UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9043
Banyan Hotel Investment Fund
(Exact name of Registrant as specified in its charter)
Delaware 36-3361229
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Penn Plaza, Suite 1531, New York, New York 10119
(Former Address: 150 S. Wacker Drive, Chicago, IL) 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 736 - 7880
Securities registered pursuant to Section 12 (b) of the Act:
Title of each Class Name of each exchange on which registered
Shares of Common Stock American Stock Exchange
Securities registered pursuant to section 12 (g) of the Act:
None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X. No
Indicate 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-KSB or any
amendment to this Form 10-KSB ( X ).
The Registrant's Revenue for the preceding twelve months was $128,675.
Shares of common stock outstanding as of March 1, 1996: 12,338,051
aggregate market value of the Registrant's shares of common stock held by
non-affiliates as of such date was approximately $9,022,582.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index located on page 18 of sequentially numbered pages.
Transitional Small Business Disclosure Format Yes . No X ..
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TABLE OF CONTENTS
PART I
Item 1. Description of Business . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . 5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . 5
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . 5
PART II
Item 5. Market for Common Equity and
Related Shareholder Matters . . . . . . . . . . . 6
Item 6. Management's Discussion and
Analysis or Plan of Operation . . . . . . . . . . 6
Item 7. Financial Statements . . . . . . . . . . . . . . . 10
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . 10
PART III
Item 9. Directors, Executive Officers, Promotors
and Control Persons of the Registrant . . . . . 11
Item 10. Executive Compensation . . . . . . . . . . . . . 14
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . 15
Item 12. Certain Relationships and Related Transactions . 17
Item 13. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 19
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PART I
ITEM I DESCRIPTION OF BUSINESS
GENERAL
The Registrant, Banyan Hotel Investment Fund (the "Fund"), was
originally organized as a Massachusetts business trust pursuant to a
Declaration of Trust filed March 19, 1985, under the name VMS Hotel
Investment Trust and subsequently reorganized as a Delaware corporation on
March 13, 1987, at which time the Fund's name was changed to VMS Hotel
Investment Fund. The Fund began doing business under its present name
following shareholder authorization to amend its Certificate of
Incorporation to formally change its name to Banyan Hotel Investment Fund
during the second quarter of 1991.
On September 13, 1985, the Fund commenced a public offering of up to
10,000,000 units pursuant to a Registration Statement filed on Form S-II
under the Securities Act of 1933. Each unit consisted of two shares of
common stock ("shares") at an offering price of $9.50 per share and one
warrant entitling the holder to purchase one additional share at an initial
exercise price of $9.50 per share. The shares and warrants were separated
January 14, 1986. The warrants were exercisable for a five year period
ending January 13, 1991, on which date all outstanding warrants were
converted by the Fund into one-tenth of a share.
The public offering was terminated on December 16, 1985 and the final
closing occurred on January 13, 1986, with 4,931,333 units sold. The Fund
received gross proceeds of $98,462,751, net of volume discounts, from the
sale of units of which $201,000 represented the sale of 10,050 units
purchased by VMS Realty Partners. The shares of the Fund, which are
registered with and listed on the American Stock Exchange, began trading on
January 17, 1986.
PRESENT BUSINESS OPERATIONS
The Fund was originally established to invest in mortgage loans,
principally to entities affiliated with VMS Realty Partners which were
collateralized by hotel and resort properties. Mortgage loans made by the
Fund were for initial terms of three, five or seven years, and were pre-
payable in whole at any time without prepayment penalty.
On January 28, 1992, the Board of Directors of the Fund authorized the
preparation of a formal plan of liquidation which was subsequently adopted
on April 7, 1992 (the "Plan"). The Plan contemplated the Fund liquidating
its assets and distributing the proceeds to its shareholders. The Fund
estimated that its liquidation value was between $.15 and $.20 per share.
Since the adoption of the plan, management of the Fund completed the
workout or liquidation of certain assets and considered alternatives to the
announced plan of liquidation which could provide greater shareholder
value, including a number of unsolicited proposals from various third
parties. Based upon Management's review of these various proposals, The
Board of Directors resolved that one proposal was in the best interest of
the Fund and its shareholders because it allowed every shareholder an
opportunity to sell his shares at an amount in excess of the projected
liquidation value. The Board of Directors, by unaminous written consent
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ITEM I. DESCRIPTION OF BUSINESS (continued)
dated June 15, 1994, authorized the Fund to execute and deliver a non-
binding letter of intent with a Mr. Harvey Polly.
On August 3, 1994 the Fund entered into a Purchase Agreement (the
"Purchase Agreement") with Mr. Polly providing, among other things, for an
all cash tender offer, under which Mr. Polly agreed to offer to purchase
100% of the shares of common stock of the Fund for $0.35 per share. The
Purchase Agreement was subsequently amended on November 4, 1994, December
19, 1994 and February 15, 1995. The purchase Agreement provided, among
other things, for the following events to occur at or before closing: (i)
the resignation of the then current officers and directors; (ii) the
purchase by the Fund of "run-off" directors and officers liability
insurance coverage for the current officers and directors; (iii) the
termination of the employment contract of Leonard G. Levine and payment of
the severance compensation associated therewith; (iv) the termination of
the Administrative Services Agreement with Banyan Management Corp, and
payment of the termination fee associated therewith; and (v) the assignment
by the Fund of its ownership interest in Banyan Management Corp.
On February 15, 1995, a change in control of the Fund occurred
pursuant to the closing of the sale of shares of common stock in the Fund
to Mr. Polly pursuant to the Purchase Agreement. Mr. Polly's tender offer,
which commenced on December 28, 1994, concluded on January 26, 1995, and
resulted in the tender to Mr. Polly of 1,288,217 shares of common stock, or
12.5% of the Fund's then outstanding shares of common stock, for a cash
price of $0.35 per share. Subsequent to the closing of the tender offer,
the terms of the Purchase Agreement also required Mr. Polly to purchase
from the Fund a number of shares sufficient to allow Mr. Polly to own, by
virtue of the combination of the tender offer and the share purchase, not
less than 3,335,000 and not more than 40% of the shares of common stock
after giving effect to the shares issued in connection with the purchase on
February 15, 1995, per the Purchase Agreement. Mr. Polly purchased
2,047,766 newly issued shares of common stock of the Fund for a cash price
of $0.22 per share. Upon the acquisition of the aforesaid shares from the
Fund, when combined with the shares of common stock previously owned and
acquired pursuant to the tender offer, Mr. Polly is the beneficial owner of
3,335,983 shares, or approximately 27% of the Fund's outstanding voting
shares of common stock.
The Fund does not, at present, satisfy certain American Stock Exchange
("AMEX") criteria for continued listing of its stock on the Exchange. On
February 7, 1996 the Fund was notified by the AMEX that its stock would be
delisted by March 29, 1996, unless it completes a "satisfactory acqui-
sition" by that date. On April 1, 1996, the Fund notified the AMEX that it
would appeal the delisting. Management hopes to maintain the listing by
either prevailing in the appeal, or completing a "satisfactory acquisition"
prior to the determination of the appeal. There can be no assurances,
however, that listing will be continued. Mr. Polly has indicated that he
has no present intention of taking the Fund private, but a one for five
reverse stock split, subject to shareholder approval, is being considered.
Upon the closing of the sale of shares of common stock of the Fund on
February 15, 1995, the purchase agreement provided for the resignation of
the Fund's then current Directors and Officers. Accordingly,all of the then
current Directors and Officers resigned and were replaced with Mr. Polly's
designees. Subsequent to the resignation of the Directors and Officers of
the Fund, no further arrangements or understanding among the
2
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ITEM 1. DESCRIPTION OF BUSINESS (continued)
Fund or its new Officers and Directors existed. On February 15, 1995,
Messrs. Leo Yarfitz, Morton I. Kalb, Willis G. Ryckman and Harvey Polly
were appointed as new Directors of the Fund. In addition, the new Directors
appointed Mr. Harvey Polly as President and Chief Executive Officer, Mr.
Morton I. Kalb as Vice President and Chief Financial Officer, Ms.Celia
Zisfein as Secretary and Mr. William L. Weiss as Assistant Secretary.
Effective February 15, 1995, Mr. Polly's and the Fund's address of their
principal executive office is One Penn Plaza, Suite 1531, New York, New
York 10119.
The Fund currently owns a 50% limited partnership interest in the
Santa Barbara Biltmore Resort. This asset is illiquid due to the poor
operating performance of the hotel. While the Fund believes that the
operation of the hotel may improve over time to the point that sale of this
asset could result in a recovery of a portion of the Fund's investment, the
timing and amount of such a recovery is difficult to predict.
In the interim, the Fund has attempted to reduce the ongoing operating
expenses of the Fund in order to maximize the net cash return to
shareholders. The Fund's ultimate return to shareholders is dependent upon
management's ability to make profitable acquisitions and utilize its net
operating loss.
Below is a summary and current status for each of the Fund's remaining
assets as of March 1, 1996.
SANTA BARBARA BILTMORE
The Fund's 50% limited partnership interest in the Santa Barbara
Biltmore Partnership was recorded by the Fund at its fair market value and
is accounted for on the equity method. The Fund recorded $3,749,581 as its
share of the operating loss of the Santa Barbara Biltmore Resort for 1992.
The 1992 amount included an additional loss of $861,691 to reduce the
December 31, 1992 carrying value of its interest in the Santa Barbara
Biltmore to $506,695 which represented amounts due to the Fund under the
settlement agreement from certain amounts held in escrow related to
renovation work on the hotel which was completed in 1990. The Fund received
this cash on February 3, 1993. The Fund did not record losses related to
its interest in the Santa Barbara Biltmore during 1995, 1994 and 1993 since
the carrying value of the partnership interest was reduced to zero as of
December, 1992 and the Fund has no obligation to make additional capital
contributions to, or to pay the liabilities of, the partnership.
OMNI PARK CENTRE
On June 17, 1987, the Fund issued a $5,154,600 third mortgage loan to
Park Centre Associates (the"Borrower") which was collateralized by the Omni
Park Hotel (the "Property") located in New York, New York. On July 19, 1991
the Fund was served with a summons in a mortgage foreclosure action filed
by Sheraton Holding Inc. ("Sheraton") in the Superior Court of New York,
New York. Sheraton sought to foreclose on its $54,000,000 first mortgage
collateralized by the property. The Sheraton foreclosure action was based
on monetary defaults by the Borrower. On September 30, 1991 the Fund filed
a counterclaim to the Sheraton foreclosure action.
3
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ITEM 1. DESCRIPTION OF BUSINESS (continued)
In addition, the second mortgage on the property in the amount of
approximately $5,600,000 is also in default and the holder of the mortgage
has filed a counterclaim to the foreclosure with the court.
On June 12, 1992, the Borrower filed for protection under the U.S.
Bankruptcy Code. On June 30, 1992, an order was entered in the Bankruptcy
Court between the Fund, Sheraton, the second mortgage holder and the
Borrower, authorizing and restricting the use of cash collateral by the
Borrower. During 1992, the Fund recorded a provision for losses for the
remaining carrying balance of the loan.
During the third quarter of 1995, the Fund assigned its interest in
this loan for $75,000. Inasmuch as the entire loan had previously been
written off, this receipt is reflected as income on the accompanying
Financial Statements.
OTHER MORTGAGE LOANS RECEIVABLE
On October 10, 1995, the Fund made a first mortgage loan in the amount
of $375,000 which is secured by a commercial property in New York City, as
well as by a personal guaranty of one of the principals of the borrower.
The loan calls for interest at 12% per annum with monthly payments based on
a ten (10) year amortization schedule and a balloon payment of the total
balance in five (5) years.
On February 13, 1996, the Fund made a first mortgage loan in the
amount of $150,000 which is secured by a commercial property in New York
City. The loan represents less than 17% of the appraised value of the
property, bears interest at the rate of 10% per annum and calls for monthly
payments on a five year self-liquidating basis.
On February 29, 1996, the Fund made a first mortgage loan in the
approximate amount of $106,000, which is secured by an industrial property
in Lake Worth, Florida. The property securing the mortgage is controlled by
Harvey Polly, who has personally guaranteed the mortgage. The loan calls
for 10% interest per annum, payable monthly, with a balloon payment of
principal after five years.
OTHER
Prior to the February 15, 1995 acquisition of the Fund by Mr. Polly
(as discussed above), the Fund had four employees who served as executive
officers. Administrative and accounting services performed on behalf of the
Fund were primarily provided by Banyan Management Corp. Please see item 12,
"Certain Relationships and related Transactions." and Note 5 of Notes to
Consolidated Financial Statements.
TAX STATUS
Prior to January 1, 1995, the Fund continued to be treated as a real
estate investment trust (REIT) under Sections 856-860 of the Internal
Revenue Code of 1986. However, management of the Fund discontinued its REIT
status, effective January 1, 1995. The Fund will be treated as a C-
Corporation in accordance with the Internal Revenue Code.
4
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ITEM 1. DESCRIPTION OF BUSINESS (continued)
The business of the Fund is not seasonal and the Fund does no foreign
or export business. The Fund does not segregate revenue or assets by
geographic region, and such presentation is not applicable and would not be
material to an understanding of the Fund's business taken as a whole.
ITEM 2. DESCRIPTION OF PROPERTY
As of December 31, 1995, the Fund owned a 50% partnership interest in
the Santa Barbara Biltmore Hotel. In addition, see Note 3 of the Notes to
Financial statements for certain information pertaining to the property
which collateralized the Fund's mortgage loan.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not aware of any material pending legal proceedings
as of March 1, 1996 nor were any proceedings terminated during the quarter
ended December 31, 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Fund did not submit any matter to a vote of its security holders
during the quarter ended December 31, 1995.
5
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Fund's shares of common stock are traded on the American Stock
Exchange ("AMEX") (Symbol - VHT). The range of high and low sales prices
per share for each of the quarters in the years ended December 31, 1995 and
1994 are as follows:
Share Price
Quarter 1995 1994
---- ----
1. High $1.375 $0.344
Low $0.312 $0.156
2. High $1.125 $0.438
Low $0.437 $0.250
3. High $1.625 $0.500
Low $0.500 $0.281
4. High $1.500 $0.500
Low $1.000 $0.281
Prior to the acquisition of the Fund by Mr. Polly (see Item 1.
Description of Business), the Fund had suspended distributions due to
interruption in the Fund's cash flow resulting from defaults by borrowers
on the Fund's mortgage loans, the modest size of the Fund's cash position,
the uncertainty regarding the cash requirements for operating activities,
and expected expenses to be incurred prior to disposition of the Fund's
assets. No distributions were declared by the Fund in 1995 and 1994.
The Fund does not, at present, satisfy certain American Stock Exchange
("AMEX") criteria for continued listing of its stock on the Exchange. On
February 7, 1996 the Fund was notified by the AMEX that its stock would be
delisted by March 29, 1996, unless it completes a "satisfactory acqui-
sition" by that date. On April 1, 1996, the Fund notified the AMEX that it
would appeal the delisting. Management hopes to maintain the listing by
either prevailing in the appeal, or completing a "satisfactory acquisition"
prior to the determination of the appeal. There can be no assurances,
however, that listing will be continued. Mr. Polly has indicated that he
has no present intention of taking the Fund private, but a one for five
reverse stock split, subject to shareholder approval, is being considered.
At December 31, 1995, there were 2,479 record holders of common
stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Banyan Hotel Investment Fund (the "Fund"), was formed to make mortgage
loans to affiliates of VMS Realty Partners, ("VMS"), secured by hotel and
resort properties. The Fund has been adversely affected as a result of the
non-payment of amounts due from these borrowers on mortgage loans and notes
receivable.
6
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
In early 1990, the Fund implemented a business plan focused on
preservation of its assets and managing its properties acquired through
foreclosure until they could be disposed of in an orderly manner (the
"Principal Recovery Plan").
On January 28, 1992, the Board of Directors of the Fund authorized the
preparation of a formal plan of liquidation which was subsequently adopted
on April 7, 1992 (the "Plan"). The Plan contemplated the Fund liquidating
its assets and distributing the proceeds to its shareholders. The Fund
estimated that its liquidation value was between $.15 and $.20 per share.
Since the adoption of the Plan, Management of the Fund completed the
workout or liquidation of certain assets and considered alternatives to the
announced plan of liquidation which could provide greater shareholder
value, including a number of unsolicited proposals from various third
parties. Based upon management's review of these various proposals, the
Board of Directors resolved that one proposal was in the best interest of
the Fund and its shareholders because it allowed every shareholder an
opportunity to sell his shares at an amount in excess of the projected
liquidation value. The Board of Directors, by unanimous written consent
dated June 15, 1994, authorized the Fund to execute and deliver a non-
binding letter of intent with a Mr. Harvey Polly.
On August 3, 1994 the Fund entered into a Purchase Agreement (the
"Purchase Agreement") with Mr. Polly providing, among other things, for an
all cash tender offer, under which Mr. Polly agreed to offer to purchase
100% of the shares of common stock of the Fund for $0.35 per share. The
Purchase Agreement was subsequently amended on November 4, 1994, December
19, 1994 and February 15, 1995. The Purchase Agreement provided, among
other things, for the following events to occur at or before closing: (i)
the resignation of the then current officers and directors; (ii) the
purchase by the Fund of "run-off" directors' and officers' liability
insurance coverage for the then current officers and directors; (iii) the
termination of the employment contract of Leonard G. Levine and payment of
the severance compensation associated therewith; (iv) the termination of
the Administrative Services Agreement with Banyan Management Corp. and
payment of the termination fee associated therewith; and (iv) the
assignment by the Fund of its ownership interest in Banyan Management Corp.
On February 15, 1995, a change in control of the Fund occurred
pursuant to the closing of the sale of shares of common stock in the Fund
to Mr. Polly pursuant to the Purchase Agreement. Mr. Polly's tender offer,
which commenced on December 28, 1994, concluded on January 26, 1995, and
resulted in the tender to Mr. Polly of 1,288,217 shares of common stock, or
12.5% of the Fund's then outstanding shares of common stock, for a cash
price of $0.35 per share. Subsequent to the closing of the tender offer,
the terms of the Purchase Agreement also required Mr. Polly to purchase
from the Fund a number of shares sufficient to allow Mr. Polly to own, by
virtue of the combination of the tender offer and the share purchase, not
less than 3,335,000 and not more than 40% of the shares of common stock
after giving effect to the shares issued in connection with the purchase.
On February 15, 1995, per the Purchase Agreement, Mr. Polly purchased
2,047,766 newly issued shares of common stock of the Fund for a cash price
of $0.22 per share. Upon the
7
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
acquisition of the aforesaid shares from the Fund, when combined with the
shares of common stock previously owned and acquired pursuant to the tender
offer, Mr. Polly is the beneficial owner of 3,335,983 shares or
approximately 27% of the Fund's outstanding voting shares of common stock
Upon the closing of the sale of shares of common stock of the Fund on
February 15, 1995, the Purchase Agreement provided for the resignation of
the Fund's then current Directors and Officers. Accordingly, all of the
then current Directors and Officers resigned and were replaced with Mr.
Polly's designees. Subsequent to the resignation of the Directors and
Officers of the Fund, no further arrangements or understanding among the
Fund or its new officers and directors existed. On February 15, 1995,
Messrs. Leo Yarfitz, Morton I. Kalb, Willis G. Ryckman and Harvey Polly
were appointed as new Directors of the Fund. In addition, the new Directors
appointed Mr. Harvey Polly as President and Chief Executive Officer, Mr.
Morton I. Kalb as Vice President and Chief Financial Officer, Ms. Celia
Zisfein as Secretary and Mr. William L. Weiss as Assistant Secretary.
Effective February 15, 1995, Mr. Polly's and the fund's address of their
principal executive office is One Penn Plaza, Suite 1531, New York, New
York 10119.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Fund's cash and cash equivalents balance at December 31, 1995 and 1994
was $736,897 and $275,161 respectively. This increase in cash and cash
equivalents is due primarily to the sale and maturity of investment
securities during 1995 and reduced by the payment of the Fund's operating
expenses. Partially offsetting the operating expenses was the receipt of
$75,000 representing proceeds received by the Fund from a previously
written off mortgage. In addition, the Fund received net proceeds of
$30,154 from an escrow established as part of the class action settlement
of the litigation captioned in the VMS Securities litigation. The escrow
was established to provide the directors of the Fund with cash 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 Fund purchased an insurance policy to
cover the directors. During 1995, the Fund also received approximately
$129,000 in interest income on its cash and cash equivalents and investment
securities. On February 15, 1995, the purchase by Mr. Polly of 2,047,766
shares of common stock from the fund resulted in cash proceeds of
approximately $450,000 to the Fund.
At this time, there are no material commitments for capital expendi-
tures. The Fund's cash and cash equivalents are sufficient to meet its
needs for anticipated operating expenses. The Fund deems its liquidity to
be adequate.
During the fourth quarter of 1995 and the first quarter of 1996 the
Fund invested approximately $631,000 in three first mortgages. These
mortgages yield an average return of approximately 11% and are all for five
year terms.
8
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
As of December 31, 1994, the Fund's mortgage loan portfolio consisted
of one loan, classified as loans in substantive foreclosure. The Fund has
recorded a provision for losses on the loan representing its full carrying
balance. During the third .quarter of 1995, the Fund assigned its interest
in this mortgage in return for a payment of $75,000. This payment is
included in income for the year ended December 31, 1995.
On November 18, 1993, in final settlement of guarantees of VMS Realty
Partners of loans made by the Fund in prior years, the Fund received a cash
distribution of $27,831 and an interest in a liquidating trust established
for the benefit of the unsecured creditors of VMS. As of December 31,1993,
the Fund valued its interest at $4,939 representing its pro rata portion of
the cash assets of the trust. During 1995 and 1994, the Fund recorded
$30,154 and $16,788 respectively, on its Statement of Income and Expenses
as a recovery of the Provision for Losses on Mortgage Loans, Notes and
Interest Receivable related to the distributions received from the
liquidating trust. The $30,154 net recovery recorded in 1995 includes a
$48,246 distribution received net of an estimated $18,092 due to the Class
Action Settlement Fund representing the Fund's share of amounts due per the
terms of the previously settled VMS Securities litigation.
The Fund's ultimate return of cash to its shareholders is dependent
upon, among other things: (i) the activities undertaken by the Fund under
its present management; (ii) interest earned from the investment of cash
and cash equivalents and investment securities; (iii) the Fund's ability to
control its operating expenses; and (iv) possible recoveries from the Santa
Barbara Biltmore Hotel and the liquidating trust.
RESULTS OF OPERATIONS
Total income for the years ended December 31, 1995, 1994 and 1993 was
$128,675, $138,603 and $85,931, respectively. The $10,000 decrease in total
income between 1995 and 1994 is the result of a reduction in interest
earned on the Fund's cash and cash equivalents and investment securities
due to a decrease in interest rates available on its cash and investment
securities. Total income increased between 1993 and 1994 as a result of the
increase in investment securities.
Total expenses for the years ended December 31,1995 and 1994 increased
$305,158. During 1995, General and Administrative Expenses and Directors'
Fees, Expenses and Insurance increased substantially. These increases are
due primarily to costs associated with the tender offer which resulted in a
change in control of the Fund as discussed above, including stock listing
fees, required termination payments to the Fund's former President and
Banyan Management Corp. and the purchase of Director's and Officer's
Liability Insurance.
9
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During 1995 and 1994, the Fund recorded net recoveries of losses on
loans, notes and interest receivable, as well as the 1994 Class Action
Settlement, of $105,154 and $107,481 respectively. During 1995 and 1994,
the Fund did not record losses related to its interest in the Santa Barbara
Biltmore since the carrying value of the partnership interest was reduced
to zero as of December 31, 1992, and the Fund has no obligation to make
additional capital contributions to, or pay the liabilities of, the
partnership. During 1995, the Fund realized a loss of $38,984 on the sale
and early retirement of investment securities. This loss is due primarily
to declining interest rates in 1995.
The net loss for 1995, 1994 and 1993 was $739,908 ($0.06 per share),
$385,838 ($0.04 per share) and $488,081 ($0.05 par share) , respectively.
ITEM 7. FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements on Page F-1 of this
Report for financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no disagreements with the accountants on any matter of
accounting principals, practices or financial statement disclosure.
10
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT
Prior to the February 15, 1995 acquisition of the Fund by Mr. Polly
(see Item 1. Description of Business), the following individuals were
serving as directors and the executive officers of the Fund:
Norman M, Gold Director
Gerald L. Nudo Director
Marvin A. Sotoloff Director
Leonard G. Levine President
Neil D. Hansen First Vice President
Robert G. Higgins Vice President/General Counsel
Joel L. Teglia Acting Chief Financial Officer
NORMAN M. GOLD, age 65, is a senior partner in the law firm of
Altheimer & Gray and has actively practiced law for over 40 years,
specializing in taxation, corporate and real estate law. Mr. Gold is a
trustee of Banyan Short Term Income Trust, Banyan Strategic Realty Trust,
and director of Banyan Management Corp. Mr. Gold is also a trustee of New
Plan Realty Trust. Mr. Gold is a certified public accountant and a member
of the Chicago and American Bar Associations.
GERALD L. NUDO, age 46, is senior vice president of Mesirow Realty
Finance, Inc., a subsidiary of Mesirow Financial corp., a regional
investment banking firm. From 1982 to 1990 Mr. Nudo was a principal and
vice president of Capital Realty Services, Inc., a commercial real estate
investment banking company. Mr. Nudo received his Bachelor of Science
Degree from Northwestern University and his Masters Degree in Business
Administration from the University of Chicago Graduate School of Business.
Mr. Nudo is also a certified public accountant and a licensed real estate
broker in Illinois. He is a trustee of Banyan Short Term Income Trust and a
director of Banyan Strategic Land Fund II and Banyan Management Corp.
MARVIN A. SOTOLOFF, age 52, is regional vice president of Premisys
Marketing Services, Inc., effective July 1993. Premisys Marketing Services,
a division of Premisys Real Estate Services, Inc., is a national real
estate firm involved in the leasing and management of office, retail and
industrial properties. From 1979-1993, Mr. Sotoloff was executive vice
president of the Palmer Group Ltd., a company involved in real estate
brokerage, development and property management,concentrating on commercial
real estate. He is a past president of the Chicago Office Leasing brokers
Association, a licensed real estate broker and a member of the Illinois and
Pennsylvania Bar Associations. Mr. Sotoloff is a trustee of Banyan
Strategic Realty Trust, Banyan Short Term Income Trust and director of
Banyan Management Corp.
LEONARD G. LEVINE, age 49, is president of Banyan Management Corp.,
Banyan Short Term Income Trust, Banyan Strategic Realty Trust, Banyan
Strategic Land Fund II, Banyan Mortgage Investment Fund. Mr. Levine was
employed by VMS Realty Partners from 1981 to 1989 before becoming president
of the other Banyan Entities mentioned above. He received a B.S./B.A.
Degree in Accounting from Roosevelt University in 1968 and a Masters Degree
in Taxation from DePaul UniverSity in 1972. His areas of specialization
include real estate syndications, estate planning and taxation of closely-
held corporations. Mr. Levine is also a certified public accountant and a
licensed real estate broker.
11
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT (continued)
NEIL D. HANSEN, age 49, is first vice president of Banyan Management
Corp., Banyan Short Term Income Trust, Banyan Strategic Realty Trust,
Banyan Strategic Land Fund II, and Banyan Mortgage Investment Fund. From
1988 through 1990 Mr. Hansen was senior vice presidet of Ruff Callaghan &
Hemmeter Company, a real estate development firm, and executive vice
president, secretary and treasurer of Resort Income Investors, Inc., an
American Stock Exchange listed real estate investment trust. He received a
B.S. degree in Finance from the University of Illinois and a Master of
Management Degree from Northwestern University. He is a certified public
accountant.
ROBERT G. HIGGINS, age 44, is vice president/general counsel of Banyan
Management Corp., Banyan Short Term Income Trust, Banyan Strategic Realty
Trust, Banyan Strategic Land Fund II, and Banyan Mortgage Investment Fund.
From 1990 to 1992, Mr. Higgins was a contract partner at the law firm of
Chapman and Cutler. From 1984 to 1990, Mr. Higgins was a partner at the law
firm of Schwartz & Freeman. During these years, Mr. Higgins concentrated in
the areas of real estate development, finance, acquisitions, land use,
sales,lending and syndications, and general corporate and business
practice. Mr. Higgins is admitted to the bar in the States of Illinois,
Minnesota and Texas. He received a B.A. Degree in Government from the
University of Notre Dame and a J.D. Degree from Loyola University of
Chicago.
JOEL L. TEGLIA, age 34, is acting chief financial officer of Banyan
Management Corp., Banyan Strategic Realty Trust, Banyan Mortgage Investment
Fund, Banyan Short Term Income Trust and Banyan Strategic Land Fund II.
Prior to assuming the responsibilities of his current position, Mr. Teglia
was the controller for Banyan Management Corp. From 1986 to 1990 Mr. Teglia
held positions as project controller and director of finance and budgeting
at the Prime Group, Inc., an international real estate investment and
development firm. He received a B.B.A Degree in Accounting from the
University of Notre Dame. Mr. Teglia is a certified public accountant.
On February 15, 1995, Norman M. Gold, Gerald L. Nudo and Marvin A.
Sotoloff (the "Directors") submitted their respective resignations as
Independent Directors of the Fund. Also on February 15, 1995, Leonard G.
Levine, Neil D. Hansen, Robert G. Higgins and Joel L. Teglia (the
"Officers") submitted their respective resignations as officers of the
Fund. The resignations of the Directors and Officers, which were effective
immediately, were submitted as a result of a change in control of the Fund
pursuant to the closing of the February 15, 1995 sale of shares of stock in
the Fund to Mr. Harvey Polly. See discussion in
Item 1. Description of Business and Item 6. Management's Discussion and
Analysis or Plan of Operation for details of this change in control.
12
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS
OF THE REGISTRANT (continued)
Subsequent to the February 15, 1995 acquisition of the Fund by Mr.
Polly, the following individuals were appointed to serve as directors and
the executive officers of the Fund:
Harvey Polly Director, President and
Chief Executive Officer
Morton I. Kalb Director, Vice President
and Chief Financial Officer
Willis G. Ryckman Director
Leo Yarfitz Director
HARVEY POLLY, age 67, is a director, president and chief executive officer
of the Fund. Mr. Polly also serves as the chief executive officer and a
stockholder of H/R Industries, Inc., H/R Industries, Inc. is essentially a
personal holding company which was formed in 1984 under the name Helena
Rubinstein, Inc., and was engaged from 1984 until 1988 in various aspects
of the cosmetics business. In 1988, the name of the corporation was changed
to Elite Industries, Ltd., and in 1990 the name was changed to H/R
Industries, Inc.. Mr. Polly has been involved in the railroad business for
approximately twenty years. In 1973 he founded and became a major
stockholder in Emons Industries, Inc., which was formed on the basis of the
acquisition of the Maryland and Pennsylvania Railroad Company. Since the
founding of Emons Industries, Inc. Polly has been involved in the railroad
freight car business. Mr. Polly has been, since 1975, chief executive
officer and a stockholder of Railway Freight Car Services, Inc., which is
involved in the railroad boxcar leasing business. In 1994 and 1995, Mr.
Polly was chairman of CAGY Industries, Inc., the publicly held holding
company for the Columbus and Greenville Railway,the Chattooga & Chicamauga
Railway and the Redmont Railway and was the largest stockholder with
approximately 40% of the outstanding shares of common stock. Mr. Polly sold
his shares and resigned from the Board effective February 16, 1995. Since
1988 he has served on the Board of Directors of The Delaware Otsego Corp.,
which is a publicly held corporation that operates the New York Susquehanna
and Western Railroad. In prior years, Mr. Polly was also a stockholder and
heavily involved in the operations of the Louisiana Midland Railroad. He is
also presently a stockholder and officer of SLF of Martin County, Inc., a
real estate development company. From 1987 to 1990 he was a principal
shareholder, chief executive officer and director of Hanover Bank of
Florida, a publicly held corporation.
MORTON I. KALB, age 62, is a director, vice president and chief financial
officer of the Fund. Mr. Kalb has served as vice president of H/R
Industries, Inc., since July 1984. Mr. Kalb is also a certified public
accountant.
WILLIS G. RYCKMAN, Age 50, is a director of the Fund. Mr. Ryckman has
served as chairman of the Board of Directors of Tri-Tech Labs since August
1990. From December 1966 through August 1990, Mr. Ryckman was senior vice
president of Manufacturers Hanover Trust Company.
13
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
OF THE REGISTRANT (continued)
LEO YARFITZ, age 79, is a director of the Fund, Mr. Yarfitz has been a
financial consultant with Sterling Management of Florida since June 1990.
From October 1987 until October 1989, Mr. Yarfitz served as chief financial
officer of Hanover Bank of Florida. From October 1989 until December 1989,
Mr. Yarfitz served as president of Hanover Bank of Florida.
ITEM 10. EXECUTIVE COMPENSATION
A. DIRECTOR COMPENSATION
Prior to February 15, 1995, the Independent Directors were paid an
annual fee of $15,000, payable quarterly, plus $875 for each Board Meeting,
including meetings of the audit committee, attended in person and $250 an
hour for each Board meeting, including meetings of the audit committee,
attended via telephonic conference call. In addition, each Director was
reimbursed for out-of-pocket expenses incurred in attending meetings of the
Board. On February 15, 1995 a change in control of the Fund occurred
pursuant to the closing of the sale of shares of common stock in the Fund
to Mr. Harvey Polly. (See discussion in Item 1. Description of Business and
Item 6. Management's Discussion and Analysis or Plan of Operation.) To
date, no arrangements or decisions have been made with respect to payments
to the new directors for their service on the Fund's Board of Directors,
and no fees have been paid.
B. EXECUTIVE COMPENSATION
Compensation paid to executive officers for the years ended
December 31, 1995, 1994 and 1993 is as follows:
Annual Compensation
-------------------
Other
Year Salary Bonus (3) Compensation
---- ------ --------- ------------
Morton I. Kalb
Vice President & Chief
Financial Officer 1995 $60,600 N/A N/A
Celia Zisfein
Secretary 1995 $23,400 N/A N/A
Leonard G. Levine
President & Chief
Executive Officer (1) 1995 $ 4,743 N/A $61,160 (2)
1994 $41,554 $ 376 N/A
1993 $41,554 $30,633 N/A
There were no long term compensation awards or payouts during the years
1995, 1994, or 1993.
(1) Resigned 2/15/95 (2) Termination Fee
(3) See Incentive Compensation Program Disclosure Below
(4) No Executive Officer earned more than $100,000 in salary and
bonus
14
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION (continued)
Until February 15, 1995, Mr. Levine served as President of the
Fund pursuant to an employment agreement entered into January 1, 1990. This
agreement provided that Mr. Levine was to be employed through December 31,
1994 with automatic one year renewals unless either the Fund or Mr. Levine
gave the other notice of termination before March 31 preceding the end of
the current employment period.
In consideration of his employment, Mr. Levine received annual
compensation from the Fund equal to $41,554 per year. In addition to his
base salary, Mr. Levine could have been granted a bonus at the discretion
of the Board of Directors of the Fund. Further, Mr. Levine was eligible to
receive compensation under an incentive compensation program included in
his contract. Mr. Levine's incentive compensation earnings were calculated
based on the following four components: (i)0.56% of the amount of the
Fund's collateralized claims which were converted into cash; (ii) 1.35% of
the amount of the Fund's unsecured claims which were converted into cash;
(iii) the percentage increase in the Fund's market capitalization between
January 1, 1990 and the end of each calendar year (0.25% of the first 10%
increase, .50% of the next 10% increase and 1.00% of any increase in excess
of 20%); and (iv) 0.1% of the amount of cash distributions to stockholder
of the Fund. The total incentive compensation that Mr. Levine was permitted
to receive in any year (on a cumulative basis) from the Fund was subject to
certain limitations. Any amounts in excess of these limits would have been
deferred.
Pursuant to the terms of the August 3, 1994 agreement, as amended,
between the Fund and Mr. Polly (see Item 1. Description of Business), on
February 15, 1995, Mr. Levine resigned as President of the Fund. In
accordance with the terms of his employment agreement, Mr. Levine was paid
a total of $61,160 representing a severence payment equal to one year's
salary, all incentive compensation earned through the date of his
termination, and an amount equal to the full cost of continuing Mr.
Levine's health benefits for one year.
To date, no contract agreements have been made with respect to
compensation to be paid to the Fund's new executive officers. The new Board
of Directors will create a compensation committee which will recommend to
the Board the compensation to be paid to the Fund's executive officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 1, 1995, the following persons or entities were known by
the Fund to be the beneficial owner of more than five percent (5%) of the
outstanding shares of common stock of the Fund:
Name of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
Share of Common Mr. Harvey Polly 3,380,983 shares 27%
Stock $.01 Par
Value
15
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(continued)
The following table sets forth the ownership of shares owned directly
or indirectly by the directors and principal officers of the Fund as of
March 16, 1995:
Name of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
Shares of Common Mr. Harvey Polly 3,380,983 shares 27%
stock,$.01 Director,
Par Value President and Chief
Executive Officer
Shares of Common Mr. Morton I. Kalb 75,000 shares 1%
stock, $.01 Director,
Par Value Vice President and
Chief Financial
Officer
Shares of Common Mr. Leo Yarfitz 100,000 shares 1%
Stock, $.01 Director
Par Value
Shares of Common All Directors and 3,555,983 shares 29%
Stock, $.01 Officers of the Fund
Par Value as a group (6 persons)
16
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As a result of the acquisition of the Fund by Mr. Polly (see
Item 1. Description of Business), the Administrative Services Agreement
with Banyan Management Corp. was terminated on February 15,1995. Banyan
Management Corp. had performed certain administrative and accounting
services on behalf of the Fund for which it was reimbursed at cost. Banyan
Management Corp. is owned by the Banyan Funds for which it provides
services. Prior to February 15, 1995, the Fund had been a stockholder of
Banyan Management Corp. Mr. Levine is the President of Banyan Management
Corp. for which he receives no compensation. Messrs. Hansen, Higgins and
Teglia were employees of the Fund but are compensated by Banyan Management
Corp., and their compensation was included in the administrative costs
charged by Banyan Management Corp. to and reimbursed by the Fund. The
directors/trustees of all the Banyan Funds serve as directors of Banyan
Management Corp. but receive no additional compensation. Prior to February
15, 1995, the Fund's directors had also served as directors of Banyan
Management Corp. Administrative costs reimbursed by the Fund to Banyan
Management Corp. for the year ended December 31, 1995, 1994 and 1993
totalled $83,855, $96,917 and $119,404, respectively. Banyan Management
Corp. charges its operating expenses among the Banyan Funds for which it
performs services and acts as a common paymaster for the Fund. The 1995
total includes a $46,354 termination fee. Subsequent to February 15, 1995
some administrative services were performed by Oak Realty Group, Inc., for
which they were paid $20,741. Oak Realty Group, Inc. is an Illinois
corporation, owned 100% by the Fund's former president.
Reference is made to Note 5 of the Notes to the Consolidated Financial
Statements for the amount of administrative costs paid to, and a
description of various transactions with Banyan Management Corp.
On February 29, 1996, the Fund made a first mortgage loan in the
approximate amount of $106,000 which is secured by an industrial property
in Lake Worth, Florida. The property securing the mortgate is controlled by
Harvey Polly, who has personally guaranteed the mortgage. The loan calls
for 10% interest per annum, payable monthly, with a balloon payment of
principal after five years.
Effective February 15, 1995 the Fund began renting space from an
affiliated company. Rent paid to the affiliate amounted to $21,500. during
1995, which is equal to the rent paid by the affiliate to the landlord. The
lease expires July 31, 1996 and the Fund's future rental payments will be
$14,340..
During 1995 the Fund reimbursed an affiliated company $19,330. for
health insurance premiums paid on behalf of the Fund. Included in this
reimbursement is $4,166. which is prepaid as of December 31, 1995.
17
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) (2) The financial statements indicated in Part II,
Item 7, Financial Statements.
(3) Exhibit (2) Plan of organization, reorganization,
management, liquidation or succession;
Exhibit (21) Subsidiaries of the Fund
The following exhibits are incorporated by reference from the
Registrant's Registration Statement on Form S-11 (file number 2-96565).
referencing the exhibit number used in such Registration Statement.
Exhibit Number Description
(3) (a) Certificate of incorporation
(3) (b) By-Laws
(b) No reports on Form 8-K were filed during the quarter ending
December 31, 1995.
(c) See Item 13 (a) (3) above.
(d) None
An annual report will be sent to the shareholders subsequent to this
filing and the Fund will furnish copies of such report to the
Commission at that time..
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
BANYAN HOTEL INVESTMENT FUND
By: /s/Harvey Polly Date: March 15, 1996
Harvey Polly, Director, President
and Chief Executive Officer
PURSUANT to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
By: /s/Harvey Polly Date: March 15, 1996
Harvey Polly, Director, President
and Chief Executive Officer
/s/Morton I. Kalb Date: March 15, 1996
Morton I. Kalb, Director,
Vice President and
Chief Financial Officer
/s/Willis Ryckman Date: March 15, 1996
Willis Ryckman, Director
/s/Leo Yarfitz Date: March 15, 1996
Leo Yarfitz, Director
19
<PAGE>
BANYAN HOTEL INVESTMENT FUND
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 14 (a) (1) and (2) Pages
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
For the Years Ended December 31, 1995 and 1994 F-3
Consolidated Statements of Income and Expenses
For the Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholder's Equity
For the Years Ended December 31, 1995, 1994 and 1993 F-5 & 6
Consolidated Statements of Cash Flow for the Years
Ended December 31, 1995, 1994 and 1993 F-7 & 8
Notes to Consolidated Financial Statements F-9 to F-14
F-1
<PAGE>
Report of Independent Auditors
To the Stockholders of Banyan Hotel Investment Fund
We have audited the accompanying consolidated balance sheets of Banyan
Hotel Investment Fund as of December 31, 1995 and 1994, and the related
consolidated statements of income and expenses, stockholders' equity, and
cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Banyan
Hotel Investment Fund at December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
April 4, 1996
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Balance Sheets
December 31, 1995 and 1994
ASSETS 1995 1994
------------- --------------
Cash and Cash Equivalents $ 736,897 $ 275,161
Investment Securities 891,096 1,907,531
Interest Receivable on Mortgage
Receivable and Investment 7,916 16,279
Securities
Mortgage Loans Receivable 371,723 -
Prepaid Insurance - 40,091
Other Assets 10,343 1,641
------------ -------------
Total Assets $ 2,017,975 $ 2,270,523
============ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts Payable and Accrued $ 82,910 $ 111,197
Expenses
------------- --------------
Commitments and Contingencies - -
Stockholders' Equity
Shares of Common Stock $0.01 Par Value,
20,000,000 Shares Authorized
12,338,051 Shares Issued in 1995, $87,477,847 $ 87,027,338
10,290,285 in 1994
Accumulated Deficit (85,534,593) (84,794,685)
Unrealized Losses on Investment - (65,138)
Securities
Treasury Stock, At Cost, for 32,757 (8,189) (8,189)
Shares of Common Stock
Total Stockholders' Equity $ 1,935,065 $ 2,159,326
Total Liabilities and Stockholders' $ 2,017,975 $ 2,270,523
Equity
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Statements of Income and Expenses
For the Years Ended December 31, 1995 and 1994 and 1993
1995 1994 1993
--------- --------- ---------
INCOME
Interest Income on Cash
and Cash Equivalents $ 20,097 $ 18,305 $ 85,931
Interest Income on
Investment Securities 98,616 120,298 -
Interest Income on
Mortgage Receivable 9,962 - -
--------- --------- --------
Total Income $ 128,675 $ 138,603 $ 85,931
--------- --------- --------
EXPENSES
(Recovery of) Provision
for Losses on Mortgage
Loans, Notes and
Interest Receivable $(105,154) $ (16,788) $ (32,770)
---------- ---------- ---------
OTHER EXPENSES
Stockholder Expenses $ 58,671 $ 76,620 $ 92,298
Directors' Fees, Expenses 388,588 260,670 300,428
and Insurance
Other Professional Fees 138,940 122,444 127,098
General and Administrative 348,554 172,188 230,287
--------- --------- ---------
Total Other Expenses $ 934,753 $ 631,922 $ 750,111
--------- --------- ---------
Recovery of Class Action
Settlement Costs and
Expenses $ $ (90,693) $ -
-------- ---------- --------
TOTAL EXPENSES $ 829,599 $ 524,441 $ 717,341
--------- --------- ---------
Operating Loss $(700,924) $(385,838) $(631,410
Net (Loss) on Investment $ (38,984) $ - $ -
Securities
Gain on Disposition of Real
Estate Held for Sale $ - $ - $ 143,329
---------- ---------- ---------
Net Loss $(739,908) $(385,838) $(488,081
========== ========== =========
Net Loss Per Share of Common
Stock (Based on Weighted
Average Number of Shares
Outstanding of 12,082,080
in 1995 and 10,290,285 for
1994 and 1993) $ (0.06) $ (0.04) $ (0.05)
========== ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
BANYAN HOTEL INVESTMENT FUND
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
Unrealized
Losses on
Shares of Common Stock Investment
Shares Amount Securities
Stockholders'
Equity (Deficit)
December 31, 1992 10,355,799 $87,027,338 ---
Net Loss For The
Year Ended
December 31, 1993 --- --- ---
---------- ----------- -----------
Stockholders'
Equity (Deficit)
December 31, 1993 10,355,799 $87,027,338 ---
Net Loss For The
Year Ended
December 31, 1994 --- --- ---
Market Adjustment
December 31, 1994 --- --- (65,138)
------------ ------------ --------
Stockholders'
Equity (Deficit)
December 31, 1994 10,355,799 $87,027,338 $ (65,138)
Proceeds From
Issuance of
Common Stock 2,047,766 450,509 ---
Market Adjustment
December 31, 1995 --- --- 65,138
----------- ----------- ---------
Stockholders' Equity
(Deficit) Dec.31,1995 12,403,565 $87,477,847 $ -0-
---------- ----------- ---------
F-5
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1995 and 1994
Accumulated Treasury
Deficit Stock Total
-------------- ---------------- -------------
Stockholders'
Equity (Deficit)
December 31, 1992 $ (83,920,766) $ (8,189) $ 3,098,383
Net Loss for the
Year Ended
December 31, 1993 (488,081) - (488,081)
-------------- ---------------- ---------
Stockholders'
Equity (Deficit)
December 31, 1993 $ (84,408,840 $ (8,189) $ 2,610,302
Net Loss for the
Year Ended
December 31, 1994 (385,838) - (385,838)
------------- ----------------- ---------
Market Adjustment
December 31, 1994 - (65,138) -
------------- ------------ ------------
Stockholders'
Equity (Deficit)
December 31, 1994 $ (84,794,685 $ (8,189) $ 2,159,326
Net Loss for the
Year Ended
December 31, 1995 (739,908 (739,908)
Market Adjustment
December 31, 1995 - - 65,138
Proceeds From
Issuance - - 450,509
Of Common Stock -------------- --------------- -------
$ (85,534,593 $ (8,189) $ 1,935,065
============= ============ ===========
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995 and 1994 and 1993
1995 1994 1993
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS $ (739,908) $ (385,838) (488,081)
Adjustments to Reconcile Net
Loss to Net Cash Used in
Operating Activities:
(Recovery of) Provision for
Losses on Mortgage Loans,
Notes and Interest Receivable - 4,939 (4,939)
Loss on sale of Security 38,878
Investment
Amortization of Premium on
Investment Securities 976 4,096 -
Gain on Dispositions of Real
Estate Held for Sale - - (143,329)
Net Change in:
Interest Receivable on Cash
and Cash Equivalents and 8,363 12,852 24,533
Investment Securities
Prepaid Insurance 40,091 18,965 55,219
Other Assets 21,118 204,022 (11,163)
Accounts Payable and Accrued (28,287) (50,907) (134,438)
Expenses --------- ----------- --------
Net Cash Used in Operating (658,769) $ (191,871) (702,198)
Activities
--------- ---------- --------
CASH FLOW FROM INVESTING
ACTIVITIES:
Purchase of Investment (891,000) (2,126,765) -
Securities
Proceeds from Sale and
Maturity of Investment 1,932,719 150,000 -
Securities
Recovery from Investment in - - 506,695
Partnership
Investment in Mortgage (375,000) - -
F-7
<PAGE>
BANYAN HOTEL INVESTMENT FUND
CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 and 1993
1995 1994 1993
Principal Collections
on Mortgage Loans 3,277 --- ---
-------- --------- -------
Cash (Used in) Provided
by Investing Activities $669,996 $(1,976,765) $506,695
-------- ------------ --------
CASH FLOWS USED IN
FINANCING ACTIVITIES:
Proceeds From The
Issuance of Common Stock 450,509 --- ---
------- ----------- ---------
Cash Used in Financing
Activities $ 450,509 --- ---
------- ------------ ---------
Net (Decrease) Increase
in Cash and Cash Equivalents $461,736 $(2,168,636) $(195,503)
Cash and Cash Equivalents
at Beginning of Year 275,161 2,443,797 2,639,300
------- --------- ---------
Cash and Cash Equivalents
at End of Year $736,897 $ 275,161 $2,443,797
======== ============ ==========
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION
Banyan Hotel Investment Fund (the "Fund") was organized under the laws of
the State of Massachusetts, pursuant to a Declaration of Trust filed March
19, 1985, and subsequently reorganized as a Delaware Corporation on March
13, 1987. The Fund's primary purpose is to invest in mortgage loans.
The accompanying consolidated financial statements include the accounts of
the Fund and its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
B. INCOME TAXES
For the years ended December 31, 1994 and 1993, the Fund was treated as a
real estate investment trust ("REIT") under internal Revenue Code Sections
856-860. In order to qualify, the Fund was required to distribute at least
95% of its taxable income to stockholders and meet asset and income tests
as well as certain other requirements. During 1995, the Fund elected to
discontinue its "REIT" status effective for the year ended December 31,
1995. As a result of this election the Fund will be taxed as a C-Corp. for
federal and state tax purposes and could be subject to a corporate level
federal and state tax.
Effective January 1, 1995 in connection with the Company's election
mentioned above, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes". The adoption of
SFAS No. 109 did not have a material effect on the Financial Statements of
the Company. Under SFAS No. 109 deferred tax assets and liabilities are
determined based on the difference between the Financial Statement carrying
amounts and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that would be in effect when the differences are
expected to reverse.
C. INCOME (LOSS) PER SHARE
For 1994 and 1993, earnings per share was calculated using 10,920,285
weighted average shares outstanding during the years. For 1995 earnings per
share was calculated based on 12,082,080 weighted average shares
outstanding.
D. CASH AND CASH EQUIVALENTS
The Fund considers all highly liquid instruments purchased with a maturity
of three months or less to be cash and cash equivalents.
F-9
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
E. INVESTMENT SECURITIES
Effective January 1, 1994, the fund adopted the provisions of Financial
Accounting Standard No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Accordingly,
Investment Securities are classified as available for sale and carried at
fair value, as determined by quoted market prices, with unrealized gains
and losses reflected in the Statement of Shareholder Equity. Realized gains
and losses are determined on a specific identification basis. The carrying
value of investment securities is adjusted for amortization of premiums and
discounts using a level yield method.
F. USE OF ESTIMATES
The preparation of Financial Statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the Financial Statements and
accompanying notes. Actual results could differ from those estimates.
2. INVESTMENT SECURITIES
The Fund's investment securities portfolio at December 31, 1995 is as
follows:
Approximate Amortized Approximate Estimated
Cost Net of Principal Market Value at
Paydowns Received December 31, 1995
December 31, 1995
--------------------- -------------------
Title of Each Issue
and Name of Issuer
Federal National
Mortgage Assn. (1) $891,000 $891,000
7.25% 5/25/22 =============== ===============
(1) The Guaranteed REMIC Pass-Through Certificates are guaranteed
as to timely payment of principal and interest by the Federal
National Mortgage Association. The maturity of the principal
of the above investment is dependent upon the repayment of the
underlying U.S. Agency sponsored mortgages. The rate of
repayment is dependent upon the current market level of
interest rates on mortgage loans as it relates to the interest
rates of the mortgages underlying each REMIC security. The
expected maturity of these investment securities, under the
market conditions as of the fourth quarter of 1995 is expected
to be from February 25, 2005 to February 25, 2011. These
exceptions may change as interest rates on mortgage loans
change.
F-10
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. MORTGAGE LOANS RECEIVABLE
OMNI PARK CENTRE
On June 17, 1987, the Fund issued a $5,154,600 third mortgage loan to
Park Centre Associates (the "Borrower") which was collateralized by the
Omni Park Hotel (the "Property")located in New York, New York. On July 19,
1991 the Fund was served with a summons in a mortgage foreclosure action
filed by Sheraton Holding Inc. ("Sheraton") in the Superior Court of New
York, New York. Sheraton sought to foreclose on its $54,000,000 first
mortgage collateralized by the property. The Sheraton foreclosure action
was based on monetary defaults by the Borrower. On September 30, 1991 the
Fund filed a counterclaim to the Sheraton foreclosure action.
In addition, the second mortgage on the property in the amount of approxi-
mately $5,600,000 is also in default and the holder of the mortgage has
filed a counterclaim to the foreclosure with the court. On June 12, 1992,
the Borrower filed for protection under the U.S. Bankruptcy Code. On June
30, 1992, an order was entered in the Bankruptcy Court between the Fund,
Sheraton, the second mortgage holder and the Borrower authorizing and
restricting the use of cash collateral by the Borrower. During 1992, the
Fund recorded a provision for losses for the remaining carrying balance of
the loan ($2,606,600) which is considered in substantive foreclosure.
During the third quarter of 1995, the Fund assigned its interest in
this loan for $75,000. Inasmuch as the entire loan had previously been
written off, this receipt is reflected as income on the accompanying
financial statements.
On October 10, 1995, the Fund made a first mortgage loan in the amount
of $375,000 which is secured by a commercial property in New York City, as
well as by a personal guaranty of one of the principals of the borrower.
The loan calls for interest at 12% per annum with monthly payments based on
a ten (10) year amortization schedule and a balloon payment of the total
balance in five (5) years. The carrying amount of the mortgage loan
approximates the fair value.
4. INVESTMENT IN PARTNERSHIP
In 1991, in connection with a release from liability related to a loan
made by the Fund, the Fund acquired a 50% interest in the partnership which
owns the Santa Barbara Biltmore Resort. The 50% limited partnership
interest in the Santa barabara Biltmore Partnership was recorded by the
Fund at its estimated fair value of $5,769,000 and was accounted for on the
equity method. This method resulted in the Fund recognizing a loss of
$3,749,581 for the year ended December 31, 1992. The 1992 amount included
an additional loss of $861,691 to reduce the investment's carrying value to
$506,695, representing the amount due to the Fund from certain funds held
in escrow. The $506,695 was received by the Fund on February 3, 1993 and
was recorded by the Fund as a reduction in the investment carrying value.
The Fund did not record losses related to its interest in the Santa Barbara
Biltmore during 1995, 1994 and 1993 since the carrying value of the
partnership interest was reduced to zero as of December, 1992, and the Fund
has no obligation to make additional capital contributions to, or to pay
the liabilities of, the partnership.
F-11
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp.("BMC").
Effective January t, 1993, these costs are charged to each Banyan Fund
based upon actual number of hours spent by BMC personnel on matters related
to that Fund. The Fund's costs for the years ended December 31, 1995, 1994
and 1993 were $83,855, $96,917 and $119,404 respectively. The 1995 total
included a $46,354 termination fee. Subsequent to February 15, 1995 some
administrative services were performed by Oak Realty Group, Inc. , for
which they were paid $20,741. Oak Realty Group, Inc., is an Illinois
Corporation owned 100% by the Fund's former president.
Prior to the February 15, 1995 acquisition of the Fund by Mr. Polly (see
Note 10), as one of its administrative services, BMC served as the paying
agent for general and administrative costs of the Fund. As part of
providing this payment service, BMC maintained a bank account on behalf of
the Fund. At December 31, 1994, the Fund had a net receivable from BMC of
$4,239.
Effective February 15, 1995 the Fund began renting space from an affiliated
company. Rent paid to the affiliate amounted to $21,500 during 1995. The
lease expires July 31, 1996 and the Fund's future minimum rental payments
are $14,340.
During 1995, the Fund reimbursed an affiliated company $19,330 for Health
insurance premiums paid on behalf of the Fund.
During 1995 in connection with the change in control the Fund purchased for
the prior Directors a Directors and Officers Liability Insurance Policy.
The policy cost approximately $305,000 was charged to expense in 1995.
6. INVESTMENT IN LIQUIDATING TRUST
On November 18, 1993, in final settlement of guarantees of VMS Realty
partners of loans made by the Fund in prior years,. the Fund received a
cash distribution of $27,831 and an interest in a liquidating trust
established for the benefit of the unsecured creditors of VMS. As of
December 31,1993, the Fund valued its interest at $4,939 representing its
pro rata portion of the cash assets of the trust. During 1995 and 1994, the
Fund recorded $30,154 and $16,788, respectively, on its Statement of income
and Expenses as a recovery of the Provision for losses on Mortgage Loans,
Notes and Interest Receivable related to the distributions received from
the liquidating trust. The $30,154 net recovery recorded in 1995 includes
the $48,246 distribution received net of an estimated $18,092 due to the
Class Action Settlement Fund representing the fund's share of amounts due
per the terms of the previously settled VMS Securities litigation.
7. TREASURY STOCK
On January 16, 1992, the Fund acquired 32,757 shares of its common stock
which was previously held by VMS Realty Partners for $8,189.
F-12
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. RECOVERY OF CLASS ACTION SETTLEMENT COSTS AND EXPENSES
On January 25, 1994, the Fund received net proceeds of $90,693
relating to a recovery of payments previously made into an escrow
established as part of the 1992 class action settlement of the VMS
Securities litigation. The escrow was established to provide the directors
of the Fund with cash to fund the cost of any litigation in which they
might be named as defendants post settlement of the class action.
Subsequently, the directors released the proceeds from the escrow, and the
Fund purchased an insurance policy to cover the directors.
9. OTHER ASSETS AND GAIN ON DISPOSITION OF REAL ESTATE
Effective December 20, 1993, the Fund and the unaffiliated third party
which purchased the Silver Sands Motel property from the Fund in October,
1991 ("the Buyer") jointly agreed to terminate an escrow established at the
time of the sale to be used in connection with monitoring various
environmental issues at the property. In anticipation of the final approval
regarding the environmental issues by local authorities, the Fund and the
Buyer determined that the necesssary work was substantially complete and
the escrow, which originally contained $327,000, was no longer required.
After deducting the cost of the environmental work performed, the remaining
balance of the escrow account was approximately $193,000 which has been
classified by the Fund as an other asset. On January 10, 1994, the Fund
paid the Buyer $50,000, representing the final settlement of the escrow.
For the year ended December 31, 1993, the Fund recorded a gain in
disposition of real estate of $143,329 representing the amount of its
recovery from the escrow.
10. INCOME TAXES
At December 31, 1995 the Fund had a net operating loss carry
forward
of approximately $79,969,600 which expires between the years 2005 and 2009.
A summary of the components of deferred taxes is as follows:
1995
----
Deferred Tax Asset
Non Current:
Net Operating Loss Carry Forward $31,987,840
Valuation Allowance (31,987,840)
---------------
-0-
===============
F-13
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. SUBSEQUENT EVENTS
The Fund does not, at present, satisfy certain American Stock Exchange
("AMEX") criteria for continued listing of its stock on the Exchange. On
February 7, 1996, the Fund was notified by the AMEX that its stock would be
delisted by March 29, 1996, unless it completes a "satisfactory
acquisition" by that date. On April 1, 1996, the Fund notified the AMEX
that it would appeal the delisting. Management hopes to maintain the
listing be either prevailing in the appeal, or completing a "satisfactory
acquisition" prior to the determination of the appeal. There can be no
assurances, however, that listing will be continued. Mr. Polly has
indicated that he has no present intention of taking the Fund private, but
a one for five reverse stock split, subject to shareholder approval, is
being considered.
On February 13, 1996, the Fund made a first mortgage loan in the
amount of $150,000 which is secured by a commercial property in New York
City. The loan represents less than 17% of the appraised value of the
property, bears interest at the rate of 10% per annum and calls for monthly
payments on a five year self-liquidating basis.
On February 29, 1996, the Fund made a first mortgage loan in the
approximate amount of $106,000 which is secured by an industrial property
in Lake Worth, Florida. The property securing the mortgage is controlled by
Mr. Harvey Polly, who has personally guaranteed the mortgage. The loan
calls for 10% interest per annum, payable monthly, with a balloon payment
of principal after five (5) years.
F-14
EXHIBIT 21
[to come]
20
<PAGE>
SUBSIDIARY OF BANYAN HOTEL INVESTMENT FUND
Name of Subsidiary State of Organization
BHF Merger Corp. Illinois
BNC Santa Barbara Corp. Illinois
21
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 736,897
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<RECEIVABLES> 7,916
<ALLOWANCES> 0
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<CURRENT-ASSETS> 1,635,909
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<COMMON> 87,477,847
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