UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)





x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2009oro
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      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 incorporation or organization)
            
            (I.R.S.
      Employer Identification No.)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)





Securities
registered pursuant to Section 12(b) of the Act:  None




Securities
registered pursuant to Section 12(g) of the Act:






Title of
      Each Class
              
              Common Stock, $.01 par value
            
            Name of Exchange on
      Which Registered
              
              None




Indicate
by check mark if the registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act.  o Yes  x No




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  o Yes  x 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).  o Yes  o No




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  o No




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or 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 o
            Accelerated
      filer oNon-accelerated
      filer (Do not check if a smaller reporting company) o
            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). o Yes  x No




The
aggregate market value of the voting and non-voting Common Equity of the
Registrant held by non-affiliates as of June 30, 2009 was
$2,176,968.




The
number of shares outstanding of Common Stock of the Registrant as of March 26,
2010 was 44,770,345.




DOCUMENTS
INCORPORATED BY REFERENCE


None









DVL,
INC.




INDEX
TO ANNUAL REPORT ON FORM 10-K FILED WITH


THE
SECURITIES AND EXCHANGE COMMISSION


YEAR
END DECEMBER 31, 2009




ITEMS
IN FORM 10-K


_____________




PagePART
      IItem
      1.
            Business
            
            1Item
      1A.
            Risk Factors
            
            5Item
      1B.
            Unresolved Staff Comments
            
            5Item
      2.
            Properties
            
            5Item
      3.
            Legal Proceedings
            
            5Item
      4.
            Reserved
            
            5PART
      IIItem
      5.
            Market for Registrant’s Common Equity and Related Stockholder
      Matters and Issuer Purchases of Equity Securities
            
            6Item
      6.
            Selected Financial Data
            
            6Item
      7.
            Management’s Discussion and Analysis of Financial Condition And
      Results of Operations
            
            6Item
      7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            12Item
      8.
            Financial Statements and Supplementary Data
            
            12Item
      9.
            Changes In and Disagreements with Accountants on Accounting and
      Financial Disclosure
            
            13Item
      9A(T).
            Controls and Procedures
            
            13Item
      9B.
            Other Information
            
            14PART
      IIIItem
      10.
            Directors, Executive Officers, Promoters and Corporate
      Governance
            
            15Item
      11.
            Executive Compensation
            
            17Item
      12.
            Security Ownership of Certain Beneficial Owners and Management
      and Related Stockholder Matters
            
            19Item
      13.
            Certain Relationships and Related Transactions and Director
      Independence
            
            21Item
      14.
            Principal Accounting Fees and Services
            
            22PART
      IVItem
      15.
            Exhibits and Financial Statement Schedules
            
            22









PART I




This 2009
Annual Report on Form 10-K contains statements which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended.  Those statements include statements regarding the intent,
belief or current expectations of the Registrant and its management
team.  The Registrant’s stockholders and prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those projected in the forward-looking
statements.  Such risks and uncertainties include, among other things,
general economic conditions, the ability of the Registrant to obtain additional
financing, the ability of the Registrant to successfully implement its business
strategy and other risks and uncertainties that are discussed
herein.




All
dollar amounts presented herein are in thousands except share and per share
amounts.




ITEM
      1.
                BUSINESS.


OVERVIEW




DVL,
Inc., a Delaware corporation incorporated in 1977, is a commercial finance
company which is primarily engaged in (a) the ownership of residual interests in
securitized portfolios, (b) the ownership and servicing of a portfolio of
secured commercial mortgage loans made to limited partnerships in which DVL
serves as general partner, which we refer to as an Affiliated Limited
Partnership, (c) the ownership of real estate and (d) the performance of real
estate asset management and administrative services.  All references
to “DVL”, “we”, “us”, “our”, or the “Company” refer to DVL, Inc. and its
consolidated subsidiaries.





Our current strategy is to maximize the
value of our assets and meet our short-term working capital needs by continuing
to manage, administer and service our existing loan portfolio and develop, lease
and refinance or sell an 8.5 acre retail site located in Kearny, NJ which we
have owned for many years and for which we have been designated as developer by
the Town of Kearny to redevelop such property.  However, because of
the current economic conditions, the development of the Kearny property has
taken longer than originally projected.  In the current economic
market there is no assurance that the project will be developed.  In
addition, in order for us to undertake the redevelopment of such property, we
will need to obtain construction financing, and, potentially additional loan or
equity financing, and given, current economic conditions, there can be no
assurance that any such financing will be obtained on acceptable terms or at
all.





We derive
the majority of our income from (i) the residual interests in securitized
receivables portfolios, net of interest expense on the related notes payable,
(ii) the wrap-around and first mortgages to Affiliated Limited Partnerships (as
a result of the difference in the effective interest rates between the
wrap-around mortgage and the underlying mortgage), (iii) percentage rents
received from various tenants of the Affiliated Limited Partnerships, (iv)
rentals received as a result of our real estate holdings, (v) fees received as
general partner of the Affiliated Limited Partnerships (including disposition
and management fees), (vi) distributions received as a limited partner in the
Affiliated Limited Partnerships, and (vii) fees from management
contracts.





Pursuant to the terms of the 1993
settlement of a class action between us and the limited partners of Affiliated
Limited Partnerships, a fund has been established into which we are required to
deposit (i) 20% of the cash flow received on certain of our mortgage loans from
Affiliated Limited Partnerships after repayment of certain creditors, (ii) 50%
of our receipts from certain loans to, and general partnership investments in,
Affiliated Limited Partnerships and (iii) a contribution of 5% of our net income
(based on accounting principles generally accepted in the United States of
America) subject to certain adjustments in the years 2001 through
2012.  For 2009, we have accrued $21 relating to 5% of our net income
less certain adjustments.





Our principal executive offices are
located at 70 East 55th
Street, 7th
Floor, New York, New York, 10022.  Our telephone number is (212)
350-9900.  We have not engaged in any business activity outside of the
United States.





1




BUSINESS
ACTIVITIES




Residual Interests in
Securitized Portfolios




Through
our wholly-owned subsidiary, S2 Holdings, Inc. which we refer to as S2, we own a
99.9% Class B membership interest in each of Receivables II-A LLC, which we
refer to as Receivables II-A, and Receivables II-B LLC, which we refer to as
Receivables II-B.  Receivables II-A and Receivables II-B receive all
of the residual cash flow from five securitized receivable pools after payment
to the securitized noteholders.  Pursuant to the terms of Receivables
II-A and Receivables II-B’s operating agreements, we are allocated 99.9% of all
items of income, loss and distribution of Receivables II-A and Receivables
II-B.





We
acquired the Class B membership interests in exchange for the issuance of
limited recourse promissory notes by S2.  The notes bear interest at a
rate of 8% per annum and principal and interest are payable solely from monthly
cash flow.  The notes mature from August 15, 2020 through December 31,
2021 and are secured by a pledge of S2’s interests in Receivables II-A,
Receivables II-B and all proceeds and distributions related to such
interests.  The principal amount of the notes and the purchase price
are adjusted, from time to time, based upon the performance of the underlying
receivables.  We also issued a guaranty of payment of up to $3,443 of
the purchase price.  The amount of the guaranty is regularly reduced
by 10% of the principal paid.  The amount of the guaranty at December
31, 2009 was $1,506.





Loan
Portfolio





Our mortgage loan portfolio
historically consisted primarily of wrap-around mortgage loans made to
Affiliated Limited Partnerships which were subject to non-recourse, underlying
mortgages held by unrelated institutional lenders.  Under a
wrap-around mortgage loan, the majority of the mortgage payments from the
Affiliated Limited Partnerships are used to pay the required monthly principal
and interest payments on the underlying mortgage which the wrap-around mortgage
“wraps”.  We build equity in the wrap-around mortgage loans over time
as the principal balance of the underlying mortgage loans are
amortized.  In addition, pursuant to the terms of the wrap-around
mortgage loans, we are entitled to receive as additional debt service a portion
of the Affiliated Limited Partnerships’ percentage rent income, if
any.





At
December 31, 2009, our mortgage loan portfolio consisted of 7 wrap-around
mortgage loans with a net carrying value of $4,384 and 11 first mortgage loans
with a net carrying value of $6,058.  All of our mortgage loans are
collateral for various debt. With respect to our remaining wrap-around mortgage
loans, the satisfaction of these wrap-around mortgage loans is dependent on the
ability of the underlying affiliated limited partnership entering into a lease
extension with the current tenant, finding a new tenant or being able to sell
the property for sufficient value.  If the affiliated limited partnership
is unable to do so, it is likely that we will foreclose on such wrap-around
mortgage loan.





The majority of the properties
underlying our mortgage loan portfolio are net leased pursuant to leases which
require the tenant to pay for all taxes, insurance and other property costs and
which provide for lease payments sufficient to amortize the applicable
underlying mortgage.  In certain leases, the property owner is
required to maintain the roof and structure of the premises.  With
respect to 10 of the loans in our mortgage loan portfolio with net carrying
values of $6,170 as of December 31, 2009, the tenant of the underlying property
is Wal-Mart Stores, Inc.  Accordingly, a bankruptcy of Wal-Mart would
have a material negative impact on our ability to realize full value on these
loans.





In addition to base rent, the leases to
Wal-Mart require the tenant to pay additional rent, which we refer to as
percentage rent, equal to a percentage of gross receipts from the tenant’s
operation of a property above a specified amount.  In all cases where
percentage rent is payable, a portion of the percentage rent is required to be
paid to us as additional interest and/or additional debt service on our
mortgage.





2




Real Estate
Properties





Our real
estate properties consist of (i) 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, which we refer to as the Owned Site, (ii) an 89,000
square foot building on approximately eight acres of land leased to K-Mart in
Kearny, NJ which is adjacent to the Owned Site, (iii) an interest in a property
in Bogota, NJ and (iv) five properties which we acquired through foreclosure,
including a property located in Iowa Park, Texas which was foreclosed on in
November 2009.  During 2009, we sold three previously foreclosed upon
properties for net proceeds of $1,788 for a loss of $9.





The
Owned Site-Kearny Property





The Owned
Site represents a portion of the Passaic River Development area designated for
redevelopment by the town of Kearny, New Jersey, which we refer to as the Kearny
Property.  In connection with the redevelopment of the Kearny
Property, on December 11, 2007, we entered into a Redeveloper Agreement with the
Town of Kearny.  As redeveloper, the Town of Kearny designated us as
the redeveloper of the Kearny Property.  Pursuant to the Redeveloper
Agreement, we are obligated to redevelop the Kearny Property, at our 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 our rights there under which were originally set to expire
on December 31, 2009, was extended to May 1, 2011. If we are in default of any
terms or conditions of the Redeveloper Agreement and do 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.





To date,
we have not commenced construction with respect to the redevelopment of the
Kearny Property and given the current economic environment there can be no
assurance that we will commence construction in the near future.  In
addition, there can be no assurance that we will be able to secure tenants or
obtain the necessary financing to commence or complete
redevelopment.





In order
to undertake and complete the redevelopment of the Property, we will need to
obtain 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 within the time period required under the
Redevelopment Agreement or at all.





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.  The Company
has agreed to indemnify Messrs. Cohen and Casnoff from any liability related to
the Redeveloper Agreement.




The
Bogota Property




In
October 2004, we 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 certain of our 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,
we own an 8.25% limited partner interest in one of these
partnerships.  As of December 31, 2009, the sale has not yet been
consummated and the third party continues to lease space.  We brought
an action against the prior tenants of the property for environmental
contamination and have received $400 towards the cleanup costs for the property.
The total expenses to be reimbursed to us are approximately $721 as of December
31, 2009 not including the $50 fee or any amounts to be received as a limited
partner.




3




Foreclosed
Properties





The following table identifies the
properties we have acquired through foreclosure and which were held by us at
December 31, 2009.





Location
            Sq.
      Ft.
            Acreage
            TenantBrent,
      AL
            34,875
            5.34
            VacantFort
      Edward, NY
            31,000
            6.00
            VacantSoddy
      Daisy, TN
            56,127
            5.91
            VacantKennedy,
      TX
            44,752
            5.52
            VacantIowa
      Park, TX
            43,769
            4.36
            Vacant





We are currently marketing these
properties for sale and / or lease.





Partnership
Management





We serve as the general partner of the
Affiliated Limited Partnerships.  In this capacity we are entitled to
receive management, transaction and other fees as permitted by the terms of the
applicable Affiliated Limited Partnerships’ partnership agreement.  In
addition, we provide management, accounting, and administrative services to
certain affiliated entities.





Employees





As of December 31, 2009, we had no
employees.  Our affairs are administered by Compensation Solutions,
Inc., which we refer to as CSI, pursuant to the terms of a “leasing”
contract.  Pursuant to the leasing contract, CSI provides us with the
necessary personnel, including certain executive officers, necessary to
administer our affairs.  Accordingly, CSI provides such employees with
their medical, unemployment, workmen’s compensation and disability insurance
through group insurance plans maintained by CSI for the benefit of us and other
clients of CSI.  Pursuant to the contract, the cost of such insurance
as well as the payroll obligations for the leased employees is funded by us to
CSI, and CSI is required to then apply such proceeds to cover the payroll and
administrative costs to the employees.  Should CSI fail to meet its
obligations under the contract, we would be required to either locate a
substitute employee leasing firm or directly re-employ our
personnel.  The contract is cancelable upon 30 days written notice by
either party.





As of
March 26, 2010, we had 10 employees leased through CSI, all of whom were
employed on a full-time basis other than the President, who serves on a
part-time basis.  We are not a party to any collective bargaining
agreement and our personnel are not represented by any labor union.





On
November 2, 2009, we entered into an agreement with Real Estate Systems
Implementation Group, LLC, which we refer to as RESIG, an affiliate of Imowitz
Koenig & Co., LLP, our former independent registered public accountants
(“IKC”), pursuant to which RESIG will provide substantially all of our internal
accounting, financial statement preparation and bookkeeping functions on an
outsourced consulting basis.  A requirement of the agreement was the
appointment of Neil H. Koenig as our Chief Financial Officer, Principal
Financial Officer and Principal Accounting Officer.  Mr. Koenig is a
managing member of RESIG and a managing member of IKC.





Segments





We have two reportable segments; real
estate and residual interests.  You can find information about our
business segment information in “Item 8.  Financial Statements and
Supplementary Data-Note 12.”





4




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
      1B.
                UNRESOLVED STAFF
      COMMENTS.


None




ITEM
      2.
                PROPERTIES.


Information relating to our owned
properties is set forth above in Item 1, Business-Real Estate
Properties.





We
maintain corporate headquarters in New York City in a leased facility located at
70 E. 55th
Street, New York, New York, which occupies approximately 5,600 square feet of
office space.  Our lease is scheduled to expire on March 31,
2015.  Our base rent is $386 per annum, increasing to $409 beginning
April 1, 2013.  We believe that our existing facilities are adequate
to meet our current operating needs and that suitable additional space should be
available to us on reasonable terms should we require additional space to
accommodate future operations or expansion.




ITEM
      3.
                LEGAL
      PROCEEDINGS.


From time to time we are a party in
various lawsuits incidental to our business operations.  In our
opinion, none of such litigation in which it is currently a part, if adversely
determined, will have a material adverse effect on our financial condition or
its operations.


ITEM
      4.
              RESERVED.
  5


PART II




ITEM
      5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES.





Our
common stock is traded on the over-the-counter market and is quoted on the OTC
Bulletin Board maintained by the FINRA under the symbol
“DVLN.OB”.  The following table sets forth, for the calendar periods
indicated, the high and low bid prices of the common stock as reported by the
NASD.  Such prices are inter-dealer prices without retail mark-up,
mark-down or commission, and do not represent actual transactions.





2009
            High
            LowFourth
      Quarter
            $.13
            $
      .09Third
      Quarter
            .12
            .07Second
      Quarter
            .10
            .06First
      Quarter
            .12
            .072008Fourth
      Quarter
            $
      .18
            $
      .07Third
      Quarter
            .19
            .16Second
      Quarter
            .19
            .11First
      Quarter
            .17
            .09





At March
26, 2010, there were 3,515 holders of record of our common stock.  We
estimate the total number of beneficial owners to be approximately
5,200.





No
dividends have been paid since October 1990.  At this time, we do not
anticipate paying any dividends in the foreseeable future.





ITEM
      6.
            SELECTED
      FINANCIAL DATA





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




ITEM
      7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.





INTRODUCTION




We are a
commercial finance company which is primarily engaged in (a) the ownership of
residual interests in securitized portfolios, (b) the ownership and servicing of
a portfolio of secured commercial mortgage loans made to Affiliated Limited
Partnerships, (c) the ownership of real estate and (d) the performance of real
estate asset management and administrative services.





We expect that anticipated cash flow
provided by operations and other sources will be sufficient to meet our current
cash requirements through at least March 2011.  We have in the past
and expect in the future to continue to be required to augment our cash flow
provided by operations with additional cash generated from either the sale or
refinancing of portions of our assets and/or borrowings.  We currently
do not generate sufficient cash flow from operations to meet our cash
requirements or to permit us to pay a dividend on our common
stock.  Excluding proceeds generated from the sale of assets, our cash
flow would have been a net decrease in cash of $1,217 for the year ended
December 31, 2009.




6




Many of the mortgages currently held by
us have or had underlying loans which are serviced by a substantial portion of
the cash flow generated from the repayment of our mortgage
portfolio.  As of December 31, 2009, a substantial number of loans
underlying our wrap-around mortgages loans were fully paid.  During
2008 and 2009, we foreclosed on six of our mortgage loans due to the Affiliated
Limited Partnerships for failure to pay amounts due on mortgage
loans.  At the time of the foreclosure, the mortgages had a combined
carrying value of $2,760.  During December, 2008, we sold one of these
properties and received net proceeds of $220.  During 2009, we sold
three of these properties and received net proceeds of $1,788.  The
other two properties are being held for lease or sale and at December 31, 2009
remain vacant and unsold.  As a result, we are obligated for all costs
at these properties including property taxes and
insurance.  Considering the status of the property markets and the
location of our properties there can be no assurance regarding future leasing or
sale of the properties.





Our current strategy is to continue to
maximize the value of our assets and meet our short term working capital needs
by continuing to manage, administer and service our existing portfolio and
develop, lease and refinance or sell an 8.5 acre retail site located in Kearny,
NJ which we have owned for many years and for which we have been designated as
developer by the Town of Kearny.   However, because of the
current economic conditions, the development of the Kearny property will take
longer than originally projected.  In the current economic market
there is no assurance that the project will be successful or that the
redevelopment can be completed.  In addition, in order for us to
undertake the redevelopment of such property, we need to obtain construction
financing, and, potentially additional loan or equity financing, and given
current economic conditions, there can be no assurance that any such financing
will be obtained on acceptable terms.





We have been able to effectively limit
our tax expense over the years through the utilization of our net operating loss
carry-forwards, which we refer to as NOLs.  Our NOLs expire in various
years through 2019 and we currently expect to utilize $530 of our NOLs during
the applicable year of their expiration.  We benefit from the use of
the NOLs by offsetting certain taxable income dollar for dollar by the amount of
the NOLS, thereby eliminating substantially all of the U.S. federal corporate
tax on such income up to the amount of the NOL.  If we generate
profits in the future, we may be subject to limitations on the use of our NOLs
pursuant to the United States Internal Revenue Code of 1986, as amended, which
we refer to as the Code.   However, there can be no assurance
that a significant amount of our existing NOLs will be available to us at such
time as we desire to use them.





For the
year ended December 31, 2009, we had approximately $530 of NOLs
remaining.





RESULTS OF
OPERATIONS




Comparison of the year ended
December 31, 2009 to the year ended December 31, 2008.




DVL had
income from continuing operations from each of its business segments as
follows:





2009
            
            
            2008Residual interests
      segment
            
            $
            3,635
            
            
            $
            3,110Real estate
      segment
            
            
            (2,142
            )
            
            
            (998
            )Corporate /
      other
            
            
            119
            
            
            
            (472
            )Income from continuing
      operations
            
            $
            1,612
            
            
            $
            1,640





Interest
income on mortgage loans from affiliates increased to $2,241 as a result of
accretion on certain mortgage loans.  Interest expense decreased as a
result of anticipated loan maturities and the application of a greater
percentage of each payment to mortgage principal balances.




2009
            
            
            2008Interest on mortgage
      loans
            
            $
            2,241
            
            
            $
            1,777Interest expense on
      underlying mortgages
            
            $
            234
            
            
            $
            339





The gain
on satisfaction of mortgage loans results when the net proceeds on the
satisfaction of mortgage loans are greater than their carrying
values.  There were no loans satisfied during 2009.




7




2009
            
            
            2008Gain on satisfaction
      of mortgage loans
            
            $
            0
            
            
            $
            906





Distributions
from partnerships decreased in 2009 from 2008 primarily as a result of final
distributions from affiliated partnerships sale proceeds being received in
2008.




2009
            
            
            2008Distributions from
      partnerships
            
            $
            142
            
            
            $
            275




Interest
income on residual interest increased due to favorable changes in future cash
flow which are recognized as interest over the remaining life of the retained
interests. Interest expense on the related notes payable decreased as a result
of principal amortization.




2009
            
            
            2008Interest income on
      residual interests
            
            $
            6,293
            
            
            $
            5,994Interest expense on
      related notes payable
            
            $
            2,651
            
            
            $
            2,877





Net
rental income decreased primarily as a result of decreased gross rental income
and the write-off of amounts due from tenants deemed to be
uncollectible.  Gross rental income reflects decreased occupancy of
the Kearny redevelopment project.




2009
            
            
            2008Net rental income from
      others
            
            $
            410
            
            
            $
            498Gross rental income
      from others
            
            $
            1,259
            
            
            $
            1,287





Distributions
from investments decreased as a result of the liquidation of the investments
that generated the distributions in 2008.




2009
            
            
            2008Distributions from
      investments
            
            $
            0
            
            
            $
            66





General
and administrative expenses were relatively constant in 2009 when compared to
2008.




2009
            
            
            2008General and
      administrative
            
            $
            1,598
            
            
            $
            1,549




The asset
servicing fee paid to NPO Management LLC (“NPO”), the entity which is engaged by
us to provide us with management services, increased pursuant to the terms of
the Asset Servicing Agreement, which calls for an adjustment to reflect changes
in the consumer price index.




2009
            
            
            2008Asset servicing
      fee
            
            $
            782
            
            
            $
            774





Legal and
professional fees increased primarily as a result of increased professional
services related to the Kearny development project, where the leases were not
executed.




2009
            
            
            2008Legal and
      professional
            
            $
            580
            
            
            $
            327




8




We
recorded an additional provision for losses on our mortgage portfolio of $773 in
2009 and $150 in 2008 due to underlying changes in the value of the
collateral.




2009
            
            
            2008Provision for
      losses
            
            $
            785
            
            
            $
            150





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




2009
            
            
            2008Interest expense to
      affiliates
            
            $
            166
            
            
            $
            188





Interest
expense relating to other debts decreased in 2009 as a result of deferred
financing costs being fully amortized.




2009
            
            
            2008Interest expense –
      others
            
            $
            987
            
            
            $
            1,409





We
expensed $0 and $73 for alternative minimum taxes during 2009 and 2008,
respectively.  We recognized $189 and $486 of deferred income tax
expense during 2009 and 2008, respectively.  We also recorded current
refunds receivable of $108 during 2009.  The deferred tax impact in
2009 and 2008 resulted primarily from the deferred expense related to the
changes in the components of deferred tax assets.




2009
            
            
            2008Income tax
      expense
            
            $
            81
            
            
            $
            778





Discontinued
operations consist of the operations of business segments we consider as held
for sale or have disposed of.




2009
            
            
            2008Loss from discontinued
      operations
            
            $
            175
            
            
            $
            110






LIQUIDITY AND CAPITAL
RESOURCES




Our cash
balance was $1,067 at December 31, 2009, compared with $496 at December 31,
2008.





Our cash flow from operations is
generated principally from rental income from our ownership of real estate,
distributions in connection with our residual interests in securitized
portfolios, interest on our mortgage portfolio, management fees and transaction
and other fees received as a result of the sale and/or refinancing of
partnership properties and mortgages.





We expect that anticipated cash flow
provided by operations and other sources will be sufficient to meet our current
cash requirements through at least March 2011.  We have in the past
and expect in the future to continue to be required to augment our cash flow
provided by operations with additional cash generated from either the sale or
refinancing of portions of our assets and/or borrowings.  We currently
do not generate sufficient cash flow from operations to meet our cash
requirements or to permit us to pay a dividend on our common
stock.  Excluding proceeds generated from the sale of assets, our cash
flow would have been a net decrease in cash of $1,217 for the year ended
December 31, 2009.




9




With respect to our residual interests,
pursuant to the terms of the purchase agreements, there are annual minimum and
maximum levels of cash flow that we are entitled to retain, after the payment of
interest and principal on the notes payable.  During 2009 these
minimum and maximum amounts were $743 and $880, respectively, of which we
received $780.  Effective January 1, 2010 through the final payment to
the holder of the notes payable (expected to be 2014 and 2018 for Receivables
II-A and Receivables II-B, respectively), the annual minimum and maximum
increased to $1,050 and $1,150, respectively.  Accordingly, in order
for our cash flow to increase significantly, our revenue from our other assets
will need to grow without a corresponding increase in expenses.





We
believe we will continue to receive significant cash flow from the residual
interests after final payment of the notes payable.





Outstanding
Financings




Outstanding
loans payable as of December 31, 2009 which are scheduled to become due through
2014 are as follows:




Creditor
            
            Original
              Loan
              Amount
            
            
            Outstanding
              Balance
      Including
              Accrued
      Interest at
              December 31,
      2009
            
            
            Interest
      Rate
            
            
            Annual
      Debt Service
            
            Maturity
            
            Amount
              due
      at MaturityPemmil
      (1)
            
            $
            2,500
            
            
            $
            1,129
            
            
            
            12%
            
            
            
            (1)
            
            12/31/11
            
            $
            1,129Unaffiliated
      Bank (2)
            
            $
            2,200
            
            
            $
            1,940
            
            
            LIBOR
      + 4%
            
            
            
            (2)
            
            02/01/14
            
            $
            -0-Unaffiliated
      Bank (3)
            
            $
            1,500
            
            
            $
            1,358
            
            
            
            6.25%
            
            
            
            (3)
            
            06/05/12
            
            $
            1,250Unaffiliated
      Bank (4)
            
            $
            6,450
            
            
            $
            3,501
            
            
            >of
      6% or Prime +1%
            
            
            
            (4)
            
            01/21/11
            
            $
            3,501Unaffiliated
      Bank
            
            $
            250
            
            
            $
            170
            
            
            
            7.5%
            
            
            
            $60
            
            02/01/13
            
            $
            170Unaffiliated
      Bank (5)
            
            $
            3,800
            
            
            $
            3,725
            
            
            LIBOR
      + 2.1%
            
            
            
            (5)
            
            07/01/11
            
            $
            3,725




(1)
            Pemmil
      is an affiliated entity.  Loan requires payments only to the
      extent of 50% of the proceeds from capital transactions.  If
      proceeds are insufficient to satisfy monthly interest payments, interest
      is added to principal.  Loan is secured by a subordinated lien
      on our interest in S-2 Holdings Inc. and a first priority lien on two
      mortgages.




(2)
            Loan
      is secured by first priority interest in four first mortgages and contains
      a restriction on pledging mortgages for additional
      debt.  Requires monthly payments of interest plus a fixed
      principal payment of $39.




(3)
            Loan
      requires monthly payments of interest only as well as an annual principal
      payment of $50.




(4)
            Initial
      advance under the loan was $4,250 with an additional $2,200 to be advanced
      upon the satisfaction of certain conditions, if at
      all.  Requires payments of interest only.  One year
      extension option subject to certain terms and
  conditions.




(5)
            Secured
      by the Kearny Property.  Requires annual debt service of
      approximately $292.




We use
derivatives to manage risks related to interest rate movements on our floating
rate debt.  Interest rate swap contracts designated and qualifying as
cash flow hedges are reported at fair value.  During September 2008,
the Company entered into an interest rate swap agreement related to one of its
floating rate loans.  Valued separately, the interest rate swap
agreement represents a liability as of December 31, 2009 and 2008 , in the
amount of $159 and $231, respectively.  During April 2009, the Company
entered into a second interest rate swap agreement related to another of its
floating rate loans.  Valued separately, the interest rate swap
agreement represents a liability as of December 31, 2009 in the amount of
$17.  This value represents the fair value of the current difference
in interest paid and received under the swap agreements over the remaining term
of the agreements.  Because the swaps are considered to be a cash flow
hedge and they are effective, the value of the swap agreements are recorded in
the Consolidated Statements of Shareholders’ Equity as a separate component and
represents the only amount reflected in accumulated other comprehensive
loss.  Changes in the swap agreements’ fair value are reported
currently in other comprehensive loss.  Payments are recognized in
current operating results as settlements occur under the agreements as a
component of interest expense.  The following table summarizes the
notional values of our derivative financial instruments.  The notional
value provides an indication of the extent of our involvement in these
instruments on December 31, 2009, but does not represent exposure to credit,
interest rate or market risks.




10




Hedge
      Type
            Notional
      Value
            Rate
            Termination
      Date
            Fair
      ValueInterest
      rate swap agreement
            $   3,706
            5.94%
            July
      1, 2011
            $   (159)





The outstanding principal of the Note
is payable in monthly installments of $5 beginning on August 1, 2008 and
continuing on the first day of each month thereafter.  Annual debt
service is approximately $292.  The final monthly installment of the
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
      ValueInterest
      rate swap agreement
            $   1,930
            6.09%
            February
      1, 2014
            $     (17)





The outstanding principal of the Note
is payable in monthly installments of $39 beginning on June 1, 2009 and
continuing on the first day of each month thereafter.  The final
monthly installment of the 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.




Contractual
Obligations




Payments
      due by PeriodLess
      than
              
              
              1-3
              
              
              3-5
              
              
              More
      thanTotal
              
              
              1
      Year
              
              
              Years
              
              
              Years
              
              
              5
      YearsDebt
      Obligations:Debt
              
              $
              11,823
              
              
              $
              672
              
              
              $
              10,601
              
              
              $
              550
              
              
              $
              -Interest
      on Debt
              
              
              1,046
              
              
              
              632
              
              
              
              394
              
              
              
              20
              
              
              
              -Notes
      Payable - Residual Interests
              
              
              28,155
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              28,155Underlying
      Mortgage Maturities
              
              
              2,708
              
              
              
              598
              
              
              
              394
              
              
              
              422
              
              
              
              1,294Purchase
      Obligations:Asset
      Servicing Agreement (1)
              
              
              977
              
              
              
              782
              
              
              
              195
              
              
              
              -
              
              
              
              -Operating
      Lease Obligations
              
              
              2,074
              
              
              
              386
              
              
              
              772
              
              
              
              814
              
              
              
              102Total
              
              $
              46,783
              
              
              $
              3,070
              
              
              $
              12,356
              
              
              $
              1,806
              
              
              $
              29,551




(1)
            Subject
      to annual cost of living increases – See Item 13.  Certain
      Relationships and Related
Transactions.





IMPACT OF INFLATION AND
CHANGES IN INTEREST RATES




Our 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 our
earnings.  Other than as a factor in determining market interest
rates, inflation has not had a significant effect on our net
income.




11




CRITICAL ACCOUNTING POLICIES
AND ESTIMATES




See “Item
8. Financial Statements and Supplementary Data - Note 1.”


ITEM
      7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




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




ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY
DATA.





See “Index to Consolidated Financial
Statements” below.




Supplementary
Data




Quarterly
Data (Unaudited)


For the
Year Ended December 31, 2009




For
      the year ended December 31, 20091st
              
              
              2nd
              
              
              3rd
              
              
              4th
              
              
              FullQuarter
              
              
              Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              YearTotal
      Revenue
              
              $
              2,320
              
              
              $
              2,347
              
              
              $
              2,472
              
              
              $
              2,337
              
              
              $
              9,476Net
      Income (Loss)
              
              
              377
              
              
              
              662
              
              
              
              556
              
              
              
              (158
              )
              
              
              1,437Basic
      Earnings Per Share:Net
      Income (Loss)
              
              $
              0.01
              
              
              $
              0.01
              
              
              $
              0.01
              
              
              
              n/a
              
              
              $
              0.03Diluted
      Earnings Per Share:Net
      Income (Loss)
              
              $
              0.01
              
              
              $
              0.01
              
              
              $
              0.01
              
              
              
              n/a
              
              
              $
              0.03Weighted
      Average Sharesoutstanding:Basic
              
              
              44,770,345
              
              
              
              44,770,345
              
              
              
              44,770,345
              
              
              
              44,770,345
              
              
              
              44,770,345Diluted
              
              
              44,804,790
              
              
              
              44,797,845
              
              
              
              44,784,070
              
              
              
              44,829,029
              
              
              
              44,803,018





Quarterly
Data (Unaudited)


For the
Year Ended December 31, 2008





For
      the year ended December 31, 20081st
              
              
              2nd
              
              
              3rd
              
              
              4th
              
              
              FullQuarter
              
              
              Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              YearTotal
      Revenue
              
              $
              3,075
              
              
              $
              2,640
              
              
              $
              2,287
              
              
              $
              2,029
              
              
              $
              10,031Net
      Income (Loss)
              
              
              973
              
              
              
              568
              
              
              
              305
              
              
              
              (316
              )
              
              
              1,530Basic
      Earnings Per Share:Net
      Income (Loss)
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.01
              
              
              $
              (0.01
              )
              
              $
              0.03Diluted
      Earnings Per Share:Net
      Income (Loss)
              
              $
              0.02
              
              
              $
              0.01
              
              
              $
              0.01
              
              
              $
              (0.01
              )
              
              $
              0.03Weighted
      Average Sharesoutstanding:Basic
              
              
              45,292,757
              
              
              
              45,292,845
              
              
              
              45,051,691
              
              
              
              44,770,345
              
              
              
              45,155,947Diluted
              
              
              45,426,146
              
              
              
              45,413,942
              
              
              
              45,213,344
              
              
              
              44,862,918
              
              
              
              45,298,447




12




Basic anddiluted earnings per share are computed independently for
each of the periods.  Accordingly, the sum of the quarterly earnings
per share amounts may not agree to the total for the year.  The
financial statements and notes thereto, together with the reports of the
independent registered public accounting firms of McGladrey & Pullen, LLP
and IKC, are set forth on pages F-1 through F-29, which follow.  The
financial statements are listed in Item 15 hereof.  Amounts for each
quarter have been adjusted to reflect reclassifications of management fee income
and losses from discontinued operations.




ITEM
      9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.





On
October 30, 2009, we and our independent registered public accounting firm,
Imowitz Koenig & Co., LLP, which we refer to as IKC, agreed that IKC would
resign and not stand for re-appointment as our independent registered public
accounting firm.  There were no disagreements between the
parties.  The resignation was to permit IKC’s affiliate, RESIG, to
assume accounting services for the Company.





With
respect to IKC and its service as our independent registered public accounting
firm;





●
            IKC’s
      reports on our consolidated financial statements as of and for the years
      ended December 31, 2008 and 2007 did not contain an adverse opinion or a
      disclaimer of opinion and were not qualified or modified as to
      uncertainty, audit scope, or accounting
  principle.


●
            During
      the fiscal years ended December 31, 2008 and 2007 and through the
      quarterly period ended September 30, 2009, there were no disagreements
      with IKC on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedures, which
      disagreements, if not resolved to the satisfaction of IKC, would have
      caused IKC to make a reference to the subject matter of the disagreements
      in connection with their reports on our financial statements for such
      years.


●
            During
      the fiscal years ended December 31, 2008 and 2007 and through the
      quarterly period ended September 30, 2009, there was a “reportable event”
      as described in Item 304(a)(1)(v) of Regulation S-K promulgated under the
      Securities Exchange Act of 1934, as amended, which we refer to as the
      Exchange Act.  As disclosed in our 2008 Annual Report on Form
      10-K, our control environment did not sufficiently promote effective
      internal control over financial reporting throughout the
      organization.  No misstatements occurred as a result of such
      material weakness in our internal controls over financial
      reporting.


●
            In
      an effort to improve our internal controls over financial reporting, on
      November 2, 2009 we engaged RESIG to provide substantially all of our
      internal accounting, financial statement preparation and bookkeeping
      functions on an outsourced consulting basis. RESIG is an affiliate of IKC
      and therefore IKC is no longer independent with respect to our financial
      statements. Consequently, IKC has resigned and we engaged a new
      independent registered public accounting firm as described
      below.





On
November 3, 2009, we, with approval of the Audit Committee, engaged McGladrey
& Pullen, LLP, which we refer to as M&P, as our new independent
registered public accounting firm as of and for the year ended December 31,
2009.  During the fiscal years ended December 31, 2008 and 2007, and
through the quarterly period ended September 30, 2009, neither we nor anyone
acting on our behalf consulted with M&P regarding either (i) the application
of the accounting principles to a specified transaction, either completed or
proposed; or the type of audit opinion that might be rendered on our financial
statements, and neither a written report nor oral advice was provided by M&P
to us that was an important factor considered by us in reaching a decision as to
any accounting, auditing or financial reporting issues: or (ii) any matter that
was either the subject of a “disagreement”, as that term is described in item
304 (a) (1) (v) of Regulation S-K promulgated under the Exchange Act, and the
related instructions to Item 304 of Regulation S-K, or a “reportable event”, as
the term is described in Item 304 (a) (1) (v) of Regulation S-K.


ITEM
      9A(T).
              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 our reports filed under the Exchange Act, is accumulated and
communicated to management, including our principal executive officer and
principal financial officer, as appropriate, to allow timely decisions regarding
required disclosure.




13




As requiredby Rule 13a-15 under the Exchange Act, we are required
to carry out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by
this report.  This evaluation was carried out with the participation
of our principal executive officer and principal financial
officer.  Based upon that evaluation, our principal executive officer
concluded that our disclosure controls and procedures were effective at a
reasonable assurance level such that the information relating to us and our
consolidated subsidiaries required to be disclosed in our Exchange Act reports
(i) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (ii) is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.





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 procedure” (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 effective as of
December 31, 2009.




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 December 31, 2009, the end of our fiscal
year.  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.




This annual report does not include
an attestation report of the Company’s registered public accounting firm
regarding internal control over financial reporting.  Management’s
report was not subject to attestation by the Company’s registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to present only management’s report in this
annual report.




ITEM
      9B.
              OTHER
      INFORMATION.




None




14




PART III




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS, AND CORPORATE
  GOVERNANCE.




The following table sets forth the
name of each director and executive officer of the Company as of March 15, 2010,
and the nature of all positions and offices with the Company held by him at
present.  The term of all directors (other than the special purpose
director) expires at the Company’s next annual meeting of stockholders, which
will be held on a date to be scheduled, or until their successors are duly
elected and qualified.  The term of all executive officers expires at
the next annual meeting of directors, to be held immediately thereafter, or
until their successors are duly elected and qualified.  There are no
family relationships among the directors or executive officers of the
registrant.




NAME
            POSITIONGary
      Flicker
            Chairman
      of the BoardIra
      Akselrad
            DirectorAlan
      E. Casnoff
            Director,
      President and Chief Executive OfficerNeil
      Koenig
            Executive
      Vice President and Chief Financial OfficerKeith
      B. Stein
            Special
      Purpose DirectorHenry
      Swain
            Executive
      Vice President





In addition to three directors, who
have all of the powers normally granted to corporate directors, we have one
special purpose director, who was elected in 1996 by the holder of the Class A
Preferred Stock.  The special purpose director has no right to vote at
meetings of the Board, except as to Bankruptcy Matters (as such term is defined
in the Company’s Certificate of Incorporation).




The following is a brief account of
the recent business experience of each director and executive officer and any
directorships held with other companies during the past five years which file
reports with the Securities and Exchange Commission:




GARY
FLICKER (age 51) has served as a director of the Company since January
2004.  Mr. Flicker was Chief Financial Officer and Executive Vice
President of DVL from April 1997 to November 2001 and remained employed by the
Company until May 2002.  From June 2002 to present, Mr. Flicker has
served as President and Chief Executive Officer of Flick Financial, an
accounting and financial consulting firm headquartered in Atlanta,
Georgia.  From January 2007 through July 2008, Mr. Flicker was Chief
Financial Officer, Executive Vice President, and Secretary of Xethanol Corp., a
public company traded on the American Stock Exchange.  Mr. Flicker is
a Certified Public Accountant.  Mr. Flicker’s experience,
qualifications, attributes and skills noted above led to the conclusion to elect
him as a director of the Company.




ALAN E.
CASNOFF (age 66) has served as President of the Company since November 1994, and
was appointed as a director in November 2001.  Mr. Casnoff served as
Executive Vice President of the Company from October 1991 to November
1994.  Mr. Casnoff has maintained his other business interests during
this period and thus has devoted less than full time to the business affairs of
DVL.  From November 1990 to October 1991, Mr. Casnoff served as a
consultant to the Company and from 1977 to October 1991, as secretary of the
Company.  Since May 1991, Mr. Casnoff has also served as a director of
Kenbee Management, Inc. (“Kenbee”), an affiliate of the Company, and as
President of Kenbee since November 1994.  Since 1977, Mr. Casnoff has
also been a partner of P&A Associates, a private real estate development
firm headquartered in Philadelphia, Pennsylvania.  Since 1969, Mr.
Casnoff was associated with various Philadelphia, Pennsylvania law firms which
have been legal counsel to the Company and Kenbee.  Since November,
2004, he has been of counsel to Zarwin, Baum, Devito (“Zarwin”).  Mr.
Casnoff’s experience, qualifications, attributes and skills noted above led to
the conclusion to elect him as a director of the Company.




15




IRA
AKSELRAD (age 55) was elected to the Board of Directors of the Company to serve
as a director on November 2, 2006.  Mr. Akselrad is currently
Executive Vice President and General Counsel of the Johnson Company, Inc., the
private investment company of the Robert Wood Johnson IV
Family.  Prior to joining the Johnson Company, he was an attorney with
the New York law firm of Proskauer Rose, LLP for the past 21
years.  For 16 of those years he was a member of the firm and
represented a wide range of corporate and real estate clients.  In
addition to his client responsibilities, he chaired numerous firm committees and
served as a member of the firm’s six member Executive Committee.  Mr.
Akselrad’s experience, qualifications, attributes and skills noted above led to
the conclusion to elect him as a director of the Company.




NEIL
KOENIG (age 59) has served as Chief Financial Officer since November
2009.  Mr. Koenig is a partner at Imowitz, Koenig & Co., LLP, a
public accounting firm providing services to public and private companies, and
member of Real Estate Systems Implementation Group, LLC, a consulting company
serving the real estate industry.  From 2002 until November 2009, he
was Chief Financial Officer of Orthometrix, Inc., a manufacturer and distributor
of medical and fitness-related equipment. Orthometrix, Inc. was a
publicly-traded company until 2009.  He is also the Vice President of
Guggenheim Structured Real Estate (since July 2004) and Square Mile Capital
(since July 2006), private equity real estate funds.  Mr. Koenig is a
member of the Board of Directors of NBTY, Inc. a New York Stock Exchange listed
company.




KEITH B.
STEIN (age 52) has been a special purpose director of the Company since
September 1996.  Mr. Stein is the Managing Partner of Crestwalk
Capital Advisors, LLC, a financial advisory and investment management firm, a
position he has held since 1998.  From December 2007 through December
2008, Mr. Stein was associated with Harbinger Capital Partners, a New York based
hedge fund, as the Managing Director of HCP Real Estate Investors, the real
estate investment fund within Harbinger.  Previously, Mr. Stein was a
Managing Director of Kimco Realty Corporation (NYSE: KIM), specializing in
investments in real estate and related securities.  From 1998 to 2008,
Mr. Stein was the Chairman, Chief Executive Officer, and a director of National
Auto Receivables Liquidation, Inc.  In the early 1990’s Mr. Stein
served as Senior Vice President, Secretary and General Counsel of WestPoint
Stevens, Inc., a then publicly-held textile company.  From 1989 to
February 1993, Mr. Stein was associated with the law firm of Weil, Gotshal &
Manges LLP.  Mr. Stein’s experience, qualifications, attributes and
skills noted above led to the conclusion to elect him as a director of the
Company.




HENRY
SWAIN (age 56) has served as Executive Vice President since April
2006.  Mr. Swain served as our Chief Financial Officer from April 2006
to November 2009.  From November 2001 to April of 2006, Mr. Swain
served as Vice President and Secretary of the Company.  Mr. Swain is a
Certified Public Accountant.  Prior to joining the Company in 2001,
Mr. Swain was associated with real estate owner/managers, financial services
firms and the accounting firm of Deloitte &
Touche,  LLP.




Section 16(a) Beneficial
Ownership Reporting Compliance




Section
16(a) of the Securities Exchange Act of 1934 requires our executive officers and
directors, and persons who are beneficial owners of more than 10% of a
registered class of our equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission, which we refer
to as the Commission.  Officers, directors, and greater than 10%
beneficial owners are required by Commission regulations to furnish us with
copies of all Section 16(a) forms they file.  To our knowledge, based
solely on review of such reports furnished to us, and written representations
from our officers and directors, all Section 16(a) filing requirements
applicable to such persons were satisfied.





16




Code ofEthics




Our board
of directors has adopted a code of ethics that applies to our chief executive
officer and chief financial officer, our principal executive officer and
principal financial officer, respectively, and all of our other financial
executives.  The code of ethics was filed as Exhibit 14 of the
Company’s Form 10-K for the fiscal year ended December 31, 2003 with the
Securities and Exchange Commission.  Request for copies of our code of
Ethics should be sent in writing to DVL, Inc., 70 East 55th
Street, New York, New York 10022.





Audit Committee and Audit
Committee Financial Expert




The Audit
Committee consists of Gary Flicker and Mr. Akselrad.  Our board of
directors has determined that Gary Flicker is an audit committee financial
expert, as defined in the Securities and Exchange Act of 1934 and is independent
as that term is defined under Rule 121 of the American Stock
Exchange.




Nominating
Committee




We have
not adopted any procedures by which security holders may recommend nominees to
our board of directors.


ITEM
      11.
              EXECUTIVE
      COMPENSATION.





SUMMARY
COMPENSATION TABLE




The following table sets forth all
compensation awarded to, earned by or paid to the following persons for services
rendered to us in 2009 and (if applicable) in 2008: (1) the person serving as
our chief executive officer during 2009; (2) the other person who was serving as
an executive officer as of the end of 2009 whose compensation exceeded $100
during 2009.




SUMMARY COMPENSATION
TABLE




OtherPrincipal
      Position
            Year
            
            Salary
            
            
            Bonus
            
            
            Compensation
            
            
            Total($)Alan
      E. Casnoff
            2009
            
            $
            147
            
            
            $
            -
            
            
            $
            23
            
            
            $
            170
            (1),
      (2)President
      and Chief Executive Officer
            2008
            
            $
            146
            
            
            $
            -
            
            
            $
            53
            
            
            $
            199
            (1),
      (2)Henry
      Swain
            2009
            
            $
            138
            
            
            $
            -
            
            
            $
            -
            
            
            $
            138
            (2)Executive
      Vice President
            2008
            
            $
            135
            
            
            $
            13
            
            
            $
            -
            
            
            $
            148
            (2)




(1)
            Mr.
      Casnoff received an additional $10 and $40 during 2009 and 2008,
      respectively as compensation for services rendered in connection with the
      development of the Kearny, New Jersey development
  project.




(2)
            The
      Company also paid for medical insurance of $13 for Mr. Casnoff and $16 for
      Mr. Swain in both 2009 and 2008.




17




Employee Contracts and
Arrangements




We have
entered into Indemnification Agreements with all officers and directors
effective upon their election as an officer or director, contractually
obligating us to indemnify them to the fullest extent permitted by applicable
law, in connection with claims arising from their service to, and activities on
behalf of, the Company.





We do not
currently have any employment contracts in force.  Our affairs are
administered by Compensation Solutions, Inc., which we refer to as CSI, pursuant
to the terms of a “leasing” contract.  Pursuant to the leasing
contract, CSI provides us with the necessary personnel, including certain
executive officers, necessary to administer the affairs of the
Company.  Accordingly, CSI provides such employees with their medical,
unemployment, workmen’s compensation and disability insurance through group
insurance plans maintained by CSI for the Company and other clients of
CSI.  Pursuant to the contract, the cost of such insurance as well as
the payroll obligations for the leased employees is funded by us to CSI, and CSI
is required to then apply such proceeds to cover the payroll and administrative
costs to the employees.  Should CSI fail to meet its obligations under
the contract, we would be required to either locate a substitute employee
leasing firm or directly re-employ our personnel.  The contract is
cancelable upon 30 days written notice by either party.





On
November 2, 2009, we entered into an agreement with Real Estate Systems
Implementation Group, LLC, which we refer to as RESIG, an affiliate of Imowitz
Koenig & Co., LLP, our former independent registered public accountants,
pursuant to which RESIG will provide substantially all of our internal
accounting, financial statement preparation and bookkeeping functions on an
outsourced consulting basis.  The company will pay an annual fee to
RESIG of $305. A requirement of the agreement was the appointment of Neil H.
Koenig as our Chief Financial Officer, Principal Financial Officer and Principal
Accounting Officer.  Mr. Koenig is a managing member of RESIG and a
managing member of IKC.




OUTSTANDING EQUITY AWARDS AT
FISCAL YEAR-END




Name
            
            Number
      of Securities Underlying Unexercised Options (#)
              Exercisable
            
            Number
      of Securities Underlying Options (#)
              Unexercisable
            
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
              (#)
            
            Option
      Exercise
              Price
      ($)
            
            Option
      Expiration
              DateAlan
      E. Casnoff
            
            100,000
            
            -
            
            -
            
            0.0750
            
            08-08-11




B.       OPTION
GRANTS IN LAST FISCAL YEAR




No
options or other equivalents were granted by us in 2009 nor do we have a plan in
effect pursuant to which options can be issued.





At
December 31, 2009, we had 445,000 options to purchase 445,000 shares outstanding
which options had been issued pursuant to a since terminated option
plan.  All such options are currently exercisable. The following table
sets forth the expiration dates of the outstanding options and the exercise
price for such options.




18


Expiration Date
              
              Number of
      Options
              
              
              Exercise
      Price5/8/2010
              
              
              60,000
              
              
              $
              0.1109/17/2010
              
              
              45,000
              
              
              $
              0.0908/8/2011
              
              
              135,000
              
              
              $
              0.0759/17/2011
              
              
              45,000
              
              
              $
              0.0809/17/2012
              
              
              30,000
              
              
              $
              0.1405/12/2013
              
              
              25,000
              
              
              $
              0.1209/17/2013
              
              
              30,000
              
              
              $
              0.1509/1/2014
              
              
              15,000
              
              
              $
              0.1209/17/2014
              
              
              30,000
              
              
              $
              0.1309/17/2015
              
              
              30,000
              
              
              $
              0.120





C.           COMPENSATION OF
DIRECTORS





Members
or our board of directors who are not officers or employees of the Company
presently receive a director’s fee of $1,600 per month, plus five hundred
dollars for each Audit Committee meeting of the board of directors attended and
the chairman of the audit committee receives an additional five hundred dollars
per meeting.  Directors who are officers of the Company receive no
compensation for their services as directors or attendance at any board of
directors or committee meetings.  The special purpose director
receives no compensation for his service as a director or attendance at any
board of directors or committee meetings.





The
following is a table summarizing the compensation for non-employee
directors.





DIRECTOR
COMPENSATION




Name
            Fees
      Earned or Paid
              In
      Cash
            Stock
      Awards
              ($)
            Option
      Awards
              ($)
            Total
              ($)Gary
      Flicker
            20
            -
            -
            20Ira
      Akselrad
            18
            -
            -
            18Keith
      B. Stein
            -
            -
            -
            -





D.           BOARD OF DIRECTORS
INTERLOCKS AND INSIDER PARTICIPATION




The Board
of Directors acts in the place of a formal compensation
committee.  During 2009, none of our  executive officers
served as  directors of or members of a compensation committee of any
entity for which any of the persons serving on the board of directors is an
executive officer.





E.           DIRECTOR
INDEPENDENCE





As of December 31, 2009, Messrs.
Flicker & Akselrad are independent as the term is defined under Rule 121 of
the American Stock Exchange.


ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.


A.           SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS





The
following table sets forth certain information as of March 15, 2010 regarding
the ownership of common stock by each person who is known to us to have been the
beneficial owner of more than 5% of the outstanding shares of our common
stock.




19




Name
      and Address of
            Amount
      and Nature ofBeneficial
      Owner
            Beneficial
      Ownership
            Percent of
      Class*Lawrence
      J. Cohen (1)
            4,691,397
            10.5%Jay
      Chazanoff (1)
            2,857,606
            6.4%J.G.
      Wentworth, S.S.C.
              Limited
      Partnership (2)
            3,000,000
      (2)
            6.3%
      (2)


*Based on
44,770,345 shares outstanding.





(1)
            According
      to the Schedule 13D filed with the SEC,  Messrs. Cohen and
      Chazanoff are part of a group that holds in the aggregate 12,193,850
      shares of common stock representing 27.2% of the outstanding common
      shares.  The business address for each of Messrs. Cohen and
      Chazanoff are 70 East 55th Street, New York, New York
      10022.  Messrs. Cohen and Chazanoff are currently affiliated
      with Pembroke Companies, Inc. which is a managing member of NPO Management
      LLC, the entity which is engaged by us to provide us with management
      services.





(2)
            Represents
      shares issuable upon the exercise of warrants. Percentage
      assumes the issuance of 3,000,000 common shares upon exercise of the
      warrant. The address of J.G. Wentworth, S.S.C. Limited Partnership is 40
      Morris Avenue, Bala Cynwyd PA
19004.




B.           SECURITY OWNERSHIP OF
MANAGEMENT





The
following table sets forth certain information as of March 26, 2010 regarding
ownership of common stock by (i) each director, (ii) each of the executive
officers named in the Summary Compensation Table contained herein, and (iii) all
executive officers and directors as a group (6 persons).  Unless
otherwise indicated, each stockholder listed below has sole voting and
investment power with respect to the shares set forth opposite such
stockholder’s name.  All persons listed below have an address c/o the
Company’s principal executive offices in New York.




Name
      of
            Amount
      and Nature of
            PercentageBeneficial
      Owner
            Beneficial
      Ownership
            of
      ClassAlan
      E. Casnoff
            335,000
            *Neil
      Koenig
            -
            -Henry
      Swain
            -
            -Ira
      Akselrad
            -
            -Gary
      Flicker
            145,000
            *Keith
      B. Stein
            1,211,956
            2.7%All
      current directors and executive officers as a group (6
      persons)
            1,691,956
            3.7%




* Less
than 1%




C.           CHANGES IN
CONTROL




Each of
our Certificate of Incorporation and the By-laws, contained restrictions
prohibiting the sale, transfer, disposition, purchase or acquisition of any
capital stock until September 30, 2009 without the prior authorization of the
Board of Directors, by or to any holder (a) who beneficially owns directly or
through attribution (as generally determined under Section 382 of the Code) five
percent (5%) or more of the value of the then issued and outstanding shares of
capital stock of the Company or (b) who, upon the sale, transfer, disposition,
purchase or acquisition beneficially would directly or through attribution own
five percent (5%) or more of the value of the then issued and outstanding
capital stock of the Company, if that sale, transfer, disposition, purchase or
acquisition would, in the sole discretion and judgment of the Board of Directors
jeopardize our preservation of its federal income tax attributes pursuant to
Section 382 of the Code.  The Board of Directors had the right to void
any such transaction.




20




Except asprovided above, there are no arrangements known to us the
operation of which would result in our change in control.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE.





Pemmil
Transaction




We are
obligated under the terms of Loan and Security Agreement to Pemmil Funding, LLC,
which we refer to as Pemmil, an entity owned and controlled by Alan Casnoff, our
President and a Director, Lawrence J. Cohen and Jay Chazanoff (Messrs. Cohen and
Chazanoff are beneficial owners of greater than 5% of our common
stock).  The Loan and Security Agreement was amended and restated
effective December 31, 2009 to provide for a two year extension to December 31,
2011.  Pursuant to the terms of the amended Loan and Security
Agreement, we are obligated to pay to Pemmil interest at a rate of 12% per
annum, compounded monthly; provided, however, we may elect not to make any such
interest payment when due, and such amount of unpaid monthly interest shall be
added to principal.  We are required to prepay the loan (plus any
accrued and unpaid interest) to the extent that we consummate certain capital
transactions that result in net proceeds to us.  The obligations to
Pemmil are secured by a subordinate pledge of our equity interest in S2 and a
first priority lien on two wrap-around mortgages.  At December 31,
2009, the outstanding balance of principal and accrued interest due to Pemmil
was $1,135.  We made payments to Pemmil on account of the loan of $565
and $814, for the years ended December 31, 2009 and 2008,
respectively.





We have
retained NPO Management, LLC, which we refer to as NPO, and its affiliates to
provide us with certain assets services, collection services and real estate
brokerage services.  NPO is an affiliate of Mr. Cohen and Mr.
Chazanoff.  The following table sets forth the fees paid by us to NPO
and its affiliates for these services.





2009
            2008Administrative
      Services
            $782
            $774Collection
      Services(1)
            $123
            $150Brokerage
      Services(2)
            $  25
            $107





(1)
            Includes
      expense reimbursements


(2)
            Includes
      co-brokerage fees.





We
believe that the rates being charged and the terms obtained are equal to or
better than that which could be obtained in the market place.





During 2009 and 2008, we received fees
and reimbursement of expenses from affiliates of NPO for providing
administrative services, providing property management services and accounting
services as follows:





2009
            2008Administrative
      Fees
            $
      -
            $14Property
      Management Fees
            $
      -
            $30Accounting
      Fees
            $55
            $57Reimbursement
      of Expenses
            $420
            $420





The Philadelphia, Pennsylvania, law
firm of Zarwin, Baum, DeVito, of which Alan E. Casnoff, our President and CEO
and a director, is of counsel, has acted as our counsel since November,
2004.  Legal fees for services rendered by Zarwin, Baum, DeVito to us
during 2009 did not exceed 5% of the revenues of such firm for its most recent
fiscal year.




21




On November2, 2009, we entered into an agreement with Real Estate
Systems Implementation Group, LLC, which we refer to as RESIG, an affiliate of
Imowitz Koenig & Co., LLP, our former independent registered public
accountants, pursuant to which RESIG will provide substantially all of our
internal accounting, financial statement preparation and bookkeeping functions
on an outsourced consulting basis.  The company will pay an annual fee
to RESIG of $305. IKC was paid fees of $49 during 2009 for tax preparation
services. A requirement of the agreement was the appointment of Neil H. Koenig
as our Chief Financial Officer, Principal Financial Officer and Principal
Accounting Officer.  Mr. Koenig is a managing member of RESIG and a
managing member of IKC.





Director
Independence




As of
December 31, 2009,  Messrs. Flicker, Akselrad & Stein are
independent as the term is defined under Rule 121 of the American Stock
Exchange.




ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.




Aggregate
audit fees represent fees billed for Fiscal 2009 and Fiscal
2008.  Aggregate audit related and tax fees billed to us for the year
ended December 31, 2009 represent fees billed by M&P for the period from
November 2, 2009 through December 31, 2009 and by IKC from January 1, 2009 to
November 2, 2009.  Aggregate fees billed to us for the year ended
December 31, 2008 represent fees billed by IKC.





Type of
      Fee
            
            Fiscal
      2009
            
            
            Fiscal
      2008Audit
      Fee
            
            $
            155
            
            
            $
            167Audit
      Related Fees
            
            
            45
            
            
            
            -Tax
      Fees
            
            
            49
            
            
            
            33Total
            
            $
            249
            
            
            $
            200





Auditfees for the years
ended December 31, 2009 and 2008 were for professional services rendered in
connection with the audit of our consolidated financial statements.





Taxfees as of the years
ended December 31, 2009 and 2008 were for services related to tax compliance,
tax planning and strategies, and state and local tax advice.





Pursuant to the requirements of the
Sarbanes-Oxley Act of 2002, the terms of the engagement of McGladrey &
Pullen, LLP are subject to the specific pre-approval of the Audit
Committee.  All audit and permitted non-audit services to be performed
by McGladrey & Pullen, LLP require pre-approval by the Audit
Committee.  The procedures require all proposed engagements of
McGladrey & Pullen, LLP for services of any kind to be submitted for
approval to the Audit Committee prior to the beginning of any
services.  Our audit and tax services proposed for 2009 along with the
proposed fees for such services were reviewed and approved by the Audit
Committee.





PART
IV


ITEM
      15.
              EXHIBITS
      AND FINANCIAL STATEMENT
SCHEDULES.





(a)(1)  The
following consolidated financial information is included as a separate section
of our annual report on Form 10-K.




Item
8




Page No.




Report
      of Independent Registered Public Accounting Firm
            F –
      1Report
      of Independent Registered Public Accounting Firm
            F –
      2Consolidated
      Balance Sheets –  December 31, 2009 and 2008
            F –
      3Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
            F –
      5Consolidated
      Statements of Shareholders’ Equity for the years ended December 31, 2009
      and 2008
            F –
      7Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
            F –
      8Notes
      to Consolidated Financial Statements
            F –
      10





22




(3)
Financial Statement Schedules
 
 None.


(b) The
following is a list of the Exhibits filed as a part of this report (those marked
* are filed herewith):




INDEX
OF EXHIBITS




3.
            ARTICLES
      OF INCORPORATION AND BY-LAWS.(a)
            DVL’s
      Certificate of Incorporation, filed March 28, 1977 (Incorporated by
      reference to Exhibit 6(d) to DVL’s Form S-1 Registration Statement No.
      2-58847 dated April 28, 1977.)





(b)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed July 13,
      1977 (Incorporated by reference to Exhibit 6(e) to Amendment No. 1 to
      DVL’s Form S-1 Registration Statement No. 2-58847 dated August 25,
      1977.)





(c)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed August 3,
      1982.  (Incorporated by reference to Exhibit 3(c) to DVL’s Form
      10-K for the fiscal year ended December 31,
  1982.)





(d)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed May 27,
      1983.  (Incorporated by reference to Exhibit 3(d) to DVL’s Form
      10-K for the fiscal year ended December 31,
  1983.)





(e)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed July 24,
      1987.  (Incorporated by reference to Exhibit 3(e) to DVL’s Form
      10-K for the fiscal year ended December 31,
  1987.)





(f)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed December
      20, 1983. (Incorporated by reference to DVL’s Form 10-K for the fiscal
      year ended December 31, 1993.)





(g)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed December
      4, 1995.  (Incorporated by reference to DVL’s proxy statement
      dated October 13, 1995 – Exhibit
A.)





(h)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed September
      17, 1996.  (Incorporated by reference to DVL’s proxy statement
      dated July 31, 1996 – Exhibit I.)





(i)
            DVL’s
      Certificate of Amendment to Certificate of Incorporation, filed February
      7, 2000.  (Incorporated by reference to DVL’s Form 10-K for the
      fiscal year ended December 31,
1999.)





(j)
            DVL’s
      By-Laws, as in full force and effect at all times since March 28,
      1977.  (Incorporated by reference to Exhibit 3(c) to DVL’s Form
      10-K for the fiscal year ended December 31,
  1980.)





(k)
            DVL’s
      First Amendment to By-Laws dated as of January 1,
      1994.  (Incorporated by reference to Exhibit 3(d) to DVL’s Form
      10-K for the fiscal year ended December 31,
  1995.)





(l)
            DVL’s
      Second Amendment to By-Laws, effective September 17,
      1996.  (Incorporated by reference to DVL’s proxy statement dated
      July 31, 1996 – Exhibit J.)




23




(m)
            DVL’s
      Third Amendment to the By-Laws, effective February 1,
      2000.  (Incorporated by reference to DVL’s Form 10-K for the
      fiscal year ended December 31,
1999.)


10.
              MATERIAL
      CONTRACTS.


10.1
            Stipulation
      of Settlement of IN RE KENBEE LIMITED PARTNERSHIP  LITIGATION
      dated August 12, 1992.  (Incorporated by reference to Exhibit
      10(b)(25) to DVL’s Form 10-K for the fiscal year ended December 31,
      1995.)





10.2
            Stipulation
      of Partial Settlement and Order IN RE DEL-VAL FINANCIAL CORPORATION
      SECURITIES LITIGATION Master File #MDL872.  (Incorporated by
      reference to Exhibit 10(b)(28) to DVL’s Form 10-K for the fiscal year
      ended December 31, 1995.)





10.3
            Asset
      Servicing Agreement between DVL, PSC, KENBEE Realty and NPO dated as of
      March 27, 1996.  (Incorporated by reference to Exhibit 10(b)(34)
      to DVL’s Form 10-K for the fiscal year ended December 31,
      1995.)





10.4
            Asset
      Servicing Agreement between DVL and NPO.  (Incorporated by
      reference to DVL’s Proxy Statement dated July 31, 1996 - Exhibit
      C.)





10.5
            Common
      Stock Warrant issued by DVL to NPO.  (Incorporated
      by  reference to DVL’s Proxy Statement dated July 31, 1996 -
      Exhibit F.)





10.6
            DVL
      1996 Stock Option Plan.  (Incorporated by reference to DVL’s
      Proxy Statement dated July 31, 1996 – Exhibit
  K.)





10.7
            Amendment
      to DVL 1996 Stock Option Plan effective February 1, 2000. (Incorporated by
      reference to DVL’s Form 10-K for the fiscal year ended December 31,
      1999.)





10.8
            Promissory
      Note dated as of October 20, 1997, in the original Principal amount of
      $1,760,000 from DVL to Blackacre.  (Incorporated by reference to
      Exhibit 10.2 to DVL’s Form 10-Q for the quarter ended September 30,
      1997.)





10.9
            Subordination
      Agreement, dated as of October 20, 1997 among DVL, Blackacre, NPM, and
      NPO.  (Incorporated by reference to Exhibit 10.3 to DVL’s Form
      10-Q for the quarter ended September 30,
1997.)





10.10
            Agreement
      among Members dated April 10, 1998, by and among Blackacre, PNM, Pemmil
      and DVL.  (Incorporated by reference to DVL’s Form 10-K for the
      fiscal year ended December 31,
1998.)





10.11
            Management
      Services Agreement dated June 1, 1998, by and between DVL and PBD
      Holdings, L.P. (“PBD”).  (Incorporated by reference to DVL’s
      Form 10-K for the fiscal year ended December 31,
  1998.)





10.12
            Loan
      Agreement, Promissory Note and Pledge, Collateral Agreement and Security
      Agreement, each dated as of March, 2000, each relating to a loan from
      Pennsylvania Business Bank to DVL in the original principal amount of
      $1,000,000.  (Incorporated by reference to DVL’s Form 10-K for
      the quarter ended June 30, 2000.)





10.13
            Term
      Loan Note and Term Loan Agreement, each dated as of March, 2000, each
      relating to a loan from Bank Philadelphia to DVL in the original principal
      amount of $1,450,000.  (Incorporated by reference to DVL’s Form
      10-Q for the quarter year ended June 30,
2000.)





10.14
            First
      Amendment to Loan Agreement, Pledge Agreement, Promissory Note and other
      documents dated August 2000, relating to a loan from Pennsylvania Business
      Bank to DVL, Inc. in the original principal amount of
      $1,000,000.  (Incorporated by reference to DVL’s Form 10-Q for
      the quarter ended September 30,
2000.)




24




10.15
            Purchase
      Agreement, dated April 27, 2001, by and among  J.G. Wentworth
      Receivables II LLC, Receivables II-A LLC, Receivables II-A Holding
      Company, LLC, J.G. Wentworth S.S.C., Limited Partnership, J.G. Wentworth
      Management Company, Inc., S2 Holdings, Inc., and DVL, Inc. for the
      purchase of residual interests in securitized
      portfolios.  (Incorporated by reference to DVL’s Form 8-K dated
      May 9, 2001.)





10.16
            Non-Negotiable,
      Secured Purchase Money Promissory Note dated April 27, 2001 in the
      original principal amount of $22,073,270 payable to the order of J.G.
      Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
      by reference to DVL’s Form 8-K dated May 9,
  2001.)





10.17
            Non-Negotiable,
      Secured Purchase Money Promissory Note dated April 27, 2001 in the
      original principal amount of $3,252,730 payable to the order of J.G.
      Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
      by reference to DVL’s Form 8-K dated May 9,
  2001.)





10.18
            Guaranty
      and Surety Agreement dated April 27, 2001 by and from DVL, Inc. in favor
      of J.G. Wentworth S.S.C., Limited Partnership from S2 Holdings,
      Inc.  (Incorporated by reference to DVL’s Form 8-K dated May 9,
      2001.)





10.19
            Common
      Stock Warrant dated April 27, 2001.  (Incorporated by Reference
      to DVL’s Form 8-K dated May 9,
2001.)





10.20
            Purchase
      Agreement, dated as of August 20, 2001, by and among J.G. Wentworth
      Receivables II LLC, Receivables II-B LLC, Receivables II-B Holding Company
      LLC, J.G. Wentworth S.S.C. Limited Partnership, J.G. Wentworth Management
      Company, Inc., S2 Holding, Inc. and DVL, Inc. for the purchase of residual
      interests in securitized portfolios.  (Incorporated by reference
      to DVL’s Form 8-K dated August 28,
2001.)





10.21
            Non-Negotiable,
      Secured Purchase Money Promissory Note dated as of August 15, 2001 in the
      original principal amount of $7,931,560.00 payable to the order of J.G.
      Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
      by reference to DVL’s Form 8-K dated August 28,
  2001.)





10.22
            Non-Negotiable,
      Secured Purchase Money Promissory Note dated as of August 15, 2001 in the
      original principal amount of $1,168,440.00 payable to the order of J.G.
      Wentworth S.S.C., Limited Partnership from S2 Holdings, Inc. (Incorporated
      by reference to DVL’s Form 8-K dated August 28,
  2001.)





10.23
            Guaranty
      & Surety Agreement dated as of August 20, 2001 by and from DVL, Inc.
      in favor of J.G. Wentworth S.S.C., Limited
      Partnership.  (Incorporated by reference to DVL’s Form 8-K
      dated


August
28, 2001.)





10.24
            Pledge
      Agreement, dated as of August 20, 2001 by S2 Holdings, Inc. for the
      benefit of J.G. Wentworth S.S.C. Limited Partnership. (Incorporated by
      reference to DVL’s Form 8-K dated August 28,
  2001.)





10.25
            Common
      Stock Warrant dated as of August 15, 2001.  (Incorporated by
      reference to DVL’s Form 8-K dated August 28,
  2001.)





10.26
            Client
      Service Agreement between the Company and Compensation Solutions, Inc.
      dated March 28, 2003. (Incorporated by reference to DVL’s Form 10-Q for
      the quarter ended March 31, 2003.)





10.27
            $1,450,000
      Promissory Note issued by DVL, Inc. in favor of Pennsylvania Business
      Bank, dated April 28, 2004. (Incorporated by reference to Exhibit 10.1 to
      DVL’s Form 10-Q for the quarter ended June 30,
  2004.)





10.28
            Loan
      Agreement between DVL, Inc. and Pennsylvania Business Bank dated April 28,
      2004.  (Incorporated by reference to Exhibit 10.2 to DVL’s Form
      10-Q for the quarter ended June 30,
2004.)




25




10.29
            Promissory
      Note, dated December 28, 2004, issued by DVL Mortgage Holdings, LLC and
      DVL, Inc. in favor of Harleysville National Bank and Trust
      Company.  (Incorporated by reference to Exhibit 10.29 to DVL’s
      Form 10-KSB filed for the year ended December 31,
  2005.)





10.30
            Assignment
      Agreement, dated as of December 28, 2004, between Rumson Mortgage Holdings
      LLC and DVL Mortgage Holdings LLC, Inc.  (Incorporated by
      reference to Exhibit 10.30 to DVL’s Form 10-KSB filed for the year ended
      December 31, 2005.)





10.31
            Loan
      Agreement, dated December 28, 2004, by and among Harleysville National
      Bank and Trust Company and DVL Mortgage Holdings LLC. (Incorporated by to
      Exhibit 10.31 to DVL’s Form 10-KSB filed for the year ended December 31,
      2005.)





10.32
            Stock
      Repurchase Agreement dated March 16, 2007 between DVL, Inc., Blackacre
      Bridge Capital, L.L.C. and Blackacre Capital Group, L.P. (Incorporated by
      reference to Exhibit 10.33 to DVL’s Form 10-KSB for fiscal year ended
      December 31, 2006.)





10.33
            Loan
      and Security Agreement, dated June 5, 2006 by and between DVL, Inc. and
      First Penn Bank. (Incorporated by reference to Exhibit 10.1 to DVL’s Form
      10-QSB filed on August 14, 2006.)





10.34
            Change
      in Terms Agreement, dated September 1, 2006 by and between DVL, Inc. and
      Pennsylvania Business Bank. (Incorporated by reference to Exhibit 10.1 to
      DVL’s Form 10-QSB filed on November 14,
2006.)





10.35
            Agreement
      between the Town of Kearny, New Jersey and DVL, Inc. approved on October
      24, 2006. (Incorporated by reference to Exhibit 10.34 to DVL’s Form 10-KSB
      for the fiscal year ended December 31,
2006.)





10.36
            Agreement
      of Sale dated April 27, 2006 by and between DVL, Inc. and 354 Broadway
      Associates, LLC. (Incorporated by reference to Exhibit 10.38 to DVL’s Form
      10-KSB for the fiscal year ended December 31,
  2006.)





10.37
            First
      Amendment of Agreement of Sale dated June 28, 2006 by and between DVL,
      Inc. and 354 Broadway Associates, LLC. (Incorporated by reference to
      Exhibit 10.39 to DVL’s Form 10-KSB for the fiscal year ended December 31,
      2006.)





10.38
            Second
      Amendment of Agreement of Sale dated September 25, 2006 by and between
      DVL, Inc. and 354 Broadway Associates, LLC. (Incorporated by reference to
      Exhibit 10.40 to DVL, Inc.’s Form 10-KSB for the fiscal year ended
      December 31, 2006.)





10.39
            Loan
      Extension Agreement between Pennsylvania Business Bank and Del Toch, LLC,
      Delborne Land Company LLC, and Delbrook Holding, LLC dated March 2,
      2007.  (Incorporated by reference to Exhibit 10.1 to DVL’s Form
      10-QSB for the quarter ended March 31,
2007.)





10.40
            Loan
      Extension Agreement between Pennsylvania Business Bank and Del Toch, LLC,
      Delborne Land Company, LLC and Delbrook Holding LLC, dated June 1, 2007.
      (Incorporated by reference to Exhibit 10.1 to DVL’s Form 10-QSB for the
      quarter ended June 30, 2007.)





10.41
            Construction
      Loan Agreement dated August 2007 between DVL Kearny Holdings LLC, CapMark
      Bank, Urban Development Fund II LLC, and Paramount Community Development
      Fund.  (Incorporated by reference to Exhibit 10.43 to DVL’s Form
      10-KSB for the year ended December 31,
2007.)





10.42
            Asset
      Servicing Extension Agreement dated October 31, 2007 between DVL, Inc.,
      Professional Services Corporation, K.M. Realty Corporation, and NPO
      Management, LLC.  (Incorporated by reference to Exhibit 10.44 to
      DVL’s Form 10-KSB for the year ended December 31,
  2007.)




26




10.43
            First
      Amendment to Lease dated August 10, 2007 to that certain lease dated
      November 7, 2002 between DVL, Inc. and Amstad Property, Inc. (Incorporated
      by reference to Exhibit 10.45 to DVL’s Form 10-KSB for the year ended
      December 31, 2007.)





10.44
            Construction
      Loan Agreement between Capmark Bank, Urban Development Fund II, LLC,
      Paramount Community Development Fund, LLC, and DVL Kearny Holdings, LLC
      (dated August 14, 2007). (Incorporated by  reference to DVL’s
      Form 10-QSB for the quarter ended September 30,
  2007.)





10.45
            Asset
      Servicing Extension Agreement between DVL, Inc., Professional Services
      Corporation, KM Realty Corporation and NPO Management, LLC dated October,
      2007. (Incorporated by reference to DVL’s Form 10-QSB for the quarter
      ended September 30, 2007.)





10.46
            Redeveloper
      Agreement dated December 11, 2007 between DVL, Inc., DVL Kearny Holdings,
      LLC, and the Town of Kearny, New Jersey. (Incorporated by reference to
      DVL’s Current Event Report on Form 8-K dated December 11,
      2007.)





10.47
            Developer
      Services Agreement between DVL, Inc., P&A Associates, and Pemmil
      Management, LLC. (Incorporated by reference to DVL’s Current Event Report
      on Form 8-K dated December 11,
2007.)





10.48
            Mortgage
      Note for the principal amount of $3,800,000 in favor of Delbrook Holding,
      LLC. (Incorporated by reference to DVL’s Form 10-Q for the period ended
      June 30, 2008.)





10.49
            Amendment
      No. 2 to the Construction Loan Agreement. (Incorporated by Reference to
      DVL’s Form 10-Q for the period ended September 30,
  2008.)





10.50
            Pledge
      and Security Agreement dated as of August 1,
      2008.  (Incorporated by reference to DVL’s Form 10-Q for the
      period ended September 30, 2008.)





10.51
            Amendment
      No. 2 to the Loan and Security Agreement with Pemmil Funding, LLC, dated
      November 10, 2008.  (Incorporated by reference to DVL’s Form
      10-Q for the period ended September 30,
2008.)





10.52
            Mortgage,
      Security Agreement and Agreement of Leases and Rents dated January 21,
      2009 by DVL Kearny Holdings LLC in favor of Signature
  Bank.





10.53
            Guaranty
      dated January 21, 2009 by DVL, Inc. to Signature
  Bank.





*10.54
            Amended
      and Restated Loan and Security Agreement, dated as of December 31, 2009,
      by and between DVL, Inc. and Pemmil Funding,
  LLC.





14.
            Code
      of Ethics for Senior Financial Officers and Principal Executive
      Officer.  (Incorporated by reference to Exhibit 14 to DVL’s Form
      10-K for the year ended December 31,
2003.)





*21.
              SUBSIDIARIES
      OF DVL.


31.1
            Chief
      Executive Officer’s Certificate, pursuant to Section 302 of The
      Sarbanes-Oxley Act of 2002.





31.2
            Chief
      Financial Officer’s Certificate, pursuant to Section 302 of The
      Sarbanes-Oxley Act of 2002.





32.1
            Certification
      of Chief Executive Officer and Chief Financial Officer, pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.





27




SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, DVL has duly caused this report to be signed on its behalf of the
undersigned, thereunto duly authorized.




DVL,
      INC.Dated:  March
      31, 2010
              By:
              /s/
      Alan CasnoffAlan
      Casnoff
                Chief Executive Officer
 Dated:  March
      31, 2010
                  By:
                  /s/
      Neil KoenigNeil
      Koenig
                    Chief Financial Officer


Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report to
be signed below by the following persons on behalf of DVL and in the capacities
and on the dates indicated.




Signature
            
            Title
            
            Date/s/ Ira
      Akselrad
            
            Director
            
            March 31,
      2010Ira
      Akselrad/s/ Alan
      Casnoff
            
            Director
            
            March 31,
      2010Alan
      Casnoff/s/ Gary
      Flicker
            
            Director
            
            March 31,
      2010Gary
      Flicker





28




INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS





Consolidated
Financial Statements of DVL, Inc.


And
Subsidiaries and Report of Independent Registered Public Accounting
Firm





PageReport
      of Independent Registered Public Accounting Firm
            F-1Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheets – December 31, 2009 and 2008
            F-3Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
            F-5Consolidated
      Statements of Shareholders’ Equity for the years ended December 31, 2009
      and 2008
            F-7Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
            F-8Notes
      to Consolidated Financial Statements
            F-10





29




Report of Independent
Registered Public Accounting Firm





Board of
Directors and Shareholders


DVL,
Inc.





We have
audited the accompanying consolidated balance sheet of DVL, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and the related
consolidated statements of operations, shareholders’ equity and cash flows for
the year then ended.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DVL, Inc. and subsidiaries
as of December 31, 2009 and the results of their operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.





We were
not engaged to examine management’s assessment of the effectiveness of DVL,
Inc.’s internal control over financial reporting as of December 31, 2009,
included in the accompanying Item 9A (T) Internal Control Over Financial
Reporting and accordingly, we do not express an opinion thereon.








/s/ McGladrey &
Pullen




Blue
Bell, Pennsylvania


March 31,
2010




F-1




Report of Independent
Registered Public Accounting Firm





Board of
Directors and Shareholders


DVL,
Inc.





We have
audited the accompanying consolidated balance sheets of DVL, Inc. and
subsidiaries (the “Company”) as of December 31, 2008 and the related
consolidated statements of operations, shareholders’ equity and cash flows for
the year then ended.  These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of the Company’s internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of DVL, Inc. and subsidiaries
as of December 31, 2008, and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.






/s/
Imowitz Koenig & Co., LLP


New York,
New York




April 15,
2009





F-2




DVL,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(in
thousands)




December
      31,2009
              
              
              2008ASSETSResidual
      interests in securitized portfolios
              
              $
              42,699
              
              
              $
              45,789Mortgage
      loans receivable from affiliated partnerships
      (net     of unearned interest of
      $4,037 for 2009 and $5,181 for 2008)
              
              
              13,326
              
              
              
              14,279Allowance
      for loan losses
              
              
              (2,884
              )
              
              
              (2,180
              )Net
      mortgage loans receivable
              
              
              10,442
              
              
              
              12,099Cash
      (including restricted cash of $274 for 2009 and $0 for
    2008)
              
              
              1,067
              
              
              
              496InvestmentsReal
      estate at cost (net of accumulated depreciation andamortization
      of $1,564 for 2009 and $1,359 for 2008)
              
              
              9,776
              
              
              
              9,571Affiliated
      limited partnerships (net of allowance forlosses
      of $375 for 2009 and $448 for 2008)
              
              
              657
              
              
              
              657Net
      deferred tax asset
              
              
              2,068
              
              
              
              2,257Other
      assets
              
              
              1,762
              
              
              
              2,323Assets
      of discontinued operations
              
              
              -
              
              
              
              1,873Total
      assets
              
              $
              68,471
              
              
              $
              75,065




See notes
to consolidated financial statements.




F-3




DVL,
INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


(in
thousands except share data)


(continued)





December
      31,2009
              
              
              2008LIABILITIES AND
      SHAREHOLDERS' EQUITYLiabilities:Notes
      payable - residual interests
              
              $
              28,155
              
              
              $
              34,172Underlying
      mortgages payable
              
              
              2,708
              
              
              
              3,626Debt
      - other
              
              
              10,694
              
              
              
              11,195Debt
      - affiliates
              
              
              1,129
              
              
              
              1,527Interest
      rate swaps
              
              
              176
              
              
              
              231Redeemed
      notes payable - litigation settlement
              
              
              770
              
              
              
              775Security
      deposits, accounts payable and accruedliabilities
      (including deferred income of $71for
      2009 and $21 for 2008)
              
              
              424
              
              
              
              616Total
      liabilities
              
              
              44,056
              
              
              
              52,142Commitments
      and contingenciesShareholders'
      equity:Preferred
      stock, $10.00 par value, authorized, issuedand
      outstanding 100 shares
              
              
              1
              
              
              
              1Preferred
      stock, $.01 par value, authorized 5,000,000shares,
      issued and outstanding -0-
              
              
              -
              
              
              
              -Common
      stock, $.01 par value, authorized - 90,000,000shares,
      issued and outstanding 44,770,345 for 2009 and2008
              
              
              448
              
              
              
              448Additional
      paid-in-capital
              
              
              97,003
              
              
              
              97,003Deficit
              
              
              (72,861
              )
              
              
              (74,298
              )Accumulated
      other comprehensive loss
              
              
              (176
              )
              
              
              (231
              )Total
      shareholders' equity
              
              
              24,415
              
              
              
              22,923Total
      liabilities and shareholders' equity
              
              $
              68,471
              
              
              $
              75,065





See notes
to consolidated financial statements.




F-4




DVL,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands except share and per share data)





2009
              
              
              2008Income
      from affiliates:Interest
      on mortgage loans
              
              $
              2,241
              
              
              $
              1,777Gain
      on satisfaction of mortgage loans
              
              
              -
              
              
              
              906Partnership
      management fees
              
              
              225
              
              
              
              261Management
      fees
              
              
              55
              
              
              
              101Transaction
      and other fees from partnerships
              
              
              28
              
              
              
              88Distributions
      from partnerships
              
              
              142
              
              
              
              275Income
      from others:Interest
      income - residual interests
              
              
              6,293
              
              
              
              5,994Net
      rental income (including depreciation andamortization
      of $193 for 2009 and $148 for 2008)
              
              
              410
              
              
              
              498Distributions
      from investments
              
              
              -
              
              
              
              66Other
      income and interest
              
              
              82
              
              
              
              659,476
              
              
              
              10,031Operating
      expenses:General
      and administrative
              
              
              1,598
              
              
              
              1,549Asset
      servicing fee - NPO Management LLC
              
              
              782
              
              
              
              774Legal
      and professional fees
              
              
              580
              
              
              
              327Provision
      for loan losses
              
              
              785
              
              
              
              150Interest
      expense:Underlying
      mortgages
              
              
              234
              
              
              
              339Notes
      payable - residual interests
              
              
              2,651
              
              
              
              2,877Affiliates
              
              
              166
              
              
              
              188Others
              
              
              987
              
              
              
              1,4097,783
              
              
              
              7,613Income
      from continuing operations before income tax expense
              
              
              1,693
              
              
              
              2,418Income
      tax expense
              
              
              (81
              )
              
              
              (778
              )Income
      from continuing operations
              
              
              1,612
              
              
              
              1,640Loss
      from discontinued operations - net of tax of $-0- inboth
      periods
              
              
              (175
              )
              
              
              (110
              )Net
      income
              
              $
              1,437
              
              
              $
              1,530




See notes
to consolidated financial statements.




F-5




DVL,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


(in
thousands except share and per share data)





2009
              
              
              2008Basic
      earnings per share:Income
      from continuing operations
              
              $
              0.04
              
              
              $
              0.04Income
      from discontinued operations
              
              
              (0.01
              )
              
              
              (0.01
              )Net
      Income
              
              $
              0.03
              
              
              $
              0.03Diluted
      earnings per share:Income
      from continuing operations
              
              $
              0.04
              
              
              $
              0.04Loss
      from discontinued operations
              
              
              (0.01
              )
              
              
              (0.01
              )$
              0.03
              
              
              $
              0.03Weighted
      average shares outstanding - basic
              
              
              44,770,345
              
              
              
              45,155,947Effect
      of diluted securities
              
              
              32,673
              
              
              
              142,500Weighted
      average shares outstanding - diluted
              
              
              44,803,018
              
              
              
              45,298,447




See notes
to consolidated financial statements.




F-6




DVL, INC. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY


(in
thousands except share data)




Preferred
      Stock
              
              
              Common
      Stock
              
              
              Additional
              
              
              
              
              
              AccumulatedOtherPaid-In
              
              
              
              
              
              Comprehensive
              
              
              
              
              
              ComprehensiveShares
              
              
              Amount
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              Income
      (Loss)
              
              
              Total
              
              
              IncomeBalance
      - January 1, 2008
              
              
              100
              
              
              $
              1
              
              
              
              45,284,845
              
              
              $
              453
              
              
              $
              97,060
              
              
              $
              (75,828
              )
              
              $
              -
              
              
              $
              21,686
              
              
              $
              -Exercise
      of stock options
              
              
              -
              
              
              
              -
              
              
              
              8,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Repurchase
      of common stock
              
              
              -
              
              
              
              -
              
              
              
              (522,500
              )
              
              
              (5
              )
              
              
              (57
              )
              
              
              -
              
              
              
              -
              
              
              
              (62
              )
              
              
              -Unrealized
      loss on valuationof interest rate swap
      agreements
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (231
              )
              
              
              (231
              )
              
              
              (231
              )Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,530
              
              
              
              -
              
              
              
              1,530
              
              
              
              1,530Balance
      - December 31, 2008
              
              
              100
              
              
              
              1
              
              
              
              44,770,345
              
              
              
              448
              
              
              
              97,003
              
              
              
              (74,298
              )
              
              
              (231
              )
              
              
              22,923
              
              
              $
              1,299Unrealized
      gain on valuationof interest rate swap
      agreements
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              55
              
              
              
              55
              
              
              
              55Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,437
              
              
              
              -
              
              
              
              1,437
              
              
              
              1,437Balance
      - December 31, 2009
              
              
              100
              
              
              $
              1
              
              
              
              44,770,345
              
              
              $
              448
              
              
              $
              97,003
              
              
              $
              (72,861
              )
              
              $
              (176
              )
              
              $
              24,415
              
              
              $
              1,492





See notes
to consolidated financial statements.




F-7




DVL,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)




2009
              
              
              2008Cash
      flows from operating activities:Continuing
      operations:Net
      Income
              
              $
              1,437
              
              
              $
              1,530Adjustments
      to reconcile income to net cash provided by(used
      in) operating activities from continuing operationsLoss
      from discontinued operations
              
              
              175
              
              
              
              110Interest
      accretion on residual interests
              
              
              (312
              )
              
              
              (136
              )Net
      decrease in accrued interest on debt
              
              
              (4
              )
              
              
              (9
              )Gain
      on satisfaction of mortgage loans
              
              
              -
              
              
              
              (906
              )Depreciation
              
              
              178
              
              
              
              203Provision
      for loan losses
              
              
              773
              
              
              
              150Amortization
      of unearned interest on loan receivables
              
              
              (1,144
              )
              
              
              (1,051
              )Net
      decrease in deferred tax asset
              
              
              189
              
              
              
              486Net
      decrease (increase) in other assets
              
              
              673
              
              
              
              (168
              )Net
      (decrease) increase in accounts payable, security depositsand
      accrued liabilities
              
              
              (178
              )
              
              
              456Net
      (decrease) increase in deferred income
              
              
              (14
              )
              
              
              1Net
      cash provided by continuing operations
              
              
              1,773
              
              
              
              666Discontinued
      operations:Loss
      from discontinued operations
              
              
              (175
              )
              
              
              (110
              )(Gain)
      loss on sale of discontinued assets
              
              
              9
              
              
              
              (90
              )Net
      decrease in assets and liabilities ofdiscontinued
      operations
              
              
              76
              
              
              
              114Cash
      used in discontinued operations
              
              
              (90
              )
              
              
              (86
              )Net
      cash provided by operating activities
              
              
              1,683
              
              
              
              580


See notes
to consolidated financial statements.




F-8




DVL,
INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(in
thousands)


(continued)




2009
              
              
              2008Cash
      flows from investing activities:Collections
      on loans receivable
              
              $
              1,816
              
              
              $
              3,662Principal
      collections on retained interests
              
              
              3,214
              
              
              
              1,202Real
      estate acquisitions and capital improvements
              
              
              (171
              )
              
              
              (703
              )Net
      decrease in affiliated  limited partnership
      interestsand
      other investments
              
              
              -
              
              
              
              95Net
      proceeds from the sale of discontinued assets
              
              
              1,788
              
              
              
              220Net
      cash provided by investing activities
              
              
              6,647
              
              
              
              4,476Cash
      flows from financing activities:Proceeds
      from new borrowings
              
              
              6,491
              
              
              
              4,159Principal
      payments on debt
              
              
              (7,386
              )
              
              
              (4,152
              )Payments
      of prepaid financing costs
              
              
              (112
              )
              
              
              (199
              )Repurchase
      of common stock
              
              
              -
              
              
              
              (62
              )Payments
      on underlying mortgages payable
              
              
              (918
              )
              
              
              (1,965
              )Payments
      on notes payable - residual interest
              
              
              (5,829
              )
              
              
              (3,369
              )Payments
      related to debt redemptions
              
              
              (5
              )
              
              
              -Net
      cash used in financing activities
              
              
              (7,759
              )
              
              
              (5,588
              )Net
      increase (decrease) in cash
              
              
              571
              
              
              
              (532
              )Cash,
      beginning of period
              
              
              496
              
              
              
              1,028Cash,
      end of period
              
              $
              1,067
              
              
              $
              496Supplemental
      disclosure of cash flow information:Cash
      paid during the period for interest
              
              $
              3,774
              
              
              $
              4,525Cash
      paid for income taxes
              
              $
              20
              
              
              $
              175Supplemental
      disclosure of non-cash investing andfinancing
      activities:Residual
      interests in securitized portfolios -increase
      / (decrease)
              
              $
              (188
              )
              
              $
              884Notes
      payable - residual interests -increase
      / (decrease)
              
              $
              (188
              )
              
              $
              884Foreclosure
      of mortgage loans receivable collateralized byreal
      estate
              
              $
              281
              
              
              $
              1,776




See notes
to consolidated financial statements.




F-9




DVL,
INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Dollars
in thousands unless otherwise noted


(except
share and per share amounts)





1.
            Summary
      of Significant Accounting Policies




a.           THE
COMPANY:  DVL, Inc. is a Delaware corporation headquartered in New
York, New York.  DVL is a commercial finance company which is
primarily engaged in (a) the ownership of residual interests in securitized
portfolios, (b) the ownership and servicing of a portfolio of secured commercial
mortgage loans made to limited partnerships in which DVL serves as general
partner, which we refer to as an Affiliated Limited Partnership, (c) the
ownership of real estate and (d) the performance of real estate asset management
and administrative services.  All references to the “DVL”, “we”, “us”,
“our”, or the “Company” refer to DVL, Inc. and its consolidated
subsidiaries.




DVL’s
common stock is traded on the over-the-counter market and is quoted on the OTC
Bulletin Board maintained by FINRA under the symbol “DVLN”.  DVL’s
investments consist primarily of residual interests in securitized portfolios,
commercial mortgage loans due from affiliated partnerships, limited partnership
investments in affiliated partnerships and other real estate
interests.  DVL has seven 100% owned active
subsidiaries:  Professional Service Corporation (“PSC”), Del Toch, LLC
(“Del Toch”), Delborne Land Company, LLC (“Delborne”), S2 Holdings, Inc. (“S2”),
DVL Mortgage Holdings, LLC (“DMH”), DVL Kearny Holdings, LLC (“DVLKH”), Delbrook
Holdings, LLC (“Delbrook”), all of which are consolidated for accounting
purposes. DVL does not consolidate the various partnerships (the “Affiliated
Limited Partnerships”) in which it holds the general partner and limited partner
interests, except where DVL has control, nor does DVL account for such interests
on the equity method due to the following:  (i) DVL’s interest in the
partnerships as the general partner is a 1% interest, (the proceeds of such 1%
interest payable to the limited partnership settlement fund pursuant to the 1993
settlement of the class action between the limited partners and DVL) (the
“Limited Partnership Settlement”); (ii) under the terms of such settlement, the
limited partners have the right to remove DVL as the general partner upon the
vote of 70% or more of the limited partners; (iii) all major decisions must be
approved by a limited partnership Oversight Committee in which DVL is not a
member, (iv) there are no operating policies or decisions made by the Affiliated
Limited Partnership, due to the triple net lease arrangements of the Affiliated
Limited Partnership properties and (v) there are no financing policies
determined by the partnerships as all mortgages were in place prior to DVL’s
obtaining its interest and all potential refinancings are reviewed by the
Oversight Committee.  Accordingly, DVL accounts for its investments in
the Affiliated Limited Partnerships on a cost basis with the cost basis adjusted
for impairments, if any.  Accounting for such investments on the
equity method would not result in any material change to the Company’s financial
position or results of operations.




Also, DVL has two inactive
subsidiaries:  Del-Val Capital Corp. (“DVCC”) and RH Interests, Inc.
(“RH”), which have been consolidated in these financial
statements.  Additionally, S2 owns 99.9% Class B member interests in
Receivables II-A, LLC and Receivables II-B, LLC which are passive entities
created solely to receive the residual cash flow from the securitized receivable
pools that each entity owns.  Receivables IIA, LLC and Receivables
IIB, LLC are consolidated into S2 for financial reporting
purposes.  All material inter-company transactions and accounts are
eliminated in consolidation.




b.           RESIDUAL
INTERESTS:  Residual interests represent the estimated discounted cash
flow of the differential of the total interest to be earned on the securitized
receivables and the sum of the interest to be paid to the note holders and the
contractual servicing fee.  Since these residual interests are not
subject to prepayment risk they are accounted for as investments
held-to-maturity and are carried at amortized cost using the effective yield
method.  Permanent impairments are recorded immediately through
results of operations.  Favorable changes in future cash flows are
recognized through results of operations as interest over the remaining life of
the retained interest.




c.           INCOME
RECOGNITION:  Interest income is recognized on the effective interest
method for the residual interest and all performing loans.  The
Company stops accruing interest once a loan becomes non-performing.  A
loan is considered non-performing when scheduled interest or principal payments
are not received on a timely basis and in the opinion of management, the
collection of such payments in the future appears doubtful.  Rental
income is recognized in income as rent under the related leases becomes
due.  DVL records potential rents in the period in which the all
contingencies are resolved.  Management and transaction fees are
recognized as earned.  Distributions from investments are recorded as
income when the amount to be received can be estimated and collection is
probable.




F-10




d.           ALLOWANCE
FOR LOSSES:  The adequacy of the allowance for losses is determined
through a quarterly review of the portfolios.  Specific loss reserves
are provided as required based on management’s evaluation of the underlying
collateral on each loan or investment.




DVL’s allowance for loan losses
generally is based upon the value of the collateral underlying each loan and its
carrying value.  Management’s evaluation considers the magnitude of
DVL’s non-performing loan portfolio and internally generated appraisals of
certain properties.




For the Company’s mortgage loan
portfolio, the partnership properties are valued based upon the cash flow
generated by base rents and anticipated percentage rents or base rent
escalations to be received by the partnership plus an estimated residual value
at the end of the primary term of the leases.  The value of
partnership properties which are not subject to percentage rents was based upon
market research of current market value rents and sale prices of similar
properties. When any changes in tenants, lease terms, or timely payment of rent
have occurred, management revalues the property as appropriate.




Allowances related to the Company’s
investments in Affiliated Limited Partnerships are adjusted quarterly based on
Management’s estimate of their realizable value.




e.           REAL
ESTATE:  Land, buildings and equipment are stated at
cost.  Depreciation is provided by charges to operations on a
straight-line basis over their estimated useful lives (5 to 40
years).




f.           PREPAID
FINANCING:  Prepaid financing costs are deferred and amortized over
the term of the respective debt using the effective interest rate
method.  Prepaid financing costs on interest only loans are amortized
using the straight-line method over the term of the financing and are included
in other assets.  The Company has recorded $1,322 and $1,178 in other
assets in the consolidated balance sheets for the years ended December 31, 2009
and 2008, respectively.  $267 and $657 of amortization was recorded in
interest expense in the consolidated statements of operations for the years
ended December 31, 2009 and 2008, respectively.  Accumulated
amortization was $1,091 and $942 at December 31, 2009 and 2008,
respectively.




g.           IMPAIRMENT
OF REAL ESTATE INVESTMENTS AND REAL ESTATE LEASE INTERESTS:  A write
down for impairment is recorded based upon a periodic review of the real estate
owned by the Company.  Real estate is carried at the lower of
depreciated cost or estimated fair value.  In performing this review,
management considers the estimated fair value of the property based upon cash
flows, as well as other factors, such as the current occupancy, the prospects
for the property and the economic situation in the region where the property is
located.  Because this determination of estimated fair value is based
upon future economic events, the amount ultimately reflected in an appraisal or
realized upon a disposition may differ materially from the carrying
value.




A write-down is inherently subjective
and is based upon management’s best estimate of current conditions and
assumptions about expected future conditions.  The Company may provide
for write-downs in the future and such write-downs could be
material.




h.           RESTRICTED
CASH: As of December 31, 2009 and 2008, DVL had restricted cash of $274 and
$-0-, respectively.  The restricted cash at December 31, 2009
represents required minimum cash balances pursuant to debt agreements.




i.           FEDERAL
INCOME TAXES:  DVCC, PSC, RH, Del Toch, S2, DMH, DVLKH, Delbrook and
Delborne are included in DVL’s consolidated federal income tax
return.




The Company recognizes deferred tax
assets and liabilities for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax bases.  In addition, the Company
recognizes future tax benefits such as net operating loss carry-forwards, to the
extent that realization of such benefits is more likely than not.




F-11




j.           CASH
FLOW HEDGES:  The Company uses derivatives to manage risks related to
interest rate movements on its floating rate loans.  Interest rate
swap contracts designated and qualifying as cash flow hedges are reported at
fair value, the Company has established accounting and reporting standards for
derivative instruments.  Specifically, all derivatives are recognized
as either assets or liabilities on the balance sheet and those instruments are
measured 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 its floating
rate  loans.  Valued separately, the interest rate swap
agreement represents a liability as of December 31, 2009 and 2008, in the amount
of $159 and $231, respectively.  During April 2009, the Company
entered into an interest rate swap agreement related to another of its floating
rate loans.  Valued separately, the interest rate swap agreement
represents a liability as of December 31, 2009 in the amount of
$17.  This value represents the fair value of the current difference
in interest paid and received under the swap agreements over the remaining term
of the agreements.  Because the swaps are considered to be a cash flow
hedge and they are effective, the value of the swap agreements are recorded in
the Consolidated Statements of Shareholders’ Equity as a separate component and
represents the only amount reflected in accumulated other comprehensive
loss.  Changes in the swap agreements’ fair value are reported
currently in other comprehensive loss. Payments are recognized in current
operating results as settlements occur under the agreements 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 December 31, 2009, but does
not represent exposure to credit, interest rate or market risks.




Hedge
      Type
            Notional
      Value
            Rate
            Termination
      Date
            Fair
      ValueInterest
      rate swap agreement
            $3,706
            5.94%
            July
      1, 2011
            $(159)Interest
      rate swap agreement
            $1,930
            6.09%
            February
      1, 2014
            $(17)





k.           EARNINGS
PER SHARE:  Basic per share data is determined by dividing net income
by the weighted average shares outstanding during the period.  Diluted
per share data is computed by dividing net income by the weighted average shares
outstanding, assuming all dilutive potential common shares were
issued.  With respect to the assumed proceeds from the exercise of
dilutive options, the treasury stock method is calculated using the average
market price for the period.




The following table presents the
computation of basic and diluted per share data for the years ended December 31,
2009 and 2008:




2009
              
              
              2008Net
      Income
              
              
              Weighted
      Average Shares
              
              
              Per
      Share Amount
              
              
              Net
      Income
              
              
              Weighted
      Average Shares
              
              
              Per
      Share AmountBasic
      EPS, Net income available to common shareholders
              
              $
              1,437
              
              
              
              44,770,345
              
              
              $
              0.03
              
              
              $
              1,530
              
              
              
              45,155,947
              
              
              $
              0.03Effective
      of dilutive stock options
              
              
              -
              
              
              
              32,673
              
              
              
              
              
              
              
              -
              
              
              
              142,500Diluted
      EPS, Net income available to common shareholders
              
              $
              1,437
              
              
              
              44,803,018
              
              
              $
              0.03
              
              
              $
              1,530
              
              
              
              45,298,447
              
              
              $
              0.03




At December 31, 2009, and 2008,
outstanding stock options excluded from the computation of Diluted EPS, because
the exercise price was greater than the average market price of the Common
Stock, aggregated 220,000 and 180,000, thereby resulting in an anti-dilutive
effect.




F-12




The Company records non-cash
compensation expense related to payment for employee services by an equity
award, such as stock options, in their financial statements over the requisite
service period.  There was no stock based compensation for 2009 or
2008.




l.           FAIR
VALUE OF FINANCIAL INSTRUMENTS:  As disclosed in Note 3, DVL’s loan
portfolio is valued based on the value of the underlying
collateral.  As all loans are either receivables from Affiliated
Limited Partnerships or are collateralized by interests in Affiliated Limited
Partnerships, it is not practical to estimate fair value of the
loans.  Due to the nature of the relationship between the Affiliated
Limited Partners and DVL’s general partner interest in the Affiliated Limited
Partnerships and the authority of the Oversight Committee, the amount at which
the loans and underlying mortgages could be exchanged with third parties is not
reasonably determinable, as any such estimate would have to consider the
intention of the Oversight Committee, the amounts owed, if any, to DVL for its
interests in the Affiliated Limited Partnerships and any transaction fees to
which DVL might be entitled.  See Note 2 for discussions on residual
interests.




Financial instruments held by the
Company include cash and cash equivalents, interest rate swaps, receivables, and
accounts payable.  The fair value of cash and cash equivalents,
receivables and accounts payable approximates their current carrying amounts due
to their short-term nature.




Interest rate swaps are valued using
level 2 inputs under the fair value hierarchy.  Level 2 inputs are
observable inputs for identical or similar assets or liabilities.




Residual interests are valued using
level 3 inputs under the fair value hierarchy. Level 3 inputs are significant
unobservable inputs.




m.           USE
OF ESTIMATES:  The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates.  The allowance for credit losses is
subject to significant change in the near term.




n.           RECLASSIFICATIONS:  Certain
prior year amounts have been reclassified to conform to the 2009 presentation,
including the reporting of discontinued operations for those assets that have
been disposed of.




o.           CASH
AND CASH EQUIVALENTS:  The Company considers all highly liquid
investments with original purchase maturity dates of three months or less to be
cash equivalents.




p.           CONCENTRATION
OF CREDIT RISK:  Substantially all of the Company’s cash and cash
equivalents consist of money market mutual funds which invest in U.S. Treasury
Bills and repurchase agreements with original maturity dates of three months or
less.




The
Company maintains cash with several banking institutions, which amounts at times
exceeds federally insured limits.




q.           RECENTLY
ISSUED ACCOUNTING STANDARDS:  In June 2009, the FASB issued Statement
of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No.
46(R) (“FAS 167”), which modifies how a company determines when an entity that
is insufficiently capitalized or is not controlled through voting (or similar
rights) should be consolidated. The amendments will significantly affect the
overall consolidation under FASB ASC 810, Consolidation (“ASC 810”),
and clarifies that the determination of whether a company is required to
consolidate an entity is based on, among other things, an entity’s purpose and
design and a company’s ability to direct the activities of the entity that most
significantly impact the entity’s economic performance. ASC 810 requires an
ongoing reassessment of whether a company is the primary beneficiary of a
variable interest entity. ASC 810 also requires additional disclosures
about a company’s involvement in variable interest entities and any significant
changes in risk exposure due to that involvement. FAS 167 is effective for
fiscal years beginning after November 15, 2009. The Company has determined that
ASC 810 will have no effect on the statement of financial position or results of
operations.




F-13




2.
            Residual
      Interests in Securitized Portfolios




The
Company, through its wholly-owned consolidated subsidiary, 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”).  The Class B member interests, which are
consolidated into S2 for financial statement reporting purposes, entitle the
Company to be allocated 99.9% of all items of income, loss and distribution of
Receivables II-A and Receivables II-B.  Receivables II-A and
Receivables II-B receive all the residual cash flow from five securitized
receivable pools after payment to the securitized note holders.  The
Company considered whether member interests should be considered variable
interest entities, when consolidating S2’s ownership of its member interests and
determined that S2’s member interests do not meet the definition of variable
interest entities.




In
aggregate, the securitizations in which Receivables II-A and Receivables II-B
hold the residual interest contain approximately 3,200 individual structured
settlement receivables, which are backed by annuities issued by various
insurance companies. Based on projected future cash flows, the weighted average
yield on the residual interest is approximately 14.36%.




The
purchase price was paid by the issuance of 8% per annum limited recourse
promissory notes by S2.  The notes payable – residual interests
balances were $28,155 and $34,172 as of December 31, 2009 and 2008,
respectively.  Principal and interest are payable from the future
monthly cash flow.  The notes mature August 15, 2020 through December
31, 2021 and are secured by a pledge of S2’s interests in Receivable II-A,
Receivables II-B and all proceeds and distributions related to such
interests.  The principal amount of the notes and the purchase price
are adjusted, from time to time, based upon the performance of the underlying
receivables.  DVL also issued its guaranty of payment of an original
amount up to $3,443 of the purchase price.  The amount of the guaranty
is regularly reduced by 10% of the principal paid.  The amount of the
guaranty at December 31, 2009 was $1,506.  Payments, if any, due under
this guaranty are payable after August 15, 2020.




In
accordance with the purchase agreements with respect to such acquisitions, from
the acquisition dates through December 31, 2009, the residual interests in
securitized portfolios and the notes payable were increased by approximately
$6,396 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 in future cash flows are
recognized through results of operations as interest over the remaining life of
the retained interest.




The
purchase agreements contain annual minimum and maximum levels of cash flow that
will be retained by the Company after the payment of interest and principal on
the notes payable, which are as follows:




Years
            Minimum
            Maximum2009
            $    
       743
            $   
      8802010
      to final payment on notes payable
            $   1,050
            $
      1,150





Final
payment on the notes payable expected 2014 related to the Receivables II-A
transaction and 2018 for the Receivables II-B Transaction.





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




F-14




The following table presents the key
economic assumptions at December 31, 2009 and the sensitivity of the current
fair value of residual cash flows to immediate 10 percent and 20 percent adverse
changes in those assumptions:




Carrying
      value of residual interests
              
              $
              42,699Fair
      value of residual interest
              
              $
              41,203Weighted-average
      life (in years)
              
              
              5.9Expected
      credit losses
              
              
              3.2
              %Impact
      on fair value of 10% adverse change
              
              $
              132Impact
      on fair value of 20% adverse change
              
              $
              264Discount
      rate
              
              
              15.1
              %Impact
      on fair value of 10% adverse change
              
              $
              2,338Impact
      on fair value of 20% adverse change
              
              $
              4,452





Those sensitivities are hypothetical
and should be used with caution.  Also, in this table, the effect of a
variation in a particular assumption on the fair value of the residual interest
is calculated without changing any other assumption; in reality, changes in one
factor may result in changes in another which might magnify or counteract the
sensitivities.




The carrying value of the Notes
Payable – residual interests approximates fair value at December 31,
2009.




3.
            Mortgage
      Loans Receivable and Underlying Mortgage
Payable




Our
mortgage loan portfolio historically consisted primarily of wrap-around mortgage
loans made to Affiliated Limited Partnerships which were subject to
non-recourse, underlying mortgages held by unrelated institutional
lenders.  Under a wrap-around mortgage loan, the majority of the
mortgage payments from the Affiliated Limited Partnerships are used to pay the
required monthly principal and interest payments on the underlying mortgage
which the wrap-around mortgage “wraps”.  We build equity in the
wrap-around mortgage loans over time as the principal balance of the underlying
mortgage loans are amortized.  In addition, pursuant to the terms of
the wrap-around mortgage loans, we are entitled to receive as additional debt
service a portion of the Affiliated Limited Partnerships’ percentage rent
income, if any.





At
December 31, 2009, our mortgage loan portfolio consisted of 7 wrap-around
mortgage loans with a net carrying value of $4,384 and 11 mortgage loans with a
net carrying value of $6,058.  All of our mortgage loans are
collateral for various debt.  On November 1, 2009, we foreclosed on
the Iowa Park property which secured a wrap-around mortgage with a then net
carrying value of $212.





The majority of the properties
underlying our mortgage loan portfolio are net leased pursuant to leases which
require the tenant to pay for all taxes, insurance and other property costs and
which provide for lease payments sufficient to amortize the applicable
underlying mortgage.  In certain leases, the property owner is
required to maintain the roof and structure of the premises.  With
respect to 10 of the loans in our mortgage loan portfolio with net carrying
values of $6,170 as of December 31, 2009, the tenant of the underlying property
is Wal-Mart Stores, Inc.  Accordingly, a bankruptcy of Wal-Mart would
have a material negative impact on our ability to realize full value on these
loans.





In
addition to base rent, the leases to Wal-Mart require the tenant to pay
additional rent equal to a percentage of gross receipts from the tenant’s
operation of a property above a specified amount.  In all cases where
additional rent is payable, a portion of the additional rent is required to be
paid to us as additional interest and/or additional debt service on our
mortgage.




F-15




We also retain the right to refinance
or pledge the outstanding mortgage loans underlying our wrap-around mortgage
loans provided that the debt service and principal amount of a refinanced loan
are no greater than that of the existing wrap-around loan.  We also
have the right to arrange senior financing secured by mortgages or properties on
which we hold first or second mortgage loans by subordinating such mortgage
loans, subject to the limitations set forth above.





The following table presents the
activity in the mortgage loans:




2009
              
              
              2008(in
      thousands)Balance,
      beginning of year
              
              $
              19,460
              
              
              $
              27,655Collections
      on loans to affiliates
              
              
              (1,816
              )
              
              
              (3,662
              )Adjustment
      related to forclosures and write off of uncollectible
loans
              
              
              (281
              )
              
              
              (4,533
              )Balance,
      end of year
              
              $
              17,363
              
              
              $
              19,460Unearned
      interest activity:2009
              
              
              
              2008(in
      thousands)Balance,
      beginning of year
              
              $
              5,181
              
              
              $
              10,773Amortization
      included in income
              
              
              (1,144
              )
              
              
              (1,051
              )Adjustment
      related to forclosures and write off of uncollectible
loans
              
              
              -
              
              
              
              (4,541
              )Balance,
      end of year
              
              $
              4,037
              
              
              $
              5,181




4.
            Allowance
      for Losses




Allowance for loan loss activity is
as follows:




2009
              
              
              2008(in
      thousands)Balance,
      beginning of year
              
              $
              2,180
              
              
              $
              3,200Additional
      provision for loan losses
              
              
              773
              
              
              
              150Loans
      satisfied, written-off or written down
              
              
              (69
              )
              
              
              (1,170
              )Balance,
      end of year
              
              $
              2,884
              
              
              $
              2,180
 F-16


5.
            Investments




Real
Estate




Our real
estate properties consist of (i) eight buildings totaling 347,000 square feet on
eight and one half acres located in an industrial park in Kearny, New Jersey
leased to various unrelated tenants, which we refer to as the Owned Site, (ii)
an 89,000 square foot building on approximately eight acres of land leased to
K-Mart in Kearny, New Jersey which is adjacent to the Owned Site, (iii) an
interest in a property in Bogota, New Jersey and (iv) five properties which we
acquired through foreclosure, including a property located in Iowa Park, Texas
which was foreclosed on in November 2009.  During 2009, we sold three
previously foreclosed upon properties which were leased to Wal-Mart for net
proceeds of $1,788.





The
Owned Site-Kearny Property





The Owned
Site represents a portion of the Passaic River Development area designated for
redevelopment by the town of Kearny, New Jersey, which we refer to as the Kearny
Property.  In connection with the redevelopment of the Kearny
Property, on December 11, 2007, we entered into a Redeveloper Agreement with the
Town of Kearny.  Pursuant to the Redeveloper Agreement, the Town of
Kearny designated us as the redeveloper of the Kearny Property.  As
redeveloper, we are obligated to redevelop the Kearny Property, at our 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 our rights there under which were originally set to expire
on December 31, 2009, was extended to May 1, 2011. If we are in default of any
terms or conditions of the Redeveloper Agreement and do 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.





To date,
we have not commenced construction with respect to the redevelopment of the
Kearny Property and given the current economic environment there can be no
assurance that we will commence construction in the near future.  In
addition, there can be no assurance that we will be able to obtain the necessary
financing to commence or complete redevelopment.





In order
to undertake and complete the redevelopment of the Property, we will need to
obtain 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 within the time period required under the
Redevelopment Agreement or at all.





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.




F-17




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
$1,058 and $856 for the years ended December 31, 2009 and 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 has extended
the term of the Predevelopment Loan Phase for an additional six months which
ended February 1, 2009 on the condition that the lender shall have 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 Signature Bank (“Signature Bank”), a New York banking
corporation 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 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 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.  The principal amount to be borrowed
under the Second Note must be repaid to Signature Bank 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 Signature Bank as its 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.




Pursuant to the Agreement, DVL
Holdings has granted to Signature Bank 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 Signature Bank.




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 to Signature Bank, (iii) if the Redeveloper Agreement is amended without
the prior written consent of Signature Bank, 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.




F-18




The
Bogota Property





In
October 2004, we 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 certain of our 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
we own an 8.25% limited partner interest in one of these
partnerships.  We are also entitled to receive a percentage of the net
sales proceeds.  As of December 31, 2009, the sale has not yet been
consummated and the third party continues to lease space. The total expenses to
be reimbursed to us are approximately $721 as of December 31, 2009 not including
the $50 fee or any amounts to be received as a limited partner.  We
have brought an action against the prior tenants of the property for
environmental contamination and have received $400 towards the cleanup costs for
the property.




Foreclosed
Properties





The following table identifies the
properties we have acquired through foreclosure and which were held by us at
December 31, 2009.





Location
            Sq.
      Ft.
            Acreage
            TenantBrent,
      AL
            34,875
            5.34
            VacantFort
      Edward, NY
            31,000
            6.00
            VacantSoddy
      Daisy, TN
            56,127
            5.91
            VacantKennedy,
      TX
            44,752
            5.52
            VacantIowa
      Park, TX
            43,769
            4.36
            Vacant




Summary of Real Estate
Holdings:




2009
              
              
              2008Land
      and land improvements
              
              $
              3,348
              
              
              $
              3,146Buildings
              
              
              7,565
              
              
              
              7,353Improvements
              
              
              427
              
              
              
              421Subtotal
              
              
              11,340
              
              
              
              10,920Less:
      Accumulated depreciation
              
              
              1,564
              
              
              
              1,349Total
              
              $
              9,776
              
              
              $
              9,571





Affiliated Limited
Partnerships




DVL acquired various interests in
Affiliated Limited Partnerships pursuant to the Terms of certain settlement
agreements and through purchases.  Allowances are adjusted quarterly
based on Management’s estimate of the realizable value.  During 2009
and 2008, DVL recorded income of $133 and $275, respectively, from distributions
received from these investments.




F-19




The activity on DVL’s investments in
Affiliated Limited Partnerships is as follows:




2009
              
              
              2008(in
      thousands)Balance,
      beginning of year
              
              $
              657
              
              
              $
              781Various
      interests acquired through purchases andforeclosed
      partner notes
              
              
              -
              
              
              
              -Distributions
      received from partnerships
              
              
              (142
              )
              
              
              (275
              )Distributions
      recorded as income
              
              
              142
              
              
              
              275Change
      in reserves, net of write-offs
              
              
              -
              
              
              
              (124
              )Balance,
      end of year
              
              $
              657
              
              
              $
              657





Other
Investments




In connection with the 1993
Litigation Settlement with three related partnerships that did not participate
in the Limited Partner Settlement, DVL received limited partnership interest in
three partnerships.  These partnerships’ sole assets are the
restructured partnership mortgage loans on the properties leased to Wal-Mart
Stores, Inc. by the three related partnerships.  During 2009, DVL
foreclosed on two of the properties which are now included in real estate. The
remaining investment, which is carried on the equity basis, is currently being
carried at $-0-.









6.
            Debt,
      Loans Payable Underlying Wrap-around
Mortgages




At December 31, 2009 DVL’s debt is
comprised of the following loans payable:




2009
            
            
            2008Loan
      collateralized by real estate bearing interest at 2.50%over
      the 30 day LIBOR rate. Principal plus accrued and unpaidinterest
      were due and payable on February 1, 2009. OnJanuary
      21, 2009, the loan was replaced with a new loan for$4,250
      bearing interest at the greater of 6% or 1% abovethe
      bank's prime rate. All outstanding principal and interestare
      due January 21, 2011. (1)
            
            $
            3,501
            
            
            $
            4,523Loans
      collateralized by real estate bearing interest at arate
      equal to the one month LIBOR Rate plus 2.1%. The loanpayable
      bears interest at a variable rate. To minimize theeffect
      of changes in interest rates, the Company entered intoan
      interest rate swap agreement under whichit
      pays interest at a fixed rate of 5.94%. The variable rateis
      based on the same notional amount as theunderlying
      debt. Monthly payment of principal in theamount
      of $5 plus accrued interest, maturing July 1, 2011.
            
            
            3,725
            
            
            
            3,792Loans
      collateralized by an assignment and pledge of all depositsat
      the bank and a first security interest in personalproperty
      and fixtures. The loan bears interest at 7.5% perannum.
      Principal and interest payments of $5 are due monthlythrough
      maturity, February 1, 2013.
            
            
            170
            
            
            
            216Loans
      collateralized by shares of common stock of S2 bearinginterest
      at 6.25% per annum maturing June, 2012
            
            
            1,358
            
            
            
            1,460Loan
      to purchase existing mortgages annual principal paymentsof
      $50, bearing interest at prime plus .5% per annum with aballoon
      payment originally due 1/31/09 of $1,200. InJanuary
      2009, the lender agreed to recast the loan as a $2,200 term
      loanto
      be secured by four first mortgages and a restriction on pledging
      mortgagesfor
      additional debt. Interest is calculated at LIBOR plus 4%
    andwill
      be self-amortizing over 60 months. The maturity date ofthe
      existing loan was extended to February 2014.To
      minimize the effect of changes in interest rates, the
    Companyentered
      into an interest rate swap agreement under which it paysinterest
      at a fixed rate of 6.09%. The variable rate is based on
thesame
      notional amount as the underlying debt.
            
            
            1,940
            
            
            
            1,20410,694
            
            
            
            11,195Loan
      from affiliate bearing interest at 12% per annumannum
      compounded monthly (2)
            
            
            1,129
            
            
            
            1,527$
            11,823
            
            
            $
            12,722




F-20




(1)           The
Company and DVL Holdings entered into a Construction Loan Agreement in August
2007 (the “Construction Loan Agreement”) with CapMark Bank (“Capmark”), Urban
Development Fund II, LLC (“Urban Fund”) and Paramount Community Development Fund
“Paramount” and collectively with CapMark and Urban Fund, the
“Lenders”).  Pursuant to the Construction Loan Agreement, the Lenders
agreed to extend loans to DVL Holdings in the aggregate principal amount of up
to $30.2 million (the “Loans”) to finance construction, acquisition and other
costs associated with the redevelopment of the Property.  The loans
are secured by a mortgage on certain of the Company’s property located in
Kearny, New Jersey and by an assignment of leases on such property.




Under the
terms of the 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
has extended the term of the Predevelopment Loan Phase for an additional six
months ending February 1, 2009 on the condition that the lender shall have 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.




As part
of Amendment No. 2, on September 8, 2008, DVL Holdings entered into a Pledge and
Security Agreement dated as of August 1, 2008 (the “Pledge and Security
Agreement”), with the Lender, whereby DVL Holdings deposited $500 into a blocked
account as additional collateral security for the loan under the Construction
Loan Agreement.  Additionally, DVL Holdings deposited $160 as an
interest reserve to be used during the six-month extension period to pay all
interest accrued during such period.  DVL Holdings is entitled to
release or withdrawal of the funds deposited from liens and security interests
created by the Pledge and Security Agreement in its entirety, upon repayment of
the obligations as set forth in said agreement.




F-21




On
January 21, 2009, DVL Holdings entered into a Mortgage, Security Agreement and
Assignment of Leases and Rents (the “Agreement”) with Signature Bank (“Signature
Bank”), a New York banking corporation 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 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 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.




The
principal amount to be borrowed under the Second Note must be repaid to
Signature Bank 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 Signature Bank as its
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.




Pursuant
to the Agreement, DVL Holdings has granted to Signature Bank 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 Signature Bank.




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 to Signature Bank, (iii) if the Redeveloper
Agreement is amended without the prior written consent of Signature Bank, 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 $700 of 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 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.




(2)           The
Loan and Security Agreement (the “Pemmil Loan Agreement”) with Pemmil Funding,
LLC (“Pemmil”), provides for interest 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 that result in net proceeds (as
defined in the Pemmil Loan Agreement) to the Company.  The obligations
under the Pemmil Loan Agreement are secured by a subordinated pledge of the
Company’s equity interest in S2 and a first priority lien on two wrap-around
mortgages.  The Company may prepay all or a portion of the loan at any
time prior to maturity without penalty or premium. In December 2009, the
maturity date was extended to December 31, 2011.




F-22




Certain
members of Pemmil are insiders and/or affiliates of the Company, including Alan
Casnoff, the Company’s President and a Director of the Company, and Lawrence J.
Cohen who is a beneficial owner of greater than 10% of the Company’s common
stock.




The aggregate amount of debt and
loans payable underlying wrap-around mortgages (Note 3) maturing during the next
five years is as follows:




Loans
      PayableUnderlying
      WrapDebt
              
              
              Around
      Mortgages(in
      thousands)2010
              
              $
              672
              
              
              $
              5982011
              
              
              8,831
              
              
              
              2082012
              
              
              1,770
              
              
              
              1862013
              
              
              473
              
              
              
              2012014
              
              
              77
              
              
              
              221Thereafter
              
              
              -
              
              
              
              1,294$
              11,823
              
              
              $
              2,708





7.
            Redeemed
      Notes Payable – Litigation
Settlement




In December 1995, DVL completed its
obligations under the 1993 Limited Partnership Settlement by, among other
things, issuing notes to the plaintiffs (the “Notes”) in the aggregate principal
amount of $10,387.




To date, the Company has sent
redemption letters to note holders of the then outstanding Notes in the
principal amount of approximately $1,161 in the aggregate to redeem the notes in
cash at the face value plus accrued interest of approximately $49.  As
of December 31, 2009, $440 has been paid and the remaining $770 payable is
reflected as a non-interest bearing liability.  As a result of the
redemptions, all obligations under the Notes have been satisfied.




8.
            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. As compensation, the Company recorded fees of $55
and $57 in 2009 and 2008, respectively.




Management
and Other Fees and Expenses Incurred




A.           The
Company incurred fees to NPO of $782 and $774 under the Asset Servicing
Agreement for 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 under the
Asset Servicing Agreement to NPO consisting of approximately 500 square feet of
the Company’s New York location.




B.           The
Millennium Group, an affiliate of NPO, received approximately $15 and $42 for
2009 and 2008, respectively representing compensation and reimbursement of
expenses for collection services on notes payable to the Company.  In
addition, in 2009, and 2008, the Company paid or accrued fees of $108 and $108
respectively, to the Millennium Group for additional management and analytical
services.




F-23




C.           Interest
expense on amounts due to Pemmil Funding were $166 and $188 for 2009 and 2008,
respectively.




D.           The
Philadelphia, Pennsylvania, law firm of Zarwin Baum DeVito (“Zarwin”), of which
Alan E. Casnoff, the President and a director of the Company, is of counsel, has
acted as counsel to the Company since November 2004.  Legal fees for
services rendered by Zarwin to the Company during 2009 did not exceed 5% of the
revenues of such firm for its most recent fiscal year.  During 2009
and 2008, the Company and the Affiliated Limited Partnerships paid Zarwin $129
and $130, respectively, for  legal services.




E.           RESIG
provides substantially all of the Company’s internal accounting, financial
statement preparation and bookkeeping functions on an outsourced
basis.  Neil H. Koenig, Chief Financial Officer, is a managing member
of RESIG and IKC. RESIG and IKC were paid $76 and $49, respectively during
2009.




9.
            Commitments,
      Contingent Liabilities and Legal
Proceedings




Commitments and Contingent
Liabilities




Pursuant to the terms of the Limited
Partnership Settlement, a fund has been established into which DVL is required
to deposit 20% of the cash flow received on certain of its mortgage loans from
Affiliated Limited Partnerships after repayment of certain creditors, 50% of
DVL’s receipts from certain loans to, and general partnership investments in,
Affiliated Limited Partnerships and a contribution of 5% of DVL’s net income
(based on accounting principles generally accepted in the United States of
America) in the years 2004 through 2012 subject to certain
adjustments.  For 2009, we have accrued $21 relating to 5% of our net
income less certain adjustments. During 2009 and 2008, the Company expensed
approximately $128 and $86, respectively, for amounts due to the fund based on
cash flow on mortgage loans of which approximately $0 was accrued at each year
end.  These costs have been netted against the gain on satisfaction of
mortgages and/or interest on mortgage loans, where appropriate.




The Company leases space to various
tenants under lease terms that include escalation provisions, renewal options
and obligations of the tenants to reimburse operating expenses.




The aggregate future minimum fixed
lease payments receivable under non-cancellable leases at December 31, 2009 are
as follows:




Year
      Ending
              
              Amount2010
              
              $
              4502011
              
              
              1992012
              
              
              782013
              
              
              782014
              
              
              45Thereafter
              
              
              -$
              850


DVL leases premises comprising
approximately 5,600 square feet.  The lease for such office space is
due to expire on March 31, 2015.  The base rent of $216 per annum
increases to $386 and then $409 over the extended term of the lease, plus real
estate and operating expense escalation clauses.  Rent expense was
$391 and $369 in 2009 and 2008, respectively, and net of reimbursements from
subtenants, rent expense was $121 and $132, respectively.




F-24




The future minimum rentals during the
next five years are as follows:




Year
      Ending
              
              Amount2010
              
              $
              3862011
              
              
              3862012
              
              
              3862013
              
              
              4052014
              
              
              409Thereafter
              
              
              102$
              2,074




The Asset Servicing Agreement,
pursuant to which NPO is providing the Company with administrative and advisory
services, requires monthly payments of approximately $62 through March 2011,
with cost of living increases, payments aggregated $782 and $774, in 2009 and
2008, respectively.




10.
            Shareholders’
      Equity




Preferred and Common
Stock




The 100 shares of issued preferred
stock carry no specified dividends but do receive any preferred stock dividend
approved by the Board.  To date, no dividend has been authorized by
the Board.  On liquidation, the preferred stock is paid at face value
before the common stock.




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 September 30, 2009
without prior consent of the Board of Directors of the Company by any person or
entity that owns or would own 5% or more of the issued and outstanding stock of
the Company if such sale, purchase or transfer would, in the opinion of the
Board, jeopardize the Company’s preservation of its federal income tax
attributes under Section 382 of the Internal Revenue Code.




In July 2008, the Company purchased
522,200 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.




Stock Option
Plans




DVL’s
1996 Stock Option Plan, as amended (the “Plan”) provided for the grant of
options to purchase up to 2,500,000 shares of Common Stock to directors,
officers and key employees of DVL.  It included automatic grants of
15,000 options to individuals upon their becoming non-employee directors, as
well as annual grants of 15,000 options to each non-employee
director.




All
options are non-qualified stock options.




As of
December 31, 2009 and 2008, there were outstanding 445,000 and 625,000 ten year
options, respectively.  During 2009, options to purchase 180,000
shares, originally issued in 1999, expired and were cancelled.  The
Plan remained in effect until March 31, 2006, its termination date, and was not
renewed by the Company.  No options may be granted under the Plan
subsequent to the termination of the Plan.




F-25





The
following table summarizes the activity under the Plan:




2009
              
              
              2008Shares
              
              
              Weighted
      Average Excise Price
              
              
              Weighted
      Average Remaining Contractual Life
              
              
              Aggregate
      Intrinsic Value (in thousands)
              
              
              Shares
              
              
              Weighted
      Average Excise PriceOptions
      outstanding at
                Beginning
      of Year
              
              
              625,000
              
              
              $
              0.13
              
              
              
              2.37
              
              
              $
              -
              
              
              
              678,000
              
              
              $
              0.14Granted
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -Cancelled
              
              
              180,000
              
              
              
              0.21
              
              
              
              0.33
              
              
              
              -
              
              
              
              45,000
              
              
              
              0.13Excercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,000
              
              
              
              0.08Options
      Outstanding at End of Year
              
              
              445,000
              
              
              
              0.10
              
              
              
              2.20
              
              
              $
              5
              
              
              
              625,000
              
              
              $
              0.13Options
      Excercisable at End of Year
              
              
              445,000
              
              
              $
              0.10
              
              
              
              2.20
              
              
              $
              5
              
              
              
              625,000
              
              
              $
              0.13




Warrants Redeemable in
Stock




During 2001, the Company, in
connection with the purchase of the residual interests, issued warrants to
purchase 3,000,000 shares of common stock with an exercise price of $0.20 per
share which expires as follows:  warrant for 2,000,000 shares –
February 2011; warrant for 1,000,000 shares – August 2011.




11.
            Income
      Taxes




The (provision) benefit for income
taxes for the years ended December 31, 2009 and 2008 were as
follows:




2009
              
              
              2008Current
      ProvisionFederal
              
              $
              108
              
              
              $
              (73
              )State
              
              
              -
              
              
              
              (219
              )Total
      Current Provision
              
              
              108
              
              
              
              (292
              )Deferred
      ProvisionFederal
              
              
              (189
              )
              
              
              (486
              )State
              
              
              -
              
              
              
              -Total
      Deferred (Expense) Benefit
              
              
              (189
              )
              
              
              (486
              )Total
      (Expense) Benefit
              
              $
              (81
              )
              
              $
              (778
              )




F-26




The Company’s effective income tax
rate as a percentage of income differed from the U.S. federal statutory rate as
shown below:




2009
              
              
              2008U.S.
      Federal Statutory Rate
              
              
              34.0
              %
              
              
              34.0
              %Change
      in Valuation Allowance and Utilization of
                Unrecognized
      Deferred Tax Assets
              
              
              -28.7
              %
              
              
              -0.3
              %Effective
      Income Tax Rate
              
              
              5.3
              %
              
              
              33.7
              %




Deferred taxes result from timing
differences in the recognition of revenue and expense for tax and financial
reporting purposes.  The components of the provision for deferred
taxes were as follows:




2009
              
              
              2008Allowance
      for Losses
              
              $
              (273
              )
              
              $
              569Tax
      basis of forclosed land/building in excess of book
              
              
              (393
              )
              
              
              (2,256
              )Notes
      Payable Litigation Settlement
              
              
              2
              
              
              
              -Carrying
      Value of LP Investments
              
              
              (246
              )
              
              
              (1,626
              )NOL
      Carryforward
              
              
              1,025
              
              
              
              1,881Retained
      Interests
              
              
              1,213
              
              
              
              935Mortgage
      Loans
              
              
              67
              
              
              
              23Change
      in Valuation Allowance
              
              
              (1,206
              )
              
              
              960Total
      Deferred Expense (Benefit)
              
              $
              189
              
              
              $
              486




The significant components of
deferred tax assets and liabilities were as follows:




2009
              
              
              2008Allowance
      for Losses
              
              $
              1,121
              
              
              $
              848Tax
      basis of forclosed land/building in excess of book
              
              
              2,649
              
              
              
              2,256Notes
      Payable Litigation Settlement Redeemed Notes
              
              
              300
              
              
              
              302Other
              
              
              146
              
              
              
              174Carrying
      Value of LP Investments
              
              
              289
              
              
              
              15NOL
      Carryforward
              
              
              206
              
              
              
              1,231Retained
      Interests
              
              
              9,651
              
              
              
              10,864Mortgage
      Loans
              
              
              2,670
              
              
              
              2,737Deferred
      Tax Asset
              
              
              17,032
              
              
              
              18,427Valuation
      Allowance
              
              
              (14,964
              )
              
              
              (16,170
              )Net
      Deferred Tax Asset
              
              $
              2,068
              
              
              $
              2,257




At December 31, 2009, the Company had
aggregate unused net operating loss carry forwards of approximately $530,
available to reduce future taxable income, expiring through
2019.




F-27




12.
            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 receivable
portfolios.  The Corporate/other net income (loss) of $119 and $(472)
in 2009 and 2008, respectively, include $189 and $486 of deferred income tax
expense, respectively.




2009
                  
                  
                  2008RevenuesResidual
      interests
                  
                  $
                  6,293
                  
                  
                  $
                  5,994Real
      estate
                  
                  
                  3,101
                  
                  
                  
                  3,972Corporate
      / other
                  
                  
                  82
                  
                  
                  
                  65Total
      consolidated revenues
                  
                  $
                  9,476
                  
                  
                  $
                  10,031Net
      income (loss)Residual
      interests
                  
                  $
                  3,635
                  
                  
                  $
                  3,110Real
      estate
                  
                  
                  (2,142
                  )
                  
                  
                  (998
                  )Corporate
      / other
                  
                  
                  119
                  
                  
                  
                  (472
                  )Total
      income from continuing operations
                  
                  $
                  1,612
                  
                  
                  $
                  1,640As
      of
                  
                  
                  As
      ofDecember
      31, 2009
                  
                  
                  December
      31, 2008AssetsResidual
      interests
                  
                  $
                  42,699
                  
                  
                  $
                  45,789Real
      estate
                  
                  
                  23,704
                  
                  
                  
                  27,019Corporate
      / other
                  
                  
                  2,068
                  
                  
                  
                  2,257Total
      consolidated assets
                  
                  $
                  68,471
                  
                  
                  $
                  75,065


13.
            Discontinued
      Operations




During
the years ended December 31, 2009 and 2008, the Company disposed of certain real
estate properties.  The sale and operation of these properties for all
periods presented have been recorded as discontinued operations in compliance
with our accounting policy.




F-28




Discontinued
operations for the years ended December 31, 2009 and 2008 are summarized as
follows:




2009
                
                
                2008Income
                
                $
                -
                
                
                $
                252Expenses
                
                
                222
                
                
                
                272Loss
      from discontinued operations before gain on sale
                
                
                (222
                )
                
                
                (20
                )Gain
      (loss) on sale
                
                
                47
                
                
                
                (90
                )Loss
      from discontinued operations
                
                $
                (175
                )
                
                $
                (110
                )


Other
assets and other liabilities of discontinued operations at December 31, 2009 and
2008 are summarized as follows:




2009
              
              
              2008Assets
      of discontinued operations
              
              $
              -
              
              
              $
              1,873




14.
            Subsequent
      Events




On
January 15, 2010, the Company sold the Iowa Park, Texas property for net
proceeds of $162 which resulted in a net loss of approximately $50 in the first
quarter of 2010.






F-29


---