UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-15027
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 August 8, 1995: 12,526,123
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
June 30, 1995 and December 31, 1994
(Unaudited)
ASSETS 1995 1994
----------- -----------
Cash and Cash Equivalents $ 2,443,607 $ 2,241,059
Investment in Liquidating Trusts 1 1
Receivable from Investment in Liquidating
Trusts 39,812 196,616
Prepaid Insurance 178,656 78,892
State Income Tax Refund Receivable -- 35,483
Other Assets 5,337 26,175
------------- -------------
Total Assets $ 2,667,413 $ 2,578,226
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 368,912 $ 273,602
Distribution From Liquidating Trust Payable to
Settling Class 135,274 57,419
------------- -------------
Total Liabilities 504,186 331,021
------------- -------------
Commitments and Contingencies -- --
Partners' Capital
Partners Capital (12,526,153 Depositary Units
Outstanding) 2,163,418 2,247,396
Treasury Units, at Cost, for 1,222 Depositary
Units (191) (191)
------------- -------------
Total Partners' Capital 2,163,227 2,247,205
------------- -------------
Total Liabilities and Partners' Capital $ 2,667,413 $ 2,578,226
============= =============
Book Value Per Unit (12,524,931 Depositary
Units Outstanding) $ 0.173 $ 0.179
============= =============
The accompanying notes are an integral part of these financial statements.
2
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VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Income and Expenses
for the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
-------- --------
INCOME
Interest Income $ 55,552 $ 26,859
---------- ----------
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (300,057) --
Other Expenses:
Unitholder Expenses 47,362 103,708
Directors' Fees, Expenses and Insurance 96,736 120,581
Other Professional Fees 120,609 154,560
General and Administrative 77,428 75,369
Settlement Costs for Arbitration and
Litigation With Related Parties 97,452 --
---------- ----------
Total Other Expenses 439,587 454,218
(Recovery of) Class Action Settlement Costs -- (126,549)
and Expenses
Total (Recoveries) Expenses 139,530 327,669
---------- ----------
Net Income (Loss) $ (83,978) $ (300,810)
========== ==========
Net Income (Loss) Allocated to General Partner
(1%) $ (840) $ (3,008)
========== ==========
Net Income (Loss) Allocated to Unitholders
(99%) $ (83,138) $ (297,802)
========== ==========
Net Income (Loss) Per Unit (Weighted Average
Number of Depositary Units Outstanding
12,524,931) $ (0.007) $ (0.024)
========== ==========
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 June 30, 1995 and 1994
(Unaudited)
1995 1994
-------- --------
INCOME
Interest Income $ 33,217 $ 19,287
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (39,812) --
Other Expenses:
Unitholder Expenses 6,503 30,484
Directors' Fees, Expenses and Insurance 51,088 58,932
Other Professional Fees 49,250 124,827
General and Administrative 36,617 38,611
Settlement Costs for Arbitration and
Litigation With Related Parties -- --
--------- ---------
Total Other Expenses 143,458 252,854
(Recovery of) Class Action Settlement Costs -- --
and Expenses
Total (Recoveries) Expenses 103,646 252,854
--------- ---------
Net Income (Loss) $ (70,429) $(233,567)
========= =========
Net Income (Loss) Allocated to General Partner
(1%) $ (704) $ (2,336)
========= =========
Net Income (Loss) Allocated to Unitholders
(99%) $ (69,725) $(231,231)
========= =========
Net Income (Loss) Per Unit (Weighted Average
Number of Depositary Units Outstanding
12,524,931) $ (0.006) $ (0.019)
========= =========
The accompanying notes are an integral part of these financial statements.
4
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VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Partners' Capital
for the Six Months Ended June 30, 1995
(Unaudited)
General Treasury
Partner Unitholders Units Total
Partners' Capital
(Deficit),
December 31, 1994 (729,604) 2,977,000 (191) 2,247,205
----------- ----------- ----------- -----------
Net Income (Loss) (840) (83,138) -- (83,978)
----------- ----------- ----------- -----------
Partners' Capital
(Deficit),
June 30, 1995 $ (730,444) $ 2,893,862 $ (191) $ 2,163,227
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
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VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Cash Flows
for the Six Months Ended June 30, 1995 and 1994
(Unaudited)
1995 1994
------------ ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (83,978) $ (300,810)
Adjustments to Reconcile Net Income (Loss) to
Net Cash Used In Operating Activities:
Amortization of Premium on Investments -- --
Provision for Settlement of Arbitration and
Litigation With Related Parties -- --
Net Change In:
Receivable from Investment in
Liquidating Trusts 156,804 --
State Income Tax Refund Receivable 35,483 --
Prepaid Insurance (99,764) (77,151)
Other Assets 20,838 (4,320)
Accounts Payable and Accrued Expenses 95,310 21,522
Distribution from Liquidating Trust
Payable to Settling Class 77,855 --
----------- -----------
Net Cash Provided by (Used in) Operating
Activities 202,548 (360,759)
Cash Flows From Investing Activities:
Proceeds from the Sale of Marketable
Securities -- 792,187
----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents 202,548 431,428
Cash and Cash Equivalents at Beginning of
Period 2,241,059 965,886
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,443,607 $ 1,397,314
========== ============
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
June 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 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
7
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
June 30, 1995
(Unaudited)
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 June 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 are to be remitted to the
Settling Class. Accordingly, the Partnership 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 six months ended June 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 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 June 30, 1995.
On June 28, 1995, the Partnership sold its beneficial interest in one
of the liquidating trusts to a third party for $39,812. That amount was recorded
as a reduction in the Provision for Losses on Mortgage Loans, Notes and Interest
Receivable and is reflected as a receivable at June 30, 1995.
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.
8
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
June 30, 1995
(Unaudited)
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,
1993, through October 27, 1994, these costs were charged to each Banyan Fund
based upon the actual number of hours reportedly spent by BMC personnel on
matters related to that Fund. The Partnership's costs during the six months
ended June 30, 1994 were $45,668.
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
9
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
June 30, 1995
(Unaudited)
and attorneys' fees on account of the termination of his employment by the
Partnership. The Partnership contested Mr. Levine's claims and, in addition,
asserted certain claims against Mr. Levine in the BMC Lawsuit. In May 1995, the
Partnership settled this arbitration proceeding and a consent award was entered
providing for a gross severance payment of $90,000 from the Partnership to Mr.
Levine in full settlement of Mr. Levine's claims. That amount had been
previously reserved for and was paid during May 1995.
BMC Lawsuit
On October 27, 1994, the Board determined that BMC had breached certain
of its obligations to the Partnership pursuant to the BMC Services Agreement and
resolved, unanimously, to terminate the BMC Services Agreement. In a
simultaneous action, the Board resolved to engage KPMG Peat Marwick LLP to
provide certain administrative and other services formerly provided by BMC.
Subsequently, the Partnership made various demands upon BMC for return of the
Partnership's books and records. On November 9, 1994, when these demands proved
unsuccessful, the Partnership and VMLPZ Mortgage Investors L.P. (formerly known
as 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 June 30, 1995,
10
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
June 30, 1995
(Unaudited)
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>
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 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 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 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,
12
<PAGE>
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 June 30, 1995 and
December 31, 1994 was $2,443,607 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 had a 3.46% 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).
The Partnership also earned interest income on its cash and cash equivalents.
The increase in cash and cash equivalents is offset in part by 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
13
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
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
investments, will be sufficient to meet the Partnership's reasonably anticipated
cash needs for the foreseeable future.
As of June 30, 1995, the General Partner has a deficit capital balance
in the Partnership of $730,444. It is currently anticipated that the Partnership
will be unable to recover this deficit upon liquidation due to the financial
limitations of the General Partner. The Partnership has no obligation to cover
this deficit on behalf of the General Partner.
On March 31, 1992, the Partnership and other creditors of VMS and
certain other parties executed the Creditor Repayment Agreement with various VMS
entities. The Creditor Repayment Agreement, as amended by four subsequent
amendments thereto, provided for the attempted sale by various VMS entities of
their assets in an orderly manner and the distribution of the net proceeds of
such sales to the Partnership and such other creditors. On November 18, 1993,
the Partnership, such other creditors and parties and various VMS entities
executed the fifth amendment to the Creditor Repayment Agreement and 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. 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
14
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
timing of possible cash to be received from Chicago Wheaton Liquidating Trust
and Investors Liquidating Trust 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 remaining beneficial interests in the
Liquidating Trusts in order to complete the liquidation of the Partnership.
At the end of the second quarter of 1995, the Partnership valued its
interests in Chicago Wheaton Liquidating Trust and Investors Liquidating Trust
at $1, which reflects its pro rata share of cash assets of these trusts
available for distribution. The Partnership believes that the remaining assets
in these 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 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 Chicago Wheaton Liquidating Trust and Investors Liquidating
Trust resulting from recoveries on remaining assets of these trusts; (ii) the
disposition of the remaining non-cash assets (including its remaining interests
in the Liquidating Trusts) 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 June 30, 1995 increased to
$33,217 from $19,287 for the three months ended June 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 June 30, 1995 decreased to
$103,646 from $252,854 for the three months ended June 30, 1994. The decline in
total expenses for the second quarter of 1995 when compared to the second
quarter of 1994 was due principally to the recovery of $39,812 recorded on
provision for losses on loans, notes and interest receivable in connection with
the sale of the Partnership's beneficial interest in Partners Liquidating Trust
in June 1995. There was no similar recovery during the quarter ended June 30,
1994. Unitholder expenses and general and other professional fees also decreased
in the three months ended June 30, 1995.
Other expenses decreased by $109,396 for the second quarter of 1995
from the second quarter of 1994. This decrease was due primarily to the decrease
in other professional fees to $49,250 for the second quarter of 1995 from
15
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
$124,827 for the second quarter of 1994, and the decrease in unitholder
expenses to $6,503 for the second quarter of 1995 from $30,484 for the second
quarter of 1994. Directors' fees, expenses and insurance also declined in the
amount of $7,844 and general and administrative expenses declined in the amount
of $1,994. Unitholder expenses and other professional fees decreased reflecting
continuing efforts by the General Partner to control such expenses. 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 decreased
moderately to $36,617 for the three months ended June 30, 1995 form $38,611 for
the three months ended June 30, 1994, reflecting continued cost control efforts
by the General Partner.
These changes resulted in a net loss in the amount of $70,429 ($0.006
per unit) for the three months ended June 30, 1995 compared to a net loss of
$233,567 (or $0.019 per unit) for the three months ended June 30, 1994.
Total income for the six months ended June 30, 1995 increased to
$55,552 from $26,859 for the six months ended June 30, 1994. This increase was
due primarily to an increase in the average amount of cash and cash equivalents
held for investment by the Partnership.
Total expenses for the six months ended June 30, 1995 decreased to
$139,530 from $327,669 for the six months ended June 30, 1994. The decline in
total expenses for the six moths ended June 30, 1995 when compared to the six
months ended June 30, 1994 was due principally to an increase in recoveries of
losses on loans, notes and interest receivable. During the six months ended June
30, 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 six months ended June 30, 1994.
During the six months ended June 30, 1995, the Partnership recorded a recovery
of $39,812 on provision for losses on loans, notes and interest receivable in
connection with the sale of the Partnership's beneficial interest in Partners
Liquidating Trust in June 1995. There was no similar recovery during the six
months ended June 30, 1994. These recoveries were partially offset by reserves
for settlement costs recorded by the Partnership during the six months ended
June 30, 1995 in the amount of $97,452 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 six months ended June 30,
1995.
16
<PAGE>
Item 2. Management's Discussion and Analysis (Continued)
Other expenses decreased by $14,631 for the six months ended June 30,
1995 compared to the six months ended June 30, 1994. This decrease was due
primarily to decreases in unitholder expenses, directors' fees, expenses and
insurance and other professional fees. Unitholder expenses declined in the
amount of $56,346. Directors' fees, expenses and insurance declined in the
amount of $23,845. Other professional fees declined in the amount of $33,951.
Unitholder expenses decreased reflecting continuing efforts by the General
Partner to control such expenses and the shifting of some costs associated with
unitholder services from BMC to outside professional firms. The decrease in
directors' fees, expenses and insurance is attributable to a decrease in the
premium for director's and officer's insurance and continued cost control
efforts by the General Partner. The decrease in other professional fees reflect
continued efforts by the General Partner to control these costs. These decreases
were partially offset by 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. There was a moderate
increase in general and administrative expenses to $77,428 for the six months
ended June 30, 1995 from $75,369 for the six months ended June 30, 1994.
These changes resulted in a decrease in the net loss for the six months
ended June 30, 1995 to $83,978 ($0.007 per unit) from $300,810 ($0.024 per unit)
for the six months ended June 30, 1994.
Other Information
On October 4, 1993, the outstanding capital stock (the "Stock") of the
General Partner was transferred to Banyan Mortgage Investors Holding Corp.
("Holding Corp.") pursuant to the terms of the class action settlement entered
into by the Partnership on September 25, 1991. Under the terms of the
settlement, VMS Realty, Inc., the prior owner of the Stock, agreed to transfer
the Stock to an entity designated by the Partnership in return for certain
releases. Holding Corp. is an Illinois corporation owned solely by Mr. Leonard
G. Levine, the former President of the Partnership and the General Partner. Mr.
Levine is also the sole director of Holding Corp. and President of BMC. Mr.
Levine was involved in the Levine Arbitration and BMC and Mr. Levine are
currently involved in the BMC Lawsuit. 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. In June 1995, the name of the General Partner was
changed to VMTGZ Mortgage Investors II, Inc.
17
<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. See Results of Operations of this
Management's Discussion and Analysis, and Note 2 of Notes to Financial
Statements.
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
been obtaining documents and developing information as to the financial
condition and results of operation of Investors Liquidating Trust, and
investigating its underlying assets. The General Partner, however, 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.
18
<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.
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.
19
<PAGE>
Item 1. Legal Proceedings (Continued)
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.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Report:
Exhibit 27.1 Financial Data Schedule (EDGAR Filer)
(b) No reports on Form 8-K were filed during the quarter
ended June 30, 1995.
20
<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: August 10, 1995
-----------------------------------
Philip H. Brady, Jr., Acting President
and Acting Chief Financial and
Accounting Officer
21
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 24
<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 six
months ended June 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> $2,443,607
<SECURITIES> 0
<RECEIVABLES> 39,812
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,667,413
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,667,413
<CURRENT-LIABILITIES> 504,186
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 2,163,227
<TOTAL-LIABILITY-AND-EQUITY> 2,667,413
<SALES> 0
<TOTAL-REVENUES> 55,552
<CGS> 0
<TOTAL-COSTS> 139,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (300,057)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (83,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (83,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83,978)
<EPS-PRIMARY> (0.007)
<EPS-DILUTED> (0.007)
</TABLE>
