Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
------------------------------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURTIES AND
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number: 1-8356
DVL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2892858
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
Incorporation or Organization)
70 East 55th Street, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 350-9900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes: |X| No: |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes: |_| No: |X|
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates as of the last day of the registrant's most recently completed
second quarter was $3,346,519.
The number of shares outstanding of Common Stock of the Registrant as of March
31, 2005 was 38,315,466.
DVL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR END DECEMBER 31, 2004
ITEMS IN FORM 10-K
Page
----
PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 25
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 27
Item 9A. Controls and Procedure 27
Item 9B. Other Information 27
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners
And Management and Related Stockholder Matters 33
Item 13. Certain Relationships and Related Transactions 41
Item 14. Principal Accountant Fees and Services 44
PART IV
Item 15. Exhibits and Financial Statement Schedules 45
This 2004 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent, belief or
current expectations of the Registrant and its management team. The Registrant's
stockholders and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
include, among other things, general economic conditions, the ability of the
Registrant to obtain additional financing, the ability of the Registrant to
successfully implement its business strategy and other risks and uncertainties
that are discussed herein.
All dollar amounts presented herein are in thousands except share and per share
amounts.
ITEM 1. BUSINESS.
OVERVIEW
DVL, Inc., a Delaware corporation incorporated in 1977 ("DVL" or the
"Company"), is a commercial finance company which is primarily engaged in (a)
the ownership of residual interests in securitized portfolios, (b) the ownership
and servicing of a portfolio of secured commercial mortgage loans made to
limited partnerships in which the Company serves as general partner (each an
"Affiliated Limited Partnership") and (c) the Company owns real estate and
performs real estate asset management and administrative services.
(a) DVL is the 99.9% owner of two entities whose sole assets are the residual
interests in five securitized receivable pools. The securitized receivable pools
consist of receivables which are the obligations of various insurance companies
to pay money over a term of years. DVL receives the residual cash flow from the
five securitized receivable pools after payment to unrelated securitized
noteholders.
(b) The mortgage loans held by the Company are primarily "wrap-around" mortgage
loans made to Affiliated Limited Partnerships which are subject to non-recourse,
underlying mortgages held by unrelated institutional lenders. These underlying
loans self-liquidate from the base rents payable by the tenants over the primary
term of their leases. The majority of the mortgage payments from the Affiliated
Limited Partnerships are used to pay the underlying mortgage holders' required
monthly principal and interest payments. In addition, the Company receives a
portion of the Affiliated Limited Partnerships' percentage rent income as
additional debt service.
(c) DVL is the general partner of approximately 55 Affiliated Limited
Partnerships which own income-producing commercial, office and industrial
properties comprising approximately 2.5 million square feet. A majority of the
properties are subject to long-term triple net leases with various tenants. The
principal tenant is Wal-Mart Stores, Inc. The Company also performs real estate
and partnership management services for these partnerships. The Company, for
numerous reasons detailed in Critical Accounting Policies in Item 7 of this Form
10-K, does not consolidate any of the various Affiliated Limited Partnerships in
which it holds the general partner and in some cases limited partner interests
except where DVL has control, nor does DVL account for such interests on the
equity method.
1
(d) During 2004, the Company entered into a new venture, Delaware Valley Heart
Smart, LLC ("DVHS") which is wholly-owned by DVL. DVHS entered into an agreement
with Philips Medical Systems to be an authorized distributor for Philips
Automatic External Defibrillators ("AED's"). AED's are used to provide an
electric shock to the heart in emergency situations, prior to the arrival of
emergency medical teams. DVHS receives discounts from Philips based upon certain
levels of unit sales as specified in the agreement. The agreement is renewable
on an annual basis.
The Company believes that there is a growing market for AED's particularly
in residential and commercial properties and, therefore, has obtained the right
to distribute the Philips unit.
In addition, the Company has formed another wholly-owned entity called
National Medical Training Associates, LLC to provide the backup training
necessary for the use of AED machines.
Revenues for this new segment were $41 and expenses were $26 for the year
ended December 31, 2004.
While the Company is optimistic about the future of this new business
venture, it is too early to measure its impact on the future operations of the
Company and there can be no assurance that such business will ever be profitable
or significant to the Company.
The Company's other principal assets include (a) real estate interests
held for development, and (b) limited partnership interests in certain
Affiliated Limited Partnerships.
The Company derives the majority of its income from (a) the residual
interests in securitized receivables portfolios, net of interest expense on the
related notes payable, (b) the wrap-around mortgages (as a result of the
difference in the effective interest rates between the wrap around mortgage and
the underlying mortgages), (c) percentage rents received from various tenants of
the Affiliated Limited Partnerships, (d) rentals received as a result of its
real estate holdings, (e) fees received as General Partner of the Affiliated
Limited Partnerships (including disposition and management fees), (f)
distributions received as a limited partner in the Affiliated Limited
Partnerships, and (g) fees from management contracts.
As of December 31, 2004, the Company had net operating loss carry-forwards
("NOLS") aggregating approximately $37,000 which expire in various years through
2019. The Company expects to utilize $16,000 of the $30,000 which will expire
through 2007. NOLS benefit the Company by offsetting certain taxable income
dollar for dollar by the amount of the NOLS, thereby eliminating substantially
all of the U.S. federal corporate tax on such income. If the Company generates
profits in the future, the Company may be subject to limitations on the use of
its NOLS pursuant to the Internal Revenue Code. It is anticipated that the
taxable income associated with the residual interests in securitized portfolios
will utilize significant NOLS. There can be no assurance that a significant
amount of the Company's existing NOLS will be available to the Company at such
time as the Company desires to use them.
DVL believes that its anticipated cash flow provided by operations is
sufficient to meet its current cash requirements through at least March 2006.
The Company has in the past and expects in the future to continue to augment its
cash flow with additional cash generated from either the sale or refinancing of
its assets and/or borrowings. See "Management Discussion and Analysis of
Financial Condition and Results of Operations."
2
Pursuant to the terms of the 1993 settlement of a class action between the
limited partners of Affiliated Limited Partnerships and DVL (the "Limited
Partner Settlement"), a fund has been established into which DVL is required to
deposit 20% of the cash flow received on certain of its mortgage loans from
Affiliated Limited Partnerships after repayment of certain creditors, 50% of
DVL's receipts from certain loans to, and general partnership investments in,
Affiliated Limited Partnerships and a contribution of 5% of DVL's net income
(based on accounting principles generally accepted in the United States of
America) subject to certain adjustments in the years 2001 through 2012. The
adjustments to income were significant enough that no amounts were accrued for
2002, 2003 or 2004. However, as a result of cash flows on certain mortgages the
Company expensed for amounts due to the fund $275, $236, and $217 in 2004, 2003
and 2002, respectively.
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing portfolio, (ii) obtain additional mortgages
or real estate and (iii) expand through the acquisition of one or more companies
to generate additional income and cash flow. The Company anticipates that it
would finance any possible future acquisition through new borrowings or the
issuance of its common or preferred stock (though in order for the Company to
maximize the use of its NOLS the issuance of stock may be limited by the rules
affecting the use of operating loss carry-forwards. See Item 12 for a more
detailed discussion). There can be no assurance that the Company will be able to
identify or acquire businesses. While the Company regularly evaluates and
discusses potential acquisitions, the Company currently has no understandings,
commitments or agreements with respect to any acquisitions.
Each share of the stock of the Company includes a restriction prohibiting
sale, transfer, disposition or acquisition of any stock until September 30, 2009
without prior consent of the Board of Directors of the Company by any person or
entity that owns or would own 5% or more of the issued and outstanding stock of
the Company, if such sale, purchase or transfer would in the opinion of the
Board, jeopardize the Company's preservation of its federal income tax
attributes under Section 382 of the Internal Revenue Code. See Changes in
Control in Item 12 for a more detailed discussion.
The principal executive offices of the Company are located at 70 East 55th
Street, 7th Floor, New York, New York, 10022. The Company's telephone number is
(212) 350-9900. The Company and its subsidiaries have not engaged in any
business activity outside of the United States.
BUSINESS ACTIVITIES
Residual Interests in Securitized Portfolios
During 2001, the Company, through its wholly-owned consolidated
subsidiary, S2 Inc. ("S2"), acquired 99.9% Class B member interests in
Receivables II-A LLC, a limited liability company ("Receivables II-A") and
Receivables II-B LLC, a limited liability company ("Receivables II-B"), from an
unrelated party engaged in the acquisition and management of periodic payment
receivables. The Class B member interests entitle the Company to be allocated
99.9% of all items of income, loss and distribution of Receivables II-A and
Receivables II-B. Receivables II-A and Receivables II-B receive all of the
residual cash flow from five securitized receivable pools after payment to the
securitized noteholders.
3
The Company purchased its interests for an aggregate purchase price of
approximately $35,791, including costs of approximately $1,366 which included
the issuance of warrants, valued at $136, for the purchase of 3 million shares
of the common stock of DVL, exercisable until 2011 at a price of $.20 per share
and investment banking fees to an affiliate aggregating $900. The purchase price
was paid by the issuance of 8% per annum limited recourse promissory notes by S2
in the aggregate amount of $34,425. Principal and interest are payable from the
future monthly cash flow. The notes mature from August 15, 2020 through December
31, 2021 and are secured by a pledge of S2's interests in Receivables II-A,
Receivable II-B and all proceeds and distributions related to such interests.
The principal amount of the notes and the purchase price are adjusted, from time
to time, based upon the performance of the underlying receivables. DVL also
issued its guaranty of payment of up to $3,443 of the purchase price. The amount
of the guaranty is regularly reduced by 10% of the principal paid. The amount of
the guaranty at December 31, 2004 was $3,312. Payments, if any, due under this
guaranty are payable after August 15, 2020.
In accordance with the purchase agreements entered into with respect to
the interests in Receivables II-A and Receivables II-B, from the acquisition
dates through December 31, 2004, the residual interest in securitized portfolios
and the notes payable were decreased by approximately $328 as a result of
purchase price adjustments. Adjustments to the receivables based on the
performance of the underlying periodic payment receivables, both increases and
decreases, could be material in the future.
The following table reconciles the initial purchase price with the
carrying value at December 31, 2004:
Initial purchase price $ 35,791
Adjustments to purchase price (328)
Principal payments (51)
Accretion 1,922
--------
$ 37,334
========
The purchase agreements contain annual minimum and maximum levels of cash
flow that will be retained by the Company, after the payment of interest and
principal on the notes payable, which are as follows:
Years Minimum Maximum
----- ------- -------
2004 to 2009 $ 743 $ 880
2010 to final payment $1,050 $1,150
on notes payable*
* Final payment on the notes payable expected 2016 related to the
Receivables II-A transaction and 2016 for the Receivables II-B
Transaction.
The Company believes it will continue to receive significant cash flows after
final payment of the notes payable.
4
Mortgage Loans
The Company's mortgage loan portfolio consists primarily of long-term
wrap-around and other mortgage loans to Affiliated Limited Partnerships secured
by the types of properties discussed in the Overview Section (c), above. Most of
the loans are subordinated obligations with the majority of the payments
received being utilized to amortize the related underlying mortgage loans over
the primary term of the related lease. The Company builds equity in the mortgage
loans over time as the principal balance of such underlying mortgage loans are
amortized. At December 31, 2004, the Company had investments in 29 mortgage
loans to Affiliated Limited Partnerships with a carrying value for financial
reporting purposes of $27,151 (prior to the allowance for loan losses of
approximately $2,386). These mortgage loan receivables are subject to underlying
mortgage obligations of $14,485.
Generally, the tenants of the Affiliated Limited Partnerships executed
"triple-net" leases and, therefore, the tenants 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.
DVL's mortgage portfolio included 23 loans with a net carrying value of
$24,376 as of December 31, 2004, which are due from Affiliated Limited
Partnerships that own properties leased to Wal-Mart Stores, Inc. ("Wal-Mart").
These mortgage loan receivables were subject to underlying mortgage obligations
of $13,731 as of December 31, 2004. Wal-Mart is a public company subject to the
reporting requirements of the SEC. If Wal-Mart closes a store it remains
obligated to pay the rent with respect to such property. Net carrying value
refers to the unpaid principal balance less any allowance for reserves, and any
amount which represents future interest based upon the purchase of the loan at a
discount.
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 all
cases where the partnership is entitled to receive Percentage Rent, and the
Company holds the wrap-around mortgage, a portion of such rent is required to be
paid to the Company as additional interest and/or additional debt service on the
long-term mortgage.
The Company has the right to refinance the outstanding mortgage loans
underlying its wrap-around mortgage loans provided that the debt service and
principal amount of a refinanced loan are no greater than that of the existing
wrap-around loan. The Company also has the right to arrange senior financing
secured by properties on which it holds first or second mortgage loans by
subordinating such mortgage loans, subject to the limitations set forth above.
All of the Company's mortgage loans are pledged to secure the indebtedness
of the company to NPO Management, LLC ("NPO") and Blackacre Capital Group, L.P.
("BCG") subject to prior pledges, which are entities engaged in real estate
lending and management transactions and are affiliated with certain stockholders
and insiders of the Company. See Items 7 and 13 below for a description of
certain related transactions involving NPO and BCG.
5
Loan Portfolio
The following table sets forth the loans held by the Company, the
aggregate loan balances, including accrued interest, and the allowances for loan
losses, at December 31, 2004. See Tables 1 and 2 of Appendix "A" to this Form
10-K for detailed information as to each such loan.
Number Aggregate Allowance
Of Loan for Loan
Type of Loan Loans Amount Losses
------------ -------- --------- ---------
Long-term mortgages due from Affiliated
Limited Partnerships $ 48,548
Less: unearned interest (1) (21,397)
--------
Total loans collateralized by mortgages 29 27,151 $ 2,386
-------- -------- --------
Loans collateralized by limited partnership
Interests 17 230 195
-------- -------- --------
Advances due from Affiliated Limited Partnerships 6 128
-------- -------- --------
Total loans 52 $ 27,509 $ 2,581
======== ======== ========
- ----------
(1) Unearned interest represents the unamortized balance of discounts on
previously funded Loans.
Investments in Affiliated Limited Partnerships
The Company over the years has acquired various limited partnership
interests in Affiliated Limited Partnerships. At December 31, 2004 and 2003, the
Company's carrying value of such limited partnership interests was $918 and
$1,000, respectively.
Partnership and Property Management
The Company is the general partner of approximately 55 Affiliated Limited
Partnerships, from which it receives management, transaction and other fees. The
Company does not consolidate any of the Affiliated Limited Partnerships, except
where the Company has control (see Overview, above). Until November 1, 2004, the
Company, through Professional Service Corporation ("PSC"), its wholly-owned
subsidiary, was engaged in the management of an industrial property located in
Bogota, New Jersey pursuant to a master lease. This master lease permitted PSC
to sub-lease the property to tenants and retain profits subject to the payment
by PSC of operating expenses and rent to the entity that owns the property.
In January 2003, the Company was advised that its largest subtenant at the
PSC property would be selling its assets and it subsequently filed for Chapter
11 Bankruptcy protection. The Company negotiated a lease extension with the
purchaser of the subtenants assets through June of 2003.
6
In October 2004, DVL entered into an Agreement with Bogota Associates and
Industrial Associates, the owners of the land underlying the Bogota New Jersey
leasehold, pursuant to which the leasehold was cancelled in consideration of the
aforementioned partnerships agreeing to repay to DVL certain out-of-pocket
expenses including real estate taxes and environmental remediation costs as well
as $50 upon completion of a sale of the property to a third party. In the event
that the sale is not consummated and the third party continues to lease space in
Bogota, then DVL will receive a proportionate share of the net income from such
lease until such time as DVL has been paid its out-of-pocket expenses plus $50.
The total expenses to be reimbursed to DVL are approximately $259 not including
the $50 fee. Activity related to the real estate lease interest is included in
discontinued operations.
Fees for Services
The Company has provided management, accounting, and administrative
services to certain entities which are affiliated with NPO and/or, BCG. The fees
from management service contracts are as follows:
2004 2003 2002
---- ---- ----
Affiliate of
NPO and BCG $ 24 $ 24 $ 24
NPO $ 223 $ 198 $ 215
Real Estate Holdings
The Company, directly and through various wholly owned subsidiaries,
currently owns (or disposed of during the current year) the following
properties:
(1) Eight buildings totaling 347,000 square feet on eight acres located in an
industrial park in Kearny, NJ leased to various unrelated tenants, ("DelToch").
This site represents a portion of the Passaic River Development area as
designated for redevelopment by the town of Kearny, New Jersey. The Company is
currently negotiating with the Town of Kearny to be designated as the developer
for the site as well as other sites along Passaic Avenue. There can be no
assurance that the Company will be designated as the developer for such site or
any other site along Passaic Avenue. Pending final resolution of this issue, the
Company continues to lease the property to multiple tenants and receives a
positive cash flow from the properties.
(2) An 89,000 square foot building on approximately eight acres of land leased
to K-Mart in Kearny, NJ which adjoins the property described above.
(3) A vacant 31,000 square foot former Grand Union Supermarket and approximately
six acres of land underlying the building located in Fort Edward, NY. The entire
property, which was acquired through foreclosure on a mortgage, was recorded at
$416, which was the net carrying value of the mortgage at the date of
foreclosure and was less than the fair value at that date. During 2003 the
Company sold an acre of land and in 2004 reduced the carrying value by the
insurance proceeds from a vandalism claim. The property is currently being
carried at $67.
(4) During the quarter ended September 30, 2004, the Company sold a vacant
32,000 square foot former Ames Department Store. The Company recognized a loss
of $26 from the sale. During the quarter ended March 31, 2004 an impairment
expense of $100 was recorded relating to this property.
7
(5) The Company also operated an industrial property in Bogota, NJ under a
master lease. The Company carried the master lease as an asset (real estate
lease interests). Due to vacancies at the property and difficulties arranging a
sale of the property, the Company had written down the value of the master lease
by $762 and $100 during the years ended December 31, 2003 and 2004,
respectively, to its estimated net realizable value of $-0-.
In October 2004, DVL entered into an Agreement with Bogota Associates and
Industrial Associates, the owners of the land underlying the Bogota New Jersey
leasehold, pursuant to which the leasehold was cancelled in consideration of the
Bogota Associates and Industrial Associates agreeing to repay to DVL certain
out-of-pocket expenses including real estate taxes and environmental remediation
costs as well as $50 upon completion of a sale of the property to a third party.
In the event that the sale is not consummated and the third party continues to
lease space in Bogota, DVL will receive a proportionate share of the net income
from such lease until such time as DVL has been paid its out-of-pocket expenses
plus $50. The total expenses to be reimbursed to DVL are approximately $259 not
including the $50 fee. Activity related to the real estate lease interest is
included in discontinued operations.
Employees
In 2003, the Company entered into an employee "leasing" contract with
Compensation Solutions, Inc. ("CSI"). Under such agreement, all personnel
working for the Company, including the Company's executive officers, are
actually employed by CSI and "leased" to the Company. CSI provides such
employees with their medical, unemployment, workmen's compensation and
disability insurance through group insurance plans maintained by CSI for the
Company and other clients of CSI. Pursuant to the contract, the cost of such
insurance as well as the payroll obligations for the leased employees is funded
by the Company to CSI, and CSI is required to then apply such proceeds to cover
the payroll and administrative costs to the employees. Should CSI fail to meet
its obligations under the contract, the Company would be required to either
locate a substitute employee leasing firm or directly re-employ its personnel.
The contract had an initial term of one year and is now cancelable upon 30 days
written notice by either party.
As of March 31, 2005, the Company had 12 employees leased through CSI, all
of whom were employed on a full-time basis other than the President of the
Company, who serves on a part-time basis. The Company is not a party to any
collective bargaining agreement and the Company's employees are not represented
by any labor union. The Company considers its relationship with its personnel to
be good.
Segments
The Company has two reportable segments; real estate and residual
interests.
You can find information about our business segment information in "Note
12. Segment Information" of our Notes to Consolidated Financial Statement.
8
ITEM 2. PROPERTIES.
The Company maintains corporate headquarters in New York City in a leased
facility located at 70 E. 55th Street, New York, New York, which occupies
approximately 5,600 square feet of office space. The lease for such office space
is due to expire on January 31, 2008. The base rent is $216 per annum. A
description of the other properties owned by the Company appears in the
subsection captioned "Real Estate Holdings" in Item 1 above which subsection is
hereby incorporated by reference herein. The Company believes that its existing
facilities are adequate to meet its current operating needs and that suitable
additional space should be available to the Company on reasonable terms should
the Company require additional space to accommodate future operations or
expansion.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time is a party in various lawsuits incidental to
its business operations. In the opinion of the Company, none of such litigation
in which it is currently a party, if adversely determined, will have a material
adverse effect on the Company's financial condition or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders by the Company during
the fourth quarter of 2004.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Common Stock of DVL is traded on the over-the-counter market and is
quoted on the OTC Bulletin Board maintained by the NASD under the symbol "DVLN".
As of March 21, 2005, the last reported sales price of DVL common stock was $.15
per share. The following table sets forth, for the calendar periods indicated,
the high and low bid prices of the Common Stock as reported by the NASD for 2004
and 2003. Such prices are inter-dealer prices without retail mark-up, mark-down
or commission, and do not represent actual transactions.
2004 High Low
- ---- ---- ---
Fourth Quarter .................................... $ .16 $ .10
Third Quarter ..................................... .17 .10
Second Quarter .................................... .18 .10
First Quarter ..................................... .19 .12
2003
- ----
Fourth Quarter .................................... $ .17 $ .12
Third Quarter ..................................... .18 .12
Second Quarter .................................... .20 .12
First Quarter ..................................... .20 .14
At March 21, 2005, there were 3,748 holders of record of Common Stock of
DVL. No dividends have been paid since October 1990. At this time, DVL does not
anticipate paying any dividends in the foreseeable future.
On October 15, 2004, the Company gave notice of redemption to the holders
of approximately $1,171,000 principal amount of it 10% Redeemable Notes due
December 31, 2005, which promissory notes were originally issued in connection
with a settlement of litigation in 1995. Pursuant to the terms of the notes, the
Company had the option to redeem the outstanding notes by issuing to the holders
shares of the Company's Common Stock with a then current market value equal to
110% of the unpaid principal amount of the notes plus accrued and unpaid
interest thereon. The notes were redeemed effective December 29, 2004 for an
aggregate of 10,577,064 shares of Common Stock. No underwriters or placement
agents were involved in the redemption and no commissions were paid. The Company
relied upon an exemption provided by Section 3(a)(9) of the Securities Act of
1933.
10
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with other
financial information of DVL, including its consolidated financial statements
and accountants' report thereon included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Consolidated Statements of Operations Data
(In Thousands except for per share data)
Year ended December 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Revenues
Affiliates $3,820 $3,630 $4,087 $5,303 $4,812
Other 5,106 5,352 4,851 3,909 911
------ ------ ------ ------ ------
Total $8,926 $8,982 $8,938 $9,212 $5,723
====== ====== ====== ====== ======
Income
Income from continuing operations $1,715 $1,188 $1,235 $2,523 $ 165
====== ====== ====== ====== ======
Basic earnings per share:
Income from continuing operations $ .06 $ .05 $ .05 $ .15 $ .01
====== ====== ====== ====== ======
Diluted earnings per share:
Income from continuing operations $ .03 $ .03 $ .03 $ .03 $ .01
====== ====== ====== ====== ======
11
Consolidated Balance Sheet Data
(In thousands)
As at December 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Total assets $77,362 $74,740 $79,584 $79,690 $45,437
======= ======= ======= ======= =======
Notes payable - residual interests $32,648 $33,016 $33,416 $35,044 $ --
======= ======= ======= ======= =======
Underlying mortgages payable $14,485 $14,753 $19,391 $22,218 $26,029
======= ======= ======= ======= =======
Other debt and notes payable $12,377 $11,642 $12,720 $ 8,911 $10,781
======= ======= ======= ======= =======
Shareholders' equity $16,417 $13,665 $12,378 $10,955 $ 7,573
======= ======= ======= ======= =======
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
All dollar amounts presented herein are in thousands except share and per share
amounts.
INTRODUCTION
The Company is principally a commercial finance company which owns and
services a portfolio of secured commercial mortgage loans and in addition, the
Company owns real estate and manages numerous real properties and limited
partnerships which own real properties. In 2001, the Company purchased ownership
interests in two securitized receivable portfolios, which provide significant
cash flow and income for the Company.
The Company believes that its anticipated cash flow provided by operations
is sufficient to meet its current cash requirements through at least March 2006.
The Company has in the past and expects in the future to continue to augment its
cash flow with additional cash generated from either the sale or refinancing of
portions of its mortgage portfolio and/or borrowings against its mortgage
portfolio and/or real properties.
Many of the mortgages currently held by the Company have underlying loans
which are serviced by a substantial portion of the cash flow generated from the
repayment of the Company's mortgage portfolio. A portion of these underlying
loans will be fully paid in the year 2009 and will thereafter provide
significant cash flow to the Company.
The Company continues to actively pursue additional opportunities to
purchase either mortgages and/or real estate assets. The Company anticipates
that it would finance such acquisitions principally through new borrowings and
secondarily through the issuance of its common or preferred stock (though the
issuance of stock may be limited by the rules affecting the use of operating
loss carryforwards. See Item 12 for a more detailed discussion).
The Company current strategy is to continue to maximize the value of its
assets and meet its short term working capital needs by servicing its existing
portfolio and, in addition, expand through the acquisition of assets or
companies that would generate additional income.
There can be no assurance that the Company will be able to identify or
acquire such assets or businesses. While the Company regularly evaluates and
discusses potential acquisitions, the Company currently has no understandings,
commitments or agreements with respect to any acquisitions.
At December 31, 2004, the Company had NOLS aggregating approximately
$37,000 which will expire in various years through 2019. The Company expects to
utilize $16,000 of the $30,000 which will expire through 2007.
If the Company generates taxable income in the future, it may be subject
to limitations on the use of its NOLS pursuant to the provisions of the Internal
Revenue Code. It is currently anticipated that the taxable income associated
with the Company's residual interests in securitized receivable portfolios will
continue to utilize significant portions of the Company's NOLS. There can be no
assurance that a significant amount of the Company's existing NOLS will be
available to the Company at such time as the Company desires to use them.
13
SIGNIFICANT EVENTS
Recent Debt Redemptions
In October 2003, and December 2004, in accordance with the formula set
forth in the Company's 10% redeemable promissory notes due December 31, 2005
(the "Notes"), the Company redeemed approximately $750 and $1,171 face value of
Notes by issuing 6,024,839 and 10,577,064 shares of Common Stock, respectively.
As a result of such redemptions, all of the obligations under the Notes
have been satisfied.
RESULTS OF OPERATIONS
Comparison of the year ended December 31, 2004 to the year ended December
31, 2003.
DVL had income from continuing operations as follows:
2004 2003
---- ----
Income from continuing operations $1,715 $1,188
Interest income on mortgage loans from affiliates decreased and interest
expense on underlying mortgages decreased, as a result of amortization of
principal and a reduction in the size of DVL's mortgage portfolio as adjusted
for the three mortgage loans purchased in December, 2004. Interest expense was
also reduced by greater principal amortization on underlying loans.
2004 2003
---- ----
Income on mortgage loans $2,399 $2,645
Interest expense on underlying mortgages $ 993 $1,328
Gains on satisfaction of mortgage loans were as follows:
2004 2003
---- ----
$ 517 $ 199
These gains resulted from the Company collecting net proceeds on the
satisfaction of mortgage loans that were greater than the Company's carrying
value.
Management fees increased in 2004 from 2003 primarily as a result of the
Company earning a larger incentive fee from a management contract during 2004.
2004 2003
---- ----
Management fees $ 247 $ 222
14
Transaction and other fees from Affiliated Limited Partnerships were as follows:
2004 2003
---- ----
$ 229 $ 133
Transaction and other fees were earned in connection with the sales of
partnership properties and refinancings of underlying mortgages. The amount of
fees vary from year to year depending on the size and number of transactions.
Interest income on residual interest and interest expense on the related
notes payable decreased in 2004 vs. 2003 as a result of purchase price
adjustments pursuant to the Purchase Agreements entered into by the Company with
respect to Receivables II-A and Receivables II-B.
2004 2003
---- ----
Interest income on residual interests $4,360 $4,524
Interest expense on related notes payable $2,542 $2,796
Rental income from others was as follows:
2004 2003
---- ----
Net rental income from others $ 553 $ 575
Gross rental income from others $1,472 $1,367
The decrease in net rental income in 2004 from 2003 resulted primarily
from increased expenses related to a vacant property. Gross rentals increased as
a result of increased rents at the DelToch property.
In 2003, the Company recognized a gain of $166 on sale of real estate
assets previously obtained through foreclosures on a mortgage.
Distributions from investments from others increased in 2004 from 2003
primarily as a result of the Company receiving $94 in distributions from
investments in the Opportunity Fund in 2004. See "Certain Relationships and
Related Transactions" for a discussion of the Opportunity Fund.
2004 2003
---- ----
Distributions from investments - others $ 143 $ 42
General and administrative expenses decreased in 2004 from 2003 primarily
due to a settlement in 2003 for $100 with the State of New Hampshire for state
taxes and reduced stockholder expenses as a result of changing transfer agents.
2004 2003
---- ----
General and administrative $1,465 $1,660
15
The asset servicing fee paid to NPO increased pursuant to the terms of the
Asset Servicing Agreement, due to an increase in the consumer price index.
2004 2003
---- ----
Asset servicing fee $ 683 $ 669
Legal and professional fees increased as a result of increased audit fees
and legal fees relating to the sale of properties owned by Affiliated Limited
Partnerships.
2004 2003
---- ----
Legal and professional $ 254 $ 236
Loss on redemption of Notes payable resulted from the exchange of Notes
for common stock the market value of which was greater than carrying value of
the Notes.
2004 2003
---- ----
Loss on redemption of Notes payable $ 114 $ 22
Interest expense to affiliates increased. The interest bearing amount due
to affiliates was greater in 2004 than 2003.
2004 2003
---- ----
Interest expense to affiliates $ 317 $ 285
Interest expense on litigation settlement Notes would have increased
because of compounding of interest; however, the Company's efforts to reduce the
principal amount of Notes outstanding through tender offers, redemptions and
exchange of Notes for common stock resulted in a decrease the interest expense.
2004 2003
---- ----
Interest expense - Litigation Settlement
Notes $ 186 $ 278
Interest expense relating to other debts increased primarily due to the
Company borrowing an additional $949 in 2004 as a result of a refinancing
transaction and the amortization of financing costs. The increase from the
additional borrowing was partially offset by reductions in interest expense
obtained by making additional principal payments.
2004 2003
---- ----
Interest expense - others $ 795 $ 779
16
The Company accrued $100 and $108 for alternative minimum taxes in 2004 and 2003
respectively and recognized $80 in tax benefits resulting from an over accrual
in 2003. The Company recognized $184 and $367 of income tax benefit in 2004 and
2003, respectively, as a result of a reduction in the valuation allowance on
deferred tax assets.
2004 2003
---- ----
Income tax benefit $ 164 $ 259
Discontinued Operations:
During the year ended December 31, 2004 the Company disposed of (through
foreclosure) a certain real estate property. The sale and operation of these
properties for all periods presented have been recorded as discontinued
operations in compliance with the provisions of statement of Financial
Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets." The discontinued operations consist of the
operations relating to the property formerly operated by Professional Service
Corporation.
Comparison of the year ended December 31, 2003 to the year ended December
31, 2002
DVL had income from continuing operations as follows:
2003 2002
---- ----
Income from continuing operations $1,188 $1,235
Interest income on mortgage loans from affiliates decreased and interest
expense on underlying mortgages decreased, as a result of reduction in the size
of DVL's mortgage portfolio.
2003 2002
---- ----
Interest on mortgage loans $2,645 $2,903
Interest expense on underlying mortgages $1,328 $1,648
Gains on satisfaction of mortgage loans were as follows:
2003 2002
---- ----
$ 199 $ 252
These gains resulted from the Company collecting net proceeds on the
satisfaction of mortgage loans that were greater than the Company's carrying
value.
Management fees decreased in 2003 from 2002 as a result of the conclusion
of a certain management contract.
2003 2002
---- ----
Management fees $ 222 $ 239
17
Transaction and other fees from Affiliated Limited Partnerships were as follows:
2003 2002
---- ----
$ 133 $ 293
Transaction and other fees were earned in connection with the sales of
partnership properties and refinancings of underlying mortgages. The amount of
fees vary from year to year depending on the size and number of transactions.
Interest income on residual interests and interest expense on the related
notes payable increased in 2003 vs. 2002 as a result of purchase price
adjustments pursuant to the Purchase Agreements entered into by the Company with
respect to Receivables II-A and Receivables II-B.
2003 2002
---- ----
Interest income on residual interests $4,524 $4,373
Interest expense on related notes payable $2,796 $2,771
Rental income from others was as follows:
2003 2002
---- ----
Net rental income from others $ 575 $ 405
Gross rental income from others $1,367 $1,096
The increases in net rental income and gross rental income were primarily the
result of the acquisition of a rental property in November of 2002.
In 2003, the Company recognized a gain of $166 on sale of real estate assets
previously obtained through foreclosure on a mortgage.
Distributions from investments from others increased slightly in 2003 from
2002 based on the income from a certain investment.
2003 2002
---- ----
Distributions from investments - others $ 42 $ 35
General and administrative expenses increased in 2003 from 2002 primarily
due to a settlement for $100 with the State of New Hampshire for state taxes and
higher employee costs which were offset by lower consulting fees.
2003 2002
---- ----
General and administrative $1,660 $1,514
The asset servicing fee paid to NPO increased pursuant to the terms of the
Asset Servicing Agreement, due to an increase in the consumer price index.
2003 2002
---- ----
Asset servicing fee $ 669 $ 652
18
Legal and professional fees decreased as a result of the Company reducing
tax preparation costs by $30 in 2003 from 2002 and legal costs by $70 in 2003
from 2002.
2003 2002
---- ----
Legal and professional $ 236 $ 335
Loss on redemption of Notes payable, resulted from tender offers,
repayment and exchange of Notes for common stock at greater carrying value of
the Notes.
2003 2002
---- ----
Loss on redemption of Notes payable $ 22 $ 71
Interest expense to affiliates decreased slightly. Interest expense to
affiliates decreased because the interest bearing amount due to affiliates was
reduced.
2003 2002
---- ----
Interest expense to affiliates $ 285 $ 286
Interest expense on litigation settlement Notes would have increased
because of compounding of interest; however, the Company's efforts to reduce the
principal amount of Notes outstanding through tender offers, redemptions and the
exchange of Notes for common stock resulted in a decrease the interest expense.
2003 2002
---- ----
Interest expense - Litigation Settlement
Notes $ 278 $ 299
Interest expense relating to other debts increased in 2003 from 2002 due
to the Company borrowing approximately $3,968 in August, 2002 to finance the
purchase of real estate. The increase in interest expense created by the new
borrowings was partially offset by decreases in interest rates on floating rate
loans and repayments of principal.
2003 2002
---- ----
AInterest expense - others $ 779 $ 610
The Company accrued $108 for alternative minimum taxes in 2003. In 2002
the Company recognized $86 in tax benefits relating to the elimination of the
alternative minimum tax for 2001. The Company recognized $367 and $397 of income
tax benefit in 2003 and 2002, respectively, as a result of a reduction in the
valuation allowance on deferred tax assets.
2003 2002
---- ----
Income tax benefit $ 259 $ 483
Discontinued operations
During the year ended December 31, 2004, the Company disposed of (through
foreclosure) a certain real estate property. The sale and operation of these
properties for all periods presented have been recorded as discontinued
operations in Compliance with the provisions of "SFAS" No. 144, "Accounting for
the Impairment of Disposal of Long Lived Assets."
The discontinued operations consist of the operations relating to the
property formerly operated by Professional Service Corporation.
19
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance was $2,768 at December 31, 2004, compared with
$2,176 at December 31, 2003.
The Company's cash flow from operations is generated principally from
rental income from its ownership of real estate, distributions in connection
with residual interests in securitized portfolios, interest on its mortgage
portfolio, management fees and transaction and other fees received as a result
of the sale and/or refinancing of partnership properties and mortgages.
The Company believes that its anticipated cash flow provided by operations
is sufficient to meet its current cash requirements through at least March 2006.
The Company believes that its current liquid assets and credit resources will be
sufficient to fund operations on a short-term basis as well as on a long-term
basis.
The Company obtained an unsecured line of credit on December 15, 2002 for
$500 with an interest rate of prime plus one percent per annum which terminated
December 15, 2003. The line of credit was then renewed for one month and on
January 14, 2004 the line of credit was renewed again under the same terms with
an expiration date of January 14, 2005. In July 2003, the company borrowed $283
on the line of credit in order to pay off an underlying mortgage liability. In
March 2005, the Company converted the line of credit to a three year term loan
of $500. The proceeds of the loan will be used to pay down higher interest rate
debt. The loan requires monthly principal payments of $14 plus interest at
prime.
The Company's acquisition in 2001 of its member interest in Receivables
II-A and Receivables II-B should provide significant liquidity to the Company.
The purchase agreements contain annual minimum and maximum levels of cash
flow that will be retained by the Company, after the payment of interest and
principal on the notes payable, which are as follows:
Years Minimum Maximum
----- ------- -------
2004 to 2009 $ 743 $ 880
2010 to final payment 1,050 1,150
* Final payment on the notes payable expected 2016 related to the
Receivables II-A transaction and 2016 for the Receivables II-B
Transaction.
The Company believes it will continue to receive significant cash flow after
final payment of the notes payable.
20
Acquisitions and Financings
Loans payable which are scheduled to become due through 2009 are as follows:
Outstanding
Original Principal
Loan Balance at Due
Purpose Creditor Amount December 31, 2004 Date
------- -------- ------ ----------------- ----
Repurchase of Notes
Issued by the Company Blackacre (1) $ 1,560 $ 2,456 01/05/06
Purchase of Mortgages,
and Refinancing of
Existing Mortgages Unaffiliated Bank (2)(3) $ 1,450 $ 1,198 05/01/09
Purchase of a Mortgage
And Refinancing of
Existing Mortgages Unaffiliated Bank (2)(3) $ 1,450 $ 259 11/30/06
Purchase of Real Estate Assets Unaffiliated Bank (4) $ 4,500 $ 4,529 09/01/05
Purchase of Real Estate Assets Unaffiliated Bank (5) $ 2,668 $ 2,535 06/30/08
Purchase of Mortgages Unaffiliated Bank (6) $ 1,400 $ 1,400 01/31/09
(1) Interest rate is 12% per annum, compounded monthly. Interest is added to
principal and is paid from a portion of cash received in satisfaction of
certain mortgage loans. The Company paid a fee of $25 to extend the due
date for the payment of the then outstanding principal until 01/05/06.
(2) This loan self-amortizes.
(3) Interest rate is prime plus 1.5% per annum payable monthly.
(4) Interest rate is 7.5% per annum. Monthly payments are interest only. The
Company intends to either refinance the outstanding principal amount prior
to the due date or again extend the due date. There can be no assurance
that the Company will be able to refinance or extend such loan on
acceptable terms or at all. The inability of the Company to refinance or
extend such loan would have a material adverse effect on the Company's
financial condition.
(5) Interest rate is 7.5% per annum with a balloon payment due June 30, 2008
of $2,285.
(6) Interest rate is prime plus .5% per annum payable monthly. Monthly
payments are in- terest only. Annual principal payments of $50 are
required.
Contractual Obligations
Payments due by period
Less than 1 - 3 3 - 5 More than
Total 1 Year Years Years 5 Years
----- ------ ----- ----- -------
Debt Obligations:
Debt $ 12,377 $ 5,108 $ 3,432 $ 3,837 $ --
Underlying mortgages
Payable 14,485 2,570 5,690 3,310 2,915
Capital Lease Obligations
Purchase obligations:
Asset servicing
agreement(1) 2,744 686 1,372 686 --
Operating Lease Obligations 666 216 450 -- --
-------- -------- -------- -------- --------
Total: $ 30,272 $ 8,580 $ 10,944 $ 7,833 $ 2,915
======== ======== ======== ======== ========
(1) Subject to annual cost of living increases - See Item 13. Certain
Relationships and Related Transactions.
21
IMPACT OF INFLATION AND CHANGES IN INTEREST RATES
The Company's portfolio of mortgage loans made to Affiliated Limited
Partnerships consists primarily of loans made at fixed rates of interest.
Therefore, increases or decreases in market interest rates are generally not
expected to have an effect on the Company's earnings. Other than as a factor in
determining market interest rates, inflation has not had a significant effect on
the Company's net income.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principals generally accepted in the
United States of America. The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to residual interests and allowance for losses. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
RESIDUAL INTERESTS: Residual interests represent the estimated discounted
cash flow of the differential of the total interest to be earned on the
securitized receivables and the sum of the interests to be paid to the
noteholders and the contractual servicing fee. Since these residual interests
are not subject to prepayment risk they are accounted for as investments
held-to-maturity and are carried at amortized cost using the effective yield
method. Permanent impairments are recorded immediately through earnings.
Favorable changes in future cash flows are recognized through earnings as
interest over the remaining life of the retained interest.
INCOME RECOGNITION: Interest income is recognized on the effective
interest method for the residual interest and all performing loans. The Company
stops accruing interest once a loan becomes non-performing. A loan is considered
non-performing when scheduled interest or principal payments are not received on
a timely basis and in the opinion of management, the collection of such payments
in the future appears doubtful. Interest income on restructured loans are
recorded as the payments are received.
ALLOWANCE FOR LOSSES: The adequacy of the allowance for losses is
determined through a quarterly review of the portfolios. Specific loss reserves
are provided as required based on management's evaluation of the underlying
collateral on each loan or investment.
DVL's allowance for loan losses generally is based upon the value of the
collateral underlying each loan and its carrying value. Management's evaluation
considers the magnitude of DVL's non-performing loan portfolio and internally
generated appraisals of certain properties.
22
For the Company's mortgage loan portfolio, the partnership properties are valued
based upon the cash flow generated by base rents and anticipated percentage
rents or base rent escalations to be received by the partnership plus a residual
value at the end of the primary term of the lease. The value of the partnership
properties which are not subject to percentage rents was based upon historical
appraisals. Management believes, that generally, the values of such properties
have not changed as the tenants, lease terms and timely payment of rent have not
changed. When any such changes have occurred, management revalues the property
as appropriate. Management evaluates and updates such appraisals, periodically,
and considers changes in the status of the existing tenancy in such evaluations.
Certain other properties were valued based upon management's estimate of the
current market value for each specific property using similar procedures.
IMPAIRMENT OF REAL ESTATE INVESTMENTS AND REAL ESTATE LEASE INTERESTS: A
write-down for impairment is recorded based upon a periodic review of the real
estate and real estate lease interests owned by the Company. Real estate and
real estate lease interests are carried at the lower of depreciated cost or
estimated fair value. In performing this review, management considers the
estimated fair value of the property based upon cash flows, as well as other
factors, such as the current occupancy, the prospects for the property and the
economic situation in the region where the property is located. Because this
determination of estimated fair value is based upon future economic events, the
amounts ultimately reflected in an appraisal or realized upon a disposition may
differ materially from the carrying value.
A write-down is inherently subjective and is based upon management's best
estimate of current conditions and assumptions about expected future conditions.
The Company may provide for write-downs in the future and such write-downs could
be material.
LIMITED PARTNERSHIPS: DVL does not consolidate any of the various
Affiliated Limited Partnerships in which it holds the general partner and
limited partner interests, except where DVL has control, nor does DVL account
for such interests on the equity method due to the following:
(i) DVL's interest in the partnerships as the general partner is a 1%
interest, (the proceeds of such 1% interest is payable to the
limited partnership settlement fund pursuant to the 1993 settlement
of the class action between the limited partners and DVL) the
("Limited Partnership Settlement");
(ii) under the terms of such settlement, the limited partners have the
right to remove DVL as the general partner upon the vote of 70% or
more of the limited partners;
(iii) all major decisions must be approved by a limited partnership
Oversight Committee of which DVL is not a member,
(iv) there are no operating policies or decisions made by the Affiliated
Limited Partnership properties and
(v) there are no financing policies determined by the partnerships as
all mortgages were in place prior to DVL's obtaining its interest
and all potential refinancings are reviewed by the Oversight
Committee. Accordingly, DVL accounts for its investments in the
Affiliated Limited Partnerships, on a cost basis with the cost basis
adjusted for impairments which took place in prior years.
23
RECENTLY ISSUED ACCOUNTING STANDARDS:
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46") "Consolidation
of Variable Interest Entities," in an effort to expand upon and strengthen
existing accounting guidance on when a company should include in its financial
statements the assets, liabilities and activities of another entity. In December
2003, the FASB issued a revision to Interpretation No. 46 ("46R") to clarify
some of the provisions of Interpretation No. 46, and to exempt certain entities
from its requirements. The provisions of the interpretation need to be applied
no later than December 31, 2004, except for entities that are considered to be
special-purpose entities which need to be applied as of December 31, 2003. This
interpretation had no effect on the Company's consolidated financial statements.
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123 (Revised 2004), "Share-Based Payment" ("SFAS No. 123R"). This revised
accounting standard eliminates the ability to account for share-based
compensation transactions using the intrinsic value method in accordance with
APB Opinion No. 25 and requires instead that such transactions be accounted for
using a fair-value-based method. SFAS No. 123R requires public entities to
record noncash compensation expense related to payment for employee services by
an equity award, such as stock options, in their financial statements over the
requisite service period. For public entities that do not file as small business
issuers SFAS No. 123R is effective as of the beginning of the first interim or
annual period that begins after June 15, 2005. The Company has adopted SFAS No.
123R during fiscal 2004. The adoption of SFAS No. 123R did not have a material
effect on the Company's consolidated financial statements. The Company has
historically provided proforma disclosures pursuant to SFAS No. 123 and SFAS No.
148 as if the fair value method of accounting for stock options had been
applied, assuming use of the Black-Scholes option-pricing model.
None of the other recently issued accounting standards had an effect on the
Company's financial statements.
24
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DVL has no substantial cash flow exposure due to interest rate changes for
long-term debt obligations, because a majority of the long-term debt is at fixed
rates. DVL primarily enters into long-term debt for specific business purposes
such as the repurchase of debt at a discount, acquisition of mortgage loans, or
the purchase of real estate assets.
DVL's ability to realize on its mortgage holdings is sensitive to interest
rate fluctuations in that the sales prices of real property and mortgages vary
with interest rates.
The table set forth below presents principal amounts and related weighted
average interest rates by year of maturity for DVL's investment portfolio and
debt obligations.
There-
In Thousands 2005 2006 2007 2008 2009 after- Total
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash equivalents $ 2,768 $ 2,768
Variable rate
Average interest rate 1.8% 1.8%
LONG TERM DEBT
Fixed rate $ 7,164 $ 5,269 $ 3,022 $ 4,632 $ 1,094 $ 2,915 $24,096
Average interest rate 7.91% 7.32% 7.13% 7.16% 7.20% 7.37% 7.38%
Variable rate $ 514 $ 469 $ 362 $ 221 $ 1,200 $ -0- $ 2,766
Average interest rate 6.42% 6.42% 6.42% 6.42% 5.75% -0-
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" below.
Supplementary Data
Quarterly Data (Unaudited)
For the Year Ended December 31, 2004
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
Total Revenue $ 2,120 $ 2,625 $ 2,038 $ 2,143 $ 8,926
Net income (loss) 129 735 461 153 1,478
Basic earnings per
share:
Net income $ .00 $ .03 $ .02 .00 $ .05
Diluted earnings per
Share:
Net income $ .00 $ .01 $ .01 $ .00 $ .03
Weighted average
Shares outstanding:
Basic 27,738,402 27,738,402 27,738,402 27,825,337 27,825,337
Diluted 55,032,127 55,609,814 56,606,345 56,162,056 57,032,237
Quarterly Data (Unaudited)
For the Year Ended December 31, 2003
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
Total Revenue $ 2,142 $ 2,163 $ 2,112 $ 2,565 $ 8,982
Net income (loss) 561 369 (351) (31) 548
Basic earnings per
share:
Net income (loss) $ .03 $ .02 $ (.02) .00 $ .02
Diluted earnings per
Share:
Net income (loss) $ .01 $ .01 $ (.02) $ .00 $ .02
Weighted average
Shares outstanding:
Basic 21,713,563 21,713,563 21,713,563 27,083,528 23,083,595
Diluted 54,201,098 55,478,658 21,713,563 27,083,528 54,338,324
Basic and diluted earnings per share are computed independently for each of the
periods. Accordingly, the sum of the quarterly earnings per share amounts may
not agree to the total for the year. The financial statements and notes thereto,
together with the report of independent registered public accounting firm of
Imowitz Koenig & Co., LLP, are set forth on pages F-1 through F-35, which
follow. The financial statements are listed in Item 15(1) hereof.
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As previously reported in the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 31, 2004, which is
incorporated herein by reference, Eisner LLP was dismissed as the Company's
independent accountants and Imowitz Koenig & Co., LLP was engaged as the
Company's independent accountants.
ITEM 9A. CONTROLS AND PROCEDURES
In designing and evaluating the disclosure controls and procedures, the
Company's management recognized that any controls and procedures, no matter how
well designed and operated, can provide only reasonable assurances of achieving
the desired control objectives, as ours are designed to do, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.
As of the end of the period covered by this report the Company carried out
an evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that, as of December 31, 2004, our disclosure controls and procedures
are effective.
No change occurred in the Company's internal controls concerning financial
reporting during the Company's fourth quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal controls over
financial reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. The following table sets forth the name of each director and executive
officer of the Company, and the nature of all positions and offices with the
Company held by him at present. The term of all directors (other than the
special purpose director) expires at the Company's next annual meeting of
stockholders, which will be held on a date to be scheduled, or until their
successors are duly elected and qualified. The term of all executive officers
expires at the next annual meeting of directors, to be held immediately
thereafter. There are no family relationships among the directors or executive
officers of the registrant.
NAME POSITION
Myron Rosenberg Chairman of the Board
Gary Flicker Director
Alan E. Casnoff Director, President and Chief Executive Officer
Jay Thailer Executive Vice President and Chief Financial Officer
Keith B. Stein Special Purpose Director
27
In addition to three directors, who have all of the powers normally
granted to corporate directors, the Company has one special purpose director,
who was elected in 1996 by the holder of the Company's Class A Preferred Stock.
The special purpose director has no right to vote at meetings of the Board,
except as to Bankruptcy Matters (as such term is defined in the Company's
Certificate of Incorporation).
B. The following is a brief account of the recent business experience of
each director and executive officer and directorships held with other companies
which file reports with the Securities and Exchange Commission:
GARY FLICKER (age 46) has served as a director of the Company since
January 2004. Mr. Flicker was Chief Financial Officer and Executive Vice
President of DVL, Inc. from April 1997 to November 2001 and remained employed by
the Company until May 2002. Mr. Flicker is currently President and Chief
Executive Officer of Flick Financial, an accounting/financial consulting firm
headquartered in Atlanta, Georgia. Mr. Flicker is a Certified Public Accountant.
MYRON ROSENBERG (age 76) has served as a director of the Company since
1977. Through December 1996, Mr. Rosenberg served as Executive Vice President of
Rosenthal & Rosenthal, Inc., New York, New York, a commercial finance concern,
where he had been employed since 1961. Mr. Rosenberg is currently associated
with the merchant banking firm of Taurus Global, LLC.
ALAN E. CASNOFF (age 61) has served as President of the Company since
November 1994, and was appointed as a director in November 2001. Mr. Casnoff
served as Executive Vice President of the Company from October 1991 to November
1994. Mr. Casnoff has maintained his other business interests during this period
and thus has devoted less than full time to the business affairs of DVL. From
November 1990 to October 1991, Mr. Casnoff served as a consultant to the Company
and from 1977 to October 1991, as secretary of the Company. Since May 1991, Mr.
Casnoff has also served as a director of Kenbee Management, Inc. ("Kenbee"), an
affiliate of the Company, and as President of Kenbee since November 1994. Since
1977, Mr. Casnoff has also been a partner of P&A Associates, a private real
estate development firm headquartered in Philadelphia, Pennsylvania. Since 1969,
Mr. Casnoff was associated with various Philadelphia, Pennsylvania law firms
which have been legal counsel to the Company and Kenbee. Since July 1999, he has
been of counsel to Klehr, Harrison, Harvey, Brazenburg & Ellers ("Klehr").
JAY THAILER (age 36) has served as Chief Financial Officer and Executive
Vice President since November 2001. From August 1998 to November 2001, Mr.
Thailer served as Vice President and Secretary of the Company. Mr. Thailer is a
Certified Public Accountant. Prior to joining the Company in 1997, Mr. Thailer
was associated with the accounting firm of Sobel & Company, C.P.A.'s, where his
clients included real estate development companies.
KEITH B. STEIN (age 47) has been a special purpose director of the company
since September 1996. Mr. Stein is currently a Managing Director of Kimco Realty
Corporation (NYSE: KIM), specializing in investments in real estate and related
securities. Mr. Stein is the Chairman, Chief Executive Officer, and a director
of National Auto Receivables Liquidation, Inc., a position he has held since
1998. From October 1994 to May 1998, Mr. Stein was Managing Director of several
privately held investment and financial advisory firms specializing in real
estate and specialty finance companies. From March 1993 to September 1994, he
served as Senior Vice President, Secretary and General Counsel of WestPoint
Stevens, Inc., a textile company, after having served the same company from
October 1992 to February 1993 in the capacity of Acting General Counsel and
Secretary. From 1989 to February 1993, Mr. Stein was associated with the law
firm of Weil, Gotshal & Manges LLP. Mr. Stein is an affiliate of NPM.
28
C. Compliance with Section 16 (a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who are beneficial
owners of more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Commission. Officers, directors, and greater than 10% beneficial owners are
required by Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's knowledge, based solely on
review of such reports furnished to the Company, and written representations
from the Company's officers and directors that no other reports were required
during or with respect to the fiscal year ended December 31, 2004, all Section
16(a) filing requirements applicable to such persons were satisfied. None of the
shareholders listed as beneficially owning greater than 10% of the Company's
Common Stock in the "Security Ownership of Certain Beneficial Owners" chart in
Item 12 filed a Form 5 for the year ending December 31, 2005. The Company is not
aware whether any of such shareholders had a Form 5 obligation.
D. Code of Ethics
The Company has adopted a code of ethics that applies to its chief
executive officer and chief financial officer, its principal executive officer
and principal financial officer, respectively, and all of the Company's other
financial executives. The code of ethics is Exhibit 14 of this Form 10-K.
E. The Audit Committee consists of Gary Flicker and Myron Rosenberg. DVL's board
of directors has determined that Gary Flicker is an audit committee financial
expert, as defined in Item 401(h)(2) of Regulation S-K. As a result of a change
in the New York Stock Exchange definition of independence that took effect
November 4, 2004, Mr. Flicker does not currently qualify as independent under
such rules, due to the fact that he was employed by the Company within the last
three years. However, he will qualify as independent under such definition
beginning in May 2005.
29
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to the following persons for services rendered to the Company in 2004 and
(if applicable) in 2003 and 2002: (1) the person serving as the Company's chief
executive officer during 2004; (2) those other persons who were serving as
executive officers as of the end of 2004 whose compensation exceeded $100 during
2004:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
------------------------------ -------------------
Securities
Underlying
Name and Principal Position Year Salary Bonus Options/SAR
--------------------------- ---- ------ ----- -----------
Alan E. Casnoff 2004 $132 $ 25 --
President and
Chief Executive Officer 2003 132 -- --
2002 120 10 100,000(1)
Jay Thailer 2004 $118 $ 20 --
Executive Vice President and
Chief Financial Officer 2003 114 13
2002 110 15 15,000(1)
(1) Consists of options to purchase shares of Common Stock under the 1996
Stock Option Plan.
30
B. OPTION GRANTS IN LAST FISCAL YEAR
No options were granted by the Company in 2004 under the DVL, Inc. 1996
Stock Option Plan (the "Plan") to the executive officers named in the Summary
Compensation Table. The Plan provides for the grant of options to purchase up to
2,500,000 shares of Common Stock to Employees and Non-Employee Directors (in
each case as defined in the Plan).
The Plan provides that any one employee wishing to exercise an option must
give prior notice to the Board. If the Board determines, in its reasonable
discretion, that such exercise will cause an "ownership change" (a defined in
Section 382 of the Internal Revenue Code of 1986, as amended) in the Company
which would have an adverse effect on the Company's use of its NOLS (as defined
in Section 382) (an "Adverse Ownership Change"), the Board shall deny approval
of the exercise. If the Board determines that such exercise would not cause an
Adverse Ownership Change, it shall approve the exercise. The conditions
described in this paragraph are referred to below as the "Section 382
Restrictions".
As of December 31, 2004, options to purchase 1,603,131 shares were
outstanding under the Plan and 896,869 shares were available for issuance upon
exercise of options which may be granted in the future.
31
C. FISCAL YEAR-END OPTION VALUES
The following table sets forth information as to options held as of the
end of 2004 by the executive officers named in the Summary Compensation Table.
No options were exercised by said officers in 2004. All options held by said
officers at fiscal year-end were immediately exercisable.
Number of Securities Underlying Value of Unexercised
Unexercised Options At Fiscal In-The-Money Options
Name Year End At Fiscal Year End
---- ------------------------------- --------------------
Alan E. Casnoff 475,000 $ 6
Jay Thailer 42,000 $ 1
D. COMPENSATION OF DIRECTORS
Regular directors who are not officers or employees of the Company
("Non-Employee Directors") presently receive a director's fee of $1 per month,
plus five hundred dollars for each Audit Committee meeting of the Board of
Directors attended. Directors who are officers of the Company receive no
compensation for their services as directors or attendance at any Board of
Directors or committee meetings. Mr. Casnoff, who is a director, is also
President and Chief Executive Officer of the Company. The special purpose
director receives no compensation for his service as a director or attendance at
any Board of Directors or committee meetings.
On each of September 17, 2002, 2003 and 2004, options to purchase 15,000
shares of Common Stock at an exercise price equal to the then market price per
share were granted to each of the non-employee directors. The options were
granted under the Plan, which provides for automatic grants of options to
individuals upon their becoming non-employee directors, as well as, 15,000
shares to each incumbent regular director on each anniversary of the adoption of
the Plan. The options vest immediately and are exercisable for a term of ten
(10) years from the date of grant.
E. EMPLOYMENT CONTRACTS AND ARRANGEMENTS
The Company entered into Indemnification Agreements with all officers and
directors effective upon their election as an officer or director of the
Company, contractually obligating the Company to indemnify them to the fullest
extent permitted by applicable law, in connection with claims arising from their
service to, and activities on behalf of, the Company.
The Company does not currently have any employment contracts in force.
F. BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors acts in the place of a formal compensation
committee. During 2004, no executive officer of the Company served as a director
of or a member of a compensation committee of any entity for which any of the
persons serving on the Board of Directors of the Company is an executive
officer.
32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 31, 2005
regarding the ownership of common stock of the Company by each person who is
known to the management of the Company to have been the beneficial owner of more
than 5% of the outstanding shares of the Company's common stock.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class*
---------------- -------------------- -----------------
Lawrence J. Cohen 9,752,893 (1)(4) 20.6%
Milton Neustadter 5,637,848 (1)(5) 12.8%
Jay Chazanoff 9,009,929 (2)(6) 19.2%
Ron Jacobs 8,479,671 (2)(7) 18.2%
Stephen Simms 8,451,796 (2)(8) 18.2%
Keith B. Stein 8,647,834 (3)(9) 18.4%
Robert W. Barron 7,951,769 (3)(10) 17.2%
Adam Frieman 7,676,811 (3)(11) 16.7%
Peter Offerman 7,455,080 (3)(12) 16.3%
Joseph Huston 7,379,420 (3)(13) 16.2%
Jan Sirota 7,455,080 (3)(14) 16.3%
Neal Polan 7,455,080 (3)(15) 16.3%
Michael Zarriello 7,455,080 (3)(16) 16.3%
Mark Mahoney 7,443,438 (3)(17) 16.3%
The SIII Associates Limited 10,942,331 (3)(18) 22.3%
Partnership Third Addison
Park Corporation and
Gary L. Shapiro
J.G. Wentworth, S.S.C.
Limited Partnership 3,000,000 (19) 7.3%
10 Presidential Boulevard
Suite 250
Bala Cynwyd, PA 19004
Stephen Feinberg 5,406,113 (20) 14.1%
450 Park Avenue
28th Floor
New York, NY 10022
33
NOTES TO TABLE
In each instance where a named individual is listed as the holder of a
currently exercisable option or Warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except with respect to options or Warrants
held by other members of a Holder's Holder Group (as defined below). An option
or Warrant is deemed to be beneficially owned if it may be exercised within 60
days. The number of Warrants attributed to each Holder herein is based upon the
number of warrants that would be issued as of the date of this document, and is
subject to adjustment to eliminate any possible dilution, as described in
"Changes of Control" below.
(1) As described in detail below in "Changes of Control", such persons are
members of the Pembroke Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 4,864,821 shares of
the Company's Common Stock issuable to the members of the Pembroke Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Pembroke Group is c/o Lawrence J.
Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022.
(2) As described in detail below in "Changes of Control", such persons are
members of the Millennium Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 6,284,361 shares of
the Company's Common Stock issuable to the members of the Millennium Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Millennium Group upon the exercise
of Warrants. The address of each member of the Millennium Group is c/o Jay
Chazanoff, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members
of the Millennium Group explicitly disclaim beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Millennium Group.
(3) As described in detail below in "Changes of Control", such persons are
members of the Florida Group (as defined in "Changes in Control" below), and
said persons share dispositive power with each other as to 7,228,120 shares of
the Company's Common Stock issuable to the members of the Florida Group upon the
exercise of Warrants (as defined in "Changes in Control" below) by such members,
which shares constitute 50.1% of all of the shares issuable to the members of
the Florida Group upon the exercise of Warrants. The Company has not had any
contact with the members of the Florida Group, except Mr. Stein, for a number of
years and the Company is not aware if a group still exists. The address of each
member of the Florida Group is c/o Keith Stein, 3333 New Hyde Park Road, New
Hyde Park, NY 11042-0020.
(4) To the Company's knowledge, Mr. Cohen possesses: (i) the sole power to vote
9,038,765 shares of Common Stock, which includes 8,331,227 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 4,864,821 shares of Common
Stock, which includes 4,157,282 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other member of the Pembroke Group to
dispose of 4,888,072 shares of Common Stock, which includes 4,173,945 share of
Common Stock issuable upon the exercise of Warrants held by Mr. Cohen and
714,127 shares of Common Stock issuable upon exercise of Warrants held by the
other member of the Pembroke Group. Mr. Cohen explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other member of
the Pembroke Group.
34
(5) To the Company's knowledge, Mr. Neustadter possesses: (i) the sole power to
vote 1,463,903 shares of Common Stock, which includes 1,425,403 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 749,776 shares of Common Stock,
which includes 711,276 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other member of the Pembroke Group to
dispose of 4,888,072 shares of Common stock, which includes 714,127 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Neustadter and
4,173,945 shares of Common Stock issuable upon exercise of Warrants held by the
other member of the Pembroke Group. Mr. Neustadter explicitly disclaims
beneficial ownership of all of the shares of Common Stock and Warrants (and
shares of Common Stock issuable upon exercise of Warrants) owned by the other
member of the Pembroke Group.
(6) To the Company's knowledge, Mr. Chazanoff possesses: (i) the sole power to
vote 5,157,073 shares of Common Stock, which includes 4,853,303 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 2,725,568 shares of Common
Stock, which includes 2,421,798 shares of Common stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Milllennium Group
to dispose of 6,284,361 shares of Common stock, which includes 2,431,505 shares
of Common stock issuable upon the exercise of Warrants held by Mr. Chazanoff and
3,852,856 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Millennium Group. Mr. Chazanoff explicitly disclaims
beneficial ownership of all of the shares of Common Stock and Warrants (and
shares of Common Stock issuable upon exercise of Warrants) owned by the other
members of the Millennium Group.
(7) To the Company's knowledge, Mr. Jacobs possesses: (i) the sole power to vote
4,121,738 share of Common Stock, which includes 3,845,166 shares of Common Stock
issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of Common
Stock; (iii) the sole power to dispose of 2,195,310 shares of Common Stock,
which includes 1,918,738 shares of Common Stock, issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Millennium Group
to dispose of 6,284,361 shares of Common Stock, which includes 1,926,428 shares
of Common Stock issuable upon the exercise of Warrants held by Mr. Jacobs and
4,357,933 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Millennium Group. Mr. Jacobs explicitly disclaims
beneficial ownership of all of the shares of Common Stock and Warrants (and
shares of Common Stock issuable upon exercise of Warrants) owned by the other
members of the Millennium Group.
(8) To the Company's knowledge, Mr. Simms possesses: (i) the sole power to vote
4,093,863 shares of Common Stock, which includes 3,845,166 shares of Common
stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 2,167,435 shares of Common
Stock issuable upon the exercise of Warrants which includes 1,918,738 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other members of the Millennium Group to dispose of 6,284,361 shares of Common
Stock, which includes 1,926,428 shares of Common Stock issuable upon the
exercise of Warrants held by Mr. Simms and 4,357,933 shares of Common Stock
issuable upon exercise of Warrants held by the other members of the Millennium
Group. Mr. Simms explicitly disclaims beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other members of the Millennium Group.
35
(9) To the Company's knowledge, Mr. Stein possesses: (i) the sole power to vote
2,768,303 shares of Common Stock, which includes 2,691,796 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 1,419,713 shares of Common
Stock; which includes 1,343,206 shares of Common stock issuable upon exercise of
Warrants; and (iv) shares power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 1,348,590 shares of
Common stock issuable upon the exercise of Warrants held by Mr. Stein and
5,879,530 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group. Mr. Stein explicitly disclaims beneficial
ownership of all the shares of Common Stock and Warrants (and shares of Common
Stock issuable upon exercise of Warrants) owned by the other members of the
Florida Group.
(10) To the Company's knowledge, Mr. Barron possesses: (i) the sole power to
vote 1,412,929 shares of Common Stock, which includes 1,375,809 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common stock; (iii) the sole power to dispose of 723,649 shares of Common Stock,
which includes 686,529 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 689,280 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Barron and
6,538,840 shares of Common stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(11) To the Company's knowledge, Mr. Frieman possesses: (i) the sole power to
vote 887,491 shares of Common Stock, which includes 875,849 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 448,690 shares of Common Stock,
which includes 437,049 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose 7,228,120 shares of Common Stock, which includes 438,800 shares of
Common Stock issuable upon exercise of Warrants held by Mr. Frieman and
6,789,320 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(12) To the Company's knowledge, Mr. Offerman possesses: (i) the sole power to
vote 443,140 shares of Common Stock, which includes 431,498 shares of Common
stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 226,959 shares of Common Stock,
which includes 215,318 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 216,180 shares of
Common stock issuble upon the exercise of Warrants held by Mr. Offerman and
7,011,940 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(13) To the Company's knowledge, Mr. Huston possesses: (i) the sole power to
vote 295,414 shares of Common Stock, which includes 287,653 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 151,300 shares of Common Stock,
which includes 143,539 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 144,114 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Huston and
7,084,006 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
36
(14) To the Company's knowledge, Mr. Sirota possesses: (i) the sole power to
vote 443,140 shares of Common Stock, which includes 431,498 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common stock; (iii) the sole power to dispose of 226,959 shares of Common Stock,
which includes 215,318 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 216,180 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Sirota and
7,011,940 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(15) To the Company's knowledge, Mr. Polan possesses: (i) the sole power to vote
443,140 shares of Common Stock, which includes 431,498 shares of Common Stock
issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of Common
stock; (iii) the sole power to dispose of 226,959 shares of Common Stock, which
includes 215,318 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
7,228,120 shares of Common Stock, which includes 216,180 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Polan and 7,011,940 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group.
(16) To the Company's knowledge, Mr. Zarriello possesses: (i) the sole power to
vote 443,140 shares of Common Stock, which includes 431,498 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common stock; (iii) the sole power to dispose of 226,959 shares of Common Stock,
which includes 215,318 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 216,180 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Zarriello and
7,011,940 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(17) To the Company's knowledge, Mr. Mahoney possesses: (i) the sole power to
vote 431,498 shares of Common Stock, which includes 431,498 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common stock; (iii) the sole power to dispose of 215,317 shares of Common Stock,
which includes 215,317 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 7,228,120 shares of Common Stock, which includes 216,180 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Mahoney and
7,011,940 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(18) To the Company's knowledge, the SIII Associates Limited Partnership
possesses: (i) the sole power to vote 7,240,646 shares of Common Stock, which
includes 7,038,792 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common stock; (iii) the sole power to
dispose of 3,714,211 shares of Common Stock, which includes 3,512,357 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other members of the Florida Group to dispose of 7,228,120 shares of Common
Stock, which includes 3,526,435 shares of Common Stock issuable upon the
exercise of Warrants held by the SIII Associates Limited Partnership and
3,701,685 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group. Third Addison Park Corporation is the
general partner of the SIII Associates Limited Partnership, and Gary L. Shapiro
is the chief executive officer of Third Addison Park Corporation.
37
(19) To the Company's knowledge, J.G. Wentworth, S.S.C. Limited Partnership
possesses: (i) the sole power to vote and direct the disposition of 3,000,000
shares of Common Stock, which consists of 3,000,000 shares of Common Stock
issuable upon exercise of Warrants.
(20) Based upon a Schedule 13D, filed with the Commission on January 22, 2002,
Mr. Feinberg possesses: (i) the sole power to vote and direct the disposition of
the 4,753,113 shares of Common Stock held by Blackacre Bridge Capital, L.L.C.
and 653,000 shares of Common Stock held by Blackacre Capital Group, L.P.
38
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of March 31, 2005
regarding ownership of Common Stock by (i) each director and nominee for
director, (ii) each of the executive officers named in the Summary Compensation
Table contained herein, and (iii) all executive officers and directors as a
group (5 persons). Unless otherwise indicated, each stockholder listed below has
sole voting and investment power with respect to the shares set forth opposite
such stockholder's name. All persons listed below have an address c/o the
Company's principal executive offices in New York.
Name of Amount and Nature of Percentage
Beneficial Owner(1) Beneficial Ownership of Class
- ------------------- -------------------- --------
Alan E. Casnoff 685,000 (2) 1.8%
Jay Thailer 64,000 (3) *
Myron Rosenberg 408,854 (4) 1.1%
Gary Flicker 180,000 (5) *
Keith B. Stein 8,647,834 (6) 18.4%
All current directors
and executive officers
as a group (5 persons) 9,985,688 (7) 21.5%
* Less than 1%
(1) Messrs. Casnoff and Thailer are executive officers of the Company. Messrs.
Casnoff, Rosenberg and Flicker are the regular directors. Mr. Stein is the
special purpose director.
(2) Excludes 480 shares held by Mr. Casnoff's adult son, as to which shares Mr.
Casnoff disclaims beneficial ownership. Includes 26,000 shares owned by a
corporation partially owned and controlled by Mr. Casnoff, and 475,000 shares
which may be acquired upon the exercise of options exercisable within 60 days.
(3) Represents 42,000 shares which may be acquired upon the exercise of options
exercisable within 60 days and 22,000 shares held by Mr. Thailer and his wife as
joint tenants.
(4) Includes 4,300 shares held by Mr. Rosenberg's wife, as to which shares he
disclaims beneficial ownership, and 120,000 shares which may be acquired upon
the exercise of options exercisable within 60 days.
(5) Consists of shares which may be acquired upon the exercise of options
exercisable within 60 days.
(6) To the Company's knowledge, Mr