- Quarterly Report (10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 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)

 (212) 350-9900
--------------------------------------------------------------------------------
 (registrant's telephone number, including area code)

(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. [X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer" "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No

The number of shares outstanding of the issuer's classes of common equity, as of August 14, 2009 was:

 Class Outstanding at August 14, 2009
 ----- ------------------------------

Common Stock, $.01 par value 44,770,345

DVL, INC. AND SUBSIDIARIES

INDEX

Part I. Financial Information:

 Item 1 - Financial Statements: Pages

 Consolidated Balance Sheets -
 June 30, 2009 (unaudited) and December 31, 2008 1 - 2

 Consolidated Statements of Operations -
 Three Months Ended June 30, 2009 (unaudited) and
 2008 (unaudited) 3

 Consolidated Statements of Operations -
 Six Months Ended June 30, 2009 (unaudited) and
 2008 (unaudited) 4 - 5

Consolidated Statement of Stockholder's Equity - Six Months Ended June 30, 2009 (unaudited) 6

Consolidated Statements of Cash Flows - Six Months Ended June 30, 2009 (unaudited) and 2008 (unaudited) 7 - 8

Notes to Consolidated Financial Statements (unaudited) 9 - 18

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 19 - 33

Item 3 - Quantitative and Qualitative Disclosures About Market Risk 34

Item 4 - Controls and Procedures 34 - 35

Part II. Other Information:

Item 1. Legal Proceedings 36

Item 1A. Risk Factors 36

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 36

Item 3. Defaults Upon Senior Securities 36

Item 4. Submission of Matters to a Vote of Security Holders 36

Item 5. Other Information 36

Item 6 - Exhibits 36 - 42

Signature 43

Part I - Financial Information

Item 1. Financial Statements

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

 June 30, December 31,
 2009 2008
 ------------ ------------
 (unaudited)
ASSETS

Residual interests in securitized portfolios $ 47,035 $ 45,789
 ------------ ------------

Mortgage loans receivable from affiliated partnerships (net
of unearned interest of $4,650 for 2009 and $5,181 for 2008) 13,844 14,279

 Allowance for loan losses (2,305) (2,180)
 ------------ ------------
 Net mortgage loans receivable 11,539 12,099
 ------------ ------------
Cash 1,733 496

Investments

 Real estate at cost (net of accumulated depreciation and
 amortization of $1,476 for 2009 and $1,353 for 2008) 8,810 8,927

 Affiliated limited partnerships (net of allowance for
 losses of $448, for 2009 and 2008) 657 657

Net deferred tax asset 2,257 2,257

Other assets 2,479 2,637

Assets of discontinued operations 1,505 2,203
 ------------ ------------
Total assets $ 76,015 $ 75,065
 ============ ============

(continued)

See notes to consolidated financial statements.

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)

(continued)

 June 30, December 31,
 2009 2008
 ------------ ------------
 (unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:

 Notes payable - residual interests $ 34,090 $ 34,172
 Underlying mortgages payable 3,126 3,626
 Debt - other 11,755 11,195
 Debt - affiliates 1,339 1,527
 Interest rate swap 202 231
 Redeemed notes payable - litigation settlement 770 775
 Security deposits, accounts payable and accrued
 liabilities (including deferred income of $341
 for 2009 and $21 for 2008) 738 616
 Liabilities of discontinued operations 4 --
 ------------ ------------
 Total liabilities 52,024 52,142
 ------------ ------------

 Commitments and contingencies

 Stockholders' equity:
 Preferred stock, $10.00 par value, authorized, issued
 and outstanding 100 shares 1 1
 Preferred stock, $.01 par value, authorized 5,000,000
 shares, issued and outstanding -0- -- --
 Common stock, $.01 par value, authorized - 90,000,000
 shares, issued and outstanding 44,770,345 for 2009 and
 2008 448 448
 Additional paid-in capital 97,003 97,003
 Deficit (73,259) (74,298)
 Accumulated other comprehensive loss (202) (231)
 ------------ ------------
 Total stockholders' equity 23,991 22,923
 ------------ ------------

 Total liabilities and stockholders' equity $ 76,015 $ 75,065
 ============ ============

See notes to consolidated financial statements.

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

(unaudited)

 Three Months Ended
 June 30,
 ---------------------
 2009 2008
 -------- --------
Income from affiliates:

 Interest on mortgage loans $ 585 $ 509
 Gain on satisfaction of mortgage loans -- 365
 Partnership management fees 56 63
 Management fees 13 18
 Transaction and other fees from partnerships 1 39
 Distributions from partnerships 30 42

Income from others:

 Interest income - residual interests 1,541 1,476
 Net rental income (including depreciation and
 amortization of $46 for 2009 and $45 for 2008) 117 106
 Other income and interest 4 22
 -------- --------
 2,347 2,640
 -------- --------

Operating expenses:
 General and administrative 291 362
 Asset servicing fee - NPO Management LLC 196 195
 Legal and professional fees 86 66
 Provision for loan losses 25 50

Interest expense:

 Underlying mortgages 61 88
 Notes payable - residual interests 676 722
 Affiliates 41 45
 Others 212 295
 -------- --------
 1,588 1,823
 -------- --------

Income from continuing operations before income tax expense 759 817

Income tax expense (33) (179)
 -------- --------
Income from continuing operations 726 638

Loss from discontinued operations - net of tax of $-0- in
 both periods (64) (70)
 -------- --------
Net income $ 662 $ 568
 ======== ========

(continued)

See notes to consolidated financial statements.

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)

(unaudited)

 Six Months Ended
 June 30,
 ---------------------
 2009 2008
 -------- --------
Income from affiliates:

 Interest on mortgage loans $ 1,129 $ 1,125
 Gain on satisfaction of mortgage loans -- 999
 Partnership management fees 109 124
 Management fees 30 37
 Transaction and other fees from partnerships 26 88
 Distributions from partnerships 106 54

Income from others:

 Interest income - residual interests 3,083 2,964
 Net rental income (including depreciation and
 amortization of $96 for 2009 and $93 for 2008) 159 267
 Other income and interest 25 38
 -------- --------
 4,667 5,696
 -------- --------

Operating expenses:
 General and administrative 747 762
 Asset servicing fee - NPO Management LLC 391 383
 Legal and professional fees 159 172
 Provision for loan losses 125 100

Interest expense:

 Underlying mortgages 125 187
 Notes payable - residual interests 1,365 1,472
 Affiliates 86 97
 Others 556 568
 -------- --------
 3,554 3,741
 -------- --------

Income from continuing operations before income tax expense 1,113 1,955

Income tax expense (33) (243)
 -------- --------
Income from continuing operations 1,080 1,712

Loss from discontinued operations - net of tax of $-0- in
 both periods (41) (171)
 -------- --------
Net income $ 1,039 $ 1,541
 ======== ========

(continued)

See notes to consolidated financial statements.

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

(continued)

 Three Months Ended Six Months Ended
 June 30, June 30,
 -------------------------------- --------------------------------
 2009 2008 2009 2008
 -------------- -------------- -------------- --------------
Basic earnings per share:

 Income from continuing operations $ .01 $ .01 $ .02 $ .04
 Loss from discontinued operations .00 .00 .00 .00
 -------------- -------------- -------------- --------------
 Net Income $ .01 $ .01 $ .02 $ .04
 ============== ============== ============== ==============

Diluted earnings per share:

 Income from continuing operations $ .01 $ .01 $ .02 $ .04
 Loss from discontinued operations .00 .00 .00 .00
 -------------- -------------- -------------- --------------
 Net Income $ .01 $ .01 $ .02 $ .04
 ============== ============== ============== ==============

Weighted average shares outstanding - basic 44,770,345 45,292,845 44,770,345 45,289,442
Effect of dilutive securities 27,500 121,097 27,500 104,885
 -------------- -------------- -------------- --------------
Weighted average shares outstanding - diluted 44,797,845 45,413,942 44,797,845 45,394,327
 ============== ============== ============== ==============

See notes to consolidated financial statements.

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except share data)

 Accumulated
 Preferred Stock Common Stock Additional Other
 ---------------- -------------------- Paid - In Comprehensive Comprehensive
 Shares Amount Shares Amount Capital Deficit Income (Loss) Total Income
 ------ ------ ---------- ------ ------- ------- ------------- ------- ------
Balance - January 1, 2009 100 $ 1 44,770,345 $ 448 $97,003 $(74,298) $(231) $22,923 $ --

Unrealized gain on valu-
 ation of interest rate
 swap agreement -- -- -- -- -- -- 29 29 29

Net income -- -- -- -- -- 1,039 -- 1,039 1,039
 ------ ------ ---------- ------ ------- -------- ----- ------- ------
Balance - June 30, 2009 100 1 44,770,345 $ 448 $97,003 $(73,259) $(202) $23,991 $1,068
 ====== ====== ========== ====== ======= ======== ===== ======= ======

See notes to consolidated financial statements

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

(unaudited)

 Six Months Ended
 June 30,
 --------------------
 2009 2008
 -------- --------

Cash flows from operating activities:

 Continuing operations:
 Income from continuing operations $ 1,080 $ 1,712
 Adjustments to reconcile income to net cash used in
 operating activities from continuing operations
 Interest income deducted from residual interests 270 1,034
 Accrued interest subtracted from indebtedness (2) (10)
 Gain on satisfaction of mortgage loans -- (999)
 Depreciation 123 94
 Provision for loan losses 125 100
 Amortization of unearned interest on loan receivables (531) (1,920)
 Net decrease in deferred tax asset -- 178
 Net decrease (increase) in other assets 226 (209)
 Net decrease in accounts payable, security deposits
 and accrued liabilities (133) (136)
 Net increase in deferred income 255 361
 -------- --------
 Net cash provided by continuing operations 1,413 205
 -------- --------

Discontinued operations:
 Loss from discontinued operations (41) (171)
 Gain on sale of discontinued asset (120) --
 Net decrease (increase) in assets and liabilities of
 discontinued operations 227 (120)
 -------- --------
 Cash provided by (used in) discontinued operations 66 (291)
 -------- --------
 Net cash provided by operating activities 1,479 (86)
 -------- --------

 (continued)

See notes to consolidated financial statements

DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

(unaudited)

(continued)

 Six Months Ended
 June 30,
 ---------------------
 2009 2008
 -------- --------
Cash flows from investing activities:

 Collections on loans receivable $ 966 $ 4,066
 Real estate acquisitions and capital improvements (6) (102)
 Net proceeds from sale of discontinued assets 595 --
 -------- --------
 Net cash provided by investing activities 1,555 3,964
 -------- --------

Cash flows from financing activities:

 Proceeds from new borrowings 6,450 4,050
 Principal payments on debt (6,076) (4,129)
 Payments of prepaid financing costs (68) --
 Payments on underlying mortgages payable (500) (1,009)
 Payments on notes payable - residual interest (1,598) (2,136)
 Payments related to debt redemptions (5) --
 -------- --------
 Net cash used in financing activities (1,797) (3,224)
 -------- --------

Net increase in cash 1,237 654
Cash, beginning of period 496 1,028
 -------- --------

Cash, end of period $ 1,733 $ 1,682
 ======== ========

Supplemental disclosure of cash flow information:

Cash paid during the period for interest $ 1,925 $ 2,153
 ======== ========

Cash paid for income taxes $ 20 $ 123
 ======== ========

Supplemental disclosure of non-cash investing and
 financing activities:
 Residual interests in securitized portfolios -
 increase/(decrease) $ 1,516 $ (1,153)
 ======== ========
 Notes payable - residual interests -
 increase/(decrease) $ 1,516 $ (1,153)
 ======== ========

See notes to consolidated financial statements.

DVL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in thousands unless otherwise noted

(except share and per share amounts)

1. Basis of Presentation

In the opinion of DVL, Inc. ("DVL" or the "Company"), the accompanying consolidated financial statements contain all adjustments (consisting of only normal accruals) necessary in order to present a fair presentation of the consolidated financial position of DVL and the consolidated results of its operations for the periods set forth herein. The results of the Company's operations for the six months ended June 30, 2009 should not be regarded as indicative of the results that may be expected from its operations for the full year. 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, 2008. The Company has evaluated subsequent events through August 14, 2009 and determined that no disclosure is required.

2. Reclassifications

Certain amounts from 2008 have been reclassified to conform to the 2009 presentation.

3. Residual Interests in Securitized Portfolios

In accordance with the purchase agreements entered into with respect to the residual interests from the acquisition dates through June 30, 2009, the residual interest in securitized portfolios and the notes payable were increased by a total of approximately $8,096 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. Permanent impairments are recorded immediately through results of operations. Favorable changes (increases) in future cash flows are recognized through results of operations as interest over the remaining life of the retained interest.

The Company's wholly owned subsidiary, S2 Holdings, Inc. ("S2"), owns 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") which own five securitized receivable pools. Receivables II A, and Receivables II B, are consolidated into S2 for financial statement reporting purposes.

The Company considered Financial Accounting Standards Board Interpretation No. 46R "Consolidation of Variable Interest Entities" when consolidating S2's ownership of its member interests. The Company determined that S2's member interests do not meet the definition of variable interest entities.

4. Real Estate

The Company currently owns eight buildings totaling 347,000 square feet on eight and one half acres located in an industrial park in Kearny, NJ leased to various unrelated tenants (the "Owned Site"). The Owned Site represents a portion of the Passaic River Development area designated for redevelopment by the town of Kearny, New Jersey (the "Property"). The Company continues to lease such Property to multiple tenants and currently receives a positive cash flow from the Property until such time as it can redevelop the Property as described below.

In connection with the redevelopment of the Property, on December 11, 2007, DVL, and its wholly owned subsidiary, DVL Kearny Holdings, LLC ("DVL Holdings"), entered into a Redeveloper Agreement (the "Redeveloper Agreement") with the Town of Kearny, a body corporate and politic of the state of New Jersey, County of Hudson (the "Town of Kearny"). Pursuant to the Redeveloper Agreement, the Town of Kearny has agreed to designate DVL and DVL Holdings (collectively, the "Redeveloper") as the redeveloper of the Property, a substantial portion of which is currently owned by the Redeveloper. Pursuant to the Redeveloper Agreement, the Redeveloper is obligated to redevelop the Property, at its expense, in accordance with the plans and specifications described therein, subject to review and approval of the Planning Board of the Town of Kearny. The initial plans and specifications provide for the development of up to approximately 150,000 square feet of retail space.

The term of the Redeveloper Agreement along with the Redeveloper's rights thereunder, automatically expire on December 31, 2009 unless extended in writing by the Town of Kearny. If the Redeveloper is in default of any terms or conditions of the Redeveloper Agreement and does not cure within the appropriate time as set forth in the agreement (to the extent that a cure period is provided for such default), the Town of Kearny is afforded a number of rights including the right to terminate the Redeveloper Agreement.

The payment obligations and the completion of all work to be performed by the Redeveloper under the Redeveloper Agreement are jointly and severally guaranteed by Alan Casnoff, the President of the Company, and Lawrence J. Cohen, a stockholder and affiliate of the Company. Messrs. Casnoff and Cohen are principals of P&A Associates and Pemmil Management, LLC ("Pemmil"), respectively, which have entered into a Developer Services Agreement with the Company with respect to the development of the Property, as described below. The Company has agreed to indemnify Messrs. Cohen and Casnoff from any liability related to the Redeveloper Agreement.

The Developer Services Agreement (the "Developer Services Agreement") with P&A Associates and Pemmil (collectively the "Developer") provides that the Developers will provide services with respect to the development, construction and leasing of the Property. The Developer's obligations under the Developer Services Agreement terminates upon the substantial completion of construction and occupancy by the tenants of at least 95% of the retail space to be developed on the Property.

Pursuant to the Developer Services Agreement, the Developer will be paid a development fee of 4% of all project costs associated with the development of the Property (excluding financing costs) as specified in the Developer Services Agreement. Additionally, the Developer will be paid 20% of the net cash flow generated by the project as a result of operations, refinancing and/or sale after the Redeveloper receives from operations a 15% return on its net cash investment and in the event of a refinancing or sale, the return of its net cash investment plus a 15% return on such investment.

If the Developer is in default of any terms or conditions of the Developer Services Agreement and does not cure within the appropriate time as set forth in the agreement (to the extent that a cure period is provided for such default), the Company is afforded a number of rights including the right to terminate the Developer Services Agreement.

The Company has capitalized costs of $1,086 and $856 at June 30, 2009 and at December 31, 2008, respectively related to expenses of the project.

On January 21, 2009, DVL Holdings entered into a Mortgage, Security Agreement and Assignment of Leases and Rents (the "Agreement") with an unaffiliated third party bank lender (the "Lender") in connection with the loan by the Lender to the Company of an aggregate amount of up to $6,450 (the "Principal Amount") pursuant to certain mortgage notes in the amount of $4,250 (the "First Note") and $2,200 (the "Second Note" and collectively with the First Note, the "Notes"). DVL Holdings borrowed $4,250 pursuant to the First Note and such funds were used to repay the outstanding borrowings under a prior construction loan agreement. Borrowings under the Second Note will be advanced by the Lender in the future upon the satisfaction of certain conditions specified in such Note and such funds will be used in accordance with the terms of the Agreement and Second Note. The principal amount to be borrowed under the Second Note must be repaid to the Lender in the event such funds are not used as provided in the Agreement and the Second Note. The principal amount outstanding under the Notes bear interest at an annual rate equal to the greater of (i) six percent or (ii) one percent plus the prime rate of interest designated by the Lender as it's prime rate. Interest is payable on a monthly basis. All outstanding principal together with accrued and unpaid interest is due on January 21, 2011 (the "Maturity Date") with the option of DVL Holdings to extend the Maturity Date to January 21, 2012 if certain terms and conditions are met as specified in the Notes. The principal amounts of the Notes may be prepaid without penalty. In addition, if certain income levels are not achieved by April of 2010, the First Note must be paid down by $700 in accordance with the Agreements.

Pursuant to the Agreement, DVL Holdings has granted to the Lender a mortgage and security interest in the Owned Site and any additional property acquired by DVL Holdings for the redevelopment project that becomes subject to the lien of the mortgage under the Agreement including certain other property as specified in the Agreement (hereinafter all references to the "Property" refer to the Owned Site and such additional properties) and an assignment of the leases and rents with respect to the Property. In addition, all obligations under the Notes and the Agreement are guaranteed by the Company pursuant to a guaranty dated January 21, 2009 from the Company in favor of the Lender.

Pursuant to the terms of the Redeveloper Agreement, the Property is to be redeveloped by DVL Holdings under the Redeveloper Agreement. The use of the Property is subject to the terms of the Redeveloper Agreement and the assignment and assumption of the Redeveloper Agreement to or by the Lender in the event of exercising their remedies upon the occurrence of an event of default under the Agreement and the Notes, subject to the terms and provisions of the Redeveloper Agreement. In connection with the purchase of certain additional property comprising part of the Property, the mortgage pursuant to the Agreement will also cover such property.

The Agreement and the Notes contain customary terms and provisions, including default provisions. In addition to the customary default provisions, it is an event of default under the Notes (i) if a default has occurred and continues beyond applicable notice and cure periods under the Redeveloper Agreement, (ii) generally, if DVL Holdings fails to acquire certain additional property in connection with the redevelopment and the principal amount borrowed under the Second Note is not repaid to the Lender, (iii) if the Redeveloper Agreement is amended without the prior written consent of the Lender, or (iv) if a certain lease (as specified in the Agreement) of a portion of the redeveloped property is terminated or has not been modified or replaced with a new tenant in accordance with the terms of the Agreement, unless DVL Holdings and the Company deliver additional cash collateral or pay down the First Note in accordance with the Agreement.

In order to undertake and complete the redevelopment of the Property, DVL Holdings and the Company will need to obtain additional construction financing and, potentially additional loan or equity financing, and given current economic conditions, there can be no assurance that any such additional financing will be obtained on acceptable terms or at all. Additionally, given the current economic conditions there can be no assurance that the redevelopment will occur in the five year period required under the Redevelopment Agreement or at all.

The Company also owns 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.

During 2008, the Company, through direct ownership or through its investment in various limited partnerships, foreclosed on five Affiliated Limited Partnerships for nonpayment of amounts due on mortgage loans and took title to the five vacant Wal-Mart stores. At the time of the foreclosure, the five mortgages had a combined carrying value of $1,776. The five stores are included in the Company's real estate held at cost, for lease or sale. In 2009, the Company entered into an agreement to sell one of the vacant stores for $600 and reclassified its carrying value to discontinued operations. The agreement to sell was never consummated.

Discontinued Operations

(1) 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, (the "owners") pursuant to which the leasehold was cancelled in consideration of the owners 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 addition DVL owns a 8.25% limited partner interest in each of these partnerships. DVL will also receive a percentage of the net sales proceeds. As of June 2009, the sale has not yet been consummated and the third party continues to lease space. The total expenses to be reimbursed to DVL are approximately $685 as of June 30, 2009 not including the $50 fee or any amounts to be received as a limited partner. Activity related to the real estate lease interest is included in discontinued operations. DVL sued the prior tenants of the Property for environmental contamination and has received $400 toward the cleanup costs for the Property.

(2) The Company owns 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.

As of June 30, 2009, the Company has capitalized approximately $1,000 of environmental remediation costs in connection with the cleaning of the site. The Company anticipates that it will eventually recover a substantial portion of the capitalized remediation costs on the property through the net proceeds received from any potential future sale and reimbursement from certain companies that it believes dumped chemicals on the site. Litigation on this issue is proceeding through the judicial system. However, the Company's ability to recover such costs depends on many factors, including the outcome of litigation and there can be no assurance that the Company will recover all of the costs of such remediation within the foreseeable future or at all. Such inability to recover all of such remediation costs could have an adverse effect on the Company's financial condition. The Company currently accounts for the property as an "asset from discontinued operations" in its consolidated financial statements at a carrying value of $747 after recording a provision for losses of $350.

(3) During 2008, the Company foreclosed on two affiliated limited partnerships for nonpayment of amounts due on mortgage loans and took title to the two vacant former Wal-Mart stores. At the time of the foreclosure, the two had a combined carrying value of $696. During December, 2008, the Company sold one of the former Wal-Mart stores and received net proceeds of $220. During February, 2009, the Company sold the second former Wal-Mart store and received net proceeds of $594. In 2009, the Company entered into an agreement to sell one of the vacant Wal-Mart stores previously considered to be real estate assets for $600 and reclassified its carrying value to discontinued operations. The agreement to sell was never consummated.

5. Transactions with Affiliates

Management Fee Income Earned

The Company has provided management, accounting, and administrative services to certain entities which are affiliated with NPO Management, LLC ("NPO") which are entities engaged in real estate lending and management transactions and are affiliated with certain stockholders and insiders of the Company. The fee income from the management service contract is as follows:

 Fee Income For Fee Income For Fee Income For Fee Income For
The Three Months The Three Months The Six Months The Six Months
 Ended Ended Ended Ended
 06/30/09 06/30/08 06/30/09 06/30/08
 -------- -------- -------- --------
 $ 13 $ 18 $ 30 $ 37

Management and Other Fees and Expenses Incurred

A. The Company recorded fees to NPO of $391 and $383 for the six months June 30, 2009 and 2008, respectively, under an Asset Servicing Agreement (the "Asset Servicing Agreement") between the Company and NPO, pursuant to which NPO provides the Company with asset management, advisory and administrative services relating to the assets of the Company and its Affiliated Limited Partnerships. During 2009 and 2008 the Company provided office space required under the Asset Servicing Agreement to NPO consisting of approximately 500 square feet of the Company's New York location.

B. Millennium Financial Services, an affiliate of NPO, received fees from the Company representing compensation for collection services and reimbursement for other services provided to the Company as follows:

Fees Recorded Fees Recorded For Fees Recorded Fees Recorded
 For The The For The For The
Three Months Three Months Six Months Six Months
 Ended Ended Ended Ended
 06/30/09 06/30/08 06/30/09 06/30/08
 -------- -------- -------- --------
 $ 27 $ 27 $ 54 $ 54

C. Interest expense on amounts due to affiliates was as follows:

 Three Months Three Months Six Months Six Months
 Ended Ended Ended Ended
 06/30/09 06/30/08 06/30/09 06/30/08
 -------- -------- -------- --------
Pemmil Funding $ 41 $ 45 $ 86 $ 97

6. Contingent Liabilities

During the six months ended June 30, 2009 and 2008 the Company expensed approximately $71 and $40, respectively, during each period, for amounts due to the Limited Partnership Settlement Fund, of which $5 and $23 was accrued at June 30, 2009 and 2008, respectively. These costs have been netted against the interest on mortgage loans.

7. Stockholder's Equity

In July 2008, the Company purchased 522,500 shares of its common stock, par value $0.01 per share, for a total purchase price of $63 or $0.12 per share, in a privately negotiated transaction with an unaffiliated seller.

8. Cash Flow Hedges

The Company uses derivatives to manage risks related to interest rate movements. Interest rate swap contracts designated and qualifying as cash flow hedges are reported at fair value. In accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (the "Statement"), as amended by SFAS No. 138 and SFAS No. 149, the Company established accounting and reporting standards for derivative instruments. Specifically, the Statement requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those in-struments at fair value. Changes in the fair value of those instruments designated as cash flow hedges are recorded in other comprehensive income, to the extent the hedge is effective, and in the results of operations, to the extent the hedge is ineffective or no longer qualifies as a hedge.

During September 2008, the Company entered into an interest rate swap agreement related to one of their loans. Valued separately, the interest rate swap agreement represents a liability as of June 30, 2009 and December 31, 2008, in the amount of $193 and $231 respectively. During April 2009, the Company entered into an interest rate swap agreement related to another of their loans. Valued separately, the interest rate swap agreement represents a liability as of June 30, 2009, in the amount of $9. This value represents the fair value of the current difference in interest paid and re- ceived under the swap agreement over the remaining term of the agreement. Because the swaps are considered to be a cash flow hedge and they are effective, the value of the swaps are recorded in the Consolidated Statements of Stockholders' Equity as a sep- arate component and represents the only amount reflected in accumulated other compre- hensive loss. Changes in the swaps fair value are reported currently in other compre- hensive loss. Payments are recognized in current operating results as settlements occur under the agreement as a component of interest expense.

The following table summarizes the notional values of the Company's derivative financial instruments. The notional value provides an indication of the extent of the Company's involvement in these instruments on June 30, 2009, but does not rep- resent exposure to credit, interest rate or market risks.

 Hedge Type Notional Value Rate Termination Date Fair Value
 ---------- -------------- ---- ---------------- ----------

Interest rate swap $ 3,740 5.94% July 1, 2011 $ (193)
 agreement

Interest rate swap $ 2,161 6.09% February 1, 2014 $ (9)
 Agreement

RESTRICTION ON CERTAIN TRANSFERS OF COMMON STOCK: Each share of the stock of the Company included a restriction prohibiting sale, transfer, disposition or acquisition of any stock until June 30, 2009 without the 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.

9. Earnings per share (unaudited)

The following table presents the computation of basic and diluted per share data for the three and six months ended June 30, 2009 and 2008.

 Three Months Ended June 30,
 --------------------------------------------------------------------
 2009 2008
 -------------------------------- --------------------------------
 Weighted Average Weighted Average
 Number of Per Share Number of Per Share
 Amount Shares Amount Amount Shares Amount
 ------ ---------- ------ ------ ---------- ------

Basic EPS,
Net income available to common stockholders $ 662 44,770,345 $ .01 $ 568 45,292,845 $ .01
 ====== ======

Effect of dilutive stock options -- 27,500 -- 121,097
 ------ ---------- ------ ----------

Diluted EPS,
Net income available to common stockholders $ 662 44,797,845 $ .01 $ 568 45,413,942 $ .01
 ====== ========== ====== ====== ========== ======

 Six Months Ended June 30,
 --------------------------------------------------------------------
 2009 2008
 -------------------------------- --------------------------------
 Weighted Average Weighted Average
 Number of Per Share Number of Per Share
 Amount Shares Amount Amount Shares Amount
 ------ ---------- ------ ------ ---------- ------

Basic EPS,
Net income available to common stockholders $1,039 44,770,345 $ .02 $1,541 45,289,442 $ .04
 ====== ======

Effect of dilutive stock options -- 27,500 -- 104,885
 ------ ---------- ------ ----------

Diluted EPS,
Net income available to common stockholders $1,039 44,797,845 $ .02 $1,541 45,394,327 $ .04
 ====== ========== ====== ====== ========== ======

10. Segment Information

The Company has two reportable segments; real estate and residual interests. The real estate business is comprised of real estate assets, mortgage loans on real estate, real estate management and investments in affiliated limited partnerships which own real estate. The residual interests business is comprised of investments in residual interests in securitized receivables portfolios. The corporate/other net income (loss) of $72 and $(162) in 2009 and 2008 respectively, include $-0- and $(178) of deferred income tax expense in 2009 and 2008, respectively.

 Six Months Ended
 June 30,
 -------------------------------------
 2009 2008
 ----------------- -----------------

Revenues
 Residual interests $ 3,083 $ 2,964
 Real estate 1,559 2,694
 Corporate/other 25 38
 ----------------- -----------------
Total consolidated revenues $ 4,667 $ 5,696
 ================= =================

Net income (loss)
 Residual interests $ 1,711 $ 1,485
 Real estate (703) 389
 Corporate/other 72 (162)
 ----------------- -----------------
Total income from continuing operations $ 1,080 $ 1,712
 ================= =================


 Six Months Twelve Months
 Ended Ended
 June 30, 2009 December 31, 2008
 ----------------- -----------------
Assets
 Residual interests $ 47,035 $ 45,789
 Real estate 26,723 27,019
 Corporate/other 2,257 2,257
 ----------------- -----------------
Total consolidated assets $ 76,015 $ 75,065
 ================= =================

11. Discontinued Operations

The Company classifies certain real estate holdings as held for sale. The Company's properties located in Bogota, New Jersey, Fort Edward, New York, Fairbury, Nebraska, Checotah, Oklahoma and Kenedy, Texas are included as real estate assets held for sale. The operation of such assets for all periods presented have been recorded as discontinued operations in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment or Disposal of Long Lived Assets."

Discontinued operations for the six months ended June 30, 2009 and 2008 are summarized as follows:

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ---------------- ----------------

Income $ -- $ 117
Expenses 161 288
 ---------------- ----------------
Loss from discontinued operations
 before gain on sale (161) (171)
Gain on sale 120 --
 ---------------- ----------------
Loss from discontinued operations $ (41) $ (171)
 ================ ================

Assets and liabilities of discontinued operations at June 30, 2009 and December 31, 2008 are summarized as follows:

 June 30, December 31,
 2009 2008
 ------------ ------------

Assets of discontinued operations $ 1,505 $ 2,203
 ============ ============
Liabilities of discontinued operations $ 4 $ --
 ============ ============

ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(in thousands)

This Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 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, Inc., a Delaware corporation ("DVL" or the "Company") 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 pro- jected 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, 2008.

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjuction with the consolidated financial statements and accompanying financial statement notes appearing elsewhere herein and in conjuction with our Annual Report on Form 10-K for the year ended December 31, 2008.

None of the recently issued accounting standards had any effect on the Company's consolidated financial statements.

The Company currently owns eight buildings totaling 347,000 square feet on eight and one half acres located in an industrial park in Kearny, NJ leased to various un- related tenants (the "Owned Site"). This site represents a portion of the Passaic River Development area designated for redevelopment by the town of Kearny, New Jersey (the "Property"). To date, the Company has not commenced construction with respect to the redevelopment of the Property and given the current economic environment there can be no assurance that the Company will commence construction in the near future or at all. In addition, there can be no assurance that the Company will be able to obtain the necessary financing to commence or complete redevelopment. The Company continues to lease such property to multiple tenants and currently receives a positive cash flow from the property and believes it will continue to receive such positive cash flow un- til such time as it can redevelop the Property as described below.

In connection with the redevelopment of the Property (as defined above), on December 11, 2007, DVL, and its wholly owned subsidiary, DVL Kearny Holdings, LLC ("DVL Holdings"), entered into a Redeveloper Agreement (the "Redeveloper Agreement") with the Town of Kearny, a body corporate and politic of the state of New Jersey, County of Hudson (the "Town of Kearny"). Pursuant to the Redeveloper Agreement, the Town of Kearny has agreed to designate DVL and DVL Holdings (collectively, the "Redeveloper") as the redeveloper of the Property, a substantial portion of which is currently owned by the Redeveloper. Pursuant to the Redeveloper Agreement, the Redeveloper is obligated to redevelop the Property, at its expense, in accordance with the plans and specifications described therein, subject to review and approval of the Planning Board of the Town of Kearny. The initial plans and specifications provide for the development of up to approximately 150,000 square feet of retail space.

The payment obligations and the completion of all work to be performed by the Redeveloper under the Redeveloper Agreement are jointly and severally guaranteed by Alan Casnoff, the President of the Company, and Lawrence J. Cohen, a stockholder and affiliate of the Company. Messrs. Casnoff and Cohen are principals of P&A Associates ("P&A") and Pemmil Management, LLC ("Pemmil"), respectively, which have entered into a Developer Services Agreement with the Company with respect to the development of the Property, as described below. The Company has agreed to indemnify Messrs. Cohen and Casnoff from any liability related to the Redeveloper Agreement.

The Company has capitalized costs of $1,086 and $856 as of June 30, 2009 and December 31, 2008, respectively, related to expenses of this project.

Under the terms of the first Construction Loan Agreement, DVL Holdings was required to begin construction by June 1, 2008. On June 1, 2008, DVL Holdings entered into Amendment No. 1, whereby the lender agreed to extend the term of the Predevelopment Loan Phase (as defined in the Construction Loan Agreement) to August 1, 2008. Because of delays, construction did not begin by such date and therefore on September 8, 2008 DVL Holdings entered into Amendment No. 2 dated August 1, 2008. Pursuant to Amendment No. 2, the lender had extended the term of the Predevelopment Loan Phase for an additional six months which ended February 1, 2009 on the condition that the lender had no further obligation to make any loan advances. In addition, the maturity date for payment of the outstanding principal balance of the loan was accelerated effective as of August 1, 2008 making the entire outstanding principal balance of $4,495 (and any accrued and unpaid interest thereon) due and payable on February 1, 2009, the expiration of the Predevelopment Loan Phase.

On January 21, 2009, DVL Holdings, entered into a Mortgage, Security Agreement and Assignment of Leases and Rents (the "Agreement") with an unaffiliated third party bank lender in connection with the loan to the Company of an aggregate amount of up to $6,450 (the "Principal Amount") pursuant to certain notes in the amount of $4,250 (the "First Note") and $2,200 (the "Second Note" and collectively with the First Note, the "Notes"). DVL Holdings borrowed $4,250 pursuant to the First Note and such funds were used to repay the outstanding borrowings under the Construction Loan Agreement. Borrowings under the Second Note will be advanced in the future upon the satisfaction of certain conditions specified in such Note and such funds will be used in accordance with the terms of the Agreement and Second Note. The principal amount to be borrowed under the Second Note

must be repaid in the event such funds are not used as provided in the Agreement and the Second Note. The principal amount outstanding under the Notes bear interest at an annual rate equal to the greater of (i) six percent or (ii) one percent plus the prime rate of interest designated by the unaffiliated third party bank lender as it prime rate. Interest is payable on a monthly basis. All outstanding principal together with accrued and unpaid interest is due on January 21, 2011 (the "Maturity Date") with the option of DVL Holdings to extend the Maturity Date to January 21, 2012 if certain terms and conditions are met as specified in the Notes. The principal amounts of the Notes may be prepaid without penalty. In addition, if certain income levels are not achieved by April of 2010, the loan must be paid down by $700 of the First Note in accordance with the Agreements.

Pursuant to the Agreement, DVL Holdings has granted to the unaffiliated third party bank lender a mortgage and security interest in the Owned Site and any additional property acquired by DVL Holdings for the redevelopment project that becomes subject to the lien of the mortgage under the Agreement including certain other property as specified in the Agreement (hereafter all references to the "Property" refer to the Owned Site and such additional properties) and an assignment of the leases and rents with respect to the Property. In addition, all obligations under the Notes and the Agreement are guaranteed by the Company pursuant to a guaranty dated January 21, 2009 from the Company in favor of the unaffiliated third party bank lender.

Pursuant to the terms of the Redeveloper Agreement, the Property is to be redeveloped by DVL Holdings under the Redeveloper Agreement. The use of the Property is subject to the terms of the Redeveloper Agreement and the assignment and assumption of the Redeveloper Agreement to or by Signature Bank in the event of exercising their remedies upon the occurrence of an event of default under the Agreement and the Notes is subject to the terms and provisions of the Redeveloper Agreement. In connection with the purchase of certain additional property comprising part of the Property, the mortgage pursuant to the Agreement will also cover such property.

The Agreement and the Notes contain customary terms and provisions, including default provisions. In addition to the customary default provisions, it is an event of default under the Notes (i) if a default has occurred and continues beyond applicable notice and cure periods under the Redeveloper Agreement, (ii) generally, if DVL Holdings fails to acquire certain additional property in connection with the redevelopment and the principal amount borrowed under the Second Note is not repaid, (iii) if the Redeveloper Agreement is amended without the prior written consent of the unaffiliated third party bank lender, or (iv) if a certain lease (as specified in the Agreement) of a portion of the redeveloped property is terminated or has not been modified or replaced with a new tenant in accordance with the terms of the Agreement, unless DVL Holdings and DVL deliver additional cash collateral or pay down the First Note in accordance with the Agreement.

In order to undertake and complete the redevelopment of the Property, DVL Holdings and DVL will need to obtain additional construction financing and, potentially additional loan or equity financing, and given current economic conditions, there can be no assurance that any such additional financing will be obtained on acceptable terms or at all. Additionally, given the current economic conditions, there can be no assurance that the redevelopment will occur in the five year period required under the Redevelopment Agreement or at all.

The Company also owns 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.

During 2008, the Company, through direct ownership or through its investment in various limited partnerships, foreclosed on five Affiliated Limited Partnerships for nonpayment of amounts due on mortgage loans and took title to the five vacant Wal-Mart Stores. At the time of foreclosure, the five mortgages had a combined carrying value of $1,776. The five stores are included in the Company's real estate held at cost, for lease or sale. In 2009, the Company entered into an agreement to sell one of the vacant stores and reclassified its carrying value to discontinued operations.

Discontinued Operations

(1) 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 addition DVL owns a 8.25% limited partner interest in each of these partnerships. DVL will also receive a percentage of the net sales proceeds. As of June 2009, the sale has not yet been consummated and the third party continues to lease space. The total expenses to be reimbursed to DVL are approximately $685 as of June 30, 2009 not including the $50 fee or any amounts to be received as a limited partner. Activity related to the real estate lease interest is included in discontinued operations. DVL has sued the prior tenants of the property for environmental contamination and has received $400 towards the cleanup costs for the property.

(3) During 2008, the Company foreclosed on two Affiliated Limited Partnerships for nonpayment of amounts due on mortgage loans and took title to the two vacant former Wal-Mart stores. At the time of the foreclosures, the two mortgages had a combined carrying value of $696. During December, 2008, the Company sold one of the former Wal-Mart stores and received net proceeds of $220. During February 2009, the Company sold a second former Wal-Mart store and received net proceeds of $594. In 2009, the Company entered into an agreement to sell one of the vacant stores previously considered to be a real estate asset for $600 and reclassified its carrying value to discontinued operations. The agreement to sell was never consummated.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes to the Critical Accounting Policies and Estimates described in our Annual Report on Form 10-K for the year ended December 31, 2008 filed with the SEC on April 15, 2009.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008

DVL had income from continuing operations of $726 and $638 for the three months ended June 30, 2009 and 2008, respectively.

Interest income on mortgage loans increased to $585 as a result of the decrease in principal amortization as underlying loan balances are paid off. Interest expense on underlying mortgages decreased to $61 reflecting the application of a greater portion of each monthly payment to the outstanding principal balances, payoff of loan balances and anticipated loan maturities.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest income on mortgage loans $ 585 $ 509
Interest expense on underlying mortgages $ 61 $ 88

The gain on satisfaction of mortgage loans results when the net proceeds on the satisfaction of mortgage loans are greater than their carrying value.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Gain on satisfaction of mortgage loans $ -- $ 365

Partnership management fees decreased as a result of a decrease in the number of partnerships contributing.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Partnership management fees $ 56 $ 63

Management fees decreased as a result of the loss of a property managed by an affiliate of the Company.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Management fees $ 13 $ 18

Transaction and other fees were earned by the Company in connection with sales of partnership properties. The amount of fees vary depending on the size and number of transactions.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Transaction and other fees from partner-
 Ships $ 1 $ 39

Interest income on residual interests increased and interest expense on the related notes payable decreased as a result of purchase price adjustments pursuant to the purchase agreements entered into by the Company's wholly owned subsidiary, S2 Holdings, Inc. ("S2"), that owns a 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").

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest income on residual interests $ 1,541 $ 1,476
Interest expense on related notes
 payable $ 676 $ 722

Net rental income increased primarily as a result of a decrease in bad debts included in operating expenses at the Owned Site, partially offset by operating expenses for vacant Wal-Mart stores that the Company took title to in 2008 that are included for the three months ended June 30, 2009. There were no similar expenses for the same period in 2008.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Net rental income from others $ 117 $ 106
Gross rental income from others $ 311 $ 316

Distributions from partnerships decreased in 2009 compared to 2008 as a result of fewer affiliated partnerships.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Distributions from partnerships $ 30 $ 42

General and administrative expenses decreased in 2009 from 2008 primarily as a result of decreased employee costs and insurance costs.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
General and administrative $ 291 $ 362

The asset servicing fee paid to NPO Management, LLC pursuant to the terms of the Asset Servicing Agreement which calls for an adjustment to reflect changes in the consumer price index. As a result of a decrease in the consumer price index, there was no in- crease in the fee.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Asset servicing fee $ 196 $ 195

Legal and professional fees increased in 2009 from 2008 primarily as a result of the inclusion of costs to implement internal controls over financial reporting.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Legal and professional fees $ 86 $ 66

The Company recorded a provision for loan losses on its mortgage portfolio of $25 during the three months ended June 30, 2009.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Provision for loan losses $ 25 $ 50

Interest expense to affiliates decreased in 2009 compared to 2008 as a result of a decreased amount of debt owed to affiliates.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest expense - affiliates $ 41 $ 45

Interest expense relating to other debts decreased as a result of lower interest rates on new borrowings and lower outstanding balances on existing borrowings.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest expense - others $ 212 $ 295

The Company accrued expenses of $33 and $33 for alternative minimum taxes during each of the three months ended June 30, 2009 and 2008. The Company recognized $-0- of deferred income tax expense during the three months ended June 30, 2009 and $(146) of deferred tax expense during the three months ended June 30, 2008, as a result of changes in the valuation allowance on deferred tax assets. This resulted in income tax expense as follows:

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Income tax expense $ 33 $ 179

Discontinued operations consist of the operations of business segments the Company considers as held for sale or has disposed of.

 Three Months Ended Three Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Income $ -- $ 58
Expenses 64 128
 ------------- -------------
Loss from discontinued operations $ (64) $ (70)
 ============= =============

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

DVL had income from continuing operations of $1,080 and $1,712 for the six months ended June 30, 2009 and 2008, respectively.

Interest income on mortgage loans increased to $1,129 as a result of the decrease in principal amortization as underlying loan balances are paid off. Interest expense on underlying mortgages decreased to $125 reflecting the application of a greater portion of each monthly payment to the outstanding principal, payoff of loan balances and an- ticipated loan maturities.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest income on mortgage loans $ 1,129 $ 1,125
Interest expense on underlying mortgages $ 125 $ 187

The gain on satisfaction of mortgage loans results when the net proceeds on the satisfaction of mortgage loans are greater than their carrying value.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Gain on satisfaction of mortgage loans $ -- $ 999

Management fees decreased as a result of the loss of property managed by an affiliate of the Company.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Management fees $ 30 $ 37

Transaction and other fees were earned by the Company in connection with sales of partnership properties. The amount of fees vary depending on the size and number of transactions.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Transaction and other fees from partner-
 Ships $ 26 $ 88

Interest income on residual interests increased and interest expense on the related notes payable decreased as a result of purchase price adjustments pursuant to the purchase agreements entered into by the Company's wholly owned subsidiary, S2, that owns a 99.9% Class B member interests in Receivables II-A and Receivables II-B, LLC.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest income on residual interests $ 3,083 $ 2,964
Interest expense on related notes
 payable $ 1,365 $ 1,472

Net rental income decreased primarily as a result of decreased gross rental income resulting from decreased occupancy in anticipation of the Kearny redevelopment project. Operating expenses for vacant Wal-Mart stores that the Company took title to in 2008 are included for the six months ended June 30, 2009. There were no similar expenses for the same period in 2008.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Net rental income from others $ 159 $ 267
Gross rental income from others $ 617 $ 656

Distributions from partnerships increased in 2009 compared to 2008 as a result of an increase in the amount of final distributions from affiliated partnerships.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Distributions from partnerships $ 106 $ 54

General and administrative expenses decreased in 2009 from 2008 primarily as a result of decreased employee costs.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
General and administrative $ 747 $ 762

The asset servicing fee paid to NPO Management, LLC increased pursuant to the terms of the Asset Servicing Agreement which calls for an adjustment to reflect changes in the consumer price index.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Asset servicing fee $ 391 $ 383

Legal and professional fees decreased in 2009 from 2008 primarily as a result of the inclusion of expenses to retain Sarbanes Oxley professionals in 2008.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Legal and professional fees $ 159 $ 172

The Company recorded a provision for loan losses on its mortgage portfolio of $125 during the six months ended June 30, 2009.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Provision for loan losses $ 125 $ 100

Interest expense to affiliates decreased in 2009 compared to 2008 as a result of a decreased amount of debt owed to affiliates.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest expense - affiliates $ 86 $ 97

Interest expense relating to other debts decreased as a result of lower interest rates on new borrowings and lower outstanding balances on existing borrowings.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Interest expense - others $ 556 $ 568

The Company accrued expenses of $33 and $65 for alternative minimum taxes during each of the six months ended June 30, 2009 and 2008. The Company recognized $-0- of deferred income tax expense during the six months ended June 30, 2009 and $(178) of deferred tax expense during the six months ended June 30, 2008, as a result of changes in the valuation allowance on deferred tax assets. This resulted in income tax expense as follows:

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Income tax expense $ 33 $ 243

Discontinued operations consist of the operations of business segments the Company considers as held for sale or has disposed of.

 Six Months Ended Six Months Ended
 June 30, 2009 June 30, 2008
 ------------- -------------
Income $ -- $ 116
Expenses 161 287
 ------------- -------------
Loss from discontinued operations
 before gain on sale (161) (171)
Gain on sale 120 --
 ------------- -------------
Loss from discontinued operations $ (41) $ (171)
 ============= =============

Liquidity and Capital Resources

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's cash balance was $1,733 at June 30, 2009, compared to $496 at December 31, 2008.

The Company believes that its anticipated cash flow provided by operations and other sources is sufficient to meet its current operating cash requirements for the next twelve months. The Company has in the past and expects in the future to continue to augment its cash flow from operations with additional cash generated from either the sale or refinancing of its assets and/or borrowings.

The cash flow from the Company's member interests in Receivables II-A and Receivables II-B should continue to provide liquidity to the Company.

The purchase agreements with respect to the acquisition of such member interests 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
----- ------- -------
2009 $ 743 $ 880
2010 to final payment on the notes* $ 1,050 $ 1,150

* Final payment on the notes payable expected in 2015 related to the Receivables II-A transaction and 2017 for the Receivables II-B transaction.

The Company believes it will continue to receive significant cash flow after final payment of the notes payable.

Outstanding Financings

Outstanding loans payable as of June 30, 2009 which are scheduled to become due through 2013 are as follows:

 Outstanding
 Original Balance Including
 Loan Accrued Interest at Due
 Purpose Creditor Amount June 30, 2009 Date
------------------------------- --------------------- ------ ------------- --------
Repurchase of Notes
Issued by the Company Pemmil (1) $2,500 $1,339 12/31/09

Purchase of Mortgages Unaffiliated Bank (2) $2,200 $2,172 02/01/14

Refinancing of Repurchase of
Notes Issued by the Company Unaffiliated Bank (3) $1,500 $1,359 09/01/09

Construction Financing Unaffiliated Bank (4) $4,250 $4,271 01/21/11

General Corporate Purposes Unaffiliated Bank (5) $ 250 $ 194 02/01/13

Refinancing of Notes Issued by
the Company to Acquire Property Unaffiliated Bank (6) $3,800 $3,759 07/01/11

(1) Pemmil Funding, LLC ("Pemmil") previously made a loan to the Company in the original principal amount of $2,500 pursuant to the terms of that certain Loan and Security Agreement, dated December 27, 2005 (the "Pemmil Loan Agreement") between Pemmil and the Company evidenced by the Original Term Note (which has subsequently been amended and restated pursuant to the Amendment No.1). The outstanding obligations under the Pemmil Loan Agreement and Original Term note through and including March 15, 2007 were $1,190 in principal and $116 in accrued and unpaid interest. In March 2007, to fund a repurchase of shares of the Company's Common Stock from Blackacre Bridge Capital LLC and Blackacre Capital Group L.P., Pemmil made an additional loan advance to the Company in the principal amount of $650 pursuant to Amendment No. 1 to Loan and Security Agreement, entered into by the Company on March 16, 2007 ("Amendment No. 1"). Under Amendment No. 1, all accrued and unpaid interest outstanding at March 15, 2007 was added to the principal amount outstanding under the Pemmil Loan Agreement and Pemmil loaned to the Company an additional $650 principal amount which increased the total principal amount outstanding under the Pemmil Loan Agree- ment to $1,956. Such principal amount was evidenced by an Amended and Restated Term Note made by the Company to Pemmil which was executed simultaneously with Amendment No. 1. In general, except as modified and amended by Amendment No. 1 as described above, the terms and provisions of the Pemmil Loan Agreement were unchanged and re- main in full force and effect. The Pemmil Loan Agreement provided that the principal and unpaid interest were originally due on December 27, 2008 and provided for in- terest at a rate of 12% per annum, compounded monthly. Interest is payable monthly on the loan, but the Company may elect not to make any such interest payment when due, and such amount of unpaid monthly interest shall be added to principal. The Company is required to prepay the loan (plus any accrued and unpaid interest) to the extent that the Company consummates certain capital transactions (as defined in the Pemmil Loan Agreement) that result in net proceeds (as defined in the Pemmil Loan Agreement) to the Company. Pemmil may, in its sole discretion, accelerate the Loan after the occurrence and during the continuance of an event of default (as defined in the Pemmil Loan Agreement). The obligations under the Pemmil Loan Agreement are secured by a subordinated pledge of the Company's equity interest in S2. The Company may prepay all or a portion of the loan at any time prior to maturity without penalty or premium. During the six months ended June 30, 2009, the Company paid $275 of in- terest previously accrued to Pemmil. On November 10, 2008 the Pemmil Loan Agreement was amended to extend the due date for the payment of the principal and unpaid in- terest to December 31, 2009.

(2) Interest rate is prime plus 0.5% per annum payable monthly. Monthly payments are interest only. Annual payments of $50 are required. In January of 2009, the lender agreed to recast the loan as a $2,200 term loan to be secured by four Wal-Mart mortgages secured by properties leased to Wal-Mart. At the same time the maturity date of the then existing loan was extended to April 30, 2009.

On April 24, 2009 the Company entered into a Loan Agreement, evidenced by a Term Note for $2,200. The principal amount bears interest at an annual rate of Libor plus 4% and self amortizes with a portion of the principal payable monthly through February 1, 2014 (the "Maturity Date"). The repayment of the obligations under the Term Note and the loan documents is secured by certain collateral assignments from DVL Holdings to the lender with respect to mort- gage notes and mortgages held by DVL Holdings with respect to mortgage finance- ings provided to affiliated limited partnerships. Additionally, the Company guaranteed the obligations of DVL Holdings under such loan documents. The ma- jority of the loan proceeds were used to paydown the existing loan.

(3) Interest rate is fixed at 7.75% per annum payable monthly. Monthly payments are interest only. An annual principal payment of $50 is required. The Company is currently negotiating a refinancing of the outstanding loan balance for a two to three year term. The inability of the Company to refinance or definitely extend such loan on or prior to its maturity date would have a material adverse effect on the Company's financial condition.

(4) On January 21, 2009, DVL Holdings entered into a Mortgage, Security Agreement and Assignment of Leases and Rents (the "Agreement") with an unaffiliated third party bank in connection with the loan by Signature Bank to the Company of an aggregate amount of up to $6,450 (the "Principal Amount") pursuant to the First Note (as defined above) in the amount of $4,250 and the Second Note (as defined above) in the amount of $2,200. DVL Holdings borrowed $4,250 pursuant to the First Note and such funds were used to repay the outstanding borrowings under the Construction Loan Agreement. Borrowings under the Second Note will be advanced by Signature Bank in the future upon the satisfaction of certain conditions specified in such Note and such funds will be used in accordance with the terms of the Agreement and Second Note. See above in MD&A for a more detailed discussion of the terms of the Agreement.

(5) On January 30, 2008, the Company entered into a loan agreement with an unaffiliated third party bank for $250. The loan bears interest at a rate of 7.5% per annum. Principal and interest payments of $5 are due monthly through the scheduled maturity date of February 1, 2013.

(6) On June 6, 2008, Delbrook Holding LLC ("Delbrook"), a Delaware limited liability Company and 100% owned subsidiary of DVL borrowed an aggregate of $3,800 pursuant to a Mortgage Note (the "Mortgage Note") with an unaffiliated third party bank in the principal amount of $3,800. The Mortgage Note is secured by a mortgage on certain of the Company's property located in Kearny, New Jersey and by an assign- ment of leases on such property. The principal amount outstanding under the Note, bears interest, which is payable monthly, at an annual rate equal to the one month LIBOR Rate plus 2.1%.

The Company uses derivatives to manage risks related to interest rate movements. Interest rate swap contracts designated and qualifying as cash flow hedges are reported at fair value. In accordance with SFAS No. 133, "Accounting for Deriva- tive Instruments and Hedging Activities" (the "Statement"), as amended by SFAS No. 138 and SFAS No. 149, the Company established accounting and reporting stand- ards for derivative instruments. Specifically, the Statement requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Changes in the fair value of those instruments designated as cash flow hedges are recorded in other comprehensive income, to the extent the hedge is effective, and in the results of operations, to the extent the hedge is ineffective or no longer quali- fies as a hedge.

During September 2008, the Company entered into an interest rate swap agreement related to one of their loans. Valued separately, the interest rate swap agreement represents a liability as of June 30, 2009 and December 31, 2008, in the amount of $193 and $231 respectively. During April 2009, the Company entered into an interest rate swap agreement related to another of their loans. Valued separately, the interest rate swap agreement represents a liability as of June 30, 2009, in the amount of $9. This value represents the fair value of the current difference in interest paid and received under the swap agreement over the remaining term of the agreement. Because the swaps are considered to be a cash flow hedge and they are effective, the value of the swaps are recorded in the Consolidated Statements of Stockholders' Equity as a separate component and represents the only amount reflected in accumulated other comprehensive loss. Changes in the swaps fair value are reported currently in other comprehensive loss. Payments are recognized in current operating results as settlements occur under the agreement as a component of interest expense.

The following table summarizes the notional values of the Company's derivative financial instruments. The notional value provides an indication of the extent of the Company's involvement in these instruments on June 30, 2009, but does not represent exposure to credit, interest rate or market risks.

 Hedge Type Notional Value Rate Termination Date Fair Value
 ---------- -------------- ---- ---------------- ----------

Interest rate swap $ 3,740 5.94% July 1, 2011 $ (193)
 agreement

The outstanding principal of the Mortgage Note is payable in monthly installments of $5 beginning on August 1, 2008 and continuing on the first day of each month there- after. The final monthly installment of the Mortgage Note is due and payable at maturity on July 1, 2011 or before, at the option of the Bank upon any defaults after the expiration of all applicable notice and cure periods as specified therein.

 Hedge Type Notional Value Rate Termination Date Fair Value
 ---------- -------------- ---- ---------------- ----------

Interest rate swap $ 2,161 6.09% February 1, 2014 $ (9)
 agreement

The outstanding principal of the Mortgage Note is payable in monthly installments of $39 beginning on June 1, 2009 and continuing on the first day of each month there- after. The final monthly installment of the Mortgage Note is due and payable at maturity on February 1, 2014 or before, at the option of the Bank upon any defaults after the expiration of all applicable notice and cure periods as specified therein.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act") and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act, is accumulated and communicated to management, including the Company's principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, the Company is required to carry out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out with the participation of the Company's principal executive officer and principal financial officer. Based upon that evaluation, the Company's principal executive officer concluded that the Company's disclosure controls and procedures were not effective because of the material weaknesses discussed below and which were previously discussed in our Annual Report on Form 10-K.

Management's Report on Internal Control Over Financial Reporting

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our "disclosure controls and procedures" (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were not effective as of June 30, 2009 because of a material weakness. The basis for this determination was that, as discussed below, we identified a material weakness in our internal control over financial reporting, which we view as an integral part of our disclosure controls and procedures.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) includes those policies and procedures that: (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles in the United States of America ("U.S.GAAP"), and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Management assessed our internal control over financial reporting as of June 30, 2009, the end of our fiscal quarter. Management based its assessment on the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our control environment did not sufficiently promote effective internal control over financial reporting throughout the organization. Specifically, we had a shortage of support and resources in our accounting department, which resulted in insufficient; (i) documentation and communication of certain business transactions; and (ii) application of technical accounting rules as of June 30, 2009. No misstatements occurred as a result of the material weakness. Since December 2008, we have taken a number of steps that we believe will impact the effectiveness of our internal control over financial reporting in the future including the following:

o In March 2009 we implemented a Disclosure Committee to properly ensure that we are complying with disclosure requirements by addressing disclosure issues that may arise from time to time.

o We have engaged an outside certified public accounting firm to supplement our finance and accounting departments to support the preparation of financial statements and reports that are to be filed with the SEC.

o We intend to utilize the outside accounting firm to review Form 10-Q's and Form 10-K's, to advise us of changes in accounting rules and procedures as well as to review our income calculations from S-2 as well as our deferred tax calculations.

During the quarter ended June 30, 2009, we continue to implement the steps out-lined in our 2008 Form 10-K and above that we believe will eliminate these material weaknesses and improve the effectiveness of our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

We are a smaller reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

Item 6. Exhibits

31.1 Principal Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Principal Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.1 Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pur- suant to the Section 908 of Sarbanes-Oxley Act of 2002.

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/ Henry Swain
 -------------------------------------
 Henry Swain, Executive Vice President
 and Chief Financial Officer

August 14, 2009

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