UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] 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
(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
(Address of principal executive offices)
(617) 338-2925
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X . No .
Depositary units outstanding as of May 6, 1996: 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
March 31, 1996 and December 31, 1995
(Unaudited)
ASSETS 1996 1995
----------- ------------
Cash and Cash Equivalents $ 2,143,266 $ 2,169,802
Investment in Liquidating Trusts 1 1
Prepaid Insurance 37,938 84,250
Other Assets 6,837 6,837
----------- -----------
Total Assets $ 2,188,042 $ 2,260,890
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 509,041 $ 323,435
----------- -----------
Total Liabilities 509,041 323,435
----------- -----------
Commitments and Contingencies -- --
Partners' Capital
Partners Capital (12,526,153 Depositary
Units Outstanding) 1,679,192 1,937,646
Treasury Units, at Cost, for 1,222
Depositary Units (191) (191)
----------- -----------
Total Partners' Capital 1,679,001 1,937,455
----------- -----------
Total Liabilities and Partners' Capital $ 2,188,042 $ 2,260,890
=========== ===========
Book Value Per Unit (12,524,931
Depositary Units Outstanding) $ 0.134 $ 0.155
=========== ===========
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 Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
-------- ----------
INCOME
Interest Income $ 21,022 $ 22,336
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable 0 (260,245)
Other Expenses:
Unitholder Expenses 33,248 40,858
Directors' Fees, Expenses and Insurance 54,313 45,648
Other Professional Fees 165,677 71,359
General and Administrative 26,238 40,811
Settlement Costs for Arbitration and
Litigation With Related Parties 0 97,452
--------- ---------
Total Other Expenses 279,476 296,128
Total (Recoveries) Expenses
279,476 35,883
--------- ---------
Net Income (Loss) $(258,454) $ (13,547)
========= =========
Net Income (Loss) Allocated to General
Partner (1%) $ (2,585) $ (135)
========= =========
Net Income (Loss) Allocated to Unitholders
(99%) $(255,869) $ (13,412)
========= =========
Net Income (Loss) Per Unit (Weighted
Average Number of Depositary Units
Outstanding 12,524,931) $ (0.021) $ (0.001)
========= =========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Partners' Capital
for the Three Months Ended March 31, 1996
(Unaudited)
General Treasury
Partner Unitholders Units Total
----------- ------------ ----------- -----------
Partners' Capital
(Deficit),
December 31, 1995 $ (732,702) $ 2,670,348 $ (191) $ 1,937,455
----------- ----------- ----------- -----------
Net Income (Loss) (2,585) (255,869) 0 (258,454)
----------- ----------- ----------- -----------
Partners' Capital
(Deficit),
March 31, 1996 $ (735,287) $ 2,414,479 $ (191) $ 1,679,001
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Cash Flows
for the Three Months Ended March 31, 1996 and 1995
(Unaudited)
1996 1995
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (258,454) $ (13,547)
Adjustments to Reconcile Net Income (Loss)
to Net Cash Used In Operating Activities:
Provision for Arbitration and Litigation 97,452
with Related Parties
Net Change In:
Receivable from Investment in Liquidating
Trusts 196,616
State Income Tax Refund Receivable 35,483
Prepaid Insurance 46,312 36,646
Other Assets 19,338
Accounts Payable and Accrued Expenses 185,606 18,900
Distribution from Liquidating Trust
Payable to Settling Class 77,855
------------ -----------
Net Cash Provided by (Used in) Operating
Activities (26,536) 468,743
Net Increase (Decrease) in Cash and Cash
Equivalents (26,536) 468,743
Cash and Cash Equivalents at Beginning of
Period 2,169,802 2,241,059
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,143,266 $ 2,709,802
=========== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
March 31, 1996
(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,
1995 which are included in the Partnership's 1995 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 remaining investment in a certain liquidating trust. The
Partnership cannot be liquidated until that 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.
6
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
B. Investment in Liquidating Trusts
On November 18, 1993, the Partnership executed the fifth amendment to the
Creditor Repayment Agreement and, in connection therewith, received
distributions of cash totaling $1,281,289 and interests in three liquidating
trusts (Partners Liquidating Trust, Chicago Wheaton Liquidating Trust and
Investors Liquidating Trust) established for the benefit of unsecured creditors
of VMS. The trusts held cash as well as secured and unsecured notes and
mortgages to individuals, entities or real estate properties, most of which were
subordinated to those of senior lenders. During the three months ended March 31,
1995, Partners Liquidating Trust and Chicago Wheaton Liquidating Trust together
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 a settlement agreement. Also during 1995, the Partnership
sold its beneficial interests in Partners Liquidating Trust and Chicago Wheaton
Liquidating Trust to third parties. No such distributions were declared by or
received from Investors Liquidating Trust during the three months ended March
31, 1996.
The Partnership records its investment in the Investors Liquidating Trust
at its pro rata portion of the cash assets available for distribution in the
trust. Despite the fact that the Partnership believes that the notes and
mortgages remaining in the trust may have value, they are not accorded any
carrying value due to the uncertainties regarding the timing and amount of any
potential recovery. At March 31, 1996 and December 31, 1995, that pro rata
portion amounted to $1. The Partnership records its portion of all receipts from
the trust as a reduction in the Provision for Losses on Mortgage Loans, Notes
and Interest Receivable, when distributions are declared.
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.
7
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
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
quarter or year. Net Income (Loss) per Unit is computed by dividing Net Income
(Loss) by the weighted average number of units outstanding during the respective
quarter or year.
3. 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 provided for during
the three months ended March 31, 1995 and was paid in May 1995.
BMC/Levine Litigation
On October 27, 1994, the Board determined that Banyan Management
Corporation ("BMC") had breached certain of its obligations to the Partnership
pursuant to the BMC Services Agreement and unanimously resolved to terminate
8
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
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 March 31, 1996 the Partnership had established a reserve in the aggregate
amount of $7,452 for the BMC Lawsuit, which reserve is included in accounts
payable and accrued expenses.
9
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
The Bishop Ranch Litigation
In September 1995, the Partnership, for itself and as trustee of
Investors Liquidating Trust, together with Monterey County Partners ("MCP"),
commenced litigation against BMIF Monterey County Limited Partnership (the "BMIF
Monterey Partnership") and BMIF Monterey County Corp. ("BMIF Monterey Corp."),
which is the general partner of the BMIF Monterey Partnership, 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 owns a substantial economic interest in the BMIF Monterey
Partnership through its indirect interest in MCP, which is the limited partner
in the BMIF Monterey Partnership. BMIF Monterey Corp., which is a subsidiary of
Banyan Mortgage Investment Fund, is the general partner of the BMIF Monterey
Partnership. The BMIF Monterey Partnership owns an approximately 565-acre
residential development project in Monterey County, California known as Bishop
Ranch.
In the Bishop Ranch Litigation, MCP seeks the judicial removal of BMIF
Monterey Corp. as general partner of the BMIF Monterey Partnership and the
appointment of another suitable person or entity as successor general partner to
manage the affairs of the BMIF Monterey Partnership. MCP also requests the court
to enter a declaratory judgment to the effect that BMIF Monterey Corp. is not
entitled to any "Priority Return" or "Preferred Return" (i.e., interest) on any
portion of its capital account in the BMIF 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 BMIF Monterey Partnership of not less than $4.8 million and to declare set
aside any "Priority Return" or "Preferred Return" claimed by BMIF Monterey Corp.
MCP also seeks a court-ordered accounting by BMIF Monterey Corp. with respect to
its management of the affairs of the BMIF Monterey Partnership and the
imposition of a constructive trust equitable liens upon BMIF Monterey Corp., for
the benefit of the BMIF Monterey Partnership, over and upon all of the books,
records, properties and funds of the BMIF Monterey Partnership. In February
1996, the court determined that certain claims which the Partnership, for itself
10
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
and as trustee of Investors Liquidating Trust, had asserted against BMC and
Leonard G. Levine for breach of fiduciary duty in the Bishop Ranch Litigation
were subsumed in the BMC Lawsuit, and dismissed those claims from the Bishop
Ranch Litigation.
The parties have commenced various pretrial discovery in the Bishop Ranch
Litigation. Management believes the Partnership has meritorious claims in this
matter, however, management is uncertain as to the ultimate outcome of this
litigation and the potential for, or amount of, any recovery by Investors
Liquidating Trust or the Partnership, if any.
The California Quiet Title Action
In a matter related to the Bishop Ranch Litigation, in October 1995, MCP,
for itself and derivatively for the BMIF Monterey Partnership, filed an action
against the BMIF 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
Monterey Corp., in its capacity as general partner of the BMIF Monterey
Partnership, executed and delivered to the agent for certain secured lenders,
which collectively had loaned $20.5 million to Banyan Mortgage Investment Fund,
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.
Motions by the defendants to stay the California Quiet Title Action in
favor of the Bishop Ranch Litigation were denied without prejudice in January
1996. The defendants subsequently filed demurrers, challenging the legal
sufficiency of the pleading. Those demurrers are pending. The parties have also
commenced certain pretrial discovery. On April 19, 1995, the parties to the
California Quiet Title Action entered into a stipulation pursuant to which the
claims asserted in that action will be litigated in the Bishop Ranch Litigation
if certain conditions are met, most notably that the trial of the case commenced
in September, 1996, and judgment is entered on or before December 2, 1996. If
those conditions are not met, the parties' stipulation provides that the
11
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
entire litigation, including the claims asserted in the Bishop Ranch Litigation,
will be transferred to and tried in the California Quiet Title Action. As noted
above in the Bishop Ranch Litigation, management believes that MCP has
meritorious claims in this matter, however, management is uncertain as to the
ultimate outcome of this litigation and the potential for, or amount of, any
recovery or other relief by Investors Liquidating Trust or MCP, if any.
12
<PAGE>
Item 2. Management's Discussion and Analysis
General
The registrant, VMTGZ Mortgage Investors L.P. II (the "Partnership"), is a
Delaware limited partnership that was organized on September 30, 1985 under the
name VMS Mortgage Investors L.P. II. In 1991, the Partnership changed its name
to Banyan Mortgage Investors L.P. II. In June 1995, the Partnership changed its
name 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").
In 1986, the Partnership sold 12,526,153 depositary units (the "Units"),
representing beneficial assignments of limited partnership interests, at $10 per
Unit, in a registered public offering under the Securities Act of 1933, as
amended. The offering yielded $124,281,863 in gross proceeds (net of volume dis
counts) to the Partnership. The Units were included for quotation on the
National Association of Securities Dealers Automated Quotations ("NASDAQ")
National Market System, and began trading on October 8, 1986. In August 1992,
the Partnership adopted a plan of liquidation. Following the initial liquidating
distribution under the plan, the Units were removed from the NASDAQ National
Market System on September 28, 1992 because the Partnership no longer satisfied
requirements for continued quotation in the NASDAQ National Market System. The
Units are presently traded over-the-counter, and are no longer quoted in the
NASDAQ system or reported in the trading section of any newspaper.
Business
The Partnership was established to make various types of real estate
investments through wraparound, first and junior mortgage loans principally to
VMS Realty Partners and its affiliates ("VMS"). In February 1990, VMS ceased
making payments on their mortgage loans due to liquidity problems, and the
Partnership ceased funding new mortgage loans and suspended all relationships
between the Partnership and VMS. Certain officers and directors of the General
Partner who were affiliated with VMS resigned, and the independent directors of
the General Partner assumed control of the Partnership. The independent
directors established a principal recovery plan and implemented its initial
steps to preserve and protect the Partnership's assets.
The Partnership's business plan has been based upon preserving and
maximizing the value of its remaining assets. In August 1992, the Partnership
adopted a plan of liquidation. In accordance with the plan, an initial
distribution in the amount of $1,941,557 ($0.155 per unit) was made in September
13
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
1992 to holders of Units ("Unitholders"). Upon disposition of the Partnership's
remaining non-cash assets and final resolution of various litigation affecting
the Partnership, 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 Unitholders. The General Partner does not
contemplate the making of any additional liquidating distributions until the
remaining non-cash assets have been disposed of and such litigation resolved.
In March 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, provided for the attempted sale by various VMS entities of their
assets in an orderly manner and the disposition of the proceeds of such sales to
the Partnership and such other creditors. In November 1993, the Partnership,
such other creditors and parties and various VMS entities executed a fifth
amendment to the Creditor Repayment Agreement. Pursuant to the fifth amendment,
on November 18 and December 28, 1993 the Partnership received certain
distributions of cash and a 3.46% beneficial interest in Partners Liquidating
Trust ("Partners Liquidating Trust"), a 9.1% beneficial interest in Chicago
Wheaton Liquidating Trust ("Chicago Wheaton Liquidating Trust"), and a 93%
beneficial interest in Investors Liquidating Trust ("Investors Liquidating
Trust"), each of which is a liquidating trust established for the benefit of
unsecured creditors of certain VMS entities pursuant to certain agreements and
declarations of trust dated as of November 17, 1993. Partners Liquidating Trust,
Chicago Wheaton Liquidating Trust and Investors Liquidating Trust are
collectively referred to as the "Liquidating Trusts". See "Liquidity and Capital
Resources" of this Part I, Item 2, Management's Discussion and Analysis, and
Note 2 of Notes to Financial Statements for additional descriptions of the
Liquidating Trusts and related matters.
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 President and
Chief Financial Officer of the General Partner. On September 16, 1994, the
General Partner received notice that its Senior Vice President of Finance and
Administration, its First Vice President and its Vice President and General
Counsel had 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 Note 3 of Notes
to Financial Statements for additional descriptions of the Levine Arbitration
and related matters.
14
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
Liquidity and Capital Resources
Cash and cash equivalents consist of cash and short-term investments. The
Partnership's cash and cash equivalents balance at March 31, 1996 and December
31, 1995 was $2,143,266 and $2,169,802, respectively. This decrease in cash and
cash equivalents is due primarily to the payment of the Partnership's operating
expenses, including litigation expenses incurred in connection with legal
proceedings affecting the Partnership in the first quarter of 1996. See Part II,
Item 1, Legal Proceedings, and Note 3 of Notes to Financial Statements. The
decrease in cash and cash equivalents is offset in part by interest income
earned on the Partnership's 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 distributions (if any) from Investors Liquidating Trust and
proceeds (if any) from the sale or other disposition of the Partnership's
beneficial interest in the trust. It is anticipated that, pending distributions
(if any) from Investors Liquidating Trust and proceeds (if any) from the sale or
other disposition of the Partnership's beneficial interest in the trust, cash
generated from interest earned on short-term investments may be less than the
Partnership's operating expenses during future periods. 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 March 31, 1996, the General Partner has a deficit capital balance
in the Partnership of $735,287. 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.
In December 1994, the Partnership accrued cash distributions of $182,085
(net of amounts due to certain third parties; see Note 2 of Notes to Financial
Statements) from Partners Liquidating Trust and Chicago Wheaton Liquidating
Trust, which amount was received in January 1995. In February 1995, the
Partnership received cash distributions of $259,700 (net of amounts due to such
third parties; see Note 2 of Notes to Financial Statements) from Partners
15
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
Liquidating Trust and Chicago Wheaton Liquidating Trust. In June 1995, the
Partnership sold its interest in Partners Liquidating Trust for $39,812 and, in
August 1995, its interest in Chicago Wheaton Liquidating Trust for $225,000. See
Note 2 of Notes to Financial Statements. The Partnership continues to monitor
the extent and timing of possible cash to be realized by and distributed from
Investors Liquidating Trust and how this may impact the liquidation of the
Partnership. The General Partner also continues its efforts to reduce the
ongoing operating expenses of the Partnership in order to maximize any further
net cash distributable to Unitholders.
For the three months ended March 31, 1996, the Partnership valued its
interest in Investors Liquidating Trusts at $1, which reflects its pro rata
share of cash assets of the Investors Liquidating Trust available for
distribution. The Partnership believes that the remaining assets in Investors
Liquidating 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 Part II, Item 1, Legal Proceedings, and Note
2 of Notes to Financial Statements for additional descriptions of the
Partnership's interest in Investors Liquidating Trust.
The Partnership's ultimate remaining distribution of cash to its
Unitholders is dependent upon, among other things: (I) the receipt of
distributions (if any) from the Investors Liquidating Trust resulting from
recoveries on remaining assets of the trust; (ii) the proceeds (if any) or the
sale or other disposition of the Partnership's interest in Investors Liquidating
Trust; (iii) the final resolution of the various litigation affecting the
Partnership (see Part II, Item 1, Legal Proceedings, and Note 3 of Notes to
Financial Statements for additional descriptions of such litigation and related
matters); and (iv) the Partnership's ability to control its operating and
liquidating expenses.
Results of Operations
Total income for the three months ended March 31, 1996 decreased to
$21,022 from $22,336 for the three months ended March 31, 1995. This decrease in
total income was due primarily to a decrease in the amount of cash and cash
equivalents held for investment by the Partnership and fluctuations in interest
rates.
Total expenses for the three months ended March 31, 1996 increased to
$279,476 from $35,883 for the three months ended March 31, 1995. The increase in
total expenses for the first quarter of 1996 when compared to the first quarter
of 1995 was due principally to a decrease in recoveries of losses on loans,
16
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
notes and interest receivable. During the quarter ended March 31, 1995, the
Partnership recorded a $260,245 recovery of losses on loans, notes and interest
receivable as a result of the $260,245 cash distributions to the Partnership
from Partners Liquidating Trust accrued and received in February 1995. There was
no similar recovery during the quarter ended March 31, 1996.
Other expenses decreased by $16,652 for the first quarter of 1996 from
the first quarter of 1995. This decrease was due primarily to the recording of
provisions aggregating $97,452 for arbitration and litigation with related
parties relating to the Levine Arbitration and the BMC Lawsuit in the first
quarter of 1995. See Part II, Item 1, Legal Proceedings, and Note 3 of Notes to
Financial Statements for additional descriptions of the BMC Lawsuit and related
matters. There were no similar provisions recorded in the first quarter of 1996.
This decrease was also due to decreases in unitholder expenses and general and
administrative expenses. Unitholder expenses decreased in the amount of $7,610.
General and administrative expenses decreased in the amount of $14,573. These
changes reflect continued efforts by the General Partner to control such
expenses.
These decreases were partially offset by increases in other professional
fees and in directors' fees, expenses and insurance. Other professional fees
increased in the amount of $94,318. Directors' fees, expenses and insurance
increased in the amount of $8,665. The increase in other professional fees is
principally attributable to activity in the BMC Lawsuit, the Bishop Ranch
Litigation and the California Quiet Title Action, including the prosecution and
defense of various pretrial motions and discovery. The increase in directors'
fees, expenses and insurance was due entirely to an increase in insurance
premiums for liability insurance coverage.
These changes resulted in a net loss in the amount of $258,454 ($0.021
per unit) for the three months ended March 31, 1996 compared to a net loss of
$13,547 (or $0.001 per unit) for the three months ended March 31, 1995.
Other Information
During the first three months of 1996, the Partnership had no operating
properties. The Partnership does not segregate revenue or assets by geographic
region, and such a presentation is not applicable and would not be significant
to an understanding of the Partnership's business taken as a whole.
17
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
The General Partner has one employee who serves as the sole executive and
financial officer of the General Partner. 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"), of which Mr. Levine is president, pursuant to the Administrative
Services Agreement (the "BMC Services Agreement"), dated as of February 27,
1994, between the Partnership and BMC. On October 27, 1994, the Partnership
terminated the BMC Services Agreement. See Part II, Item 1, Legal Proceedings,
and Note 3 of Notes to Financial Statements for additional descriptions of
transactions with BMC, including litigation arising from the termination of the
BMC Services Agreement.
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. Both BMC
and Mr. Levine have been named as defendants in a lawsuit brought by the
Partnership and VMLPZ Mortgage Investors L.P. I (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 Part
II, Item 1, Legal Proceedings, and Note 3 of Notes to Financial Statements for
additional descriptions of the BMC Lawsuit and related matters. Holding Corp.
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, the trustees are required to vote the Stock in the best
interest of the Unitholders.
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, or the timing or costs or proceeds of final resolution of the
various litigation affecting the Partnership, the General Partner is unable to
estimate the timing or amount of any final liquidating distribution to
Unitholders.
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
18
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
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. Such efforts led to the determination of
the General Partner to initiate the Bishop Ranch Litigation and the California
Quiet Title Action on behalf of the Partnership and Investors Liquidating Trust.
See Part II, Item 1, Legal Proceedings. Based upon such documents and
information obtained to date, it appears that at March 31, 1996 Investors
Liquidating Trust's assets were comprised principally of illiquid junior
interests in various partnerships that hold indirect interests in certain real
property developments controlled by Banyan Mortgage Investment Fund, and certain
other miscellaneous assets. Although, the General Partner's efforts to collect
documents and information regarding the assets of Investors Liquidating Trust
continues, at present the General Partner lacks sufficient information regarding
the value or collectibility of any of the assets of Investors Liquidating Trust
(including but not limited to the ultimate outcome of the Bishop Ranch
Litigation and the California Quiet Title Action). 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 the trust (including the timing or
proceeds of the Bishop Ranch Litigation or the California Quiet Title Action).
The Partnership continues to endeavor to realize on the assets in the trust
where it believes that it is prudent to do so.
19
<PAGE>
PART II
Item 1. Legal Proceedings
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. 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 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. 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 in November 1994 and denied certain of the material allegations
therein and asserted certain defenses. Mr. Levine answered the complaint in
January 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 seeks 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 is unable to predict the ultimate outcome of the
BMC Lawsuit. At March 31, 1996, the Partnership has a reserve established in the
aggregate amount of $7,452 for the BMC Lawsuit. See Part II, Item 1, Legal
Proceedings, and Note 3 of Notes to Financial Statements for additional
descriptions of the BMC Lawsuit and related matters.
The Bishop Ranch Litigation
In September 1995, the Partnership, for itself and as trustee of
Investors Liquidating Trust, together with Monterey County Partners ("MCP"),
commenced litigation against BMIF Monterey County Limited Partnership (the "BMIF
Monterey Partnership") and BMIF Monterey County Corp. ("BMIF Monterey Corp."),
which is the general partner of the BMIF Monterey Partnership, in the Circuit
20
<PAGE>
Item 1. Legal Proceedings (continued)
Court of Cook County, Illinois, County Department, Chancery Division (the
"Bishop Ranch Litigation"). It is the position of Investors Liquidating Trust
that it indirectly owns a substantial economic interest in the BMIF Monterey
Partnership through its indirect interest in MCP, which is the limited partner
in the BMIF Monterey Partnership. BMIF Monterey Corp., which is a subsidiary of
Banyan Mortgage Investment Fund, is the general partner of the BMIF Monterey
Partnership. The BMIF Monterey Partnership owns an approximately 565-acre
residential development project in Monterey County, California known as Bishop
Ranch.
In the Bishop Ranch Litigation, MCP seeks the judicial removal of BMIF
Monterey Corp. as general partner of the BMIF Monterey Partnership and the
appointment of another suitable person as successor general partner to manage
the affairs of the BMIF Monterey Partnership. MCP also requests the court to
enter a declaratory judgment to the effect that BMIF Monterey Corp. is not
entitled to any "Priority Return" or "Preferred Return" (i.e., interest) on any
portion of its capital account in the BMIF 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 BMIF Monterey Partnership of not less than $4.8 million and to declare set
aside any "Priority Return" or "Preferred Return" claimed by BMIF Monterey Corp.
MCP also seeks a court-ordered accounting by BMIF Monterey Corp. with respect to
its management of the affairs of the BMIF Monterey Partnership and the
imposition of a constructive trust equitable liens upon BMIF Monterey Corp., for
the benefit of the BMIF Monterey Partnership, over and upon all of the books,
records, properties and funds of the BMIF Monterey Partnership. In February
1996, the court determined that certain claims which the Partnership, for itself
and as trustee of Investors Liquidating Trust, had asserted against BMC and
Leonard G. Levine for breach of fiduciary duty in the Bishop Ranch Litigation
were subsumed in the BMC Lawsuit, and dismissed those claims from the Bishop
Ranch Litigation.
The parties have commenced certain pretrial discovery in the Bishop Ranch
Litigation. The General Partner believes that the Partnership has meritorious
claims in this matter, however, the General Partner is uncertain as to the
ultimate outcome of this litigation and the potential for, or amount of, any
recovery by Investors Liquidating Trust or the Partnership.
The California Quiet Title Action
In a matter related to the Bishop Ranch Litigation, in October 1995, MCP,
for itself and derivatively for the BMIF Monterey Partnership, filed an action
against the BMIF Monterey Partnership and its mortgagees in the Monterey County,
21
<PAGE>
Item 1. Legal Proceedings (continued)
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
Monterey Corp., in its capacity as general partner of the BMIF Monterey
Partnership, executed and delivered to the agent for certain secured lenders,
which collectively had loaned $20.5 million to Banyan Mortgage Investment Fund,
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.
The parties have filed certain pretrial motions and demurrers, and
commenced certain pretrial discovery. On April 19, 1995, the parties to the
California Quiet Title Action entered into a stipulation pursuant to which the
claims asserted in that action will be litigated in the Bishop Ranch Litigation
if certain conditions are met, most notably that the trial of the case commenced
in September, 1996, and judgment is entered on or before December 2, 1996. If
those conditions are not met, the parties' stipulation provides that the entire
litigation, including the claims asserted in the Bishop Ranch Litigation, will
be transferred to and tried in the California Quiet Title Action. The General
Partner believes that MCP has meritorious claims in this matter, however, the
General Partner is uncertain as to the ultimate outcome of this litigation and
the potential for, or amount of, any recovery or other relief by Investors
Liquidating Trust or MCP.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Report:
Exhibit 27.1 Financial Data Schedule (EDGAR Filer)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1996.
22
<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: May 8, 1996
-----------------------------
Philip H. Brady, President
and Chief Financial and
Accounting Officer
23
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 25
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,143,266
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,188,042
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,188,042
<CURRENT-LIABILITIES> 509,041
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,679,001
<TOTAL-LIABILITY-AND-EQUITY> 2,188,042
<SALES> 0
<TOTAL-REVENUES> 21,022
<CGS> 0
<TOTAL-COSTS> 279,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (258,454)
<INCOME-TAX> 0
<INCOME-CONTINUING> (258,454)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (258,454)
<EPS-PRIMARY> ($0.021)
<EPS-DILUTED> ($0.021)
</TABLE>
