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UNITED STATES
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 September 30, 2003
[ ] 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2892858
- --------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
70 East 55th Street, New York, New York 10022
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 350-9900
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 by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes: ___ No: _X_
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 November 13, 2003
----- --------------------------------
Common Stock, $.01 par value 27,772,434
DVL, INC. AND SUBSIDIARIES
INDEX
Part I. Item 1 - Financial Information: Pages
-----
Consolidated Balance Sheets -
September 30, 2003 (unaudited) and
December 31, 2002 1-2
Consolidated Statements of Operations -
Three Months Ended September 30, 2003 (unaudited)
and 2002 (unaudited) 3,5
Consolidated Statements of Operations -
Nine Months Ended September 30, 2003 (unaudited)
and 2002 (unaudited) 4,5
Consolidated Statement of Shareholders' Equity -
Nine Months Ended September 30, 2003 (unaudited) 6
Consolidated Statements of Cash Flows -
Nine Months ended September 30, 2003 (unaudited)
and 2002 (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 17-23
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 23
Item 4 - Controls and Procedures 23
Part II. Other Information:
Item 2 - Changes in Securities and Use of Proceeds 24
Item 6 - Exhibits and Reports on Form 8-K 24
Signature 25
Part I - Financial Information
Item 1. Financial Statements
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2003 2002
------------- -------------
(unaudited)
ASSETS
Residual interests in securitized portfolios $ 37,242 $ 36,111
-------- --------
Mortgage loans receivable from affiliated
partnerships (net of unearned interest of
$14,666 for 2003 and $15,579 for 2002) 28,536 31,222
Allowance for loan losses 2,536 2,870
-------- --------
Net mortgage loans receivable 26,000 28,352
-------- --------
Cash (including restricted cash of $190 and
$177 for 2003 and 2002) 2,023 2,373
Investments
Real estate at cost (net of accumulated
depreciation of $375 for 2003 and $226 for 2002) 8,653 8,490
Real estate lease interests 400 945
Affiliated limited partnerships (net of allowances
for losses of $506 and $538, for 2003 and 2002) 1,063 1,066
Deferred income tax benefits 1,887 1,447
Other assets 728 800
-------- --------
Total assets $ 77,996 $ 79,584
======== ========
(continued)
See notes to consolidated financial statements.
1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
(continued)
September 30, December 31,
2003 2002
------------ ------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable - residual interests $ 33,846 $ 33,416
Underlying mortgages payable 16,825 19,391
Long-term debt - affiliates 2,276 2,084
Long-term debt - other 8,527 8,901
Notes payable - litigation settlement 1,746 1,735
Redeemed notes payable - litigation settlement 791 810
Fees due to affiliates 307 573
Line of credit 237 -
Security deposits, accounts payable and accrued
liabilities (including deferred income of $159
for 2003 and $18 for 2002) 467 296
-------- --------
Total liabilities 65,022 67,206
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized,
issued and outstanding 100 shares 1 1
Preferred stock, $.01 par value, authorized 5,000,000
Common stock, $.01 par value, authorized - 90,000,000
issued and outstanding 21,713,563 shares for 2003
and 2002 217 217
Additional paid-in capital 95,802 95,785
Deficit (83,046) (83,625)
-------- --------
Total shareholders' equity 12,974 12,378
-------- --------
Total liabilities and shareholders' equity $ 77,996 $ 79,584
======== ========
See notes to consolidated financial statements.
2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Three Months Ended
September 30,
----------------------
2003 2002
---------- ----------
Income from affiliates:
Interest on mortgage loans $ 691 $ 699
Gain on satisfaction of mortgage loans 11 -
Partnership management fees 74 74
Management fees 39 52
Transaction and other fees from partnerships 1 98
Distributions from investments 20 21
Income from others:
Interest income - residual interests 1,151 1,093
Net rental (loss) income (including depreciation
and amortization of $47 for 2003 and $22
for 2002) (36) 194
Distributions from investments 7 -
Other income and interest 17 8
---------- ----------
1,975 2,239
---------- ----------
Operating expenses:
General and administrative 349 354
Asset Servicing Fee - NPO Management LLC 169 164
Legal and professional fees 32 76
Loss on redemption of notes payable - 11
Impairment of real estate lease interest 462 -
Interest expense:
Underlying mortgages 331 354
Notes payable - residual interests 707 691
Affiliates 74 73
Litigation Settlement Notes 70 68
Others 190 157
---------- ----------
2,384 1,948
---------- ----------
(Loss) income before income tax benefit (409) 291
Income tax benefit (58) (86)
---------- ----------
Net (loss) income $ (351) $ 377
========== ==========
(continued)
See notes to consolidated financial statements.
3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
----------------------
2003 2002
---------- ----------
Income from affiliates:
Interest on mortgage loans $ 2,071 $ 2,203
Gain on satisfaction of mortgage loans 99 252
Partnership management fees 213 226
Management fees 182 206
Transaction and other fees from partnerships 38 167
Distributions from investments 73 67
Income from others:
Interest income - residual interests 3,401 3,269
Net rental income (including depreciation
and amortization of $142 for 2003 and $75
for 2002) 495 522
Distributions from investments 42 29
Other income and interest 39 30
---------- ----------
6,653 6,971
---------- ----------
Operating expenses:
General and administrative 1,168 1,113
Asset Servicing Fee - NPO Management LLC 501 489
Legal and professional fees 169 272
Loss on redemption of notes payable - 71
Impairment of real estate lease interest 462 -
Interest expense:
Underlying mortgages 1,028 1,236
Notes payable - residual interests 2,118 2,079
Affiliates 218 217
Litigation Settlement Notes 209 230
Others 566 420
---------- ----------
6,439 6,127
---------- ----------
Income before income tax benefit 214 844
Income tax benefit (365) (466)
---------- ----------
Net income $ 579 $ 1,310
========== ==========
(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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
----------- ---------- ------------ -----------
Basic earnings per share:
Net (loss) income $ (.02) $ .02 $ .03 $ .06
=========== ========== ============ ===========
Diluted (loss) earnings per share:
Net (loss) income $ (.02) $ .01 $ .01 $ .03
=========== =========== ============ ===========
Weighted average shares outstanding - basic 21,713,563 21,713,563 21,713,563 21,713,563
Effect of dilutive securities - 35,314,515 33,655,451 36,948,399
----------- ----------- ------------ ----------
Weighted average shares outstanding - diluted 21,713,563 57,028,078 55,369,014 58,661,962
=========== =========== ============ ===========
See notes to consolidated financial statements.
5
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, 2003 100 $ 1 21,713,563 $ 217 $ 95,785 $ (83,625) $12,378
Net income - - - - - 579 579
Effect of issuance and
repricing of options - - - - 17 - 17
------- ----- ---------- ------- -------- --------- -------
Balance-September 30, 2003 100 $ 1 21,713,563 $ 217 $ 95,802 $ (83,046) $12,974
======= ===== ========== ======= ======== ========= =======
See notes to consolidated financial statements.
6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
--------------------
2003 2002
------- -------
Cash flows from operating activities:
Income before adjustments $ 579 $ 1,310
Adjustments to reconcile net income to net cash
provided by operating activities
Interest income accreted on residual interests (424) (305)
Accrued interest added to indebtedness 128 179
Gain on satisfactions of mortgage loans (99) (252)
Loss on redemption of notes payable - 71
Issuance and repricing of options 17 -
Depreciation 137 76
Deferred income tax benefits (440) (380)
Amortization of unearned interest on loan receivables (263) (197)
Amortization of real estate lease interests 83 101
Impairment of real estate lease interest 462 -
Imputed interest on notes 209 230
Stock issued for services received - 32
Net decrease in prepaid financing and other assets 72 63
Net increase (decrease) in accounts payable, security
deposits and accrued liabilities 30 (700)
Net decrease in fees due to affiliates (266) (267)
Net increase in deferred income 141 147
------- ------
Net cash provided by operating activities 366 108
------- ------
Cash flows from investing activities:
Collections on residual interests 7 -
Collections on loans receivable 2,414 2,813
Real estate acquisitions and capital improvements - (335)
Net decrease in affiliated limited partnership
interests and other investments 3 12
------- ------
Net cash provided by investing activities 2,424 2,490
------- ------
(continued)
See notes to consolidated financial statements
7
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
(continued)
Nine Months Ended
September 30,
-------------------
2003 2002
-------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 283 $ 400
Repayment of indebtedness (554) (570)
Payments on underlying mortgages payable (2,566) (2,343)
Payments on notes payable - residual interest (284) (308)
Payments related to debt redemptions (19) (176)
-------- --------
Net cash used in financing activities (3,140) (2,997)
-------- --------
Net decrease in cash (350) (399)
Cash, beginning of period 2,373 2,987
-------- --------
Cash, end of period $ 2,023 $ 2,588
======= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 3,824 $ 3,715
======= ========
Supplemental disclosure of non-cash investing and
financing activities:
Residual interests in securitized portfolios -
increase (decrease) $ (714) $ 93
======= ========
Notes payable - residual interests - increase
(decrease) $ (714) $ 93
======= ========
Foreclosure on mortgage loan receivable
collateralized by real estate $ 300 $ 416
======= ========
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 data)
1. Basis of Presentation
In the opinion of DVL, Inc. ("DVL" or the "Company"), the accompanying
financial statements contain all adjustments (consisting of only normal
accruals) necessary in order to present a fair presentation of the financial
position of DVL and the results of its operations for the periods set forth
herein. The results of the Company's operations for the three and nine months
ended September 30, 2003 should not be regarded as indicative of the results
that may be expected from its operations for the full year. Certain amounts from
the three and nine months ended September 30, 2002 have been reclassified to
conform to the presentation for the three and nine months ended September 30,
2003. For further information, refer to the consolidated financial statements
and the accompanying notes included in DVL's Annual Report on Form 10-K for the
year ended December 31, 2002.
2. Residual Interests In Securitized Portfolios
During 2001, the Company, through its wholly-owned consolidated subsidiary,
S2 Holdings Inc. ("S2"), acquired 99.9% 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"), from an unrelated party
engaged in the acquisition and management of periodic payment receivables. The
Class B member interests entitle the Company to be allocated 99.9% of all items
of income, loss and distribution of Receivables II-A and Receivables II-B.
Receivables II-A and Receivables II-B solely receive the residual cash flow from
five securitized receivable pools after payment to the securitized noteholders.
The Company purchased its interests for an aggregate purchase price of
$35,791, including costs of $1,366, which included the issuance of warrants,
valued at $136, for the purchase of 3 million shares of the common stock of DVL,
exercisable until 2011 at a price of $.20 per share and investment banking fees
to an affiliate aggregating $900. The purchase price was paid by the issuance of
8% per annum limited recourse promissory notes by S2 in the aggregate amount of
$34,425. Principal and interest are payable from the future monthly cash flow
from Receivables II A and Receivables II B. The notes mature August 15, 2020
through December 31, 2021 and are secured by a pledge of S2's interests in
Receivables II-A, Receivables II-B and all proceeds and distributions related to
such interests. The principal amount of the notes and the purchase price are
adjusted, from time to time, based upon the performance of the underlying
receivables. DVL also issued its guaranty of payment of up to $3,443 of the
purchase price. The amount of the guaranty is regularly reduced by 10% of
principal paid. The amount of the guaranty at September 30, 2003 was $3,366.
Payments, if any, due under this guaranty are payable after August 15, 2020.
In accordance with the purchase agreements, from the acquisition dates
through September 30, 2003, the residual interests in securitized portfolios and
the notes payable were increased by approximately $182 as a result of purchase
price adjustments.
The following table reconciles the initial purchase price with the carrying
value at September 30, 2003:
Initial purchase price $ 35,791
Adjustments to purchase price 182
Principal payments (48)
Accretion 1,317
--------
$ 37,242
========
9
The purchase agreements 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
----- ------- -------
2003 to 2009 $ 743 $ 880
2010 to final payment $1,050 $1,150
on notes payable*
*Final payment on the notes payable expected 2016 related to the
Receivables II-A transaction and 2018 for the Receivables II-B
transaction.
The Company believes it will receive significant cash flows after final payment
of the notes payable.
3. Mortgage Loans Receivable
Virtually all of DVL's loans receivable arose out of transactions in which
affiliated limited partnerships purchased commercial, office and industrial
properties typically leased on a long-term basis to unaffiliated creditworthy
tenants. Each mortgage loan is collateralized by a lien, subordinate to senior
liens, on real estate owned by the affiliated limited partnership which owns
such property. DVL's loan portfolio is comprised of long-term wrap-around and
other mortgage loans due from affiliated limited partnerships.
4. Real Estate
The Company, directly and through various wholly owned subsidiaries,
currently owns the following properties:
(1) Eight buildings totaling 347,000 square feet on eight acres located in an
industrial park in Kearny, NJ leased to various unrelated tenants.
(2) An 89,000 square foot building in Kearny, NJ, which adjoins the property
described above, currently leased to K-Mart Stores, Inc. ("K-Mart").
(3) A vacant 31,000 square foot former Grand Union Supermarket and approximately
six acres of land underlying the building located in Fort Edward, NY. On
November 7, 2003 the Company sold approximately one acre of land for $185 cash
and will recognize a small gain in the fourth quarter of 2003. 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.
(4) A vacant 32,000 square foot former Ames Department Store and approximately
one acre of land underlying the building located in Champlain, NY. The property,
which was acquired through foreclosure on a mortgage, was recorded at $300,
which was the net carrying value of the mortgage at the date of foreclosure and
was less than the fair value at that date.
The Company also operates an industrial property in Bogota, NJ under a master
lease. The Company carries the master lease as an asset (real estate lease
interests). Due to vacancies at the property and difficulties arranging a sale
of the property, the Company has written down the value of the master lease by
$462 during the quarter ended September 30, 2003 to its estimated net realizable
value of $400. The estimated net realizable value was determined based on the
amount the Company would realize based on current offers to purchase the
property. There can be no assurance that a sale of the property will occur.
Activity related to the real estate lease interest is included in the real
estate segment.
10
5. Notes Payable - Litigation Settlement/Redemptions
In December 1995, DVL completed its obligations under a 1993 settlement
the "Limited Partner Settlement" of its class action litigation by, among other
things, issuing notes to the plaintiffs (the "Notes") in the aggregate principal
amount of $10,387. The Notes, which are general unsecured obligations of DVL,
accrue interest at a rate of ten (10%) percent per annum, with principal under
the Notes, together with all accrued and unpaid interest thereunder, due on
December 31, 2005. The Company has the option to redeem the outstanding Notes by
issuing shares of Common Stock (See Note 8, Shareholder's Equity).
As of September 30, the Company had sent redemption letters to note holders
who held Notes that aggregated approximately $1,145, offering to pay the Notes
in cash at face value plus accrued interest of approximately $49. As of
September 30, 2003, $403 has been paid and the remaining $791 payable is
reflected as a non-interest bearing liability.
Additionally, the Company entered into an agreement in December 2001 with
Blackacre Bridge Capital, LLC ("BBC") under which BBC exchanged $1,188 principal
amount of Notes ($862 carrying value) for 4,753,113 shares of DVL's common stock
valued at $380.
Since October 1997, the Company has conducted three cash tender offers at
a tender offer price of $0.12 per $1.00 principal amount of Notes, resulting in
the retirement of approximately $9,016 principal amount of Notes.
Notes with an aggregate principal amount of approximately $1,947 remained
outstanding as of September 30, 2003 (carrying value $1,746).
In October, 2003 the Company gave notice of redemption to holders of
approximately $750 principal amount of Notes for approximately 6,059,000 shares
of Common Stock and $17 principal amount of Notes for cash. Pursuant to the
terms of the Notes, the Company had the option to redeem the outstanding Notes
by issuing to the holders shares of the Company's Common Stock with a current
market value equal to 110% of the face value of the Notes plus accrued and
unpaid interest thereon. Notes of approximately $1,180 will remain outstanding
after the redemptions.
6. Transactions with Affiliates
A. The Company has provided management, accounting, and administrative services
to certain entities which are affiliated with NPO Management, LLC ("NPO")
and/or, Blackacre Capital, LLC ("Blackacre"), which are entities engaged in real
estate lending and management transactions and are affiliated with certain
stockholders and insiders of the Company. The fees received from management
service contracts are as follows:
Fees Received Fees Received Fees Received Fees Received
For The Three For The Three For The Nine For The Nine
Months Ended Months Ended Months Ended Months Ended
Affiliate Of 09/30/03 09/30/02 09/30/03 09/30/02
- ------------ ------------- ------------- ------------- -------------
NPO and Blackacre $ 13 $ 7 $ 38 $ 20
NPO (1) $ 8 $ 57 $ 131 $ 224
(1) Of the total cash received for the nine months ended September 30, 2003 and
2002, $78 and $78 respectively, represented prior deferred fees paid in the
first quarter of 2003 and 2002. The Company is entitled to a current fee of
$2 per month and a deferred fee of $7 per month paid annually in the first
quarter of the fiscal year. In addition, the Company received annual
incentive fees of $50 and $53 during the nine months ending September 30,
2003 and 2002, respectively.
11
B. Millennium Financial Services, an affiliate of NPO, has received fees
representing compensation, and reimbursement of expenses for collection
services as follows:
Fees For The Fees For The Fees For the Fees For The
Three Months Three Months Nine Months Nine Months
Ended 09/30/03 Ended 09/30/02 Ended 9/30/03 Ended 9/30/02
-------------- -------------- ------------- -------------
$ 30 $ 30 $ 125 $ 115
In connection with the sales of property owned by affiliated limited
partnerships, a licensed real estate brokerage affiliate of the Pembroke Group
was paid brokerage fees as follows:
Fees For The Fees For The Fees For The Fees For The
Three Months Three Months Nine Months Nine Months
Ended 09/30/03 Ended 09/30/02 Ended 09/30/03 Ended 09/30/02
-------------- -------------- ------------- -------------
$ - $ - $ 12 $ 37
The Pembroke Group and the Millenium Group, whose members are affiliates of NPO,
were issued a total of 400,000 shares of common stock, valued at $32, during the
first quarter of 2002 for additional services rendered to the Company outside
the scope of the Asset Servicing Agreement (defined below).
C. In connection with the acquisitions of residual interests in Receivables II-A
and Receivables II-B, affiliates of NPO and the special director of the Company
will be paid investment banking fees of $900 in the aggregate for their services
in connection with the origination, negotiation and structuring of the
transactions. The fee is payable without interest, over 30 months starting in
January, 2002, from a portion of the monthly cash flow generated by the
acquisitions. At September 30, 2003, $270 remained payable.
D. Interest expense on amounts due to affiliates was as follows:
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
09/30/03 09/30/02 09/30/03 09/30/02
----------- ----------- --------- ----------
Blackacre Capital Group, LLC $ 73 $ 71 $ 214 $ 208
NPO 1 2 4 9
------------ ------------ ---------- ----------
$ 74 $ 73 $ 218 $ 217
============ ============ ========== ==========
E. The Company recorded fees to NPO of $501 and $489 for the nine months ended
September 30, 2003 and 2002, respectively, plus other expenses of $5 in 2003 and
$7 in 2002 under the Asset Servicing Agreement (the "Asset Servicing Agreement")
between the Company and NPO, pursuant to which NPO provides the Company with
administrative and advisory services relating to the assets of the Company and
its Affiliated Limited Partnerships. During 2003 and 2002 the Company provided
office space under the Asset Servicing Agreement to NPO consisting of 228 square
feet of the Company's New York location.
12
7. Contingent Liabilities
Pursuant to the terms of the Limited Partner Settlement, a fund has been
established into which DVL is required to deposit 20% of the cash flow received
on certain of its mortgage loans from Affiliated Limited Partnerships after
repayment of certain creditors, 50% of DVL's receipts from certain loans to, and
general partnership investments in, Affiliated Limited Partnerships and a
contribution of 5% of DVL's net income (based on accounting principles generally
accepted in the United States of America) subject to certain adjustments in the
years 2001 through 2012. The adjustments are significant enough that no amounts
were accrued for the nine months ended September 30, 2003 and 2002.
During the nine months ended September 30, 2003 and 2002, the Company
expensed approximately $108 and $219, respectively, for amounts due to the fund,
of which approximately $1 and $0, respectively, was accrued at September 30,
2003 and 2002. These costs have been netted against the gain on satisfaction of
mortgages and/or interest on mortgage loans, where appropriate.
The real estate lease interest held by the Company's subsidiary,
Professional Service Corporation, is subject to a master lease agreement through
June 2010 which requires monthly payments of approximately $39. The master lease
payments are netted against rental income in the Company's financial statements.
DVL is a limited recourse guarantor on debt of approximately $2,286 which is
secured soley by DVL's interest in the property.
8. Shareholder's Equity
The Company has the option to redeem the outstanding Notes (approximately
$1,947 at September 30, 2003) by issuing additional shares of Common Stock with
a then current market value (determined based on a formula set forth in the
Notes), equal to 110% of the face value of the Notes plus any accrued and unpaid
interest thereon. Because the applicable market value of the Common Stock will
be determined at the time of redemption, it is not possible currently to
ascertain the precise number of shares of common stock that may have to be
issued to redeem the outstanding Notes. The redemption of the notes may cause
significant dilution for current shareholders. On October 10, 2003 the Company
gave notice of redemption to the holders of approximately $750,000 principal
amount of Notes. Pursuant to such notice, such holder's Notes will be redeemed
for an aggregate of approximately 6,059,000 shares of Common Stock.
In 1996, affiliates of NPM Capital, LLC ("NPM") acquired 1,000,000 shares
(the "Base Shares") of DVL Common Stock and DVL issued to affiliates of NPM and
NPO warrants (the "Warrants") to purchase shares of Common Stock which, when
added to the Base Shares, aggregates 49% of the outstanding Common Stock of DVL,
adjusted for shares of Common Stock subsequently issued to and purchased by
affiliates of NPM and NPO, on a diluted basis expiring December 31, 2007. The
original exercise price of the Warrants was $.16 per share, subject to
applicable anti-dilution provisions, including without limitation, anti-
dilution protection from any redemption of the Notes and subject to a maximum
aggregate exercise price of $1,916. At September 30, 2003, shares underlying the
Warrants aggregated 32,018,599 at an exercise price of $.06. No warrants have
been exercised through September 30, 2003.
The actual dilutive effect of the Warrants and the Notes cannot be currently
ascertained since it depends on the number of shares to be actually issued to
satisfy the Notes and the Warrants. The Company currently intends to exercise at
some point in the future its redemption option for the remaining Notes to the
extent it does not buy back the outstanding Notes by means of cash tender offers
or cash redemptions.
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 September 30, 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
9. Earnings per share (unaudited)
The following tables present the computation of basic and diluted per share data
for the three and nine months ended September 30, 2003 and 2002.
Nine Months Ended September 30,
-------------------------------
2003 2002
------------------------------------ --------------------------------------
Weighted Weighted
Average Average
Number of Per Share Number of Per Share
Amount Shares Amount Amount Shares Amount
------ ---------- --------- ------- ------------ ---------
Basic EPS,
Income available to common stockholders $ 579 21,713,563 $ .03 $ 1,310 21,713,563 $ 0.06
======== =======
Effect of litigation settlement notes 209 13,476,168 230 14,989,916
Effect of dilutive stock options and warrants - 20,179,283 - 21,958,483
----- ----------- ------ ------------
Diluted EPS,
Income available to common stockholders $ 788 55,369,014 $ .01 $1,540 58,661,962 $ 0.03
===== =========== ======== ====== ============ =======
Three Months Ended September 30,
--------------------------------
2003 2002
----------------------------------- -------------------------------------
Weighted Weighted
Average Average
Number of Per Share Number of Per Share
Amount Shares Amount Amount Shares Amount
------ ---------- --------- ------- ------------ ---------
Basic EPS,
Income available to common stockholders $(351) 21,713,563 $ (.02) $ 377 21,713,563 $ 0.02
======== =======
Effect of litigation settlement notes - - 68 14,435,869
Effect of dilutive stock options and warrants - - - 20,878,646
----- ---------- ----- ------------
Diluted EPS,
Income available to common stockholders $(351) 21,713,563 $ (.02) $ 445 57,028,078 $ 0.01
===== =========== ======== ===== ============ =======
14
At September 30, 2003 and 2002 there were 4,008,131 and 3,848,131,
respectively, potentially dilutive options and warrants excluded from the
computation of Diluted EPS because the exercise price was greater than the
average market price of the Common Stock, thereby resulting in an anti-dilutive
effect.
The following pro forma information regarding net income and earnings per
share is required by Statement of Financial Accounting Standards ("SFAS") No.
123 "Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", which was released in
December 2002 as an amendment of SFAS No. 123.
Three Months Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
---- ---- ---- ----
Net (loss) income $ (351) $ 377 $ 579 $ 1,310
Stock-based employee compensation
expense included in reported net
income, net of related tax effects 4 - 17 -
Stock-based employee compensation
determined under the fair value
based method, net of related tax
effects (4) - (17) -
------- ------- ------- -------
Proforma net (loss) income $ (351) $ 377 $ 579 $ 1,310
======= ======= ======= =======
(Loss) earnings per share:
Basic $ (.02) $ 0.02 $ .03 $ 0.06
======= ======= ======= =======
Diluted $ (.02) $ 0.01 $ .01 $ 0.03
======= ======= ======= =======
Proforma (loss) earnings per share
Basic $ (.02) $ 0.02 $ .03 $ 0.06
======= ======= ======= =======
Diluted $ (.02) $ 0.01 $ .01 $ 0.03
======= ======= ======= =======
For the three and nine months ended September 30, 2003 the Company recognized an
expense of $4 and $17, respectively, relating to the issuance and repricing of
options.
15
10. 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 income of $365 and $361 in the nine months ended September
30, 2003 and 2002 respectively, include $365 and $380 of deferred income tax
benefit, respectively.
Nine Months Ended
September 30,
--------------------
2003 2002
------- -------
Revenues
Real estate $ 3,213 $ 3,672
Residual interests 3,401 3,269
Corporate/Other 39 30
------- -------
Total consolidated revenues $ 6,653 $ 6,971
======= =======
Net income
Real estate $(1,056) $ (203)
Residual interests 1,270 1,152
Corporate/Other 365 361
------- -------
Total consolidated net income $ 579 $ 1,310
======= =======
September 30,
--------------------
2003 2002
------- -------
Assets
Real estate $38,796 $43,023
Residual interests 37,313 37,304
Corporate/other 1,887 1,430
------- -------
Total consolidated assets $77,996 $81,757
======= =======
11. Income Taxes
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("FAS 109"), which requires the Company
to recognize deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. In addition, FAS
l09 requires the recognition of future tax benefits such as net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not.
For the nine months ended September 30, 2003 and 2002 the Company
recognized $440 and $380, respectively of income tax benefit as a result of a
reduction in the valuation allowance on deferred tax assets.
16
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in thousands)
This September 30, 2003 Quarterly Report on Form 10-Q 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 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-K for the fiscal year ended December 31, 2002.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principals generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to residual interests and allowance for losses. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
RESIDUAL INTERESTS: Residual interests represent the estimated discounted
cash flow of the differential of the total interest to be earned on the
securitized receivables and the sum of the interest to be paid to the
noteholders and the contractual servicing fee. Since these residual interests
are not subject to prepayment risk they are accounted for as investments
held-to-maturity and are carried at amortized cost using the effective yield
method. Permanent impairments are recorded immediately through earnings.
Favorable changes in future cash flows are recognized through earnings as
interest over the remaining life of the retained interest.
INCOME RECOGNITION: Interest income is recognized on the effective interest
method for the residual interest and all performing loans. The Company stops
accruing interest once a loan becomes non-performing. A loan is considered
non-performing when scheduled interest or principal payments are not received on
a timely basis and in the opinion of management, the collection of such payments
in the future appears doubtful. Interest income on restructured loans are
recorded as the payments are received.
ALLOWANCE FOR LOSSES: The adequacy of the allowance for losses is
determined through a quarterly review of the portfolios. Specific loss reserves
are provided as required based on management's evaluation of the underlying
collateral on each loan or investment.
DVL's allowance for loan losses generally is based upon the value of the
collateral underlying each loan and its carrying value. Management's evaluation
considers the magnitude of DVL's non-performing loan portfolio and internally
generated appraisals of certain properties.
17
For the Company's mortgage loan portfolio, the partnership properties are
valued based upon the cash flow generated by base rents and anticipated
percentage rents or base rent escalations to be received by the partnership. The
value of partnership properties which are not subject to percentage rents was
based upon historical appraisals. Management believes that generally, the values
of such properties have not changed as the tenants, lease terms and timely
payment of rent have not changed. When any such changes have occurred,
management revalues the property as appropriate. Management evaluates and
updates such appraisals periodically, and considers changes in the status of the
existing tenancy in such evaluations. Certain other properties were valued based
upon management's estimate of the current market value for each specific
property using similar procedures.
IMPAIRMENT OF REAL ESTATE INVESTMENTS AND REAL ESTATE LEASE INTERESTS: A
write-down for impairment is recorded based upon a periodic review of the real
estate and real estate lease interests owned by the Company. Real estate and
real estate lease interests are carried at the lower of depreciated cost or
estimated fair value. In performing this review, management considers the
estimated fair value of the property based upon cash flows, as well as other
factors, such as the current occupancy, the prospects for the property and the
economic situation in the region where the property is located. Because this
determination of estimated fair value is based upon future economic events, the
amounts ultimately reflected in an appraisal or realized upon a disposition may
differ materially from the carrying value.
A write-down is inherently subjective and is based upon management's best
estimate of current conditions and assumptions about expected future conditions.
The Company may provide for write-downs in the future and such write-downs could
be material.
LIMITED PARTNERSHIPS: DVL does not consolidate any of the various
Affiliated Limited Partnerships in which it holds the general partner and
limited partner interests nor does DVL account for such interests on the equity
method due to the following: (i) DVL's interest in the partnerships as the
general partner is a 1% interest, (the proceeds of such 1% interest is payable
to the limited partnership settlement fund pursuant to the 1993 settlement of
the class action between the limited partners and DVL) the ("Limited Partnership
Settlement"); (ii) under the terms of such settlement, the limited partners have
the right to remove DVL as the general partner upon the vote of 70% or more of
the limited partners; (iii) all major decisions must be approved by a limited
partnership Oversight Committee in which DVL is not a member, (iv) there are no
operating policies or decisions made by the Affiliated Limited Partnership, due
to the triple net lease arrangements for the Affiliated Limited Partnership
properties and (v) there are no financing policies determined by the
partnerships as all mortgages were in place prior to DVL's obtaining its
interest and all potential refinancings are reviewed by the Oversight Committee.
Accordingly, DVL accounts for its investments in the Affiliated Limited
Partnerships, on a cost basis with the cost basis adjusted for impairments which
took place in prior years.
RECENTLY ISSUED ACCOUNTING STANDARDS:
In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No.
150, "Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity". SFAS No. 150 requires issuers to classify the following
freestanding financial instruments as liabilities: mandatory redeemable
financial instruments, obligations to repurchase the issuer's equity shares by
transferring assets and certain obligations to issue a variable number of
shares. SFAS No. 150 is effective for the first periods beginning after June 15,
2003.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46") "Consolidation
of Variable Interest Entities," in an effort to expand upon and strengthen
existing accounting guidance on when a company should include in its financial
statements the assets, liabilities and activities of another entity. FIN 46 is
effective for years ending after December 15, 2003.
The Company has not yet determined what impact the adoption of SFAS No. 150 and
FIN 46 will have on its operations and financial positions.
18
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2002
DVL had a net loss of $351 as compared to net income of $377 for the three
months ended September 30, 2003 and 2002, respectively.
Interest income on mortgage loans from affiliates decreased (2003 - $691, 2002 -
$699) and interest expense on underlying mortgages decreased (2003 - $331, 2002
- - $354) principally because the Company was satisfied on two mortgage loans thus
repaying the underlying mortgages. In addition the Company foreclosed on two
mortgage loans which were delinquent.
The gain on satisfaction of mortgage loans was as follows:
Three Months Ended Three Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
$ 11 $ -
Gain on satisfaction of mortgage loans results when the net proceeds on the
satisfaction of a mortgage loan is greater than its carrying value. The gain for
the three months ended September 30, 2003 resulted from additional proceeds
received on mortgages which were satisfied in prior periods.
Management fees decreased (2003 - $39, 2002 - $52) due to the foreclosure of a
property under the Company's management.
Transaction and other fees from affiliated limited partnerships were as follows:
Three Months Ended Three Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
$ 1 $ 98
Transaction fees are earned by the Company in connection with sales of
partnership properties, and fewer partnership properties were sold during the
third quarter 2003 compared to the third quarter 2002.
Interest income on residual interests (2003 - $1,151, 2002 - $1,093) and
interest expense on the related notes payable (2003 - $707, 2002 - $691)
remained consistent as the periodic payment receivables continued to perform.
Three Months Ended Three Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Net rental (loss) income from others $ (36) $ 194
Gross rental income from others $ 392 $ 615
The decrease in net rental income was the result of the temporary tenant, which
had contributed to higher gross rents in previous periods, vacating the property
operated by the Company under the master lease.
The Company has recognized an impairment on the real estate lease interest of
$462 in 2003 to properly reflect the anticipated realizable value following the
vacancy of a portion of the property by the temporary tenant. The Company
continues to try to sell the underlying property and its master lease pursuant
to an agreement with the fee owner which allocates sale proceeds between the
parties.
19
General and administrative expenses decreased (2003 - $349, 2002 - $354). The
primary reasons for the decrease were decreased stockholder costs and decreased
office equipment costs.
The asset servicing fee due from the Company to NPO increased (2003 - $169, 2002
- - $164) pursuant to the terms of the Asset Servicing Agreement.
In 2002 the Company recognized an $11 loss from redeeming notes at face value
which were carried at a discount.
Interest expense relating to other debts increased (2003 - $190, 2002 - $157)
because the Company borrowed $3,968 in August 2002 to finance the purchase of
real estate.
In 2003 the Company recognized an income tax benefit of $83 reduced by an income
tax expense of $25. In 2002 the income tax benefit of $86 relating to the
elimination of the alternative minimum tax for 2001 was not reduced by an income
tax expense as no expense was anticipated for the period.
NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2002
DVL had net income of $579 and $1,310 for the nine months ended September 30,
2003 and 2002.
Interest income on mortgage loans from affiliates decreased (2003 - $2,071, 2002
- - $2,203) and interest expense on underlying mortgages decreased (2003 - $1,028,
2002 - $1,236). During 2002 and 2003, the Company was satisfied on two mortgage
loans, thus repaying the underlying mortgages. In addition the Company
foreclosed on two mortgage loans which were delinquent.
Gain on satisfaction of mortgage loans were as follows:
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
$ 99 $ 252
The gains in 2002 and 2003 were a result of the Company collecting net proceeds
on the satisfaction of mortgage loans that were greater than the carrying values
of such loans.
Transaction and other fees from affiliated limited partnerships were as follows:
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
$ 38 $ 167
Transaction fees were earned by the Company in connection with the sales of
partnership properties and the Company sold fewer partnership properties during
2003 compared to 2002.
Management fees decreased (2003 - $182, 2002 - $206) due to the foreclosure of a
property under the Company's management.
Interest income on residual interests (2003 - $3,401, 2002 - $3,269) and
interest expense on the related notes payable (2003 - $2,118, 2002 - $2,079)
remained consistent as the periodic payment receivables continued to perform.
Nine Months Ended Nine Months Ended
September 30, 2003 September 30, 2002
------------------ ------------------
Net rental income from others $ 495 $ 522
Gross rental income from others $ 1,727 $ 1,772
20
The decrease in net rental was the result of a temporary tenant, which had
contributed to higher gross rents in prior periods, vacating the property
operated by the Company under the master lease.
The Company has recognized an impairment on the real estate lease interest of
$462 in 2003 to properly reflect the anticipated realizable value following the
vacancy of a portion of the property by the temporary tenant. The Company
continues to try to sell the underlying property and its master lease pursuant
to an agreement with the fee owner which allocates sale proceeds between the
parties.
General and administrative expenses increased to $1,168 in 2003 from $1,113 in
2002. The primary reasons for the increase were greater stockholder and
insurance costs as well as franchise taxes.
The asset servicing fee due from the Company to NPO increased (2003 - $501, 2002
- - $489) pursuant to the terms of the Asset Servicing Agreement.
Legal and professional fees decreased (2003 - $169, 2002 - $272) as a result of
the Company requiring fewer legal and professional services.
In 2002 the Company recognized a $71 loss from redeeming notes at face value
which were carried at a discount.
Interest expense on the litigation settlement notes decreased (2003 - $209, 2002
- - $230) as a result of the redemption of litigation settlement notes during
2002.
Interest expense relating to other debts increased (2003 - $566, 2002 - $420)
primarily due to the Company borrowing $3,968 in August 2002 to finance the
purchase of real estate.
In 2003 the Company recognized an income tax benefit of $440 reduced by an
income tax expense of $75. In 2002 a deferred income tax benefit of $380 and an
income tax benefit of $86 relating to the elimination of the alternative minimum
tax for 2001 were not reduced by an income tax expense as no expense was
anticipated for the period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations is generated principally from
rental income from its leasehold interests and ownership of real estate,
distributions in connection with the 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 believes that its anticipated cash flow provided by operations
is sufficient to meet its current cash requirements through at least November
2004. The Company believes that its current liquid assets will be sufficient to
fund operations on a short-term basis as well as on a long-term basis.
The Company obtained an unsecured line of credit on December 15, 2002 which
provides for aggregate borrowings of up to $500 with an interest rate of prime
plus one percent per annum and terminates December 15, 2003. To date the Company
has drawn $283 on the line of credit in order to retire an underlying mortgage
loan which bore interest at a higher rate. The terms of the line of credit
provide that interest shall be payable on the first day of each month. The
Company is repaying the line of credit monthly.
The Company's member interests in Receivables II-A and Receivables II-B
should provide significant liquidity to the Company.
21
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
----- ------- -------
2003 to 2009 $ 743 $ 880
2010 to final payment $ 1,050 $ 1,150
on the notes*
*Final payment on the notes payable expected 2016 related to the Receivables
IIA transaction and 2018 for the Receivables IIB transaction.
The Company believes it will receive significant cash flow after final
payment of the notes payable.
ACQUISITIONS AND FINANCINGS
Loans which are scheduled to become due through 2008 are as follows:
Outstanding
Original Principal
Loan Balance at Due
Purpose Creditor Amount September 30, 2003 Date
- ------- -------- ------------- ------------------ ----
Repurchase of Notes
Issued by the Company Blackacre(1) $ 1,560 $ 2,276 01/02/05
Purchase of Mortgages Unaffiliated Bank(2)(3) $ 1,000 $ 479 05/01/06
Purchase of a Mortgage
and Refinancing of
Existing Mortgages Unaffiliated Bank(2)(3) $ 1,450 $ 653 11/30/06
Purchase of Real Estate
Assets Unaffiliated Bank(4) $ 4,500 $ 4,532 09/01/04
Purchase of Mortgages Unaffiliated Bank(5)(2) $ 400 $ 238 06/01/06
Purchase of Real Estate
Assets Unaffiliated Bank(6) $ 2,668 $ 2,625 06/30/08
(1) Interest rate is 12% per annum, compounded monthly. Interest is added to
principal and is paid from a portion of cash received in satisfaction of
certain mortgage loans. The Company paid a fee of $25 to extend the due
date for the payment of the then outstanding principal until 01/02/05.
(2) This loan self-amortizes.
(3) Interest rate is prime plus 1.5% per annum, payable monthly.
(4) Interest rate is 8.5% per annum. Monthly payments are interest only.
(5) Interest rate is 8.25% per annum, payable monthly.
(6) Interest rate is 7.5% per annum with a balloon payment due June 30, 2008
of $2,285.
22
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
DVL has no substantial cash flow exposure due to interest rate changes for
long term debt obligations, because a majority of the long-term debt is at fixed
rates. DVL primarily enters into long-term debt for specific business purposes
such as the repurchase of debt at a discount, the acquisition of mortgage loans
or the acquisition of real estate.
DVL's ability to realize value on its mortgage holdings is sensitive to
interest rate fluctuations in that the sales prices of real property and
mortgages vary with interest rates.
ITEM 4. CONTROLS AND PROCEDURES
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. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that, as of September 30, 2003, our disclosure controls and procedures
are effective in timely alerting them to material information required to be
included in our periodic SEC reports.
No change occurred in the Company's internal controls concerning financial
reporting during the Company's third quarter that has materially affected, or is
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
23
Part II - Other Information
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 10, 2003, the Company gave notice of redemption to the
holders of approximately $750,000 principal amount of Notes. Pursuant
to the terms of the Notes, the Company had the option to redeem the
outstanding Notes by issuing to the holders shares of the Company's
Common Stock with a current market value equal to 110% of the face
value of the Notes plus accrued and unpaid interest thereon. Such
holders' Notes will be redeemed for an aggre- gate of 6,058,871 shares
of Common Stock. There were no underwriters or placement agents
involved in the redemption and no commissions were paid. The Company
relied upon the exemption provided by Section 3(a)(9) of the Securities
Act of 1933.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits: 31.1 Chief Executive Officer's Certificate, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Chief Financial Officer's Certificate, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Chief Executive Officer's Certificate, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32.2 Chief Financial Officer's Certificate, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
(B) During the three months ended September 30, 2003 the Company filed a
Form 8-K dated August 14, 2003.
24
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/ Jay Thailer
-----------------------------
Jay Thailer, Executive Vice
President and Chief Financial
Officer
November 13, 2003
25