UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-13736
VMLPZ MORTGAGE INVESTORS L.P.
(f/k/a BANYAN MORTGAGE INVESTORS L.P.)
(Exact name of small business issuer as specified in its charter)
Delaware 36-3311607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o KPMG Peat Marwick LLP,
99 High Street, Boston, Massachusetts 02110-2371
(Address of principal executive offices)
(617) 338-2925
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X . No .
Depositary units outstanding as of August 8, 1995: 7,628,539
Transitional Small Business Disclosure Format: Yes . No X .
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Balance Sheets
June 30, 1995 and December 31, 1994
(Unaudited)
1995 1994
------------ --------
ASSETS
Cash and Cash Equivalents $ 1,570,195 $ 1,692,358
Investment in Liquidating Trust -- 1
Receivable from Investment in Liquidating
Trust 15,188 75,227
Prepaid Insurance 171,001 68,392
State Income Tax Refund Receivable -- 46,711
------------- -------------
Total Assets $ 1,756,384 $ 1,882,689
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 321,233 $ 225,296
------------- -------------
Total Liabilities 321,233 225,296
------------- -------------
Commitments and Contingencies -- --
Partners' Capital
Partners' Capital (7,628,539 Depositary
Units Issued) 1,435,321 1,657,563
Treasury Units, at Cost, for 1,099
Depositary Units (170) (170)
------------- -------------
Total Partners' Capital 1,435,151 1,657,393
------------- -------------
Total Liabilities and Partners' Capital
$ 1,756,384 $ 1,882,689
============= =============
Book Value Per Unit (7,627,440 Depositary
Units Outstanding) $ 0.188 $ 0.217
============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Income and Expenses
for the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
------------ --------
INCOME
Interest Income $ 37,928 $ 28,077
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (117,608) --
Other Expenses:
Unitholder Expenses 34,477 56,382
Directors' Fees, Expenses and
Insurance 89,393 112,864
Other Professional Fees 128,776 24,240
General and Administrative 80,084 125,491
Settlement Costs of Arbitration and
Litigation With Related Parties 45,048 --
--------- ---------
Total Other Expenses 377,778 318,977
(Recovery of) Class Action Settlement
Costs and Expenses -- (69,602)
--------- ---------
Total Expenses 260,170 249,375
--------- ---------
Income (Loss) Before Gain on Disposition of Real
Estate (222,242) (221,298)
Gain on Disposition of Real Estate -- 11,265
--------- ---------
Net Income (Loss) $(222,242) $(210,033)
========= =========
Net Income (Loss) Allocated to General Partner (1%)
$ (2,222) $ (2,100)
========= =========
Net Income (Loss) Allocated to Unitholders (99%)
$(220,020) $(207,933)
========= =========
Net Income (Loss) Per Unit (Weighted Average Number
of Depositary Units Outstanding 7,627,440) $ (0.029) $ (0.028)
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Income and Expenses
for the Three Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
------------ --------
INCOME
Interest Income $ 23,105 $ 23,232
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (15,188) --
Other Expenses:
Unitholder Expenses 12,600 (3,416)
Directors' Fees, Expenses and
Insurance 46,557 51,380
Other Professional Fees 44,848 6,317
General and Administrative 37,110 72,516
Settlement Costs of Arbitration and
Litigation With Related Parties -- --
--------- ---------
Total Other Expenses 141,115 126,797
(Recovery of) Class Action Settlement
Costs and Expenses -- --
--------- ---------
Total Expenses 125,927 126,797
--------- ---------
Income (Loss) Before Gain on Disposition of Real
Estate (102,822) (103,565)
Gain (Loss) on Disposition of Real Estate -- (32,487)
--------- ---------
Net Income (Loss) $(102,822) $(136,052)
========= =========
Net Income (Loss) Allocated to General Partner (1%)
$ (1,028) $ (1,361)
========= =========
Net Income (Loss) Allocated to Unitholders (99%) $(101,794) $ 134,691)
========= =========
Net Income (Loss) Per Unit (Weighted Average Number
of Depositary Units Outstanding 7,627,440) $ (0.013) $ (0.018)
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Partners' Capital
for the Six Months Ended June 30, 1995
(Unaudited)
General Treasury
Partner Unitholders Units Total
Partners' Capital
(Deficit), (299,711) 1,957,274 (170) 1,657,393
December 31, 1994
Net Income (Loss)
(2,222) (220,020) -- (222,242)
----------- ----------- ----------- -----------
Partners' Capital
(Deficit),
June 30, 1995 $ (301,933) $ 1,737,254 $ (170) $ 1,435,151
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (222,242) $ (210,033)
Adjustment to Reconcile Net Income (Loss) to Net
Cash Used In Operating Activities:
Gain on Disposition of Real Estate -- (11,265)
Provisions for Settlement Costs of Arbitration and
Litigation With Related Parties -- --
Net Change In:
Interest Receivable on Cash and Cash
Equivalents -- (1,364)
Investment in Liquidating Trust 1 --
Receivable from Investment in
Liquidating Trust 60,039 --
Notes Receivable -- --
Prepaid Insurance (102,609) (78,622)
State Income Tax Refund Receivable 46,711 --
Other Assets -- (564)
Accounts Payable and Accrued Expenses 95,937 (41,242)
----------- -----------
Net Cash From Operating Activities (122,163) (343,090)
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate -- 11,265
Proceeds from Sale of Land Contract -- 348,285
----------- -----------
Net Cash Provided By Investing Activities -- 359,550
Net Increase (Decrease) in Cash and Cash
Equivalents (122,163) 16,460
Cash and Cash Equivalents at Beginning of Period
1,692,358 746,009
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,570,195 $ 762,469
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 1995
(Unaudited)
1. Basis of Presentation
Readers of this quarterly report should refer to the audited
consolidated financial statements for VMLPZ Mortgage Investors L.P. (the
"Partnership"), formerly known as Banyan Mortgage Investors L.P., for the year
ended December 31, 1994 which are included in the Partnership's 1994 Annual
Report as certain footnote disclosures which would substantially duplicate those
contained in such audited statements have been omitted from this report. These
interim financial statements include all adjustments which in the opinion of
management are necessary in order to make the financial statements not
misleading.
On August 19, 1992, the Partnership announced that the Board of
Directors of its general partner instructed management to begin the process of
liquidating the Partnership. The General Partner also instructed management to
investigate the establishment of appropriate reserves to provide for the
settlement of all remaining obligations of the Partnership during its
liquidation. In June 1995, the General Partner substantially completed the
orderly liquidation of remaining non-cash assets. The General Partner intends to
prepare and implement a plan of liquidation and to distribute the remaining cash
assets, net of any reserves for pending legal proceedings and other
contingencies, to unitholders prior to December 31, 1995. The Board does not
contemplate the making of any distribution, liquidating or otherwise, until a
formal plan of liquidation is adopted. The Partnership continues to carry its
assets and liabilities at historical cost and believes that the carrying values
of the Partnership's assets and liabilities would not differ materially if the
financial statements were presented under a liquidation basis of accounting.
2. Summary of Significant Accounting Policies
A. Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Partnership and its wholly-owned subsidiaries which held title to the
Partnership's properties. All intercompany balances and transactions have been
eliminated in consolidation.
Certain reclassifications have been made to the previously reported
financial statements in order to provide comparability with the current
financial statements. These reclassifications have not changed the Partnership's
reported results.
7
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 1995
(Unaudited)
B. Cash and Cash Equivalents
Cash and cash equivalents represent cash held on deposit with financial
institutions in demand and money market accounts, as well as obligations of the
U.S. Government and its agencies that have maturities of three months or less at
the date of purchase. The Partnership records cash and cash equivalents at
amortized cost which approximates market.
C. Investment in Liquidating Trust
In connection with the fifth amendment to the Creditor Repayment
Agreement, the Partnership received an interest in a liquidating trust that was
established for the benefit of unsecured creditors of VMS Realty Partners. The
trust held cash as well as secured and unsecured, notes and mortgages to
individuals, entities, or real estate properties, most of which were
subordinated to those of senior lenders. The Partnership recorded its investment
in this liquidating trust at its pro rata portion of the cash assets available
for distribution in the trust. Notes and mortgages remaining in the trust were
not accorded any carrying value due to the uncertainties regarding the timing
and amount of any potential recovery. At December 31, 1994, that pro rata
portion amounted to $1.
The Partnership recorded its portion of all receipts from this trust as
a reduction in the Provision for Losses on Mortgage Loans, Notes and Interest
Receivable, when distributions were declared by the trust. The trust declared
such a distribution on December 29, 1994 in the amount of $75,227 which was
recorded as a receivable at December 31, 1994. During the six months ended June
30, 1995, the trust declared, and the Partnership received, $102,420 in
additional distributions from the trust.
On June 28, 1995, the Partnership sold its beneficial interest in the
liquidating trust for $15,188. That amount was recorded as a reduction in the
Provision for Losses on Mortgage Loans, Notes and Interest Receivable and is
reflected as a receivable at June 30, 1995.
D. Income Taxes
No provision or credit for Federal income taxes has been recorded in
the Partnership's financial statements because the results of its operations are
included in the income tax returns of the partners.
8
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 1995
(Unaudited)
E. Book Value and Net Income (Loss) Per Unit
The Book Value per Unit is calculated by dividing Total Partners'
Capital by the number of Depositary Units outstanding at the end of the
respective years. Net Income (Loss) per Unit is computed by dividing Net Income
(Loss) by the weighted average number of units outstanding during the year.
3. Disposition of Real Estate
During the six months ended June 30, 1994, the Partnership recorded a
net gain of $11,265 in connection with its disposition of the Evanston Lock-Up
property.
4. Transactions With Affiliate
Administrative costs, primarily salaries and general and administrative
expenses, were reimbursed by the Partnership to Banyan Management Corporation
("BMC") prior to the decision of VMLPZ Mortgage Investors, Inc., the General
Partner of the Partnership (the "General Partner") formerly known as Banyan
Mortgage Investors, Inc., to terminate the Partnership's contractual
relationship with BMC on October 27, 1994. Pursuant to the former administrative
agreement between BMC and the Partnership (the "BMC Services Agreement"), from
January 1, 1993, through October 27, 1994, these costs were charged to each
Banyan Fund based upon the actual number of hours reportedly spent by BMC
personnel on matters related to that Fund. The Partnership's costs during the
six months ended June 30, 1994 were $67,703.
5. Recovery of Class Action Settlement Costs and Expenses
On January 25, 1994, the Partnership received net proceeds of $69,602
relating to a recovery of payments previously made into an escrow established as
part of the class action settlement of the litigation captioned In re VMS
Securities Litigation. The escrow was established to provide the officers and
directors of the Partnership's general partner with monies to fund the cost of
any litigation in which they may be named as defendants post settlement of the
class action. Subsequently, the directors released the proceeds from the escrow
and the Partnership purchased an insurance policy to cover the officers and
directors.
6. Arbitration and Litigation with Related Parties
On September 12, 1994, the Board of Directors (the "Board") of the
General Partner voted unanimously to terminate the employment by the Partnership
of Mr. Leonard G. Levine, including Mr. Levine's employment as President of the
General Partner. The Board also elected Mr. Philip H. Brady, Jr., one of its
members, to serve as Acting President and Acting Chief Financial Officer of the
General Partner. On September 16, 1994, the Board received notice that
9
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 1995
(Unaudited)
other officers of the General Partner, including the Senior Vice President of
Finance and Administration, the First Vice President, and the Vice President and
General Counsel, had resigned effective September 12, 1994.
Levine Arbitration
On or about October 31, 1994, Mr. Levine initiated an arbitration
proceeding against the Partnership before the American Arbitration Association.
Mr. Levine claimed that he was entitled to an award of $107,359, plus interest
and attorneys' fees on account of the termination of his employment by the
Partnership. The Partnership contested Mr. Levine's claims and, in addition,
asserted certain claims against Mr. Levine in the BMC Lawsuit. In May, 1995, the
Partnership settled this arbitration proceeding and a consent award was entered
providing for a gross severance payment of $67,500 from the Partnership in full
settlement of Mr. Levine's claims. That amount had been previously reserved for
and was paid during May 1995.
BMC Lawsuit
On October 27, 1994, the Board determined that BMC had breached certain
of its obligations to the Partnership pursuant to the BMC Services Agreement and
resolved, unanimously, to terminate the BMC Services Agreement. In a
simultaneous action, the Board resolved to engage KPMG Peat Marwick LLP to
provide certain administrative and other services formerly provided by BMC.
Subsequently, the Partnership made various demands upon BMC for return of the
Partnership's books and records. On November 9, 1994, when these demands proved
unsuccessful, the Partnership and VMTGZ Mortgage Investors L.P. II (formerly
known as Banyan Mortgage Investors L.P. II) commenced litigation against BMC and
Mr. Levine, who continues to serve as President of BMC. In its lawsuit against
BMC and Mr. Levine, the Partnership sought to recover possession of its funds,
books and records which were under BMC's and Mr. Levine's control. The
Partnership also sought to recover money damages and other relief. On November
22, 1994, the court ordered BMC to make the books and records of the Partnership
available for copying by the Partnership. In addition, the court ordered Mr.
Levine not to interfere with the Partnership's copying of its books and records.
BMC answered the complaint in the BMC Lawsuit on November 22, 1994 and
denied certain of the material allegations therein and asserted certain
defenses. Mr. Levine answered the complaint on or about January 25, 1995 and
also denied certain of the material allegations therein and asserted certain
additional defenses. On December 1, 1994 BMC filed a counterclaim against the
Partnership. In its counterclaim, BMC sought to recover $65,000 in contract
10
<PAGE>
VMLPZ Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
June 30, 1995
(Unaudited)
termination fees from the Partnership under the BMC Services Agreement and for
an order requiring the Partnership to transfer the capital stock of BMC owned by
the Partnership to BMC. The Partnership denied the material allegations of BMC's
counterclaim and asserted certain additional defenses. The General Partner has
conducted settlement negotiations in the BMC Lawsuit. However, the General
Partner is unable to predict the ultimate outcome of the BMC Lawsuit at this
time. The Partnership recorded a provision for arbitration and litigation with
related parties in the amount of $7,548 in connection with the BMC Lawsuit. At
June 30, 1995, the Partnership has established a reserve in the aggregate amount
of $7,548 for the BMC Lawsuit, which reserve is included in accounts payable and
accrued expenses.
11
<PAGE>
Item 2. Management's Discussion and Analysis
General
VMLPZ Mortgage Investors L.P. (the "Partnership") is a Delaware limited
partnership that was organized on November 2, 1984. In June 1995, the
Partnership changed its name from Banyan Mortgage Investors L.P. to VMLPZ
Mortgage Investors L.P. The sole general partner of the Partnership is VMLPZ
Mortgage Investors, Inc., an Illinois corporation organized in 1984 (the
"General Partner") and formerly known as Banyan Mortgage Investors, Inc. The
Partnership was originally established to make various types of real estate
investments through wraparound, first and junior mortgage loans principally to
VMS Realty Partners and entities affiliated with it (collectively, "VMS").
Mortgage loans made by the Partnership were for initial terms of three, five or
seven years, and were prepayable at any time without prepayment penalty. In
February 1990, the Partnership, in response to VMS's decision to cease making
payments on their mortgage loans due to their liquidity problems, ceased funding
new wraparound, first and junior loans and suspended all relationships between
the Partnership and VMS. The Partnership was materially adversely affected by
VMS's defaults. As a result, the Partnership ceased making new loans and
suspended distributions to unitholders in 1990.
On August 19, 1992, the Partnership announced that the General Partner
had instructed management to begin the process of liquidating the Partnership.
The General Partner also instructed management to investigate the establishment
of appropriate reserves to provide for the settlement of all remaining
obligations of the Partnership during its liquidation. In June 1995, the General
Partner substantially completed the orderly liquidation of remaining non-cash
assets. The General Partner intends to prepare and implement a plan of
liquidation and to distribute the remaining cash assets, net of any reserves for
pending legal proceedings and other contingencies, to unitholders prior to
December 31, 1995.
On September 12, 1994, the General Partner terminated the employment by
the Partnership of Mr. Leonard G. Levine, including Mr. Levine's employment as
President of the General Partner. The General Partner also appointed one of its
independent Directors, Mr. Philip H. Brady, Jr., to serve as the Acting
President and Acting Chief Financial Officer of the General Partner. On
September 16, 1994, the General Partner received notice that William M. Karnes,
Senior Vice President, Finance and Administration, Neil D. Hansen, First Vice
President, and Robert G. Higgins, Vice President and General Counsel, resigned,
effective September 12, 1994, as officers of the General Partner. On or about
October 31, 1994, Mr. Levine initiated an arbitration proceeding (the "Levine
Arbitration") against the Partnership in respect of the termination of his
employment. The Partnership settled the Levine Arbitration in May 1995. See
Results of Operations under this Part I, Item 2, Management's Discussion and
Analysis, Part II, Item 1, Legal Proceedings, and Note 6 of Notes to
Consolidated Financial Statements for additional descriptions of the Levine
Arbitration and related matters.
12
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
Certain administrative and accounting services have been provided to
the Partnership by KPMG Peat Marwick LLP since October 27, 1994. Prior to that
date, certain administrative and accounting services were provided to the
Partnership by BMC pursuant to the Administrative Services Agreement, dated
February 27, 1994 (the "BMC Services Agreement"), between the Partnership and
BMC. On October 27, 1994, the Partnership terminated the BMC Services Agreement.
BMC and Mr. Levine were named as defendants in a lawsuit brought by the
Partnership and Banyan Mortgage Investors L.P. II (the "BMC Lawsuit") as a
result of certain actions by BMC and Mr. Levine relating to the termination by
the Partnership of the BMC Services Agreement and certain other matters. See
Results of Operations under this Part I, Item 2, Management's Discussion and
Analysis, Part II, Item 1, Legal Proceedings, and Note 6 of Notes to
Consolidated Financial Statements for additional descriptions of the BMC Lawsuit
and related matters.
In December 1994, the Partnership sold its interest in the Pebblecreek
property. The Pebblecreek property was an unimproved site approximately 20 miles
northwest of downtown Detroit, Michigan. In July 1993, the Partnership sold its
interest in the Evanston Lock-Up property. See Note 3 of Notes to Consolidated
Financial Statements for further information with respect to the sales of the
Evanston Lock-Up property. The Partnership has no remaining mortgage loans or
real properties.
In June 1995, the Partnership sold its 1.32% beneficial interest in
Partners Liquidating Trust for an aggregate cash consideration of $15,188. See
Results of Operations under this Part I, Item 2, Management's Discussion and
Analysis, and Note 2 of Notes to Consolidated Financial Statements for
additional descriptions of the Partnership's interest in Partners Liquidating
Trust and the sale thereof.
Liquidity and Capital Resources
Cash and cash equivalents consist of cash and short-term investments.
The Partnership's cash and cash equivalents balance at June 30, 1995 and
December 31, 1994 was $1,570,195 and $1,692,358, respectively. This decrease in
cash and cash equivalents is due primarily to payment of the Partnership's
operating expenses, including litigation expenses incurred in connection with
legal proceedings affecting the Partnership in the first quarter of 1995. See
Part II, Item 1, Legal Proceedings, and Note 6 of Notes to Consolidated
Financial Statements for additional descriptions of the Levine Arbitration, the
BMC Lawsuit and related matters. The decrease in cash and cash equivalents is
offset in part by the cash distributions received in January and February 1995
from Partners Liquidating Trust, in which the Partnership had a 1.32% beneficial
interest. See Other Information under this Part I, Item 2, Management's
Discussion and Analysis, and Note 2 of Notes to Consolidated Financial
Statements for further details. The Partnership also earned interest income on
its cash and cash equivalents.
13
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
The Partnership's future source of liquidity is expected to be
generated through interest earned on short-term investments in investment-grade
securities. It is anticipated that this cash generated may be less than the
Partnership's operating expenses during the remaining period of liquidation. A
portion of the Partnership's cash will be used to meet any shortfall. The
General Partner believes that the Partnership's cash and cash equivalents,
together with interest earned on short-term investments, will be sufficient to
meet the Partnership's reasonably anticipated cash needs for the foreseeable
future.
As of June 30, 1995, the General Partner has a deficit capital balance
in the Partnership of $301,933. It is currently anticipated that the Partnership
will be unable to recover this deficit upon liquidation due to the financial
limitations of the General Partner. The Partnership has no obligation to cover
this deficit on behalf of the General Partner.
On March 31, 1992, the Partnership and other creditors of VMS and
certain other parties executed the Creditor Repayment Agreement with various VMS
entities. The Creditor Repayment Agreement, as amended by four subsequent
amendments thereto, provided for the attempted sale by various VMS entities of
their assets in an orderly manner and the distribution of the net proceeds of
such sales to the Partnership and such other creditors. On November 18, 1993,
the Partnership, such other creditors and parties and various VMS entities
executed the fifth amendment to the Creditor Repayment Agreement and the
Partnership received a distribution of cash equal to $176,041. The Partnership
also received a 1.32% beneficial interest in Partners Liquidating Trust, which
held additional cash and other assets. In December 1994, the Partnership accrued
$75,227 in distributions from Partners Liquidating Trust. Such amount was
recorded by the Partnership in 1994 as a recovery of losses on loans, notes and
interest receivable, and the distribution thereof was received in January 1995.
Since December 31, 1994, the Partnership accrued $102,420 in distributions from
Partners Liquidating Trust, which amounts were received in February 1995. In
order to complete the liquidation of the Partnership, the General Partner sold
the Partnership's beneficial interest in this trust in June 1995 for an
aggregate cash consideration of $15,188. See Other Information under this Part
I, Item 2, Management's Discussion and Analysis, and Note 2 of Notes to
Consolidated Financial Statements for additional descriptions of the
Partnership's interest in Partners Liquidating Trust and the sale thereof.
The Partnership's ultimate return of cash to its unitholders is
dependent upon, among other things, the Partnership's ability to control its
operating and liquidating expenses.
Results of Operations
Total income for the three months ended June 30, 1995 decreased to
$23,105 from $23,232 for the three months ended June
14
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
30, 1994. This moderate decrease in total income was due primarily to a decrease
in the average amount of cash and cash equivalents held for investment by the
Partnership.
Total expenses for the three months ended June 30, 1995 decreased to
$125,927 from $126,797 for the three months ended June 30, 1994. The moderate
decrease in total expenses for the second quarter of 1995 when compared to the
second quarter of 1994 was due principally to the recovery of $15,188 recorded
on provision for losses on loans, notes and interest receivable in connection
with the sale of the Partnership's beneficial interest in Partners Liquidating
Trust in June 1995.
Other expenses increased by $14,318 for the second quarter of 1995 from
the second quarter of 1994. This increase was due primarily to the increase in
other professional fees to $44,848 for the second quarter of 1995 from $6,317
for the second quarter of 1994 principally relating to the Levine Arbitration
and the BMC Lawsuit, see Part II, Item 1, Legal Proceedings, and Note 6 of Notes
to Consolidated Financial Statements for additional descriptions of the Levine
Arbitration, the BMC Lawsuit and related matters and the shifting of some
general and administrative expenses to outside professional firms; and to an
increase in unitholder expenses to $12,600 for the second quarter of 1995 from
($3,416) for the second quarter of 1994, principally relating to the cost of
partnership tax return services and the preparation and distribution of the
Partnership's annual report to Unitholders. These increases were partially
offset by decreases in directors' fees, expenses and insurance and general and
administrative expenses. Directors' fees, expenses and insurance declined in the
amount of $4,823. General and administrative expenses declined in the amount of
$35,406. The decrease in directors' fees, expenses and insurance is attributable
to a decrease in the premium for director's and officer's insurance and
continued cost control efforts by the General Partner. The decrease in general
and administrative expenses to $37,110 in the second quarter of 1995 from
$72,516 in the second quarter of 1994 reflects continued efforts by the General
Partner to control such expenses and the shifting of some general and
administrative expenses to outside professional firms.
During the three months ended June 30, 1994, the Partnership recorded a
net loss of $32,487 in connection with the disposition of the Pebblecreek
property. This loss represented a revision of the General Partner's estimate of
the gain recorded during the first quarter of 1994. There was no similar loss
recorded during the three months ended June 30, 1995.
These changes resulted in a decrease in the net loss for the three
months ended June 30, 1995 to $102,822 ($0.013 per unit) from $136,052 ($0.018
per unit) for the three months ended June 30, 1994.
15
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
Total income for the six months ended June 30, 1995 increased to
$37,928 from $28,077 for the six months ended June 30, 1994. This increase was
due primarily to an increase in the average amount of cash and cash equivalents
held for investment by the Partnership.
Total expenses for the six months ended June 30, 1995 increased to
$260,170 from $249,375 for the six months ended June 30, 1994. This increase was
due principally to costs of litigation incurred by the Partnership, including
settlement costs, in connection with the Levine Arbitration and the BMC Lawsuit.
These costs were partially offset by a recovery of losses on loans, notes and
interest receivable. During the six months ended June 30, 1995, the Partnership
recorded a $102,420 recovery of losses on loans, notes and interest receivable
as a result of the $102,420 cash distributions to the Partnership from Partners
Liquidating Trust accrued and received in February 1995. There was no similar
recovery during the six months ended June 30, 1994. During the six months ended
June 30, 1995, the Partnership also recorded a recovery of $15,188 on provision
for losses on loans, notes and interest receivable in connection with the sale
of the Partnership's beneficial interest in Partners Liquidating Trust in June
1995. There was no similar recovery during the six months ended June 30, 1994.
The Partnership recovered in January 1994 certain expenses in the amount of
$69,602 previously paid into escrow in connection with the class action
settlement of the litigation captioned In re VMS Securities Litigation. There
was no similar recovery during the six months ended June 30, 1995.
Other expenses increased by $58,801 for the six months ended June 30,
1995 compared to the six months ended June 30, 1994. This increase was due
primarily to the increases in other professional fees to $128,776 for the six
months ended June 30, 1995 from $24,240 for the six months ended June 30, 1994
due principally to the Levine Arbitration and the BMC Lawsuit and the shifting
of some general and administrative expenses to outside professionals; and the
recording of provisions aggregating $45,048 for arbitration and litigation with
related parties relating to the Levine Arbitration and the BMC Lawsuit. See Part
II, Item 1, Legal Proceedings, and Note 6 of Notes to Consolidated Financial
Statements for additional descriptions of the Levine Arbitration, the BMC
Lawsuit and related matters. These increases were partially offset by decreases
in unitholder expenses, directors' fees, expenses and insurance, and general and
administrative expenses. Unitholder expenses declined in the amount of $21,905.
Directors' fees, expenses and insurance declined in the amount of $23,471.
General and administrative expenses declined in the amount of $45,407.
Unitholder expenses decreased reflecting continuing efforts by the General
Partner to control such expenses and the shifting of some costs associated with
unitholder services from BMC to outside professional firms. The decrease in
directors' fees, expenses and insurance is attributable to a decrease in the
premium for director's and officer's insurance and continued cost control
efforts by the General Partner. The decrease in general and administrative
16
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
expenses to $80,084 for the six months ended June 30, 1995 from $125,491 for the
six months ended June 30, 1994 reflects continued efforts by the General Partner
to control such expenses and the shifting of some general and administrative
expenses to outside professional firms.
During the six months ended June 30, 1994, the Partnership recorded a
net gain of $11,265 in connection with the disposition of the Evanston Lock-Up
property. See Note 3 of Notes to Consolidated Financial Statements. There was no
similar gain recorded during the six months ended June 30, 1995.
These changes resulted in an increase in the net loss for the six
months ended June 30, 1995 to $222,242 ($0.029 per unit) from $210,033 ($0.028
per unit) for the six months ended June 30, 1994.
Other Information
On October 4, 1993, the outstanding capital stock (the "Stock") of the
General Partner was transferred to Banyan Mortgage Investors Holding Corp.
("Holding Corp.") pursuant to the terms of the class action settlement entered
into by the Partnership on September 25, 1991. Under the terms of the
settlement, VMS Realty, Inc., the prior owner of the Stock, agreed to transfer
the Stock to an entity designated by the Partnership in return for certain
releases. Holding Corp. is an Illinois corporation owned solely by Mr. Leonard
G. Levine, the former President of the General Partner. Mr. Levine is also the
sole director of Holding Corp. and President of BMC. Mr. Levine was involved in
the Levine Arbitration and BMC and Mr. Levine are currently involved in the BMC
Lawsuit. See Part II, Item 1, Legal Proceedings, and Note 6 of Notes to
Consolidated Financial Statements for additional descriptions of the Levine
Arbitration and the BMC Lawsuit. Holding Corp. has transferred the Stock to a
ten-year irrevocable voting trust, the trustees of which are the three directors
of the General Partner. Pursuant to the terms of the voting trust agreement
between Holding Corp. and the trustees of the voting trust, the trustees are
required to vote the Stock in the best interest of the unitholders of the
Partnership. In conjunction with the transfer of the Stock, the name of the
General Partner was changed from VMS Mortgage Investors, Inc. to Banyan Mortgage
Investors, Inc. In June 1995, the name of the General Partner was changed to
VMLPZ Mortgage Investors, Inc.
On November 18, 1993, the Partnership and other parties executed the
fifth amendment to the Creditor Repayment Agreement and the Partnership received
a 1.32% beneficial interest in Partners Liquidating Trust. The Partnership sold
its interest in Partners Liquidating Trust for $15,188 in June 1995. See Note 2
of Notes to Consolidated Financial Statements for additional descriptions of the
Partnership's interest in Partners Liquidating Trust and the disposition
thereof.
17
<PAGE>
PART II
Item 1. Legal Proceedings
The Levine Arbitration
On September 12, 1994, the General Partner terminated the employment by
the Partnership of Mr. Leonard G. Levine, including Mr. Levine's employment as
President of the General Partner. The General Partner also appointed one of its
independent Directors, Mr. Philip H. Brady, Jr., to serve as the Acting
President and Acting Chief Financial Officer of the General Partner. On
September 16, 1994, the General Partner received notice that William M. Karnes,
Senior Vice President, Finance and Administration, Neil D. Hansen, First Vice
President, and Robert G. Higgins, Vice President and General Counsel, resigned,
effective September 12, 1994, as officers of the General Partner.
On or about October 31, 1994, Mr. Levine initiated an arbitration
proceeding (the "Levine Arbitration") against the Partnership before the
American Arbitration Association. Mr. Levine claimed $107,359, plus interest and
attorneys' fees, under the Second Amended and Restated Employment Agreement,
dated as of December 31, 1992, between Mr. Levine and the Partnership on account
of the termination of his employment. The Partnership contested Mr. Levine's
claims and, in addition, asserted certain claims against Mr. Levine in the BMC
Lawsuit. After extensive negotiations, the Partnership agreed to settle the
Levine Arbitration. As a result, on May 31, 1995 a consent award was entered in
the Levine Arbitration providing for a gross severance payment of $67,500 from
the Partnership in full settlement of Mr. Levine's claims. See Part I, Item 2,
Management's Discussion and Analysis, and Note 6 of Notes to Consolidated
Financial Statements for additional descriptions of the Levine Arbitration and
related matters.
The BMC Lawsuit
On October 27, 1994, the General Partner determined that Banyan
Management Corporation ("BMC") had breached various of its obligations to the
Partnership under the Administrative Services Agreement (the "BMC Services
Agreement"), dated as of February 27, 1994, between the Partnership and BMC, and
terminated the BMC Services Agreement. In a simultaneous action, the Partnership
engaged KPMG Peat Marwick LLP to provide certain administrative and other
services formerly provided by BMC. Subsequently, the Partnership made various
demands upon BMC for return of the Partnership's books and records.
When these demands proved unsuccessful, the Partnership together with
VMTGZ Mortgage Investors L.P. II (formerly known as Banyan Mortgage Investors
L.P. II) commenced litigation (the "BMC Lawsuit") on November 9, 1994 against
BMC and Leonard G. Levine. In the BMC Lawsuit, the Partnership sought to recover
possession of its funds, books and records which were under BMC's and Mr.
Levine's control. The Partnership also sought money damages and
18
<PAGE>
Item 1. Legal Proceedings (Continued)
other relief. On November 22, 1994, the court ordered BMC to make the books and
records of the Partnership available for copying by the Partnership. In
addition, the court ordered Mr. Levine not to interfere with the Partnership's
copying of its books and records.
BMC answered the complaint in the BMC Lawsuit on November 22, 1994 and
denied certain of the material allegations therein and asserted certain
defenses. Mr. Levine answered the complaint on or about January 25, 1995 and
also denied certain of the material allegations therein and asserted certain
additional defenses. On December 1, 1994 BMC filed a counterclaim against the
Partnership. In its counterclaim, BMC sought to recover $65,000 in contract
termination fees from the Partnership under the BMC Services Agreement and for
an order requiring the Partnership to transfer the capital stock of BMC owned by
the Partnership to BMC. The Partnership denied the material allegations of BMC's
counterclaim and asserted certain additional defenses. The General Partner has
conducted settlement negotiations in the BMC Lawsuit. However, the General
Partner is unable to predict the ultimate outcome of the BMC Lawsuit at this
time. The Partnership recorded a provision for arbitration and litigation with
related parties in the amount of $7,548 in connection with the BMC Lawsuit. At
June 30, 1995, the Partnership has established a reserve in the aggregate amount
of $7,548 for the BMC Lawsuit, which reserve is included in accounts payable and
accrued expenses. See Part I, Item 2, Management's Discussion and Analysis, and
Note 6 of Notes to Consolidated Financial Statements for additional descriptions
of the BMC Lawsuit and related matters.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Report:
Exhibit 27.1 Financial Data Schedule (EDGAR Filer)
(b) No reports on Form 8-K were filed during the quarter
ended June 30, 1995.
19
<PAGE>
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VMLPZ MORTGAGE INVESTORS L.P.
By: VMLPZ Mortgage Investors, Inc.
its General Partner
By: /s/ Philip H. Brady, Jr. Date: August 10, 1995
---------------------------------
Philip H. Brady, Jr. Acting
President and Acting Chief
Financial and Accounting Officer
20
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 23
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of VMLPZ Mortgage Investors L.P. as at and for the six
months ended June 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> $1,570,195
<SECURITIES> 0
<RECEIVABLES> 15,188
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,570,195
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,756,384
<CURRENT-LIABILITIES> 321,233
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1,435,151
<TOTAL-LIABILITY-AND-EQUITY> 1,756,384
<SALES> 0
<TOTAL-REVENUES> 37,928
<CGS> 0
<TOTAL-COSTS> 260,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (117,608)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (222,242)
<INCOME-TAX> 0
<INCOME-CONTINUING> (222,242)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (222,242)
<EPS-PRIMARY> (0.029)
<EPS-DILUTED> (0.029)
</TABLE>
