Attached files
| file | filename |
|---|---|
| EX-21 - DVL INC /DE/ | e606646_ex21.htm |
| EX-32 - DVL INC /DE/ | e606646_ex32.htm |
| EX-31.2 - DVL INC /DE/ | e606646_ex31-2.htm |
| EX-31.1 - DVL INC /DE/ | e606646_ex31-1.htm |
| EX-10.54 - DVL INC /DE/ | e606646_ex10-54.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December 31, 2009
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from _________ to _________
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Commission
File Number: 1-8356
DVL,
INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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13-2892858
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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70
East 55th
Street, New York, New York
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10022
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(Address
of principal executive offices)
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(Zip
Code)
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(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)
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Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
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Title of
Each Class
Common Stock, $.01 par value
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Name of Exchange on
Which Registered
None
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Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act. o Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act. o Yes x No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). o Yes o No
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 o No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or smaller reporting
company. See the definitions of “large accelerated filer,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large
accelerated filer o
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Accelerated
filer o
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Non-accelerated
filer (Do not check if a smaller reporting company) o
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Smaller
reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o Yes x No
The
aggregate market value of the voting and non-voting Common Equity of the
Registrant held by non-affiliates as of June 30, 2009 was
$2,176,968.
The
number of shares outstanding of Common Stock of the Registrant as of March 26,
2010 was 44,770,345.
DOCUMENTS
INCORPORATED BY REFERENCE
None
DVL,
INC.
INDEX
TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE
SECURITIES AND EXCHANGE COMMISSION
YEAR
END DECEMBER 31, 2009
ITEMS
IN FORM 10-K
_____________
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Page
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PART
I
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Item
1.
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1
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Item
1A.
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5
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Item
1B.
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5
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Item
2.
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5
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Item
3.
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5
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Item
4.
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5
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PART
II
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Item
5.
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6
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Item
6.
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6
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Item
7.
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6
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Item
7A.
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12
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Item
8.
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12
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Item
9.
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13
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Item
9A(T).
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13
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Item
9B.
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14
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PART
III
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Item
10.
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15
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Item
11.
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17
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Item
12.
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19
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Item
13.
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21
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Item
14.
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22
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PART
IV
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Item
15.
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22
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This 2009
Annual Report on Form 10-K 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 the Registrant and its management
team. The Registrant’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, the ability of the Registrant to obtain additional
financing, the ability of the Registrant to successfully implement its business
strategy and other risks and uncertainties that are discussed
herein.
All
dollar amounts presented herein are in thousands except share and per share
amounts.
|
ITEM
1.
|
BUSINESS. |
OVERVIEW
DVL,
Inc., a Delaware corporation incorporated in 1977, is a commercial finance
company which is primarily engaged in (a) the ownership of residual interests in
securitized portfolios, (b) the ownership and servicing of a portfolio of
secured commercial mortgage loans made to limited partnerships in which DVL
serves as general partner, which we refer to as an Affiliated Limited
Partnership, (c) the ownership of real estate and (d) the performance of real
estate asset management and administrative services. All references
to “DVL”, “we”, “us”, “our”, or the “Company” refer to DVL, Inc. and its
consolidated subsidiaries.
Our current strategy is to maximize the
value of our assets and meet our short-term working capital needs by continuing
to manage, administer and service our existing loan portfolio and develop, lease
and refinance or sell an 8.5 acre retail site located in Kearny, NJ which we
have owned for many years and for which we have been designated as developer by
the Town of Kearny to redevelop such property. However, because of
the current economic conditions, the development of the Kearny property has
taken longer than originally projected. In the current economic
market there is no assurance that the project will be developed. In
addition, in order for us to undertake the redevelopment of such property, we
will need to obtain construction financing, and, potentially additional loan or
equity financing, and given, current economic conditions, there can be no
assurance that any such financing will be obtained on acceptable terms or at
all.
We derive
the majority of our income from (i) the residual interests in securitized
receivables portfolios, net of interest expense on the related notes payable,
(ii) the wrap-around and first mortgages to Affiliated Limited Partnerships (as
a result of the difference in the effective interest rates between the
wrap-around mortgage and the underlying mortgage), (iii) percentage rents
received from various tenants of the Affiliated Limited Partnerships, (iv)
rentals received as a result of our real estate holdings, (v) fees received as
general partner of the Affiliated Limited Partnerships (including disposition
and management fees), (vi) distributions received as a limited partner in the
Affiliated Limited Partnerships, and (vii) fees from management
contracts.
Pursuant to the terms of the 1993
settlement of a class action between us and the limited partners of Affiliated
Limited Partnerships, a fund has been established into which we are required to
deposit (i) 20% of the cash flow received on certain of our mortgage loans from
Affiliated Limited Partnerships after repayment of certain creditors, (ii) 50%
of our receipts from certain loans to, and general partnership investments in,
Affiliated Limited Partnerships and (iii) a contribution of 5% of our net income
(based on accounting principles generally accepted in the United States of
America) subject to certain adjustments in the years 2001 through
2012. For 2009, we have accrued $21 relating to 5% of our net income
less certain adjustments.
Our principal executive offices are
located at 70 East 55th
Street, 7th
Floor, New York, New York, 10022. Our telephone number is (212)
350-9900. We have not engaged in any business activity outside of the
United States.
1
BUSINESS
ACTIVITIES
Residual Interests in
Securitized Portfolios
Through
our wholly-owned subsidiary, S2 Holdings, Inc. which we refer to as S2, we own a
99.9% Class B membership interest in each of Receivables II-A LLC, which we
refer to as Receivables II-A, and Receivables II-B LLC, which we refer to as
Receivables II-B. Receivables II-A and Receivables II-B receive all
of the residual cash flow from five securitized receivable pools after payment
to the securitized noteholders. Pursuant to the terms of Receivables
II-A and Receivables II-B’s operating agreements, we are allocated 99.9% of all
items of income, loss and distribution of Receivables II-A and Receivables
II-B.
We
acquired the Class B membership interests in exchange for the issuance of
limited recourse promissory notes by S2. The notes bear interest at a
rate of 8% per annum and principal and interest are payable solely from monthly
cash flow. The notes mature from 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. We also issued a guaranty of payment of up to $3,443 of
the purchase price. The amount of the guaranty is regularly reduced
by 10% of the principal paid. The amount of the guaranty at December
31, 2009 was $1,506.
Loan
Portfolio
Our mortgage loan portfolio
historically consisted primarily of wrap-around mortgage loans made to
Affiliated Limited Partnerships which were subject to non-recourse, underlying
mortgages held by unrelated institutional lenders. Under a
wrap-around mortgage loan, the majority of the mortgage payments from the
Affiliated Limited Partnerships are used to pay the required monthly principal
and interest payments on the underlying mortgage which the wrap-around mortgage
“wraps”. We build equity in the wrap-around mortgage loans over time
as the principal balance of the underlying mortgage loans are
amortized. In addition, pursuant to the terms of the wrap-around
mortgage loans, we are entitled to receive as additional debt service a portion
of the Affiliated Limited Partnerships’ percentage rent income, if
any.
At
December 31, 2009, our mortgage loan portfolio consisted of 7 wrap-around
mortgage loans with a net carrying value of $4,384 and 11 first mortgage loans
with a net carrying value of $6,058. All of our mortgage loans are
collateral for various debt. With respect to our remaining wrap-around mortgage
loans, the satisfaction of these wrap-around mortgage loans is dependent on the
ability of the underlying affiliated limited partnership entering into a lease
extension with the current tenant, finding a new tenant or being able to sell
the property for sufficient value. If the affiliated limited partnership
is unable to do so, it is likely that we will foreclose on such wrap-around
mortgage loan.
The majority of the properties
underlying our mortgage loan portfolio are net leased pursuant to leases which
require the tenant to pay for all taxes, insurance and other property costs and
which provide for lease payments sufficient to amortize the applicable
underlying mortgage. In certain leases, the property owner is
required to maintain the roof and structure of the premises. With
respect to 10 of the loans in our mortgage loan portfolio with net carrying
values of $6,170 as of December 31, 2009, the tenant of the underlying property
is Wal-Mart Stores, Inc. Accordingly, a bankruptcy of Wal-Mart would
have a material negative impact on our ability to realize full value on these
loans.
In addition to base rent, the leases to
Wal-Mart require the tenant to pay additional rent, which we refer to as
percentage rent, equal to a percentage of gross receipts from the tenant’s
operation of a property above a specified amount. In all cases where
percentage rent is payable, a portion of the percentage rent is required to be
paid to us as additional interest and/or additional debt service on our
mortgage.
2
Real Estate
Properties
Our real
estate properties consist of (i) 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, which we refer to as the Owned Site, (ii) an 89,000
square foot building on approximately eight acres of land leased to K-Mart in
Kearny, NJ which is adjacent to the Owned Site, (iii) an interest in a property
in Bogota, NJ and (iv) five properties which we acquired through foreclosure,
including a property located in Iowa Park, Texas which was foreclosed on in
November 2009. During 2009, we sold three previously foreclosed upon
properties for net proceeds of $1,788 for a loss of $9.
The
Owned Site-Kearny Property
The Owned
Site represents a portion of the Passaic River Development area designated for
redevelopment by the town of Kearny, New Jersey, which we refer to as the Kearny
Property. In connection with the redevelopment of the Kearny
Property, on December 11, 2007, we entered into a Redeveloper Agreement with the
Town of Kearny. As redeveloper, the Town of Kearny designated us as
the redeveloper of the Kearny Property. Pursuant to the Redeveloper
Agreement, we are obligated to redevelop the Kearny Property, at our 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 our rights there under which were originally set to expire
on December 31, 2009, was extended to May 1, 2011. If we are in default of any
terms or conditions of the Redeveloper Agreement and do 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.
To date,
we have not commenced construction with respect to the redevelopment of the
Kearny Property and given the current economic environment there can be no
assurance that we will commence construction in the near future. In
addition, there can be no assurance that we will be able to secure tenants or
obtain the necessary financing to commence or complete
redevelopment.
In order
to undertake and complete the redevelopment of the Property, we will need to
obtain construction financing and, potentially additional loan or equity
financing, and given current economic conditions, there can be no assurance that
any such additional financing will be obtained on acceptable terms or at all.
Additionally, given the current economic conditions, there can be no assurance
that the redevelopment will occur within the time period required under the
Redevelopment Agreement or at all.
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. The Company
has agreed to indemnify Messrs. Cohen and Casnoff from any liability related to
the Redeveloper Agreement.
The
Bogota Property
In
October 2004, we 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 certain of our 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,
we own an 8.25% limited partner interest in one of these
partnerships. As of December 31, 2009, the sale has not yet been
consummated and the third party continues to lease space. We brought
an action against the prior tenants of the property for environmental
contamination and have received $400 towards the cleanup costs for the property.
The total expenses to be reimbursed to us are approximately $721 as of December
31, 2009 not including the $50 fee or any amounts to be received as a limited
partner.
3
Foreclosed
Properties
The following table identifies the
properties we have acquired through foreclosure and which were held by us at
December 31, 2009.
|
Location
|
Sq.
Ft.
|
Acreage
|
Tenant
|
|
Brent,
AL
|
34,875
|
5.34
|
Vacant
|
|
Fort
Edward, NY
|
31,000
|
6.00
|
Vacant
|
|
Soddy
Daisy, TN
|
56,127
|
5.91
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Vacant
|
|
Kennedy,
TX
|
44,752
|
5.52
|
Vacant
|
|
Iowa
Park, TX
|
43,769
|
4.36
|
Vacant
|
We are currently marketing these
properties for sale and / or lease.
Partnership
Management
We serve as the general partner of the
Affiliated Limited Partnerships. In this capacity we are entitled to
receive management, transaction and other fees as permitted by the terms of the
applicable Affiliated Limited Partnerships’ partnership agreement. In
addition, we provide management, accounting, and administrative services to
certain affiliated entities.
Employees
As of December 31, 2009, we had no
employees. Our affairs are administered by Compensation Solutions,
Inc., which we refer to as CSI, pursuant to the terms of a “leasing”
contract. Pursuant to the leasing contract, CSI provides us with the
necessary personnel, including certain executive officers, necessary to
administer our affairs. Accordingly, CSI provides such employees with
their medical, unemployment, workmen’s compensation and disability insurance
through group insurance plans maintained by CSI for the benefit of us and other
clients of CSI. Pursuant to the contract, the cost of such insurance
as well as the payroll obligations for the leased employees is funded by us to
CSI, and CSI is required to then apply such proceeds to cover the payroll and
administrative costs to the employees. Should CSI fail to meet its
obligations under the contract, we would be required to either locate a
substitute employee leasing firm or directly re-employ our
personnel. The contract is cancelable upon 30 days written notice by
either party.
As of
March 26, 2010, we had 10 employees leased through CSI, all of whom were
employed on a full-time basis other than the President, who serves on a
part-time basis. We are not a party to any collective bargaining
agreement and our personnel are not represented by any labor union.
On
November 2, 2009, we entered into an agreement with Real Estate Systems
Implementation Group, LLC, which we refer to as RESIG, an affiliate of Imowitz
Koenig & Co., LLP, our former independent registered public accountants
(“IKC”), pursuant to which RESIG will provide substantially all of our internal
accounting, financial statement preparation and bookkeeping functions on an
outsourced consulting basis. A requirement of the agreement was the
appointment of Neil H. Koenig as our Chief Financial Officer, Principal
Financial Officer and Principal Accounting Officer. Mr. Koenig is a
managing member of RESIG and a managing member of IKC.
Segments
We have two reportable segments; real
estate and residual interests. You can find information about our
business segment information in “Item 8. Financial Statements and
Supplementary Data-Note 12.”
4
|
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
1B.
|
UNRESOLVED STAFF COMMENTS. |
None
|
ITEM
2.
|
PROPERTIES. |
Information relating to our owned
properties is set forth above in Item 1, Business-Real Estate
Properties.
We
maintain corporate headquarters in New York City in a leased facility located at
70 E. 55th
Street, New York, New York, which occupies approximately 5,600 square feet of
office space. Our lease is scheduled to expire on March 31,
2015. Our base rent is $386 per annum, increasing to $409 beginning
April 1, 2013. We believe that our existing facilities are adequate
to meet our current operating needs and that suitable additional space should be
available to us on reasonable terms should we require additional space to
accommodate future operations or expansion.
|
ITEM
3.
|
LEGAL PROCEEDINGS. |
From time to time we are a party in
various lawsuits incidental to our business operations. In our
opinion, none of such litigation in which it is currently a part, if adversely
determined, will have a material adverse effect on our financial condition or
its operations.
|
ITEM
4.
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RESERVED. |
5
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Our
common stock is traded on the over-the-counter market and is quoted on the OTC
Bulletin Board maintained by the FINRA under the symbol
“DVLN.OB”. The following table sets forth, for the calendar periods
indicated, the high and low bid prices of the common stock as reported by the
NASD. Such prices are inter-dealer prices without retail mark-up,
mark-down or commission, and do not represent actual transactions.
|
2009
|
High
|
Low
|
|
|
||
|
Fourth
Quarter
|
$.13
|
$
.09
|
|
Third
Quarter
|
.12
|
.07
|
|
Second
Quarter
|
.10
|
.06
|
|
First
Quarter
|
.12
|
.07
|
|
2008
|
||
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Fourth
Quarter
|
$
.18
|
$
.07
|
|
Third
Quarter
|
.19
|
.16
|
|
Second
Quarter
|
.19
|
.11
|
|
First
Quarter
|
.17
|
.09
|
At March
26, 2010, there were 3,515 holders of record of our common stock. We
estimate the total number of beneficial owners to be approximately
5,200.
No
dividends have been paid since October 1990. At this time, we do not
anticipate paying any dividends in the foreseeable future.
|
ITEM
6.
|
SELECTED
FINANCIAL DATA
|
We are a smaller reporting Company as
defined by Rule 12b-2 of the Securities and Exchange Act of 1934 and are not
required to provide the information under this item.
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
INTRODUCTION
We are a
commercial finance company which is primarily engaged in (a) the ownership of
residual interests in securitized portfolios, (b) the ownership and servicing of
a portfolio of secured commercial mortgage loans made to Affiliated Limited
Partnerships, (c) the ownership of real estate and (d) the performance of real
estate asset management and administrative services.
We expect that anticipated cash flow
provided by operations and other sources will be sufficient to meet our current
cash requirements through at least March 2011. We have in the past
and expect in the future to continue to be required to augment our cash flow
provided by operations with additional cash generated from either the sale or
refinancing of portions of our assets and/or borrowings. We currently
do not generate sufficient cash flow from operations to meet our cash
requirements or to permit us to pay a dividend on our common
stock. Excluding proceeds generated from the sale of assets, our cash
flow would have been a net decrease in cash of $1,217 for the year ended
December 31, 2009.
6
Many of the mortgages currently held by
us have or had underlying loans which are serviced by a substantial portion of
the cash flow generated from the repayment of our mortgage
portfolio. As of December 31, 2009, a substantial number of loans
underlying our wrap-around mortgages loans were fully paid. During
2008 and 2009, we foreclosed on six of our mortgage loans due to the Affiliated
Limited Partnerships for failure to pay amounts due on mortgage
loans. At the time of the foreclosure, the mortgages had a combined
carrying value of $2,760. During December, 2008, we sold one of these
properties and received net proceeds of $220. During 2009, we sold
three of these properties and received net proceeds of $1,788. The
other two properties are being held for lease or sale and at December 31, 2009
remain vacant and unsold. As a result, we are obligated for all costs
at these properties including property taxes and
insurance. Considering the status of the property markets and the
location of our properties there can be no assurance regarding future leasing or
sale of the properties.
Our current strategy is to continue to
maximize the value of our assets and meet our short term working capital needs
by continuing to manage, administer and service our existing portfolio and
develop, lease and refinance or sell an 8.5 acre retail site located in Kearny,
NJ which we have owned for many years and for which we have been designated as
developer by the Town of Kearny. However, because of the
current economic conditions, the development of the Kearny property will take
longer than originally projected. In the current economic market
there is no assurance that the project will be successful or that the
redevelopment can be completed. In addition, in order for us to
undertake the redevelopment of such property, we need to obtain construction
financing, and, potentially additional loan or equity financing, and given
current economic conditions, there can be no assurance that any such financing
will be obtained on acceptable terms.
We have been able to effectively limit
our tax expense over the years through the utilization of our net operating loss
carry-forwards, which we refer to as NOLs. Our NOLs expire in various
years through 2019 and we currently expect to utilize $530 of our NOLs during
the applicable year of their expiration. We benefit from the use of
the NOLs by offsetting certain taxable income dollar for dollar by the amount of
the NOLS, thereby eliminating substantially all of the U.S. federal corporate
tax on such income up to the amount of the NOL. If we generate
profits in the future, we may be subject to limitations on the use of our NOLs
pursuant to the United States Internal Revenue Code of 1986, as amended, which
we refer to as the Code. However, there can be no assurance
that a significant amount of our existing NOLs will be available to us at such
time as we desire to use them.
For the
year ended December 31, 2009, we had approximately $530 of NOLs
remaining.
RESULTS OF
OPERATIONS
Comparison of the year ended
December 31, 2009 to the year ended December 31, 2008.
DVL had
income from continuing operations from each of its business segments as
follows:
|
2009
|
2008
|
|||||||
|
Residual interests
segment
|
$ | 3,635 | $ | 3,110 | ||||
|
Real estate
segment
|
(2,142 | ) | (998 | ) | ||||
|
Corporate /
other
|
119 | (472 | ) | |||||
|
Income from continuing
operations
|
$ | 1,612 | $ | 1,640 | ||||
Interest
income on mortgage loans from affiliates increased to $2,241 as a result of
accretion on certain mortgage loans. Interest expense decreased as a
result of anticipated loan maturities and the application of a greater
percentage of each payment to mortgage principal balances.
|
2009
|
2008
|
|||||||
|
Interest on mortgage
loans
|
$ | 2,241 | $ | 1,777 | ||||
|
Interest expense on
underlying mortgages
|
$ | 234 | $ | 339 | ||||
The gain
on satisfaction of mortgage loans results when the net proceeds on the
satisfaction of mortgage loans are greater than their carrying
values. There were no loans satisfied during 2009.
7
|
2009
|
2008
|
|||||||
|
Gain on satisfaction
of mortgage loans
|
$ | 0 | $ | 906 | ||||
Distributions
from partnerships decreased in 2009 from 2008 primarily as a result of final
distributions from affiliated partnerships sale proceeds being received in
2008.
|
2009
|
2008
|
|||||||
|
Distributions from
partnerships
|
$ | 142 | $ | 275 | ||||
Interest
income on residual interest increased due to favorable changes in future cash
flow which are recognized as interest over the remaining life of the retained
interests. Interest expense on the related notes payable decreased as a result
of principal amortization.
|
2009
|
2008
|
|||||||
|
Interest income on
residual interests
|
$ | 6,293 | $ | 5,994 | ||||
|
Interest expense on
related notes payable
|
$ | 2,651 | $ | 2,877 | ||||
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 of
the Kearny redevelopment project.
|
2009
|
2008
|
|||||||
|
Net rental income from
others
|
$ | 410 | $ | 498 | ||||
|
Gross rental income
from others
|
$ | 1,259 | $ | 1,287 | ||||
Distributions
from investments decreased as a result of the liquidation of the investments
that generated the distributions in 2008.
|
2009
|
2008
|
|||||||
|
Distributions from
investments
|
$ | 0 | $ | 66 | ||||
General
and administrative expenses were relatively constant in 2009 when compared to
2008.
|
2009
|
2008
|
|||||||
|
General and
administrative
|
$ | 1,598 | $ | 1,549 | ||||
The asset
servicing fee paid to NPO Management LLC (“NPO”), the entity which is engaged by
us to provide us with management services, increased pursuant to the terms of
the Asset Servicing Agreement, which calls for an adjustment to reflect changes
in the consumer price index.
|
2009
|
2008
|
|||||||
|
Asset servicing
fee
|
$ | 782 | $ | 774 | ||||
Legal and
professional fees increased primarily as a result of increased professional
services related to the Kearny development project, where the leases were not
executed.
|
2009
|
2008
|
|||||||
|
Legal and
professional
|
$ | 580 | $ | 327 | ||||
8
We
recorded an additional provision for losses on our mortgage portfolio of $773 in
2009 and $150 in 2008 due to underlying changes in the value of the
collateral.
|
2009
|
2008
|
|||||||
|
Provision for
losses
|
$ | 785 | $ | 150 | ||||
Interest
expense to affiliates decreased in 2009 compared to 2008 as a result of
decreased amount of outstanding debt owed to affiliates.
|
2009
|
2008
|
|||||||
|
Interest expense to
affiliates
|
$ | 166 | $ | 188 | ||||
Interest
expense relating to other debts decreased in 2009 as a result of deferred
financing costs being fully amortized.
|
2009
|
2008
|
|||||||
|
Interest expense –
others
|
$ | 987 | $ | 1,409 | ||||
We
expensed $0 and $73 for alternative minimum taxes during 2009 and 2008,
respectively. We recognized $189 and $486 of deferred income tax
expense during 2009 and 2008, respectively. We also recorded current
refunds receivable of $108 during 2009. The deferred tax impact in
2009 and 2008 resulted primarily from the deferred expense related to the
changes in the components of deferred tax assets.
|
2009
|
2008
|
|||||||
|
Income tax
expense
|
$ | 81 | $ | 778 | ||||
Discontinued
operations consist of the operations of business segments we consider as held
for sale or have disposed of.
|
2009
|
2008
|
|||||||
|
Loss from discontinued
operations
|
$ | 175 | $ | 110 | ||||
LIQUIDITY AND CAPITAL
RESOURCES
Our cash
balance was $1,067 at December 31, 2009, compared with $496 at December 31,
2008.
Our cash flow from operations is
generated principally from rental income from our ownership of real estate,
distributions in connection with our residual interests in securitized
portfolios, interest on our mortgage portfolio, management fees and transaction
and other fees received as a result of the sale and/or refinancing of
partnership properties and mortgages.
We expect that anticipated cash flow
provided by operations and other sources will be sufficient to meet our current
cash requirements through at least March 2011. We have in the past
and expect in the future to continue to be required to augment our cash flow
provided by operations with additional cash generated from either the sale or
refinancing of portions of our assets and/or borrowings. We currently
do not generate sufficient cash flow from operations to meet our cash
requirements or to permit us to pay a dividend on our common
stock. Excluding proceeds generated from the sale of assets, our cash
flow would have been a net decrease in cash of $1,217 for the year ended
December 31, 2009.
9
With respect to our residual interests,
pursuant to the terms of the purchase agreements, there are annual minimum and
maximum levels of cash flow that we are entitled to retain, after the payment of
interest and principal on the notes payable. During 2009 these
minimum and maximum amounts were $743 and $880, respectively, of which we
received $780. Effective January 1, 2010 through the final payment to
the holder of the notes payable (expected to be 2014 and 2018 for Receivables
II-A and Receivables II-B, respectively), the annual minimum and maximum
increased to $1,050 and $1,150, respectively. Accordingly, in order
for our cash flow to increase significantly, our revenue from our other assets
will need to grow without a corresponding increase in expenses.
We
believe we will continue to receive significant cash flow from the residual
interests after final payment of the notes payable.
Outstanding
Financings
Outstanding
loans payable as of December 31, 2009 which are scheduled to become due through
2014 are as follows:
|
Creditor
|
Original
Loan
Amount
|
Outstanding
Balance
Including
Accrued
Interest at
December 31,
2009
|
Interest
Rate
|
Annual
Debt Service
|
Maturity
|
Amount
due
at Maturity
|
|||||||||||||||
|
Pemmil
(1)
|
$ | 2,500 | $ | 1,129 | 12% | (1) |
12/31/11
|
$ | 1,129 | ||||||||||||
|
Unaffiliated
Bank (2)
|
$ | 2,200 | $ | 1,940 |
LIBOR
+ 4%
|
(2) |
02/01/14
|
$ | -0- | ||||||||||||
|
Unaffiliated
Bank (3)
|
$ | 1,500 | $ | 1,358 | 6.25% | (3) |
06/05/12
|
$ | 1,250 | ||||||||||||
|
Unaffiliated
Bank (4)
|
$ | 6,450 | $ | 3,501 |
>of
6% or Prime +1%
|
(4) |
01/21/11
|
$ | 3,501 | ||||||||||||
|
Unaffiliated
Bank
|
$ | 250 | $ | 170 | 7.5% | $60 |
02/01/13
|
$ | 170 | ||||||||||||
|
Unaffiliated
Bank (5)
|
$ | 3,800 | $ | 3,725 |
LIBOR
+ 2.1%
|
(5) |
07/01/11
|
$ | 3,725 | ||||||||||||
|
(1)
|
Pemmil
is an affiliated entity. Loan requires payments only to the
extent of 50% of the proceeds from capital transactions. If
proceeds are insufficient to satisfy monthly interest payments, interest
is added to principal. Loan is secured by a subordinated lien
on our interest in S-2 Holdings Inc. and a first priority lien on two
mortgages.
|
|
(2)
|
Loan
is secured by first priority interest in four first mortgages and contains
a restriction on pledging mortgages for additional
debt. Requires monthly payments of interest plus a fixed
principal payment of $39.
|
|
(3)
|
Loan
requires monthly payments of interest only as well as an annual principal
payment of $50.
|
|
(4)
|
Initial
advance under the loan was $4,250 with an additional $2,200 to be advanced
upon the satisfaction of certain conditions, if at
all. Requires payments of interest only. One year
extension option subject to certain terms and
conditions.
|
|
(5)
|
Secured
by the Kearny Property. Requires annual debt service of
approximately $292.
|
We use
derivatives to manage risks related to interest rate movements on our floating
rate debt. Interest rate swap contracts designated and qualifying as
cash flow hedges are reported at fair value. During September 2008,
the Company entered into an interest rate swap agreement related to one of its
floating rate loans. Valued separately, the interest rate swap
agreement represents a liability as of December 31, 2009 and 2008 , in the
amount of $159 and $231, respectively. During April 2009, the Company
entered into a second interest rate swap agreement related to another of its
floating rate loans. Valued separately, the interest rate swap
agreement represents a liability as of December 31, 2009 in the amount of
$17. This value represents the fair value of the current difference
in interest paid and received under the swap agreements over the remaining term
of the agreements. Because the swaps are considered to be a cash flow
hedge and they are effective, the value of the swap agreements are recorded in
the Consolidated Statements of Shareholders’ Equity as a separate component and
represents the only amount reflected in accumulated other comprehensive
loss. Changes in the swap agreements’ fair value are reported
currently in other comprehensive loss. Payments are recognized in
current operating results as settlements occur under the agreements as a
component of interest expense. The following table summarizes the
notional values of our derivative financial instruments. The notional
value provides an indication of the extent of our involvement in these
instruments on December 31, 2009, but does not represent exposure to credit,
interest rate or market risks.
10
|
Hedge
Type
|
Notional
Value
|
Rate
|
Termination
Date
|
Fair
Value
|
|
Interest
rate swap agreement
|
$ 3,706
|
5.94%
|
July
1, 2011
|
$ (159)
|
The outstanding principal of the Note
is payable in monthly installments of $5 beginning on August 1, 2008 and
continuing on the first day of each month thereafter. Annual debt
service is approximately $292. The final monthly installment of the
Note is due and payable at maturity on July 1, 2011 or before, at the option of
the Bank upon any defaults after the expiration of all applicable notice and
cure periods as specified therein.
|
Hedge
Type
|
Notional
Value
|
Rate
|
Termination
Date
|
Fair
Value
|
|
Interest
rate swap agreement
|
$ 1,930
|
6.09%
|
February
1, 2014
|
$ (17)
|
The outstanding principal of the Note
is payable in monthly installments of $39 beginning on June 1, 2009 and
continuing on the first day of each month thereafter. The final
monthly installment of the Note is due and payable at maturity on February 1,
2014 or before, at the option of the Bank upon any defaults after the expiration
of all applicable notice and cure periods as specified therein.
Contractual
Obligations
|
Payments
due by Period
|
||||||||||||||||||||
|
Less
than
|
1-3 | 3-5 |
More
than
|
|||||||||||||||||
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
||||||||||||||||
|
Debt
Obligations:
|
||||||||||||||||||||
|
Debt
|
$ | 11,823 | $ | 672 | $ | 10,601 | $ | 550 | $ | - | ||||||||||
|
Interest
on Debt
|
1,046 | 632 | 394 | 20 | - | |||||||||||||||
|
Notes
Payable - Residual Interests
|
28,155 | - | - | - | 28,155 | |||||||||||||||
|
Underlying
Mortgage Maturities
|
2,708 | 598 | 394 | 422 | 1,294 | |||||||||||||||
|
Purchase
Obligations:
|
||||||||||||||||||||
|
Asset
Servicing Agreement (1)
|
977 | 782 | 195 | - | - | |||||||||||||||
|
Operating
Lease Obligations
|
2,074 | 386 | 772 | 814 | 102 | |||||||||||||||
|
Total
|
$ | 46,783 | $ | 3,070 | $ | 12,356 | $ | 1,806 | $ | 29,551 | ||||||||||
|
(1)
|
Subject
to annual cost of living increases – See Item 13. Certain
Relationships and Related
Transactions.
|
IMPACT OF INFLATION AND
CHANGES IN INTEREST RATES
Our 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 our
earnings. Other than as a factor in determining market interest
rates, inflation has not had a significant effect on our net
income.
11
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
See “Item
8. Financial Statements and Supplementary Data - Note 1.”
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
We are a
smaller reporting Company as defined by Rule 12b-2 of the Securities and
Exchange Act of 1934 and are not required to provide the information under this
item.
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA.
|
See “Index to Consolidated Financial
Statements” below.
Supplementary
Data
Quarterly
Data (Unaudited)
For the
Year Ended December 31, 2009
|
For
the year ended December 31, 2009
|
||||||||||||||||||||
|
1st
|
2nd
|
3rd
|
4th
|
Full
|
||||||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
||||||||||||||||
|
Total
Revenue
|
$ | 2,320 | $ | 2,347 | $ | 2,472 | $ | 2,337 | $ | 9,476 | ||||||||||
|
Net
Income (Loss)
|
377 | 662 | 556 | (158 | ) | 1,437 | ||||||||||||||
|
Basic
Earnings Per Share:
|
||||||||||||||||||||
|
Net
Income (Loss)
|
$ | 0.01 | $ | 0.01 | $ | 0.01 | n/a | $ | 0.03 | |||||||||||
|
Diluted
Earnings Per Share:
|
||||||||||||||||||||
|
Net
Income (Loss)
|
$ | 0.01 | $ | 0.01 | $ | 0.01 | n/a | $ | 0.03 | |||||||||||
|
Weighted
Average Shares
|
||||||||||||||||||||
|
outstanding:
|
||||||||||||||||||||
|
Basic
|
44,770,345 | 44,770,345 | 44,770,345 | 44,770,345 | 44,770,345 | |||||||||||||||
|
Diluted
|
44,804,790 | 44,797,845 | 44,784,070 | 44,829,029 | 44,803,018 | |||||||||||||||
Quarterly
Data (Unaudited)
For the
Year Ended December 31, 2008
|
For
the year ended December 31, 2008
|
||||||||||||||||||||
|
1st
|
2nd
|
3rd
|
4th
|
Full
|
||||||||||||||||
|
Quarter
|
Quarter
|
Quarter
|
Quarter
|
Year
|
||||||||||||||||
|
Total
Revenue
|
$ | 3,075 | $ | 2,640 | $ | 2,287 | $ | 2,029 | $ | 10,031 | ||||||||||
|
Net
Income (Loss)
|
973 | 568 | 305 | (316 | ) | 1,530 | ||||||||||||||
|
Basic
Earnings Per Share:
|
||||||||||||||||||||
|
Net
Income (Loss)
|
$ | 0.02 | $ | 0.01 | $ | 0.01 | $ | (0.01 | ) | $ | 0.03 | |||||||||
|
Diluted
Earnings Per Share:
|
||||||||||||||||||||
|
Net
Income (Loss)
|
$ | 0.02 | $ | 0.01 | $ | 0.01 | $ | (0.01 | ) | $ | 0.03 | |||||||||
|
Weighted
Average Shares
|
||||||||||||||||||||
|
outstanding:
|
||||||||||||||||||||
|
Basic
|
45,292,757 | 45,292,845 | 45,051,691 | 44,770,345 | 45,155,947 | |||||||||||||||
|
Diluted
|
45,426,146 | 45,413,942 | 45,213,344 | 44,862,918 | 45,298,447 | |||||||||||||||
12
Basic and diluted earnings per share are computed independently for
each of the periods. Accordingly, the sum of the quarterly earnings
per share amounts may not agree to the total for the year. The
financial statements and notes thereto, together with the reports of the
independent registered public accounting firms of McGladrey & Pullen, LLP
and IKC, are set forth on pages F-1 through F-29, which follow. The
financial statements are listed in Item 15 hereof. Amounts for each
quarter have been adjusted to reflect reclassifications of management fee income
and losses from discontinued operations.
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
On
October 30, 2009, we and our independent registered public accounting firm,
Imowitz Koenig & Co., LLP, which we refer to as IKC, agreed that IKC would
resign and not stand for re-appointment as our independent registered public
accounting firm. There were no disagreements between the
parties. The resignation was to permit IKC’s affiliate, RESIG, to
assume accounting services for the Company.
With
respect to IKC and its service as our independent registered public accounting
firm;
|
|
●
|
IKC’s
reports on our consolidated financial statements as of and for the years
ended December 31, 2008 and 2007 did not contain an adverse opinion or a
disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope, or accounting
principle.
|
|
|
●
|
During
the fiscal years ended December 31, 2008 and 2007 and through the
quarterly period ended September 30, 2009, there were no disagreements
with IKC on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of IKC, would have
caused IKC to make a reference to the subject matter of the disagreements
in connection with their reports on our financial statements for such
years.
|
|
|
●
|
During
the fiscal years ended December 31, 2008 and 2007 and through the
quarterly period ended September 30, 2009, there was a “reportable event”
as described in Item 304(a)(1)(v) of Regulation S-K promulgated under the
Securities Exchange Act of 1934, as amended, which we refer to as the
Exchange Act. As disclosed in our 2008 Annual Report on Form
10-K, our control environment did not sufficiently promote effective
internal control over financial reporting throughout the
organization. No misstatements occurred as a result of such
material weakness in our internal controls over financial
reporting.
|
|
|
●
|
In
an effort to improve our internal controls over financial reporting, on
November 2, 2009 we engaged RESIG to provide substantially all of our
internal accounting, financial statement preparation and bookkeeping
functions on an outsourced consulting basis. RESIG is an affiliate of IKC
and therefore IKC is no longer independent with respect to our financial
statements. Consequently, IKC has resigned and we engaged a new
independent registered public accounting firm as described
below.
|
On
November 3, 2009, we, with approval of the Audit Committee, engaged McGladrey
& Pullen, LLP, which we refer to as M&P, as our new independent
registered public accounting firm as of and for the year ended December 31,
2009. During the fiscal years ended December 31, 2008 and 2007, and
through the quarterly period ended September 30, 2009, neither we nor anyone
acting on our behalf consulted with M&P regarding either (i) the application
of the accounting principles to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on our financial
statements, and neither a written report nor oral advice was provided by M&P
to us that was an important factor considered by us in reaching a decision as to
any accounting, auditing or financial reporting issues: or (ii) any matter that
was either the subject of a “disagreement”, as that term is described in item
304 (a) (1) (v) of Regulation S-K promulgated under the Exchange Act, and the
related instructions to Item 304 of Regulation S-K, or a “reportable event”, as
the term is described in Item 304 (a) (1) (v) of Regulation S-K.
|
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES.
|
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in company reports filed or
submitted 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 ensure that information required
to be disclosed in our reports filed under the Exchange Act, is accumulated and
communicated to management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure.
13
As required by Rule 13a-15 under the Exchange Act, we are required
to carry out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this report. This evaluation was carried out with the participation
of our principal executive officer and principal financial
officer. Based upon that evaluation, our principal executive officer
concluded that our disclosure controls and procedures were effective at a
reasonable assurance level such that the information relating to us and our
consolidated subsidiaries required to be disclosed in our Exchange Act reports
(i) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (ii) is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Management’s Report on
Internal Control Over Financial Reporting
Our management, with the
participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our “disclosure controls and procedure” (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the
period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that, as of the end
of such period, our disclosure controls and procedures were effective as of
December 31, 2009.
Management is responsible for
establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15(d)-15(f)) includes those policies and
procedures that: (a) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (b) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles in the United States of
America (“U.S. GAAP”), and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (c) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial
statements.
Management assessed our internal
control over financial reporting as of December 31, 2009, the end of our fiscal
year. Management based its assessment on the criteria set forth in
the Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
This annual report does not include
an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to present only management’s report in this
annual report.
|
ITEM
9B.
|
OTHER
INFORMATION.
|
None
14
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, AND CORPORATE
GOVERNANCE.
|
The following table sets forth the
name of each director and executive officer of the Company as of March 15, 2010,
and the nature of all positions and offices with the Company held by him at
present. The term of all directors (other than the special purpose
director) expires at the Company’s next annual meeting of stockholders, which
will be held on a date to be scheduled, or until their successors are duly
elected and qualified. The term of all executive officers expires at
the next annual meeting of directors, to be held immediately thereafter, or
until their successors are duly elected and qualified. There are no
family relationships among the directors or executive officers of the
registrant.
|
NAME
|
POSITION
|
|
Gary
Flicker
|
Chairman
of the Board
|
|
Ira
Akselrad
|
Director
|
|
Alan
E. Casnoff
|
Director,
President and Chief Executive Officer
|
|
Neil
Koenig
|
Executive
Vice President and Chief Financial Officer
|
|
Keith
B. Stein
|
Special
Purpose Director
|
| Henry Swain | Executive Vice President |
In addition to three directors, who
have all of the powers normally granted to corporate directors, we have one
special purpose director, who was elected in 1996 by the holder of the Class A
Preferred Stock. The special purpose director has no right to vote at
meetings of the Board, except as to Bankruptcy Matters (as such term is defined
in the Company’s Certificate of Incorporation).
The following is a brief account of
the recent business experience of each director and executive officer and any
directorships held with other companies during the past five years which file
reports with the Securities and Exchange Commission:
GARY
FLICKER (age 51) has served as a director of the Company since January
2004. Mr. Flicker was Chief Financial Officer and Executive Vice
President of DVL from April 1997 to November 2001 and remained employed by the
Company until May 2002. From June 2002 to present, Mr. Flicker has
served as President and Chief Executive Officer of Flick Financial, an
accounting and financial consulting firm headquartered in Atlanta,
Georgia. From January 2007 through July 2008, Mr. Flicker was Chief
Financial Officer, Executive Vice President, and Secretary of Xethanol Corp., a
public company traded on the American Stock Exchange. Mr. Flicker is
a Certified Public Accountant. Mr. Flicker’s experience,
qualifications, attributes and skills noted above led to the conclusion to elect
him as a director of the Company.
ALAN E.
CASNOFF (age 66) has served as President of the Company since November 1994, and
was appointed as a director in November 2001. Mr. Casnoff served as
Executive Vice President of the Company from October 1991 to November
1994. Mr. Casnoff has maintained his other business interests during
this period and thus has devoted less than full time to the business affairs of
DVL. From November 1990 to October 1991, Mr. Casnoff served as a
consultant to the Company and from 1977 to October 1991, as secretary of the
Company. Since May 1991, Mr. Casnoff has also served as a director of
Kenbee Management, Inc. (“Kenbee”), an affiliate of the Company, and as
President of Kenbee since November 1994. Since 1977, Mr. Casnoff has
also been a partner of P&A Associates, a private real estate development
firm headquartered in Philadelphia, Pennsylvania. Since 1969, Mr.
Casnoff was associated with various Philadelphia, Pennsylvania law firms which
have been legal counsel to the Company and Kenbee. Since November,
2004, he has been of counsel to Zarwin, Baum, Devito (“Zarwin”). Mr.
Casnoff’s experience, qualifications, attributes and skills noted above led to
the conclusion to elect him as a director of the Company.
15
IRA
AKSELRAD (age 55) was elected to the Board of Directors of the Company to serve
as a director on November 2, 2006. Mr. Akselrad is currently
Executive Vice President and General Counsel of the Johnson Company, Inc., the
private investment company of the Robert Wood Johnson IV
Family. Prior to joining the Johnson Company, he was an attorney with
the New York law firm of Proskauer Rose, LLP for the past 21
years. For 16 of those years he was a member of the firm and
represented a wide range of corporate and real estate clients. In
addition to his client responsibilities, he chaired numerous firm committees and
served as a member of the firm’s six member Executive Committee. Mr.
Akselrad’s experience, qualifications, attributes and skills noted above led to
the conclusion to elect him as a director of the Company.
NEIL
KOENIG (age 59) has served as Chief Financial Officer since November
2009. Mr. Koenig is a partner at Imowitz, Koenig & Co., LLP, a
public accounting firm providing services to public and private companies, and
member of Real Estate Systems Implementation Group, LLC, a consulting company
serving the real estate industry. From 2002 until November 2009, he
was Chief Financial Officer of Orthometrix, Inc., a manufacturer and distributor
of medical and fitness-related equipment. Orthometrix, Inc. was a
publicly-traded company until 2009. He is also the Vice President of
Guggenheim Structured Real Estate (since July 2004) and Square Mile Capital
(since July 2006), private equity real estate funds. Mr. Koenig is a
member of the Board of Directors of NBTY, Inc. a New York Stock Exchange listed
company.
KEITH B.
STEIN (age 52) has been a special purpose director of the Company since
September 1996. Mr. Stein is the Managing Partner of Crestwalk
Capital Advisors, LLC, a financial advisory and investment management firm, a
position he has held since 1998. From December 2007 through December
2008, Mr. Stein was associated with Harbinger Capital Partners, a New York based
hedge fund, as the Managing Director of HCP Real Estate Investors, the real
estate investment fund within Harbinger. Previously, Mr. Stein was a
Managing Director of Kimco Realty Corporation (NYSE: KIM), specializing in
investments in real estate and related securities. From 1998 to 2008,
Mr. Stein was the Chairman, Chief Executive Officer, and a director of National
Auto Receivables Liquidation, Inc. In the early 1990’s Mr. Stein
served as Senior Vice President, Secretary and General Counsel of WestPoint
Stevens, Inc., a then publicly-held textile company. From 1989 to
February 1993, Mr. Stein was associated with the law firm of Weil, Gotshal &
Manges LLP. Mr. Stein’s experience, qualifications, attributes and
skills noted above led to the conclusion to elect him as a director of the
Company.
HENRY
SWAIN (age 56) has served as Executive Vice President since April
2006. Mr. Swain served as our Chief Financial Officer from April 2006
to November 2009. From November 2001 to April of 2006, Mr. Swain
served as Vice President and Secretary of the Company. Mr. Swain is a
Certified Public Accountant. Prior to joining the Company in 2001,
Mr. Swain was associated with real estate owner/managers, financial services
firms and the accounting firm of Deloitte &
Touche, LLP.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who are beneficial owners of more than 10% of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission, which we refer
to as the Commission. Officers, directors, and greater than 10%
beneficial owners are required by Commission regulations to furnish us with
copies of all Section 16(a) forms they file. To our knowledge, based
solely on review of such reports furnished to us, and written representations
from our officers and directors, all Section 16(a) filing requirements
applicable to such persons were satisfied.
16
Code of
Ethics
Our board
of directors has adopted a code of ethics that applies to our chief executive
officer and chief financial officer, our principal executive officer and
principal financial officer, respectively, and all of our other financial
executives. The code of ethics was filed as Exhibit 14 of the
Company’s Form 10-K for the fiscal year ended December 31, 2003 with the
Securities and Exchange Commission. Request for copies of our code of
Ethics should be sent in writing to DVL, Inc., 70 East 55th
Street, New York, New York 10022.
Audit Committee and Audit
Committee Financial Expert
The Audit
Committee consists of Gary Flicker and Mr. Akselrad. Our board of
directors has determined that Gary Flicker is an audit committee financial
expert, as defined in the Securities and Exchange Act of 1934 and is independent
as that term is defined under Rule 121 of the American Stock
Exchange.
Nominating
Committee
We have
not adopted any procedures by which security holders may recommend nominees to
our board of directors.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION.
|
SUMMARY
COMPENSATION TABLE
The following table sets forth all
compensation awarded to, earned by or paid to the following persons for services
rendered to us in 2009 and (if applicable) in 2008: (1) the person serving as
our chief executive officer during 2009; (2) the other person who was serving as
an executive officer as of the end of 2009 whose compensation exceeded $100
during 2009.
SUMMARY COMPENSATION
TABLE
|
Other
|
|||||||||||||||||
|
Principal
Position
|
Year
|
Salary
|
Bonus
|
Compensation
|
Total($)
|
||||||||||||
|
Alan
E. Casnoff
|
2009
|
$ | 147 | $ | - | $ | 23 | $ | 170 | (1), (2) | |||||||
|
President
and Chief Executive Officer
|
2008
|
$ | 146 | $ | - | $ | 53 | $ | 199 | (1), (2) | |||||||
|
Henry
Swain
|
2009 | $ | 138 | $ | - | $ | - | $ | 138 | (2) | |||||||
|
Executive
Vice President
|
2008 | $ | 135 | $ | 13 | $ | - | $ | 148 | (2) | |||||||
|
(1)
|
Mr.
Casnoff received an additional $10 and $40 during 2009 and 2008,
respectively as compensation for services rendered in connection with the
development of the Kearny, New Jersey development
project.
|
|
(2)
|
The
Company also paid for medical insurance of $13 for Mr. Casnoff and $16 for
Mr. Swain in both 2009 and 2008.
|
17
Employee Contracts and
Arrangements
We have
entered into Indemnification Agreements with all officers and directors
effective upon their election as an officer or director, contractually
obligating us to indemnify them to the fullest extent permitted by applicable
law, in connection with claims arising from their service to, and activities on
behalf of, the Company.
We do not
currently have any employment contracts in force. Our affairs are
administered by Compensation Solutions, Inc., which we refer to as CSI, pursuant
to the terms of a “leasing” contract. Pursuant to the leasing
contract, CSI provides us with the necessary personnel, including certain
executive officers, necessary to administer the affairs of the
Company. Accordingly, CSI provides such employees with their medical,
unemployment, workmen’s compensation and disability insurance through group
insurance plans maintained by CSI for the Company and other clients of
CSI. Pursuant to the contract, the cost of such insurance as well as
the payroll obligations for the leased employees is funded by us to CSI, and CSI
is required to then apply such proceeds to cover the payroll and administrative
costs to the employees. Should CSI fail to meet its obligations under
the contract, we would be required to either locate a substitute employee
leasing firm or directly re-employ our personnel. The contract is
cancelable upon 30 days written notice by either party.
On
November 2, 2009, we entered into an agreement with Real Estate Systems
Implementation Group, LLC, which we refer to as RESIG, an affiliate of Imowitz
Koenig & Co., LLP, our former independent registered public accountants,
pursuant to which RESIG will provide substantially all of our internal
accounting, financial statement preparation and bookkeeping functions on an
outsourced consulting basis. The company will pay an annual fee to
RESIG of $305. A requirement of the agreement was the appointment of Neil H.
Koenig as our Chief Financial Officer, Principal Financial Officer and Principal
Accounting Officer. Mr. Koenig is a managing member of RESIG and a
managing member of IKC.
OUTSTANDING EQUITY AWARDS AT
FISCAL YEAR-END
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|||||
|
Alan
E. Casnoff
|
100,000
|
-
|
-
|
0.0750
|
08-08-11
|
B. OPTION
GRANTS IN LAST FISCAL YEAR
No
options or other equivalents were granted by us in 2009 nor do we have a plan in
effect pursuant to which options can be issued.
At
December 31, 2009, we had 445,000 options to purchase 445,000 shares outstanding
which options had been issued pursuant to a since terminated option
plan. All such options are currently exercisable. The following table
sets forth the expiration dates of the outstanding options and the exercise
price for such options.
18
|
Expiration Date
|
Number of
Options
|
Exercise
Price
|
||||||
|
5/8/2010
|
60,000 | $ | 0.110 | |||||
|
9/17/2010
|
45,000 | $ | 0.090 | |||||
|
8/8/2011
|
135,000 | $ | 0.075 | |||||
|
9/17/2011
|
45,000 | $ | 0.080 | |||||
|
9/17/2012
|
30,000 | $ | 0.140 | |||||
|
5/12/2013
|
25,000 | $ | 0.120 | |||||
|
9/17/2013
|
30,000 | $ | 0.150 | |||||
|
9/1/2014
|
15,000 | $ | 0.120 | |||||
|
9/17/2014
|
30,000 | $ | 0.130 | |||||
|
9/17/2015
|
30,000 | $ | 0.120 | |||||
C. COMPENSATION OF
DIRECTORS
Members
or our board of directors who are not officers or employees of the Company
presently receive a director’s fee of $1,600 per month, plus five hundred
dollars for each Audit Committee meeting of the board of directors attended and
the chairman of the audit committee receives an additional five hundred dollars
per meeting. Directors who are officers of the Company receive no
compensation for their services as directors or attendance at any board of
directors or committee meetings. The special purpose director
receives no compensation for his service as a director or attendance at any
board of directors or committee meetings.
The
following is a table summarizing the compensation for non-employee
directors.
DIRECTOR
COMPENSATION
|
Name
|
Fees
Earned or Paid
In
Cash
|
Stock
Awards
($)
|
Option
Awards
($)
|
Total
($)
|
|
Gary
Flicker
|
20
|
-
|
-
|
20
|
|
Ira
Akselrad
|
18
|
-
|
-
|
18
|
|
Keith
B. Stein
|
-
|
-
|
-
|
-
|
D. BOARD OF DIRECTORS
INTERLOCKS AND INSIDER PARTICIPATION
The Board
of Directors acts in the place of a formal compensation
committee. During 2009, none of our executive officers
served as directors of or members of a compensation committee of any
entity for which any of the persons serving on the board of directors is an
executive officer.
E. DIRECTOR
INDEPENDENCE
As of December 31, 2009, Messrs.
Flicker & Akselrad are independent as the term is defined under Rule 121 of
the American Stock Exchange.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
A. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS
The
following table sets forth certain information as of March 15, 2010 regarding
the ownership of common stock by each person who is known to us to have been the
beneficial owner of more than 5% of the outstanding shares of our common
stock.
19
|
Name
and Address of
|
Amount
and Nature of
|
|
|
Beneficial
Owner
|
Beneficial
Ownership
|
Percent of
Class*
|
|
Lawrence
J. Cohen (1)
|
4,691,397
|
10.5%
|
|
Jay
Chazanoff (1)
|
2,857,606
|
6.4%
|
|
J.G.
Wentworth, S.S.C.
Limited
Partnership (2)
|
3,000,000
(2)
|
6.3%
(2)
|
*Based on
44,770,345 shares outstanding.
|
|
(1)
|
According
to the Schedule 13D filed with the SEC, Messrs. Cohen and
Chazanoff are part of a group that holds in the aggregate 12,193,850
shares of common stock representing 27.2% of the outstanding common
shares. The business address for each of Messrs. Cohen and
Chazanoff are 70 East 55th Street, New York, New York
10022. Messrs. Cohen and Chazanoff are currently affiliated
with Pembroke Companies, Inc. which is a managing member of NPO Management
LLC, the entity which is engaged by us to provide us with management
services.
|
|
|
(2)
|
Represents
shares issuable upon the exercise of warrants. Percentage
assumes the issuance of 3,000,000 common shares upon exercise of the
warrant. The address of J.G. Wentworth, S.S.C. Limited Partnership is 40
Morris Avenue, Bala Cynwyd PA
19004.
|
B. SECURITY OWNERSHIP OF
MANAGEMENT
The
following table sets forth certain information as of March 26, 2010 regarding
ownership of common stock by (i) each director, (ii) each of the executive
officers named in the Summary Compensation Table contained herein, and (iii) all
executive officers and directors as a group (6 persons). Unless
otherwise indicated, each stockholder listed below has sole voting and
investment power with respect to the shares set forth opposite such
stockholder’s name. All persons listed below have an address c/o the
Company’s principal executive offices in New York.
|
Name
of
|
Amount
and Nature of
|
Percentage
|
|
Beneficial
Owner
|
Beneficial
Ownership
|
of
Class
|
|
Alan
E. Casnoff
|
335,000
|
*
|
|
Neil
Koenig
|
-
|
-
|
|
Henry
Swain
|
-
|
-
|
|
Ira
Akselrad
|
-
|
-
|
|
Gary
Flicker
|
145,000
|
*
|
|
Keith
B. Stein
|
1,211,956
|
2.7%
|
|
All
current directors and executive officers as a group (6
persons)
|
1,691,956
|
3.7%
|
* Less
than 1%
C. CHANGES IN
CONTROL
Each of
our Certificate of Incorporation and the By-laws, contained restrictions
prohibiting the sale, transfer, disposition, purchase or acquisition of any
capital stock until September 30, 2009 without the prior authorization of the
Board of Directors, by or to any holder (a) who beneficially owns directly or
through attribution (as generally determined under Section 382 of the Code) five
percent (5%) or more of the value of the then issued and outstanding shares of
capital stock of the Company or (b) who, upon the sale, transfer, disposition,
purchase or acquisition beneficially would directly or through attribution own
five percent (5%) or more of the value of the then issued and outstanding
capital stock of the Company, if that sale, transfer, disposition, purchase or
acquisition would, in the sole discretion and judgment of the Board of Directors
jeopardize our preservation of its federal income tax attributes pursuant to
Section 382 of the Code. The Board of Directors had the right to void
any such transaction.
20
Except as provided above, there are no arrangements known to us the
operation of which would result in our change in control.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
|
Pemmil
Transaction
We are
obligated under the terms of Loan and Security Agreement to Pemmil Funding, LLC,
which we refer to as Pemmil, an entity owned and controlled by Alan Casnoff, our
President and a Director, Lawrence J. Cohen and Jay Chazanoff (Messrs. Cohen and
Chazanoff are beneficial owners of greater than 5% of our common
stock). The Loan and Security Agreement was amended and restated
effective December 31, 2009 to provide for a two year extension to December 31,
2011. Pursuant to the terms of the amended Loan and Security
Agreement, we are obligated to pay to Pemmil interest at a rate of 12% per
annum, compounded monthly; provided, however, we may elect not to make any such
interest payment when due, and such amount of unpaid monthly interest shall be
added to principal. We are required to prepay the loan (plus any
accrued and unpaid interest) to the extent that we consummate certain capital
transactions that result in net proceeds to us. The obligations to
Pemmil are secured by a subordinate pledge of our equity interest in S2 and a
first priority lien on two wrap-around mortgages. At December 31,
2009, the outstanding balance of principal and accrued interest due to Pemmil
was $1,135. We made payments to Pemmil on account of the loan of $565
and $814, for the years ended December 31, 2009 and 2008,
respectively.
We have
retained NPO Management, LLC, which we refer to as NPO, and its affiliates to
provide us with certain assets services, collection services and real estate
brokerage services. NPO is an affiliate of Mr. Cohen and Mr.
Chazanoff. The following table sets forth the fees paid by us to NPO
and its affiliates for these services.
|
2009
|
2008
|
|
|
Administrative
Services
|
$782
|
$774
|
|
Collection
Services(1)
|
$123
|
$150
|
|
Brokerage
Services(2)
|
$ 25
|
$107
|
|
|
(1)
|
Includes
expense reimbursements
|
|
|
(2)
|
Includes
co-brokerage fees.
|
We
believe that the rates being charged and the terms obtained are equal to or
better than that which could be obtained in the market place.
During 2009 and 2008, we received fees
and reimbursement of expenses from affiliates of NPO for providing
administrative services, providing property management services and accounting
services as follows:
|
2009
|
2008
|
|
|
Administrative
Fees
|
$
-
|
$14
|
|
Property
Management Fees
|
$
-
|
$30
|
|
Accounting
Fees
|
$55
|
$57
|
|
Reimbursement
of Expenses
|
$420
|
$420
|
The Philadelphia, Pennsylvania, law
firm of Zarwin, Baum, DeVito, of which Alan E. Casnoff, our President and CEO
and a director, is of counsel, has acted as our counsel since November,
2004. Legal fees for services rendered by Zarwin, Baum, DeVito to us
during 2009 did not exceed 5% of the revenues of such firm for its most recent
fiscal year.
21
On November 2, 2009, we entered into an agreement with Real Estate
Systems Implementation Group, LLC, which we refer to as RESIG, an affiliate of
Imowitz Koenig & Co., LLP, our former independent registered public
accountants, pursuant to which RESIG will provide substantially all of our
internal accounting, financial statement preparation and bookkeeping functions
on an outsourced consulting basis. The company will pay an annual fee
to RESIG of $305. IKC was paid fees of $49 during 2009 for tax preparation
services. A requirement of the agreement was the appointment of Neil H. Koenig
as our Chief Financial Officer, Principal Financial Officer and Principal
Accounting Officer. Mr. Koenig is a managing member of RESIG and a
managing member of IKC.
Director
Independence
As of
December 31, 2009, Messrs. Flicker, Akselrad & Stein are
independent as the term is defined under Rule 121 of the American Stock
Exchange.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
Aggregate
audit fees represent fees billed for Fiscal 2009 and Fiscal
2008. Aggregate audit related and tax fees billed to us for the year
ended December 31, 2009 represent fees billed by M&P for the period from
November 2, 2009 through December 31, 2009 and by IKC from January 1, 2009 to
November 2, 2009. Aggregate fees billed to us for the year ended
December 31, 2008 represent fees billed by IKC.
|
Type of
Fee
|
Fiscal
2009
|
Fiscal
2008
|
||||||
|
Audit
Fee
|
$ | 155 | $ | 167 | ||||
|
Audit
Related Fees
|
45 | - | ||||||
|
Tax
Fees
|
49 | 33 | ||||||
|
Total
|
$ | 249 | $ | 200 | ||||
Audit fees for the years
ended December 31, 2009 and 2008 were for professional services rendered in
connection with the audit of our consolidated financial statements.
Tax fees as of the years
ended December 31, 2009 and 2008 were for services related to tax compliance,
tax planning and strategies, and state and local tax advice.
Pursuant to the requirements of the
Sarbanes-Oxley Act of 2002, the terms of the engagement of McGladrey &
Pullen, LLP are subject to the specific pre-approval of the Audit
Committee. All audit and permitted non-audit services to be performed
by McGladrey & Pullen, LLP require pre-approval by the Audit
Committee. The procedures require all proposed engagements of
McGladrey & Pullen, LLP for services of any kind to be submitted for
approval to the Audit Committee prior to the beginning of any
services. Our audit and tax services proposed for 2009 along with the
proposed fees for such services were reviewed and approved by the Audit
Committee.
PART
IV
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT
SCHEDULES.
|
(a)(1) The
following consolidated financial information is included as a separate section
of our annual report on Form 10-K.
Item
8
Page No.
|
Report
of Independent Registered Public Accounting Firm
|
F –
1
|
|
Report
of Independent Registered Public Accounting Firm
|
F –
2
|
|
Consolidated
Balance Sheets – December 31, 2009 and 2008
|
F –
3
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
F –
5
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2009
and 2008
|
F –
7
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
F –
8
|
|
Notes
to Consolidated Financial Statements
|
F –
10
|
22
(3)
Financial Statement Schedules
None.
(b) The
following is a list of the Exhibits filed as a part of this report (those marked
* are filed herewith):
INDEX
OF EXHIBITS
| 3. | ARTICLES OF INCORPORATION AND BY-LAWS. |
|
(a)
|
DVL’s
Certificate of Incorporation, filed March 28, 1977 (Incorporated by
reference to Exhibit 6(d) to DVL’s Form S-1 Registration Statement No.
2-58847 dated April 28, 1977.)
|
|
(b)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed July 13,
1977 (Incorporated by reference to Exhibit 6(e) to Amendment No. 1 to
DVL’s Form S-1 Registration Statement No. 2-58847 dated August 25,
1977.)
|
|
(c)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed August 3,
1982. (Incorporated by reference to Exhibit 3(c) to DVL’s Form
10-K for the fiscal year ended December 31,
1982.)
|
|
(d)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed May 27,
1983. (Incorporated by reference to Exhibit 3(d) to DVL’s Form
10-K for the fiscal year ended December 31,
1983.)
|
|
(e)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed July 24,
1987. (Incorporated by reference to Exhibit 3(e) to DVL’s Form
10-K for the fiscal year ended December 31,
1987.)
|
|
(f)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed December
20, 1983. (Incorporated by reference to DVL’s Form 10-K for the fiscal
year ended December 31, 1993.)
|
|
(g)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed December
4, 1995. (Incorporated by reference to DVL’s proxy statement
dated October 13, 1995 – Exhibit
A.)
|
|
(h)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed September
17, 1996. (Incorporated by reference to DVL’s proxy statement
dated July 31, 1996 – Exhibit I.)
|
|
(i)
|
DVL’s
Certificate of Amendment to Certificate of Incorporation, filed February
7, 2000. (Incorporated by reference to DVL’s Form 10-K for the
fiscal year ended December 31,
1999.)
|
|
(j)
|
DVL’s
By-Laws, as in full force and effect at all times since March 28,
1977. (Incorporated by reference to Exhibit 3(c) to DVL’s Form
10-K for the fiscal year ended December 31,
1980.)
|
|
(k)
|
DVL’s
First Amendment to By-Laws dated as of January 1,
1994. (Incorporated by reference to Exhibit 3(d) to DVL’s Form
10-K for the fiscal year ended December 31,
1995.)
|
|
(l)
|
DVL’s
Second Amendment to By-Laws, effective September 17,
1996. (Incorporated by reference to DVL’s proxy statement dated
July 31, 1996 – Exhibit J.)
|
23
|
(m)
|
DVL’s
Third Amendment to the By-Laws, effective February 1,
2000. (Incorporated by reference to DVL’s Form 10-K for the
fiscal year ended December 31,
1999.)
|
|
10.
|
MATERIAL
CONTRACTS.
|
|
10.1
|
Stipulation
of Settlement of IN RE KENBEE LIMITED PARTNERSHIP LITIGATION
dated August 12, 1992. (Incorporated by reference to Exhibit
10(b)(25) to DVL’s Form 10-K for the fiscal year ended December 31,
1995.)
|
|
10.2
|
Stipulation
of Partial Settlement and Order IN RE DEL-VAL FINANCIAL CORPORATION
SECURITIES LITIGATION Master File #MDL872. (Incorporated by
reference to Exhibit 10(b)(28) to DVL’s Form 10-K for the fiscal year
ended December 31, 1995.)
|
|
10.3
|
Asset
Servicing Agreement between DVL, PSC, KENBEE Realty and NPO dated as of
March 27, 1996. (Incorporated by reference to Exhibit 10(b)(34)
to DVL’s Form 10-K for the fiscal year ended December 31,
1995.)
|
|
10.4
|
Asset
Servicing Agreement between DVL and NPO. (Incorporated by
reference to DVL’s Proxy Statement dated July 31, 1996 - Exhibit
C.)
|
|
10.5
|
Common
Stock Warrant issued by DVL to NPO. (Incorporated
by reference to DVL’s Proxy Statement dated July 31, 1996 -
Exhibit F.)
|
|
10.6
|
DVL
1996 Stock Option Plan. (Incorporated by reference to DVL’s
Proxy Statement dated July 31, 1996 – Exhibit
K.)
|
|
10.7
|
Amendment
to DVL 1996 Stock Option Plan effective February 1, 2000. (Incorporated by
reference to DVL’s Form 10-K for the fiscal year ended December 31,
1999.)
|
|
10.8
|
Promissory
Note dated as of October 20, 1997, in the original Principal amount of
$1,760,000 from DVL to Blackacre. (Incorporated by reference to
Exhibit 10.2 to DVL’s Form 10-Q for the quarter ended September 30,
1997.)
|
|
10.9
|
Subordination
Agreement, dated as of October 20, 1997 among DVL, Blackacre, NPM, and
NPO. (Incorporated by reference to Exhibit 10.3 to DVL’s Form
10-Q for the quarter ended September 30,
1997.)
|
|
10.10
|
Agreement
among Members dated April 10, 1998, by and among Blackacre, PNM, Pemmil
and DVL. (Incorporated by reference to DVL’s Form 10-K for the
fiscal year ended December 31,
1998.)
|
|
10.11
|
Management
Services Agreement dated June 1, 1998, by and between DVL and PBD
Holdings, L.P. (“PBD”). (Incorporated by reference to DVL’s
Form 10-K for the fiscal year ended December 31,
1998.)
|
|
10.12
|
Loan
Agreement, Promissory Note and Pledge, Collateral Agreement and Security
Agreement, each dated as of March, 2000, each relating to a loan from
Pennsylvania Business Bank to DVL in the original principal amount of
$1,000,000. (Incorporated by reference to DVL’s Form 10-K for
the quarter ended June 30, 2000.)
|
|
10.13
|
Term
Loan Note and Term Loan Agreement, each dated as of March, 2000, each
relating to a loan from Bank Philadelphia to DVL in the original principal
amount of $1,450,000. (Incorporated by reference to DVL’s Form
10-Q for the quarter year ended June 30,
2000.)
|
|
10.14
|
First
Amendment to Loan Agreement, Pledge Agreement, Promissory Note and other
documents dated August 2000, relating to a loan from Pennsylvania Business
Bank to DVL, Inc. in the original principal amount of
$1,000,000. (Incorporated by reference to DVL’s Form 10-Q for
the quarter ended September 30,
2000.)
|
24
|
10.15
|
Purchase
Agreement, dated April 27, 2001, by and among J.G. Wentworth
Receivables II LLC, Receivables II-A LLC, Receivables II-A Holding
Company, LLC, J.G. Wentworth S.S.C., Limited Partnership, J.G. Wentworth
Management Company, Inc., S2 Holdings, Inc., and DVL, Inc. for the
purchase of residual interests in securitized
portfolios. (Incorporated by reference to DVL’s Form 8-K dated
May 9, 2001.)
|
|
10.16
|
Non-Negotiable,
Secured Purchase Money Promissory Note dated April 27, 2001 in the
original principal amount of $22,073,270 payable to the order of J.G.
Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
by reference to DVL’s Form 8-K dated May 9,
2001.)
|
|
10.17
|
Non-Negotiable,
Secured Purchase Money Promissory Note dated April 27, 2001 in the
original principal amount of $3,252,730 payable to the order of J.G.
Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
by reference to DVL’s Form 8-K dated May 9,
2001.)
|
|
10.18
|
Guaranty
and Surety Agreement dated April 27, 2001 by and from DVL, Inc. in favor
of J.G. Wentworth S.S.C., Limited Partnership from S2 Holdings,
Inc. (Incorporated by reference to DVL’s Form 8-K dated May 9,
2001.)
|
|
10.19
|
Common
Stock Warrant dated April 27, 2001. (Incorporated by Reference
to DVL’s Form 8-K dated May 9,
2001.)
|
|
10.20
|
Purchase
Agreement, dated as of August 20, 2001, by and among J.G. Wentworth
Receivables II LLC, Receivables II-B LLC, Receivables II-B Holding Company
LLC, J.G. Wentworth S.S.C. Limited Partnership, J.G. Wentworth Management
Company, Inc., S2 Holding, Inc. and DVL, Inc. for the purchase of residual
interests in securitized portfolios. (Incorporated by reference
to DVL’s Form 8-K dated August 28,
2001.)
|
|
10.21
|
Non-Negotiable,
Secured Purchase Money Promissory Note dated as of August 15, 2001 in the
original principal amount of $7,931,560.00 payable to the order of J.G.
Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
by reference to DVL’s Form 8-K dated August 28,
2001.)
|
|
10.22
|
Non-Negotiable,
Secured Purchase Money Promissory Note dated as of August 15, 2001 in the
original principal amount of $1,168,440.00 payable to the order of J.G.
Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
by reference to DVL’s Form 8-K dated August 28,
2001.)
|
|
10.23
|
Guaranty
& Surety Agreement dated as of August 20, 2001 by and from DVL, Inc.
in favor of J.G. Wentworth S.S.C., Limited
Partnership. (Incorporated by reference to DVL’s Form 8-K
dated
|
August
28, 2001.)
|
10.24
|
Pledge
Agreement, dated as of August 20, 2001 by S2 Holdings, Inc. for the
benefit of J.G. Wentworth S.S.C. Limited Partnership. (Incorporated by
reference to DVL’s Form 8-K dated August 28,
2001.)
|
|
10.25
|
Common
Stock Warrant dated as of August 15, 2001. (Incorporated by
reference to DVL’s Form 8-K dated August 28,
2001.)
|
|
10.26
|
Client
Service Agreement between the Company and Compensation Solutions, Inc.
dated March 28, 2003. (Incorporated by reference to DVL’s Form 10-Q for
the quarter ended March 31, 2003.)
|
|
10.27
|
$1,450,000
Promissory Note issued by DVL, Inc. in favor of Pennsylvania Business
Bank, dated April 28, 2004. (Incorporated by reference to Exhibit 10.1 to
DVL’s Form 10-Q for the quarter ended June 30,
2004.)
|
|
10.28
|
Loan
Agreement between DVL, Inc. and Pennsylvania Business Bank dated April 28,
2004. (Incorporated by reference to Exhibit 10.2 to DVL’s Form
10-Q for the quarter ended June 30,
2004.)
|
25
|
10.29
|
Promissory
Note, dated December 28, 2004, issued by DVL Mortgage Holdings, LLC and
DVL, Inc. in favor of Harleysville National Bank and Trust
Company. (Incorporated by reference to Exhibit 10.29 to DVL’s
Form 10-KSB filed for the year ended December 31,
2005.)
|
|
10.30
|
Assignment
Agreement, dated as of December 28, 2004, between Rumson Mortgage Holdings
LLC and DVL Mortgage Holdings LLC, Inc. (Incorporated by
reference to Exhibit 10.30 to DVL’s Form 10-KSB filed for the year ended
December 31, 2005.)
|
|
10.31
|
Loan
Agreement, dated December 28, 2004, by and among Harleysville National
Bank and Trust Company and DVL Mortgage Holdings LLC. (Incorporated by to
Exhibit 10.31 to DVL’s Form 10-KSB filed for the year ended December 31,
2005.)
|
|
10.32
|
Stock
Repurchase Agreement dated March 16, 2007 between DVL, Inc., Blackacre
Bridge Capital, L.L.C. and Blackacre Capital Group, L.P. (Incorporated by
reference to Exhibit 10.33 to DVL’s Form 10-KSB for fiscal year ended
December 31, 2006.)
|
|
10.33
|
Loan
and Security Agreement, dated June 5, 2006 by and between DVL, Inc. and
First Penn Bank. (Incorporated by reference to Exhibit 10.1 to DVL’s Form
10-QSB filed on August 14, 2006.)
|
|
10.34
|
Change
in Terms Agreement, dated September 1, 2006 by and between DVL, Inc. and
Pennsylvania Business Bank. (Incorporated by reference to Exhibit 10.1 to
DVL’s Form 10-QSB filed on November 14,
2006.)
|
|
10.35
|
Agreement
between the Town of Kearny, New Jersey and DVL, Inc. approved on October
24, 2006. (Incorporated by reference to Exhibit 10.34 to DVL’s Form 10-KSB
for the fiscal year ended December 31,
2006.)
|
|
10.36
|
Agreement
of Sale dated April 27, 2006 by and between DVL, Inc. and 354 Broadway
Associates, LLC. (Incorporated by reference to Exhibit 10.38 to DVL’s Form
10-KSB for the fiscal year ended December 31,
2006.)
|
|
10.37
|
First
Amendment of Agreement of Sale dated June 28, 2006 by and between DVL,
Inc. and 354 Broadway Associates, LLC. (Incorporated by reference to
Exhibit 10.39 to DVL’s Form 10-KSB for the fiscal year ended December 31,
2006.)
|
|
10.38
|
Second
Amendment of Agreement of Sale dated September 25, 2006 by and between
DVL, Inc. and 354 Broadway Associates, LLC. (Incorporated by reference to
Exhibit 10.40 to DVL, Inc.’s Form 10-KSB for the fiscal year ended
December 31, 2006.)
|
|
10.39
|
Loan
Extension Agreement between Pennsylvania Business Bank and Del Toch, LLC,
Delborne Land Company LLC, and Delbrook Holding, LLC dated March 2,
2007. (Incorporated by reference to Exhibit 10.1 to DVL’s Form
10-QSB for the quarter ended March 31,
2007.)
|
|
10.40
|
Loan
Extension Agreement between Pennsylvania Business Bank and Del Toch, LLC,
Delborne Land Company, LLC and Delbrook Holding LLC, dated June 1, 2007.
(Incorporated by reference to Exhibit 10.1 to DVL’s Form 10-QSB for the
quarter ended June 30, 2007.)
|
|
10.41
|
Construction
Loan Agreement dated August 2007 between DVL Kearny Holdings LLC, CapMark
Bank, Urban Development Fund II LLC, and Paramount Community Development
Fund. (Incorporated by reference to Exhibit 10.43 to DVL’s Form
10-KSB for the year ended December 31,
2007.)
|
|
10.42
|
Asset
Servicing Extension Agreement dated October 31, 2007 between DVL, Inc.,
Professional Services Corporation, K.M. Realty Corporation, and NPO
Management, LLC. (Incorporated by reference to Exhibit 10.44 to
DVL’s Form 10-KSB for the year ended December 31,
2007.)
|
26
|
10.43
|
First
Amendment to Lease dated August 10, 2007 to that certain lease dated
November 7, 2002 between DVL, Inc. and Amstad Property, Inc. (Incorporated
by reference to Exhibit 10.45 to DVL’s Form 10-KSB for the year ended
December 31, 2007.)
|
|
10.44
|
Construction
Loan Agreement between Capmark Bank, Urban Development Fund II, LLC,
Paramount Community Development Fund, LLC, and DVL Kearny Holdings, LLC
(dated August 14, 2007). (Incorporated by reference to DVL’s
Form 10-QSB for the quarter ended September 30,
2007.)
|
|
10.45
|
Asset
Servicing Extension Agreement between DVL, Inc., Professional Services
Corporation, KM Realty Corporation and NPO Management, LLC dated October,
2007. (Incorporated by reference to DVL’s Form 10-QSB for the quarter
ended September 30, 2007.)
|
|
10.46
|
Redeveloper
Agreement dated December 11, 2007 between DVL, Inc., DVL Kearny Holdings,
LLC, and the Town of Kearny, New Jersey. (Incorporated by reference to
DVL’s Current Event Report on Form 8-K dated December 11,
2007.)
|
|
10.47
|
Developer
Services Agreement between DVL, Inc., P&A Associates, and Pemmil
Management, LLC. (Incorporated by reference to DVL’s Current Event Report
on Form 8-K dated December 11,
2007.)
|
|
10.48
|
Mortgage
Note for the principal amount of $3,800,000 in favor of Delbrook Holding,
LLC. (Incorporated by reference to DVL’s Form 10-Q for the period ended
June 30, 2008.)
|
|
10.49
|
Amendment
No. 2 to the Construction Loan Agreement. (Incorporated by Reference to
DVL’s Form 10-Q for the period ended September 30,
2008.)
|
|
10.50
|
Pledge
and Security Agreement dated as of August 1,
2008. (Incorporated by reference to DVL’s Form 10-Q for the
period ended September 30, 2008.)
|
|
10.51
|
Amendment
No. 2 to the Loan and Security Agreement with Pemmil Funding, LLC, dated
November 10, 2008. (Incorporated by reference to DVL’s Form
10-Q for the period ended September 30,
2008.)
|
|
10.52
|
Mortgage,
Security Agreement and Agreement of Leases and Rents dated January 21,
2009 by DVL Kearny Holdings LLC in favor of Signature
Bank.
|
|
10.53
|
Guaranty
dated January 21, 2009 by DVL, Inc. to Signature
Bank.
|
|
*10.54
|
Amended
and Restated Loan and Security Agreement, dated as of December 31, 2009,
by and between DVL, Inc. and Pemmil Funding,
LLC.
|
|
14.
|
Code
of Ethics for Senior Financial Officers and Principal Executive
Officer. (Incorporated by reference to Exhibit 14 to DVL’s Form
10-K for the year ended December 31,
2003.)
|
|
*21.
|
SUBSIDIARIES
OF DVL.
|
|
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
|
Certification
of Chief Executive Officer and Chief Financial Officer, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
27
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, DVL has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.
| DVL, INC. | ||
| Dated: March 31, 2010 |
By:
|
/s/
Alan Casnoff
|
|
Alan
Casnoff
Chief Executive Officer
|
||
| Dated: March 31, 2010 |
By:
|
/s/
Neil Koenig
|
|
Neil
Koenig
Chief Financial Officer
|
Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report to
be signed below by the following persons on behalf of DVL and in the capacities
and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Ira Akselrad | Director | March 31, 2010 | ||
| Ira Akselrad | ||||
| /s/ Alan Casnoff | Director | March 31, 2010 | ||
| Alan Casnoff | ||||
| /s/ Gary Flicker | Director | March 31, 2010 | ||
| Gary Flicker |
28
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Consolidated
Financial Statements of DVL, Inc.
And
Subsidiaries and Report of Independent Registered Public Accounting
Firm
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets – December 31, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Operations for the years ended December 31, 2009 and
2008
|
F-5
|
|
Consolidated
Statements of Shareholders’ Equity for the years ended December 31, 2009
and 2008
|
F-7
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009 and
2008
|
F-8
|
|
Notes
to Consolidated Financial Statements
|
F-10
|
29
Report of Independent
Registered Public Accounting Firm
Board of
Directors and Shareholders
DVL,
Inc.
We have
audited the accompanying consolidated balance sheet of DVL, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and the related
consolidated statements of operations, shareholders’ equity and cash flows for
the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DVL, Inc. and subsidiaries
as of December 31, 2009 and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
We were
not engaged to examine management’s assessment of the effectiveness of DVL,
Inc.’s internal control over financial reporting as of December 31, 2009,
included in the accompanying Item 9A (T) Internal Control Over Financial
Reporting and accordingly, we do not express an opinion thereon.
/s/ McGladrey &
Pullen
Blue
Bell, Pennsylvania
March 31,
2010
F-1
Report of Independent
Registered Public Accounting Firm
Board of
Directors and Shareholders
DVL,
Inc.
We have
audited the accompanying consolidated balance sheets of DVL, Inc. and
subsidiaries (the “Company”) as of December 31, 2008 and the related
consolidated statements of operations, shareholders’ equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of the Company’s internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DVL, Inc. and subsidiaries
as of December 31, 2008, and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/
Imowitz Koenig & Co., LLP
New York,
New York
April 15,
2009
F-2
DVL,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Residual
interests in securitized portfolios
|
$ | 42,699 | $ | 45,789 | ||||
|
Mortgage
loans receivable from affiliated partnerships
(net of unearned interest of
$4,037 for 2009 and $5,181 for 2008) |
13,326 | 14,279 | ||||||
|
Allowance
for loan losses
|
(2,884 | ) | (2,180 | ) | ||||
|
Net
mortgage loans receivable
|
10,442 | 12,099 | ||||||
|
Cash
(including restricted cash of $274 for 2009 and $0 for
2008)
|
1,067 | 496 | ||||||
|
Investments
|
||||||||
|
Real
estate at cost (net of accumulated depreciation and
|
||||||||
|
amortization
of $1,564 for 2009 and $1,359 for 2008)
|
9,776 | 9,571 | ||||||
|
Affiliated
limited partnerships (net of allowance for
|
||||||||
|
losses
of $375 for 2009 and $448 for 2008)
|
657 | 657 | ||||||
|
Net
deferred tax asset
|
2,068 | 2,257 | ||||||
|
Other
assets
|
1,762 | 2,323 | ||||||
|
Assets
of discontinued operations
|
- | 1,873 | ||||||
|
Total
assets
|
$ | 68,471 | $ | 75,065 | ||||
See notes
to consolidated financial statements.
F-3
DVL,
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands except share data)
(continued)
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
LIABILITIES AND
SHAREHOLDERS' EQUITY
|
||||||||
|
Liabilities:
|
||||||||
|
Notes
payable - residual interests
|
$ | 28,155 | $ | 34,172 | ||||
|
Underlying
mortgages payable
|
2,708 | 3,626 | ||||||
|
Debt
- other
|
10,694 | 11,195 | ||||||
|
Debt
- affiliates
|
1,129 | 1,527 | ||||||
|
Interest
rate swaps
|
176 | 231 | ||||||
|
Redeemed
notes payable - litigation settlement
|
770 | 775 | ||||||
|
Security
deposits, accounts payable and accrued
|
||||||||
|
liabilities
(including deferred income of $71
|
||||||||
|
for
2009 and $21 for 2008)
|
424 | 616 | ||||||
|
Total
liabilities
|
44,056 | 52,142 | ||||||
|
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
|
||||||||
|
shares,
issued and outstanding -0-
|
- | - | ||||||
|
Common
stock, $.01 par value, authorized - 90,000,000
|
||||||||
|
shares,
issued and outstanding 44,770,345 for 2009 and
|
||||||||
|
2008
|
448 | 448 | ||||||
|
Additional
paid-in-capital
|
97,003 | 97,003 | ||||||
|
Deficit
|
(72,861 | ) | (74,298 | ) | ||||
|
Accumulated
other comprehensive loss
|
(176 | ) | (231 | ) | ||||
|
Total
shareholders' equity
|
24,415 | 22,923 | ||||||
|
Total
liabilities and shareholders' equity
|
$ | 68,471 | $ | 75,065 | ||||
See notes
to consolidated financial statements.
F-4
DVL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands except share and per share data)
|
2009
|
2008
|
|||||||
|
Income
from affiliates:
|
||||||||
|
Interest
on mortgage loans
|
$ | 2,241 | $ | 1,777 | ||||
|
Gain
on satisfaction of mortgage loans
|
- | 906 | ||||||
|
Partnership
management fees
|
225 | 261 | ||||||
|
Management
fees
|
55 | 101 | ||||||
|
Transaction
and other fees from partnerships
|
28 | 88 | ||||||
|
Distributions
from partnerships
|
142 | 275 | ||||||
|
Income
from others:
|
||||||||
|
Interest
income - residual interests
|
6,293 | 5,994 | ||||||
|
Net
rental income (including depreciation and
|
||||||||
|
amortization
of $193 for 2009 and $148 for 2008)
|
410 | 498 | ||||||
|
Distributions
from investments
|
- | 66 | ||||||
|
Other
income and interest
|
82 | 65 | ||||||
| 9,476 | 10,031 | |||||||
|
Operating
expenses:
|
||||||||
|
General
and administrative
|
1,598 | 1,549 | ||||||
|
Asset
servicing fee - NPO Management LLC
|
782 | 774 | ||||||
|
Legal
and professional fees
|
580 | 327 | ||||||
|
Provision
for loan losses
|
785 | 150 | ||||||
|
Interest
expense:
|
||||||||
|
Underlying
mortgages
|
234 | 339 | ||||||
|
Notes
payable - residual interests
|
2,651 | 2,877 | ||||||
|
Affiliates
|
166 | 188 | ||||||
|
Others
|
987 | 1,409 | ||||||
| 7,783 | 7,613 | |||||||
|
Income
from continuing operations before income tax expense
|
1,693 | 2,418 | ||||||
|
Income
tax expense
|
(81 | ) | (778 | ) | ||||
|
Income
from continuing operations
|
1,612 | 1,640 | ||||||
|
Loss
from discontinued operations - net of tax of $-0- in
|
||||||||
|
both
periods
|
(175 | ) | (110 | ) | ||||
|
Net
income
|
$ | 1,437 | $ | 1,530 | ||||
See notes
to consolidated financial statements.
F-5
DVL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands except share and per share data)
|
2009
|
2008
|
|||||||
|
Basic
earnings per share:
|
||||||||
|
Income
from continuing operations
|
$ | 0.04 | $ | 0.04 | ||||
|
Income
from discontinued operations
|
(0.01 | ) | (0.01 | ) | ||||
|
Net
Income
|
$ | 0.03 | $ | 0.03 | ||||
|
Diluted
earnings per share:
|
||||||||
|
Income
from continuing operations
|
$ | 0.04 | $ | 0.04 | ||||
|
Loss
from discontinued operations
|
(0.01 | ) | (0.01 | ) | ||||
| $ | 0.03 | $ | 0.03 | |||||
|
Weighted
average shares outstanding - basic
|
44,770,345 | 45,155,947 | ||||||
|
Effect
of diluted securities
|
32,673 | 142,500 | ||||||
|
Weighted
average shares outstanding - diluted
|
44,803,018 | 45,298,447 | ||||||
See notes
to consolidated financial statements.
F-6
DVL, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(in
thousands except share data)
|
Preferred
Stock
|
Common
Stock
|
Additional
|
Accumulated Other |
|||||||||||||||||||||||||||||||||
|
Paid-In
|
Comprehensive
|
|
Comprehensive
|
|||||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
(Loss)
|
Total
|
Income
|
||||||||||||||||||||||||||||
|
Balance
- January 1, 2008
|
100 | $ | 1 | 45,284,845 | $ | 453 | $ | 97,060 | $ | (75,828 | ) | $ | - | $ | 21,686 | $ | - | |||||||||||||||||||
|
Exercise
of stock options
|
- | - | 8,000 | - | - | - | - | - | - | |||||||||||||||||||||||||||
|
Repurchase
of common stock
|
- | - | (522,500 | ) | (5 | ) | (57 | ) | - | - | (62 | ) | - | |||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Unrealized
loss on valuation of interest rate swap
agreements
|
- | - | - | - | - | - | (231 | ) | (231 | ) | (231 | ) | ||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 1,530 | - | 1,530 | 1,530 | |||||||||||||||||||||||||||
|
Balance
- December 31, 2008
|
100 | 1 | 44,770,345 | 448 | 97,003 | (74,298 | ) | (231 | ) | 22,923 | $ | 1,299 | ||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||
|
Unrealized
gain on valuation of interest rate swap
agreements
|
- | - | - | - | - | - | 55 | 55 | 55 | |||||||||||||||||||||||||||
|
Net
income
|
- | - | - | - | - | 1,437 | - | 1,437 | 1,437 | |||||||||||||||||||||||||||
|
Balance
- December 31, 2009
|
100 | $ | 1 | 44,770,345 | $ | 448 | $ | 97,003 | $ | (72,861 | ) | $ | (176 | ) | $ | 24,415 | $ | 1,492 | ||||||||||||||||||
See notes
to consolidated financial statements.
F-7
DVL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
|
2009
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Continuing
operations:
|
||||||||
|
Net
Income
|
$ | 1,437 | $ | 1,530 | ||||
|
Adjustments
to reconcile income to net cash provided by
|
||||||||
|
(used
in) operating activities from continuing operations
|
||||||||
|
Loss
from discontinued operations
|
175 | 110 | ||||||
|
Interest
accretion on residual interests
|
(312 | ) | (136 | ) | ||||
|
Net
decrease in accrued interest on debt
|
(4 | ) | (9 | ) | ||||
|
Gain
on satisfaction of mortgage loans
|
- | (906 | ) | |||||
|
Depreciation
|
178 | 203 | ||||||
|
Provision
for loan losses
|
773 | 150 | ||||||
|
Amortization
of unearned interest on loan receivables
|
(1,144 | ) | (1,051 | ) | ||||
|
Net
decrease in deferred tax asset
|
189 | 486 | ||||||
|
Net
decrease (increase) in other assets
|
673 | (168 | ) | |||||
|
Net
(decrease) increase in accounts payable, security deposits
|
||||||||
|
and
accrued liabilities
|
(178 | ) | 456 | |||||
|
Net
(decrease) increase in deferred income
|
(14 | ) | 1 | |||||
|
Net
cash provided by continuing operations
|
1,773 | 666 | ||||||
|
Discontinued
operations:
|
||||||||
|
Loss
from discontinued operations
|
(175 | ) | (110 | ) | ||||
|
(Gain)
loss on sale of discontinued assets
|
9 | (90 | ) | |||||
|
Net
decrease in assets and liabilities of
|
||||||||
|
discontinued
operations
|
76 | 114 | ||||||
|
Cash
used in discontinued operations
|
(90 | ) | (86 | ) | ||||
|
Net
cash provided by operating activities
|
1,683 | 580 | ||||||
See notes
to consolidated financial statements.
F-8
DVL,
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in
thousands)
(continued)
|
2009
|
2008
|
|||||||
|
Cash
flows from investing activities:
|
||||||||
|
Collections
on loans receivable
|
$ | 1,816 | $ | 3,662 | ||||
|
Principal
collections on retained interests
|
3,214 | 1,202 | ||||||
|
Real
estate acquisitions and capital improvements
|
(171 | ) | (703 | ) | ||||
|
Net
decrease in affiliated limited partnership
interests
|
||||||||
|
and
other investments
|
- | 95 | ||||||
|
Net
proceeds from the sale of discontinued assets
|
1,788 | 220 | ||||||
|
Net
cash provided by investing activities
|
6,647 | 4,476 | ||||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from new borrowings
|
6,491 | 4,159 | ||||||
|
Principal
payments on debt
|
(7,386 | ) | (4,152 | ) | ||||
|
Payments
of prepaid financing costs
|
(112 | ) | (199 | ) | ||||
|
Repurchase
of common stock
|
- | (62 | ) | |||||
|
Payments
on underlying mortgages payable
|
(918 | ) | (1,965 | ) | ||||
|
Payments
on notes payable - residual interest
|
(5,829 | ) | (3,369 | ) | ||||
|
Payments
related to debt redemptions
|
(5 | ) | - | |||||
|
|
||||||||
|
Net
cash used in financing activities
|
(7,759 | ) | (5,588 | ) | ||||
|
Net
increase (decrease) in cash
|
571 | (532 | ) | |||||
|
Cash,
beginning of period
|
496 | 1,028 | ||||||
|
Cash,
end of period
|
$ | 1,067 | $ | 496 | ||||
|
Supplemental
disclosure of cash flow information:
|
||||||||
|
Cash
paid during the period for interest
|
$ | 3,774 | $ | 4,525 | ||||
|
Cash
paid for income taxes
|
$ | 20 | $ | 175 | ||||
|
Supplemental
disclosure of non-cash investing and
|
||||||||
|
financing
activities:
|
||||||||
|
Residual
interests in securitized portfolios -
|
||||||||
|
increase
/ (decrease)
|
$ | (188 | ) | $ | 884 | |||
|
Notes
payable - residual interests -
|
||||||||
|
increase
/ (decrease)
|
$ | (188 | ) | $ | 884 | |||
|
Foreclosure
of mortgage loans receivable collateralized by
|
||||||||
|
real
estate
|
$ | 281 | $ | 1,776 | ||||
See notes
to consolidated financial statements.
F-9
DVL,
INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars
in thousands unless otherwise noted
(except
share and per share amounts)
|
1.
|
Summary
of Significant Accounting Policies
|
a. THE
COMPANY: DVL, Inc. is a Delaware corporation headquartered in New
York, New York. DVL is a commercial finance company which is
primarily engaged in (a) the ownership of residual interests in securitized
portfolios, (b) the ownership and servicing of a portfolio of secured commercial
mortgage loans made to limited partnerships in which DVL serves as general
partner, which we refer to as an Affiliated Limited Partnership, (c) the
ownership of real estate and (d) the performance of real estate asset management
and administrative services. All references to the “DVL”, “we”, “us”,
“our”, or the “Company” refer to DVL, Inc. and its consolidated
subsidiaries.
DVL’s
common stock is traded on the over-the-counter market and is quoted on the OTC
Bulletin Board maintained by FINRA under the symbol “DVLN”. DVL’s
investments consist primarily of residual interests in securitized portfolios,
commercial mortgage loans due from affiliated partnerships, limited partnership
investments in affiliated partnerships and other real estate
interests. DVL has seven 100% owned active
subsidiaries: Professional Service Corporation (“PSC”), Del Toch, LLC
(“Del Toch”), Delborne Land Company, LLC (“Delborne”), S2 Holdings, Inc. (“S2”),
DVL Mortgage Holdings, LLC (“DMH”), DVL Kearny Holdings, LLC (“DVLKH”), Delbrook
Holdings, LLC (“Delbrook”), all of which are consolidated for accounting
purposes. DVL does not consolidate the various partnerships (the “Affiliated
Limited Partnerships”) in which it holds the general partner and limited partner
interests, except where DVL has control, 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 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 of 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, if any. Accounting for such investments on the
equity method would not result in any material change to the Company’s financial
position or results of operations.
Also, DVL has two inactive
subsidiaries: Del-Val Capital Corp. (“DVCC”) and RH Interests, Inc.
(“RH”), which have been consolidated in these financial
statements. Additionally, S2 owns 99.9% Class B member interests in
Receivables II-A, LLC and Receivables II-B, LLC which are passive entities
created solely to receive the residual cash flow from the securitized receivable
pools that each entity owns. Receivables IIA, LLC and Receivables
IIB, LLC are consolidated into S2 for financial reporting
purposes. All material inter-company transactions and accounts are
eliminated in consolidation.
b. 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 note holders 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
results of operations. Favorable changes in future cash flows are
recognized through results of operations as interest over the remaining life of
the retained interest.
c. 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. Rental
income is recognized in income as rent under the related leases becomes
due. DVL records potential rents in the period in which the all
contingencies are resolved. Management and transaction fees are
recognized as earned. Distributions from investments are recorded as
income when the amount to be received can be estimated and collection is
probable.
F-10
d. 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.
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 plus an estimated residual value
at the end of the primary term of the leases. The value of
partnership properties which are not subject to percentage rents was based upon
market research of current market value rents and sale prices of similar
properties. When any changes in tenants, lease terms, or timely payment of rent
have occurred, management revalues the property as appropriate.
Allowances related to the Company’s
investments in Affiliated Limited Partnerships are adjusted quarterly based on
Management’s estimate of their realizable value.
e. REAL
ESTATE: Land, buildings and equipment are stated at
cost. Depreciation is provided by charges to operations on a
straight-line basis over their estimated useful lives (5 to 40
years).
f. PREPAID
FINANCING: Prepaid financing costs are deferred and amortized over
the term of the respective debt using the effective interest rate
method. Prepaid financing costs on interest only loans are amortized
using the straight-line method over the term of the financing and are included
in other assets. The Company has recorded $1,322 and $1,178 in other
assets in the consolidated balance sheets for the years ended December 31, 2009
and 2008, respectively. $267 and $657 of amortization was recorded in
interest expense in the consolidated statements of operations for the years
ended December 31, 2009 and 2008, respectively. Accumulated
amortization was $1,091 and $942 at December 31, 2009 and 2008,
respectively.
g. 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
owned by the Company. Real estate is 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 amount 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.
h. RESTRICTED
CASH: As of December 31, 2009 and 2008, DVL had restricted cash of $274 and
$-0-, respectively. The restricted cash at December 31, 2009
represents required minimum cash balances pursuant to debt agreements.
i. FEDERAL
INCOME TAXES: DVCC, PSC, RH, Del Toch, S2, DMH, DVLKH, Delbrook and
Delborne are included in DVL’s consolidated federal income tax
return.
The Company recognizes deferred tax
assets and liabilities for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. In addition, the Company
recognizes future tax benefits such as net operating loss carry-forwards, to the
extent that realization of such benefits is more likely than not.
F-11
j. CASH
FLOW HEDGES: The Company uses derivatives to manage risks related to
interest rate movements on its floating rate loans. Interest rate
swap contracts designated and qualifying as cash flow hedges are reported at
fair value, the Company has established accounting and reporting standards for
derivative instruments. Specifically, all derivatives are recognized
as either assets or liabilities on the balance sheet and those instruments are
measured at fair value. Changes in the fair value of those
instruments designated as cash flow hedges are recorded in other comprehensive
income, to the extent the hedge is effective, and in the results of operations,
to the extent the hedge is ineffective or no longer qualifies as a
hedge.
During September 2008, the Company
entered into an interest rate swap agreement related to one of its floating
rate loans. Valued separately, the interest rate swap
agreement represents a liability as of December 31, 2009 and 2008, in the amount
of $159 and $231, respectively. During April 2009, the Company
entered into an interest rate swap agreement related to another of its floating
rate loans. Valued separately, the interest rate swap agreement
represents a liability as of December 31, 2009 in the amount of
$17. This value represents the fair value of the current difference
in interest paid and received under the swap agreements over the remaining term
of the agreements. Because the swaps are considered to be a cash flow
hedge and they are effective, the value of the swap agreements are recorded in
the Consolidated Statements of Shareholders’ Equity as a separate component and
represents the only amount reflected in accumulated other comprehensive
loss. Changes in the swap agreements’ fair value are reported
currently in other comprehensive loss. Payments are recognized in current
operating results as settlements occur under the agreements as a component of
interest expense.
The following table summarizes the
notional values of the Company’s derivative financial
instruments. The notional value provides an indication of the extent
of the Company’s involvement in these instruments on December 31, 2009, but does
not represent exposure to credit, interest rate or market risks.
|
Hedge
Type
|
Notional
Value
|
Rate
|
Termination
Date
|
Fair
Value
|
|
Interest
rate swap agreement
|
$3,706
|
5.94%
|
July
1, 2011
|
$(159)
|
|
Interest
rate swap agreement
|
$1,930
|
6.09%
|
February
1, 2014
|
$(17)
|
k. EARNINGS
PER SHARE: Basic per share data is determined by dividing net income
by the weighted average shares outstanding during the period. Diluted
per share data is computed by dividing net income by the weighted average shares
outstanding, assuming all dilutive potential common shares were
issued. With respect to the assumed proceeds from the exercise of
dilutive options, the treasury stock method is calculated using the average
market price for the period.
The following table presents the
computation of basic and diluted per share data for the years ended December 31,
2009 and 2008:
|
2009
|
2008
|
|||||||||||||||||||||||
|
Net
Income
|
Weighted
Average Shares
|
Per
Share Amount
|
Net
Income
|
Weighted
Average Shares
|
Per
Share Amount
|
|||||||||||||||||||
|
Basic
EPS, Net income available to common shareholders
|
$ | 1,437 | 44,770,345 | $ | 0.03 | $ | 1,530 | 45,155,947 | $ | 0.03 | ||||||||||||||
|
Effective
of dilutive stock options
|
- | 32,673 | - | 142,500 | ||||||||||||||||||||
|
Diluted
EPS, Net income available to common shareholders
|
$ | 1,437 | 44,803,018 | $ | 0.03 | $ | 1,530 | 45,298,447 | $ | 0.03 | ||||||||||||||
At December 31, 2009, and 2008,
outstanding stock options excluded from the computation of Diluted EPS, because
the exercise price was greater than the average market price of the Common
Stock, aggregated 220,000 and 180,000, thereby resulting in an anti-dilutive
effect.
F-12
The Company records non-cash
compensation expense related to payment for employee services by an equity
award, such as stock options, in their financial statements over the requisite
service period. There was no stock based compensation for 2009 or
2008.
l. FAIR
VALUE OF FINANCIAL INSTRUMENTS: As disclosed in Note 3, DVL’s loan
portfolio is valued based on the value of the underlying
collateral. As all loans are either receivables from Affiliated
Limited Partnerships or are collateralized by interests in Affiliated Limited
Partnerships, it is not practical to estimate fair value of the
loans. Due to the nature of the relationship between the Affiliated
Limited Partners and DVL’s general partner interest in the Affiliated Limited
Partnerships and the authority of the Oversight Committee, the amount at which
the loans and underlying mortgages could be exchanged with third parties is not
reasonably determinable, as any such estimate would have to consider the
intention of the Oversight Committee, the amounts owed, if any, to DVL for its
interests in the Affiliated Limited Partnerships and any transaction fees to
which DVL might be entitled. See Note 2 for discussions on residual
interests.
Financial instruments held by the
Company include cash and cash equivalents, interest rate swaps, receivables, and
accounts payable. The fair value of cash and cash equivalents,
receivables and accounts payable approximates their current carrying amounts due
to their short-term nature.
Interest rate swaps are valued using
level 2 inputs under the fair value hierarchy. Level 2 inputs are
observable inputs for identical or similar assets or liabilities.
Residual interests are valued using
level 3 inputs under the fair value hierarchy. Level 3 inputs are significant
unobservable inputs.
m. USE
OF ESTIMATES: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. The allowance for credit losses is
subject to significant change in the near term.
n. RECLASSIFICATIONS: Certain
prior year amounts have been reclassified to conform to the 2009 presentation,
including the reporting of discontinued operations for those assets that have
been disposed of.
o. CASH
AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with original purchase maturity dates of three months or less to be
cash equivalents.
p. CONCENTRATION
OF CREDIT RISK: Substantially all of the Company’s cash and cash
equivalents consist of money market mutual funds which invest in U.S. Treasury
Bills and repurchase agreements with original maturity dates of three months or
less.
The
Company maintains cash with several banking institutions, which amounts at times
exceeds federally insured limits.
q. RECENTLY
ISSUED ACCOUNTING STANDARDS: In June 2009, the FASB issued Statement
of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No.
46(R) (“FAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The amendments will significantly affect the
overall consolidation under FASB ASC 810, Consolidation (“ASC 810”),
and clarifies that the determination of whether a company is required to
consolidate an entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. ASC 810 requires an
ongoing reassessment of whether a company is the primary beneficiary of a
variable interest entity. ASC 810 also requires additional disclosures
about a company’s involvement in variable interest entities and any significant
changes in risk exposure due to that involvement. FAS 167 is effective for
fiscal years beginning after November 15, 2009. The Company has determined that
ASC 810 will have no effect on the statement of financial position or results of
operations.
F-13
|
2.
|
Residual
Interests in Securitized Portfolios
|
The
Company, through its wholly-owned consolidated subsidiary, S2, owns 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”). The Class B member interests, which are
consolidated into S2 for financial statement reporting purposes, 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 receive all the residual cash flow from five securitized
receivable pools after payment to the securitized note holders. The
Company considered whether member interests should be considered variable
interest entities, when consolidating S2’s ownership of its member interests and
determined that S2’s member interests do not meet the definition of variable
interest entities.
In
aggregate, the securitizations in which Receivables II-A and Receivables II-B
hold the residual interest contain approximately 3,200 individual structured
settlement receivables, which are backed by annuities issued by various
insurance companies. Based on projected future cash flows, the weighted average
yield on the residual interest is approximately 14.36%.
The
purchase price was paid by the issuance of 8% per annum limited recourse
promissory notes by S2. The notes payable – residual interests
balances were $28,155 and $34,172 as of December 31, 2009 and 2008,
respectively. Principal and interest are payable from the future
monthly cash flow. The notes mature August 15, 2020 through December
31, 2021 and are secured by a pledge of S2’s interests in Receivable 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 an original
amount up to $3,443 of the purchase price. The amount of the guaranty
is regularly reduced by 10% of the principal paid. The amount of the
guaranty at December 31, 2009 was $1,506. Payments, if any, due under
this guaranty are payable after August 15, 2020.
In
accordance with the purchase agreements with respect to such acquisitions, from
the acquisition dates through December 31, 2009, the residual interests in
securitized portfolios and the notes payable were increased by approximately
$6,396 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 in future cash flows are
recognized through results of operations as interest over the remaining life of
the retained interest.
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
|
|
2009
|
$
743
|
$
880
|
|
2010
to final payment on notes payable
|
$ 1,050
|
$
1,150
|
Final
payment on the notes payable expected 2014 related to the Receivables II-A
transaction and 2018 for the Receivables II-B Transaction.
The
Company believes it will continue to receive significant cash flows after final
payment of the notes payable.
F-14
The following table presents the key
economic assumptions at December 31, 2009 and the sensitivity of the current
fair value of residual cash flows to immediate 10 percent and 20 percent adverse
changes in those assumptions:
|
Carrying
value of residual interests
|
$ | 42,699 | ||
|
Fair
value of residual interest
|
$ | 41,203 | ||
|
Weighted-average
life (in years)
|
5.9 | |||
|
Expected
credit losses
|
3.2 | % | ||
|
Impact
on fair value of 10% adverse change
|
$ | 132 | ||
|
Impact
on fair value of 20% adverse change
|
$ | 264 | ||
|
Discount
rate
|
15.1 | % | ||
|
Impact
on fair value of 10% adverse change
|
$ | 2,338 | ||
|
Impact
on fair value of 20% adverse change
|
$ | 4,452 |
Those sensitivities are hypothetical
and should be used with caution. Also, in this table, the effect of a
variation in a particular assumption on the fair value of the residual interest
is calculated without changing any other assumption; in reality, changes in one
factor may result in changes in another which might magnify or counteract the
sensitivities.
The carrying value of the Notes
Payable – residual interests approximates fair value at December 31,
2009.
|
3.
|
Mortgage
Loans Receivable and Underlying Mortgage
Payable
|
Our
mortgage loan portfolio historically consisted primarily of wrap-around mortgage
loans made to Affiliated Limited Partnerships which were subject to
non-recourse, underlying mortgages held by unrelated institutional
lenders. Under a wrap-around mortgage loan, the majority of the
mortgage payments from the Affiliated Limited Partnerships are used to pay the
required monthly principal and interest payments on the underlying mortgage
which the wrap-around mortgage “wraps”. We build equity in the
wrap-around mortgage loans over time as the principal balance of the underlying
mortgage loans are amortized. In addition, pursuant to the terms of
the wrap-around mortgage loans, we are entitled to receive as additional debt
service a portion of the Affiliated Limited Partnerships’ percentage rent
income, if any.
At
December 31, 2009, our mortgage loan portfolio consisted of 7 wrap-around
mortgage loans with a net carrying value of $4,384 and 11 mortgage loans with a
net carrying value of $6,058. All of our mortgage loans are
collateral for various debt. On November 1, 2009, we foreclosed on
the Iowa Park property which secured a wrap-around mortgage with a then net
carrying value of $212.
The majority of the properties
underlying our mortgage loan portfolio are net leased pursuant to leases which
require the tenant to pay for all taxes, insurance and other property costs and
which provide for lease payments sufficient to amortize the applicable
underlying mortgage. In certain leases, the property owner is
required to maintain the roof and structure of the premises. With
respect to 10 of the loans in our mortgage loan portfolio with net carrying
values of $6,170 as of December 31, 2009, the tenant of the underlying property
is Wal-Mart Stores, Inc. Accordingly, a bankruptcy of Wal-Mart would
have a material negative impact on our ability to realize full value on these
loans.
In
addition to base rent, the leases to Wal-Mart require the tenant to pay
additional rent equal to a percentage of gross receipts from the tenant’s
operation of a property above a specified amount. In all cases where
additional rent is payable, a portion of the additional rent is required to be
paid to us as additional interest and/or additional debt service on our
mortgage.
F-15
We also retain the right to refinance
or pledge the outstanding mortgage loans underlying our wrap-around mortgage
loans provided that the debt service and principal amount of a refinanced loan
are no greater than that of the existing wrap-around loan. We also
have the right to arrange senior financing secured by mortgages or properties on
which we hold first or second mortgage loans by subordinating such mortgage
loans, subject to the limitations set forth above.
The following table presents the
activity in the mortgage loans:
|
2009
|
2008
|
|||||||
|
(in
thousands)
|
||||||||
|
Balance,
beginning of year
|
$ | 19,460 | $ | 27,655 | ||||
|
Collections
on loans to affiliates
|
(1,816 | ) | (3,662 | ) | ||||
|
Adjustment
related to forclosures and write off of uncollectible
loans
|
(281 | ) | (4,533 | ) | ||||
|
Balance,
end of year
|
$ | 17,363 | $ | 19,460 | ||||
|
Unearned
interest activity:
|
||||||||
| 2009 | 2008 | |||||||
|
(in
thousands)
|
||||||||
|
Balance,
beginning of year
|
$ | 5,181 | $ | 10,773 | ||||
|
Amortization
included in income
|
(1,144 | ) | (1,051 | ) | ||||
|
Adjustment
related to forclosures and write off of uncollectible
loans
|
- | (4,541 | ) | |||||
|
Balance,
end of year
|
$ | 4,037 | $ | 5,181 | ||||
|
4.
|
Allowance
for Losses
|
Allowance for loan loss activity is
as follows:
|
2009
|
2008
|
|||||||
|
(in
thousands)
|
||||||||
|
Balance,
beginning of year
|
$ | 2,180 | $ | 3,200 | ||||
|
Additional
provision for loan losses
|
773 | 150 | ||||||
|
Loans
satisfied, written-off or written down
|
(69 | ) | (1,170 | ) | ||||
|
Balance,
end of year
|
$ | 2,884 | $ | 2,180 | ||||
F-16
|
5.
|
Investments
|
Real
Estate
Our real
estate properties consist of (i) eight buildings totaling 347,000 square feet on
eight and one half acres located in an industrial park in Kearny, New Jersey
leased to various unrelated tenants, which we refer to as the Owned Site, (ii)
an 89,000 square foot building on approximately eight acres of land leased to
K-Mart in Kearny, New Jersey which is adjacent to the Owned Site, (iii) an
interest in a property in Bogota, New Jersey and (iv) five properties which we
acquired through foreclosure, including a property located in Iowa Park, Texas
which was foreclosed on in November 2009. During 2009, we sold three
previously foreclosed upon properties which were leased to Wal-Mart for net
proceeds of $1,788.
The
Owned Site-Kearny Property
The Owned
Site represents a portion of the Passaic River Development area designated for
redevelopment by the town of Kearny, New Jersey, which we refer to as the Kearny
Property. In connection with the redevelopment of the Kearny
Property, on December 11, 2007, we entered into a Redeveloper Agreement with the
Town of Kearny. Pursuant to the Redeveloper Agreement, the Town of
Kearny designated us as the redeveloper of the Kearny Property. As
redeveloper, we are obligated to redevelop the Kearny Property, at our 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 our rights there under which were originally set to expire
on December 31, 2009, was extended to May 1, 2011. If we are in default of any
terms or conditions of the Redeveloper Agreement and do 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.
To date,
we have not commenced construction with respect to the redevelopment of the
Kearny Property and given the current economic environment there can be no
assurance that we will commence construction in the near future. In
addition, there can be no assurance that we will be able to obtain the necessary
financing to commence or complete redevelopment.
In order
to undertake and complete the redevelopment of the Property, we will need to
obtain construction financing and, potentially additional loan or equity
financing, and given current economic conditions, there can be no assurance that
any such additional financing will be obtained on acceptable terms or at all.
Additionally, given the current economic conditions, there can be no assurance
that the redevelopment will occur within the time period required under the
Redevelopment Agreement or at all.
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.
The Developer Services Agreement (the
“Developer Services Agreement”) with P&A Associates and Pemmil (collectively
the “Developer”) provides that the Developers will provide 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 the Redeveloper 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.
F-17
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.
The Company has capitalized costs of
$1,058 and $856 for the years ended December 31, 2009 and 2008, respectively,
related to expenses of this project.
Under the terms of the first
Construction Loan Agreement, DVL Holdings was required to begin construction by
June 1, 2008. On June 1, 2008, DVL Holdings entered into Amendment
No. 1, whereby the lender agreed to extend the term of the Predevelopment Loan
Phase (as defined in the Construction Loan Agreement) to August 1,
2008. Because of delays, construction did not begin by such date and,
therefore, on September 8, 2008 DVL Holdings entered into Amendment No. 2 dated
August 1, 2008. Pursuant to Amendment No. 2, the lender has extended
the term of the Predevelopment Loan Phase for an additional six months which
ended February 1, 2009 on the condition that the lender shall have no further
obligation to make any loan advances. In addition, the maturity date
for payment of the outstanding principal balance of the loan was accelerated
effective as of August 1, 2008 making the entire outstanding principal balance
of $4,495 (and any accrued and unpaid interest thereon) due and payable on
February 1, 2009, the expiration of the Predevelopment Loan Phase.
On January 21, 2009, DVL Holdings,
entered into a Mortgage, Security Agreement and Assignment of Leases and Rents
(the “Agreement”) with Signature Bank (“Signature Bank”), a New York banking
corporation in connection with the loan by Signature Bank to the Company of an
aggregate amount of up to $6,450 (the “Principal Amount”) pursuant to certain
notes in the amount of $4,250 (the “First Note”) and $2,200 (the “Second Note”
and collectively with the First Note, the “Notes”). DVL Holdings
borrowed $4,250 pursuant to the First Note and such funds were used to repay the
outstanding borrowings under the Construction Loan
Agreement. Borrowings under the Second Note will be advanced by
Signature Bank in the future upon the satisfaction of certain conditions
specified in such Note and such funds will be used in accordance with the terms
of the Agreement and Second Note. The principal amount to be borrowed
under the Second Note must be repaid to Signature Bank in the event such funds
are not used as provided in the Agreement and the Second Note. The
principal amount outstanding under the Notes bear interest at an annual rate
equal to the greater of (i) six percent or (ii) one percent plus the prime rate
of interest designated by Signature Bank as its prime rate. Interest
is payable on a monthly basis. All outstanding principal together
with accrued and unpaid interest is due on January 21, 2011 (the “Maturity
Date”) with the option of DVL Holdings to extend the Maturity Date to January
21, 2012 if certain terms and conditions are met as specified in the
Notes. The principal amounts of the Notes may be prepaid without
penalty.
Pursuant to the Agreement, DVL
Holdings has granted to Signature Bank a mortgage and security interest in the
Owned Site and any additional property acquired by DVL Holdings for the
redevelopment project that becomes subject to the lien of the mortgage under the
Agreement including certain other property as specified in the Agreement
(hereafter all references to the “Property” refer to the Owned Site and such
additional properties) and an assignment of the leases and rents with respect to
the Property. In addition, all obligations under the Notes and the
Agreement are guaranteed by the Company pursuant to a guaranty dated January 21,
2009 from the Company in favor of Signature Bank.
Pursuant to the terms of the
Redeveloper Agreement, the Property is to be redeveloped by DVL Holdings under
the Redeveloper Agreement. The use of the Property is subject to the
terms of the Redeveloper Agreement and the assignment and assumption of the
Redeveloper Agreement to or by Signature Bank in the event of exercising their
remedies upon the occurrence of an event of default under the Agreement and the
Notes is subject to the terms and provisions of the Redeveloper
Agreement. In connection with the purchase of certain additional
property comprising part of the Property, the mortgage pursuant to the Agreement
will also cover such property.
The Agreement and the Notes contain
customary terms and provisions, including default provisions. In
addition to the customary default provisions, it is an event of default under
the Notes (i) if a default has occurred and continues beyond applicable notice
and cure periods under the Redeveloper Agreement, (ii) generally, if DVL
Holdings fails to acquire certain additional property in connection with the
redevelopment and the principal amount borrowed under the Second Note is not
repaid to Signature Bank, (iii) if the Redeveloper Agreement is amended without
the prior written consent of Signature Bank, or (iv) if a certain lease (as
specified in the Agreement) of a portion of the redeveloped property is
terminated or has not been modified or replaced with a new tenant in accordance
with the terms of the Agreement, unless DVL Holdings and DVL deliver additional
cash collateral or pay down the First Note in accordance with the
Agreement.
F-18
The
Bogota Property
In
October 2004, we 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 certain of our 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
we own an 8.25% limited partner interest in one of these
partnerships. We are also entitled to receive a percentage of the net
sales proceeds. As of December 31, 2009, the sale has not yet been
consummated and the third party continues to lease space. The total expenses to
be reimbursed to us are approximately $721 as of December 31, 2009 not including
the $50 fee or any amounts to be received as a limited partner. We
have brought an action against the prior tenants of the property for
environmental contamination and have received $400 towards the cleanup costs for
the property.
Foreclosed
Properties
The following table identifies the
properties we have acquired through foreclosure and which were held by us at
December 31, 2009.
|
Location
|
Sq.
Ft.
|
Acreage
|
Tenant
|
|
Brent,
AL
|
34,875
|
5.34
|
Vacant
|
|
Fort
Edward, NY
|
31,000
|
6.00
|
Vacant
|
|
Soddy
Daisy, TN
|
56,127
|
5.91
|
Vacant
|
|
Kennedy,
TX
|
44,752
|
5.52
|
Vacant
|
|
Iowa
Park, TX
|
43,769
|
4.36
|
Vacant
|
Summary of Real Estate
Holdings:
|
2009
|
2008
|
|||||||
|
Land
and land improvements
|
$ | 3,348 | $ | 3,146 | ||||
|
Buildings
|
7,565 | 7,353 | ||||||
|
Improvements
|
427 | 421 | ||||||
|
Subtotal
|
11,340 | 10,920 | ||||||
|
Less:
Accumulated depreciation
|
1,564 | 1,349 | ||||||
|
Total
|
$ | 9,776 | $ | 9,571 | ||||
Affiliated Limited
Partnerships
DVL acquired various interests in
Affiliated Limited Partnerships pursuant to the Terms of certain settlement
agreements and through purchases. Allowances are adjusted quarterly
based on Management’s estimate of the realizable value. During 2009
and 2008, DVL recorded income of $133 and $275, respectively, from distributions
received from these investments.
F-19
The activity on DVL’s investments in
Affiliated Limited Partnerships is as follows:
|
2009
|
2008
|
|||||||
|
(in
thousands)
|
||||||||
|
Balance,
beginning of year
|
$ | 657 | $ | 781 | ||||
|
Various
interests acquired through purchases and
|
||||||||
|
foreclosed
partner notes
|
- | - | ||||||
|
Distributions
received from partnerships
|
(142 | ) | (275 | ) | ||||
|
Distributions
recorded as income
|
142 | 275 | ||||||
|
Change
in reserves, net of write-offs
|
- | (124 | ) | |||||
|
Balance,
end of year
|
$ | 657 | $ | 657 | ||||
Other
Investments
In connection with the 1993
Litigation Settlement with three related partnerships that did not participate
in the Limited Partner Settlement, DVL received limited partnership interest in
three partnerships. These partnerships’ sole assets are the
restructured partnership mortgage loans on the properties leased to Wal-Mart
Stores, Inc. by the three related partnerships. During 2009, DVL
foreclosed on two of the properties which are now included in real estate. The
remaining investment, which is carried on the equity basis, is currently being
carried at $-0-.
|
6.
|
Debt,
Loans Payable Underlying Wrap-around
Mortgages
|
At December 31, 2009 DVL’s debt is
comprised of the following loans payable:
|
2009
|
2008
|
|||||||
|
Loan
collateralized by real estate bearing interest at 2.50%
|
||||||||
|
over
the 30 day LIBOR rate. Principal plus accrued and unpaid
|
||||||||
|
interest
were due and payable on February 1, 2009. On
|
||||||||
|
January
21, 2009, the loan was replaced with a new loan for
|
||||||||
|
$4,250
bearing interest at the greater of 6% or 1% above
|
||||||||
|
the
bank's prime rate. All outstanding principal and interest
|
||||||||
|
are
due January 21, 2011. (1)
|
$ | 3,501 | $ | 4,523 | ||||
|
Loans
collateralized by real estate bearing interest at a
|
||||||||
|
rate
equal to the one month LIBOR Rate plus 2.1%. The loan
|
||||||||
|
payable
bears interest at a variable rate. To minimize the
|
||||||||
|
effect
of changes in interest rates, the Company entered into
|
||||||||
|
an
interest rate swap agreement under which
|
||||||||
|
it
pays interest at a fixed rate of 5.94%. The variable rate
|
||||||||
|
is
based on the same notional amount as the
|
||||||||
|
underlying
debt. Monthly payment of principal in the
|
||||||||
|
amount
of $5 plus accrued interest, maturing July 1, 2011.
|
3,725 | 3,792 | ||||||
|
Loans
collateralized by an assignment and pledge of all deposits
|
||||||||
|
at
the bank and a first security interest in personal
|
||||||||
|
property
and fixtures. The loan bears interest at 7.5% per
|
||||||||
|
annum.
Principal and interest payments of $5 are due monthly
|
||||||||
|
through
maturity, February 1, 2013.
|
170 | 216 | ||||||
|
Loans
collateralized by shares of common stock of S2 bearing
|
||||||||
|
interest
at 6.25% per annum maturing June, 2012
|
1,358 | 1,460 | ||||||
|
Loan
to purchase existing mortgages annual principal payments
|
||||||||
|
of
$50, bearing interest at prime plus .5% per annum with a
|
||||||||
|
balloon
payment originally due 1/31/09 of $1,200. In
|
||||||||
|
January
2009, the lender agreed to recast the loan as a $2,200 term
loan
|
||||||||
|
to
be secured by four first mortgages and a restriction on pledging
mortgages
|
||||||||
|
for
additional debt. Interest is calculated at LIBOR plus 4%
and
|
||||||||
|
will
be self-amortizing over 60 months. The maturity date of
|
||||||||
|
the
existing loan was extended to February 2014.
|
||||||||
|
To
minimize the effect of changes in interest rates, the
Company
|
||||||||
|
entered
into an interest rate swap agreement under which it pays
|
||||||||
|
interest
at a fixed rate of 6.09%. The variable rate is based on
the
|
||||||||
|
same
notional amount as the underlying debt.
|
1,940 | 1,204 | ||||||
| 10,694 | 11,195 | |||||||
|
Loan
from affiliate bearing interest at 12% per annum
|
||||||||
|
annum
compounded monthly (2)
|
1,129 | 1,527 | ||||||
| $ | 11,823 | $ | 12,722 | |||||
F-20
(1) 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.
Under the
terms of the Construction Loan Agreement, DVL Holdings was required to begin
construction by June 1, 2008. On June 1, 2008, DVL Holdings entered
into Amendment No. 1, whereby the lender agreed to extend the term of the
Predevelopment Loan Phase (as defined in the Construction Loan Agreement) to
August 1, 2008. Because of delays, construction did not begin by such
date and, therefore, on September 8, 2008, DVL Holdings entered into Amendment
No. 2 dated August 1, 2008. Pursuant to Amendment No. 2, the lender
has extended the term of the Predevelopment Loan Phase for an additional six
months ending February 1, 2009 on the condition that the lender shall have no
further obligation to make any loan advances. In addition, the
maturity date for payment of the outstanding principal balance of the loan was
accelerated effective as of August 1, 2008 making the entire outstanding
principal balance of $4,495 (and any accrued and unpaid interest thereon) due
and payable on February 1, 2009, the expiration of the Predevelopment Loan
Phase.
As part
of Amendment No. 2, on September 8, 2008, DVL Holdings entered into a Pledge and
Security Agreement dated as of August 1, 2008 (the “Pledge and Security
Agreement”), with the Lender, whereby DVL Holdings deposited $500 into a blocked
account as additional collateral security for the loan under the Construction
Loan Agreement. Additionally, DVL Holdings deposited $160 as an
interest reserve to be used during the six-month extension period to pay all
interest accrued during such period. DVL Holdings is entitled to
release or withdrawal of the funds deposited from liens and security interests
created by the Pledge and Security Agreement in its entirety, upon repayment of
the obligations as set forth in said agreement.
F-21
On
January 21, 2009, DVL Holdings entered into a Mortgage, Security Agreement and
Assignment of Leases and Rents (the “Agreement”) with Signature Bank (“Signature
Bank”), a New York banking corporation in connection with the loan by Signature
Bank to the Company of an aggregate amount of up to $6,450 (the “Principal
Amount”) pursuant to certain mortgage notes in the amount of $4,250 (the “First
Note”) and $2,200 (the “Second Note” and collectively with the First Note, the
“Notes”). DVL Holdings borrowed $4,250 pursuant to the First Note and
such funds were used to repay the outstanding borrowings under the Construction
Loan Agreement. Borrowings under the Second Note will be advanced by
Signature Bank in the future upon the satisfaction of certain conditions
specified in such Note and such funds will be used in accordance with the terms
of the Agreement and Second Note.
The
principal amount to be borrowed under the Second Note must be repaid to
Signature Bank in the event such funds are not used as provided in the Agreement
and the Second Note. The principal amount outstanding under the Notes
bear interest at an annual rate equal to the greater of (i) six percent or (ii)
one percent plus the prime rate of interest designated by Signature Bank as its
prime rate. Interest is payable on a monthly basis. All
outstanding principal together with accrued and unpaid interest is due on
January 21, 2011 (the “Maturity Date”) with the option of DVL Holdings to extend
the Maturity Date to January 21, 2012 if certain terms and conditions are met as
specified in the Notes. The principal amounts of the Notes may be
prepaid without penalty.
Pursuant
to the Agreement, DVL Holdings has granted to Signature Bank a mortgage and
security interest in the Owned Site and any additional property acquired by DVL
Holdings for the redevelopment project that becomes subject to the lien of the
mortgage under the Agreement including certain other property as specified in
the Agreement (hereinafter all references to the “Property” refer to the Owned
Site and such additional properties) and an assignment of the leases and rents
with respect to the Property. In addition, all obligations under the
Notes and the Agreement are guaranteed by the Company pursuant to a guaranty
dated January 21, 2009 from the Company in favor of Signature Bank.
Pursuant
to the terms of the Redeveloper Agreement, the Property is to be redeveloped by
DVL Holdings under the Redeveloper Agreement. The use of the Property
is subject to the terms of the Redeveloper Agreement and the assignment and
assumption of the Redeveloper Agreement to or by Signature Bank in the event of
exercising their remedies upon the occurrence of an event of default under the
Agreement and the Notes is subject to the terms and provisions of the
Redeveloper Agreement. In connection with the purchase of certain
additional property comprising part of the Property, the mortgage pursuant to
the Agreement will also cover such property.
The
Agreement and the Notes contain customary terms and provisions, including
default provisions. In addition to the customary default provisions,
it is an event of default under the Notes (i) if a default has occurred and
continues beyond applicable notice and cure periods under the Redeveloper
Agreement, (ii) generally, if DVL Holdings fails to acquire certain additional
property in connection with the redevelopment and the principal amount borrowed
under the Second Note is not repaid to Signature Bank, (iii) if the Redeveloper
Agreement is amended without the prior written consent of Signature Bank, or
(iv) if a certain lease (as specified in the Agreement) of a portion of the
redeveloped property is terminated or has not been modified or replaced with a
new tenant in accordance with the terms of the Agreement, unless DVL Holdings
and the Company deliver additional cash collateral or pay down $700 of the First
Note in accordance with the Agreement.
In order
to undertake and complete the redevelopment of the Property, DVL Holdings and
the Company will need to obtain additional construction financing and,
potentially additional loan or equity financing, and given current economic
conditions, there can be no assurance that any such additional financing will be
obtained on acceptable terms or at all. Additionally, given current
economic conditions, there can be no assurance that the redevelopment will occur
in the five year period required under the Redevelopment Agreement or at
all.
(2) The
Loan and Security Agreement (the “Pemmil Loan Agreement”) with Pemmil Funding,
LLC (“Pemmil”), 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 that result in net proceeds (as
defined in the Pemmil Loan Agreement) to the Company. The obligations
under the Pemmil Loan Agreement are secured by a subordinated pledge of the
Company’s equity interest in S2 and a first priority lien on two wrap-around
mortgages. The Company may prepay all or a portion of the loan at any
time prior to maturity without penalty or premium. In December 2009, the
maturity date was extended to December 31, 2011.
F-22
Certain
members of Pemmil are insiders and/or affiliates of the Company, including Alan
Casnoff, the Company’s President and a Director of the Company, and Lawrence J.
Cohen who is a beneficial owner of greater than 10% of the Company’s common
stock.
The aggregate amount of debt and
loans payable underlying wrap-around mortgages (Note 3) maturing during the next
five years is as follows:
|
Loans
Payable
|
||||||||
|
Underlying
Wrap
|
||||||||
|
Debt
|
Around
Mortgages
|
|||||||
|
(in
thousands)
|
||||||||
|
2010
|
$ | 672 | $ | 598 | ||||
|
2011
|
8,831 | 208 | ||||||
|
2012
|
1,770 | 186 | ||||||
|
2013
|
473 | 201 | ||||||
|
2014
|
77 | 221 | ||||||
|
Thereafter
|
- | 1,294 | ||||||
| $ | 11,823 | $ | 2,708 | |||||
|
7.
|
Redeemed
Notes Payable – Litigation
Settlement
|
In December 1995, DVL completed its
obligations under the 1993 Limited Partnership Settlement by, among other
things, issuing notes to the plaintiffs (the “Notes”) in the aggregate principal
amount of $10,387.
To date, the Company has sent
redemption letters to note holders of the then outstanding Notes in the
principal amount of approximately $1,161 in the aggregate to redeem the notes in
cash at the face value plus accrued interest of approximately $49. As
of December 31, 2009, $440 has been paid and the remaining $770 payable is
reflected as a non-interest bearing liability. As a result of the
redemptions, all obligations under the Notes have been satisfied.
|
8.
|
Transactions
with Affiliates
|
Management
Fee Income Earned
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. As compensation, the Company recorded fees of $55
and $57 in 2009 and 2008, respectively.
Management
and Other Fees and Expenses Incurred
A. The
Company incurred fees to NPO of $782 and $774 under the Asset Servicing
Agreement for 2009 and 2008, 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 2009 and 2008, the Company provided office space under the
Asset Servicing Agreement to NPO consisting of approximately 500 square feet of
the Company’s New York location.
B. The
Millennium Group, an affiliate of NPO, received approximately $15 and $42 for
2009 and 2008, respectively representing compensation and reimbursement of
expenses for collection services on notes payable to the Company. In
addition, in 2009, and 2008, the Company paid or accrued fees of $108 and $108
respectively, to the Millennium Group for additional management and analytical
services.
F-23
C. Interest
expense on amounts due to Pemmil Funding were $166 and $188 for 2009 and 2008,
respectively.
D. The
Philadelphia, Pennsylvania, law firm of Zarwin Baum DeVito (“Zarwin”), of which
Alan E. Casnoff, the President and a director of the Company, is of counsel, has
acted as counsel to the Company since November 2004. Legal fees for
services rendered by Zarwin to the Company during 2009 did not exceed 5% of the
revenues of such firm for its most recent fiscal year. During 2009
and 2008, the Company and the Affiliated Limited Partnerships paid Zarwin $129
and $130, respectively, for legal services.
E. RESIG
provides substantially all of the Company’s internal accounting, financial
statement preparation and bookkeeping functions on an outsourced
basis. Neil H. Koenig, Chief Financial Officer, is a managing member
of RESIG and IKC. RESIG and IKC were paid $76 and $49, respectively during
2009.
|
9.
|
Commitments,
Contingent Liabilities and Legal
Proceedings
|
Commitments and Contingent
Liabilities
Pursuant to the terms of the Limited
Partnership 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) in the years 2004 through 2012 subject to certain
adjustments. For 2009, we have accrued $21 relating to 5% of our net
income less certain adjustments. During 2009 and 2008, the Company expensed
approximately $128 and $86, respectively, for amounts due to the fund based on
cash flow on mortgage loans of which approximately $0 was accrued at each year
end. These costs have been netted against the gain on satisfaction of
mortgages and/or interest on mortgage loans, where appropriate.
The Company leases space to various
tenants under lease terms that include escalation provisions, renewal options
and obligations of the tenants to reimburse operating expenses.
The aggregate future minimum fixed
lease payments receivable under non-cancellable leases at December 31, 2009 are
as follows:
|
Year
Ending
|
Amount
|
|||
|
2010
|
$ | 450 | ||
|
2011
|
199 | |||
|
2012
|
78 | |||
|
2013
|
78 | |||
|
2014
|
45 | |||
|
Thereafter
|
- | |||
| $ | 850 | |||
DVL leases premises comprising
approximately 5,600 square feet. The lease for such office space is
due to expire on March 31, 2015. The base rent of $216 per annum
increases to $386 and then $409 over the extended term of the lease, plus real
estate and operating expense escalation clauses. Rent expense was
$391 and $369 in 2009 and 2008, respectively, and net of reimbursements from
subtenants, rent expense was $121 and $132, respectively.
F-24
The future minimum rentals during the
next five years are as follows:
|
Year
Ending
|
Amount
|
|||
|
2010
|
$ | 386 | ||
|
2011
|
386 | |||
|
2012
|
386 | |||
|
2013
|
405 | |||
|
2014
|
409 | |||
|
Thereafter
|
102 | |||
| $ | 2,074 | |||
The Asset Servicing Agreement,
pursuant to which NPO is providing the Company with administrative and advisory
services, requires monthly payments of approximately $62 through March 2011,
with cost of living increases, payments aggregated $782 and $774, in 2009 and
2008, respectively.
|
10.
|
Shareholders’
Equity
|
Preferred and Common
Stock
The 100 shares of issued preferred
stock carry no specified dividends but do receive any preferred stock dividend
approved by the Board. To date, no dividend has been authorized by
the Board. On liquidation, the preferred stock is paid at face value
before the common stock.
Restriction on Certain
Transfers of Common Stock
Each
share of the stock of the Company included a restriction prohibiting sale,
transfer, disposition or acquisition of any stock until September 30, 2009
without 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.
In July 2008, the Company purchased
522,200 shares of its common stock, par value $0.01 per share, for a total
purchase price of $63 or $0.12 per share, in a privately negotiated transaction
with an unaffiliated seller.
Stock Option
Plans
DVL’s
1996 Stock Option Plan, as amended (the “Plan”) provided for the grant of
options to purchase up to 2,500,000 shares of Common Stock to directors,
officers and key employees of DVL. It included automatic grants of
15,000 options to individuals upon their becoming non-employee directors, as
well as annual grants of 15,000 options to each non-employee
director.
All
options are non-qualified stock options.
As of
December 31, 2009 and 2008, there were outstanding 445,000 and 625,000 ten year
options, respectively. During 2009, options to purchase 180,000
shares, originally issued in 1999, expired and were cancelled. The
Plan remained in effect until March 31, 2006, its termination date, and was not
renewed by the Company. No options may be granted under the Plan
subsequent to the termination of the Plan.
F-25
The
following table summarizes the activity under the Plan:
|
2009
|
2008
|
|||||||||||||||||||||||
|
Shares
|
Weighted
Average Excise Price
|
Weighted
Average Remaining Contractual Life
|
Aggregate
Intrinsic Value (in thousands)
|
Shares
|
Weighted
Average Excise Price
|
|||||||||||||||||||
|
Options
outstanding at
Beginning
of Year
|
625,000 | $ | 0.13 | 2.37 | $ | - | 678,000 | $ | 0.14 | |||||||||||||||
|
Granted
|
- | - | - | - | ||||||||||||||||||||
|
Cancelled
|
180,000 | 0.21 | 0.33 | - | 45,000 | 0.13 | ||||||||||||||||||
|
Excercised
|
- | - | - | - | 8,000 | 0.08 | ||||||||||||||||||
|
Options
Outstanding at End of Year
|
445,000 | 0.10 | 2.20 | $ | 5 | 625,000 | $ | 0.13 | ||||||||||||||||
|
Options
Excercisable at End of Year
|
445,000 | $ | 0.10 | 2.20 | $ | 5 | 625,000 | $ | 0.13 | |||||||||||||||
Warrants Redeemable in
Stock
During 2001, the Company, in
connection with the purchase of the residual interests, issued warrants to
purchase 3,000,000 shares of common stock with an exercise price of $0.20 per
share which expires as follows: warrant for 2,000,000 shares –
February 2011; warrant for 1,000,000 shares – August 2011.
|
11.
|
Income
Taxes
|
The (provision) benefit for income
taxes for the years ended December 31, 2009 and 2008 were as
follows:
|
2009
|
2008
|
|||||||
|
Current
Provision
|
||||||||
|
Federal
|
$ | 108 | $ | (73 | ) | |||
|
State
|
- | (219 | ) | |||||
|
Total
Current Provision
|
108 | (292 | ) | |||||
|
Deferred
Provision
|
||||||||
|
Federal
|
(189 | ) | (486 | ) | ||||
|
State
|
- | - | ||||||
|
Total
Deferred (Expense) Benefit
|
(189 | ) | (486 | ) | ||||
|
Total
(Expense) Benefit
|
$ | (81 | ) | $ | (778 | ) | ||
F-26
The Company’s effective income tax
rate as a percentage of income differed from the U.S. federal statutory rate as
shown below:
|
2009
|
2008
|
|||||||
|
U.S.
Federal Statutory Rate
|
34.0 | % | 34.0 | % | ||||
|
Change
in Valuation Allowance and Utilization of
Unrecognized
Deferred Tax Assets
|
-28.7 | % | -0.3 | % | ||||
|
Effective
Income Tax Rate
|
5.3 | % | 33.7 | % | ||||
Deferred taxes result from timing
differences in the recognition of revenue and expense for tax and financial
reporting purposes. The components of the provision for deferred
taxes were as follows:
|
2009
|
2008
|
|||||||
|
Allowance
for Losses
|
$ | (273 | ) | $ | 569 | |||
|
Tax
basis of forclosed land/building in excess of book
|
(393 | ) | (2,256 | ) | ||||
|
Notes
Payable Litigation Settlement
|
2 | - | ||||||
|
Carrying
Value of LP Investments
|
(246 | ) | (1,626 | ) | ||||
|
NOL
Carryforward
|
1,025 | 1,881 | ||||||
|
Retained
Interests
|
1,213 | 935 | ||||||
|
Mortgage
Loans
|
67 | 23 | ||||||
|
Change
in Valuation Allowance
|
(1,206 | ) | 960 | |||||
|
Total
Deferred Expense (Benefit)
|
$ | 189 | $ | 486 | ||||
The significant components of
deferred tax assets and liabilities were as follows:
|
2009
|
2008
|
|||||||
|
Allowance
for Losses
|
$ | 1,121 | $ | 848 | ||||
|
Tax
basis of forclosed land/building in excess of book
|
2,649 | 2,256 | ||||||
|
Notes
Payable Litigation Settlement Redeemed Notes
|
300 | 302 | ||||||
|
Other
|
146 | 174 | ||||||
|
Carrying
Value of LP Investments
|
289 | 15 | ||||||
|
NOL
Carryforward
|
206 | 1,231 | ||||||
|
Retained
Interests
|
9,651 | 10,864 | ||||||
|
Mortgage
Loans
|
2,670 | 2,737 | ||||||
|
Deferred
Tax Asset
|
17,032 | 18,427 | ||||||
|
Valuation
Allowance
|
(14,964 | ) | (16,170 | ) | ||||
|
Net
Deferred Tax Asset
|
$ | 2,068 | $ | 2,257 | ||||
At December 31, 2009, the Company had
aggregate unused net operating loss carry forwards of approximately $530,
available to reduce future taxable income, expiring through
2019.
F-27
|
12.
|
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 receivable
portfolios. The Corporate/other net income (loss) of $119 and $(472)
in 2009 and 2008, respectively, include $189 and $486 of deferred income tax
expense, respectively.
|
2009
|
2008
|
|||||||
|
Revenues
|
||||||||
|
Residual
interests
|
$ | 6,293 | $ | 5,994 | ||||
|
Real
estate
|
3,101 | 3,972 | ||||||
|
Corporate
/ other
|
82 | 65 | ||||||
|
Total
consolidated revenues
|
$ | 9,476 | $ | 10,031 | ||||
|
Net
income (loss)
|
||||||||
|
Residual
interests
|
$ | 3,635 | $ | 3,110 | ||||
|
Real
estate
|
(2,142 | ) | (998 | ) | ||||
|
Corporate
/ other
|
119 | (472 | ) | |||||
|
Total
income from continuing operations
|
$ | 1,612 | $ | 1,640 | ||||
|
As
of
|
As
of
|
|||||||
|
December
31, 2009
|
December
31, 2008
|
|||||||
|
Assets
|
||||||||
|
Residual
interests
|
$ | 42,699 | $ | 45,789 | ||||
|
Real
estate
|
23,704 | 27,019 | ||||||
|
Corporate
/ other
|
2,068 | 2,257 | ||||||
|
Total
consolidated assets
|
$ | 68,471 | $ | 75,065 | ||||
|
13.
|
Discontinued
Operations
|
During
the years ended December 31, 2009 and 2008, the Company disposed of certain real
estate properties. The sale and operation of these properties for all
periods presented have been recorded as discontinued operations in compliance
with our accounting policy.
F-28
Discontinued
operations for the years ended December 31, 2009 and 2008 are summarized as
follows:
|
2009
|
2008
|
|||||||
|
Income
|
$ | - | $ | 252 | ||||
|
Expenses
|
222 | 272 | ||||||
|
Loss
from discontinued operations before gain on sale
|
(222 | ) | (20 | ) | ||||
|
Gain
(loss) on sale
|
47 | (90 | ) | |||||
|
Loss
from discontinued operations
|
$ | (175 | ) | $ | (110 | ) | ||
Other
assets and other liabilities of discontinued operations at December 31, 2009 and
2008 are summarized as follows:
|
2009
|
2008
|
|||||||
|
Assets
of discontinued operations
|
$ | - | $ | 1,873 | ||||
|
14.
|
Subsequent
Events
|
On
January 15, 2010, the Company sold the Iowa Park, Texas property for net
proceeds of $162 which resulted in a net loss of approximately $50 in the first
quarter of 2010.
F-29