Ended June 30,
---------------------------
2008 2007
----------------------------------------- ---------------------------------------
Weighted Average Weighted Average
Number of Per Share Number of Per Share
Amount Shares Amount Amount Shares Amount
------ ------ ------ ------ ------ ------
Basic EPS,
Net income available to common stockholders $ 568 45,292,845 $ .01 $ 528 32,909,353 $ .02
=========== ========
Effect of dilutive stock options and warrants -- 121,097 -- 16,489,120
-------- ---------- --------- ----------
5,413,942
Net income available to common stockholders $ 568 45,413,942 $ .01 $ 528 49,398,473 $ .01
======== ========== =========== ========= ========== ========
Six Months Ended June 30,
-------------------------
2008 2007
----------------------------------------- ---------------------------------------
Weighted Average Weighted Average
Number of Per Share Number of Per Share
Amount Shares Amount Amount Shares Amount
------ ------ ------ ------ ------ ------
Basic EPS,
Net income available to common stockholders $ 1,541 45,289,442 $ .04 $ 1,157 35,209,191 $ .04
=========== ========
Effect of dilutive stock options and warrants -- 104,885 -- 18,742,604
-------- ---------- --------- -----------
Diluted EPS,
Net income available to common stockholders $ 1,541 45,394,327 $ .04 $ 1,157 53,951,795 $ .03
======== ========== =========== ========== ========== ========
14
9. Segment Information
The Company has two reportable segments; real estate and residual interests. The
real estate business is comprised of real estate assets, mortgage loans on real
estate, real estate management and investments in affiliated limited
partnerships which own real estate. The residual interests business is comprised
of investments in residual interests in securitized receivables portfolios. The
corporate/other net (loss) income of $(216) and $13 in 2008 and 2007
respectively, include $(178) of deferred income tax expense and $82 of deferred
income tax benefit, respectively.
Six Months Ended
June 30,
--------
2008 2007
---- ----
Revenues
Residual interests $ 2,964 $ 2,789
Real estate 2,969 2,522
Corporate/other 38 79
-------- --------
Total consolidated revenues $ 5,971 $ 5,390
======== ========
Net income (loss)
Residual interests $ 1,485 $ 1,247
Real estate 359 49
Corporate/other (216) 13
-------- --------
Total income from continuing operations $ 1,628 $ 1,309
======== ========
Assets
Residual interests $ 45,518 $ 47,286
Real estate 28,656 30,734
Corporate/other 2,565 2,625
-------- --------
Total consolidated assets $ 76,739 $ 80,645
======== ========
15
10. Discontinued Operations
The Company classifies certain real estate holdings as held for sale. The
Company's property located in Fort Edward, New York is included as real estate
assets held for sale. The Fort Edward asset and related liability includes an
accrual for environmental remediation. The operation of such assets for all
periods presented have been recorded as discontinued operations in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS") No.
144 "Accounting for the Impairment or Disposal of Long Lived Assets."
Discontinued operations for the Six Months Ended June 30, 2008 and 2007 are
summarized as follows:
June 30,
2008 2007
---- ----
Loss from discontinued operations $ 87 $ 152
====== ======
Other assets and other liabilities of discontinued operations at June 30,
2008 and 2007 are summarized as follows:
June 30,
2008 2007
---- ----
Other assets $ 1,596 $ 1,685
======= =======
Other liabilities $ -- $ 517
======= =======
16
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)
This Quarterly Report on Form 10-Q for the quarter ended June 30, 2008
contains statements which constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Those statements include
statements regarding the intent, belief or current expectations of DVL, Inc., a
Delaware corporation ("DVL" or the "Company") and its management team. DVL's
stockholders and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
include, among other things, general economic conditions and other risks and
uncertainties that are discussed herein and in the Company's Annual Report on
Form 10-KSB for the fiscal year ended December 31, 2007.
None of the recently issued accounting standards had any effect on the
Company's consolidated financial statements.
The Company, currently owns eight buildings totaling 347,000 square feet
on eight and one half acres located in an industrial park in Kearny, NJ leased
to various unrelated tenants. This site represents a portion of the Passaic
River Development area designated for redevelopment by the town of Kearny, New
Jersey (the "Property"). The Company continues to lease such property to
multiple tenants and receives a positive cash flow from the property until such
time as it can redevelop the Property as described below.
In connection with the redevelopment of the Property (as defined above),
on December 11, 2007, DVL, and it's wholly owned subsidiary, DVL Kearny
Holdings, LLC ("DVL Holdings"), entered into a Redeveloper Agreement (the
"Redeveloper Agreement") with the Town of Kearny, a body corporate and politic
of the state of New Jersey, County of Hudson (the "Town of Kearny"). Pursuant to
the Redeveloper Agreement, the Town of Kearny has agreed to designate DVL and
DVL Holdings (collectively, the "Redeveloper") as the redeveloper of the
Property, a substantial portion of which is currently owned by the Redeveloper.
The Redeveloper Agreement supersedes the Conditional Agreement entered into on
October 24, 2006. Pursuant to the Redeveloper Agreement, the Redeveloper is
obligated to redevelop the Property, at its expense, in accordance with the
plans and specifications described therein, subject to review and approval of
the Planning Board of the Town of Kearny. The initial plans and specifications
provide for the development of up to approximately 150,000 square feet of retail
space.
The term of the Redeveloper Agreement along with the Redeveloper's rights
thereunder, automatically expire on December 31, 2009 unless extended in writing
by the Town of Kearny. If the Redeveloper is in default of any terms or
conditions of the Redeveloper Agreement and does not cure within the appropriate
time as set forth in the agreement (to the extent that a cure period is provided
for such default), the Town of Kearny is afforded a number of rights including
the right to terminate the Redeveloper Agreement.
The payment obligations and the completion of all work to be performed by
the Redeveloper under the Redeveloper Agreement are jointly and severally
guaranteed by Alan Casnoff, the President of the Company, and Lawrence J. Cohen,
a stockholder and affiliate of the Company. Messrs. Casnoff and Cohen are
principals of P&A Associates ("P&A") and Pemmil Management, LLC ("Pemmil"),
respectively, which have entered into a Developer Services Agreement with the
Company with respect to the development of the Property, as described below. The
Company has agreed to indemnify Messrs. Cohen and Casnoff from any liability
related to the Redeveloper Agreement.
17
Discontinued Operations
(1) In October 2004, DVL entered into an Agreement with Bogota Associates and
Industrial Associates, the owners of the land underlying the Bogota New Jersey
leasehold, pursuant to which the leasehold was cancelled in consideration of the
aforementioned partnerships agreeing to repay to DVL certain out-of-pocket
expenses including real estate taxes and environmental remediation costs as well
as $50 upon completion of a sale of the property to a third party. In addition
DVL owns a 8.25% limited partner interest in each of these partnerships. DVL
will also receive a percentage of the net sales proceeds. As of June 2008, the
sale has not yet been consummated and the third party continues to lease space.
The total expenses to be reimbursed to DVL are approximately $849 as of June 30,
2008 not including the $50 fee or any amounts to be received as a limited
partner. Activity related to the real estate lease interest is included in
discontinued operations.
(2) The Company owns a vacant 31,000 square foot former Grand Union Supermarket
and approximately six acres of land underlying the building located in Fort
Edward, NY. The entire property, which was acquired through foreclosure on a
mortgage, was recorded at $416, which was the net carrying value of the mortgage
at the date of foreclosure and was less than the fair value at that date.
As of June 30, 2008 the Company has capitalized approximately $1,000 of
environmental remediation costs in connection with such remediation. The Company
anticipates that it will eventually recover a substantial portion of the
capitalized remediation costs on the property through the net proceeds received
from any potential future sale and reimbursement from certain companies that it
believes dumped chemicals on the site. Litigation on this issue is proceeding
through the judicial system. However, the Company's ability to recover such
costs depends on many factors, including the outcome of litigation and there can
be no assurance that the Company will recover all of the costs of such
remediation within the foreseeable future or at all. Such inability to recover
all of such remediation costs could have an adverse effect on the Company's
financial condition. The Company currently accounts for the property as an
"other asset from discontinued operations" in its consolidated financial
statements at a carrying value of $747.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to the Critical Accounting Policies
and Estimates described in our Annual Report on Form 10-KSB for the year ended
December 31, 2007 filed with the SEC on March 31, 2008.
18
RESULTS OF OPERATIONS
Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007
DVL had income from continuing operations of $586 and $543 for the Three Months
Ended June 30, 2008 and 2007, respectively.
Interest income on mortgage loans decreased to $566 as a result of the payoff of
loan balances. Interest expense on underlying mortgages decreased to $88
reflecting the application of a greater portion of each monthly payment to the
outstanding principal balances, payoff of loan balances and anticipated loan
maturities.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest income on mortgage loans $ 566 $ 657
Interest expense on underlying mortgages $ 88 $ 141
The gain on satisfaction of mortgage loans results when the net proceeds on the
satisfaction of mortgage loans are greater than their carrying value.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Gain on satisfaction of mortgage loans $ 365 $ 44
Management fees increased as a result of an increase in the agreed upon
reimbursement of allocated expenses.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Management fees $ 98 $ 66
Transaction and other fees were earned by the Company in connection with sales
of partnership properties. The amount of fees vary depending on the size and
number of transactions.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Transaction and other fees from partner-
ships $ 39 $ 23
Interest income on residual interests increased and interest expense on the
related notes payable decreased as a result of purchase price adjustments
pursuant to the purchase agreements entered into by the Company with respect to
Receivables II-A and Receivables II-B.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest income on residual interests $ 1,476 $ 1,411
Interest expense on related notes
payable $ 717 $ 775
19
Net rental income decreased primarily as a result of the write-off of amounts
due from tenants, deemed to be uncollectible and decreased gross rental income
resulting from decreased occupancy in anticipation of the Kearny redevelopment
project.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Net rental income from others $ 106 $ 197
Gross rental income from others $ 316 $ 332
General and administrative expenses increased in 2008 from 2007 primarily as a
result of increased fixed rent per the Company's First Amendment to its office
lease agreement.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
General and administrative $ 451 $ 371
The asset servicing fee paid to NPO increased pursuant to the terms of the Asset
Servicing Agreement which calls for an adjustment to reflect changes in the
consumer price index.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Asset servicing fee $ 195 $ 188
Legal and professional fees decreased in 2008 from 2007 primarily as a result of
2007 expenses related to the repurchase of outstanding common stock.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Legal and professional fees $ 66 $ 76
The Company recorded a provision for loan losses on its mortgage portfolio of
$150 during the Three Months Ended June 30, 2008.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Provision for loan losses $ 150 $ 100
Interest expense to affiliates decreased in 2008 compared to 2007 as a result of
a decreased amount of debt owed to affiliates.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest expense - affiliates $ 45 $ 60
Interest expense relating to other debts increased as a result of increases in
the amortization of financing expenses on new borrowings as compared to the
prior period.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest expense - others $ 300 $ 254
20
The Company accrued expenses of $33 and $25 for alternative minimum taxes during
each of the three months ended June 30, 2008 and 2007. The Company recognized
$(146) of deferred income tax expense during the three months ended June 30,
2008 and $38 of deferred tax benefits during the three months ended June 30,
2007, as a result of changes in the valuation allowance on deferred tax assets.
This resulted in income tax (expense) benefit as follows:
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Income tax (expense) benefit $ (179) $ 13
Discontinued operations consist of the operations of business segments the
Company considers as held for sale or has disposed of.
Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Loss from discontinued operations $ (18) $ (15)
21
Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007
DVL had income from continuing operations of $1,628, and $1,309 for the six
months ended June 30, 2008 and 2007, respectively.
Interest income on mortgage loans decreased and interest expense on underlying
mortgages decreased reflecting the payoff of loan balances and the application
of a greater portion of each monthly payment to the outstanding principal
balances.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest income on mortgage loans $ 1,241 $ 1,374
Interest expense on related notes payable $ 187 $ 301
The gain on satisfaction of mortgage loans results when the net proceeds on the
satisfaction of a mortgage is greater than its carrying value.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Gain on satisfaction of mortgage loans $ 999 $ 476
Interest income on residual interests increased and interest expense on the
related notes payable decreased as a result of purchase price adjustments
pursuant to the Purchase Agreements entered into by the Company with respect to
Receivables II-A and Receivables II-B.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest income on residual interest $ 2,964 $ 2,789
Interest expense on related notes payable $ 1,472 $ 1,535
Management fees increased as a result of an increase in the agreed upon
reimbursement of allocated expenses.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Management fees $ 196 $ 124
Transaction and other fees were earned by the Company in connection with sales
of partnership properties. The amount of fees vary depending on the size and
number of transactions.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Transaction and other fees from partner-
ships $ 88 $ 45
Net rental income decreased primarily as a result of decreased gross rental
income and the write-off of amounts due from tenants deemed to be uncollectible.
Gross rental income reflects decreased occupancy in anticipation of the Kearny
redevelopment project.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Net rental income from others $ 267 $ 370
Gross rental income from others $ 656 $ 683
22
General and administrative expenses increased in 2008 from 2007 primarily as a
result of increased fixed rent per the Company's First Amendment to its office
lease agreement and increased employee costs.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
General and administrative $ 921 $ 807
The asset servicing fee due from the Company to NPO increased pursuant to the
terms of the Asset Servicing Agreement which calls for an adjustment to reflect
changes in the consumer price index.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Asset servicing fees $ 383 $ 372
Legal and professional fees increased in 2008 from 2007 primarily as a result of
expenses to retain Sarbanes-Oxley professionals.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Legal and professional fees $ 172 $ 151
The Company recorded a provision for loan losses on its mortgage portfolio of
$300 during the six months ended June 30, 2008.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Provision for loan losses $ 300 $ 350
Interest expense to affiliates decreased in 2008 compared to 2007 as a result of
a decreased amount of debt owed to affiliates.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest expense - affiliates $ 97 $ 102
Interest expense related to other debts increased reflecting decreased loan
principal offset by increases in the amortization of financing expenses on new
borrowing.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Interest expense - other $ 568 $ 495
23
The Company accrued expenses of $65 and $50 for alternative minimum taxes in
each of the six months ending June 30, 2008 and 2007. The Company recognized
$(178) of deferred income tax expense in 2008 and $82 of deferred income tax
benefits in 2007, as a result of changes in the valuation allowance on deferred
tax assets. This resulted in income tax benefit as follows:
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Income tax (expense) benefit $ (243) $ 32
Discontinued operations consist of the operations of business segments the
Company considers held for sale or has disposed of.
Six Months Ended Six Months Ended
June 30, 2008 June 30, 2007
------------- -------------
Loss from discontinued operations $ (87) $ (152)
24
Liquidity and Capital Resources
The Company's cash flow from operations is generated principally from
rental income from its ownership of real estate, distributions in connection
with residual interests in securitized portfolios, interest on its mortgage
portfolio, management fees and transaction and other fees received as a result
of the sale and/or refinancing of partnership properties and mortgages.
The Company's cash balance was $1,682 at June 30, 2008, compared to $1,028
at December 31, 2007.
The Company believes that its anticipated cash flow provided by operations
and other sources is sufficient to meet its current operating cash requirements
for the next twelve months. The Company has in the past and expects in the
future to continue to augment its cash flow from operations with additional cash
generated from either the sale or refinancing of its assets and/or borrowings.
The cash flow from the Company's member interests in Receivables II-A and
Receivables II-B should continue to provide significant liquidity to the
Company.
The purchase agreements with respect to the acquisition of such member
interests contain annual minimum and maximum levels of cash flow that will be
retained by the Company after the payment of interest and principal on the notes
payable, which are as follows:
Years Minimum Maximum
----- ------- -------
2008 to 2009 $ 743 $ 880
2010 to final payment on the notes* $ 1,050 $ 1,150
* Final payment on the notes payable expected in 2015 related to the
Receivables II-A transaction and 2017 for the Receivables II-B transaction.
The Company believes it will continue to receive significant cash flow
after final payment of the notes payable.
25
Acquisitions and Financings
Loans payable which are scheduled to become due through 2013 are as follows:
Outstanding
Original Balance Including
Loan Accrued Interest at Due
Purpose Creditor Amount June 30, 2008 Date
------- -------- ------ ------------- ----
Repurchase of Notes
Issued by the Company Pemmil (1) $ 2,500 $ 1,437 12/27/08
Purchase of Mortgages Unaffiliated Bank (2) $ 1,400 $ 1,206 01/31/09
Refinancing of Repurchase of
Notes Issued by the Company Unaffiliated Bank (3) $ 1,500 $ 1,459 06/01/09
Construction Financing Unaffiliated Bank (4) $ 4,225 $ 4,495 03/01/10
General Corporate Purposes Unaffiliated Bank (5) $ 250 $ 238 02/01/13
Refinancing of Notes Issued by
the Company Unaffiliated Bank (6) $ 3,800 $ 3,800 07/01/11
(1) Pemmil Funding, LLC ("Pemmil") previously made a loan to the Company in
the original principal amount of $2,500 pursuant to the terms of that
certain Loan and Security Agreement, dated December 27, 2005 (the "Pemmil
Loan Agreement") between Pemmil and the Company evidenced by the Original
Term Note (which has subsequently been amended and restated pursuant to
the Amendment No.1). The outstanding obligations under the Pemmil Loan
Agreement and Original Term note through and including March 15, 2007 were
$1,190 in principal and $116 in accrued and unpaid interest. In March
2007, to fund a repurchase of shares of the Company's Common Stock from
Blackacre Bridge Capital LLC and Blackacre Capital Group L.P., Pemmil made
an additional loan advance to the Company in the principal amount of $650
pursuant to Amendment No. 1 to Loan and Security Agreement, entered into
by the Company on March 16, 2007 ("Amendment No. 1"). Under Amendment No.
1, all accrued and unpaid interest outstanding at March 15, 2007 was added
to the principal amount outstanding under the Pemmil Loan Agreement and
Pemmil loaned to the Company an additional $650 principal amount which
increased the total principal amount outstanding under the Pemmil Loan
Agreement to $1,956. Such principal amount was evidenced by an Amended
and Restate Term Note made by the Company to Pemmil which was executed
simultaneously with Amendment No. 1. In general, except as modified and
amended by Amendment No. 1 as described above, the terms and provisions of
the Pemmil Loan Agreement were unchanged and remain in full force and
effect. The Pemmil Loan Agreement provides that the principal and unpaid
interest are due December 27, 2008 and provides for interest at a rate of
12% per annum, compounded monthly. Interest is payable monthly on the
loan, but the Company may elect not to make any such interest payment when
due, and such amount of unpaid monthly interest shall be added to
principal. The Company is required to prepay the loan (plus any accrued
and unpaid interest) to the extent that the Company consummates certain
capital transactions (as defined in the Pemmil Loan Agreement) that result
in net proceeds (as defined in the Pemmil Loan Agreement) to the Company.
Pemmil may, in its sole discretion, accelerate the Loan after the
occurrence and during the continuance of an event of default (as defined
in the Pemmil Loan Agreement). The obligations under the Pemmil Loan
Agreement are secured by a subordinated pledge of the Company's equity
interest in S2 Holding, Inc., the Company's whollyowned subsidiary. The
Company may prepay all or a portion of the loan at any time prior to
maturity without penalty or premium. During the six months ended June 30,
2008, the Company paid $814 including $386 of interest accrued to Pemmil.
The inability of the Company to refinance or definitively extend such loan
on or prior to its maturity date would have a material adverse effect on
the Company's financial condition.
26
(2) Interest rate is prime plus .5% per annum payable monthly. Monthly
payments are interest only. Annual principal payments of $50 are required.
The inability of the Company to refinance or definitively extend such loan
on or prior to its maturity date would have a material adverse effect on
the Company's financial condition.
(3) Interest rate is fixed at 7.75% per annum payable monthly. Monthly
payments are interest only. An annual principal payment of $50 is
required. The majority of the loan proceeds were used to paydown an
existing loan which accrued interest at a higher rate.
(4) The Company and DVL Holdings entered into a Construction Loan Agreement in
August 2007 (the "Construction Loan Agreement") with CapMark Bank
("Capmark"), Urban Development Fund II, LLC ("Urban Fund") and Paramount
Community Development Fund "Paramount" and collectively with CapMark and
Urban Fund, the "Lenders"). Pursuant to the Construction Loan Agreement,
the Lenders agreed to extend loans to DVL Holdings in the aggregate
principal amount of up to $30.2 million (the "Loans") to finance
construction, acquisition and other costs associated with the
redevelopment of the Property. The Loans are secured by a mortgage on
certain of the Company's property located in Kearny, New Jersey and by an
assignment of leases on such property. The Lenders have advised the
Company that they want to be repaid. The Company is currently pursuing
alternative financing sources.
The Loans mature in phases and the Predevelopment Loan Phase (as defined
in the Construction Loan Agreement) will mature on March 1, 2010.
Additional borrowings may now be made from time to time in accordance with
the terms of the Construction Loan Agreement based on satisfaction of
certain conditions including acquisition of a certain parcel of land
contiguous with the Property and the completion of certain phases of the
construction of the Property. The outstanding Principal amount of all
loans is payable on March 1, 2010 unless extended per the Construction
Loan Agreement. The Loan accrues interest at 2.50% over the 30 day Libor
rate that is payable monthly. Principal plus accrued and unpaid interest
are due and payable on March 1, 2010.
(5) On January 30, 2008, the Company entered into a loan agreement with an
unaffiliated third party lender for $250. The loan bears interest at a
rate of 7.5% per annum. Principal and interest payments of $5 are due
monthly through the scheduled maturity date of February 1, 2013.
(6) On June 6, 2008, Delbrook Holding LLC ("Delbrook"), a Delaware limited
liability Company and 100% owned subsidiary of DVL, Inc. (together with
its subsidiaries, the "Company") borrowed an aggregate of $3,800,000
pursuant to a Mortgage Note (the "Note") with Capital One, N.A., a
national banking association (the "Bank") in the principal amount of
$3,800,000.00. The Note is secured by a mortgage on certain of the
Company's property located in Kearny, New Jersey and by an assignment of
leases on such property. The principal amount outstanding under the Note,
bears interest, which is payable monthly, at an annual rate equal to the
one month LIBOR Rate plus 2.1%. Delbrook has entered into an interest rate
swap agreement with the Bank which provides for a fixed rate of interest
for the term of the Note. In the event that the LIBOR Rate is not
available, the Note bears interest at an annual rate equal to the prime
rate of the Bank.
The outstanding principal of the Note is payable in monthly installments
of $5,430 beginning on August 1, 2008 and continuing on the first day of
each month thereafter. The final monthly installment of the Note is due
and payable at the option of the Bank upon any defaults after the
expiration of all applicable notice and cure periods as specified therein.
27
IMPACT OF INFLATION AND CHANGES IN INTEREST RATES
The Company's portfolio of mortgage loans made to affiliated limited
partnerships consists primarily of loans made at fixed rates of interest.
Therefore, increases or decreases in market interest rates are generally not
expected to have an effect on the Company's earnings. Other than as a factor in
determining market interest rates, inflation has not had a significant effect on
the Company's net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting Company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the information
under this term.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures. Our senior management is responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act), designed to ensure
that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensue that information required to be
disclosed by an issuer in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the issuer's management,
including its principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, the
Company's management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurances of achieving
the desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As of the end of the period covered by this report the Company carried out
an evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on this
evaluation, our principal executive officer and principal financial officer
concluded that, as of June 30, 2007, our disclosure controls and procedures are
effective.
No change occurred in the Company's internal controls concerning financial
reporting during the Company's second quarter that has materially affected, or
is reasonably likely to materially affected, or is reasonably likely to
materially affect, the Company's internal controls over financial reporting.
28
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 1A. Risk Factors
We are a smaller reporting Company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the
information under this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
10.1 Mortgage Note for the principal amount of $3,800,000 in Favor
of Delbrook Holding, LLC
31.1 Principal Executive Officer's Certificate, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Principal Financial Officer's Certificate, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 908 of Sarbanes-Oxley Act of 2002.
29
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/ Henry Swain
-----------------------------
Henry Swain, Executive Vice
President and Chief Financial
Officer
August 14, 2008
30