<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
---------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____________________ to_________________________
Commission file number: 1-8356
DVL, Inc.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2892858
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
24 River Road, Bogota, New Jersey 07603
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (201) 487-1300
--------------
- -----------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes: X No:
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Class Outstanding at May 14, 1998
- ----------------------------- ---------------------------
Common Stock, $.01 par value 16,560,450
DVL, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information: Page No.'s
----------
Consolidated Balance Sheets -
March 31, 1998 (unaudited) and December 31, 1997 1-2
Consolidated Statements of Operations -
Three Months Ended March 31, 1998 (unaudited)
and 1997 (unaudited) 3
Consolidated Statement of Shareholders' Equity for
the three months ended March 31, 1998 (unaudited) 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 (unaudited)
and 1997 (unaudited) 5-6
Notes to Consolidated Financial Statements (unaudited) 7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
Part II. Other Information:
Item 2 - Changes in Securities 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
<PAGE>
Part I - Financial Information
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1998 1997
--------- ------------
ASSETS (unaudited)
- ------
<S> <C> <C>
Loans receivable, including amounts maturing
after one year - principally pledged
Affiliates:
Wrap around and other mortgages due from
affiliated partnerships (net of underlying
liens of $43,508 and $45,306, respectively) $ 29,229 $ 30,815
Unearned interest (8,380) (8,350)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $1,441 and $2,711 of
non-performing loans, respectively) 20,849 22,465
Others:
Non-performing loans collateralized by limited
partnership interests due from limited partners 966 1,690
-------- --------
Total loans receivable 21,815 24,155
Allowance for loan losses (8,589) (10,142)
-------- --------
Net loans receivable 13,226 14,013
Cash (including restricted cash of $77 for 1998
and 1997) 422 496
Due from affiliated partnerships (net of an allowance
for loss of $1,727 for 1998 and 1997) 295 142
Investments
Real estate at cost - pledged (net of an allowance
for loss of $208 for 1998 and 1997) 289 289
Real estate lease interests 1,587 1,621
Affiliated limited partnerships (net of an allowance
for loss of $1,246 for 1998 and 1997) 1,587 1,461
Other investments (net of an allowance for loss
of $400 for 1998 and 1997) 648 648
Other assets 912 966
-------- --------
Total assets $ 18,966 $ 19,636
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
1
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
March 31, December 31,
1998 1997
---------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY (unaudited)
- ------------------------------------
<S> <C> <C>
Liabilities:
Long-term debt - NPM Capital LLC $ 4,896 $ 5,310
Long-term debt - Other 2,866 2,773
Notes payable - litigation settlement 3,722 4,060
Accounts payable and accrued liabilities 1,947 1,918
-------- --------
Total liabilities 13,431 14,061
-------- --------
Deferred credits 281 296
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized -
100 shares, issued 100 shares 1 1
Common stock, $.01 par value, authorized -
40,000,000 shares, issued and outstanding -
16,560,450 and 16,232,450, respectively 166 162
Additional paid-in capital 95,288 95,240
Deficit (90,201) (90,124)
-------- --------
Total shareholders' equity 5,254 5,279
-------- --------
Total liabilities and shareholders'
equity $ 18,966 $ 19,636
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
2
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
(unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Income from affiliates
Interest on mortgage loans $ 144 $ 290
Partnership management fees 90 102
Transaction and other fees from partnerships 181 24
Distributions from investments 9 -
Rent income 8 9
Other income 2 -
Income from others
Rent Income 80 -
Other interest - 2
Other income 17 36
---------- ----------
531 463
---------- ----------
Operating expenses
Recovery of provision for losses (131) -
General and administrative 324 378
Asset servicing fee - NPO Management LLC 150 150
Legal and professional fees 32 50
Interest expense
NPM Capital LLC 156 242
Litigation Settlement 137 275
Others 142 185
---------- ----------
810 1,280
---------- ----------
Loss before extraordinary gain (279) (817)
Extraordinary gain on the settlement of
indebtedness 202 453
---------- ----------
Net loss $ (77) $ (364)
========== ==========
Loss per share - basic and diluted:
Loss before extraordinary gain $ (.02) $ (.05)
Extraordinary gain on the settlement of
indebtedness .01 .03
---------- ----------
Net loss $ (.01) $ (.02)
========== ==========
Weighted average shares outstanding 16,262,105 15,679,450
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
3
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in thousands except share data)
(unaudited)
Preferred Stock Common Stock Additional
--------------- -------------------- paid-in
Shares Amount Shares Amount capital Deficit Total
-------- ------ ----------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1998 100 $ 1 16,232,450 $ 162 $ 95,240 $(90,124) $ 5,279
Issuance of common stock in connection
with the Loan from Blackacre Bridge
Capital, LLC 328,000 4 48 52
Net loss (77) (77)
-------- ------ ---------- ------- -------- -------- -------
Balance-March 31, 1998 100 $ 1 16,560,450 $ 166 $ 95,288 $(90,201) $
5,254
======== ====== ========== ======= ======== ========
=======
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
4
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
---------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net loss before extraordinary gain $ (279) $ (817)
Adjustments to reconcile net loss to
net cash (used in) operating activities
Recovery of provision for losses (131) -
Accrued interest added to indebtedness 89 74
Amortization of unearned interest on
loan receivable 30 (45)
Amortization of real estate lease interests 34 -
Net (decrease) in deferred charges (15) -
Imputed interest on notes and debentures 137 275
Amortization of debt discount 26 50
Net decrease (increase) in other assets 54 (56)
Net (increase) in due from affiliated
partnerships (153) (58)
Net increase in accounts payable and
accrued liabilities 81 29
-------- --------
Net cash (used in) operating activities (127) (548)
-------- --------
Cash flows from investing activities
Collections on loans receivable (net of
payments on underlying loans) 762 860
Net reductions in real estate lease
interests - 143
Distributions received on affiliated
limited partnership interests and
other investments - 7
-------- --------
Net cash provided by investing
activities $ 762 $ 1,010
-------- --------
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
5
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
(continued)
Three Months Ended
March 31,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from financing activities
Proceeds from new borrowings $ 338 $ 2,350
Repayment of indebtedness (774) (2,740)
Payments related to debt tender offer (273) -
Payments on guaranteed indebtedness - (115)
-------- --------
Net cash (used in) financing activities (709) (505)
-------- --------
Net (decrease) in cash (74) (43)
Cash - beginning of period 496 355
-------- --------
Cash - end of period $ 422 $ 312
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest,
excluding amounts paid on underlying loans $ 73 $ 218
======== ========
Supplemental disclosure of non-cash
investing and financing activities:
Net reduction in indebtedness pursuant
to creditor settlements $ - $ 453
======== ========
Reduction in accrued liabilities upon
issuance of common stock $ 52 $ 22
======== ========
Common stock issued in creditor settlement $ - $ 8
======== ========
Net reduction of Notes Payable - Debt
Tender Offer $ 202 $ -
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
6
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Financial Condition
(A) In the opinion of DVL, Inc. ("DVL"), the accompanying financial statements
contain all adjustments (consisting of only normal accruals) necessary for a
fair presentation of the financial position and the results of operations for
the periods presented. The results of operations for the three months ended
March 31, 1998 should not be regarded as necessarily indicative of the results
that may be expected for the full year. Certain amounts from the three months
ended March 31, 1997 have been reclassified to conform to the three months
ended March 31, 1998 presentation.
(B) DVL continues to experience liquidity problems primarily as a result of
the limited cash flow generated by its restructured mortgage portfolio, as the
mortgage debt service is currently used to pay liens senior to DVL's, and any
excess is used to fund principal and interest payments on the NPM Loan (as
defined in Note 6(B) below), based on the collateral interest of NPM Capital
LLC ("NPM") in the mortgages, and to pay certain other creditors. DVL's cash
flow provided by current operations is insufficient to meet its cash
requirements, and DVL continues to liquidate and/or refinance its assets in
order to meet its operating cash flow deficiency. There can be no assurance
that the cash flow generated by DVL's potential asset liquidations or
refinancings will be sufficient to meet any future operating cash flow
deficiencies or future mandatory debt repayments.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position in order to
meet operating expenses and mandatory debt payments, (2) the realization of the
estimated value of its loan portfolio over an extended period of time rather
than the value of the assets on a liquidation basis, (3) the return to
profitable operations and (4) availability of additional borrowings. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
2. Loans Receivable/Long Term Debt
During the first quarter of 1998, DVL as the general partner of a certain
limited partnership, negotiated the sale of the partnership's property which
resulted in net proceeds of approximately $619,000 to DVL in satisfaction of
the partnership's mortgage indebtedness. All of the proceeds were used to pay
interest and principal on the NPM Loan, as required by the NPM loan agreements.
3. Debt Tender Offer
From October 27, 1997 through February 27, 1998(the "Expiration Date"),
the Company conducted a cash tender offer (the "Offer") for its 10% Redeemable
Promissory Notes due December 31, 2005 (the "Notes") at a price of $.12 per
$1.00 principal amount of Notes. The Notes were originally issued in December
1995 in conjunction with the settlement of a shareholder class action. The
Company purchased and retired a total of $6,224,532 principal amount of Notes
7
in the Offer ($5,818,540 through December 31, 1997, and an additional $405,992
through the Expiration Date). An additional $392,750 principal amount
($322,796 through December 31, 1997, and $69,954 thereafter), representing 15%
of the Notes tendered in excess of $3,998,000, were purchased by the Lender
(see below) based on the Lender's commitment to participate in the Offer to
that extent. A total of $6,166,381 principal amount of Notes remained
outstanding as of December 31, 1997, and $5,760,389 were outstanding at March
31, 1998 after taking into account all tenders through the Expiration Date.
The outstanding Notes include those purchased by the Lender.
The Offer effected a reduction in the Company's long-term debt and
resulted in an extraordinary gain for the year ended December 31, 1997 of
$2,906,000, after costs of $211,000, and an extraordinary gain of $202,000 for
the quarter ended March 31, 1998, after costs of $17,000.
DVL entered into a financing arrangement with Blackacre Bridge Capital,
LLC, an unaffiliated entity (the "Lender"), permitting DVL to borrow up to
$1,760,000, to fund the purchase of Notes, and to pay related costs and
expenses. A total of $810,000 had been borrowed as of December 31, 1997, and
an additional $250,000 had been borrowed subsequently through March 31, 1998.
4. Shareholders' Equity
As part of the consideration for the Lender's providing DVL with the loan
referred to in Note 3, DVL issued to the Lender on February 27, 1998 (the
Expiration Date of the Offer) 328,000 shares of Common Stock, based on a
formula contained in the applicable loan documents, resulting in an increase
from 16,232,450 to 16,560,450 in the number of shares of outstanding Common
Stock. For the year ended December 31, 1997, the Company had recorded a cost
of $52,000 for the 328,000 shares (together with a cost of $29,000 for the
325,000 shares issued to the Lender upon execution of the loan documents in
October 1997), based on the market value of such shares as of the respective
dates of issuance, discounted to reflect the fact that they constitute
"restricted securities", within the meaning of Rule 144 under the Securities
Act of 1933, as amended. The shares were issued pursuant to the exemption
afforded by Section 4(2) of said Act, for transactions by an issuer not
involving a public offering.
5. Legal Proceedings
The sole case which is currently outstanding arises from an action
entitled VANGUARD CAPITAL V. KENBEE MANAGEMENT, INC. ET AL., which was filed
in 1994 in the Superior Court of the State of California, and, included DVL as
a defendant. Vanguard sought to be indemnified for an investor's claim filed
against it in said Court. The investor made a $350,000 investment in an
affiliated limited partnership and alleged that her broker sold her unsuitable
investments. DVL defended the case and Vanguard voluntarily dismissed its
action without prejudice. On March 22, 1996, the investor in the underlying
matter against VANGUARD filed, in the Superior Court of Los Angeles, a motion
to vacate an NASD Arbitration award made in July 1995 in favor of VANGUARD and
has named DVL as an additional respondent in that Petition. There has been no
further activity in this case since March 1996, and no determination can be
made at this time as to the outcome.
8
6. Subsequent Events
The following events occurred in April 1998:
(A) DVL, as the general partner of a certain limited partnership,
negotiated the sale of the partnership's property. The sale resulted in net
cash proceeds of $500,000 to DVL in satisfaction of the partnership's mortgage
indebtedness. All of these proceeds were paid to one of DVL's long-term
creditors, as required.
(B) NPM Capital LLC ("NPM") advanced to DVL the sum of $87,500 to fund a
quarterly payment to a DVL creditor. This advance was not required under the
original loan transaction with NPM, in the principal amount of $8,382,000,
consummated in September 1996 (the "Original Loan"). The advance bears
interest at 15% per annum and will be paid pari passu with the Original Loan,
and with the additional advances aggregating $200,000 made in March and April
1997. The Original Loan, together with the 1997 and 1998 advances, are
referred to in the aggregate herein as the "NPM Loan".
(C) The Opportunity Fund (a joint venture previously reported in DVL's
Report on Form 10-K for the fiscal year ended December 31, 1997) entered into
its first transaction, consisting of the purchase of the leasehold interest of
the anchor tenant (which had filed a petition for reorganization under Chapter
11 of the Bankruptcy Code) of a shopping center property owned by a partnership
in which DVL is the general partner.
The members of the Fund are DVL, an affiliate of Blackacre Bridge Capital
Group LLC, and affiliates of NPM.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
- -----------------------------------------------------------------------------
DVL realized a net loss of $77,000 for the three months ended March 31,
1998, compared to a net loss of $364,000 for the corresponding 1997 period.
The net loss in both years was attributable to operating losses partially
offset by extraordinary gains realized upon settlements of indebtedness. In
1997, the extraordinary gain of $453,000 was a result of the restructuring of
certain indebtedness. In 1998, the extraordinary gains of $202,000 arose from
gains realized upon DVL's purchase of promissory notes which were issued in
connection with the 1995 settlement of the shareholder litigation.
As a result of the factors described below, DVL continued to have
operating losses in 1998 ($279,000), but at a reduced level from 1997
($817,000).
Interest on mortgage loans from affiliates and partnership management fees
decreased in 1998 from 1997 due to a reduction in the size of the loan
portfolio resulting from the repayment of DVL's mortgages by various
partnerships which sold their real property. In connection with such sales and
with refinancings of underlying mortgages on Partnership Properties, DVL
receives transaction and other fees from partnerships. Increased sales and
refinancing activities resulted in an increase in transaction and other fees
in 1998 compared to 1997.
Rental income increased in 1998 from 1997, primarily as a result of the
Company's re-evaluation of the amounts to be realized from its real estate
lease interests and a higher occupancy level at the properties.
In 1998, the Company finalized settlement agreements that allow DVL to
realize cash proceeds that exceed the carrying value on previously reserved
limited partner notes receivable. As a result, in the first quarter of 1998,
DVL has reflected a recovery in the provision for losses of $(131,000).
General and administrative expense ("G&A") combined with the NPO asset
servicing fees decreased in 1998 as compared to 1997 primarily due to
reductions in consulting costs, partially offset by increases in payroll and
payroll related costs. Legal and professional fees in 1998 were lower than the
amount for 1997, as a result of the settlement of substantially all of DVL's
litigation.
Interest expense in 1998 declined from 1997 (exclusive of interest on
notes issued in settlement of the shareholder litigation) due to paydowns and
settlements of long-term debt obligations. Interest on notes issued in
settlement of the shareholder litigation is paid in the form of additional
notes, and does not represent a current cash obligation.
10
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
DVL's cash flow for operations is generated principally from management
fees from the operation of partnerships and transaction and other fees received
as a result of the sale and/or refinancing of partnership properties and
mortgages. DVL's portfolio of loans to affiliated partnerships currently does
not produce cash flow for operations because the cash received from the
mortgages is used to pay the debt service on liens on the properties senior to
those held by DVL, with any excess being used to pay principal and interest on
the NPM Loan based on the collateral interest in said mortgages held by NPM
Capital LLC ("NPM"), and by certain other creditors.
As a result of the above factors, DVL continues to experience liquidity
problems. To enable DVL to meet its short-term operating needs, DVL must
continue to augment its cash flow with the proceeds from the sale or
refinancing of assets and borrowings. There still remains some risk that DVL
may not be able to raise the necessary funds with which to continue operations.
Thus, DVL's ability to continue as a going concern is dependent upon the four
factors referred to in Note 1(B) of the Notes to Consolidated Financial
Statements (unaudited) included in Part I of this Report.
Part II - Other Information
Item 2. Change in Securities
--------------------
The information set forth in Note 4 [Shareholders' Equity] of the
Notes to the Financial Statements, regarding the issuance of stock in February
1998, in connection with the debt tender offer, is incorporated by reference
herein in response to this Item 2.
Item 5. Other Information
-----------------
The information set forth in Note 3 [Debt Tender Offer] of the Notes
to the Financial Statements, regarding the completion by DVL, in February 1998,
of a cash tender offer for its 10% Redeemable Promissory Notes due December 31,
2005, is incorporated by reference herein in response to this Item 5.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) There were no reports on Form 8-K filed during the three months ended
March 31, 1998.
(B) Exhibits:
27 - Financial Data Schedule
11
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DVL, INC.
By: /s/ GARY FLICKER
______________________________
Gary Flicker, Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
May 14, 1998
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 422
<SECURITIES> 0
<RECEIVABLES> 21,815
<ALLOWANCES> 8,589
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,966
<CURRENT-LIABILITIES> 0
<BONDS> 11,484
<COMMON> 166
0
1
<OTHER-SE> 5,087
<TOTAL-LIABILITY-AND-EQUITY> 18,966
<SALES> 0
<TOTAL-REVENUES> 531
<CGS> 0
<TOTAL-COSTS> 506
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (131)
<INTEREST-EXPENSE> 435
<INCOME-PRETAX> (279)
<INCOME-TAX> 0
<INCOME-CONTINUING> (279)
<DISCONTINUED> 0
<EXTRAORDINARY> 202
<CHANGES> 0
<NET-INCOME> (77)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
