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 year ended December 31, 1997
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 None
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 $165,457 Shares of
common stock outstanding as of February 23, 1998: 12,338,051 aggregate market
value of the Registrant's shares of common stock held by non-affiliates as of
such date was approximately $13,510,165.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit index located on Page 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 of Plan of Operation ......................................7
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 .............................................12
Item 11. Security Ownership of Certain Beneficial
Owners and Management .............................................13
Item 12. Certain Relationships and Related Transactions :....................14
Item 13. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ...............................................14
SIGNATURES ..................................................................15
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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-11 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 $98,482,751, 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.
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 unanimous
written consent
1
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ITEM 1. DESCRIPTION OF BUSINESS (continued)
dated June 15, 1994, authorized the Fund to execute and deliver a nonbinding
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 severence 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.
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.
2
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ITEM 1. DESCRIPTION OF BUSINESS (continued)
On October 14, 1996, the Fund was notified by the American Stock Exchange
that its shares would be removed from listing on the Exchange and that the last
day of trading on the Exchange, would be October 25, 1996. The reason for this
action was that the Fund no longer met the requirements for continued listing,
and Banyan had discontinued previously announced negotiations to acquire a
portfolio of retail shopping center properties.
Also, on October 14, 1996, the Fund issued a press release stating the
above facts, as well as that it had resumed negotiations to acquire, for cash
and stock valued at approximately $80,000,000 a privately held domestic and
international manufacturer and distributor of toys, hobby and leisure products
with annual sales of approximately $80,000,000. Banyan noted that the
acquisition of the toy, hobby and leisure products company was subject to
negotiations and execution of definitive agreements and subject to obtaining
commitments for financing required to consummate the acquisition. Banyan also
noted that certain aspects of the acquisition program would require stockholder
approval and that the matter would be submitted to stockholders at a meeting on
a date to be announced. During 1997, negotiations for this acquisition were
terminated.
During the week of October 28, 1996, the Fund's shares began trading on the
NASD market with a ticker symbol if "VHTI".
On February 9, 1998, the Fund announced that an agreement had been entered
into providing for the acquisition of approximately 38% of the shares of the
Fund by Fifteen Brickell Corp. The Fund noted that it expected to close this
transaction in mid March 1998, assuming Brickell's satisfactory completion of
its due dilligence review of the operations, business and financial condition of
the Fund. The mid March closing date was delayed to March 31st, and as of March
26, 1998 negotiations are proceeding.
The Fund has attempted to reduce the ongoing operating expenses and
increase the revenues 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 at December 31, 1997.
The Fund currently owns a 50% limited partnership interest in the Santa
Barbara Biltmore Partnership which was originally recorded by the Fund at its
fair market value and is accounted for on the equity method. 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.
The Fund did not record losses related to its interest in the Santa Barbara
Biltmore during 1997, 1996, 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.
3
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ITEM 1. DESCRIPTION OF BUSINESS (continued)
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.
On August 20, 1997, the Fund made a first mortgage loan in the amount of
$1,000,000, which is secured by one commercial and one residential property
located in the Dallas, Texas area. The loan bears interest at the rate of 12%,
and calls for monthly payments of interest only. The loan is due on April 1,
1998. The principals of the corporate owners of both properties have personally
guaranteed the loan.
The carrying amount of the above three mortgage loans approximate their
fair values.
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.
4
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ITEM 1 DESCRIPTION OF BUSINESS (continued)
TAX STATUS
Prior to January 1, 1995, the Fund elected 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. Accordingly, the Fund has subsequently been treated as a
C-Corporation in accordance with the Internal Revenue Code.
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 geographical
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, 1997, 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 loans.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not aware of any material pending legal proceedings as of
February 23, 1998, nor were any proceedings terminated during the year ended
December 31, 1997.
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 year ended December 31, 1997.
5
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Fund's shares of common stock were traded on the American Stock
Exchange ("AMEX") (Symbol - VHT), through October 25, 1996. Thereafter, the
Fund's shares have been traded on the NASD market (Symbol - VHTI). The range of
high and low closing prices per share for each of the quarters in the years
ended December 31, 1997 and 1996 are as follows:
Share Price
Quarter 1997 1996
---- ----
1. High $3.312 $1 187
Low 0.875 0.687
2. High 1.875 1.500
Low 1.000 .500
3. High 2.218 1.625
Low 0.750 0.625
4. High 2.281 1.187
Low 0.875 0.500
Prior to the acquisition of the Fund by Mr. Polly (see Item 1. Description
of Business), the Fund had suspended distribution 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 and the uncertainty regarding
the cash requirements for operating activities. No distributions were declared
by the Fund in 1997 and 1996.
On October 14, 1996, the Fund was notified by the American Stock Exchange
that its shares would be removed from listing on the Exchange, and that the last
day of trading, on the Exchange, would be October 25, 1996. The reason for this
action was that the Fund no longer met the requirements for continued listing,
and Banyan had discontinued previously announced negotiations to acquire a
portfolio of retail shopping center properties.
Also, on October 14, 1996, the Fund issued a press release stating the
above facts, as well as that it had resumed negotiations to acquire for cash and
stock valued at approximately $80,000,000, a privately held domestic and
international manufacturer and distributor of toys, hobby and leisure products
with annual sales of approximately $80,000,000. Banyan noted that the
acquisition of the toy, hobby and leisure products company was subject to
negotiations and execution of definitive agreements and subject to obtaining
commitments for financing required to consummate the acquisition. Banyan also
noted that certain aspects of the acquisition program would require stockholder
approval and that the matter would be submitted to stockholders at a meeting on
a date to be announced. During 1997, negotiations for this acquisition were
terminated.
During the week of October 28, 1996, the Fund's shares began trading on the
NASD market with a ticker symbol of "VHTI".
6
<PAGE>
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(continued)
On February 9, 1998, the Fund announced that an agreement had been entered
into providing for the acquisition of approximately 38% of the shares of the
Fund by Fifteen Brickell Corp. The Fund noted that it expected to close this
transation in mid March, 1998, assuming Brickell's satisfactory completion of
its due dilligence review of the operations, business and financial condition of
the Fund.
At December 31, 1997, there were 2,341 record holders of common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
Banyan Hotel Investment Fund (the "Fund"), was originally 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.
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
7
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
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.
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, 1997 and 1996 was
$238,097 and $414,935 respectively. This decrease in cash and cash equivalents
is due primarily to the mortgage investments made by the Fund and by the payment
of the Fund's operating expenses. 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. During 1997, the Fund received approximately
$165,000 in investment income on its cash and cash equivalents and investments.
8
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
At this time, there are no material commitments for capital expenditures.
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 1997, the Fund invested $1,000,000 in a mortgage. This mortgage
yields 12% and is for a term of 7 1/3 months.
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 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 1997
and 1996 the Fund recorded $19,901 and $3,146 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 $19,901 net recovery recorded in 1997 includes a $26,535
distribution received net of an estimated $6,634 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 it dependent upon,
among other things: (i) the activities undertaken by the Fund; (ii) interest
earned from the investment of cash and cash equivalents, mortgages 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, 1997 and 1996 was $165,457
and $150,428, respectively. The $15,000 increase in total income between 1997
and 1996 is the result of an increase in interest earned on the Fund's mortgage
investments, partially offset by a decrease in interest earned on investment
securities due to a lesser amount of securities held.
Total expenses for the years ended December 31, 1997 and 1996 decreased by
$9,559. This decrease in expenses was due to elimination of American Stock
Exchange listing fees.
During 1997 and 1996, the Fund recorded net recoveries of losses on loans,
notes and interest receviable, of $19,901 and $3,146, respectively. During 1997
and 1996, the Fund did not record losses related to its interest in the Santa
Barbara Biltmore Hotel 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 1997, the Fund realized a loss of $20,889 on the sale of investment
securities.
The net loss for 1997 was $84,309 ($0.01 per share) and 1996 was $104,803 ($0.01
per share), respectively.
9
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(continued)
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to identify the applicable year. Any computer
programs that have time-sensitive software may recognize "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
Based on a recent assessment, the Company determined that none of its
operations will be impacted by the Year 2000 Issue except to the extent that its
significant borrowers are unable to remediate their own Year 2000 Issues, in
connection with performing its assessment, the Company has initiated formal
communications with all its significant borrowers to determine the extent to
which it is vulnerable to those third parties' failure to remediate their own
Year 2000 issues.
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 principles, practices or financial statement disclosure.
10
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS OF THE
REGISTRANT
The following individuals are 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 69, 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
cosmetic 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., Mr.
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 Service, 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 and
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 64, 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.
11
<PAGE>
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS OF THE
REGISTRANT (continued)
WILLIS G. RYCKMAN, age 52 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.
LEO YARFITZ, age 81, 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
No arrangements currently exist with respect to payments to the Directors
for their service on the Fund's Board of Directors, and no fees have been paid
in 1996 and 1997.
B. EXECUTIVE COMPENSATION
Compensation paid to Executive Officers for the years ended December 31,
1997 and 1996 is as follows:
Annual Compensation
-------------------
Other
Year Salary Bonus Compensation
---- ------ ----- ------------
Morton I. Kalb 1997 $55,600 N/A N/A
Vice President & Chief 1996 $55,600 N/A N/A
Financial Officer
Celia Zisfein 1997 $28,600 N/A N/A
Secretary 1996 $21,600 N/A N/A
There were no long term compensation awards or payouts during the years 1997 or
1996.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 23, 1998, 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
Shares of Common Mr. Harvey Polly 3,380,983 shares 27%
Stock $.01 Par
Value
12
<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 February
23, 1998:
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent
Title of Class Beneficial Owner Beneficial Ownership of Class
-------------- ---------------- -------------------- --------
<S> <C> <C> <C>
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)
</TABLE>
13
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
Effective February 15, 1995 the Fund began renting space from an affiliated
company. Rent paid to the affiliate amounted to $15,050 during 1996 which is
equal to the rent paid by the affiliate to the landlord. The lease expired July
31, 1996 and the Fund executed a new lease with the landlord for a period of two
years. The Fund's future rental payments will be $17,360.
During 1997 and 1996, the Fund reimbursed an affiliated company $21,534 and
$20,082 respectively, for health insurance premiums paid on behalf of the Fund.
Included in this reimbursement is $7,080 and $4,166 which is prepaid as of
December 1997 and 1996 respectively.
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 year ending December 31, 1997.
(c) See Item 13 (a) (3) above.
(d) None
14
<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 2, 1998
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 2, 1998
Harvey Polly, Director, President
and Chief Executive Officer
/s/ Morton I. Kalb Date: March 2, 1998
Morton I. Kalb
Vice President and
Chief Financial Officer
/s/ Willis Ryckman Date: March 2, 1998
Willis Ryckman, Director
/s/ Leo Yarfitz Date: March 2, 1998
Leo Yarfitz, Director
15
<PAGE>
BANYAN HOTEL INVESTMENT FUND
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM 13(a) (1) and (2)
Pages
Report of Independent Auditors F-2
Consolidated Balance Sheets as of
December 31, 1997 and 1996 F-3
Consolidated Statements of Income and Expenses
For the Years Ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997 and 1996 F-5 & 6
Consolidated Statements of Cash Flow for the
Years Ended December 1997 and 1996 F-7 & 8
Notes to Consolidated Financial Statements F-9 to 14
F-1
<PAGE>
Report of Independent Auditors
The Stockholders
Banyan Hotel Investment Fund
We have audited the accompanying consolidated balance sheets of Banyan Hotel
Investment Fund (the "Fund") as of December 31, 1997 and 1996, and related
consolidated statements of income and expenses, stockholders' equity, and cash
flows for each of the two years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 17, 1998
F-2
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Balance Sheets
December 31, 1997 and 1996
ASSETS 1997 1996
---- ----
Cash and Cash Equivalents $ 238,077 $ 414,935
Investment Securities -- 864,000
Interest Receivable on Mortgages
Receivable and Investment Sec. 14,188 8,318
Mortgage Loans Receivable:
Related Party 106,189 106,189
Other 1,430,300 480,517
Prepaid Insurance 7,080 6,290
Other Assets 4,437 4,437
------------ ------------
Total Assets $ 1,800,271 $ 1,884,686
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable, Accrued
Expenses and Deferred Income $ 54,358 $ 81,854
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Shares of Common Stock $0.01 Par Value
20,000,000 Shares Authorized,
12,338,051 Shares Outstanding 87,477,847 87,477,847
Accumulated Deficit (85,723,745) (85,639,396)
Unrealized Loss on Investment
Securities -- (27,430)
Treasury Stock, At Cost, for 32,757
Shares of Common Stock (8,189) (8,189)
------------ ------------
Total Stockholders' Equity 1,745,913 1,802,832
------------ ------------
Total Liabilities and Stockholders'
Equity $ 1,800,271 $ 1,884,686
============ ============
See accompanying notes
F-3
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Statements of Income and Expenses
For the Years Ended December 31, 1997 and 1996
INCOME 1997 1996
---- ----
Interest Income on Cash
and Cash Equivalents $ 13,261 $ 20,321
Interest Income on
Investment Securities 41,715 65,585
Interest Income on
Mortgage Receivables 110,481 64,522
--------- ---------
Total Income 165,457 150,428
--------- ---------
EXPENSES
Recovery of Losses on
Mortgage Loans, Notes and
Interest Receivable (19,901) (3,146)
--------- ---------
OTHER EXPENSES
Stockholder Expenses 8,461 18,714
Other Professional Fees 65,254 65,143
General and Administrative 175,103 174,520
--------- ---------
Total Other Expenses 248,818 258,377
--------- ---------
TOTAL EXPENSES 228,917 255,231
--------- ---------
Operating Loss (63,460) (104,803)
Net Loss on Investment
Securities Sold (20,889) --
--------- ---------
Net (Loss) $ (84,349) $(104,803)
========= =========
Basic Net Loss Per Share of
Common Stock (Based on Weighted
Average Number of Shares
Outstanding of 12,338,051) $ (0.01) $ (0.01)
========= =========
See accompanying notes
F-4
<PAGE>
BANYAN HOTEL INVESTMENT FUND
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
Unrealized
Losses on
Shares of Common Stock Investment
Shares Amount Securities
---------------------------- ----------
Stockholders' Equity
(Deficit) Dec. 31, 1995 12,338,051 $87,477,847 $ -0-
Net Loss for the
Year Ended
December 31, 1996 -- -- --
Market Adjustment
December 31, 1996 -- -- (27,430)
---------- ---------- -------
Stockholders' Equity
(Deficit)
December 31, 1996 12,338,051 87,477,847 (27,430)
Market Adjustment
December 31, 1997 27,430
Net Loss for the
Year Ended
December 31, 1997 -- -- --
---------- ---------- -------
Stockholders' Equity
(Deficit)
December 31, 1997 12,338,051 $87,477,847 -0-
========== ========== =======
F-5
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1997 and 1996
Accumulated Treasury
Deficit Stock Total
----------- -------- -----
Stockholders' Equity
(Deficit)
December 31, 1995 $(85,534,593) $ (8,189) $ 1,935,065
Net Loss for the
Year Ended
December 31, 1996 (104,803) -- (104,803)
Market Adjustment
December 31, 1996 -- -- (27,430)
------------ ------------ ------------
(85,639,396) (8,189) 1,802,832
Market Adjustment
December 31, 1997 -- -- 27,430
Net Loss for the
Year Ended
December 31, 1997 (84,349) -- (84,349)
------------ ------------ ------------
Stockholders' Equity
(Deficit)
December 31, 1997 $(85,723,745) $ (8,189) $ 1,745,913
============ ============ ============
See Accompanying notes
F-6
<PAGE>
BANYAN HOTEL INVESTMENT FUND
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET (LOSS) $ (84,349) $ (104,803)
Adjustments to Reconcile Net
Loss to Net Cash Used in
Operating Activities:
Loss on sale of Security
Investment 20,889 --
Amortization of Premium or
(Discount) on Investment
Securities (209) (335)
Net Change in:
Interest Receivable on Cash
and Cash Equivalents and
Investment Securities (5,870) (402)
Prepaid Insurance (790) (6,290)
Other Assets -- 5,907
Accounts Payable and Accrued
Expenses (27,496) (1,056)
----------- -----------
Net Cash Used in Operating
Activities (97,825) (106,979)
----------- -----------
CASH FLOW FROM INVESTING
ACTIVITIES:
Proceeds from Sale and
Maturity of Investment
Securities 870,750 --
Investment in Mortgage (1,000,000) (256,189)
F-7
<PAGE>
BANYAN HOTEL INVESTMENT FUND
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 and 1996
(continued)
1997 1996
---- ----
Principal Collections
on Mortgage Loans 50,217 41,206
--------- ---------
Cash (Used in) Provided
By Investing Activities (79,033) (214,983)
--------- ---------
Net (Decrease) Increase
in Cash and Cash Equivalents (176,858) (321,962)
Cash and Cash Equivalents
at Beginning of Year 414,935 736,897
--------- ---------
Cash and Cash Equivalents
at End of Year $ 238,077 $ 414,935
========= =========
See accompanying notes
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
Prior to 1995, 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 is being 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
In 1997 the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate restated to conform to the Statement 128 requirements.
For 1997 and 1996 earnings per share was calculated using 12,338,051 weighted
average shares outstanding during the year.
F-9
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued!
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.
E. INVESTMENT SECURITIES
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 premium and discounts using a level
yield method.
F. USE OF ESTIMATES
The preparation of Financial Statements in coforming 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 these estimates.
G. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (Statement 131) which is effective for years
beginning after December 15, 1997. Statement 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. Statement 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and therefore the
company will adopt the new requirements retroactively in 1998. Management has
not completed its review of Statement 131, but does not anticipate that the
adoption of this statement will have a significant effect on the Company's
reported segments.
F-10
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES
The Fund's Investment securities portfolio at December 31, 1996 was as follows:
Approximate Amortized
Cost Net of Principal Approximate Estimated
Paydowns Received at Market Value at
December 31st December 31st
--------------------- ---------------------
Title of Each Issue
and Name of Issuer 1996 1996
Federal National
Mortgage Assn. (1)
7.25% 5/25/22 $891,430 $864.000
(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 related 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 1996 is expected to be from February 25, 2005 to February 25,
2011. These expectations may change as interest rates on mortgage loans
change.
3. MORTGAGE LOANS RECEIVABLE
During the third quarter of 1995, the Fund assigned its interest in a
previously written off Mortgage Loan on the Omni Park Centre Hotel 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
provides for interest at 12% per annum with monthly payments based on a ten (10)
year amortized 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.
F-11
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. MORTGAGE LOANS RECEIVABLE (continued)
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.
On August 20, 1997, the Fund made a first mortgage loan in the amount of
$1,000,000, which is secured by one commercial and one residential property
located in the Dallas, Texas area. The loan bears interest at the rate of 12%,
and calls for monthly payments of interest only. The loan is due on April 1,
1998. The principals of the corporate owners of both properties have personnaly
guaranteed the loan.
The carrying amount and fair value of the mortgage loans are as follows:
Original Loan Carrying
Loan Date Amount Amount Fair Value
--------- ------------- -------- ----------
October 10,1995 $ 375,000 $ 326,869 $ 326,869
February 13,1996 150,000 103,431 103,431
February 29,1996 106,189 106,189 106,189
August 20,1997 1,000,000 1,000,000 1,000,000
The fair value was determined by calculating the present value of the
future principal and interest payments at a market discount rate.
F-12
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. MORTGAGE LOANS RECEIVABLE - (continued)
Annual maturities of mortgage loans receivable during subsequent years are
summarized as follows:
Years Ending December 31st Amount
1998 $ 1,055,282
1999 61,665
2000 304,702
2001 114,840
-----------
$ 1,536,489
===========
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% limited partnership interest in the
partnership which owns the Santa Barbara Biltmore Resort. The Fund did not
record losses related to its interest in the Santa Barbara Biltmore during 1997
and 1996 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 pay the liabilities of, the partnership.
F-13
<PAGE>
BANYAN HOTEL INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. TRANSACTIONS WITH AFFILIATES
Effective February 15, 1995 the Fund began renting space from an affiliated
company. Rent paid to the affiliate amounted to $15,050 during 1996 which is
equal to the rent paid by the affiliate to the landlord. The lease expired on
July 31, 1996 and the Fund executed a new lease with the landlord for a period
of two years. The Fund's future rental payments will be $17,360.
During 1997 and 1996, the Fund reimbursed an affiliated company $21,534 and
$20,082 for health insurance premiums paid on behalf of the Fund. Included in
this reimbursement is $7,080 and $4,166 which is prepaid as of December 31, 1997
and 1996, respectively.
6. INVESTMENT IN LIQUIDATING TRUST
The Fund has an interest in a Liquidating Trust which was received as final
settlement of guarantees of VMS Realty Partners of loans made by the Fund in
prior years. During 1997 and 1996 the Fund recorded $19,901 and $3,146
respectively, on its Statement of Income and Expenses as a recovery of the
Provisions for Losses on Mortgage Loans, Notes and Interest Receivable related
to the distributions received from the Liquidating Trust. The $19,901 net
recovery recorded in 1997 includes the $26,535 distribution received net of an
estimated $6,634 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. INCOME TAXES
As of December 31, 1997, the Fund had a net operative loss carry forward of
approximately $75,000,000 which expires between 2005 and 2011. The utilization
of the net operating losses may be subject to limitations contained in the
Internal Revenue Code.
A summary of the components of deferred taxes is as follows:
Deferred Tax Asset - Non Current 1997 1996
---- ----
Net Operating Loss Carryforward $ 30,033,730 $ 29,890,066
Valuation Allowance (30,033,730) (29,890,066)
------------ ------------
$ -0- $ -O-
============ ============
F-14
<PAGE>
EXHIBIT 21
16
<PAGE>
SUBSIDIARY OF BANYAN HOTEL INVESTMENT FUND
Name of Subsidiary State of organization
BHF Merger Corp. Illinois
BNC Santa Barbara Corp. Illinois
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 238,077
<SECURITIES> 0
<RECEIVABLES> 14,188
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,314,627
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,800,271
<CURRENT-LIABILITIES> 54,358
<BONDS> 0
87,477,847
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,800,273
<SALES> 0
<TOTAL-REVENUES> 165,457
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 228,917
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (84,349)
<INCOME-TAX> 0
<INCOME-CONTINUING> (84,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (84,349)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
