UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-15027
BANYAN MORTGAGE INVESTORS L.P. II
(Exact name of small business issuer as specified in its charter)
Delaware 36-3365708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o KPMG Peat Marwick LLP,
One Boston Place, Boston, Massachusetts 02108
(Address of principal executive offices)
(617) 338-2925
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
Depositary units outstanding as of May 5, 1995: 12,524,931<PAGE>
Transitional Small Business Disclosure Format: Yes . No X .<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Balance Sheets
March 31, 1995 and December 31, 1994
(Unaudited)
ASSETS 1995 1994
<S> <C> <C>
Cash and Cash Equivalents $ 2,709,802 $ 2,241,059
Investment in Liquidating Trusts 1 1
Distributions Receivable from
Liquidating Trusts --- 196,616
Prepaid Insurance 42,246 78,892
State Income Tax Refund Receivable --- 35,483
Other Assets 6,837 26,175
------------ -----------
Total Assets $ 2,758,886 $ 2,578,226
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 389,954 $ 273,602
Distribution From Liquidating Trust 135,274 57,419
Payable to Settling Class ------------ ----------
Total Liabilities 525,228 331,021
----------- -------------
Commitments and Contingencies --- ---
Partners' Capital
Partners Capital (12,526,153 Depositary
Units Outstanding) 2,233,849 2,247,396
Treasury Units, at Cost, for 1,222
Depositary Units (191) (191)
------------- -------------
Total Partners' Capital 2,233,658 2,247,205
-------------- -------------
The accompanying notes are an integral part of these financial statements.
3<PAGE>
Total Liabilities and Partners' Capital $ 2,758,886 $ 2,578,226
============== =============
Book Value Per Unit (12,524,931
Depositary Units Outstanding) $ 0.178 $ 0.179
============= =============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
4<PAGE>
<TABLE>
<CAPTION>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Income and Expenses
for the Three Months Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
<S> <C> <C>
INCOME
Interest Income $ 22,336 $ 7,572
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (260,245) ---
Other Expenses:
Unitholder Expenses 40,858 73,224
Directors' Fees, Expenses and Insurance 45,648 61,649
Other Professional Fees 71,359 29,733
General and Administrative 40,811 36,758
Provision for Arbitration and
Litigation With Related Parties 97,452 ---
----------- ------------
Total Other Expenses 296,128 201,364
(Recovery of) Class Action Settlement Costs --- (126,549)
Total (Recoveries) Expenses 35,883 74,815
---------- -----------
Net Income (Loss) $ (13,547) $ (67,243)
========== ===========
Net Income (Loss) Allocated to General
Partner (1%) $ (135) $ (672)
========== ===========
Net Income (Loss) Allocated to Unitholders
(99%) $ (13,412) $ (66,571)
========== ===========
Net Income (Loss) Per Unit (Weighted
Average Number of Depositary Units
Outstanding 12,524,931) $ (0.001) $ (0.005)
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5<PAGE>
<TABLE>
<CAPTION>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Partners' Capital
for the Three Months Ended March 31, 1995
(Unaudited)
General Treasury
Partner Unitholders Units Total
<S> <C> <C> <C> <C>
Partners' Capital
(Deficit),
December 31, 1994 $(729,604) $2,977,000 $ (191) $2,247,205
---------- ----------- ---------- -----------
Net Income (Loss) (135) (13,412) --- (13,547)
---------- ----------- -------- -----------
Partners' Capital
(Deficit),
March 31, 1995 $(729,739) $2,963,588 $ (191) $2,233,658
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
6<PAGE>
<TABLE>
<CAPTION>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Cash Flows
for the Three Months Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES: <C> <C>
<S>
NET INCOME (LOSS) $ (13,547) $ (67,243)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Used In Operating Activities:
Amortization of Premium on Investments --- 7,564
Provision for Arbitration and
Litigation With Related Parties 97,452 ---
Net Change In:
Distributions Receivable from
Liquidating Trusts 196,616 ---
State Income Tax Refund Receivable 35,483 ---
Prepaid Insurance 36,646 15,677
Other Assets 19,338 (32,306)
Accounts Payable and Accrued Expenses 18,900 8,339
Distribution from Liquidating Trust
Payable to Settling Class 77,855 ---
----------- ----------
Net Cash Provided by (Used in) Operating
Activities
468,743 (67,969)
Net Increase (Decrease) in Cash and Cash
Equivalents 468,743 (67,969)
Cash and Cash Equivalents at Beginning of
Period 2,241,059 965,886
----------- ----------
Cash and Cash Equivalents at End of Period $2,709,802 $ 897,917
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
7<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
March 31, 1995
(Unaudited)
1. Basis of Presentation
Readers of this quarterly report should refer to the audited
financial statements for Banyan Mortgage Investors L.P. II (the
"Partnership") for the year ended December 31, 1994 which are included
in the Partnership s 1994 Annual Report as certain footnote disclosures
which would substantially duplicate those contained in such audited
statements have been omitted from this report. These interim financial
statements include all adjustments which in the opinion of management
are necessary in order to make the financial statements not misleading.
On August 19, 1992 the Partnership announced that the Board of
Directors of its General Partner had approved a plan of liquidation. In
accordance with the plan of liquidation, an initial liquidating
distribution was made on September 25, 1992 to all unitholders of record
as of August 31, 1992. The Board of Directors is in the process of
liquidating the Partnership. Management is uncertain as to the proceeds
that the Partnership may ultimately realize from its investments in
certain liquidating trusts. The Partnership cannot be liquidated until
those investments are sold or otherwise disposed of. The Partnership
continues to carry its assets and liabilities at historical cost and
believes that the carrying values of the Partnership s assets and
liabilities would not differ materially if the financial statements were
presented under a liquidation basis of accounting.
2. Summary of Significant Accounting Policies
A. Cash and Cash Equivalents
Cash and cash equivalents represent deposits held with financial
institutions in demand and money market accounts, as well as obligations
of the U.S. Government and its agencies that have maturities of three
months or less at the date of purchase. The Partnership records cash
and cash equivalents at amortized cost which approximates market.
B. Investment in Liquidating Trusts
In connection with the fifth amendment to the Creditor Repayment
Agreement, the Partnership received an interest in three liquidating
trusts that were established for the benefit of unsecured creditors of
VMS Realty Partners and two of its affiliated entities. The trusts hold
cash as well as secured and unsecured, notes and mortgages to
individuals, entities, or real estate properties, most of which are
subordinated to those of senior lenders. The Partnership records its
investment in these liquidating trusts at its pro rata portion of the
cash assets available for distribution in the trusts. Despite the fact
8<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1995
(Unaudited)
that the Partnership believes that the notes and mortgages remaining in
the trusts may have value, they are not accorded any carrying value due
to the uncertainties regarding the timing and amount of any potential
recovery. At March 31, 1995 and December 31, 1994, that pro rata
portion amounted to $1.
The Partnership records its portion of all receipts from these
trusts as a reduction in the Provision for Losses on Mortgage Loans,
Notes and Interest Receivable, when distributions are declared by the
trusts. One of the trusts declared such a distribution on December 29,
1994 in the amount of $196,616 which was recorded as a receivable at
December 31, 1994. With respect to that trust, pursuant to a settlement
agreement with a settling class (the "Settling Class"), roughly 29% of
all such distributions are to be remitted to the Settling Class.
Accordingly, the Partnership has recorded a payable at December 31,
1994, in the amount of $57,419, representing the Settling Class s
portion of the December 29, 1994 distribution.
During the three months ended March 31, 1995, certain of the
liquidating trusts declared, and the Partnership received, $338,100 in
additional distributions from these trusts. Of those distributions,
$77,855 is to be remitted to the Settling Class pursuant to the above
agreement and has been included in the amount payable to the Settling
Class at March 31, 1995.
C. Income Taxes
No provision or credit for Federal income taxes has been recorded
in the Partnership's financial statements because the results of its
operations are included in the income tax returns of the Partners.
D. Book Value and Net Income (Loss) per Unit
The Book Value per Unit is calculated by dividing Total Partner s
Capital by the number of Depositary Units outstanding at the end of the
respective years. Net Income (Loss) per Unit is computed by dividing
Net Income (Loss) by the weighted average number of units outstanding
during the year.
3. Transactions With Affiliates
Administrative costs, primarily salaries and general and
administrative expenses, have been reimbursed by the Partnership to
Banyan Management Corp. ("BMC") prior to the decision of Banyan
Management Investors, Inc., the General Partner of the Partnership, to
terminate the Partnership s contractual relationship with BMC on October
27, 1994. Pursuant to the former administrative services agreement
9<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1995
(Unaudited)
between BMC and the Partnership (the "BMC Services Agreement"), from
January 1, 1993, through October 27, 1994, these costs were charged to
each Banyan Fund based upon the actual number of hours spent by BMC
personnel on matters related to that Fund. The Partnership's costs
during the three months ended March 31, 1994 were $22,313.
4. Recovery of Class Action Settlement Costs and Expenses
On January 25, 1994, the Partnership received net proceeds of
$126,549 relating to a recovery of payments previously made into an
escrow established as part of the class action settlement of the
litigation captioned In re VMS Securities Litigation. The escrow was
established to provide the officers and directors of the Partnership s
general partner with monies to fund the cost of any litigation in which
they may be named as defendants post settlement of the class action.
Subsequently, the directors released the proceeds from the escrow and
the Partnership purchased an insurance policy to cover the officers and
directors.
5. Arbitration and Litigation with Related Parties
On September 12, 1994, the Board of Directors (the "Board") of the
general partner voted unanimously to terminate the employment by the
Partnership of Mr. Leonard G. Levine, including Mr. Levine s employment
as President of the general partner. The Board also elected Mr. Philip
H. Brady, Jr., one of its members, to serve as Acting President and
Acting Chief Financial Officer of the general partner. On September 16,
1994, the Board received notice that other officers of the general
partner, including the Senior Vice President of Finance and
Administration, the First Vice President, and the Vice President and
General Counsel, had resigned effective September 12, 1994.
Levine Arbitration
On or about October 31, 1994, Mr. Levine initiated an arbitration
proceeding against the Partnership before the American Arbitration
Association. Mr. Levine claimed that he was entitled to an award of
$127,567, plus interest and attorneys fees on account of the
termination of his employment by the Partnership. The Partnership
contested Mr. Levine's claims and, in addition, asserted certain claims
against Mr. Levine in the BMC Lawsuit described below. On or about
April 18, 1995, Mr. Levine was awarded by the arbitrator partial summary
judgment on the issue of liability. The General Partner has taken the
position that an agreement has been reached to settle the Levine
Arbitration, but a settlement agreement memorializing that agreement has
not been executed because the parties have disagreed as to certain
additional terms that are outside the scope of the arbitration.
10<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1995
(Unaudited)
Accordingly, the General Partner is unable to predict the ultimate
outcome of the Levine Arbitration at this time. In the three months
ended March 31, 1995, the Partnership recorded a provision for
arbitration and litigation with related parties in the amount of $90,000
in connection with the Levine Arbitration. As of March 31, 1995, the
Partnership has established a reserve in the aggregate amount of $90,000
for the Levine Arbitration, which reserve is included in accounts
payable and accrued expenses.
BMC Lawsuit
On October 27, 1994, the Board determined that BMC had breached
certain of its obligations to the Partnership pursuant to the BMC
Services Agreement and resolved, unanimously, to terminate the BMC
Services Agreement. In a simultaneous action, the Board resolved to
engage KPMG Peat Marwick LLP to provide certain administrative and other
services formerly provided by BMC. Subsequently, the Partnership made
various demands upon BMC for return of the Partnership s books and
records. On November 9, 1994, when these demands proved unsuccessful,
the Partnership and Banyan Mortgage Investors L.P. commenced litigation
against BMC and Mr. Levine, who continues to serve as President of BMC.
In its lawsuit against BMC and Mr. Levine, the Partnership sought to
recover possession of its funds, books and records which were under
BMC s and Mr. Levine s control. The Partnership also sought to recover
money damages and other relief against BMC and Mr. Levine. On November
22, 1994, the court ordered BMC to make the books and records of the
Partnership available for copying by the Partnership. In addition, the
court ordered Mr. Levine not to interfere with the Partnership's copying
of its books and records.
BMC answered the complaint in the BMC Lawsuit on November 22, 1994
and denied certain of the material allegations therein and asserted
certain defenses. Mr. Levine answered the complaint on or about
January 25, 1995 and also denied certain of the material allegations
therein and asserted certain additional defenses. On December 1, 1994
BMC filed a counterclaim against the Partnership. In its counterclaim,
BMC sought to recover $35,000 in contract termination fees from the
Partnership under the BMC Services Agreement and for an order requiring
the Partnership to transfer the capital stock of BMC owned by the
Partnership to BMC. The Partnership denied the material allegations of
BMC's counterclaim and asserted certain additional defenses. The
General Partner has conducted settlement negotiations in the BMC
Lawsuit. However, the General Partner is unable to predict the ultimate
outcome of the BMC Lawsuit at this time. The Partnership recorded a
provision for arbitration and litigation with related parties in the
amount of $7,452 in connection with the BMC Lawsuit. As of March 31,
1995, the Partnership has established a reserve in the aggregate amount
11<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1995
(Unaudited)
of $7,452 for the BMC Lawsuit, which reserve is included in accounts
payable and accrued expenses.
12<PAGE>
Item 2. Management's Discussion and Analysis
General
Banyan Mortgage Investors L.P. II (the "Partnership") is a Delaware
limited partnership that was organized on September 30, 1985. The sole
general partner of the Partnership is Banyan Mortgage Investors II,
Inc., an Illinois corporation organized in 1985 (the "General Partner").
The Partnership was formed to invest primarily in junior mortgage loans
and, secondarily, in wraparound and first mortgage loans, to VMS Realty
Partners and its affiliates (collectively, "VMS"). Loans made by the
Partnership were for initial terms of three, five or seven years, and
could be paid at any time without a prepayment penalty. In February
1990, the Partnership, in response to VMS's decision to cease making
payments on their loans due to their liquidity problems, ceased funding
new wraparound and mortgage loans and suspended all relationships
between the Partnership and VMS. The Partnership has been adversely
affected as a result of the non-payment of amounts due from VMS on
wraparound and mortgage loans and notes receivable. As a result of
these defaults, in early 1990 the Partnership suspended the making of
new loans (except for advances of additional funds under circumstances
which it is deemed necessary to preserve the value of existing
collateral) and suspended distributions to unitholders.
The Partnership's business plan has been based upon preserving and
maximizing the value of its remaining assets. On August 19, 1992 the
General Partner announced that it had approved a formal plan of
liquidation. In accordance with the plan of liquidation, an initial
distribution in the amount of $1,941,557 ($0.155 per unit) was made on
September 25, 1992 to all unitholders of record as of August 31, 1992.
As permitted by the plan of liquidation, the General Partner established
a cash reserve of approximately $1,300,000 to settle the Partnership's
remaining obligations, and to pay the expenses associated with the
liquidation and any other contingencies that may arise during final
liquidation of the Partnership's remaining assets. Upon disposition of
the Partnership's remaining non-cash assets and resolution of pending
legal proceedings, the General Partner intends to complete the
liquidation of the Partnership as promptly as practicable and to
distribute the remaining cash assets, net of any reserves, to the
unitholders. The General Partner does not contemplate the making of any
additional liquidating distributions until the remaining non-cash assets
have been disposed of.
On September 12, 1994, the General Partner terminated the
employment by the Partnership of Mr. Leonard G. Levine, including Mr.
Levine's employment as President of the General Partner. The General
Partner also appointed one of its independent Directors, Mr. Philip H.
Brady, Jr., to serve as the Acting President and Acting Chief Financial
Officer of the General Partner. On September 16, 1994, the General
Partner received notice that William M. Karnes, Senior Vice President,
Finance and Administration, Neil D. Hansen, First Vice President, and
Robert G. Higgins, Vice President and General Counsel, resigned,
effective September 12, 1994, as officers of the General Partner. On or
about October 31, 1994, Mr. Levine initiated an arbitration proceeding
(the "Levine Arbitration") against the Partnership before the American
13<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
Arbitration Association in respect of the termination of his employment.
See Results of Operations under this Part I, Item 2, Management's
Discussion and Analysis, Part II, Item 1, Legal Proceedings, and Note 5
of Notes to Financial Statements for additional descriptions of the
Levine Arbitration and related matters.
Certain administrative and accounting services have been provided
to the Partnership by KPMG Peat Marwick LLP since October 27, 1994.
Prior to that date, certain administrative and accounting services were
provided to the Partnership by Banyan Management Corporation ("BMC")
pursuant to the Administrative Services Agreement, dated February 27,
1994 (the "BMC Services Agreement"), between the Partnership and BMC.
On October 27, 1994, the Partnership terminated the BMC Services
Agreement. BMC and Mr. Levine were named as defendants in a lawsuit
brought by the Partnership and Banyan Mortgage Investors L.P. (the "BMC
Lawsuit") as a result of certain actions by BMC and Mr. Levine relating
to the termination by the Partnership of the BMC Services Agreement and
certain other matters. See Results of Operations under this Part I,
Item 2, Management's Discussion and Analysis, Part II, Item 1, Legal
Proceedings, and Note 5 of Notes to Financial Statements for additional
descriptions of the BMC Lawsuit and related matters.
Liquidity and Capital Resources
Cash and cash equivalents consist of cash and short-term
investments. The Partnership's cash and cash equivalents balance at
March 31, 1995 and December 31, 1994 was $2,709,802 and $2,241,059,
respectively. This increase in cash and cash equivalents is due
primarily to cash distributions received in January and February 1995
from Partners Liquidating Trust, in which the Partnership has a 3.46%
beneficial interest. See Other Information under this Part I, Item 2,
Management's Discussion and Analysis, for further details. The
Partnership also earned interest income on its cash and cash
equivalents. The increase in cash and cash equivalents is offset in
part by the payment of the Partnership's operating expenses, including
litigation expenses incurred in connection with legal proceedings
affecting the Partnership in the first quarter of 1995. See Part II,
Item 1, Legal Proceedings, and Note 5 of Notes to Financial Statements
for additional descriptions of the Levine Arbitration, the BMC Lawsuit
and related matters.
The Partnership's future source of liquidity is expected to be
generated through interest earned on short-term investments in
investment-grade securities, the possible receipt of cash distributions
from its beneficial interest in certain liquidating trusts and, to a
lesser extent, cash proceeds, if any, from the sale or other disposition
of the Partnership's beneficial interests in those liquidating trusts.
It is anticipated that this cash generated may be less than the
Partnership's operating expenses during the remaining period of
liquidation. A portion of the Partnership's cash will be used to meet
any shortfall. The General Partner believes that the Partnership's cash
and cash equivalents, together with interest earned on short-term
14<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
investments, will be sufficient to meet the Partnership's reasonably
anticipated cash needs for the foreseeable future.
As of March 31, 1995, the General Partner has a deficit capital
balance in the Partnership of $729,739. It is currently anticipated
that the Partnership will be unable to recover this deficit upon
liquidation due to the financial limitations of the General Partner.
The Partnership has no obligation to cover this deficit on behalf of the
General Partner.
On March 31, 1992, the Partnership and other creditors of VMS and
certain other parties executed the Creditor Repayment Agreement with
various VMS entities. The Creditor Repayment Agreement, as amended by
four subsequent amendments thereto, provided for the attempted sale by
various VMS entities of their assets in an orderly manner and the
disposition of the proceeds of such sales to the Partnership and such
other creditors. On November 18, 1993, the Partnership, such other
creditors and parties and various VMS entities executed the fifth
amendment to the Creditor Repayment Agreement and on November 18 and
December 28, 1993 the Partnership received distributions of cash
totalling $1,281,289. The Partnership also received a 3.46% beneficial
interest in Partners Liquidating Trust, a 9.1% beneficial interest in
Chicago Wheaton Liquidating Trust, and a 93% beneficial interest in
Investors Liquidating Trust (collectively, the "Liquidating Trusts").
At December 31, 1993, the $1,281,289 in distributions from the
Liquidating Trusts interests were recorded on the Partnership's
statement of income and expenses as a recovery of the provision for
losses on loans, notes and interest receivable. In December 1994, the
Partnership accrued cash distributions of $139,197 (net of amounts due
to certain settling plaintiff class members under a settlement agreement
entered into on September 25, 1991 by the Partnership) from Partners
Liquidating Trust and $42,888 from Chicago Wheaton Liquidating Trust.
Such amounts have been recorded as recoveries of losses on loans, notes
and interest receivable in 1994, and were received in January 1995.
Since December 31, 1994, the Partnership has accrued additional cash
distributions of $190,610 (net of amounts due to such settling plaintiff
class members under such settlement agreement) from Partners Liquidating
Trust and $69,635 from Chicago Wheaton Liquidating Trust, which amounts
were received in February 1995. The Partnership continues to monitor
the extent and timing of possible cash to be received from the
Liquidating Trusts and how this will impact the liquidation of the
Partnership. In addition, the General Partner is exploring means of
selling or otherwise disposing of the Partnership's beneficial interests
in the Liquidating Trusts in order to complete the liquidation of the
Partnership.
For the quarter ended March 31, 1995, the Partnership valued its
interests in the Liquidating Trusts at $1, which reflects its pro rata
share of cash assets of the Liquidating Trusts available for
distribution. The Partnership believes that the remaining assets in the
Liquidating Trusts may have some value. However, those assets are not
accorded any carrying value due to the substantial uncertainties
regarding the timing and amount of potential recoveries. See Other
15<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
Information of Management's Discussion and Analysis, and Note 2 of Notes
to Financial Statements for additional descriptions of the Partnership's
interest in the Liquidating Trusts.
The Partnership's ultimate remaining return of cash to its
unitholders is dependent upon, among other things: (i) the possible
receipt of cash distributions from the Liquidating Trusts resulting from
recoveries on remaining assets of the trusts; (ii) the disposition of
the remaining non-cash assets of the Partnership and collection of sale
proceeds, if any, therefrom; and (iii) the Partnership's ability to
control its operating and liquidating expenses.
Results of Operations
Total income for the three months ended March 31, 1995 increased to
$22,336 from $7,572 for the three months ended March 31, 1995. This
increase in total income was due primarily to an increase in the amount
of cash and cash equivalents held for investment by the Partnership and
to the increase in interest rates available on such investments.
Total expenses for the three months ended March 31, 1995 decreased
to $35,883 from $74,815 for the three months ended March 31, 1994. The
decline in total expenses for the first quarter of 1995 when compared to
the first quarter of 1994 was due principally to an increase in
recoveries of losses on loans, notes and interest receivable. During
the quarter ended March 31, 1995, the Partnership recorded a $260,245
recovery of losses on loans, notes and interest receivable as a result
of the $260,245 cash distributions to the Partnership from Partners
Liquidating Trust accrued and received in February 1995. There was no
similar recovery during the quarter ended March 31, 1994. This recovery
was partially offset by the increases in costs of litigation incurred by
the Partnership in connection with the Levine Arbitration and the BMC
Lawsuit. The Partnership recovered in January 1994 certain expenses in
the amount of $126,549 previously paid into escrow in connection with
the class action settlement of the litigation captioned In re VMS
Securities Litigation. There was no similar recovery during the quarter
ended March 31, 1995.
Other expenses increased by $94,764 for the first quarter of 1995
from the first quarter of 1994. This increase was due primarily to the
increase in other professional fees to $71,359 for the first quarter of
1995 from $29,733 for the first quarter of 1994, and the recording of
provisions aggregating $97,452 for arbitration and litigation with
related parties relating to the Levine Arbitration and the BMC Lawsuit.
See Part II, Item 1, Legal Proceedings, and Note 5 of Notes to Financial
Statements for additional descriptions of the Levine Arbitration, the
BMC Lawsuit and related matters. These increases were partially offset
by decreases in unitholder expenses and directors' fees, expenses and
insurance. Unitholder expenses declined in the amount of $32,366.
Directors' fees, expenses and insurance declined in the amount of
$16,001. Unitholder expenses decreased reflecting continuing efforts by
the General Partner to control such expenses and the shifting of some
costs associated with unitholder services from BMC to outside
16<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
professional firms. The decrease in directors' fees, expenses and
insurance is attributable to a decrease in the premium for director's
and officer's insurance and continued cost control efforts by the
General Partner. General and administrative expenses increased
moderately to $40,811 for the three months ended March 31, 1995 form
$36,758 for the three months ended March 31, 1994. This moderate change
reflects continued efforts by the General Partner to control such
expenses and the shifting of some general and administrative expenses to
outside professional firms.
These changes resulted in a net loss in the amount of $13,547
($0.001 per unit) for the three months ended March 31, 1995 compared to
a net loss of $67,243 (or $0.005 per unit) for the three months ended
March 31, 1994.
Other Information
On October 4, 1993, the outstanding capital stock (the "Stock") of
the General Partner was transferred to Banyan Mortgage Investors Holding
Corp. ("Holding Corp.") pursuant to the terms of the class action
settlement entered into by the Partnership on September 25, 1991. Under
the terms of the settlement, VMS Realty, Inc., the prior owner of the
Stock, agreed to transfer the Stock to an entity designated by the
Partnership in return for certain releases. Holding Corp. is an
Illinois corporation owned solely by Mr. Leonard G. Levine, the former
President of the Partnership and the General Partner. Mr. Levine is
also the sole director of Holding Corp. and President of BMC. Mr.
Levine is currently involved in the Levine Arbitration and BMC and Mr.
Levine are currently involved in the BMC Lawsuit. Holding Corp. has
transferred the Stock to a ten-year irrevocable voting trust, the
trustees of which are the three directors of the General Partner.
Pursuant to the terms of the voting trust agreement between Holding
Corp. and the trustees of the voting trust, the trustees are required to
vote the Stock in the best interest of the unitholders of the
Partnership. In conjunction with the transfer of the Stock, the name of
the General Partner was changed from VMS Mortgage Investors II, Inc. to
Banyan Mortgage Investors II, Inc.
On November 18, 1993, the Partnership and other parties executed
the fifth amendment to the Creditor Repayment Agreement and the
Partnership received a 1.32% beneficial interest in Partners Liquidating
Trust, a 9.1% beneficial interest in Chicago Wheaton Liquidating Trust,
and a 93% interest in Investors Liquidating Trust.
Neither the Partnership nor the General Partner controls Partners
Liquidating Trust or any of its assets. The trustee of Partners
Liquidating Trust is an affiliate of BMC. The trustee is not required
to furnish, and has not furnished, financial statements to the
Partnership with respect to Partners Liquidating Trust's financial
condition and results of operation for the year ended December 31, 1994.
Accordingly, the General Partner lacks current information with respect
to the financial condition and results of operation Partners Liquidating
Trust and its underlying assets. The General Partner also lacks current
17<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
information regarding the value or collectibility of any of the assets
of, Partners Liquidating Trust. Accordingly, the General Partner is
unable to predict with any degree of certainty the timing or proceeds,
if any, to Partners Liquidating Trust of any disposition of or recovery
on any of the remaining assets of the trust. Based upon information
furnished to the Partnership on behalf of the trustee of Partners
Liquidating Trust, as of March 1, 1995 Partners Liquidating Trust
retained approximately 33 different assets, described as follows: 16
"employee notes" evidencing indebtedness due from individuals (including
Mr. Leonard G. Levine); 10 "assignment notes"; 1 "wrap note"; 1 "advance
note"; 1 "promissory note"; an interest in a corporation; an interest
in a joint venture; a claim for 75% of the proceeds of a note issued in
connection with the settlement of a contract dispute; and a "chose-in-
action". In addition, Partners Liquidating Trust held approximately 24
other "assignment notes" which are believed to have been either
discharged or restructured under confirmed plans of reorganization of
the parties liable on such notes. On or about December 29, 1994,
certain beneficiaries of Partners Liquidating Trust purported to amend
and restate the original agreement and declaration of trust dated
November 17, 1993 (the "Original Trust Instrument") that established
Partners Liquidating Trust, by an amended and restated declaration of
trust dated as of December 29, 1994 (the "Amended Trust Instrument").
Certain other beneficiaries, including the Partnership, have taken the
position that the purported amendment of Partners Liquidating Trust was
ineffective. Accordingly, it is unclear whether the rights and
obligations of the trustee and beneficiaries of Partners Liquidating
Trust are currently governed by the terms and provisions of the Original
Trust Instrument or the Amended Trust Instrument. However, the General
Partner does not believe that this dispute will have a material impact
on the financial condition or results of operation of the Partnership.
Neither the Partnership nor the General Partner controls Chicago
Wheaton Liquidating Trust or any of its assets. The trustee of Chicago
Wheaton Liquidating Trust is an affiliate of BMC. The trustee is not
required to furnish, and has not furnished, financial statements to the
Partnership with respect to Chicago Wheaton Liquidating Trust's
financial condition and results of operation for the year ended December
31, 1994. Accordingly, the General Partner lacks current information
with respect to the financial condition or results of operation of
Chicago Wheaton Liquidating Trust and its underlying assets. The
General Partner also lacks current information regarding the value or
collectibility of any of the assets of this Liquidating Trust.
Accordingly, the General Partner is unable to predict with any degree of
certainty the timing or proceeds, if any, to Chicago Wheaton Liquidating
Trust of any disposition of or recovery on any of the remaining assets
of this Liquidating Trust.
The Partnership serves as the initial trustee of Investors
Liquidating Trust. Prior to October 27, 1994, certain administrative
and accounting services were provided to the Partnership by BMC, of
which Mr. Levine is president, pursuant to the BMC Services Agreement.
On October 27, 1994, the Partnership terminated the BMC Services
Agreement. Since that date, the General Partner has sought and
18<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
continues to seek information as to the financial condition and results
of operation of Investors Liquidating Trust, including of its underlying
assets. The General Partner lacks sufficient information to describe
the financial condition or results of operation of Investors Liquidating
Trust, or its underlying assets, at the present time. The General
Partner also lacks sufficient information regarding the value or
collectibility of any of the assets of Investors Liquidating Trust,
other than an insignificant amount of cash assets. Accordingly, the
General Partner is unable to predict with any degree of certainty the
timing or proceeds, if any, to Investors Liquidating Trust of any
disposition of or recovery on any of the remaining assets of this
Liquidating Trust.
During the three months ended March 31, 1995, the Partnership
received unsolicited proposals from two unrelated third parties seeking
to acquire the Partnership or a controlling interest in the Partnership.
Neither of those proposals remains active.
Because of the inability to predict with any degree of certainty
the timing or amount of proceeds of any disposition of the Partnership's
remaining non-cash assets, the General Partner is unable to estimate the
timing or amount of any final liquidating distribution to unitholders.
19<PAGE>
PART II
Item 1. Legal Proceedings
The Levine Arbitration
On September 12, 1994, the General Partner terminated the
employment by the Partnership of Mr. Leonard G. Levine, including Mr.
Levine's employment as President of the General Partner. The General
Partner also appointed one of its independent Directors, Mr. Philip H.
Brady, Jr., to serve as the Acting President and Acting Chief Financial
Officer of the General Partner. On September 16, 1994, the General
Partner received notice that William M. Karnes, Senior Vice President,
Finance and Administration, Neil D. Hansen, First Vice President, and
Robert G. Higgins, Vice President and General Counsel, resigned,
effective September 12, 1994, as officers of the General Partner.
On or about October 31, 1994, Mr. Levine initiated an arbitration
proceeding (the "Levine Arbitration") against the Partnership before the
American Arbitration Association, claiming $127,567, plus interest and
attorneys fees, under the Second Amended and Restated Employment
Agreement, dated as of December 31, 1992, between Mr. Levine and the
Partnership on account of the termination of his employment. The
Partnership contested Mr. Levine's claims and, in addition, asserted
certain claims against Mr. Levine in the BMC Lawsuit. On or about April
18, 1995, Mr. Levine was awarded by the arbitrator partial summary
judgment on the issue of liability. The General Partner has taken the
position that an agreement has been reached to settle the Levine
Arbitration, but a settlement agreement memorializing that agreement has
not been executed because the parties have disagreed as to certain
additional terms that are outside the scope of the arbitration.
Accordingly, the General Partner is unable to predict the ultimate
outcome of the Levine Arbitration at this time. In the three months
ended March 31, 1995, the Partnership recorded a provision for
arbitration and litigation with related parties in the amount of $90,000
in connection with the Levine Arbitration. As of March 31, 1995, the
Partnership has established a reserve in the aggregate amount of $90,000
for the Levine Arbitration, which reserve is included in accounts
payable and accrued expenses. See Part I, Item 2, Management's
Discussion and Analysis, and Note 5 of Notes to Financial Statements for
additional descriptions of the Levine Arbitration and related matters.
The BMC Lawsuit
On October 27, 1994, the General Partner determined that Banyan
Management Corporation ("BMC") had breached various of its obligations
to the Partnership under the Administrative Services Agreement (the "BMC
Services Agreement"), dated as of February 27, 1994, between the
Partnership and BMC, and terminated the BMC Services Agreement. In a
simultaneous action, the Partnership engaged KPMG Peat Marwick LLP to
provide certain administrative and other services formerly provided by
BMC. Subsequently, the Partnership made various demands upon BMC for
return of the Partnership's books and records.
20<PAGE>
Item 1. Legal Proceedings (Continued)
When these demands proved unsuccessful, the Partnership together
with Banyan Mortgage Investors L.P. commenced litigation (the "BMC
Lawsuit") on November 9, 1994 against BMC and Leonard G. Levine. In the
BMC Lawsuit, the Partnership sought to recover possession of its funds,
books and records which were under BMC's and Mr. Levine's control. The
Partnership also sought money damages and other relief. On November 22,
1994, the court ordered BMC to make the books and records of the
Partnership available for copying by the Partnership. In addition, the
court ordered Mr. Levine not to interfere with the Partnership's copying
of its books and records.
BMC answered the complaint in the BMC Lawsuit on November 22, 1994
and denied certain of the material allegations therein and asserted
certain defenses. Mr. Levine answered the complaint on or about
January 25, 1995 and also denied certain of the material allegations
therein and asserted certain additional defenses. On December 1, 1994
BMC filed a counterclaim against the Partnership. In its counterclaim,
BMC sought to recover $35,000 in contract termination fees from the
Partnership under the BMC Services Agreement and for an order requiring
the Partnership to transfer the capital stock of BMC owned by the
Partnership to BMC. The Partnership denied the material allegations of
BMC's counterclaim and asserted certain additional defenses. The
General Partner has conducted settlement negotiations in the BMC
Lawsuit. However, the General Partner is unable to predict the ultimate
outcome of the BMC Lawsuit at this time. The Partnership recorded a
provision for arbitration and litigation with related parties in the
amount of $7,452 in connection with the BMC Lawsuit. As of March 31,
1995, the Partnership has established a reserve in the aggregate amount
of $7,452 for the BMC Lawsuit, which reserve is included in accounts
payable and accrued expenses. See Part I, Item 2, Management's
Discussion and Analysis, and Note 5 of Notes to Financial Statements for
additional descriptions of the BMC Lawsuit and related matters.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Report:
Exhibit 27.1 Financial Data Schedule (EDGAR Filer)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
21<PAGE>
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of
1934, the Partnership has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
BANYAN MORTGAGE INVESTORS L.P. II
By: Banyan Mortgage Investors II, Inc.
its General Partner
By: /s/ Philip H. Brady, Jr. Date: May 19, 1995
Philip H. Brady, Acting President
and Acting Chief Financial and
Accounting Officer
22<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 22
23<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> $2,709,802
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,758,886
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,758,886
<CURRENT-LIABILITIES> 525,228
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2,233,658
<TOTAL-LIABILITY-AND-EQUITY> 2,758,886
<SALES> 0
<TOTAL-REVENUES> 22,336
<CGS> 0
<TOTAL-COSTS> 296,128
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (260,245)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (13,547)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,547)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,547)
<EPS-PRIMARY> ($0.001)
<EPS-DILUTED> ($0.001)
</TABLE>
