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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994, OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File No. 1-8356
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DVL, INC.
- --------------------------------------------------------------------------------
Exact name of Registrant as specified in its charter)
Delaware 13-2892858
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 River Road, Bogota, New Jersey 07603
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 487-1300
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
----------------------------- -----------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark 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 information statements
incorporated by reference in Part IV of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates as of March 28, 1995 was $2,378,741.
The number of shares outstanding of Common Stock of the Registrant as of March
28, 1995 was 8,593,268.
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the Proxy
Statement for DVL, Inc's. 1994 Annual Meeting of Stockholders.
PART I
Item 1. Business
- -----------------
A. Business
--------
DVL, Inc. ("DVL"), is a Delaware corporation established in 1978.
DVL's common stock is traded on the New York Stock Exchange (Symbol:
DVL). The principal address of DVL is 24 River Road, P.O. Box 408,
Bogota, New Jersey 07603; telephone number: (201) 487-1300. DVL is a
real estate investment, management and finance company.
Prior to 1992 DVL primarily invested in mortgage loans to affiliates
secured principally by income-producing commercial, office and industrial
properties. In addition, DVL invested in loans to limited partners and
affiliates secured by interests in affiliated partnerships in which
Kenbee Management, Inc. ("Kenbee"), a Delaware corporation, and DVL's
former manager, was a general partner. See "Mortgage Loans and Loans
Secured by Limited Partner Interests". Pursuant to the Limited Partner
Settlement, defined below, DVL succeeded to Kenbee's position as general
partner in those partnerships.
Effective January 1, 1994 DVL revoked its election to be taxed as
a real estate investment trust ("REIT") and elected to be treated as a
"Sub-chapter C" corporation for tax purposes. Management's intent in
making this change was to enable DVL to pursue new business activities
which would generate income which is either not qualified as REIT income
or which would otherwise have been taxable at a rate of 100%.
From 1992 through 1994, DVL pursued two new potential businesses.
The first was the acquisition and development of Sunbelt
retirement/resort properties for the purpose of reselling tracts or
individual developed lots at a profit. The second entailed the
acquisition of installment sales contracts in the automotive services
business to selected dealers and auto mechanics.
Through early 1994 DVL or its wholly owned subsidiary RH Interests,
Inc. ("RH") acquired a total of five development properties for resale.
Although DVL was able to make a profit on the first two acquisitions, due
to lack of additional cash resources, DVL was unable to develop and
market its remaining three acquisitions and has transferred these
properties over to DVL's lenders in full satisfaction of DVL's
obligations to such lenders.
DVL incurred similar cash problems in connection with the
development of the business of acquiring installment sales contracts in
the automotive service business. After DVL was successful in
establishing and operating the business through a wholly owned
subsidiary, First Mechanics Finance Company ("FMF"), DVL was unable to
fund the continued expansion of FMF and was forced to sell the company
in December 1994. DVL had invested or loaned approximately $1,181,000 to
FMF, net of $58,000 received through March 30, 1995 from the sale of FMF,
(including $353,000 of allocated overhead) for start-up costs and to fund
loan acquisitions. DVL was paid $12,000 in cash at closing from the sale
and received a promissory note for $275,000 payable over 15 months,
bearing interest at 8% per annum and a subordinated debenture in the
amount of $550,000 due in three years and bearing interest based upon the
sales volume of FMF. DVL has fully reserved such obligations since their
collectibility is uncertain at this time. If and when DVL collects on
its note and subordinated debenture it will recognize income as received.
2
Because of DVL's lack of cash resources, DVL has eliminated its new
business operations and all related overhead expenses. DVL is now solely
focusing on its core business of managing, administering and servicing
existing real estate properties and partnerships. DVL is the general
partner of approximately 110 limited partnerships from which it receives
management and other fees. In addition, through Professional Service
Corporation ("PSC"), a wholly owned subsidiary, DVL is engaged in the
management of certain properties located in New Jersey pursuant to its
master lease interests. DVL is managing these partnerships and
properties as a result of various limited partner litigation settlements.
As discussed above, DVL has implemented significant measures to
reduce its current operating expenses and is currently working on methods
of making additional overhead reductions during 1995. However, to enable
DVL to continue to meet its short term operating needs, DVL must augment
its cash flow with additional cash provided by proceeds from the sale or
refinancing of assets and/or equity borrowings. In this regard, DVL has
retained an investment banker to assist DVL in obtaining such
refinancings or borrowings as well as to develop a long term business
strategy.
B. Recent Developments
-------------------
During 1994 and prior years, substantial progress has been made in
settling various litigation brought against DVL, its board members and
certain former and current officers and affiliates. However, several
cases are still being litigated or are pending final disposition
including the original shareholder class and derivative actions. See
"Legal and Administrative Proceedings".
In the shareholder class action entitled IN RE DEL-VAL FINANCIAL
CORP. SECURITIES LITIGATION, MASTER FILE NO. MDL 872 a settlement was
approved by the court in December 1993 in which DVL agreed to issue to
shareholders (i) 900,000 shares of DVL common stock at a minimum price
of $1.50 per share (or notes to cover any deficiency in the event the
aggregate fair market value is less than $1,340,000); (ii) $9 million of
notes due in ten (10) years with interest at 10% payable in kind for five
(5) years, callable after the third year and payable on the tenth year
in cash or with DVL common stock equal to 110% of the face value of the
notes; and (iii) $1.4 million plus interest and expenses in cash or stock
(the settlement is hereinafter defined as the "Shareholder Settlement").
At December 31, 1994, management reflected the common stock and notes as
"to be issued" and a reserve of $1.81 million for the future $1.4 million
payment due and for any deficiency in the minimum price of the 900,000
shares to be issued. The $9 million face value notes to be issued were
valued at $3,690,000 by an independent investment banker. The settlement
is expected to result in a loss of $6.4 million which was fully provided
for in 1992. DVL anticipates that plaintiff's counsel will complete the
administration of the class and establish a distribution date in
accordance with the terms of the Stipulation of Settlement some time in
the second quarter of 1995. See "Legal and Administrative Proceedings".
A settlement with limited partner investor plaintiffs in IN RE
KENBEE LIMITED PARTNERSHIPS LITIGATION was approved by the court in
November 1992 pursuant to which a substantial portion of DVL's mortgages
were restructured and operational control of the partnerships was
transferred to DVL with substantial decisions subject to review by an
oversight committee of independent limited partner representatives (the
"Limited Partner Settlement").
During 1993 and prior, DVL completed settlements with all but two
of its major creditors. During the first quarter of 1995, DVL reached
an agreement with one of its two remaining unsettled creditors. The
3
settlement is expected to close in the second quarter of 1995. Pursuant
to the settlement DVL will make cash payments over time at a negotiated
discount and there will be an exchange of certain collateral. As a
result of this settlement, DVL will recognize a gain of approximately
$1,800,000 in the first quarter of 1995.
DVL is continuing negotiations with its remaining unsettled
creditor. DVL remains in default on its obligation for non-payment of
scheduled principal and interest payments of $13,804,000 to such
creditor. This loan is undercollateralized by approximately $13 million.
See Note 8 to DVL's Consolidated Financial Statements and "Loan
Portfolio". DVL has proposed to cure the default and restructure the
indebtedness by offering existing and replacement collateral to secure
cash payments over time at a negotiated discount. If the settlement as
proposed is finalized, DVL will recognize a significant gain on such
settlement. There can be no assurance that negotiations will proceed or
that a settlement will be reached.
In many of DVL's previously completed settlements, DVL has
restructured loans with mandatory repayment requirements. If DVL does
not meet such mandatory repayment requirements on previously restructured
debt, it will be in default of these loans and is at risk of losing all
of DVL's equity in the related collateral. DVL is currently attempting
to find new borrowings to meet its mandatory repayment requirements. In
addition, DVL has negotiated or is currently negotiating certain
discounts from existing creditors, if DVL is able to fully pay its
obligations to such creditors prior to specified dates.
DVL is still experiencing liquidity problems. If DVL is
unsuccessful in achieving a short term solution to its liquidity
problems, and, moreover, long term solutions to cure loan defaults and
meet its mandatory repayment requirements, then it may not be able to
continue as a going concern and may be forced to file for protection from
creditors under Chapter 11 of the United States Bankruptcy Code.
DVL's ability to continue as a going concern is dependent upon (1)
the success of the negotiations to restructure the payment terms of its
remaining unsettled indebtedness; (2) the sale or refinancing of certain
assets to improve its cash position to meet operating expenses and make
mandatory repayment requirements to its creditors; (3) the settlement of
its remaining litigation; (4) the realization of the estimated value of
the assets collateralizing its loan portfolio over an extended period of
time rather than the value of the assets on a liquidation basis; and (5)
the return to profitable operations which will primarily depend on the
outcome of the negotiations with its existing creditors to reduce its
interest expense burden.
C. Business Activities.
-------------------
1. Mortgage Loans and Loans Secured by Limited Partner Interests
-------------------------------------------------------------
At December 31, 1994, DVL had investments in 80 long-term mortgage
loans to affiliated partnerships and an unaffiliated entity (see
"Commercial Loans - Other") totalling $52,206,000 which are principally
pledged to secure indebtedness of the Company. Certain of the mortgage
loans due from affiliated partnerships, aggregating $29,786,000 at
December 31, 1994, were transferred from Kenbee and R&M Mortgage Company
("R&M") to DVL in replacement of DVL's loans to Kenbee and R&M
collateralized by such partnership mortgages as part of the Limited
Partner Settlement. This transfer significantly reduced the non-
performing portion of DVL's loan portfolio, as one of the primary
4
goals of the restructuring was to assure that the partnerships'
restructured mortgages would be serviced on a current basis from the base
rents. However, this reclassification will not result in significant
income or cash flow on the majority of such mortgages, as the mortgage
debt service is currently used to pay liens senior to DVL's before cash
flow from such mortgages is available to DVL. As a result of the Limited
Partner Settlement and another settlement, DVL wrote down its mortgage
loans in 1992 by $19,586,000. The balance of DVL's long-term mortgage
loans to affiliated partnerships were previously funded by DVL and bear
interest at effective rates of up to 15% per annum. At December 31,
1994, $5,261,000 of DVL's mortgage loans were non-performing. DVL has
established a loan loss reserve of approximately $10,346,000 in
connection with its mortgage loan portfolio.
The affiliated partnerships' properties provide the ultimate
security for DVL's loans and are leased, typically on a long-term basis,
to unaffiliated tenants chosen for their financial stability and growth
record. For virtually all properties, the leases are current and the
mortgages are being paid on a timely basis.
In addition DVL holds loans secured by limited partnership
interests, including those obtained from Kenbee as part of the Limited
Partner Settlement, aggregating $4,606,000 of which, $4,540,000 were non-
performing at December 31, 1994. Consequently, DVL has established a
loan loss reserve of approximately $2,416,000 in connection with these
loans.
Del-Val Capital Corp. ("DVCC") was organized in May 1989 as a
wholly-owned subsidiary of DVL to acquire, make and service loans due
from unaffiliated borrowers secured primarily by portfolios of consumer
receivables arising from sales of interests in vacation ownership
(timeshare) condominiums, improved homesites and membership campgrounds.
DVL continued to liquidate DVCC's loan portfolio during 1994 and in May
1994, DVCC sold one loan at its carrying value and pledged another loan
as collateral for a DVL loan. DVCC's remaining assets, net of an
additional reserve of $175,000, were absorbed by DVL, which treated these
transactions as the final disposal of DVCC.
2. Investments in Affiliated Partnerships.
--------------------------------------
DVL acquired interests in affiliated partnerships pursuant to the
terms of various settlement agreements. These interests were originally
valued at an average of approximately 33% of the original investment,
which reflected management's estimate of the investment's net realizable
value. At December 31, 1994, DVL had varying investments in numerous
partnerships with a net carrying value of $4,553,000. Based on potential
liquidations of such units to assist in meeting DVL's liquidity problems,
DVL has estimated a loan loss reserve of approximately $750,000 in
connection with these investments reducing the net realizable value to
approximately 25% of the original investment.
3. Real Estate Acquired for Resale.
-------------------------------
DVL had made investments in connection with the purchase and
development of residential real estate for resale. DVL has disposed of
its real estate projects located in North Carolina and South Carolina as
follows:
(a) The last remaining land parcel at the Wilmington, North
Carolina project, which was originally purchased for $875,000, was sold
in October 1994.
5
(b) A property located in Richlands Township, North Carolina was
acquired in April 1993 for $210,000. DVL received non-recourse seller
financing of $150,000 which required $75,000 payments, plus interest, in
April 1994 and April 1995. No lots from this property were sold. DVL
has deeded this property back to the seller.
(c) A property located in Henderson County, North Carolina and
Greenville County, South Carolina was acquired in July 1993 from a
corporation controlled by the individual investor (the "seller") who
provided the financing on the Wilmington, North Carolina property. DVL
assisted the seller's acquisition of the property by arranging for the
sale of certain land parcels simultaneously with the seller's purchase
of the property, thereby reducing the seller's purchase price and DVL's
subsidiary purchased the property from the seller. The acquisition was
fully financed by the seller with a $450,000 note maturing in September
1996, wherein DVL agreed to pay the seller 45% of the profits from any
property sales after the note was fully repaid. In November 1994 the
property was deeded back to the seller in consideration for a
cancellation of the note and a loan being made by the seller to DVL
secured by unrelated assets.
(d) A property consisting of developed and undeveloped land
surrounding an existing golf course located in Beaufort, South Carolina
was acquired by DVL in February 1994 for $2,025,000. DVL received
purchase money non-recourse financing from the seller of $1,202,779 and
financed the balance of the purchase price and an operating fund with a
$1,300,000 loan on a non-recourse basis from one of its existing
creditors. Under the terms of this financing, the lender was to earn 2%
over prime and was entitled to a portion of the profit from the sale of
the land parcels varying from 25% to 45% based upon the date of the full
repayment of the loan. In February 1995 DVL deeded this property to the
lender in full satisfaction of DVL's $1,300,000 obligation to such
lender.
4. Partnership and Property Management.
-----------------------------------
As part of the Limited Partner Settlement, DVL became general
partner of approximately 110 affiliated partnerships for which DVL
receives management and other fees.
As part of a settlement agreement with one of DVL's creditors, PSC
acquired master lease positions for two industrial parks located in New
Jersey. PSC manages both properties and is required to remit 75% of any
net cash flow generated by these properties to this creditor in payment
of DVL's restructured indebtedness.
D. Line of Business
----------------
DVL has continuously been deemed to be in one line of business,
commercial finance, for the past five years.
E. Investments
-----------
DVL's investments, the majority of which arose out of transactions
with affiliates, consist of commercial and other mortgage loans, loans
and notes secured by limited partnership interests, investments in
affiliated partnerships and commercial real estate. DVL also owns 100%
of the Common Stock of DVCC, PSC and RH. See "Financial Statements and
Supplementary Data".
A more detailed description of DVL's business follows. Certain
information in the description is incorporated herein by reference to the
Notes to the Consolidated Financial Statements of DVL (the "Notes")
included in Item 8 hereof.
6
F. Loan Portfolio
--------------
DVL's mortgage loan portfolio consists primarily of long term wrap
around and other mortgage loans due from affiliated partnerships secured
by income-producing commercial, office and industrial properties. In
addition, DVL maintains a portfolio of loans to limited partners secured
by their interests in affiliated partnerships. DVL does not anticipate
making any further loans to affiliated partnerships or limited partners.
Virtually all of DVL's mortgage loans receivable arose out of
transactions arranged by Kenbee in which affiliated partnerships
purchased commercial, office and industrial properties typically leased
on a long-term basis to unaffiliated, creditworthy tenants. Each
mortgage loan is collateralized by a lien, primarily subordinate to
senior liens, on real estate owned by an affiliated partnership. DVL's
loan portfolio is comprised of long-term wrap around and other mortgage
loans due from affiliated partnerships; interim second mortgage loans due
from affiliated partnerships; a loan due from an unaffiliated party; and
loans due from limited partners collateralized by their interests in
affiliated partnerships.
The following table sets forth the number of loans outstanding,
aggregate loan balances, including accrued interest, and the allowances
for loan losses, of the above investments at December 31, 1994. See
Tables 1 through 4 of Appendix "A" to this Form 10-K for detailed
information as to each such loan. Following the table is a brief
description of each type of loan.
Number
Aggregate Allowance
of
Loan for Loan
Type of Loan Loans
Amount Losses
------------ ------
- -------- ---------
(dollars in thousands)
Long-term mortgages due from affiliated
partnerships previously funded by DVL,
$37,416
net of underlying liens totalling $13,933,000
18,028
Less unearned interest (1)
- -------
Net long-term mortgages due from affiliated
partnerships previously funded by DVL 36
19,388 $ 2,808
Long-term mortgages due from affiliated partnerships
acquired pursuant to the Limited Partner Settlement,
net of underlying liens totalling $38,907,000 40
29,786 6,810
Interim second mortgages due from
affiliated partnerships 3
1,649 728
Mortgage loan due from an unaffiliated entity 1
1,383 -
---
- ------- -------
Total loans collateralized by mortgages 80
52,206 10,346
Loans collateralized by limited partnership ---
- ------- -------
interests 213
4,606 2,416
---
- ------- -------
Total loans 293
$56,812 $12,762
===
======= =======
[FN]
- --------------------
(1) Unearned interest represents the unamortized balance of discounts
on previously funded loans.
DVL's loans to affiliated partnerships are secured by mortgages on
properties leased to various tenants. For a list of these tenants see
Tables 1 through 3. The number of properties leased by any one company
from affiliated partnerships in which DVL holds a mortgage loan ranges
from one to 11 except for Wal-Mart, which is the tenant of 44
properties. The Grand Union Company, tenant of eleven properties, has
filed for protection from creditors under Chapter 11 of the U.S.
Bankruptcy Code. Two of these properties are under contract to be sold
and four have been assigned or subleased to other tenants. It is too
early in the Grand Union bankruptcy proceeding to determine whether any
of the Grand Union leases will be disaffirmed.
7
Generally, the tenants executed "triple-net" leases under which they
are responsible for the payment of all taxes, insurance and other
property costs. In certain instances, the partnership is required to
maintain the roof and structure of the premises. In addition to base
rent, most leases also 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 ("Percentage Rent"). In virtually all
cases where the partnership is entitled to receive Percentage Rent, a
portion of such rent is required to be paid as additional interest or
additional debt service on the long-term mortgage due from the
partnership.
G. Collateralized Loans
--------------------
1. Long-Term Mortgages Due from Affiliated Partnerships.
----------------------------------------------------
DVL's long-term wrap around and other mortgage loans due from
affiliated partnerships consist of (1) loans purchased primarily from
Kenbee under prior commitments made by DVL to affiliated partnerships on
which DVL yields up to 15% per annum or (2) loans to affiliated
partnerships acquired pursuant to the Limited Partner Settlement, the
principal amount of which equals DVL's net investment in the related loan
previously due from Kenbee or R & M, less specific write-downs on certain
of these loans based on the anticipated cash flow to be generated by each
loan. Interest on these loans, if any, will be imputed based on their
anticipated cash flow.
Of all such loans, approximately 95% (in dollars) are self-
amortizing, while the balance require balloon payments at maturity. Upon
maturity of three of these loans, balloon payments will be required to
be made by the respective partnerships beginning in 2003, which aggregate
approximately $3 million. Two of such loans with balloon payments
aggregating approximately $2 million are expected to be transferred to
a creditor before the loans' maturities as part of a settlement
agreement. DVL's aggregate net investment in the remaining loan
requiring a balloon payment was approximately $184,000 at December 31,
1994. All of these mortgages are being serviced by partnership rents.
DVL's wrap around mortgages are all collateralized by second or
third mortgages on commercial and industrial properties located in
various states and mature through March 2036. DVL is obligated to make
principal and interest payments on the underlying first mortgage loan to
the extent received from the borrower and, in certain instances, has the
right to refinance or pay off the first mortgage loan and succeed to
its seniority. Currently, the partnerships or the tenants are making
the underlying mortgage payments directly and DVL is applying such
payments to its wrap around mortgage loans. To the extent that the
underlying mortgage payment is less than the wrap around mortgage
payment, the partnership is obligated to pay DVL the balance.
2. Interim Second Mortgages Due from Partnerships.
----------------------------------------------
An interim second mortgage loan to an affiliated partnership
generally was equal to the difference between the partnership's purchase
price for its property and the amount of a first mortgage provided by an
unaffiliated lender. Although the remaining loans bear interest at
variable rates up to prime plus 4-1/4% per annum, DVL does not anticipate
realizing any income from these loans. Two of such loans are to
partnerships which were not part of the Limited Partner Settlement. All
such loans continue to be non-performing at December 31, 1994.
8
3. Commercial Loan - Other
-----------------------
DVL's mortgage loans from an unaffiliated entity resulted from the
satisfaction of its mortgage loan due from an affiliated partnership.
In 1994, DVL received a $1,450,000 loan from Grand Union in partial
satisfaction of one of its partnership mortgage loans. The loan bears
interest at 9% per annum and requires monthly payments of $18,000, with
a balloon payment of $1,161,000 due in December 1996. Grand Union is
current on this note and DVL expects that this loan is fully collectible
as the store was purchased by Grand Union with the intention of it being
expanded.
4. Loans Collateralized by Limited Partnership Interests.
-----------------------------------------------------
DVL made loans directly to limited partners to finance up to 80% of
their partnership investments. As a result of the Limited Partner
Settlement, DVL received similar such loans from Kenbee in 1992 in
replacement of loans due from Kenbee collateralized by such limited
partner loans. All of such loans due from limited partners ("Partners
Notes") mature at various dates through December 1995 and bear interest
at fixed rates of 15% to 16% and at variable rates of up to 2 1/2% over
prime. Certain of the variable rate loans are payable at fixed interest
rates, with interest accruing at variable rates subject to minimum and
maximum levels, payable upon the maturity of the loan.
DVL also made loans to Kenbee collateralized by limited partnership
investments. As a result of the acquisition of the limited partnership
interests collateralizing these loans, the amounts due, net of the value
of the interests acquired, were written off during 1993 and 1992. See
Note 6 and Note 7 to the Consolidated Financial Statements.
H. Refinancing Rights
------------------
DVL has the right to refinance certain of the presently outstanding
mortgage loans underlying its wrap around mortgage loans due from
affiliated partnerships, subject to any prepayment penalties, provided
that the debt service and principal amount of a refinanced loan are no
greater than that of the existing wrap around loan. DVL also has the
right to arrange senior financing secured by properties on which it
holds first or second mortgage loans by subordinating its mortgage loan
subject to the same such limitations.
In 1994, DVL refinanced a portion of its mortgage portfolio which
generated cash proceeds of approximately $5.9 million, of which
approximately $4.6 million was used to satisfy existing indebtedness and
approximately $1 million was placed in escrow in connection with proposed
settlements with DVL's remaining unsettled creditors. The amounts
obtained from this refinancing were based on the value of the base rents
during the period of the base lease term subsequent to the payoff of the
existing first mortgages. As a result of DVL's prior and current asset
liquidations and refinancings, DVL's asset base available for future
liquidations and refinancings has diminished.
I. Real Estate
-----------
DVL owns five real estate properties: two parcels of land in
Bogota, New Jersey and three parcels of land in Kearny, New Jersey. Two
parcels in Kearny, New Jersey are leased under long-term leases to
affiliated partnerships which purchased the buildings and improvements
thereon. The following describes DVL's properties more fully. All of
such properties are believed to be suitable for the uses indicated.
9
Two of the Kearny properties include 8.2 acres of land underlying
approximately 134,800 square feet of manufacturing, warehousing and
commercial buildings leased to (a) Toch Associates (2.6 acres) for an
annual rent of $7,000 until 2074; and (b) Kearny Associates (5.6 acres)
for an annual rent of $30,000 until 2079. Currently both Kearny and Toch
Associates have defaulted on the land leases held by DVL.
DVL has settled with the first mortgage holder and the limited
partners on the two Bogota properties and the third Kearny property. As
part of this settlement DVL's economic interests in these properties were
assigned to the related partnerships by DVL.
J. Employees
---------
On March 30, 1995, DVL had twenty-three (23) employees.
K. Foreign Activity
----------------
DVL or its subsidiaries have not engaged in any business activity
outside of the United States.
Item 2. Properties
- -------------------
A description of the properties owned by DVL, appearing under the
caption "Real Estate" in Item lI hereof, is incorporated herein by
reference.
Item 3. Legal and Administrative Proceedings
- ----------------------------------------------
Substantial progress has been made in settling various litigation
brought against DVL, its Board members and certain current and former
officers and affiliates by shareholders, banks and others. However,
several cases are still being litigated or are pending final disposition
including the original shareholder class and derivative actions. The
following is a summary of the status of all material outstanding cases.
Numerous class action suits commenced since 1990 were filed in
various jurisdictions and consolidated in the United States District
Court, Southern District of New York on February 28, 1991, in one
consolidated action entitled IN RE: DEL-VAL FINANCIAL CORP. SECURITIES
LITIGATION, MASTER FILE NO. MDL 872 ("IN RE DEL-VAL").
In IN RE DEL-VAL, a settlement has been approved by the court in
which DVL would issue to plaintiffs (i) 900,000 shares of DVL common
stock at a minimum price of $1.50 per share (or notes to cover any
deficiency in the event the aggregate fair market value is less than
$1,340,000); (ii) $9 million of notes due ten (10) years with interest
at 10% payable in kind for five (5) years, callable after the third year
and payable on the tenth year in cash or with DVL common stock equal to
110% of the face value of the notes; and (iii) $1.4 million plus interest
from August 16, 1993 and expenses in cash or stock. At December 31,
1994, management reflected the common stock and notes as "to be issued"
and a reserve of $1.81 million for the future $1.4 million payment due
and for any deficiency in the minimum price of the 900,000 shares to be
issued. The $9 million face value notes to be issued were valued at
$3,690,000 by an independent investment banker. The settlement is
expected to result in a loss of $6.4 million which was fully provided for
in 1992. DVL and related defendants have cross claimed against Deloitte
and Touche ("Deloitte"), DVL's former accountant, and have demanded
indemnification or contribution from Deloitte. Deloitte has cross-
claimed against DVL and related defendants in IN RE DEL-VAL. The court
has issued an opinion and order in connection with cross motions for
summary judgment filed by DVL and Deloitte. In that opinion and order,
10
the court ruled that Deloitte was not entitled to indemnification or
contribution on the state law claims, that Deloitte's cross claims for
indemnification or contribution against DVL are dismissed and that DVL
may have a right to contribution by Deloitte on the settlement.
A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL.
("LEVY"), originally filed as a class action suit against current and
former directors of DVL in the Court of Chancery in New Castle County,
Delaware on February 13, 1991, has not been consolidated with the other
class action suits and plaintiffs have revised their complaint to proceed
on behalf of certain individuals as opposed to a class action. The
revised complaint was filed on or about May 4, 1994 against the same
current and former directors of DVL and alleges breaches of fiduciary
duty of care and candor. A recent United States Supreme Court decision
supports DVL's position in this matter and it is likely this action will
be dismissed without recovery to plaintiffs.
DVL is subject to three shareholder derivative suits. The first is
PHYLLIS RYE, ON BEHALF OF HERSELF IN THE RIGHT OF DEL-VAL FINANCIAL
CORPORATION V. ROGER STERN, ET AL. ("RYE"), filed in the United States
District Court, Southern District of New York on May 13, 1991. The other
two derivative suits are entitled DEL-VAL FINANCIAL CORP. DERIVATIVELY
BY HILDA WEIGART V. ROGER D. STERN, ET AL. ("WEIGART"), and DEL-VAL
FINANCIAL CORP. DERIVATIVELY BY MIRIAM FEINBERG V. ROGER D. STERN, ET
AL.
("FEINBERG"), and were filed in the Superior Court of New Jersey-Law
Division-Bergen County on October 31, 1990 and December 3, 1990,
respectively, and consolidated by court order dated February 8, 1991.
Pursuant to court order DVL and related defendants filed a third party
complaint in this consolidated action against their insurance carriers.
The Appellate Court in New Jersey and the Superior Court for Bergen
County, New Jersey have stayed all proceedings in the New Jersey cases.
Plaintiffs and all Defendants except Deloitte & Touche (the
"Settling Defendants") have reached a proposed settlement of WEIGART and
FEINBERG pursuant to a Settlement Agreement dated September 12, 1994 (the
"Settlement Agreement"). Under the Settlement Agreement, any claims
against the Settling Defendants were settled and all amounts to be
recovered by Plaintiffs were to be recovered exclusively against certain
insurance policies held by the Settling Defendants. The New York Court
in FEDERAL INSURANCE, discussed below, held that the Settling Defendants'
insurance excluded coverage of these matters and plaintiffs have sought
to transfer that ruling to the New Jersey cases.
Several limited partners who elected to opt out of the 1992
settlement of the limited partner class action, IN RE KENBEE LIMITED
PARTNERSHIPS LITIGATION, have named DVL in a case entitled FAYE CRAWFORD,
ET AL. V. ROGER STERN, ET AL. ("CRAWFORD"), filed in the Court of Common
Pleas in the State of South Carolina on September 23, 1993, in which
plaintiffs allege violations of RICO, common law fraud and civil
conspiracy in fiduciary securities transactions, common law fraud
including negligent deception, breach of fiduciary duty and negligence
by certain defendants and aiding and abetting other's breaches of
fiduciary duty and seek damages of $625,000 plus attorney fees, expenses
and interest. The case was removed to Federal Court and the defendants
have answered plaintiff's amended complaint. Settlement discussions are
underway and management has reserved for its estimation of settling or
defending the case.
DVL, and certain former officers have been named as defendants in
an action brought by a former employee of Kenbee entitled MICHAEL A.
BECKER V. KENBEE MANAGEMENT, INC. ET AL. ("BECKER"), and filed in the
Superior Court of New Jersey, Bergen County Law Division on September 22,
1993. In BECKER, plaintiff alleges violations of the New Jersey Law
11
Against Discrimination by Reason of Religious Discrimination, of oral
contract not to terminate plaintiff, of an implied promise not to
terminate employee for reasons violative of public policy, and for
intentional infliction of emotional distress, intentional interference
with contractual relations and slander and slander PER SE. Defendants
have answered the complaint, successfully moved to dismiss certain counts
and commenced discovery. Plaintiff was then given leave to amend and
filed an amended complaint, which Defendants have answered. More
extensive discovery is ongoing. It is expected that this case will not
settle and will proceed to trial and management has reserved for its
estimation of settling or defending the case.
In November 1993, the Securities and Exchange Commission (the
"Commission") commenced an administrative proceeding against DVL's
Treasurer in connection with certain events related to the 1990 stock
offering and price decline. Without admitting or denying the allegations
of the complaint, the Treasurer has agreed and the Commission has
consented to the issuance of a cease and desist order. Such Order will
not affect the ability of the Treasurer to perform his duties for DVL.
Federal Insurance Company ("Federal"), which carried DVL's directors
and officers insurance policy, has declined to cover DVL for these legal
costs and any liability. DVL commenced an action against its insurance
broker and Federal entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V.
FEDERAL INSURANCE COMPANY ET AL. ("FEDERAL INSURANCE") on September 23,
1991 in the Supreme Court of the State of New York, County of New York
in which DVL alleges negligence against its broker and seeks declaratory
and injunctive relief against Federal. The New York Court in this matter
has held that the Settling Defendants' insurance excluded coverage of
these matters. DVL has filed a notice of appeal of that decision. DVL
has also named Federal as a third party defendant in the consolidated
WEIGART and FEINBERG cases, which have been stayed.
DVL has been named in actions for contractual indemnity, equitable
indemnity and declaratory relief in certain matters filed by Vanguard
Capital, Inc. in the Superior Court, State of California. These actions
are based on complaints by investors in affiliated limited partnerships
alleging that the investors' brokers sold to them unsuitable investments.
The broker is seeking indemnity against DVL and others. DVL has answered
these complaints.
DVL was a counterclaim defendant in an action entitled KEARNY
ASSOCIATES, ET AL. V. PLANNING BOARD OF KEARNY, ET AL., pending in the
Superior Court of New Jersey, Law Division, Hudson County, Docket Nos.
L-5436-92 and L-5978-92. In that case, an action was commenced in the
name of Del-Val Financial Corp., as well as Kearny Associates and
American Industrial Warehouses, Inc., seeking to overturn zoning
approvals granted to an adjacent property owner. The answer filed by
Pathmark's corporate entity and the property owner interposed a
counterclaim for tortious interference with prospective economic
advantage. DVL filed an answer to the counterclaim denying any liability
and raising other defenses. The action was consolidated with a similar
action commenced by an adjacent property owner and its tenant entitled
LJP ASSOCIATES V. PLANNING BOARD OF KEARNY, ET AL.
The main claims in both actions have been dismissed, leaving the
counterclaims which are being pursued. The counterclaims have been
amended to add as counterclaim defendants Foodtown of Kearny, Inc. and
its principal, Martin Vitale ("Foodtown"), and Kearny ShopRite, Inc. and
its principal, Richard Tully, as well as to name DVL as successor to Del-
Val Financial Corp. Foodtown has asserted crossclaims against, INTER
ALIA, DVL, counterclaims against Pathmark and its property owner and
third-party claims. DVL has settled this case as asserted by Pathmark
12
and the property owner, without admitting liability and the parties are
in the process of finalizing settlement documents. Foodtown's
crossclaims against DVL remain pending.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
None.
PART II
Item 5. Market for DVL's Common Stock and Related Shareholder Matters
- -----------------------------------------------------------------------
DVL is listed for trading on the New York Stock Exchange. DVL's New
York Stock Exchange symbol is DVL. As of March 27, 1995, DVL stock was
trading at $.25. The following table sets forth, for the calendar
periods indicated, the high and low sales prices of the Common Stock as
reported by the Exchange:
1994 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $1 3/8 $ 7/8
Second Quarter . . . . . . . . . . . 1 1/8 7/8
Third Quarter . . . . . . . . . . . . 7/8 1/2
Fourth Quarter . . . . . . . . . . . 1/2 3/8
1993 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $2 5/8 $ 5/8
Second Quarter . . . . . . . . . . . 2 1/8 1 1/8
Third Quarter . . . . . . . . . . . . 2 1
Fourth Quarter . . . . . . . . . . . 1 1/2 3/4
[FN]
At March 27, 1995, there were 1,800 holders of record of Common
Stock of DVL. DVL made monthly dividends to shareholders continuously
from May 1973 to October 1990. No dividends have been paid since October
1990. At this time, due to DVL's continued liquidity problems, DVL does
not anticipate paying any dividends in the foreseeable future.
[/FN]
13
Item 6. Selected Financial Data
- --------------------------------
The following summary sets forth DVL's consolidated financial data at
December 31, 1990,
1991,
1992, 1993 and 1994. The data set forth below should be read in conjunction
with other
financial
information of DVL, including its consolidated financial statements and
accountant's report
thereon
included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition
and Results
of Operations."
Consolidated Income Statement Data
(In
thousands except for per share data)
Year Ended December 31
1990 1991
1992 1993
1994
---- ----
---- ---- ----
Revenues
Affiliates $ 17,100 $ 4,329
$ 4,002 $ 2,649
$ 3,425
Other 732 583
350 417
359
-------- --------
-------- -------
- --------
Total $ 17,832 $ 4,912
$ 4,352 $ 3,066
$ 3,784
======== ========
========
======= ========
Loss from continuing operations (A) $(58,836) $(13,487)
$(22,635)
$(6,163) $(12,887)
Loss from discontinued operations (243) (332)
(403)
(367) (223)
-------- --------
-------- -------
- --------
Loss before extraordinary gain (59,079) (13,819)
(23,038)
(6,530) (13,110)
Extraordinary gain on the settlement of - -
16,482 7,991
1,935
indebtedness -------- --------
-------- -------
- --------
Net Income (loss) $(59,079) $(13,819)
$ (6,556) $ 1,461
$(11,175)
======== ========
========
======= ========
Earnings (loss) per share (B)
Primary
Loss from continuing operations $ (9.25) $ (1.95)
$ (3.27) $
(.83) $ (1.54)
Loss from discontinued operations (.04) (.05)
(.06) (.05)
(.03)
-------- --------
-------- -------
- --------
Income (loss) before extraordinary gain (9.29) (2.00)
(3.33) (.88)
(1.57)
Extraordinary gain on the settlement of - -
2.38 1.08
.23
indebtedness -------- --------
-------- -------
- --------
Net Income (loss) $ (9.29) $ (2.00)
$ (.95) $ .20
$ (1.34)
======== ========
========
======= ========
Fully Diluted
Loss from continuing operations $ (9.25) $ (1.95)
$ (3.27) $
(.38) $ (1.54)
Loss from discontinued operations (.04) (.05)
(.06) (.02)
(.03)
-------- --------
-------- -------
- --------
Loss before extraordinary gain (9.29) (2.00)
(3.33) (.40)
(1.57)
Extraordinary gain on the settlement of - -
2.38 .50
.23
indebtedness -------- --------
-------- -------
- --------
Net Income (loss) $ (9.29) $ (2.00)
$ (.95) $ .10
$ (1.34)
======== ========
========
======= ========
Cash dividends per share (C) $ 1.41 $ -
$ - $ -
$ -
======== ========
========
======= ========
14
Consolidated Balance Sheet Data
(In thousands)
December 31
1990 1991
1992 1993
1994
---- ----
---- ---- ----
Total assets $146,831 $132,171
$97,938 $72,048
$54,085
======== ========
=======
======= =======
Long-term debt (D) $ 46,998 $ 43,450
$48,094
$37,270 $32,018
======== ========
=======
======= =======
Short-term debt (D) $ 42,816 $ 41,269
$23,486
$12,564 $ 9,657
======== ========
=======
======= =======
Shareholders' equity (capital
deficiency) $ 23,266 $ 9,447
$ 2,931 $ 5,660
$(5,131)
======== ========
=======
======= =======
[FN]
15
NOTES TO SELECTED FINANCIAL DATA
(A) In 1976, DVL sold real estate located in Kearny, New Jersey
(exclusive of land) to Toch, an affiliated partnership in which
Kenbee remains as the nominal general partner pursuant to an
agreement with the limited partners of the partnership. The
gain on this sale of $565,000 is being accounted for under the
installment method. DVL recognized $7,000, $7,000, $8,000,
$6,000 and $0 respectively, of the gain on this sale during the
five years ended December 31, 1994. See note 9 of notes to the
Consolidated Financial Statements of DVL.
In 1977, DVL sold real estate located in Rockingham, North
Carolina and Phoenix, Arizona to Kenbee and its subsidiary.
In 1992 this gain on sale was fully recognized.
In 1978, DVL sold real estate located in Bogota, New Jersey
(exclusive of land and machinery) to Kenbee and its subsidiary.
The gain on the sale of $1,130,000 is being accounted for under
the installment method. DVL recognized a gain of $7,000,
$8,000, $8,000, $9,000 and $9,000 respectively for the five
years ended December 31, 1994. See note 9 of notes to the
Consolidated Financial Statements of DVL.
(B) See note 1g of notes to the Consolidated Financial Statements
of DVL.
(C) Based upon the number of shares outstanding at date of
distribution. All dividends for the periods shown in the table
were taxable as ordinary income or treated as return of
capital.
(D) See note 8 to the notes to the Consolidated Financial
Statements of DVL.
[/FN]
16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
DVL continues to experience severe liquidity problems principally as
a result of the reduced cash flow received on the restructured and non-
performing portions of its loan portfolio. Although the Limited Partner
Settlement substantially reduced the non-performing portion of DVL's loan
portfolio, this reclassification has not, nor is it expected to result in
significant income or cash flow on the majority of the restructured
mortgages, as the mortgage debt service is used to pay liens senior to
DVL's. DVL remains in default on principal and interest payments on
approximately $13,800,000 of its indebtedness. DVL is also a defendant in
certain remaining litigation.
To enable DVL to meet its short-term operating needs, DVL must
continue to augment its cash flow with the proceeds from the sale or
refinancing of assets and equity borrowings. There is a risk that DVL may
not be able to raise the necessary funds with which to continue operations.
If DVL is unable to raise the necessary funds to continue operating, it may
be forced to file for protection from creditors in accordance with Chapter
11 of the United States Bankruptcy Code.
DVL's ability to continue as a going concern is dependent upon (1) the
success of the negotiations to restructure the payment terms of its
remaining unsettled indebtedness; (2) the sale or refinancing of certain
assets to improve its cash position to meet operating expenses and make
mandatory payment requirements to its creditors; (3) the settlement of its
remaining litigation; (4) the realization of the estimated value of the
assets collateralizing its loan portfolio over an extended period of time
rather than the value of the assets on a liquidation basis; and (5) the
return to profitable operations, which will primarily depend on the outcome
of the negotiations with its existing creditors to reduce its interest
expense burden. If DVL is unsuccessful in achieving a short term solution
to its liquidity problems, and moreover, long-term solutions to cure its
remaining loan defaults, meet its mandatory repayment requirements and
return it to profitable operations, then it may not be able to continue as
a going concern.
Results of Operations
- ---------------------
DVL realized a net loss of $11,175,000 in 1994, as compared to net
income of $1,461,000 in 1993, a change of $12,636,000. The net change in
1994 was primarily a result of decreased extraordinary gains realized upon
creditor settlements, substantial additional loss provisions for potential
forced asset liquidations and the loss incurred on the investment in FMF.
The net income in 1993 was primarily a result of extraordinary gains on the
settlements of indebtedness, which were partially offset by additional
provisions for losses on certain loans and for claim and litigation
settlements, increased general and administrative expenses and the effect
of a substantial portion of DVL's loan portfolio having little or no yields
based upon the restructured terms of such loans. The effects of these items
and the other factors contributing to DVL's operating results are as
follows:
Interest income on mortgage loans due from affiliates decreased by
$103,000 in 1994 and by $1,193,000 in 1993 primarily as a result of a
reduction in the amount of such loans to affiliated partnerships due to the
transfer of certain loans pursuant to creditor settlements in 1993 and from
the satisfaction of certain loans upon the sale of partnership properties.
Management fees from partnerships increased by $396,000 as a result
of DVL's management of its affiliated partnerships for all of 1994 after
the termination of its management agreement with RH effective January 1,
1994.
17
Transaction and other fees from partnerships aggregating $542,000
in 1994 represent the fees received upon the refinancing or sale of
certain partnership properties.
Rent income from affiliated partnerships decreased by $59,000 in
1994 and $25,000 in 1993 as a result of DVL's transfer of its economic
interest in three of its properties to affiliated partnerships in
connection with the settlement of litigation and the restructuring of one
of DVL's debts in 1993 in addition to the remaining two land leases being
in default.
Interest income on loans to limited partners decreased by $85,000
in 1994 and increased by $59,000 in 1993. The decrease in 1994 is due
to a decrease in the average outstanding balance of the performing
portion of this portfolio. The increase in 1993 was due to better than
expected collections on the non-performing portion of this portfolio,
partially offset by a decrease in the average outstanding balances of the
performing portion of this portfolio.
General and administrative expenses decreased by $665,000 in 1994
and increased by $1,396,000 in 1993. The decrease in 1994 primarily
resulted from a decrease in the value of performance units granted to
certain officers of $385,000 and the allocation of overhead to FMF. The
increase in 1993 primarily resulted from an increase in payroll and
operating costs incurred as an independently managed organization and the
accrual of $417,000 for the value of the performance units. Due to the
elimination of DVL's new business ventures and additional reductions in
personnel made in late 1994 and early 1995, management expects a decrease
in general and administrative expenses in the future.
The litigation settlement loss of $6,400,000 in 1992 represents the
expected loss to be incurred upon the final settlement of the IN RE DEL-
VAL litigation. The loss was fully provided for during 1992 and included
the estimated fair market value of the common stock and notes to be
issued in connection with the settlement.
The provision for losses aggregated $7,814,000 in 1994 and $995,000
in 1993. The provision in 1994 was primarily a result of potential losses
to be incurred upon the forced liquidation of assets to meet mandatory
repayment obligations on certain indebtedness and for losses incurred
upon the liquidation of assets to fund DVL's operating cash flow
deficiency. Furthermore, DVL provided for losses based upon updated
information on certain properties. The provision in 1993 is primarily
a result of provisions for additional loan losses based upon updated
information on certain properties and investments and for anticipated
losses to be incurred upon the liquidation of assets to fund DVL's
operating cash flow deficiency. These additional provisions were
partially offset by a net reduction in DVL's potential liability as
guarantor of indebtedness, due to settlements with certain of such
creditors, collections on previously reserved for loans due from Kenbee
resulting from RH's partnership management and real estate activities and
by collections on previously reserved for Partners' Notes.
Legal and professional fees decreased by $36,000 in 1994 and by
$33,000 in 1993. These fees continued to be significant during 1994
primarily as a result of the remaining litigation and the culmination of
the shareholder class action litigation. Such fees are expected to
continue until DVL settles its remaining litigation and restructures its
remaining unsettled indebtedness. DVL has been unable to pay its
professional fees on a current basis and is at risk of losing its
representation if significant payments are not made during the second
quarter of 1995.
18
Interest expense decreased by $250,000 in 1994 and by $2,800,000 in
1993 primarily as a result of a decrease in indebtedness and decreases
in interest rates on certain restructured indebtedness, which in 1994 was
partially offset by $744,000 of imputed interest on the notes to be
issued in connection with the Shareholder Settlement and by an increase
in the prime rate. The decrease in indebtedness is primarily the result
of the full satisfaction of certain indebtedness pursuant to debt
restructurings in 1993 as well as the principal payments made from
collections on the collateral pledged to secure the related indebtedness.
Management anticipates that such interest expenses on its existing
indebtedness will decline in the future as a result of the completed and
proposed settlements and restructuring agreements with DVL's creditors,
however, this decline may be more than offset by the interest, including
imputed interest, on the approximately $9 million of notes to be issued
in connection with the Shareholder Settlement.
Settlements and other litigation losses aggregating $973,000 in 1994
and $582,000 in 1993 represent both actual losses and management's
estimate of potential losses to be realized in connection with claims
originating from Kenbee's indebtedness to certain creditors and for
certain other litigation matters.
The net loss of $1,181,000 on the investment in FMF in 1994
represents DVL's investment to fund FMF's initial operations, before any
potential recoupment from additional cash received from the sale of FMF.
The loss included $353,000 of overhead allocated to FMF by DVL.
DVL's discontinued operations resulted in a net loss of $223,000 in
1994 and a net loss of $367,000 in 1993. The loss in 1994 resulted
primarily from a provision for losses on one of DVL's real estate
projects, and additional losses anticipated on the sale of the remaining
real estate or DVCC loans. The loss in 1993 represents the losses
incurred upon the liquidation of DVCC's loan portfolio.
DVL has reached settlements with the majority of its shareholders,
virtually all of the limited partners and the majority of its creditors.
As a result, management anticipates, (a) a steady flow of income in
partnership management and other fees, (b) a decrease in interest income
on mortgage loans transferred to satisfy indebtedness or liquidated for
repayment of indebtedness or cash flow purposes, (c) a decrease in
interest expense as indebtedness is satisfied by transferring assets to
certain creditors and as certain indebtedness is restructured with
reduced interests rates, (d) an increase in interest expense on notes to
be issued in connection with the Shareholder Settlement, (e) potential
gains on the settlement and restructuring of DVL's remaining unsettled
indebtedness, including the reduction or elimination of interest
previously accrued on such indebtedness if settlements are finalized on
the terms currently proposed, and (f) a reduction in the costs incurred
to defend against litigation, to comply with administrative
investigations and to settle or restructure its indebtedness.
Liquidity and Capital Resources
- -------------------------------
DVL continues to experience severe liquidity problems and its cash
flow provided by operations is not sufficient to meet its operating
needs. DVL is attempting to augment its cash flow with the proceeds from
the sale or refinancing of assets and equity financings. There is a
risk that DVL may not be able to raise the necessary funds with which to
continue operations.
DVL's revocation of its election to be taxed as a REIT effective
January 1, 1994 eliminated the requirement that DVL distribute at least
95% of its taxable income and will allow DVL to enter into new business
19
ventures that were not permitted or were subject to taxation at a rate
of 100% for a REIT. DVL does not anticipate making distributions to its
shareholders in the foreseeable future. DVL currently has net operating
loss carryforwards of approximately $67,000,000 which it may use as a "C"
Corporation to offset future taxable income, if any, and subject to
certain limitations, from federal income taxes.
DVL has the right to refinance a number of mortgage loans underlying
its wrap around mortgages due from affiliated partnerships and arrange
senior financing secured by properties on which it holds first or second
mortgage loans by subordinating its mortgage position. In 1994, DVL
refinanced a portion of its mortgage portfolio which generated cash
proceeds of approximately $5.9 million, of which approximately $4.6
million was used to satisfy existing indebtedness and approximately $1
million was placed in escrow in connection with proposed settlements with
DVL's remaining unsettled creditors. As a result of DVL's prior and
current asset liquidations and refinancings, DVL's asset base available
for future liquidations has diminished considerably.
In March 1993, DVL transferred certain mortgage loans, with a net
carrying value of $7,443,000, to a creditor in complete satisfaction of
its previously restructured indebtedness of approximately $6,420,000 and
in partial satisfaction of a $2.7 million loan which originated in April
1992 in connection with DVL's purchase of its own indebtedness from an
unaffiliated third party. In addition, DVL received approximately
$400,000, the release of certain other mortgages and certain limited
partnership investments held as collateral for this indebtedness. No
gain or loss resulted from this transaction in 1993. The $2.7 million
loan was fully repaid in October 1993 from the proceeds of the
liquidation of certain DVCC assets collateralizing this loan. In October
1993, DVL borrowed a total of $1.1 million from this same creditor
collateralized by certain mortgages which previously collateralized the
$2.7 million loan and by certain management fees to be received in 1994.
The loan collateralized by certain management fees was extended to April
30, 1995. The proceeds of these loans were used to meet operating
expenses and to satisfy the payment requirements of certain debt
restructuring agreements. The remaining loan to such creditor of
approximately $900,000 was fully satisfied in 1994.
In February 1994, this same creditor provided DVL with $1.3 million
of non-recourse second mortgage financing in connection with DVL's
acquisition of a residential development of improved and unimproved land
in Beaufort, South Carolina. Under the terms of this financing, the
creditor was entitled to receive interest at prime plus 2%, as well as
from 25% to 45% of the profit from the sale of such land parcels based
upon the date of the full repayment of the loan. Due to a lack of
funding for the project DVL deeded the property back to its creditor in
February 1995.
During 1994, DVL reduced the portion of its indebtedness which was
in default for non-payment of scheduled interest and/or principal by
approximately $3.6 million. This reduction resulted from the
restructuring of the principal balance, payment terms and interest rate
with one creditor. The restructuring agreement was signed in the first
quarter of 1995 and is expected to close by the end of the second quarter
of 1995. Such restructuring will result in a gain on the settlement of
indebtedness of approximately $1.8 million in the first quarter of 1995.
At December 31, 1994, DVL continued to be in default for non-payment
of scheduled interest and/or principal payments on approximately $13.8
million of its indebtedness and is currently negotiating to settle or
restructure payment terms with its remaining unsettled creditor. The
goal of such restructuring is to obtain a reduction of the total
20
indebtedness and to establish an acceptable payment schedule with such
creditor. This negotiation includes a proposal for curing the defaults
and restructuring the indebtedness by offering cash payments over time
at a negotiated discount to the creditor. If the above settlement is
finalized as proposed, DVL would recognize a substantial gain on such
settlement. There can be no assurance that these negotiations will
continue or that a settlement will be finalized as described above. In
addition, if DVL does not meet its previously settled mandatory repayment
requirements to other creditors, it would be in default on these loans
and at risk of losing all of the related collateral.
DVL is currently seeking replacement secured and equity borrowings
to meet its mandatory repayment requirements and its other cash needs.
There can be no assurance that DVL will be able to obtain such borrowings
or that the borrowings will be sufficient to meet mandatory repayment
requirements and any future cash flow deficiencies.
Impact of Inflation and Changes in Interest Rates
- -------------------------------------------------
DVL's mortgage loan portfolio due from affiliated partnerships is
primarily at fixed rates. Although management has restructured certain
indebtedness and is negotiating to restructure its remaining unsettled
indebtedness to fixed rates, DVL's indebtedness continues to be primarily
at variable rates. Therefore, currently, decreases in interest rates are
generally expected to have a positive effect on DVL's earnings while
increases in interest rates are generally expected to have a negative
effect on DVL's earnings. Other than as manifested in interest rates,
inflation has not had a significant effect on DVL's net income for the
past five years.
Other Matters
- -------------
As a temporary step designed to allow DVL to pursue the acquisition
of residential real estate for resale without subjecting any profits from
such resales to the 100% tax rate for REITs, DVL made four loans to RH
in 1993 in connection with RH's acquisition of real estate for resale.
The loans aggregated $213,000 of which $161,000 was repaid during 1993.
The remaining loan was eliminated through DVL's acquisition of RH
effective January 1, 1994.
At December 31, 1994, DVL had net operating loss carryforwards for
income tax purposes of approximately $67,000,000 available to offset
future taxable income, if any, expiring through 2008.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements, together with the report thereon of
Richard A. Eisner & Company, are set forth on pages F-1 through F-10,
which follow. The financial statements are listed in Item 14(a)(1)
hereof.
The remainder of the financial information required by this report
is set forth on page S-1, which follows the financial statements set
forth on pages F-1 through F-31 hereof. Such information is listed in
Item 14(a) hereof.
Item 9. Disagreements on Accounting and Financial Disclosure
- --------------------------------------------------------------
There have been no disagreements on any matter of accounting
principles or practices or financial statement disclosure between DVL and
its independent auditors within the twenty-four months prior to the date
of DVL's most recent financial statements.
21
PART III
Item 10. Directors and Executive Officers of DVL
- ---------------------------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 11. Executive Compensation
- ----------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
- ---------------------------------------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 13. Certain Relationships and Related Transactions
- ----------------------------------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
22
PART IV
Item l4. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
- ----------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) The Financial Statements required by Item 8 of this
report are listed below:
Item 8
Page No.
--------
Report of Independent Auditors F- 1
Consolidated Balance Sheets -
December 31, 1994 and 1993 F- 2
Consolidated Statements of Operations
for each of the years in the three year period
ended December 31, 1994 F- 4
Consolidated Statements of Shareholders'
Equity (Capital Deficiency) for each of the
years in the three year period ended
December 31, 1994 F- 6
Consolidated Statements of Cash Flows
for each of the years in the three year period
ended December 31, 1994 F- 7
Notes to Consolidated Financial Statements F-10
(2) The Financial Statement Schedules required
by Item 8 of this report are listed below:
Schedule IX - Short-Term Borrowings for the three
years ended December 31, 1994 S- 1
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
(3) Index of Exhibits
-----------------
The following is a list of the Exhibits filed as a part of this
report (those marked * are filed herewith):
23
3. Articles of Incorporation and By-laws.
-------------------------------------
(a) Copy of DVL's Certificate of Incorporation. (Incorporated by
reference to Exhibit 6(d) to DVL's Form S-l4 Registration
Statement No. 2-58847 dated April 28, l977.)
(b) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation. (Incorporated by reference to Exhibit 6(e) to
Amendment No. 1 to DVL's Form S-l4 Registration Statement No.
2-58847 dated August 25, l977.)
(c) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated 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) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated 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) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated 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) Copy of DVL's By-Laws, as in full force and effect at all times
since March 28, l977. (Incorporated by reference to Exhibit
3(c) to DVL's Form 10-K for the fiscal year ended December 31,
1980.)
(g) Copy of DVL's First Amendment to By-Laws dated as of January
1, 1994.
(h) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated December 17, 1993.
4. Instruments defining the rights of security holders.
---------------------------------------------------
There are no instruments defining the rights of holders of equity
securities required to be filed hereunder. Instruments defining the
rights of holders of long-term debt of DVL are summarized in Note 8 to
DVL's consolidated financial statements included in Item 8 hereof. None
of such instruments authorizes amounts to be borrowed by DVL in excess
of 10% of the total assets of DVL. DVL agrees to provide copies of such
debt instruments to the Commission upon request.
9. Voting trust agreement.
----------------------
Not applicable
10. Material Contracts.
------------------
10.1 Copy of Agreement between Martin Scheinberg and DVL dated
January 17, 1991. (Incorporated by reference to Exhibit 10 (a)
(11) to DVL's Form 10-K for the fiscal year ended December 31,
1990.)
10.2 Copy of Employment Agreement between DVL and Ben S. Read, Jr.,
dated November 1, 1990. (Incorporated by reference to Exhibit
10 (a) (12) to DVL's Form 10-K for the fiscal year ended
December 31, 1990.)
24
10.3 Copy of Employment Agreement between DVL and Alan E. Casnoff
dated January 1, 1991. (Incorporated by reference to Exhibit
10 (a) (13) to DVL's Form 10-K for the fiscal year ended
December 31, 1990.)
10.4 Copy of DVL Performance Unit Plan. (Incorporated by reference
to Exhibit 10 (a) (14) to DVL's Form 10-K for the fiscal year
ended December 31, 1990.)
10.5 Copy of Resignation and Indemnification Agreement dated May 3,
1991 between Roger D. Stern, Kenbee and DVL. (Incorporated by
reference to Exhibit 10 (a) (15) to DVL's Form 10-K for the
fiscal year ended December 31, 1990.)
10.6 Copy of Employment Agreement between DVL and Joel Zbar dated
October 1, 1991. (Incorporated by reference to Exhibit 10 (a)
(16) to DVL's Form 10-K for the fiscal year ended December 31,
1991.)
10.7 Copy of Voting Trust Agreement between R&M Holding Company and
Alan Casnoff dated May 15, 1991. (Incorporated by reference
to Exhibit 10 (a) (18) to DVL's Form 10-K for the fiscal year
ended December 31, 1991.)
10.8 Copy of Voting Trust Extension by Roger D. Stern dated December
10, 1991. (Incorporated by reference to Exhibit 10 (a) (19)
to DVL's Form 10-K for the fiscal year ended December 31,
1991.)
10.9 Copy of Voting Trust Extension Agreement between R&M Holding
Company and Alan Casnoff dated April 7, 1992. (Incorporated
by reference to Exhibit 10 (a) (20) to DVL's Form 10-K for the
fiscal year ended December 31, 1991.)
10.10 Form of Second Deed to Secure Debt between an affiliated
partnership and DVL. (Incorporated by reference to Exhibit
10(b)(1) to DVL's Form 10-K for the fiscal year ended December
31, 1983.)
10.11 Form of Note of an affiliated partnership to DVL.
(Incorporated by reference to Exhibit 10(b)(2) to DVL's Form
10-K for the fiscal year ended December 31, 1983.)
10.12 Form of Note of a subsidiary of Kenbee to DVL. (Incorporated
by reference to Exhibit 10(b)(3) to DVL's Form 10-K for the
fiscal year ended December 31, 1983.)
10.13 Assumption Agreement between DVL and North Lake Corporation
dated as of November 22, 1983. (Incorporated by reference to
Exhibit (b)(8) to DVL's Form 10-K for the fiscal year ended
December 31, 1983.)
10.14 Loan and Security Agreement between DVL and Kenbee dated
September 10, 1984. (Incorporated by reference to Exhibit
10(b)(11) to DVL's Form 10-K for the fiscal year ended December
31, 1984.)
10.15 Letter Agreement between DVL and Kenbee dated as of December
31, 1984. (Incorporated by reference to Exhibit 10(b)(16) to
DVL's Form 10-K for the fiscal year ended December 31, 1984.)
25
10.16 Loan and Security Agreement between DVL and Kenbee dated as of
December 31, 1984. (Incorporated by reference to Exhibit
10(b)(17) to DVL's Form 10-K for the fiscal year ended
December 31, 1984.)
10.17 Letter Agreement between DVL and Kenbee dated January 30, 1985.
(Incorporated by reference to Exhibit 10(b)(14) to DVL's Form
10-K for the fiscal year ended December 31, 1984.)
10.18 Supplemental Letter Agreement between DVL and Kenbee dated
March 12, 1985. (Incorporated by reference to Exhibit
10(b)(15) to DVL's Form 10-K for the fiscal year ended December
31, 1984.)
10.19 Letter Agreement between DVL and Kenbee dated as of December
31, 1984. (Incorporated by reference to Exhibit 10(b)(12) to
DVL's Form 10-K for the fiscal year ended December 31, 1984.)
10.20 Letter Agreement between DVL, LW Industries, Inc. and Kenbee
dated as of March 12, 1985. (Incorporated by reference to
Exhibit 10(b)(13) to DVL's Form 10-K for the fiscal year ended
December 31, 1984.)
10.21 Note of DVL to LW Industries, Inc. Defined Benefit Pension Plan
dated as of December 31, 1987. (Incorporated by reference to
Exhibit 10(b)(30) to DVL's Form 10-K for the fiscal year ended
December 31, 1987.)
10.22 Letter Agreement between DVL and Kenbee dated November 30,
1987. (Incorporated by reference to Exhibit 10(b)(30) to DVL's
Form 10-K for the fiscal year ended December 31, 1987.)
10.23 Form of Mortgage and Security Agreement between DVL and an
affiliated partnership. (Incorporated by reference to Exhibit
10(b)(33) to DVL's Form 10-K for the fiscal year ended December
31, 1988.)
10.24 Letter Agreement between P & A Associates and Kenbee dated
April 19, 1989. (Incorporated by reference to Exhibit 10(b)(5)
of DVL's Form S-2 Registration Statement No. 33-29184, dated
June 7, 1989.)
10.25 Copy of Stipulation of Settlement of IN RE KENBEE LIMITED
PARTNERSHIP LITIGATION dated August 12, 1992.
10.26 Copy of forms of DVL's Convertible Subordinated 12% Promissory
Note, Purchase Agreement, First Amendment to Purchase
Agreement, Second Amendment to Purchase Agreement and Warrant
to Purchase Common Stock of DVL.
10.27 Copy of forms of DVL's Convertible Subordinated 10% Promissory
Note, Purchase Agreement and Warrant to Purchase Common Stock
of DVL.
10.28 Copy of Stipulation of Partial Settlement and Order in IN RE
DEL-VAL FINANCIAL CORPORATION SECURITIES LITIGATION Master
File #MDL872.
10.29 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1994.
*10.30 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1995.
26
11. Statement re computation of per share earnings.
----------------------------------------------
12. Statements re computation of ratios.
-----------------------------------
Not applicable since there are no ratios of earnings to fixed
charges in DVL's Form l0-K.
13. Letter re change in accounting principles.
-----------------------------------------
There has been no change in accounting principles or practices
followed by DVL, or any change in the method of applying such
accounting principles or practices, which affect the financial
statements of DVL included in Item 8 hereof.
14. Previously unfiled documents.
----------------------------
None
15. Subsidiaries of DVL.
-------------------
(Incorporated by reference to Exhibit 15 to DVL Form 10-K for
the fiscal year ended December 31, 1989.) Three additional
subsidiaries, DV/MHC, PSC and RH were formed prior to the date
of this Form 10-K and all are wholly owned by DVL.
16. Published report regarding matters submitted to vote OF
SECURITY HOLDERS.
Not applicable.
17. Consents of Experts and Counsel.
-------------------------------
Not applicable.
18. Power of Attorney.
-----------------
Not applicable.
19. Additional Exhibits.
-------------------
There are no additional exhibits.
20. Information from reports furnished to state insurance
-----------------------------------------------------
regulatory authorities.
----------------------
Not applicable.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 1994.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the '34 Act,
DVL has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DVL, INC.
Date: , 1995 By:
---------------------------
Alan E. Casnoff
President and Chief
Executive Officer
Pursuant to the requirements of the '34 Act, this report has been
signed below by the following persons on behalf of DVL and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
- ----------------------
Alan E. Casnoff President, Chief March 30, 1995
Executive Officer
(Principal Executive
Officer) and Director
- ----------------------
Frederick E. Smithline Director March 30, 1995
- ----------------------
Herbert L. Golden Director March, 30, 1995
- ----------------------
Myron Rosenberg Director March 30, 1995
- ----------------------
Joel Zbar Treasurer (Principal March 30, 1995
Financial and Accounting
Officer)
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the '34 Act,
DVL has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DVL, INC.
Date: , 1995 By:/s/
---------------------------
Alan E. Casnoff
President and Chief
Executive Officer
Pursuant to the requirements of the '34 Act, this report has been
signed below by the following persons on behalf of DVL and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/
- ----------------------
Alan E. Casnoff President, Chief March 30, 1995
Executive Officer
(Principal Executive
Officer) and Director
/s/
- ----------------------
Frederick E. Smithline Director March 30, 1995
/s/
- ----------------------
Herbert L. Golden Director March 30, 1995
/s/
- ----------------------
Myron Rosenberg Director March 30, 1995
/s/
- ----------------------
Joel Zbar Treasurer (Principal March 30, 1995
Financial and Accounting
Officer)
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Consolidated Financial Statements of DVL, Inc.
(formerly "Del-Val Financial Corporation")
and Subsidiaries and Report of Independent Auditors
Page
----
Report of Independent Auditors F- 1
Consolidated Balance Sheets-December 31, 1994 and 1993 F- 2
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 1994 F- 4
Consolidated Statements of Shareholders' Equity/Capital
Deficiency for each of the years in the three year
period ended December 31, 1994 F- 6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 1994 F- 7
Notes to Consolidated Financial Statements F-10
RICHARD A. EISNER & COMPANY, LLP
575 Madison Avenue
New York, NY 10022-2597
- ------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
DVL, Inc.
Bogota, New Jersey
We have audited the accompanying consolidated balance sheets of DVL,
Inc. (formerly Del-Val Financial Corporation) and subsidiaries as at
December 31, 1994 and December 31, 1993, and the related consolidated
statements of operations, shareholders' equity/ capital deficiency, and
cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted
auditing standards. 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 audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of
DVL, Inc. and subsidiaries at December 31, 1994 and December 31, 1993,
and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note
2, the Company has suffered significant losses from operations in each
of the last three years, is in default of one of its loan agreements due
to nonpayment and is continuing to have liquidity problems. These
factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 29, 1995
F-1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
----------------------
1994 1993
ASSETS ---------- ----------
------
Loans receivable, including amounts maturing after one
year - principally pledged (Notes 1,2,5,6,8,11 and 13)
Affiliates:
Wrap around and other mortgages due from affiliated
partnerships (net of underlying liens of $52,840
and $52,022, respectively) $ 68,851 $ 80,767
Unearned interest (18,028) (20,426)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $5,261 and $4,546 of
non-performing loans, respectively) 50,823 60,341
Others:
Other mortgage loans 1,383 1,459
Loans collateralized by limited partnership interests
due from limited partners (including $4,540 and
$5,226 of non-performing loans, respectively) 4,606 6,031
-------- --------
Total loans receivable 56,812 67,831
Allowance for loan losses (Note 6) 12,762 7,034
-------- --------
Net loans receivable 44,050 60,797
Cash (including restricted cash of $1,064 and $185,
respectively) 1,350 541
Due from affiliated partnerships (net of an allowance
for loss of $2,444 and $2,490, respectively) (Note 2) 200 266
Investments (Notes 1,5,7 and 13)
Real estate at cost - pledged (net of an allowance for
loss of $208) 289 497
Real estate lease interests 2,557 2,623
Affiliated limited partnerships (net of an allowance for
loss of $750) 3,803 4,497
Other investments (net of an allowance for loss of $400) 723 949
Other assets (Note 1) 1,113 632
Assets of discontinued operations (Note 3) - 1,246
-------- --------
Total assets $ 54,085 $ 72,048
======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
December 31,
----------------------
1994 1993
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY/CAPITAL DEFICIENCY
-------------------------------------------------------
Liabilities:
Debt in default for non-payment - partially
collateralized (Notes 2 and 11) $ 9,442 $ 13,507
Accrued interest on debt in default for non-payment 4,362 4,272
Short-term debt (Note 8) 215 2,613
Long-term debt (Notes 2,7,8,11, and 13) 32,018 33,714
Notes to be issued pursuant to litigation settlement
(Notes 2 and 11) 4,434 3,690
Convertible subordinated debentures (Notes 10 and 12) 448 438
Accrued liability for litigation settlement (Notes 2
and 11) 1,810 1,810
Accrued liability for indebtedness of Kenbee
Management, Inc. and affiliates (Notes 6 and 11) 708 1,171
Accounts payable and accrued liabilities (Note 11) 4,383 3,768
-------- --------
Total liabilities 57,820 64,983
-------- --------
Deferred credits (Notes 1 and 9) 1,396 1,405
-------- --------
Commitments and contingent liabilities (Notes 2 and 11)
Shareholders' equity/capital deficiency (Notes 1,2,10,11 and 12):
Common stock, $1 par value, authorized - 16,000,000
shares, issued and to be issued - 8,513,200 and
8,103,043, respectively 8,513 8,103
Additional paid-in capital 84,074 84,100
Deficit (97,718)
(86,543)
-------- --------
Total shareholders' equity (capital deficiency) (5,131) 5,660
-------- --------
Total liabilities and shareholders' equity
(capital deficiency) $ 54,085 $ 72,048
======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Income from affiliates (Notes 1,2,4,5 and 7):
Interest on mortgage loans $ 2,344 $ 2,447 $ 3,640
Partnership management fees 514 118 -
Transaction and other fees from
partnerships 542 - -
Commitment and loan guarantee fees - - 253
Rent income 25 84 109
Income from others (Notes 1,2 and 5):
Interest on loans to limited partners
collateralized by limited partnership
interests 317 402 343
Other interest 42 15 7
-------- -------- --------
3,784 3,066 4,352
-------- -------- --------
Operating expenses:
Provision for losses (Notes 1,2,5,6,
7 and 11) 7,814 995 11,219
General and administrative 2,121 2,786 1,390
Legal and professional fees 621 657 690
Depreciation of real estate assets
(Notes 1 and 7) - 4 8
Interest expense - (Notes 1,2 and 8)
Affiliates 251 220 201
Others 3,719 4,000 6,819
Loss on investment in First Mechanics
Finance Company (Note 6) 1,181 - -
Reserve for estimated loss on shareholder
litigation settlement (Notes 2 and 11) - - 6,400
Claim settlement and other litigation
losses (Notes 6 and 11) 973 582 280
-------- -------- --------
16,680 9,244 27,007
-------- -------- --------
Loss before gain on sales of real estate (12,896) ( 6,178) (22,655)
Gain on sales of real estate to affiliates
(Notes 1 and 9) 9 15 20
-------- -------- --------
Loss from continuing operations (12,887) ( 6,163) (22,635)
Loss from discontinued operations (Note 3) (223) (367) (403)
-------- -------- --------
Loss before extraordinary gain (13,110) ( 6,530) (23,038)
Extraordinary gain on the settlements
of indebtedness (Notes 2 and 8) 1,935 7,991 16,482
-------- -------- --------
Net income (loss) $(11,175) $ 1,461 $( 6,556)
======== ======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-4
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
Year Ended December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
Earnings (loss) per share (Note 1):
Primary:
Loss from continuing operations $ (1.54) $ (.83) $ (3.27)
Loss from discontinued operations (.03) (.05) (.06)
--------- --------- ---------
Loss before extraordinary gain (1.57) (.88) (3.33)
Extraordinary gain on the settlements
of indebtedness .23 1.08 2.38
--------- --------- ---------
Net income (loss) $ (1.34) $ .20 $ (.95)
========= ========= =========
Fully diluted:
Loss from continuing operations $ (1.54) $ (.76) $ (3.27)
Loss from discontinued operations (.03) (.04) (.06)
--------- --------- ---------
Loss before extraordinary gain (1.57) (.80) (3.33)
Extraordinary gain on the settlements
of indebtedness .23 .99 2.38
--------- --------- ---------
Net income (loss) $ (1.34) $ .19 $ ( .95)
========= ========= =========
Weighted average shares outstanding:
Primary 8,336,640 7,403,407 6,911,571
========= ========= =========
Fully diluted 8,336,640 8,039,428 6,911,571
========= ========= =========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-5
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/CAPITAL
DEFICIENCY
(NOTES 1, 2, 10, 11 AND 12)
(in thousands except share data)
Common stock Additional
-------------------- paid-in
Shares Amount capital Deficit
Total
---------- -------- ---------- ---------
- --------
Balance-December 31, 1991 6,911,571 $6,912 $83,983 $(81,448)
$9,447
Issuance of warrants in
connection with the sale
of subordinated debentures 40
40
Net loss (6,556)
(6,556)
--------- ------ ------- --------
- -------
Balance-December 31, 1992 6,911,571 6,912 84,023 (88,004)
2,931
Issuance of warrants in
connection with the sale
of subordinated debentures 7
7
Issuance of common stock in
payment of accounts payable 41,472 41 39
80
Issuance of common stock in
connection with a creditor
settlement 250,000 250 31
281
Common stock to be issued in
connection with shareholder
class action litigation 900,000 900
900
Net income 1,461
1,461
--------- ------ ------- --------
- -------
Balance-December 31, 1993 8,103,043 8,103 84,100 (86,543)
5,660
Issuance of common stock in
payment of accounts payable 90,157 90 (8)
82
Issuance of warrants in
connection with a creditor
agreement 2
2
Issuance of stock in connection
with a settlement of a
contingent liability 320,000 320 (20)
300
Net loss (11,175)
(11,175)
--------- ------ ------- --------
- -------
Balance-December 31, 1994 8,513,200 $8,513 $84,074 $(97,718)
$(5,131)
========= ====== ======= ========
=======
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations $(12,887) $ (6,163) $(22,635)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Provision for losses 7,814 995 11,219
Claim settlement losses 973 582 280
Reserve for loss on shareholder
litigation settlement - - 6,400
Depreciation of real estate assets - 4 8
Amortization of deferred charges 126 216 220
Net increase in other assets (197) (281) (112)
Decrease in unearned interest on loans
receivable (419) (472) (387)
Net increase in payables 831 2,791 4,129
Imputed interest on Notes to be issued 744 - -
Amortization of deferred credits (9) (15) (272)
Net cash provided by (used in) discontinued
operations 13 (396) (501)
-------- -------- --------
Net cash provided by (used in) operating
activities (3,011) (2,739) (1,651)
-------- -------- --------
Cash flows from investing activities:
Fundings of loans receivable to affiliates - (112) -
Collections on loans receivable (net of
payments on underlying loans)
Affiliates 7,146 2,530 4,801
Others 1,838 3,419 1,473
Net cash provided by (used in) real estate
acquired for resale - 76 (457)
Net reductions in real estate lease interests 66 110 -
Net collections on amounts due from affiliated
partnerships 66 - -
Acquisition of affiliated limited partnership
interests (108) - -
Distributions received on affiliated limited
partnership interests and other investments 238 121 31
Net cash provided by discontinued activities 530 8,434 11,202
-------- -------- --------
Net cash provided by investing activities 9,776 14,578 17,050
-------- -------- --------
(continued)
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-7
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 1,150 $ 1,110 $ 3,000
Proceeds from the issuance of subordinated
debentures - 21 255
Net decrease in amounts receivable from
Kenbee Management, Inc. - 275 68
Net cash received upon purchase of
indebtedness - - 125
Repayment of indebtedness (6,994) (7,962) (8,752)
Payments on guaranteed indebtedness (380) (367) -
Net cash used for debt repayments on
discontinued activities of Del-Val
Capital Corp. - (4,524) (9,973)
-------- -------- --------
Net cash used in financing activities (6,224) (11,447) (15,227)
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Net increase in cash 541 39