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 September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-15027
VMTGZ MORTGAGE INVESTORS L.P. II
(f/k/a 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,
99 High Street, Boston, Massachusetts 02110-2371
(Address of principal executive offices)
(617) 338-2925
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_. No
__.
Depositary units outstanding as of November 3, 1995: 12,524,931
Transitional Small Business Disclosure Format: Yes . No X .
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Balance Sheets
September 30, 1995 and December 31, 1994
(Unaudited)
ASSETS 1995 1994
-------------- -------
Cash and Cash Equivalents $ 2,234,632 $ 2,241,059
Investment in Liquidating Trusts 1 1
Receivable from Investment in Liquidating
Trusts -- 196,616
Prepaid Insurance 131,125 78,892
State Income Tax Refund Receivable -- 35,483
Other Assets 6,837 26,175
Total Assets $ 2,372,595 $ 2,578,226
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 121,131 $ 273,602
Distribution From Liquidating Trust Payable
to Settling Class -- 57,419
Total Liabilities 121,131 331,021
Commitments and Contingencies -- --
Partners' Capital
Partners Capital (12,526,153 Depositary
Units Issued) 2,251,655 2,247,396
Treasury Units, at Cost, for 1,222
Depositary Units (191) (191)
Total Partners' Capital 2,251,464 2,247,205
Total Liabilities and Partners' Capital $ 2,372,595 $ 2,578,226
Book Value Per Unit (12,524,931 Depositary
Units Outstanding) $ 0.180 $ 0.179
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Income and Expenses
for the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
1995 1994
-------- --------
INCOME
Interest Income $ 84,715 $ 40,528
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (524,512) (927,875)
Other Expenses:
Unitholder Expenses 80,956 128,207
Directors' Fees, Expenses and Insurance 153,268 180,358
Other Professional Fees 165,916 164,052
General and Administrative 107,376 107,870
Settlement Costs for Arbitration and
Litigation With Related Parties 97,452 --
---------
Total Other Expenses 604,968 580,487
(Recovery of) Class Action Settlement Costs and -- (126,549)
Expenses
and Expenses
Total (Recoveries) Expenses 80,456 (473,937)
--------- ---------
Net Income (Loss) $ 4,259 $ 514,465
========= =========
Net Income (Loss) Allocated to General Partner
(1%) $ 43 $ 5,145
========= =========
Net Income (Loss) Allocated to Unitholders
(99%) $ 4,216 $ 509,320
========= =========
Net Income (Loss) Per Unit (Weighted Average
Number of Depositary Units Outstanding
12,524,931) $ (0.000) $ 0.041
============ ===========
The accompanying notes are an integral part of these financial
statements.
3
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Income and Expenses
for the Three Months Ended September 30, 1995 and 1994
(Unaudited)
1995 1994
-------- --------
INCOME
Interest Income $ 29,163 $ 13,669
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (224,455) (927,875)
Other Expenses:
Unitholder Expenses 33,594 24,499
Directors' Fees, Expenses and Insurance 56,532 59,777
Other Professional Fees 45,307 9,492
General and Administrative 29,948 32,501
Settlement Costs for Arbitration and
Litigation With Related Parties -- --
---------
Total Other Expenses 165,381 126,269
(Recovery of) Class Action Settlement Costs and -- --
Expenses
and Expenses
Total (Recoveries) Expenses (59,074) (801,606)
--------- ---------
Net Income (Loss) $ 88,237 $ 815,275
========= =========
Net Income (Loss) Allocated to General Partner
(1%) $ 882 $ 8,153
========= =========
Net Income (Loss) Allocated to Unitholders
(99%) $ 87,355 $ 807,122
========= =========
Net Income (Loss) Per Unit (Weighted Average
Number of Depositary Units Outstanding
12,524,931) $ 0.007 $ 0.065
========= =========
The accompanying notes are an integral part of these financial
statements.
4
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Partners' Capital
for the Nine Months Ended September 30, 1995
(Unaudited)
<TABLE>
<CAPTION>
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) 43 4,216 -- 4,259
----------- ----------- ----------- -----------
Partners' Capital (Deficit),
September 30, 1995
$ (729,561) $ 2,981,216 $ (191) $ 2,251,464
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
5
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Cash Flows
for the Nine Months Ended September 30, 1995 and 1994
(Unaudited)
1995 1994
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ 4,259 $ 514,465
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used In Operating Activities:
Recovery of Losses on Mortgage Loans, Notes and
Interest Receivable -- (927,875)
Net Change In:
Receivable from Investment in Liquidating
Trusts 196,616 --
State Income Tax Refund Receivable 35,483 --
Prepaid Insurance (52,233) (43,315)
Other Assets 19,338 (6,291)
Accounts Payable and Accrued Expenses (152,471) 4,160
Distribution from Liquidating Trust
Payable to Settling Class (57,419) --
----------- -----------
Net Cash Provided by (Used in) Operating
Activities (6,427) (458,856)
Cash Flows From Investing Activities:
Proceeds from the Sale of Marketable
Securities -- 792,187
----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents (6,427) 333,331
Cash and Cash Equivalents at Beginning of Period
2,241,059 965,886
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,234,632 $ 1,299,217
========== ===========
The accompanying notes are an integral part of these financial
statements.
6
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 1995
(Unaudited)
1. Basis of Presentation
Readers of this quarterly report should refer to the audited financial
statements for VMTGZ Mortgage Investors L.P. II (the "Partnership") formerly
known as Banyan Mortgage Investors L.P. II, 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 investment in a liquidating trust. The Partnership cannot be
liquidated until such investment is 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.
7
<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
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. 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 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 September 30, 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 were to be remitted to the
Settling Class. Accordingly, the Partnership had 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. That amount has since been paid to the
Settling Class.
During the nine months ended September 30, 1995, certain of the
liquidating trusts declared, and the Partnership received, $338,100 in
additional distributions from these trusts. Of those distributions, $77,855 was
remitted to the Settling Class pursuant to the above settlement agreement.
In June 1995, the Partnership sold its beneficial interest in Partners
Liquidating Trust to a third party for $39,812. That amount was recorded as a
reduction in the Provision for Losses on
8
<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
Mortgage Loans, Notes and Interest Receivable and is reflected as a receivable
at June 30, 1995.
In August 1995, the Partnership sold its beneficial interest in Chicago
Wheaton Liquidating Trust to a third party for $225,000. That amount was
recorded as a reduction in the Provision for Losses on Mortgage Loans, Notes and
Interest Receivable.
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 VMTGZ Mortgage Investors II, Inc., the General
Partner of the Partnership (formerly known as Banyan Mortgage Investors II,
Inc.), to terminate the Partnership's contractual relationship with BMC on
October 27, 1994. Pursuant to the former administrative services agreement
between BMC and the Partnership (the "BMC Services Agreement"), from January 1,
1994 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 nine months ended September 30,
1994 were $65,548.
9
<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
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, for cause, 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 of the General
Partner 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. In May 1995, the Partnership settled this arbitration proceeding
and a consent award was entered providing for a gross severance payment of
$90,000 from the Partnership to Mr. Levine. That amount was paid during May
1995.
10
<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
BMC/Levine Litigation
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 VMLPZ Mortgage Investors L.P. (formerly known
as Banyan Mortgage Investors L.P.) commenced litigation against BMC and Mr.
Levine. 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 September 30, 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.
11
<PAGE>
Banyan Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
September 30, 1995
(Unaudited)
Item 2. Management's Discussion and Analysis
General
VMTGZ Mortgage Investors L.P. II (the "Partnership") is a Delaware
limited partnership that was organized on September 30, 1985. In June 1995, the
Partnership changed its name from Banyan Mortgage Investors L.P. II to VMTGZ
Mortgage Investors L.P. II. The sole general partner of the Partnership is VMTGZ
Mortgage Investors II, Inc., an Illinois corporation organized in 1985 (the
"General Partner") and formerly known as Banyan Mortgage Investors II, Inc. 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 approximately three to seven years and could be paid at any
time without 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 (except for advances
of additional funds under circumstances which it is deemed necessary to preserve
the value of existing collateral) and suspended all relationships between the
Partnership and VMS. The Partnership was 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 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 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
12
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
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 in respect of the termination of his employment. In May 1995, the
Levine Arbitration was settled. 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 VMLPZ Mortgage
Investors L.P., formerly known as 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 September 30, 1995 and
December 31, 1994 was $2,234,632 and $2,241,059, respectively. This decrease of
$6,427 in cash and cash equivalents is due primarily to payment of the
Partnership's operating expenses, including amounts payable to the settling
class from cash distributions received from Partners Liquidating Trust, the
premium for directors and officers liability insurance
13
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
purchased by the Partnership, and litigation expenses incurred in connection
with legal proceedings affecting the Partnership during the nine months ended
September 30, 1995. See Other Information under this Part I, Item 2,
Management's Discussion and Analysis, and Note 2 of Notes to Financial
Statements for further details regarding Partners Liquidating Trust; 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 decrease in cash and cash equivalents due to the payment of the
Partnership's operating expenses was substantially offset by cash distributions
received in January and February 1995 from Partners Liquidating Trust, proceeds
of the sale by the Partnership in June 1995 of its interest in Partners
Liquidating Trust, in which the Partnership had a 3.46% beneficial interest, and
proceeds of the sale of the Partnership's interest in Chicago Wheaton
Liquidating Trust, in which the Partnership had a 9.1% beneficial interest. See
Other Information under this Part I, Item 2, Management's Discussion and
Analysis, and Note 2 of Notes to Financial Statements for further details
(including details regarding the Partnership's sale of its interest in Partners
Liquidating Trust in June 1995 and its interest in Chicago Wheaton Liquidating
Trust in August 1995). The Partnership also earned interest income on its cash
and cash equivalents.
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 Investors Liquidating Trust and, to a lesser extent, cash proceeds,
if any, from the sale or other disposition of the Partnership's beneficial
interests in that liquidating trust. It is anticipated that this cash generated
may be less than the Partnership's operating expenses during the remaining
period of liquidation. A portion of the Partnership's cash will be used to meet
any shortfall. The General Partner believes that the Partnership's cash and cash
equivalents, together with interest earned on short-term investments, will be
sufficient to meet the Partnership's reasonably anticipated cash needs for the
foreseeable future.
As of September 30, 1995, the General Partner has a deficit capital
balance in the Partnership of $729,561. 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
14
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
with various VMS entities. The Creditor Repayment Agreement, as amended by four
subsequent amendments thereto, provided for the attempted sale by various VMS
entities of their assets in an orderly manner and the distribution of the net
proceeds of such sales to the Partnership and such other creditors. On November
18, 1993, the Partnership, such other creditors and parties and various VMS
entities executed the fifth amendment to the Creditor Repayment Agreement and on
November 18 and December 28, 1993 the Partnership received distributions of cash
totaling $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 were 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. In June 1995, the Partnership sold its
beneficial interest in Partners Liquidating Trust for $39,812; and in August
1995, the Partnership sold its beneficial interest in Chicago Wheaton
Liquidating Trust for $225,000. See Other Information of Management's Discussion
and Analysis, and Note 2 of Notes to Financial Statements. The Partnership
continues to monitor the extent and timing of possible cash to be received from
Investors Liquidating Trust and how this may impact the liquidation of the
Partnership.
At the end of the third quarter of 1995, the Partnership valued its
interest in Investors Liquidating Trust at $1, which reflects its pro rata share
of cash assets of the trust available for distribution. The Partnership believes
that the remaining assets in the trust 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 Information
under this Part I, Item 2, Management's Discussion and Analysis, Part II, Item
1, Legal Proceedings, and Notes 2 and 5 of Notes to Financial Statements for
15
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
additional descriptions of the Partnership's interest in Investors Liquidating
Trust and the Bishop Ranch Litigation.
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 Investors Liquidating Trust resulting from recoveries on
remaining assets of the trust; (ii) the disposition of the remaining non-cash
assets (including its remaining interest in Investors Liquidating Trust) 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 nine months ended September 30, 1995 increased to
$84,715 from $40,528 for the nine months ended September 30, 1994. This increase
was due primarily to an increase in the average amount of cash and cash
equivalents held for investment by the Partnership.
Total expenses for the nine months ended September 30, 1995 increased
to $80,456 from ($473,937) for the nine months ended September 30, 1994. The
increase in total expenses for the nine months ended September 30, 1995 when
compared to the nine months ended September 30, 1994 was due principally to a
decrease in recoveries of losses on loans, notes and interest receivable. During
the nine months ended September 30, 1995, the Partnership recorded a $524,512 in
aggregate recoveries of losses on loans, notes and interest receivable as a
result of the $260,245 cash distributions to the Partnership from the
Liquidating Trusts accrued and received in February 1995; a recovery of $39,812
in connection with the sale of the Partnership's beneficial interest in Partners
Liquidating Trust in June 1995 and a recovery of $224,455 in connection with the
sale of the Partnership's beneficial interest in Chicago Wheaton Liquidating
Trust. These recoveries of $524,512 in the nine months ended September 30, 1995
compared to the $927,875 recovery of losses on loans, notes and interest
receivable recorded at September 30, 1994 in connection with the arbitration
proceeding relating to the amount of compensation due to the Partnership with
respect to its former interest in certain Beverly Hills, California properties
commonly known as the Buckeye properties. The Partnership also 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. See Note 4 of Notes to Financial
Statements. There was no similar recovery during the nine months ended September
30, 1995.
16
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
Other expenses increased to $604,968 for the nine months ended
September 30, 1995 from $580,487 for the nine months ended September 30, 1994.
This increase was due primarily to settlement costs recorded by the Partnership
during the nine months ended September 30, 1995 in the amount of $97,452 in
connection with 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. The
increase in other expenses due to settlement costs was offset in part by
decreases in unitholder expenses, directors' fees, expenses and insurance and
general and administrative expenses. Unitholder expenses declined in the amount
of $47,251. Directors' fees, expenses and insurance declined in the amount of
$27,090. General and administrative expenses declined in the amount of $494.
Unitholder expenses decreased reflecting continuing efforts by the General
Partner to control such expenses and the shifting of some costs associated with
unitholder services from BMC to outside professional firms. The decrease in
directors' fees, expenses and insurance is attributable to a decrease in the
premium for director's and officer's insurance and continued cost control
efforts by the General Partner. The modest decrease in general and
administrative expenses reflect continued efforts by the General Partner to
control these costs. There was a moderate increase in other professional fees to
$165,916 for the nine months ended September 30, 1995 from $164,052 for the nine
months ended September 30, 1994.
These changes resulted in a decrease in net income for the nine months
ended September 30, 1995 to $4,259 ($0.000 per unit) from $514,465 ($0.041 per
unit) for the nine months ended September 30, 1994.
Total income for the three months ended September 30, 1995 increased to
$29,163 from $13,669 for the three months ended September 30, 1994. 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.
Total expenses for the three months ended September 30, 1995 increased
to ($59,074) from ($801,606) for the three months ended September 30, 1994. The
increase in total expenses for the third quarter of 1995 when compared to the
third quarter of 1994 was due principally to the recovery of $224,455 recorded
on provision for losses on loans, notes and interest receivable in connection
with the sale of the Partnership's beneficial interest in Chicago Wheaton
Liquidating Trust in August 1995, compared to the similar recovery of $927,875
recorded in the third quarter of 1994 in
17
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
connection with the arbitration proceeding relating to the amount of
compensation due to the Partnership with respect to its former interest in
certain Beverly Hills, California properties commonly known as the Buckeye
properties. Unitholder expenses and other professional fees also increased in
the three months ended September 30, 1995.
Other expenses increased to $165,381 for the third quarter of 1995 from
$126,269 for the third quarter of 1994. This increase was due primarily to the
increase in other professional fees to $45,307 for the third quarter of 1995
from $9,492 for the third quarter of 1994, and the increase in unitholder
expenses to $33,594 for the third quarter of 1995 from $24,499 for the third
quarter of 1994. These increases were partially offset by a decline in
directors' fees, expenses and insurance in the amount of $3,245 and a decline in
general and administrative expenses in the amount of $2,553.
These changes resulted in net income in the amount of $88,237 ($0.007
per unit) for the three months ended September 30, 1995 compared to net income
of $815,275 (or $0.065 per unit) for the three months ended September 30, 1994.
Other Information
On October 4, 1993, the outstanding capital stock (the "Stock") of the
General Partner was transferred to Banyan Mortgage Investors Holdings Corp.
("Holdings 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. Holdings 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 Holdings Corp. and President of BMC. Mr.
Levine was involved in the Levine Arbitration and BMC and Mr. Levine are
currently involved in the BMC Lawsuit. Holdings 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 Holdings 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. In June 1995, the name of the General Partner was
changed to VMTGZ Mortgage Investors II, Inc.
18
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
On November 18, 1993, the Partnership and other parties executed the
fifth amendment to the Creditor Repayment Agreement and the Partnership received
a 3.46% beneficial interest in Partners Liquidating Trust, a 9.1% beneficial
interest in Chicago Wheaton Liquidating Trust, and a 93% interest in Investors
Liquidating Trust. In June 1995, the Partnership sold its beneficial interest in
Partners Liquidating Trust for $39,812; and in August 1995, the Partnership sold
its beneficial interest in Chicago Wheaton Liquidating Trust for $225,000. See
Results of Operations under this Part I, Item 2, Management's Discussion and
Analysis, and Note 2 of Notes to Financial Statements.
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
been obtaining documents and developing information as to the financial
condition and results of operation of Investors Liquidating Trust, and
investigating its underlying assets. Except for the Bishop Ranch Litigation
described in Part II, Item 1, Legal Proceedings below, 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.
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.
After extensive negotiations, the Partnership agreed to settle the Levine
Arbitration. As a result, on May 31, 1995 a consent award was entered in the
Levine Arbitration providing for a gross severance payment of $90,000 from the
Partnership in full settlement of Mr. Levine's claims. 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
VMLPZ 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. At
June 30, 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.
The Bishop Ranch Litigation
On September 1, 1995 the Partnership, for itself and as
trustee of Investors Liquidating Trust, together with Monterey County Partners,
an Illinois general partnership ("MCP"), commenced litigation against BMIF
Monterey County Limited Partnership, an Illinois limited partnership (the
"Monterey Partnership"), BMIF Monterey County Corp., an Illinois corporation
("BMIF") which is the general partner of the Monterey Partnership, BMC and Mr.
Leonard G. Levine in the Circuit Court of Cook County, Illinois, County
Department, Chancery Division (the "Bishop Ranch Litigation"). It is the
position of Investors Liquidating Trust that it indirectly
21
<PAGE>
Item 1. Legal Proceedings (Continued)
owns a substantial economic interest in the Monterey Partnership through its
indirect interest in MCP, which is a limited partner in the Monterey
Partnership. BMIF, which is a subsidiary of Banyan Mortgage Investment Fund, is
the general partner of the Monterey Partnership. The Monterey Partnership owns
an approximately 565- acre residential development project in Monterey County,
California known as Bishop Ranch.
In the complaint in the Bishop Ranch Litigation, MCP seeks the judicial
removal of BMIF as general partner of the Monterey Partnership and the
appointment of another entity which is currently the 20% general partner of MCP
as successor general partner to carry on the business activities and manage the
affairs of the Monterey Partnership on various grounds set forth in the
complaint. MCP also requests the court to enter a binding declaratory judgment
to the effect that BMIF, despite its claim to the contrary, is not entitled to
any so-called "Priority Return" or "Preferred Return" (i.e., interest) on any
portion of its capital account in the Monterey Partnership. The Partnership, for
itself and as trustee of Investors Liquidating Trust, further requests the Court
to grant relief under the Illinois Uniform Fraudulent Transfer Act by
establishing in favor of MCP an appropriate capital account in the Monterey
Partnership of not less than $4.8 million and to declare and/or set aside any
"Priority Return" or "Preferred Return" claimed by BMIF. MCP also seeks a
court-ordered accounting by BMIF with respect to its management of the affairs
of the Monterey Partnership and the imposition of a constructive trust and/or
equitable liens upon BMIF, for the benefit of the Monterey Partnership, over and
upon all of the books, records, properties and funds of the Monterey
Partnership. Finally, the Partnership, for itself and as trustee of Investors
Liquidating Trust, seeks an award of actual and exemplary damages against BMC
and Levine.
The defendants in the Bishop Ranch Litigation have filed motions to
require the Partnership and MCP to join MCP's 20% general partner as a plaintiff
in the case or, alternatively, for involuntary dismissal, and also to dismiss
the claims which the Partnership, for itself and as trustee of Investors
Liquidating Trust, have asserted against BMC and Levine for breach of fiduciary
duty on account of the pendency of the BMC Lawsuit. The Partnership and MCP have
opposed the defendants' motions. Both the plaintiffs and the defendants have
commenced various pre-trial discovery. In a related development, on October 10,
1995, MCP, for itself and derivatively for the Monterey Partnership, filed an
action against the Monterey Partnership and its mortgagees in the Monterey
County, California, Superior Court (the "California Quiet Title Action"). In the
California Quiet Title Action, MCP seeks, among other things, the cancellation
of a deed of trust (i.e., mortgage) on the Bishop Ranch property which BMIF, in
its capacity as general partner of the Monterey Partnership, executed and
delivered to the agent for certain secured lenders, which
22
<PAGE>
Item 1. Legal Proceedings (Continued)
collectively had loaned $20.5 million to BMIF's parent corporation, as
collateral security for that loan. MCP also seeks to quiet title in the
Partnership to the Bishop Ranch property, free and clear of any claims by such
secured lenders or their agent.
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 September 30, 1995.
23
<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.
VMTGZ MORTGAGE INVESTORS L.P. II
By: VMTGZ Mortgage Investors II, Inc.
its General Partner
By: /s/ Philip H. Brady, Jr. Date: November 14, 1995
----------------------------
Philip H. Brady, Jr., Acting
President and Acting Chief
Financial and Accounting
Officer
24
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 26
25
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VMTGZ MORTGAGE INVESTORS L.P. II AS AT AND FOR THE NINE
MONTHS ENDED September 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,234,632
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,372,595
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,372,595
<CURRENT-LIABILITIES> 121,131
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2,251,464
<TOTAL-LIABILITY-AND-EQUITY> 2,372,595
<SALES> 0
<TOTAL-REVENUES> 84,715
<CGS> 0
<TOTAL-COSTS> 80,456
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (524,512)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,259
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,259
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,259
<EPS-PRIMARY> ($0.000)
<EPS-DILUTED> ($0.000)
</TABLE>
