<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, 2000
-------------------------------------------
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
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(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
70 East 55th Street, New York, New York 10022
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 350-9900
--------------
- --------------------------------------------------------------------------------
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 10, 2000
- ----------------------------- --------------------------------
Common Stock, $.01 par value 16,560,450
<PAGE>
DVL, INC. AND SUBSIDIARIES
INDEX
Part I. Item 1 - Financial Information: Page No.'s
----------
Consolidated Balance Sheets -
March 31, 2000 (unaudited) and December 31, 1999 1-2
Consolidated Statements of Operations -
Three Months Ended March 31, 2000 (unaudited)
and 1999 (unaudited) 3-4
Consolidated Statement of Shareholders' Equity for
the three months ended March 31, 2000 (unaudited) 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 (unaudited)
and 1999 (unaudited) 6-7
Notes to Consolidated Financial Statements (unaudited) 8-12
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-18
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 19
Signatures 19
Exhibit Index 20
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2000 1999
------------- -------------
ASSETS (unaudited)
- ------
Loans receivable (including amounts maturing
after one year)
Affiliates:
Mortgages due from affiliated partnerships $ 59,062 $ 48,038
Unearned interest (13,291) (5,810)
-------- --------
Net mortgage loans receivable from affiliated
partnerships 45,771 42,228
Others:
Non-performing loans collateralized by limited
partnership interests 426 764
Due from affiliated partnerships 14 48
-------- --------
Total loans receivable 46,211 43,040
Allowance for loan losses 6,390 6,697
-------- --------
Net loans receivable 39,821 36,343
Cash (including restricted cash of $81 for 2000
and 1999 1,791 1,270
Distributions and fees due from affiliated
partnerships 239 -
Investments
Real estate at cost 506 494
Real estate lease interests 1,317 1,351
Affiliated limited partnerships (net of allowance
for loss of $919 and $927, respectively) 1,319 1,326
Other investments (net of allowance for loss of
$400 for 2000 and 1999) 648 648
Prepaid financing and other assets 523 426
-------- --------
Total assets $ 46,164 $ 41,858
======== ========
See notes to consolidated financial statements.
1
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) except share data
March 31, December 31,
2000 1999
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Underlying mortgages payable $ 29,566 $ 27,692
Long-term debt - Blackacre Bridge Capital, LLC 1,925 1,868
Long-term debt - Other 2,731 285
Notes payable - litigation settlement 3,101 3,003
Asset Service Fee Payable - NPO 1,521 1,467
Accounts payable, security deposits and
accrued liabilities 355 475
-------- --------
Total liabilities 39,199 34,790
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized
- 100 shares for 2000 and 1999,
issued - 100 shares for 2000 and 1999 1 1
Preferred stock, $.01 par value, authorized 5,000,000
shares for 2000 and 0 shares for 1999, issued - 0
shares for 2000 and 1999 - -
Common stock, $.01 par value, authorized -
90,000,000 shares for 2000 and 40,000,000 shares
for 1999, issued - 16,560,450 shares for 2000 and
1999 166 166
Additional paid-in capital 95,288 95,288
Deficit (88,490) (88,387)
-------- --------
Total shareholders' equity 6,965 7,068
-------- --------
Total liabilities and shareholders' equity $ 46,164 $ 41,858
======== ========
See notes to consolidated financial statements.
2
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DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
Three Months Ended
March 31,
2000 1999
---------- ----------
Income from affiliates:
Interest on mortgage loans $ 895 $ 1,103
Gain on satisfaction of mortgage loans -- 564
Partnership management fees 106 108
Transaction and other fees from partnerships -- 181
Distributions from investments 32 32
Rent and other income 2 9
Income from others:
Rent income 162 120
Management fees 50 24
Other income and interest 10 29
---------- ----------
1,257 2,170
---------- ----------
Operating expenses:
Interest on underlying mortgages 568 771
Recovery of provision for losses (5) --
General and administrative 326 355
Asset Servicing Fee - NPO Management LLC 150 150
Legal and professional fees 68 67
Interest expense
NPM Capital LLC -- 291
Blackacre Bridge Capital, LLC 66 81
Litigation Settlement Notes 124 132
NPO 55 67
Others 31 22
---------- ----------
1,383 1,936
---------- ----------
Operating (loss) income before extra-
ordinary gain (126) 234
Extraordinary gain on the settlements
of indebtedness 23 736
---------- ---------
Net (loss) income $ (103) $ 970
========== =========
(continued)
3
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DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(continued)
Three Months Ended
March 31,
2000 1999
---------- ----------
Basic (loss) earnings per share:
(Loss) income before extraordinary gain $ (.01) $ .01
Extraordinary gain .00 .04
---------- ----------
Net (loss) income $ (.01) $ .05
========== ==========
Diluted (loss) earnings per share:
(Loss) income before extraordinary gain $ (.01) $ .00
Extraordinary gain .00 .01
---------- ----------
Net (loss) income $ (.01) $ .01
========== ==========
Weighted average shares outstanding -
basic 16,560,450 16,560,450
Effect of dilutive securities -- 58,456,127
---------- ----------
Weighted average shares outstanding -
diluted 16,560,450 75,016,577
========== ==========
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except per share data)
Preferred Stock Common Stock Additional
--------------- -------------------- paid-in
Shares Amount Shares Amount capital Deficit Total
-------- ------ ----------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance-January 1, 2000 100 $ 1 16,560,450 $ 166 $ 95,288 $ (88,387) $ 7,068
Net (loss) - - - - - (103) (103)
------- ----- ---------- ------- ------- ------- -----
Balance-March 31, 2000 100 1 16,560,450 166 95,288 (88,490) 6,965
======= ===== ========== ======= ======= ======= ======
</TABLE>
5
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
(Loss) income before extraordinary gain $ (126) $ 234
Adjustments to reconcile net income (loss) before
extraordinary gains to net cash provided by (used in)
operating activities
Recovery of provision for losses (5) --
Accrued interest added to indebtedness 65 79
Gain on satisfactions of mortgage loans -- (564)
Amortization of unearned interest on loan receivables (13) (29)
Amortization of real estate lease interests 34 37
Amortization of debt discount -- 82
Imputed interest on notes 124 132
Amortization of deferred credits
Net (increase) decrease in other assets (94) 177
Net (decrease) in accounts payable and accrued
liabilities (120) (68)
Net increase in asset service fee payable - NPO 54 217
Net decrease in due from affiliated partnerships 34 6
Net (increase) in distributions and fees due from
affiliated partnerships (239) (217)
------- ------
Net cash (used in) provided by operating activities (286) 86
------- ------
Cash flows from investing activities:
Investments in loans receivable (1,526) --
Collections on loans receivable 399 4,254
Real estate capital improvements (15) --
Net decrease in affiliated limited partnership
interests and other investments 7 49
------- ------
Net cash (used in) provided by investing activities (1,135) 4,303
------- -----
</TABLE>
6
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DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from new borrowings $ 2,525 $ 588
Repayment of indebtedness (87) (1,611)
Payments on underlying mortgages payable (493) (2,931)
Payments related to debt tender offer (3) (196)
-------- --------
Net cash provided by (used in) financing activities 1,942 (4,150)
-------- --------
Net increase in cash 521 239
Cash, beginning of period 1,270 392
-------- --------
Cash, end of period $ 1,791 $ 631
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 568 $ 847
======== ========
Supplemental disclosure of non-cash investing and financing activities:
Net reduction of notes payable - debt tender offer $ 23 $ 736
======== ========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Basis of Presentation and Financial Condition
In the opinion of DVL, Inc. ("DVL"), the accompanying financial statements
contain all adjustments (consisting of only normal accruals) necessary in order
to present a fair presentation of the financial position of DVL and the results
of its operations for the periods set forth herein. The results of the Company's
operations for the three months ended March 31, 2000 should not be regarded as
indicative of the results that may be expected from its operations for the full
year. Certain amounts from the three months ended March 31, 1999 have been
reclassified to conform to the presentation for the three months ended March 31,
2000. For further information, refer to the consolidated financial statements
and the accompanying notes included in DVL's Annual Report on Form 10-K for the
year ended December 31, 1999.
DVL's cash in-flow generated by its mortgage portfolio is currently used
to pay the underlying first mortgages, and any excess has been used to fund
principal and interest payments to certain creditors. NPO Management LLC ("NPO")
has agreed to defer amounts due from its management agreement through December
31, 2000, unless DVL has sufficient cash to pay such amounts and fund its
operations through that date. DVL's anticipated cash flow provided by operations
is sufficient to meet its cash requirements, through January 2001, assuming that
no such payments are made to NPO.
In November 1992, DVL, Kenbee Management, Inc. ("Kenbee"), DVL's former
manager, and the limited partners of certain affiliated partnerships reached a
settlement in the limited partnership class action litigation ("Limited Partner
Settlement") and, concurrently with this settlement, DVL reached settlements
with a number of its creditors providing for the restructuring of a substantial
portion of DVL's indebtedness and loan guarantees. The Limited Partner
Settlement established a settlement fund into which DVL is required to deposit a
portion of its cash flow received from affiliated partnership mortgages and
other loans receivable from affiliated partnerships, as well as a contribution
of 5% of DVL's net income subject to certain adjustments in the years 2001 to
2012.
2. Loans Receivable/Long Term Debt
In March 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate owned by partnerships in which DVL
is the general partner. The loans were purchased for an aggregate price of
$1,210,000 plus closing costs, paid as follows: cash of $185,000, the issuance
of an unsecured promissory note in the amount of $75,000 to the seller of the
loans maturing on March 1, 2001 with no interest, and bank financing of
$1,000,000. This bank financing is a self amortizing loan that matures on April
1, 2005 with interest at the rate of prime plus 1.5% and requires payments to be
made from the net cash proceeds DVL will receive on these loans. The wrap
mortgage loans were previously owned by DVL and were transferred to the seller
in 1992 in settlement of indebtedness.
8
<PAGE>
In March 2000, the Company obtained bank financing in the amount of
$1,450,000 that is secured by the assignment of three existing mortgage
receivables and a mortgage receivable which was purchased from an entity that is
part of the Opportunity Fund (as defined below). The mortgage loan purchased
from the Opportunity Fund has a face amount of $405,000 and was purchased for
$315,000. The net proceeds of this loan was used to repay one existing
underlying mortgage of approximately $92,000 and the balance of the funds for
general purposes including the payment of accrued fees to NPO. This bank
financing is a self-amortizing loan that matures on April 1, 2005 with interest
at the rate of prime plus 1.5% and requires payments to be made from the net
cash proceeds DVL will receive on these loans.
3. Note Payable - Litigation Settlement/Debt Tender Offer
In December 1995, DVL completed its obligations under a 1993 settlement of
its class action litigation. The settlement, which was approved by the court in
1993, provided that DVL would issue the plaintiffs (1) 900,000 shares of DVL
common stock at a minimum price of $1.50 per share (or notes to cover any
deficiency in the event that aggregate market value was less than $1,340,000);
(2) $9 million face value of notes due in ten years, with interest at 10%
payable in kind for five years, callable after the third year and payable in the
tenth year in cash or with DVL common stock equal to 110% of the face value of
the notes (valued in 1993 at $3,690,000 by an independent investment banker) and
(3) $1.4 million plus interest at 3% from August 16, 1993 and expenses, payable
in cash or DVL common stock. In December 1995, DVL issued the 900,000 shares of
common stock and as a result of the deficiency in its market value, issued
additional notes with the same terms, in the face amount of $1,386,851 (valued
at $330,000 by DVL). In payment of the $1.4 million plus interest and expenses,
DVL issued 4,017,582 shares of common stock in December 1995.
In December 1995, DVL issued notes (the "Notes") in the aggregate principal
amount of $10,386,851 as a series in conjunction with the settlement agreed upon
in the DVL stockholder class action matter entitled IN RE DEL-VAL FINANCIAL
CORP. SECURITIES LITIGATION. The Notes, which are general unsecured obligations
of DVL, accrue interest at the rate of ten (10%) percent per annum, with
principal under the Notes, together with all accrued and unpaid interest
thereunder, due on December 31, 2005. Pursuant to the terms of the Notes,
accrued and unpaid interest payable on any of the first five anniversary dates
following the issuance of the Notes is payable, at the option of DVL, by the
issuance of similar additional Notes with a principal amount equal to the
accrued and unpaid interest obligation then due. On the four anniversary dates
following the issuance of the Notes, the Company satisfied its interest
obligations thereunder by issuing such additional Notes in lieu of payment of
any cash. The Company currently intends to issue additional Notes, rather than
make payments in cash, to satisfy its interest obligations under the Notes.
Since January 1, 1999, DVL may satisfy principal and interest obligations
under the Notes by issuing, in lieu of the payment of cash, shares of its Common
Stock with a then current market value equal to 110% of the principal and/or
interest obligation in question. It is therefore not possible to ascertain
currently the precise number of shares of Common Stock that would be issued by
DVL upon redemption of the Notes. DVL currently intends to exercise its
redemption option and issue to noteholders shares of DVL's Common Stock, in lieu
of the payment of any cash, in exchange for the Notes.
9
<PAGE>
From October 27, 1997 through February 27, 1998 (the "First Tender
Expiration Date"), the Company conducted a cash tender offer (the "First Offer")
for the Notes at a price of $0.12 per $1.00 principal amount of the Notes. The
Company purchased and retired a total of $6,224,390 principal amount of Notes in
the First Offer. An additional $392,750 principal amount of the Notes were
purchased by Blackacre Bridge Capital, LLC ("Blackacre"), an unaffiliated
entity, pursuant to the terms of the BC Arrangement (as defined below).
On February 26, 1999, the Company commenced a second cash tender offer (the
"Second Offer", and together with the First Offer, the "Offers") for its
outstanding Notes at a price of $0.12 per $1.00 principal amount of the Notes.
During the period from February 26, 1999 through May 14, 1999, the Company
purchased and retired a total of $2,413,652 principal amount of Notes. In
addition, $423,213 principal amount of the Notes were purchased by Blackacre,
pursuant to the terms of the BC Agreement. Notes with an aggregate principal
amount of approximately $4,252,000 remain outstanding as of March 31, 2000,
including those purchased by Blackacre.
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may be issued to redeem the
outstanding Notes. The redemption of the Notes may cause significant dilution
for current shareholders. The actual dilutive effect cannot be currently
ascertained since it depends on the number of shares to be actually issued to
satisfy the Notes. The Company currently intends to exercise at some point in
the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers.
The Offers effected a reduction in the Company's long-term debt and
resulted in extraordinary gains of $736,000 and $23,000 for the three months
ended March 31, 1999, and 2000, respectively. Furthermore, the Offers have
reduced the potential dilutive effect on the Company's current stockholders that
would result from redemption of the Notes for shares of Common Stock. However,
given the aggregate principal amount of Notes which remains outstanding, the
potential dilutive effect of such a redemption is still significant.
In order to fund the acquisition of the Notes and pay the related costs
and expenses, the Company entered into an amended financing arrangement (the "BC
Arrangement") with Blackacre, NPM and NPO as of October 20, 1997, in the form of
a Fourth Amendment to a Loan Agreement between such parties (as amended, the
"Amended Loan Agreement), permitting the Company to borrow up to $1,760,000 (the
amount actually borrowed by the Company pursuant to the BC Arrangement is
referred to as the "BC Loan"). The BC Loan matures on September 30, 2002 and
bears interest at the rate of 12% per annum compounded monthly payable at
maturity. Total borrowings under the BC Arrangement were $1,560,000 as of March
31, 2000. In addition, Blackacre is entitled to acquire 15% of all notes
acquired by the Company in excess of $3,998,000 under the same terms and
conditions as the Company. Blackacre acquired notes aggregating $392,750 under
these terms from the First Offer and $423,213 from the Second Offer.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
10
<PAGE>
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares issued to
Blackacre in connection therewith is approximately 14% per annum. Interest
payable in connection with the BC Loan will be deferred until the Company
satisfies all of its obligations owing to NPO. However, beginning April 27, 2000
the Company must pay principal payments of 15% of all proceeds that would
otherwise be remitted to NPO, to Blackacre. Thereafter, interest and principal
will be paid from 100% of the proceeds then available to the Company from the
mortgage collateral held as security for the BC Loan.
4. Other Transactions with Affiliates
A. Opportunity Fund
In April 1998, DVL, an affiliate of Blackacre, and affiliates of NPO
entered into a certain Agreement Among Members (the "Opportunity Agreement"),
providing for an arrangement (the "Opportunity Fund"), pursuant to which
entities would be formed, from time to time, to enter into certain transactions
involving the acquisition of limited partnership interests in the assets of, or
mortgage loans to, affiliated limited partnerships or other assets in which the
Company has an interest. These investment opportunities will be presented to the
Opportunity Fund on a first refusal basis, if the Company, due to financial
constraints, is unable to pursue such business opportunity with its own funds.
The Opportunity Fund is expected to pursue each Opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by Blackacre and the NPO affiliates. The Company will receive up
to 20% of the profits from an opportunity after Blackacre and the NPO affiliates
receive the return of their investment plus preferred returns ranging from 12%
to 20%.
B. In June 1998, the Company entered into an agreement to provide management
services to a limited partnership where certain of its partners are affiliates
of NPO and Blackacre. The agreement shall continue until the date that all these
partnerships' assets are sold or at any time prior with 30 days notice by either
party. As compensation, the Company earns an aggregate fee equal to (a) a
monthly fee of $5,000 plus (b) after all the partners of the partnership have
earned a 20% internal rate of return, compounded quarterly, on their capital
contributions an amount of cash equal to 25% of the profits, as defined in the
agreement. For the three months ended March 31, 2000 and 1999, the Company
received management fees equal to $15,000 each quarter.
C. In addition, the Company provides certain accounting and administrative
services to a limited partnership whose general partner is an affiliate of NPO.
For each of the three month periods ended March 31, 2000 and 1999, the Company
received $11,500 and $9,000 respectively.
D. Also, the Company entered into a property management agreement with an
entity that is part of the Opportunity Fund, pursuant to which the Company
provides property management services in exchange for fees equal to 3% of rent
collections. For the period ending March 31, 2000 the Company received
approximately $6,600. No fees were earned for the three months ended March 31,
1999.
11
<PAGE>
E. In November 1999, the Company entered into an agreement to provide
certain management services with an entity whose partners are affiliates of NPO,
to render certain accounting and administrative services. As compensation, the
Company receives a monthly fee of $2,000, a monthly deferred fee of $6,500 which
is payable upon either the occurrence of certain capital events or if a certain
level of annual cash flow is attained, and an annual incentive fee if certain
levels of profitability occur. For the three months ended March 31, 2000, the
Company was paid $6,000 and accrued fees of $19,500.
F. Millenium Financial Services, an affiliate of NPO, received $1,771 and
$7,642 for the three months ended March 31, 2000 and 1999 representing
compensation and reimbursement of expenses for collection services on limited
partner notes. For the three months ended March 31, 2000 and 1999, the Company
paid to Millenium Financial Services $25,000 each quarter, for professional
fees.
5. Shareholder's Equity
In February 2000, DVL amended its Certificate of Incorporation in order to
(a) increase the number of authorized shares of DVL's common stock, $.01 par
value, from 40,000,000 to 90,000,000 and (b) authorize 5,000,000 shares of
"blank check" preferred stock, $.01 par value.
12
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The March 31, 2000, Quarterly Report on Form 10-Q 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 DVL and its management team. DVL'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 and other risks and
uncertainties that are discussed herein and in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999.
Recent Debt Tender Offers
- -------------------------
From October 27, 1997 through February 27, 1998 (the "First Tender
Expiration Date"), the Company conducted a cash tender offer (the "First Offer")
for the Promissory notes (the "Notes") at a price of $0.12 per $1.00 principal
amount of the Notes. The Notes were originally issued in December 1995 in
conjunction with the settlement of a stockholder class action lawsuit. The
Company purchased and retired a total of $6,224,390 principal amount of Notes in
the First Offer. An additional $392,750 principal amount of the Notes were
purchased by Blackacre Bridge Capital, LLC ("Blackacre"), an unaffiliated
entity, pursuant to the terms of the BC Arrangement (as defined below).
On February 26, 1999, the Company commenced a second cash tender offer (the
"Second Offer", and together with the First Offer, the "Offers") for its
outstanding Notes at a price of $0.12 per $1.00 principal amount of the Notes.
During the period from February 26, 1999 through May 14, 1999, the Company
purchased and retired a total of $2,413,652 principal amount of Notes. In
addition, $423,213 principal amount of the Notes were purchased by Blackacre,
pursuant to the terms of the BC Agreement. Notes with an aggregate principal
amount of approximately $4,252,000 remain outstanding as of March 31, 2000,
including those purchased by Blackacre.
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may have to be issued to
redeem the outstanding Notes. The redemption of the notes may cause significant
dilution for current shareholders. The actual dilutive effect cannot be
currently ascertained since it depends on the number of shares to be actually
issued to satisfy the Notes. The Company currently intends to exercise at some
point in the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers.
13
<PAGE>
The Offers effected a reduction in the Company's long-term debt and
resulted in extraordinary gains of $736,000 and $23,000 for the three months
ended March 31, 1999 and 2000, respectively. Furthermore, the Offers have
reduced the potential dilutive effect on the Company's current stockholders that
would result from redemption of the Notes for shares of Common Stock. However,
given the aggregate principal amount of Notes which remains outstanding, the
potential dilutive effect of such a redemption is still significant.
In order to fund the acquisition of the Notes and pay the related costs
and expenses, the Company entered into an amended financing arrangement (the "BC
Arrangement") with Blackacre, NPM Capital LLC ("NPM") and NPO Management LLC
("NPO") as of October 20, 1997, in the form of a Fourth Amendment to a Loan
Agreement between such parties (as amended, the "Amended Loan Agreement),
permitting the Company to borrow up to $1,760,000 (the amount actually borrowed
by the Company pursuant to the BC Arrangement is referred to as the "BC Loan").
The BC Loan matures on September 30, 2002 and bears interest at the rate of 12%
compounded monthly per annum payable at maturity. Total borrowings under the BC
Arrangement were $1,560,000 as of March 31, 2000. In addition, Blackacre is
entitled to acquire 15% of all Notes acquired by the Company in excess of
$3,998,000 under the same terms and conditions as the Company. Blackacre
acquired Notes aggregating $392,750 under these terms from the First Offer and
$423,213 from the Second Offer.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares issued to
Blackacre in connection therewith, is approximately 14% per annum. Interest
payable in connection with the BC Loan will be deferred until the Company
satisfies all of its obligations owing to NPO. However, beginning April 27, 2000
the Company must pay principal payments of 15% of all proceeds that would
otherwise be remitted to NPO, to Blackacre. Thereafter, interest and principal
will be paid from 100% of the proceeds then available to the Company from the
mortgage collateral held as security for the BC Loan.
Opportunity Fund
- ----------------
In April 1998, DVL, an affiliate of Blackacre and affiliates of NPO entered
into a certain Agreement Among Members (the "Opportunity Agreement"), providing
for an arrangement (the "Opportunity Fund"), pursuant to which entities would be
formed, from time to time, to enter into certain transactions involving the
acquisition of limited partnership interests in the assets of, or mortgage loans
to, Affiliated Limited Partnerships or other assets in which the Company has an
interest. These investment opportunities will be presented to the Opportunity
Fund on a first refusal basis, if the Company, due to financial constraints, is
unable to pursue such business opportunity with its own funds.
14
<PAGE>
The Opportunity Fund is expected to pursue each opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by Blackacre and the NPO affiliates. The Company will receive up
to 20% of the profits from an opportunity after Blackacre and the NPO affiliates
receive a return of their investment plus preferred returns ranging from 12% to
20%.
In March 2000, the Company purchased from an entity that is part of the
Opportunity Fund a mortgage in the face amount of approximately $405,000 for the
sum of $315,000.
As of May 1, 2000 the Opportunity Fund has purchased 15 wrap mortgages of
Affiliated Limited Partnerships from unaffiliated third parties (seven were
purchased in 1998, one was purchased in 1999 and seven mortgages were purchased
in January 2000), acquired limited partnership units from unaffiliated
individuals in three Affiliated Limited Partnerships, and acquired a property
owned by an Affiliated Limited Partnership. In addition, during 1999, the
Opportunity Fund acquired the land underlying this property from DVL. The
Company performs management services for this entity and received fees of
approximately $6,600 for the quarter ended with March 31, 2000. No fees were
earned for the quarter ended March 31, 1999.
15
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999
- ----------------------------------------------------------------------------
DVL realized a net loss from operations of $126,000 for the three months
ended March 31, 2000 compared to net income of $234,000 for the three months
ended March 31, 1999. DVL realized a net loss of $103,000, after extraordinary
gains of $23,000, for the three months ended March 31, 2000 compared to net
income of $970,000, after extraordinary gains of $736,000, for the three months
ended March 31, 1999. Extraordinary gains resulted from debt settlements from
the Offers.
Interest income on mortgage loans from affiliates and interest expense on
underlying mortgages decreased from 1999 to 2000, as a result of a reduction in
DVL's mortgage portfolio.
During the first quarter of 1999, DVL recognized a gain on satisfaction of
mortgage loans of $564,000 and transaction and other fees of $181,000. The gain
resulted from the Company collecting net proceeds on the satisfaction of
mortgage loans that was greater than the net carrying value. Transaction fees
are earned in conjunction with the sales of partnership's properties and
refinancing of underlying mortgages. For the first quarter of 2000, DVL did not
recognize any aforementioned gains or transaction fees, as no such transactions
were consummated.
Rental income from others increased in 2000 from 1999 due to higher occupancy
at the real estate properties, as well as, higher rents.
Management fees from others increased from $24,000 in 1999 to $50,000 in
2000, as a result of a new management service agreement entered into in November
1999 with an entity whose partners are affiliates of NPO, to render certain
accounting and administrative services.
General and administrative expenses decreased in 2000 from 1999, primarily due
to a decrease in salaries and personnel related costs.
Interest expense due to NPM Capital, LLC was $291,000 in 1999 compared to $0
in 2000 since this loan was fully satisfied in May 1999.
16
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's cash flow from operations is generated principally from
rental income from its leasehold interests in real estate, management fees from
the operation of Affiliated Limited Partnerships and transaction and other fees
received as a result of the sale and/or refinancing of partnership properties
and mortgages. The Company's portfolio of loans to Affiliated Limited
Partnerships currently does not produce substantial cash flow from operations
because most of the cash received from the mortgages is used to pay the debt
service on mortgages on the properties senior to those held by the Company, with
any excess being used to pay certain other creditors, including NPO.
The Company is currently able to meet its operating expenses, other than the
management fee payable to NPO, with income from operations. The Company has in
the past, and expects in the future to augment its cash flow with the proceeds
from the sale or refinancing of assets and borrowings. NPO has agreed to waive
any events of default that may exist under its servicing agreements due to the
deferral of fees through December 31, 2000. As of May 1, 2000, the Company owed
approximately $740,000 to NPO. From January 1, 2000 through May 1, 2000, the
Company paid an aggregate of $1,000,000 to NPO as partial payment of amounts
due. Of this amount paid, $750,000 was paid out of proceeds from the refinancing
in March 2000 discussed below. DVL believes that its current liquid assets and
credit resources will be sufficient to fund operations both on a short term
basis as well as on a long term basis.
In 1997, the Company entered into the BC Loan with Blackacre, permitting
the Company to borrow up to $1,760,000 to fund the purchase of Notes, and to pay
related costs and expenses. A total of $1,060,000 had been borrowed as of the
expiration of the First Offer and an additional $500,000 was borrowed as of May
14, 1999 to fund the Second Offer. As further consideration for Blackacre's
providing the Company with the BC Loan, the Company issued to Blackacre 653,000
shares of Common Stock. The BC Loan matures on September 30, 2002 and bears
interest at the rate of 12% per annum. The effective rate to the Company for
financial reporting purposes, including the Company's costs associated with the
BC Loan, and the value of the 653,000 shares issued to Blackacre is
approximately 14%. Interest payable in connection with the BC Loan will be
payable in the form of the issuance of additional notes until the Company
satisfies all of its obligations owing to NPO. However, beginning April 27,
2000, the Company must pay principal payments of 15% of all proceeds that would
have otherwise been remitted to NPO, to Blackacre. Once NPO is paid in full,
interest and principal will be paid from 100% of the proceeds then available to
the Company from the mortgage collateral held as security for the BC Loan.
From January 1998 through May 1999, NPM advanced additional amounts
aggregating $370,000 to DVL to fund quarterly payments to a creditor of the
Company. These advances were not required under the original loan transaction
with NPM, consummated in September 1996 (the "Original Loan"). These advances
bore interest at 15% per annum and were paid pari passu with the Original Loan.
The Original Loan, together with all advances, are referred to in the aggregate
herein as the "NPM Loan". In May 1999, DVL paid all remaining outstanding
amounts due on the NPM Loan.
17
<PAGE>
In March 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by partnerships in
which DVL is the general partner. The loans were purchased for an aggregate
price of $1,210,000, plus closing costs, paid as follows: cash of $185,000, the
issuance of an unsecured promissory note in the amount of $75,000 to the seller
of the loans maturing on March 1, 2001 with no interest, and bank financing of
$1,000,000. This bank financing is a self amortizing loan that matures on April
1, 2005 with interest at the rate of prime plus 1.5% and requires payments to be
made from the net cash proceeds DVL will receive on these loans. The wrap
mortgage loans were previously owned by DVL and were transferred to the seller
in 1992 in settlement of indebtedness.
In March 2000, the Company obtained bank financing in the amount of
$1,450,000 that is secured by the assignment of three existing mortgage
receivables and a mortgage receivable which was purchased from an entity that is
part of the Opportunity Fund. The mortgage loan purchased from the Opportunity
Fund has a face amount of $405,000 and was purchased for $315,000. The net
proceeds of this loan was used to repay one existing underlying mortgage of
approximately $92,000 and the balance of the funds for general purposes
including the payment of accrued fees to NPO. This bank financing is a
self-amortizing loan that matures on April 1, 2005 with interest at the rate of
prime plus 1.5% and requires payments to be made from the net cash proceeds DVL
will receive on these loans.
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.
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 all 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 or the acquisition of mortgage loans.
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.
18
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(A) Exhibits:
11 - Statement RE: Computation of Earnings Per Share
27 - Financial Data Schedule
(B) There were no reports on Form 8-K filed during the three months ended
March 31, 2000.
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: _____________________________
Gary Flicker, Executive Vice
President and Chief Financial
Officer (Principal Financial and
Chief Accounting Officer)
May 11, 2000
19
<PAGE>
EXHIBIT INDEX
-------------
11 - Statement RE: Computation of Earnings Per Share - Three Months
27 - Financial Data Schedule
20
<PAGE>
EXHIBIT 11.
DVL, INC. and Subsidiaries
Computation of Earnings Per Share
(in thousands except share and per share data)
(unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
---------- ----------
(Loss) income before extraordinary gain $ (126) $ 234
Extraordinary gain 23 736
---------- ----------
Net (loss) income $ (103) $ 970
========== ==========
Weighted average number of common
shares outstanding - basic 16,560,450 16,560,450
Shares issuable upon exercise of
dilutive options and warrants -- 68,233,027
Less shares assumed repurchased -- (9,776,900)
---------- ----------
Weighted average number of common
shares outstanding - diluted 16,560,450 75,016,577
========== ==========
Basic earnings per share:
(Loss) income before extraordinary gain $ (.01) $ .01
Extraordinary gain .00 .04
---------- ----------
Net (loss) income $ (.01) $ .05
========== ==========
Diluted earnings per share:
Income before extraordinary gain $ (.01) $ .00
Extraordinary gain .00 .01
---------- ----------
Net (loss) income $ (.01) $ .01
========== ==========
21
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