UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
(f/k/a BANYAN MORTGAGE INVESTORS L.P. II)
(Exact name of small business issuer as specified in its charter)
Delaware 36-3365708
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o KPMG Peat Marwick LLP,
99 High Street, Boston, Massachusetts 02110-2371
(Address of principal executive offices)
(617) 338-2925
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Depositary units outstanding as of November 7, 1996: 12,524,931
Transitional Small Business Disclosure Format: Yes No X
The accompanying notes are an integral part of these financial
statements.
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Balance Sheets
September 30, 1996 and December 31, 1995
(Unaudited)
ASSETS 1996 1995
-------- --------
Cash and Cash Equivalents $ 1,320,132 $ 2,169,802
Investment in Liquidating Trust 1 1
Prepaid Insurance 19,479 84,250
Other Assets - 6,837
----------- -----------
Total Assets $ 1,339,612 $ 2,260,890
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 224,739 $ 323,435
----------- -----------
Total Liabilities 224,739 323,435
----------- -----------
Partners' Capital
Partners Capital (12,526,153 Depositary
Units Outstanding) 1,115,064 1,937,646
Treasury Units, at Cost, for 1,222
Depositary Units (191) (191)
------------ -----------
Total Partners' Capital 1,114,873 1,937,455
------------- ------------
Total Liabilities and Partners' Capital $ 1,339,612 $ 2,260,890
============= ============
Book Value Per Unit (12,524,931
Depositary Units Outstanding) $ 0.089 $ 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 Nine Months Ended September 30, 1996 and 1995
1996 1995
-------- --------
INCOME
Interest Income $ 62,378 $ 84,715
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable - (524,512)
Other Expenses:
Unitholder Expenses 104,396 80,956
Directors' Fees, Expenses and 139,817 153,268
Insurance
Other Professional Fees 516,039 165,916
General and Administrative 124,708 107,376
Settlement Costs for Arbitration and
Litigation With Related Parties - 97,452
----------- -----------
Total Other Expenses 884,960 604,968
Total Expenses 884,960 80,456
----------- -----------
Net Income (Loss) $ (822,582) 4,259
=========== ===========
Net Income (Loss) Allocated to General
Partner (1%) $ (8,226) 43
============ ===========
Net Income (Loss) Allocated to
Unitholders (99%) $ (814,356) 4,216
=========== ===========
Net Income (Loss) Per Unit (Weighted
Average Number of Depositary Units
Outstanding 12,524,931) $ (0.066) $ 0.000
============ ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Income and Expenses
for the Three Months Ended September 30, 1996 and 1995
1996 1995
-------- --------
INCOME
Interest Income $ 16,402 $ 29,163
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable - (224,455)
Other Expenses:
Unitholder Expenses 37,878 33,594
Directors Fees, Expenses and Insurance 36,859 56,532
Other Professional Fees 189,254 45,307
General and Administrative 45,905 29,948
----------- -----------
Total Other Expenses 309,896 165,381
Total (Recoveries) Expenses 309,896 (59,074)
------------ ------------
Net Income (Loss) $ (293,494) $ 88,237
============ ============
Net Income (Loss) Allocated to General
Partner (1%) $ (2,935) $ 882
============ ============
Net Income (Loss) Allocated to Unitholders
(99%) $ (290,559) $ 87,355
============ ============
Net Income (Loss) Per Unit (Weighted
Average Number of Depositary Units
Outstanding 12,524,931) $ (0.023) $ 0.007
============ =============
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Partners' Capital
for the Nine Months Ended September 30, 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) (8,226) (814,356) - (822,582)
---------- ----------- --------
Partners' Capital
(Deficit),
September 30, 1996 $(740,928) $ 1,855,992 $ (191) $ 1,114,873
========= =========== ======== ===========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Statements of Cash Flows
for the Nine Months Ended September 30, 1996 and 1995
(Unaudited)
1996 1995
----------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (822,582) $ 4,259
Adjustments to Reconcile Net Income (Loss)
to Net Cash Used In Operating Activities:
Provision for Arbitration and Litigation
with Related Parties
Net Change In:
Receivable from Investment in Liquidating - 196,616
Trust
State Income Tax Refund Receivable - 35,483
Prepaid Insurance 64,771 (52,233)
Other Assets 6,837 19,338
Accounts Payable and Accrued Expenses (98,696) (152,471)
Distribution from Liquidating Trust
Payable to Settling Class - (57,419)
----------- ------------
Net Cash Provided by (Used in) Operating
Activities (849,670) (6,427)
Net Increase (Decrease) in Cash and Cash
Equivalents (849,670) (6,427)
Cash and Cash Equivalents at Beginning of
Period 2,169,802 2,241,059
----------- -----------
Cash and Cash Equivalents at End of Period $ 1,320,132 $ 2,234,632
=========== ===========
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 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.
7
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 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.
The Partnership records its investment in 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 September 30, 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.
During the nine months ended September 30, 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 the nine months ended
September 30, 1995, the Partnership sold its beneficial interests in Partners
Liquidating Trust and Chicago Wheaton Liquidating Trust to third parties for
$39,812 and $225,000, respectively. No such distributions were declared by or
received from Investors Liquidating Trust during the nine months ended
September 30, 1996.
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.
8
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 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 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
9
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 1996
(Unaudited)
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 the
Circuit Court of Cook County, Illinois, County Department, Chancery Division
(the "Illinois Court"). 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 Illinois Court ordered BMC to make the books and
records of the Partnership available for copying by the Partnership. In
addition, the Illinois 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 and, on September 22, 1996, the parties to the BMC Lawsuit
entered into a verbal, non-binding agreement in principle to settle the BMC
Lawsuit. If the parties are successful in consummating a settlement in
accordance with that non-binding agreement in principle, the Partnership will
pay $7,452.35 to BMC in settlement of BMC's counterclaim (which amount has
been fully reserved) and will forgive an account receivable due from BMC in
the amount of $836. In addition, the BMC Lawsuit will be dismissed with
prejudice and the parties will exchange general releases of all claims,
including the claims which the Partnership asserted against Mr. Levine in the
Bishop Ranch Litigation (see below), and BMC will return all of the
10
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 1996
(Unaudited)
Partnership's original books, records and files to it. Although the
Partnership is proceeding with the documentation of the non-binding agreement
in principle, there can be no assurance that a final settlement will be
consummated.
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 in the Illinois Court 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 (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 or
Laguna Seca East Ranch.
In the Bishop Ranch Litigation, MCP sought 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 requested the court to grant relief
under the Illinois and California Uniform Fraudulent Transfer Acts 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
11
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 1996
(Unaudited)
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 Partnership and MCP have subsequently amended their complaint
to assert claims against Banyan Mortgage Investment Fund (the "Banyan Fund"),
the parent corporation of BMIF Monterey Corp., various entities
(collectively, the "Lenders") who loaned $20.5 to Banyan Fund in 1994 and who
obtained collateral security in the form of a deed of trust (i.e., mortgage)
on the Bishop Ranch property, and against RGI Holdings, Inc. ("RGI"), which
has purchased the loan and security interest.
The parties have conducted various pre-trial discovery in the
Bishop Ranch Litigation and the case is currently scheduled for trial in
January of 1997. On November 12, 1996, the Illinois Court allowed certain
motions filed by the defendants, including a motion to dismiss the claims
under the Illinois and California Uniform Fraudulent Transfer Acts and
portions of a motion to dismiss certain of the claims against the Banyan
Fund, the Lenders and RGI, and ordered the dissolution of the BMIF Monterey
Partnership. Management is currently evaluating the effects of the Illinois
Court's recent rulings and the Partnerships' options in the Bishop Ranch
Litigation. Although management believes the Partnership has meritorious
claims in this matter, 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
12
<PAGE>
VMTGZ Mortgage Investors L.P. II
(A Limited Partnership)
Notes to Financial Statements
September 30, 1996
(Unaudited)
capacity as general partner of the BMIF Monterey Partnership, executed and
delivered to the agent for the Lenders, as collateral security for the 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 conducted pre-trial discovery and have agreed, subject to certain
conditions, to consolidate the California Quiet Title Action with and into
the Bishop Ranch Litigation. 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.
13
<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 discounts) to the Partnership. The Units were
included for quo tation 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
14
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
of $1,941,557 ($0.155 per unit) was made in September 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
15
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
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.
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 3 of Notes to Financial Statements for additional descriptions of
the BMC Lawsuit and related matters.
Liquidity and Capital Resources
Cash and cash equivalents consist of cash and short-term
investments. The Partnership's cash and cash equivalents balance at September
30, 1996 and December 31, 1995 was $1,320,132 and $2,169,802, respectively.
This decrease of $849,670 in cash and cash equivalents is due primarily to
payment of the Partnership's operating expenses, including litigation
expenses incurred in connection with legal proceedings affecting the
Partnership during the nine months ended September 30, 1996 and the premium
for directors and officers liability insurance purchased by the Partnership.
See Part II, Item 1, Legal Proceedings, and Note 3 of Notes to Financial
Statements. The decrease in cash and cash equivalents due to the payment of
the Partnership's operating expenses and litigation expenses was 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, 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
this cash generated may be
16
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
less than the Partnership's operating expenses during the remaining period of
liquidation. A portion of the Partnership's cash will be used to meet any
shortfall. The General Partner believes that the Partnership's cash and cash
equivalents, together with interest earned on short-term investments, will be
sufficient to meet the Partnership's reasonably anticipated cash needs for
the foreseeable future.
As of September 30, 1996, the General Partner has a deficit
capital balance in the Partnership of $740,928. 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 $139,197 (net of amounts due to certain settling plaintiff class members
under a settlement agreement entered into on September 25, 1991 by the
Partnership) from Partners Liquidating Trust and $42,888 from Chicago Wheaton
Liquidating Trust. Such amounts were recorded as recoveries of losses on
loans, notes and interest receivable in 1994 and were received in January
1995. Since December 31, 1994, the Partnership has accrued additional cash
distributions of $190,610 (net of amounts due to such settling plaintiff
class members under such settlement agreement) from Partners Liquidating
Trust and $69,635 from Chicago Wheaton Liquidating Trust, which amounts were
received in February 1995. In June 1995, the Partnership sold its beneficial
interest in Partners Liquidating Trust for $39,812; and in August 1995, the
Partnership sold its beneficial interest in Chicago Wheaton Liquidating Trust
for $225,000. See Other Information of Management's Discussion and Analysis,
and Note 2 of Notes to Financial Statements. The Partnership continues to
monitor the extent and timing of possible cash to be received from Investors
Liquidating Trust and how this may impact the liquidation of the Partnership.
At the end of the third quarter of 1996, the Partnership
valued its interest in Investors Liquidating Trust at $1, which reflects its
pro rata share of cash assets of the trust available for distribution. The
Partnership believes that the remaining assets in the trust may have some
value. However, those assets are not accorded any carrying value due to the
substantial uncertainties regarding the timing and amount of potential
recoveries. See Other Information under this Part I, Item 2, Management's
Discussion and Analysis, Part II, Item 1, Legal Proceedings, and Notes 2 and
3 of Notes to Financial Statements for additional descriptions of the
Partnership's interest in Investors Liquidating Trust and the Bishop Ranch
Litigation.
17
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
The Partnership's ultimate remaining return of cash to its
unitholders is dependent upon, among other things: (i) the receipt of
distributions (if any) from Investors Liquidating Trust resulting from
recoveries on remaining assets of the trust; (ii) 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
to Notes to Financial Statements) and (iv) the Partnership's ability to
control its operating and liquidating expenses.
Results of Operations
Total income for the nine months ended September 30, 1996
decreased to $62,378 from $84,715 for the nine months ended September 30,
1995. This decrease was due primarily to the decrease in the average amount
of cash and cash equivalents held for investment by the Partnership.
Total expenses for the nine months ended September 30, 1996
increased to $884,960 from $80,456 for the nine months ended September 30,
1995. The increase in total expenses for the nine months ended September 30,
1996 when compared to the nine months ended September 30, 1995 was due
principally to a decrease in recoveries of losses on loans, notes and
interest receivable, and an increase in other professional fees due primarily
to the litigation expenses incurred in connection with the legal proceedings
affecting the Partnership. See Part II, Item 1, Legal Proceedings and Note 3
of Notes to Financial Statements. During the nine months ended September 30,
1995, the Partnership recorded a $524,512 in aggregate recoveries of losses
on loans, notes and interest receivable as a result of the $260,245 cash
distributions to the Partnership from the Liquidating Trusts accrued and
received in February 1995; a recovery of $39,812 in connection with the sale
of the Partnership's beneficial interest in Partners Liquidating Trust in
June 1995 and a recovery of $224,455 in connection with the sale of the
Partnership's beneficial interest in Chicago Wheaton Liquidating Trust. These
recoveries of $524,512 in the nine months ended September 30, 1995 compared
to no recovery of losses on loans, notes and interest receivable recorded
during the nine moths ended September 30, 1996.
Other expenses increased to $884,960 for the nine months ended
September 30, 1996 from $604,968 for the nine months ended September 30,
1995. This increase was due primarily to an increase in other professional
fees to $516,039 during the nine months ended September 30, 1996 from
$165,916 for the nine months ended September 30, 1995, including the
prosecution and defense
18
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
of various pretrial motions and discovery. See Part II, Item 1, Legal
Proceedings, and Note 3 of Notes to Financial Statements. General and
administrative expenses also increased in the amount of $17,332, principally
due to travel and other expenses incurred in connection with attendance at
hearings and depositions in legal proceedings. Unitholder expenses increased
in the amount of $23,440, principally reflecting increased printing and
mailing costs to the Partnership in connection with its reporting under
federal securities laws and tax laws to Unitholders. These increases were
offset in part by decreases in directors' fees, expenses and insurance and
settlement costs for arbitration and litigation with related parties.
Directors' fees, expenses and insurance declined in the amount of $13,451.
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. Settlement costs decreased in
the amount of $97,452. The decrease in settlement costs reflects the absence
of any such recorded costs in the nine months ended September 30, 1996
compared to settlement costs of $97,452 recorded in the nine months ended
September 30, 1995 in connection with the Levine Arbitration and the BMC
Lawsuit. See Part II, Item 1, Legal Proceedings, and Note 3 of Notes to
Financial Statements.
These changes resulted in a decrease in net income for the
nine months ended September 30, 1996 to ($822,582) ($0.066 per unit) from
$4,259 ($0.000 per unit) for the nine months ended September 30, 1995.
Total income for the three months ended September 30, 1996
decreased to $16,402 from $29,163 for the three months ended September 30,
1995. This decrease in total income was due primarily to a decrease in the
average amount of cash and cash equivalents held for investment by the
Partnership.
Total expenses for the three months ended September 30, 1996
increased to $309,896 from ($59,074) for the three months ended September 30,
1995. The increase in total expenses for the three months ended September 30,
1996 when compared to the three months ended September 30, 1995 was due
principally to a decrease in recoveries of losses on loans, notes and
interest receivable, and an increase in other professional fees due primarily
to the litigation expenses incurred in connection with the legal proceedings
affecting the Partnership. See Part II, Item 1, Legal Proceedings and Note 3
of Notes to Financial Statements. During the three months ended September 30,
1995, the Partnership recorded a $224,455 in aggregate recoveries of losses
on loans, notes and interest receivable as a result of the sale of the
Partnership's beneficial interest in Chicago Wheaton Liquidating
19
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
Trust. This recovery of $224,455 in the three months ended September 30, 1995
compared to no recovery of losses on loans, notes and interest receivable
recorded during the third quarter of 1996.
Other expenses increased to $309,896 for the three months
ended September 30, 1996 from $165,381 for the three months ended September
30, 1995. This increase was due primarily to an increase in other
professional fees to $189,254 during the third quarter of 1996 from $45,307
during the third quarter of 1995, including the prosecution and defense of
various pretrial motions and discovery See Part II, Item 1, Legal
Proceedings, and Note 3 of Notes to Financial Statements. General and
administrative expenses also increased in the amount of $15,957, principally
due to travel and other expenses incurred in connection with attendance at
hearings and depositions in legal proceedings. Unitholder expenses increased
in the amount of $4,284, principally reflecting increased printing and
mailing costs to the Partnership in connection with its reporting under
federal securities laws and tax laws to Unitholders. These increases were
offset in part by decreases in directors' fees, expenses and insurance.
Directors' fees, expenses and insurance declined in the amount of $19,673.
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.
These changes resulted in a decrease in net income for the
three months ended September 30, 1996 to ($293,494) ($0.023 per unit) from
$88,237 ($0.007 per unit) for the three months ended September 30, 1995.
Other Information
During the first nine 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.
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
20
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
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 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
21
<PAGE>
Item 2. Management's Discussion and Analysis (continued)
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 September 30,
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.
22
<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, on November 9,
1994 the Partnership, together with VMLPZ Mortgage Investors L.P., commenced
litigation (the "BMC Lawsuit") against BMC and Leonard G. Levine in the
Circuit Court of Cook County, Illinois, County Department, Chancery Division
(the "Illinois Court").
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 Illinois Court ordered BMC to make the books and
records of the Partnership available for copying. In addition, the Illinois
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 September 30, 1996, the Partnership has a reserve
established in the aggregate amount of $7,452 for the BMC Lawsuit; however,
on September 22, 1996, the parties to the BMC Lawsuit entered into a verbal,
non-binding agreement in principle to settle the BMC Lawsuit. If the parties
are successful in consummating a settlement in accordance with that
non-binding agreement in principle, the Partnership will pay $7,452.35 to BMC
in settlement of BMC's counterclaim (which amount has been fully reserved)
and will forgive an account receivable due from BMC in the amount of $836. In
addition, the BMC Lawsuit will be dismissed with prejudice and the parties
will exchange general releases of all claims, including the claims
23
<PAGE>
Item 1. Legal Proceedings (continued)
which the Partnership asserted against Mr. Levine in the Bishop Ranch
Litigation (see below) and BMC will return all of the Partnership's original
books, records and files to it. Although the Partnership is proceeding with
the documentation of the non-binding agreement in principle, there can be no
assurance that a final settlement will be consummated. See 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 Illinois Court (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 or
Laguna Seca East Ranch.
In the Bishop Ranch Litigation, MCP sought 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 requested the court to grant relief under the
Illinois and California Uniform Fraudulent Transfer Acts 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
24
<PAGE>
Item 1. Legal Proceedings (continued)
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 Partnership and MCP have
subsequently amended their complaint to assert claims against Banyan Mortgage
Investment Fund (the "Banyan Fund"), the parent corporation of BMIF Monterey
Corp., various entities (collectively, the "Lenders") who loaned $20.5 to
Banyan Fund in 1994 and who obtained collateral security in the form of a
deed of trust (i.e., mortgage) on the Bishop Ranch property, and against RGI
Holdings, Inc. ("RGI"), which has purchased the loan and security interest.
The parties have conducted various pretrial discovery in the
Bishop Ranch Litigation. and the case is currently scheduled for trial in
January of 1997. On November 12, 1996, the Illinois Court allowed certain
motions filed by the defendants, including a motion to dismiss the claims
under the Illinois and California Uniform Fraudulent Transfer Acts and
portions of a motion to dismiss certain of the claims against the Banyan
Fund, the Lenders and RGI, and ordered dissolution of the BMIF Monterey
Partnership. Management is currently evaluating the effects of the Illinois
Court's recent rulings and the Partnership's options in the Bishop Ranch
Litigation. Although management believes the Partnership has meritorious
claims in this matter, 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, 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.
25
<PAGE>
Item 1. Legal Proceedigns (continued)
The parties have filed certain pretrial motions and demurrers,
and conducted various pretrial discovery. The parties to the California Quiet
Title Action have agreed, subject to certain conditions, to consolidate the
California Quiet Title Action with and into in the Bishop Ranch Litigation.
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
September 30, 1996.
26
<PAGE>
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
VMTGZ MORTGAGE INVESTORS L.P. II
By: VMTGZ Mortgage Investors II, Inc.
its General Partner
By: /s/Philip H. Brady, Jr. Date: November 14, 1996
---------------------------
Philip H. Brady, Jr.,
President and Chief
Financial and Accounting
Officer
27
<PAGE>
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 29
28
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF VMTGZ MORTGAGE INVESTORS L.P. II AS AT AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,320,132
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,339,612
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,339,612
<CURRENT-LIABILITIES> 224,739
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,114,873
<TOTAL-LIABILITY-AND-EQUITY> 1,339,612
<SALES> 0
<TOTAL-REVENUES> 62,378
<CGS> 0
<TOTAL-COSTS> 884,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (822,582)
<INCOME-TAX> 0
<INCOME-CONTINUING> (822,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (822,582)
<EPS-PRIMARY> (0.066)
<EPS-DILUTED> (0.066)
</TABLE>
