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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, 1995, 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.
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- - -
Exact name of Registrant as specified in its charter)
Delaware 13-2892858
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 River Road, Bogota, New Jersey 07603
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 487-1300
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value National Association of Securities Dealers
Securities registered pursuant to Section 12(g) of the Act: None
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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
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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 27, 1996 was $3,229,501.
The number of shares outstanding of Common Stock of the Registrant as of March
27, 1996 was 13,510,850.
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the Proxy
Statement for DVL, Inc's. 1995 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 National Association of Securities Dealers, Inc.'s over
the
counter bulletin board ("NASD") under the symbol "DVLN". DVL stock traded on
the New
York Stock Exchange ("NYSE") through August 3, 1995 but was delisted due to DVL
not
meeting NYSE listing criteria. 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
commercial finance company which manages numerous properties and partnerships,
from
many of which DVL holds commercial mortgage loans.
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
service
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 to DVL's lenders in full satisfaction of DVL's
obligations to such lenders.
DVL incurred similar cash flow 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. The note, which had a balance of approximately $119,000 at December 31,
1995,
has been extended to January, 1997. DVL has received $160,000 from the sale of
FMF
subsequent to March 30, 1995, which has been recorded as income. In December
1995,
DVL agreed to issue 250,000 shares of DVL common stock in January 1996 to the
prior
president of FMF in consideration of an assignment of loans to FMF of
approximately
$112,000 and his release of all potential claims against DVL. The value of
such stock
($31,000) has been offset against the income received from FMF. DVL has fully
reserved such remaining obligations since their collectibility is uncertain at
this
time. If and when DVL collects on the remainder of 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 focused on managing,
administering and servicing existing real estate properties and affiliated
partnerships. In many instances, such properties are collateral for DVL's
mortgage
loan portfolio. DVL is the general partner of approximately 100 affiliated
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.
DVL has implemented significant measures to reduce its current operating
expenses
and is currently pursuing additional overhead reductions. 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. See "Recent Developments".
B. RECENT DEVELOPMENTS
During 1995, substantial progress continued to be made in settling various
litigation and completing settlements with creditors. However, certain cases
are
still being litigated or are pending final disposition. See "Legal and
Administrative
Proceedings".
In December 1995, DVL completed its obligations under a 1993 settlement of
its
class action litigation. The settlement, which was approved by the court in
1993,
provided that DVL would issue the plaintiffs (1) 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
that aggregate market value was less than $1,340,000); (2) $9 million face
value of
notes due in ten years, with interest at 10% payable in kind for five 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 (valued in 1993 at $3,690,000 by an
independent investment banker) and (3) $1.4 million plus interest at 3% from
August
16, 1993 and expenses, payable in cash or common stock. In December 1995, DVL
issued
the 900,000 shares of common stock and as a result of the deficiency in its
market
value, issued additional notes with the same terms, in the face amount of
$1,386,351
(valued at $330,000 by DVL). In payment of the $1.4 million plus interest and
expenses, DVL issued 4,017,582 shares of common stock in December 1995.
In the aggregate, DVL issued notes with a face value of $10,386,851.
Commencing
January 1994, interest on the initial $9 million of notes was imputed based
upon DVL's
carrying costs of such notes resulting in an effective interest rate of
approximately
19%. Beginning October 1, 1995, interest on all of the notes is being imputed
based
upon an effective interest rate of approximately 16.325%. The settlement
resulted
in a loss of $6.4 million which was fully provided for in 1992 (Note 11).
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
and
in most instances, limited partner approval (the "Limited Partner Settlement").
In prior years, 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 and such settlement closed in the second
quarter of 1995. Pursuant to the settlement DVL will make cash payments over
time at a negotiated discount and there was an exchange of certain collateral.
As a result of this settlement, DVL recognized a gain of $1,809,000 in the
first quarter of 1995.
In December 1995, DVL reached a settlement with its final unsettled
creditor and recognized gain on the settlement of indebtedness of approximately
$6.1 million. Such indebtedness had been undercollateralized and the settlement
with the creditor eliminated such undercollateralization. The restructured
3
indebtedness required a $400,000 payment at closing and requires five quarterly
payments totaling $600,000 commencing June 30, 1996. If all such remaining
payments are made, DVL will recognize additional gains of approximately $7.4
million.
In March 1996, pursuant to a previously arranged discount agreement, DVL
paid one of its creditors $690,000 in full satisfaction of a loan which had the
effect of releasing back to DVL certain limited partner investor notes and
units and a collateral assignment of all of its interest in PSC's master lease
position. In connection with this transaction, DVL recognized an extraordinary
gain on the settlement of indebtedness of $442,000 in the first quarter of
1996. See "Business Activities - Partnership and Property Management".
In many of DVL's previously completed settlements, DVL has restructured
loans with mandatory repayment requirements. Although DVL has received
extensions on its mandatory repayment requirements where necessary, if DVL does
not meet such mandatory repayment requirements or receive additional extensions
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. In addition,
DVL has negotiated certain discounts from existing creditors, if DVL is able
to fully pay its obligations to such creditors prior to specified dates.
On March 28, 1996, DVL and NPM Capital LLC ("NPM") entered into a Loan
Agreement (the "Loan Agreement") pursuant to which NPM agreed to lend DVL funds
which will be used to satisfy the remaining balance at closing of four existing
loans to various creditors and to make principal installment payments on DVL's
obligation to another creditor (the "Loan"). These five loans had an aggregate
balance at December 31, 1995 of $15,266,000. Three of these loans, which
mature by June 30, 1996 had aggregate outstanding balances at December 31, 1995
of $3,484,000. DVL will prepay two of the five loans in order to avail itself
of its negotiated discounts of approximately $3,716,000. The Loan will be
payable over six years with interest at the rate of 10.25% per year. Based
upon the current balances due to such creditors, the expected discounts
(approximately $3,716,000) to be received and the outcome of certain
refinancings in progress, DVL expects the amount of the Loan to be
approximately $5 million to $6.5 million. In consideration for NPM's loan,
which will enable DVL to avail itself of all such discounts, and for providing
DVL with the extended payment schedule, the principal amount of the Loan will
be increased by $3,150,000. The principal amount of the Loan will be further
increased by NPM's costs incurred in connection with this transaction in excess
of $175,000.
In connection with the transactions contemplated by the Loan Agreement,
DVL and NPO Management LLC ("NPO"), an affiliate of NPM, have entered into an
Asset Servicing Agreement, subject to shareholder ratification, pursuant to
which NPO will provide DVL with administrative and advisory services relating
to the assets of DVL and its affiliated partnerships. In consideration for
such services, DVL will pay NPO $600,000 per year (with cost of living
increases beginning in 1998) over the seven (7) year term of the agreement,
subject to early termination under certain circumstances. DVL anticipates that
by outsourcing such services it will be able to reduce its existing overhead,
thereby offsetting the costs of such services.
In connection with the Loan, affiliates of NPM have agreed, upon
consummation of the Loan, to acquire 1,000,000 shares (the "Shares") of DVL
common stock for $200,000 representing approximately 7% of the current
outstanding common stock of DVL. In addition, DVL has agreed, upon
consummation of the Loan, to issue to affiliates of NPM an amount of warrants
(the "Warrants") which when added to the 1,000,000 shares to be acquired will
equal 49% of the outstanding shares of DVL common stock plus the Warrants to
be issued. The Warrants will be exercisable at a price of $.16 per share.
Consummation of the transactions contemplated by the Loan Agreement,
including the Loan and the issuance of the Shares and the Warrants are subject
to certain conditions, including shareholder approval. If approved, DVL
anticipates closing these transactions during the third quarter of fiscal 1996.
4
DVL continues to experience liquidity problems. If DVL is unable to
achieve a short term solution to its liquidity problems, and, continue to meet
its mandatory repayment requirements or obtains further extensions, 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
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and make mandatory repayment requirements to its creditors;
(2) the settlement of its remaining litigation; (3) 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 (4) the return to profitable operations.
C. BUSINESS ACTIVITIES.
1. MORTGAGE LOANS AND LOANS SECURED BY LIMITED PARTNER
INTERESTS
At December 31, 1995, DVL had investments in long-term mortgage loans to
affiliated partnerships and an unaffiliated entity (see "Commercial Loans -
Other") totaling $41,371,000 which are principally pledged to secure
indebtedness of the Company. Certain of the mortgage loans due from affiliated
partnerships, aggregating $25,375,000 at December 31, 1995, 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 goals of the restructuring was
to assure that the partnerships' restructured mortgages would be serviced on
a current basis from the annual base rents paid by the tenant. 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. 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, 1995, $5,640,000 of DVL's mortgage loans were
non-performing. DVL has established a loan loss reserve of approximately
$9,929,000 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
national 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 due from individual limited partners secured
by limited partnership interests, including those obtained from Kenbee as part
of the Limited Partner Settlement, aggregating $3,921,000 of which all were
non-performing at December 31, 1995. Consequently, DVL has established a loan
loss reserve of approximately $2,296,000 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 taken in 1994, 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
5
31, 1995, DVL had varying investments in numerous partnerships with a net
carrying value of $3,310,000. Based on potential liquidations of such units
to assist in meeting DVL's continuing operating needs, DVL has estimated a loan
loss reserve of approximately $583,000 in connection with these investments and
after receipt of distributions on these investments, the net realizable value
is approximately 24% of the original investment.
3. PARTNERSHIP AND PROPERTY MANAGEMENT.
As part of the Limited Partner Settlement, DVL became general partner of
approximately 100 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 properties located in New
Jersey.
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.
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 of DVL's mortgage loans is
collateralized by a lien, primarily subordinate to senior liens in favor of an
unaffiliated party, on real estate owned by the 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, 1995. 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.
6
Number
Aggregate Allowance
of
Loan for Loan
Type of Loan Loans
Amount Losses
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(dollars in thousands)
Long-term mortgages due from affiliated
partnerships previously funded by DVL,
$27,611
net of underlying liens totaling $10,862,000
14,411
Less unearned interest (1)
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Net long-term mortgages due from affiliated
partnerships previously funded by DVL 25
13,200 $ 2,578
Long-term mortgages due from affiliated partnerships
acquired pursuant to the Limited Partner Settlement,
net of underlying liens totaling $33,438,000 37
25,375 6,575
Interim second mortgages due from
affiliated partnerships 3
1,515 776
Mortgage loan due from an unaffiliated entity 1
1,281 -
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Total loans collateralized by mortgages 66
41,371 9,929
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Loans collateralized by limited partnership
interests 178
3,921 2,296
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Total loans 244
$45,292 $12,225
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[FN]
- - ------------
(1) Unearned interest represents the unamortized balance of discounts
on previously funded loans.
[/FN]
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
four except for Wal-Mart, which is the tenant of 41 properties. In January
1995, the Grand Union Company, tenant of four properties, filed for protection
from creditors under Chapter 11 of the U.S. Bankruptcy Code. All of the leases
were deemed to be affirmed in accordance with the terms of the Grand Union
Company's plan of reorganization, which was confirmed by the United States
Bankruptcy Court on May 31, 1995.
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.
7
All but one of DVL's long term mortgages due from affiliated partnerships
is self-amortizing, while one loan requires a balloon payment at maturity in
the year 2020 of 672,000. Such loan is being serviced by partnership receipts.
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 June 2031. DVL is obligated to make principal and interest
payments on the underlying first mortgage loan to the extent proceeds are
received from the borrower and, in certain instances, has the right to
refinance or pay off the first mortgage loan. Currently, the partnerships
or the tenants are making the underlying mortgage payments directly to their
respective lenders and DVL is crediting 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 difference.
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 and continue to be non-performing at December 31,
1995.
3. COMMERCIAL LOAN - OTHER
DVL's mortgage loan 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 mortgage note from the Grand Union Company in partial
satisfaction of one of its partnership mortgage loans. The note 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. The Grand Union Company is current
on this note and DVL expects that this loan is fully collectible as the store
was purchased by The Grand Union Company with the intention of it being
expanded. (See "Loan Portfolio")
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 additional limited partner loans from Kenbee in replacement of loans
due from Kenbee collateralized by such limited partner loans. All of such
loans due from limited partners ("Partners Notes") matured 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.
8
In 1994, DVL refinanced a portion of its mortgage portfolio which
generated cash proceeds of approximately $5.9 million, which was used to
satisfy existing indebtedness. In 1996, DVL refinanced 16 mortgages and has
commitments to refinance three additional mortgages which have or will generate
approximately $6 million which has been or is expected to be used to satisfy
existing indebtedness. The amounts obtained or to be obtained from these
refinancings were primarily 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 refinancings, DVL's asset
base available for future 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.
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, Kearny Associates is in default on the land
lease held by DVL. DVL currently maintains a reserved of $208,000 on this
land.
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 27, 1996, DVL had eighteen (18) 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 resolving various litigation brought
against DVL, its Board members and certain current and former officers and
affiliates by shareholders, banks and others. The following is a summary of
the status of all material outstanding cases, as well as cases settled in 1995
and 1996.
In 1995, DVL complied with all of its obligations under the court approved
settlement in the consolidated shareholder class action entitled IN RE: DEL-VAL
FINANCIAL CORP. SECURITIES LITIGATION, MASTER FILE NO. MDL 872 ("IN RE
DEL-VAL") by issuing 4,917,582 shares of stock and $10,386,851 face value notes
in
December 1995 to settling shareholder class members and their legal counsel.
The $10,386,851 face value notes are due in ten years, bear interest at 10% per
annum, are payable in kind for five years, are callable after the third year
and are payable in cash or common stock at DVL's option. (See "Recent
Developments")
A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL. ("LEVY"),
originally filed in New Castle County, Delaware on February 13, 1991, on behalf
of certain individual shareholders alleged breaches of fiduciary duty of care
9
and candor. The defendants recently prevailed on a motion for summary judgment
in this case and Plaintiffs have filed a motion for reconsideration with the
court. Plaintiffs in IN RE DEL-VAL have permitted the Plaintiffs in LEVY to
participate in their settlement with certain third party defendants in IN RE
DEL-VAL.
Also in 1995, DVL complied with the terms of the court approved settlement
agreement dated September 12, 1994 in two consolidated shareholder derivative
actions 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'), filed in the Superior
Court of New Jersey - Division - Bergen County on October 31, 1990 and December
3, 1990, respectively. In this settlement, DVL agreed to reimburse up to
$150,000 of costs incurred by Plaintiff's counsel and Plaintiff's have the
right to pursue DVL's claim against Federal Insurance Company ("Federal")
discussed below. All third party actions in connection with WEIGART and
FEINBERG have been dismissed.
DVL and certain former officers were 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
alleged violations of the New Jersey Law 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. A
settlement in this matter was completed in March 1996.
Federal Insurance Company ("Federal"), which carried DVL's directors and
officers insurance policy, declined to cover DVL for any legal costs or
liability. DVL commenced an action against its insurance broker and Federal
entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V. FEDERAL INSURANCE COMPANY ET
AL. ("FEDERAL INSURANCE") on September 23, 1991 in the Supreme Court of the
State of New York, County of New York in which DVL alleged negligence against
its broker and sought declaratory and injunctive relief against Federal. The
New York Court in this matter has held that the Settling Defendants' insurance
excluded coverage of these matters. DVL has filed a notice of appeal of that
decision.
DVL was named in an action entitled VANGUARD CAPITAL V. KENBEE MANAGEMENT,
INC. ET AL. ("VANGUARD") which was filed on March 21, 1994 in the Superior
Court of the State of California, for the County of Riverside, Palm Springs
Branch, Civil Case No. 74197 in which plaintiff sought contractual indemnity,
equitable indemnity and declaratory relief on certain matters filed against
Vanguard Capital, Inc. in the Superior Court, State of California. This action
is based on complaints by an investor with a $350,000 investment in an
affiliated limited partnership alleging that the investor's broker sold to her
unsuitable investments. DVL has defended the case and Plaintiff has
voluntarily dismissed the action without prejudice. On March 22, 1996, the
petitioner in the underlying matter against VANGUARD filed in the Superior
Court of Los Angeles as case no. B5036316, a motion to vacate the NASD
Arbitration award made in July 1995 in VANGUARD and has named DVL as a
respondent in that Petition.
DVL is named as a defendant in a class action entitled PHILLIP AND CHERYL
WEISS V. WINNER'S CIRCLE OF CHICAGO, INC. ET AL. which was filed in the United
States District Court for the Northern District of Illinois on April 14, 1995
in which Plaintiffs allege that DVL, as a holder of certain consumer credit
contracts issued by Del-Val Capital Corp., a subsidiary of DVL, is subject to
claims and defenses against the consumer credit contracts and that DVL aided
and abetted violations of the Illinois Consumer Fraud Act. DVL believes this
case has no merit and continues to defend vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR DVL'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
DVL has been listed for trading on the NASD, since August 1995 under the
symbol DVLN. Prior to that, DVL was traded on the NYSE. 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 NASD and the NYSE:
1995 High Low
- - ---- ---- ---
First Quarter . . . . . . . . . . . . $ 1/2 $ 1/4
Second Quarter . . . . . . . . . . . 1/8 1/4
Third Quarter . . . . . . . . . . . . 13/16 1/16
Fourth Quarter . . . . . . . . . . . 5/16 1/32
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
[FN]
At March 27, 1996, there were 4,838 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]
11
ITEM 6. SELECTED FINANCIAL DATA
The following summary sets forth DVL's consolidated financial data at
December 31, 1991, 1992, 1993,
1994 and 1995. 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
1991 1992
1993 1994 1995
---- ----
---- ---- ----
Revenues
Affiliates $ 4,329 $ 4,002
$ 2,652 $ 3,450 $ 2,868
Other 583 350
414 334 369
-------- --------
-------- -------- --------
Total $ 4,912 $ 4,352
$ 3,066 $ 3,784 $ 3,237
======== ========
======== ======== ========
Loss from continuing operations (A) $(13,487) $(22,635)
$ (6,163) $(12,887) $ (5,780)
Loss from discontinued operations (332) (403)
(367) (223) -
-------- --------
-------- -------- --------
Loss before extraordinary gain (13,819) (23,038)
(6,530) (13,110) (5,780)
Extraordinary gain on the settlement of - 16,482
7,991 1,935 7,900
indebtedness -------- --------
-------- -------- --------
Net Income (loss) $(13,819) $ (6,556)
$ 1,461 $(11,175) $ 2,120
======== ========
======== ======== ========
Earnings (loss) per share (B)
Primary
Loss from continuing operations $ (1.95) $ (3.27)
$ (.83) $ (1.54) $ (.58)
Loss from discontinued operations (.05) (.06)
(.05) (.03) -
-------- --------
-------- -------- --------
Income (loss) before extraordinary gain (2.00) (3.33)
(.88) (1.57) (.58)
Extraordinary gain on the settlement of - 2.38
1.08 .23 .79
indebtedness -------- --------
-------- -------- --------
Net Income (loss) $ (2.00) $ (.95)
$ .20 $ (1.34) $ .21
======== ========
======== ======== ========
Fully Diluted
Loss from continuing operations $ (1.95) $ (3.27)
$ (.38) $ (1.54) $ (.58)
Loss from discontinued operations (.05) (.06)
(.02) (.03) -
-------- --------
-------- -------- --------
12
Loss before extraordinary gain (2.00) (3.33)
(.40) (1.57) (.58)
Extraordinary gain on the settlement of - 2.38
.50 .23 .79
indebtedness -------- --------
--------- ------- --------
Net Income (loss) $ (2.00) $ (.95)
$ .10 $ (1.34) $ .21
======== ========
========= ======= ========
13
Consolidated Balance Sheet Data
(In thousands)
As At December 31,
1991 1992
1993 1994 1995
---- ----
---- ---- ----
Total assets $132,171 $ 97,938
$72,048 $54,085 $41,499
======== ========
======= ======= =======
Long-term debt (C) $ 43,450 $ 48,094
$37,270 $32,018 $32,290
======== ========
======= ======= =======
Short-term debt (C) $ 41,269 $ 23,486
$12,564 $ 9,657 $ 1,060
======== ========
======= ======= =======
Shareholders' equity (capital
deficiency) $ 9,447 $ 2,931
$ 5,660 $(5,131) $(1,330)
======== ========
======= ======= =======
[FN]
14
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, $8,000, $6,000, $0
and $0 respectively, of the gain on this sale during the five
years ended December 31, 1995. 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 $8,000,
$8,000, $9,000 and $9,000 respectively for the four years
ended December 31, 1994. Due to the cancellation of such
indebtedness in 1995 in connection with a creditor settlement,
the remaining balance of $1,075,000 was recognized in 1995.
See note 9 of notes to the Consolidated Financial Statements
of DVL.
(B) See note 1i of notes to the Consolidated Financial Statements
of DVL.
(C) See note 8 to the notes to the Consolidated Financial
Statements of DVL.
[/FN]
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DVL continues to experience liquidity problems principally as a result of
the reduced cash flow received on the restructured and non-performing portions
of its loan portfolio. Although the Limited Partner Settlement substantially
reduced the non-performing portion of DVL's loan portfolio, this
reclassification has not, nor is it expected to result in significant income
or cash flow on the majority of the restructured mortgages, as the mortgage
debt service is used to pay liens senior to DVL's.
To enable DVL to meet its short-term operating needs, DVL must continue
to augment its cash flow with the proceeds from the sale or refinancing of
assets and equity borrowings. See "Recent Developments" and "Refinancing
Rights". 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
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and make mandatory repayment requirements to its creditors;
(2) the settlement of its remaining litigation; (3) 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 (4) the return to profitable operations. If DVL is unsuccessful in
achieving a short term solution to its liquidity problems, and continue to meet
its mandatory repayment requirements or obtain further extensions and return
to profitable operations, then it may not be able to continue as a going
concern.
RESULTS OF OPERATIONS
DVL realized net income of $2,120,000 in 1995, as compared to a net loss
of $11,175,000 in 1994, a change of $13,295,000. The income in 1995 was
primarily a result of extraordinary gains realized upon creditor settlements
offset by additional loss provisions for potential asset liquidations to
improve its cash position in order to meet operating expenses and make
mandatory repayment requirements. The net loss in 1994 was primarily a result
of substantial additional loss provisions for potential forced asset
liquidations and the loss incurred on the investment in FMF. 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
$934,000 in 1995 and by $221,000 in 1994. The decrease in 1995 primarily
resulted from the reduction in the amount of such loans to affiliated
partnerships due to the satisfaction of certain loans upon the sale of
partnership properties, the transfer of certain loans pursuant to creditor
settlements effective in late 1994 and an increase in the non-performing
portion of DVL's mortgage portfolio. The decrease in 1994 was primarily a
result of the 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 decreased by $30,000 in 1995 and
increased by $396,000 in 1994. The decrease in 1995 is a result of the
liquidation of certain partnerships during 1995 partially offset by an increase
in the management fee on the remaining partnerships. The increase in 1994 is
a result of DVL assuming management of its affiliated partnerships for all of
1994 after the termination of its management agreement with RH effective
January 1, 1994.
Transaction and other fees from partnerships aggregating $881,000 in 1995
and $542,000 in 1994 represent the fees received upon the sale or refinancing
of certain partnership properties. The increase in 1995 was the result of an
increase in the number of properties sold.
16
Rent income from affiliated partnerships increased by $5,000 in 1995 and
decreased by $59,000 in 1994. The increase in 1995 is attributable to DVL
receiving past due rent on one of its land leases offset by a decrease
resulting from the other land lease being in default for a portion of 1995.
The 1994 decrease is 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 one of the remaining land leases being in default.
Other income from affiliates represents the receipt of distributions and
proceeds upon liquidation on fully reserved limited partnership investments.
Interest income on loans to limited partners decreased by $107,000 in 1995
and decreased by $85,000 in 1994 primarily a result of a decrease in the
average outstanding balance of the performing portion of this portfolio. At
December 31, 1995, all of these such loans were non-performing and therefore
DVL does not anticipate any yield on these loans in the future.
Other income in 1995 represents collections on the note obtained by DVL
from the sale of FMF from March 31, 1995 through March 31, 1996 offset by the
value associated with the shares of DVL stock to be issued to the prior
president of FMF in 1996. These shares were valued at $31,000.
General and administrative expenses increased by $107,000 in 1995 and
decreased by $659,000 in 1994. The increase in 1995 was primarily a result of
a $30,000 accrual required for the value of performance units granted to and
exercised by certain officers in 1995, as compared to the reduction of $385,000
of such expense in 1994 and $353,000 of overhead allocated to FMF in 1994 as
compared to no overhead allocated in 1995. These items were principally offset
by a $662,000 decrease in payroll and operating costs incurred in 1995 due to
the elimination of DVL's new business ventures and additional reductions in
personnel made in late 1994 and early 1995. General and administrative
expenses in 1995 included $114,000 of non-cash compensation paid with DVL
common stock to various officers and directors.
The provision for losses aggregated $2,222,000 in 1995, $7,814,000 in 1994
and $995,000 in 1993. The provision in 1995 and 1994 was primarily a result
of potential losses to be incurred upon the liquidation of assets to meet
mandatory repayment obligations on certain indebtedness beginning in 1994 and
to fund DVL's operating cash flow deficiency. Furthermore, DVL provided for
losses based upon updated information on certain properties.
Legal and professional fees increased by $189,000 in 1995 and decreased
by $36,000 in 1994. These fees continued to be significant during 1995
primarily as a result of significant activity on remaining litigation, legal
work required in connection with the culmination of the shareholder class
action litigation and $80,000 of non-cash consideration paid to an investment
advisor retained to assist DVL in raising debt or equity financings. Such fees
are expected to decrease in the future since DVL has now settled the majority
of its litigation.
Interest expense to affiliates and others decreased by $248,000 in 1995
and by $256,000 in 1994 primarily as a result of a decrease in indebtedness and
decreases in interest rates on certain restructured indebtedness, which was
principally offset by $879,000 and $744,000, respectively, of imputed interest
on the notes issued in connection with the Shareholder Settlement and by an
increase in the prime rate. The decrease in indebtedness is primarily the
result of DVL reaching an agreement with its final unsettled creditors in 1995
and 1994, as well as significant payments to creditors resulting from the
principal payments made from collections on the collateral pledged to secure
indebtedness. Such collections were principally obtained from the satisfaction
of certain loans upon the sale of partnership properties. Management
anticipates that such interest expense on its existing indebtedness will
decline in the future as a result of the completed settlements and
restructuring agreements with DVL's creditors. However, this decline may be
more than offset by the interest, including imputed interest, on the $10.3
million of notes issued in connection with the Shareholder Settlement.
17
Settlements and other litigation losses aggregating $35,000 in 1995,
$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.
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.
DVL has reached settlements with the majority of its shareholders,
virtually all of the limited partners and all 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 a result of restructured
indebtedness with reduced interests rates, (d) an increase in interest expense
on the notes issued in connection with the Shareholder Settlement, (e)
potential gains on the settlement of DVL's indebtedness as DVL meets discounted
payment requirements, and (f) a reduction in the costs incurred to defend
against litigation.
LIQUIDITY AND CAPITAL RESOURCES
DVL continues to experience liquidity problems and its cash flow provided
by operations is not sufficient to meet its operating needs. DVL is attempting
to augment its cash flow with the proceeds from the sale or refinancing of
assets and equity financings. See "Recent Developments". 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 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
$65,000,000 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, which was used to satisfy existing indebtedness.
In 1996, DVL refinanced 16 mortgages and has commitments to refinance three
additional mortgages which have or will generate approximately $6 million which
has been or is expected to be used to satisfy existing indebtedness. The
amounts obtained from these refinancings were primarily 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
refinancings, DVL's asset base available for future refinancings has
diminished.
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 closed in the second
quarter of 1995. Such restructuring resulted in a gain on the settlement of
indebtedness of $1.81 million in the first quarter of 1995.
18
In December 1995, DVL reached a settlement with its final unsettled
creditor and recognized a gain on the settlement of indebtedness of $6.1
million. Such indebtedness had been undercollateralized and the settlement
eliminated such undercollateralization. The restructured indebtedness required
a $400,000 payment at closing and requires five quarterly payments totaling
$600,000 commencing June 30, 1996. If such remaining payments are made, DVL
will recognize additional gains of approximately $7.4 million.
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 of its
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. The proposed transaction with NPO will convert virtually all of
DVL's variable rate debt to a fixed rate. See "Recent Developments". 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, 1995, DVL had net operating loss carryforwards for income
tax purposes of approximately $65,000,000 available to offset future taxable
income, if any, expiring through 2010.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Richard A.
Eisner & Company, LLP, are set forth on pages F-1 through F-9, 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 pages F-10 through F-29 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.
19
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 1995 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 1995 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 1995 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 1995 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.
20
PART IV
ITEM L. 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, 1995 and 1994 F- 2
Consolidated Statements of Operations
for each of the years in the three year period
ended December 31, 1995 F- 4
Consolidated Statements of Shareholders'
Equity (Capital Deficiency) for each of the
years in the three year period ended
December 31, 1995 F- 6
Consolidated Statements of Cash Flows
for each of the years in the three year period
ended December 31, 1995 F- 7
Notes to Consolidated Financial Statements F-10
(2) The Financial Statement Schedules required
by Item 8 of this report are listed below:
None
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):
21
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-L. 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-L. 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.)
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.)
22
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.)
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.)
23
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.
*10.31 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1996. Filed in paper form
pursuant to Rule 202 of Regulation S-T.
*10.32 Copy of Conditional Compromise Agreement between DVL and
the Federal Deposit Insurance Corporation as Receiver for
American Savings Bank dated March 26, 1996. Filed in paper
form pursuant to Rule 202 of Regulation S-T.
*10.33 Amended and Restated Loan Agreement between DVL and NPM
Capital LLC, dated March 27, 1996. Filed in paper form
pursuant to Rule 202 of Regulation S-T.
*10.34 Asset Servicing Agreement between DVL, PSC, Kenbee Realty
and NPO Management LLC dated March 27, 1996.
*10.35 Copy of Third Voting Trust Extension between R&M Holding
Company and Alan Casnoff dated March 7, 1996.
24
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, 1995.
25
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: March 28, 1996 By: Alan Casnoff
_____________________
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 Casnoff
______________________
Alan E. Casnoff President, Chief March 28, 1996
Executive Officer
(Principal Executive
Officer) and Director
Frederick E. Smithline
______________________
Frederick E. Smithline Director March 28, 1996
Herbert L. Golden
______________________
Herbert L. Golden Director March 28, 1996
Myron Rosenberg
______________________
Myron Rosenberg Director March 28, 1996
Joel Zbar
______________________
Joel Zbar Treasurer (Principal March 28, 1996
Financial and Accounting
Officer)
26
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: March 28, 1996 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 28, 1996
Executive Officer
(Principal Executive
Officer) and Director
/s/
______________________
Frederick E. Smithline Director March 28, 1996
/s/
______________________
Herbert L. Golden Director March 28, 1996
/s/
______________________
Myron Rosenberg Director March 28, 1996
/s/
______________________
Joel Zbar Treasurer (Principal March 28, 1996
Financial and Accounting
Officer)
27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Consolidated Financial Statements of DVL, Inc.
and Subsidiaries and Report of Independent Auditors
Page
----
Report of Independent Auditors F- 1
Consolidated Balance Sheets-December 31, 1995 and 1994 F- 2
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 1995 F- 4
Consolidated Statements of Shareholders' Equity/Capital
Deficiency for each of the years in the three year
period ended December 31, 1995 F- 6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 1995 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.
and subsidiaries as at December 31, 1995 and December 31, 1994, and the related
consolidated statements of operations, shareholders' equity/ capital
deficiency, and cash flows for each of the years in the three year period ended
December 31, 1995. 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 as at December 31, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995 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
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 22, 1996
F-1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
----------------------
1995 1994
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 $44,300
and $52,840, respectively) $ 54,501 $ 68,851
Unearned interest (14,411) (18,028)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $5,640 and $5,261 of
non-performing loans, respectively) 40,090 50,823
Others:
Other mortgage loan 1,281 1,383
Loans collateralized by limited partnership interests
due from limited partners (including $3,921 and
$4,540 of non-performing loans, respectively) 3,921 4,606
-------- --------
Total loans receivable 45,292 56,812
Allowance for loan losses (Note 6) 12,225 12,762
-------- --------
Net loans receivable 33,067 44,050
Cash (including restricted cash of $602 and $1,022
respectively) 1,042 1,350
Due from affiliated partnerships (net of an allowance
for loss of $1,727 and $2,444, respectively) (Note 2) 114 200
Investments (Notes 1,5,7 and 13)
Real estate at cost - pledged (net of an allowance for
loss of $208) 289 289
Real estate lease interests 2,300 2,557
Affiliated limited partnerships (net of an allowance for
loss of $583 and $750, respectively) 3,310 3,803
Other investments (net of an allowance for loss of $400) 697 723
Other assets (Note 1) 680 1,113
-------- --------
Total assets $ 41,499 $ 54,085
======== ========
[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,
----------------------
1995 1994
--------- ---------
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIENCY
- - ------------------------------------------------
Liabilities:
Debt in default for non-payment including accrued
interest - partially collateralized (Notes 2 and 8) $ - $13,804
Short-term debt (Note 8) 1,060 215
Long-term debt (Notes 2,7,8,11, and 13) 32,290 32,018
Notes payable - litigation settlement (Notes 2 and 11) 5,642 4,434
Convertible subordinated debentures (Notes 10,12, and 13) 458 448
Accrued liability for litigation settlement (Notes 2
and 11) - 1,810
Accrued liability for indebtedness of Kenbee
Management, Inc. and affiliates (Notes 6,11 and 13) 353 708
Accounts payable and accrued liabilities
(Notes 6,11 and 13) 2,705 4,383
-------- --------
Total liabilities 42,508 57,820
-------- --------
Deferred credits (Notes 1 and 9) 321 1,396
-------- --------
Commitments and contingent liabilities (Notes 2 and 11)
Shareholders' capital deficiency (Notes 1,2,10,11,12 and 13):
Common stock, $.01 and $1 par value respectively,
authorized - 40,000,000 and 16,000,000 shares
respectively, issued and to be issued 13,260,850
and 8,513,200, respectively 133 8,513
Additional paid-in capital 94,135 84,074
Deficit (95,598)
(97,718)
-------- --------
Total shareholders' capital deficiency (1,330)
(5,131)
-------- --------
Total liabilities and shareholders'
capital deficiency $ 41,499 $ 54,085
======== ========
[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,
------------------------------
1995 1994* 1993*
-------- -------- --------
Income from affiliates (Notes 1,2,4,5 and 7):
Interest on mortgage loans $ 1,287 $ 2,221 $ 2,442
Partnership management fees 484 514 118
Transaction and other fees from
partnerships 881 542 -
Rent income 30 25 84
Other income 52 25 3
Income from others (Notes 1,2 and 5):
Interest on mortgage loans 134 123 5
Interest on loans to limited partners
collateralized by limited partnership
interests 210 317 402
Other interest 30 17 12
Other income 129 - -
-------- -------- --------
3,237 3,784 3,066
-------- -------- --------
Operating expenses:
Provision for losses (Notes 1,2,5,6,
7 and 11) 2,222 7,814 995
General and administrative 2,234 2,127 2,786
Legal and professional fees 810 621 657
Depreciation of real estate assets
(Notes 1 and 7) - - 4
Interest expense - (Notes 1,2 and 8)
Affiliates - 251 220
Others 3,716 3,713 4,000
Loss on investment in First Mechanics
Finance Company (Note 6) - 1,181 -
Claim settlement and other litigation
losses (Notes 6 and 11) 35 973 582
-------- -------- --------
9,017 16,680 9,244
-------- -------- --------
Loss before gain on sales of real estate (5,780) (12,896) ( 6,178)
Gain on sales of real estate to affiliates
(Notes 1 and 9) - 9 15
-------- -------- --------
Loss from continuing operations (5,780) (12,887) ( 6,163)
Loss from discontinued operations (Note 3) - (223) (367)
-------- -------- --------
Loss before extraordinary gain (5,780) (13,110) ( 6,530)
Extraordinary gain on the settlements
of indebtedness (Notes 2 and 8) 7,900 1,935 7,991
-------- -------- --------
Net income (loss) $ 2,120 $(11,175) $ 1,461
======== ======== ========
[FN]
* Reclassified for comparative purposes
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,
---------------------------------
1995 1994 1993
--------- --------- ---------
Earnings (loss) per share (Note 1):
Primary:
Loss from continuing operations $ (.58) $ (1.54) $ (.83)
Loss from discontinued operations - (.03) (.05)
--------- --------- ---------
Loss before extraordinary gain (.58) (1.57) (.88)
Extraordinary gain on the settlements
of indebtedness .79 .23 1.08
--------- --------- ---------
Net income (loss) $ .21 $ (1.34) $ .20
========= ========= =========
Fully diluted:
Loss from continuing operations $ (.58) $ (1.54) $ (.76)
Loss from discontinued operations - (.03) (.04)
--------- --------- ---------
Loss before extraordinary gain (.58) (1.57) (.80)
Extraordinary gain on the settlements
of indebtedness .79 .23 .99
--------- --------- ---------
Net income (loss) $ .21 $ (1.34) $ .19
========= ========= =========
Weighted average shares outstanding:
Primary 9,980,565 8,336,640 7,403,407
========= ========= =========
Fully diluted 9,980,565 8,336,640 8,039,428
========= ========= =========
[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, 12 AND 13)
(in thousands except share data)
Common stock Additional
--------------------- paid-in
Shares Amount capital Deficit
Total
----------- -------- ---------- ---------
- - --------
Balance-January 1, 1993 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 common 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)
Issuance of common stock in
payment of accounts payable 5,068 5 2
7
Issuance of common stock to
directors, employees and
consultants 725,000 725 (531)
194
Recapitalization of $1 par
common stock for $.01 par
common stock - (9,150) 9,150 -
- - -
Issuance of common stock in
connection with settlement
of shareholder litigation 4,017,582 40 1,440
1,480
Net income - - - 2,120
2,120
---------- ------ ------- --------
- - -------
Balance-December 31, 1995 13,260,850 $ 133 $94,135 $(95,598)
$(1,330)
========== ====== ======= ========
=======
[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,
------------------------------
1995 1994* 1993*
-------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations $ (5,780) $(12,887) $ (6,163)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Provision for losses 2,222 7,814 995
Accrued interest added to indebtedness 1,711 541 749
Claim settlement losses added to accrued
expenses 35 973 582
Depreciation of real estate assets - - 4
Amortization of deferred charges 84 126 216
Net (increase) decrease in other assets 335 (197) (281)
Amortization of unearned interest on loans
receivable (58) (419) (472)
Net increase (decrease) in payables (191) 21 1,453
Consideration paid in common stock 194 - -
Imputed interest on notes and debentures 888 754 10
Amortization of deferred credits - (9) (15)
Net cash provided by (used in) discontinued
operations - 13 (396)
-------- -------- --------
Net cash used in operating activities (560) (3,270) (3,318)
-------- -------- --------
Cash flows from investing activities:
Fundings of loans receivable to affiliates - - (112)
Collections on loans receivable (net of
payments on underlying loans)
Affiliates 5,104 7,146 2,530
Others 393 1,838 3,419
Net cash provided by real estate acquired
for resale - - 76
Net reductions in real estate lease interests 257 66 110
Net collections on amounts due from affiliated
partnerships 94 66 -
Acquisition of affiliated limited partnership
interests - (108) -
Distributions received on affiliated limited
partnership interests and other investments 562 238 121
Net cash provided by discontinued activities - 530 8,434
-------- -------- --------
Net cash provided by investing activities 6,410 9,776 14,578
-------- -------- --------
(continued)
[FN]
* Reclassified for comparative purposes
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,
------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 1,060 $ 1,150 $ 1,110
Proceeds from the issuance of subordinated
debentures - - 21
Net decrease in amounts receivable from
Kenbee Management, Inc. - - 275
Repayment of indebtedness (6,986) (6,467) (7,383)
Payments on guaranteed indebtedness (232) (380) (367)
Net cash used for debt repayments on
discontinued activities of Del-Val
Capital Corp. - - (4,524)
-------- -------- --------
Net cash used in financing activities (6,158) (5,697) (10,868)
-------- -------- --------
Net increase (decrease) in cash (308) 809 392
Cash, beginning of year 1,350 541 149
-------- -------- --------
Cash, end of year $ 1,042 $ 1,350 $ 541
======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest,
excluding amounts paid on underlying
loans $ 1,151 $ 1,578 $ 2,612
======== ======== ========
(continued)
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-8
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
---------------------------
1995 1994 1993
------- ------- -------
Supplemental disclosure of non-cash
investing and financing activities:
Net loans and other assets transferred to
settle indebtedness and satisfy loan
guarantees $ 3,115 $ 1,448 $10,046
======= ======= =======
Deferred credit recognized in connection
with creditor settlements $ 1,075 $ - $ -
======= ======= =======
Net reduction in indebtedness pursuant
to creditor settlements $ 6,825 $ 1,935 $ 7,991
======= ======= =======
Subordinated debentures issued pursuant
to settlements $ - $ - $ 51
======= ======= =======
Reduction in accrued liabilities upon
issuance of Common Stock $ 1,487 $ 382 $ 1,260
======= ======= =======
Net effect of sale of real estate acquired
for resale $ - $ - $ 381
======= ======= =======
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
[/FN]
F-9
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Principal Affiliates
a. THE COMPANY AND PRINCIPAL AFFILIATES: DVL, Inc. ("DVL") a Delaware
corporation whose common stock is traded on the National Association of
Securities Dealers, Inc.'s over the counter bulletin board under the symbol
"DVLN" is headquartered in Bogota, New Jersey. DVL stock was traded on the
New York Stock Exchange ("NYSE") through August 3, 1995 but was delisted
due to DVL not meeting NYSE listing criteria. DVL is a commercial finance
company which manages numerous properties and partnerships, from many of
which DVL holds commercial mortgage loans. DVL's investments consist
primarily of commercial mortgage loans due from affiliated partnerships,
loans due from limited partners collateralized by their interests in
affiliated partnerships, limited partnership investments in affiliated
partnerships and other real estate interests. DVL's wholly owned
subsidiaries are Del-Val Capital Corp. ("DVCC"), Professional Service
Corporation ("PSC") and RH Interests, Inc. ("RH"). DVCC was organized in
1989 to acquire, make and service full recourse loans due from unaffiliated
borrowers collateralized by consumer receivables. PSC was organized in
1991 and holds certain master lease positions acquired by DVL through a
creditor settlement (Notes 7 and 13). DVL acquired RH from Kenbee
Management, Inc. ("Kenbee"), DVL's former manager, on January 1, 1994 (Note
4). RH held interests in several real estate development projects. The
accounts of DVCC, RH (reflected as discontinued operations - see Note 3)
and PSC have been consolidated in these financial statements. All material
intercompany transactions and accounts are eliminated in consolidation.
In 1994, DVL organized the First Mechanics Finance Company ("FMF") as
a wholly-owned subsidiary to develop a specialized tool loan purchasing and
servicing business. Due to the lack of cash resources and as part of DVL's
decision to refocus on its existing commercial finance business, DVL sold
FMF in 1994 in an effort to recoup some of its initial investment (Note 6).
FMF was sold principally for a note and subordinated debenture which are
fully reserved. The results of FMF's operations were not consolidated in
these financial statements as FMF was reflected as a temporary investment.
Kenbee was DVL's largest debtor and served as DVL's manager through
October, 1990. DVL's management assumed operational control of Kenbee
during 1991 and all of Kenbee's remaining unencumbered assets were
transferred to DVL in 1992. DVL replaced Kenbee as the general partner of
certain limited partnerships, which are treated as affiliates in these
financial statements. DVL has operational control over the limited
partnerships, however, significant transactions are subject to limited
partner approval.
b. EFFECT OF NEW PRONOUNCEMENTS
LONG LIVED ASSETS: DVL adopted Financial Accounting Standards (FASB)
No. 121 - "Accounting for the impairment of long-lived assets to be
disposed of." This Statement requires that long-lived assets and certain
identifiable intangibles to be held by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable from future cash flows. The
adoption of FASB No. 121 in 1995 had no impact on DVL's financial
statements.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN: DVL adopted FASB No.
114 as amended by FASB No. 118 which requires that impaired loans be
measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or at the fair value of the
collateral if the loan is collateral dependent. The adoption of FASB No.
114 as amended by FASB No. 118 in 1995 had no impact on DVL's financial
statements.
F-10
c. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and<