SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) 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 0-16886
Banyan Strategic Land Fund II
(Exact name of Registrant as specified in its charter)
Delaware 36-3465422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 553-9800
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 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 .
Shares of common stock outstanding as of August 9, 1995: 9,936,421.
Transitional Small Business Disclosure Format: YES . NO X .
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
1995 1994
ASSETS
Cash and Cash Equivalents $ 2,375,652 $ 290,366
Interest Receivable on
Investments 53,210 ---
Interest Receivable on
Loans 39,136 26,357
------------ ------------
2,467,998 316,723
------------ ------------
Loans Receivable 785,000 801,000
Foreclosed Real Estate
Held for Sale, Net 16,108,702 37,809,395
Investment in Real Estate
Venture 7,131,809 7,093,058
Other Assets 615,129 476,898
------------ ------------
Total Assets $ 27,108,638 $ 46,497,074
============ ============
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities
Accounts Payable and
Accrued Expenses $ 552,151 $ 955,825
Accrued Real Estate Taxes 63,206 170,769
Liabilities Assumed at
Foreclosure of Real
Estate 189,465 456,186
Due to Affiliates --- 730,229
------------ ------------
Total Liabilities 804,822 2,313,009
------------ ------------
Stockholders' Equity
Shares of Common Stock,
$0.01 Par Value,
50,000,000 Authorized,
19,266,268 and 19,283,696
Shares Issued, 170,927,133 170,946,739
respectively
Accumulated Deficit (128,769,110) (126,735,037)
Treasury Stock at cost,
9,329,847 and 20,100
Shares, respectively (15,854,207) (27,637)
------------ ------------
Total Stockholders' Equity 26,303,816 44,184,065
------------ ------------
Total Liabilities and
Stockholders' Equity $ 27,108,638 $ 46,497,074
============ ============
Book Value Per Share of
Common Stock (9,936,421
and 19,263,596 Shares $ 2.65 $ 2.29
Outstanding, respectively) ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
INCOME 1995 1994
Income From Lending and
Investing Activities:
Interest on Loans $ 10,882 $ 40,556
Income on Investments 243,379 25,385
----------- ------------
Total Income From Lending and
Investing Activities 254,261 65,941
----------- ------------
EXPENSES
Expenses From Property Operating
Activities:
Interest on Advances From
Affiliates 17,712 138,932
Net Loss From Disposition of
Foreclosed Real Estate Held
for Sale, Net 39,846 ---
Net Loss From Operations of
Foreclosed Real Estate Held
for Sale 913,215 1,442,624
Net Loss From Operations of
Real Estate Venture 59,933 107,681
----------- ------------
Total Expenses From Property
Operating Activities 1,030,706 1,689,237
----------- ------------
Other Expenses:
Stockholder Expenses 95,301 143,467
Directors' Fees, Expenses and
Insurance 235,560 253,395
Other Professional Fees 366,262 204,662
General and Administrative 583,782 473,448
Recovery of Losses on Loans,
Notes, Interest Receivable
and Class Action Settlement
Costs and Expenses (23,277) (242,603)
----------- ------------
Total Other Expenses 1,257,628 832,369
----------- ------------
Total Expenses 2,288,334 2,521,606
----------- ------------
Net Loss $(2,034,073) $ (2,455,665)
=========== ============
Net Loss Per Share of Common
Stock (Based on the Weighted
Average Number of Shares
Outstanding of 18,022,992
and 19,252,171, respectively) $ (0.11) $ (0.13)
=========== ============
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
INCOME 1995 1994
Income From Lending and
Investing Activities:
Interest on Loans $ 6,996 $ 16,086
Income on Investments 203,858 10,410
----------- ------------
Total Income From Lending and
Investing Activities 210,854 26,496
----------- ------------
EXPENSES
Expenses From Property Operating
Activities:
Interest on Advances From
Affiliates --- 72,179
Net Loss From Disposition of
Foreclosed Real Estate Held
for Sale, Net 39,846 ---
Net Loss From Operations of
Foreclosed Real Estate Held
for Sale 430,052 739,216
Net Loss From Operations of
Real Estate Venture 33,685 66,822
----------- ------------
Total Expenses From Property
Operating Activities 503,583 878,217
----------- ------------
Other Expenses:
Stockholder Expenses 55,971 71,909
Directors' Fees, Expenses and
Insurance 112,883 134,182
Other Professional Fees 52,060 84,970
General and Administrative 248,151 239,784
----------- ------------
Total Other Expenses 469,065 530,845
----------- ------------
Total Expenses 972,648 1,409,062
----------- ------------
Net Loss $ (761,794) $ (1,382,566)
=========== ============
Net Loss Per Share of Common
Stock (Based on the Weighted
Average Number of Shares
Outstanding of 16,796,021
and 19,258,174, respectively) $ (0.05) $ (0.07)
=========== ============
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity,
December 31,
1994 19,283,696 $170,946,739 $(126,735,037) $ (27,637) $44,184,065
Elimination
of Award
Shares Issued (17,428) (19,606) --- --- (19,606)
Acquisition
of 9,309,747
Shares of
Treasury
Stock, at
Cost --- --- --- (15,826,570) (15,826,570)
Net Loss --- --- (2,034,073) --- (2,034,073)
----------- ------------ ------------ ------------ ------------
Stockholders'
Equity,
June 30, 1995 19,266,268 $170,927,133 $(128,769,110) $(15,854,207) $26,303,816
=========== ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS $ (2,034,073) $(2,455,665)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Net Loss From Disposition of
Foreclosed Real Estate Held
for Sale, Net 39,846 ---
Recovery of Losses on Loans,
Notes and Interest Receivable
and Class Action Settlement (23,277) (242,603)
Costs and Expenses
Net Loss From Operations
of Real Estate Venture 59,933 107,681
Net Change In:
Interest Receivable on
Investments (53,210) 48,215
Interest Receivable on Loans (12,779) (36,531)
Other Assets (138,231) (123,602)
Accounts Payable and Accrued
Expenses (403,674) 154,476
Accrued Real Estate Taxes (107,563) (300,865)
----------- -----------
Net Cash Used In Operating
Activities (2,673,028) (2,848,894)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of Investment
Securities, Net --- (314,475)
Proceeds from the Sale of
Foreclosed Real Estate
Held for Sale 21,700,202 ---
Recovery of Losses on Loans,
Notes and Interest
Receivable and Class Action
Settlement Costs and
Expenses 23,277 242,603
Collection of (Investment
in) Loans Receivable, Net 16,000 (129,656)
Forfeited Proceeds from Sales
Contracts 43,824 115,568
Payment of Liabilities Assumed
at Sale of Foreclosed Real
Estate Held for Sale (262,201) ---
Investments in Real Estate
Venture (98,684) (106,687)
(Payment to) Due to Affiliate (730,229) 311,478
Cash Received Upon Loan Fore-
closure of Real Estate, Net --- 900,000
Payment of Liabilities Assumed
at Foreclosure of Real Estate (87,699) (174,019)
----------- -----------
Net Cash Provided By Investing
Activities 20,604,490 844,812
----------- -----------
Cash Flows From Financing
Activities:
(Elimination of) Issuance
of Shares of Common Stock (19,606) 19,606
Acquisition of Treasury Shares (15,826,570) ---
----------- -----------
Net Cash (Used In) Provided By
Financing Activities (15,846,176) 19,606
----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 2,085,286 (1,984,476)
Cash and Cash Equivalents at
Beginning of Period 290,366 2,013,948
----------- -----------
Cash and Cash Equivalents at
End of Period $ 2,375,652 $ 29,472
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN STRATEGIC LAND FUND II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
Readers of this quarterly report should refer to Banyan Strategic
Land Fund II's (the "Fund's") audited consolidated financial statements
for the year ended December 31, 1994, which are included in the Fund's
1994 Annual Report and Form 10-KSB, certain footnote disclosures which
would substantially duplicate those contained in such audited statements
have been omitted from this report.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Fund and its wholly-owned subsidiaries and consolidated
venture which hold title to the Fund's properties. All intercompany
balances and transactions have been eliminated in consolidation. The
Fund's 47% interest in the H Street Assemblage is accounted for on the
equity method as an investment in real estate joint venture.
FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the previously
reported 1994 financial statements in order to provide comparability
with the 1995 consolidated financial statements. These
reclassifications have not changed the 1994 operating results. In the
opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying consolidated financial statements as
of June 30, 1995 and for the three and six months ended June 30, 1995
and 1994. These adjustments made to the financial statements, as
presented, are all of a normal recurring nature to the Fund.
2. RECOVERY OF LOSSES ON LOANS, NOTES AND INTEREST RECEIVABLE AND
CLASS ACTION SETTLEMENT COSTS AND EXPENSES
On February 9, 1995, the Fund received a cash distribution of
$23,277 related to its interest in a liquidating trust established for
the benefit of the unsecured creditors of VMS Realty Partners and its
affiliates ("VMS"). During the quarter ended March 31, 1995, the Fund
recorded a $23,277 recovery of losses on mortgage loans, notes and
interest receivable on its consolidated statement of income and expenses
related to the distribution received from the liquidating trust.
On January 25, 1994, the Fund received net proceeds of $242,603
relating to a recovery of payments previously made into an escrow
established as part of the 1992 class action settlement of the VMS
securities litigation. The escrow was established to provide the
directors of the Fund with monies to fund the cost of any litigation in
which they were named as defendants following settlement of the class
action. Subsequently, the directors have released the proceeds from the
escrow and the Fund has purchased an insurance policy to cover the
directors.
3. FORECLOSED REAL ESTATE HELD FOR SALE
RANCHO MALIBU
Rancho Malibu is a 274-acre parcel of undeveloped land north of
Malibu, California. On July 1, 1992, a joint venture (the "Venture")
between the Fund and Banyan Mortgage Investment Fund ("BMIF"), acquired
title to the property pursuant to a deed in lieu of foreclosure
agreement. The Fund owns a 98.6% general partner interest in the
Venture while BMIF holds the remaining 1.4% as a limited partner. The
Venture is consolidated in the accompanying financial statements.
From the acquisition date, the Venture has engaged in zoning and
entitlement activities which have been opposed by the City of Malibu.
The city initiated two separate legal actions intended to preclude the
issuance of a Coastal Development Permit, the most recent of which has
been decided in favor of the Venture and as to which the City of Malibu
is appealing. The parties to the appeal have filed briefs and are
awaiting the scheduling of oral arguments.
Concurrent with the aforementioned appeal, the Venture is pursuing
entitlements before the County of Los Angeles. On May 30, 1995, the Los
Angeles County Regional Planning Commission, in a 3 to 2 vote, gave
preliminary approval to a revised plan to develop a fifty-one unit
housing community on the Rancho Malibu property. Formal findings have
been drafted and will be presented to the Commissioners for approval at
a later meeting as soon as the matter is placed by the Commission on the
Commissioners' agenda. Once the findings are approved, the approval
will be final unless appealed to the Los Angeles County Board of
Supervisors. If appealed, no permit can be obtained and no development
activities can commence until the Board of Supervisors acts.
Development of the property is also contingent upon the issuance of a
permit from the California Coastal Commission. An action to set aside
that permit was brought by the City of Malibu in early 1994 and is
currently on appeal as described above.
During the six months ended June 30, 1995, the Fund expensed
approximately $902,000 relating to entitlement activities, holding costs
and litigation. These costs were included in total expenses from
property operating activities on the Fund's consolidated statements of
income and expenses. As of June 30, 1995 and December 31, 1994, the
Fund's carrying value of the property is $13,841,549.
The realization of this carrying value is based on the present
intent of the Fund to complete the zoning and entitlement efforts and to
then assess its options regarding the Rancho Malibu project, including
all alternatives from site development to a bulk land sale. Management
of the Fund estimates that if the Rancho Malibu property were to be sold
before the zoning and entitlement process was complete, the net
realizable value of the property would decline to approximately
$5,000,000 to $7,000,000.
KEY BISCAYNE
In 1990, title to 22 acres of property located in Key Biscayne,
Florida, was conveyed to the Fund under a deed-in-lieu of foreclosure
agreement. The Fund's parcel represented a portion of the "Key Biscayne
Project"; the remainder was owned by THSP Associates Limited Partnership
II ("THSP"), formerly known as Banyan Mortgage Investors L.P. III. The
Fund and THSP had been developing the Key Biscayne Project pursuant to a
Joint Development Agreement dated September 17, 1990 to which the Fund
and THSP were parties ("JDA"). As of December 31, 1993, the Fund's
carrying value for this asset was $42,740,410 which was based on the
estimated value of the property assuming development. During 1994, the
Fund and THSP engaged in extensive litigation in Florida and Illinois
and settlement negotiations involving the Key Biscayne Project. On March
16, 1995 the Fund executed a settlement agreement with THSP. Pursuant
to the settlement agreement, the Fund received cash and other
consideration totalling approximately $24,700,000 and transferred to
THSP ownership of the Fund's 22-acre site in Key Biscayne, Florida. The
Fund also released all claims it had asserted to an adjacent parcel
owned by THSP. In addition, the Fund and THSP consensually terminated
all pending litigation and exchanged mutual releases.
Of the $24,700,000 settlement, the Fund received approximately
$21,500,000 in cash. The remaining $3,200,000 was used to pay
approximately $1,500,000 in closing fees and prorations and to discharge
the Fund's liability of approximately $1,700,000 due THSP for advances
made to the Fund pursuant to the JDA. The Fund also reduced the Key
Biscayne carrying value at December 31, 1994 for legal and other costs
of approximately $775,000 which were anticipated related to the
settlement. For the six months ended June 30, 1995, the Fund has
expended $262,201 of the total $775,000 anticipated costs. As a result
of the settlement, the Fund recorded a loss provision of approximately
$19,700,000 as of December 31, 1994 which represented the difference
between the net book value of the Fund's investment in the Key Biscayne
project less the settlement amount as reduced by closing costs and
prorations.
LINDFIELD'S SINGLE FAMILY
On June 16, 1995, the Fund sold six of the total of eleven lots of
the Lindfield's Single Family property to an unaffiliated third party
for $54,000. After prorations for closing costs of approximately $900
and payment of assumed liabilities of approximately $900, the Fund
received net proceeds of approximately $52,200 and recognized a gain of
approximately $9,500 on the sale.
PALMDALE
On June 20, 1995, the Fund sold the Palmdale property to an
unaffiliated third party for approximately $350,300. After prorations
for closing costs of approximately $24,600 and payment of assumed
liabilities of approximately $178,200, the Fund received net proceeds of
approximately $147,500 and recognized a loss of approximately $49,300 on
the sale.
4. LOANS RECEIVABLE
CHINO HILLS MORTGAGE LOAN
The Fund was assigned an interest in a loan valued at $57,000 as a
result of the Anden Group loan foreclosure on October 20, 1993. The
loan was collateralized by a Deed of Trust secured by five acres of
undeveloped land located in Chino Hills, California ("Chino Hills").
The borrower was New Romanoffsky Church of California. The loan
required monthly payments of interest at a rate of 9% and periodic
principal payments scheduled through the maturity date of February 14,
1995. During the quarter ended March 31, 1995, the Fund received the
final principal and interest payments of $16,000 and $360, respectively,
on the loan and thereupon released its lien. The Fund has no further
interest in the Chino Hills property.
5. INVESTMENT IN JOINT VENTURE
H STREET ASSEMBLAGE
The summary income statement information for the joint venture
which owns the H Street Assemblage for the six months ended June 30,
1995 and 1994 is as follows:
1995 1994
Total Revenues $ 218,862 $ 196,670
============ ============
Net Loss $ 127,517 $ 229,107
============ ============
6. DUE TO AFFILIATES
H STREET ASSEMBLAGE
The Fund has entered into a partnership agreement with Banyan
Strategic Realty Trust ("BSRT") regarding the ownership and operation of
the H Street Assemblage (the "H Street Venture"). Under the terms of
this Agreement, BSRT has the right, but is not obligated, to advance
expenditures on behalf of the Fund. During 1994 and 1993, BSRT advanced
to the H Street Venture all funds expended on the H Street Assemblage,
including the Fund's portion. As provided in the H Street partnership
agreement, all advances made by BSRT for the Fund's share of the H
Street Venture's expenses bore interest at a rate of prime plus 2% per
annum until repaid. As of December 31, 1994, the Fund's total payable
to BSRT was approximately $730,000. On March 24, 1995, the Fund repaid
the December 31, 1994 outstanding balance of approximately $730,000 to
BSRT. As of June 30, 1995, the H Street advances, and all interest
thereon, made by BSRT have been repaid in full by the Fund.
7. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and
administrative expenses, are reimbursed by the Fund to Banyan Management
Corp. ("BMC"). These costs are allocated to the Fund and other entities
to which BMC provides administrative services based upon the actual
number of hours spent by BMC personnel on matters related to that Fund.
The Fund's costs for the six months ended June 30, 1995 and 1994
aggregated $363,663 and $334,919, respectively. As one of its
administrative services, BMC serves as the paying agent for general and
administrative costs of the Fund. As part of providing this payment
service, BMC maintains a bank account on behalf of the Fund. As of June
30, 1995, the Fund had a net payable due to BMC of $2,530. The net
payable is included in accounts payable and accrued expenses in the
Fund's Consolidated Balance Sheet.
8. LITIGATION AND CONTINGENCIES
On May 25, 1994, Banyan Strategic Land Fund II and its subsidiary,
VSLF II Key Biscayne Hotel Corp. (collectively referred to as the
"Fund") filed in Illinois a multi-count complaint (the "Illinois
Complaint") against THSP Associates Limited Partnership II ("THSP"),
formerly known as Banyan Mortgage Investors L.P. III and its affiliate,
VMLP III Key Biscayne Villas Limited Partnership, an Illinois limited
partnership, (collectively referred to as the "Partnership"). On
September 9, 1994, the Fund, with leave of court, filed an amended
complaint adding as additional defendants three individual directors of
the Partnership. The Illinois Complaint sought, in part, a declaration
of the rights and obligations of the Fund and the Partnership with
respect to their joint development of, and rights to receive proceeds
from, a project on the island of Key Biscayne, Florida, known as the Key
Biscayne Hotel and Villas.
On June 30, 1994, the Partnership filed a complaint in Florida
(the "Florida Complaint") against the Fund which was subsequently
amended to include the Fund's president and Banyan Management Corp. as
additional defendants. The Florida Complaint sought to quiet title in
respect to the Key Biscayne property and also contained allegations of
fraud and breach of fiduciary duty.
On March 16, 1995, the Fund executed a settlement agreement with
the Partnership. Pursuant to the settlement agreement, on March 17,
1995, the Fund received cash and other consideration totalling
approximately $24,700,000 and transferred to a subsidiary of THSP
ownership of the Fund's 22-acre site in Key Biscayne, Florida. The Fund
also released all claims it had asserted to an adjacent parcel owned by
THSP. In addition, the Fund and THSP consensually terminated all
litigation currently pending in Illinois and Florida as discussed above
and exchanged mutual releases.
Of the $24,700,000 settlement, the Fund received approximately
$21,500,000 in cash. The remaining $3,200,000 was used to pay
approximately $1,500,000 in closing costs and prorations and to
discharge a liability of the Fund of approximately $1,700,000 due THSP
for advances made to the Fund pursuant to a prior agreement between the
Fund and THSP. As a result of the settlement, the Fund recorded a year-
end valuation provision of approximately $19,700,000 which represented
the difference between the net book value of the Fund's investment in
the Key Biscayne project less the settlement amount as reduced by
closing costs and prorations.
9. TENDER OFFER
On April 28, 1995, the Fund's Board of Directors commenced a
tender offer whereby the Fund offered to acquire from its stockholders
up to 10,000,000 shares at a price of $1.70 per share. The tender offer
was commenced on May 5, 1995 and expired at midnight on June 5, 1995.
The trading price of the Fund's stock on the last day prior to
commencement of the tender offer was $1.31 per share. The tender offer
resulted in the purchase by the Fund of 9,309,747 shares for a total
purchase price of $15,826,570.
10. ELIMINATION OF AWARD SHARES OUTSTANDING AND WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING
On April 29, 1994, the Fund issued 17,428 shares of its common
stock to Leonard G. Levine, its President. Pursuant to Mr. Levine's
amended employment agreement, all incentive amounts earned subsequent to
January 1, 1993 are to be paid 80% in cash on or before March 15 of the
year following the period for which the incentive is earned and 20% in
shares ("Award Shares") of the Fund. On January 28, 1994, Mr. Levine
was paid $78,425 representing 80% of his 1993 incentive. The 17,428
Award Shares valued at $1.125 per share or $19,606, represented 20% of
Mr. Levine's 1993 incentive and were to be held by the Fund, pending
satisfaction of the vesting requirements, for the benefit of Mr. Levine
until the earlier of (i) December 31, 1997; (ii) the termination of Mr.
Levine's employment by the Fund without just cause; or (iii) the
permanent disability or death of Mr. Levine. The Award Shares' price of
$1.125 per share was based upon the average closing price of the Fund's
shares for the five business days ended prior to December 31, 1993. At
a meeting of the Fund's Board of Directors on April 28, 1995, the Board
of Directors amended Mr. Levine's employment agreement with respect to
the issuance of Award Shares. Mr. Levine will no longer receive actual
shares of the Fund's Common Stock as Award Shares. Under Mr. Levine's
amended employment agreement, an "Award Share" has been redefined to
mean the right to receive a cash bonus equal to: (i) the value of one
share of Common Stock of the Fund; and (ii) any distributions of the
Fund with respect to a share of Common Stock between the Grant Date and
the Settlement Date. The value of an Award Share on a Grant Date and on
a Settlement Date will be the average closing price of the Fund's shares
of Common Stock for the five business days ended at the Grant Date or
the Settlement Date, as the case may be. Mr. Levine will continue to
receive twenty percent (20%) of his Incentive Compensation in Award
Shares. At the time upon which Mr. Levine determines to dispose of
Award Shares, Mr. Levine will notify the Company of the number of Award
Shares he wishes to tender and he will receive from the Company a cash
bonus equal to the value of the Award Shares tendered to the Company.
The cash bonus from the Award Shares attributable to distributions will
be paid currently for all distributions declared for stockholders of
record between the Grant Date and the Settlement Date. Shares of Common
Stock previously issued as Award Shares were converted into cash bonus
shares as described above on April 28, 1995, as provided for in the
amended employment agreement. The 17,428 shares as previously issued on
April 29, 1994 have been excluded effective April 28, 1995 when
calculating Net Income Per Share of Common Stock Based on Weighted
Average Number of Shares Outstanding. The Award Shares will continue to
be subject to the existing vesting provisions. The amendment is
intended to preserve the original intent of the Award Shares which was
to further align the interests of Mr. Levine with those of the Fund's
stockholders. All Award Shares shall be forfeited by Mr. Levine if he
fails to be employed by the Fund on December 31, 1997, unless such
failure is due to death or permanent disability or termination without
just cause.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Fund was originally established to make mortgage loans
principally to entities affiliated with VMS Realty Partners which
planned to acquire and develop strategically located properties not then
at their highest and best use. The Fund has ceased funding mortgage
loans except where necessary to protect the value of its assets acquired
through foreclosure or otherwise. Its current business plan focuses on
preserving and maximizing the value of its assets, including managing
and/or developing properties acquired until these properties can be
disposed of in an orderly manner.
Due to the modest size of the Fund's cash position prior to March
1995, and the uncertainty regarding its remaining assets and their
future cash requirements, the Fund had suspended distributions to
stockholders. The receipt of proceeds relating to collections on
mortgage loans, the Key Biscayne settlement and disposition of
properties caused the Fund to reassess the reinstatement of
distributions. Management proposed several alternatives to the Board of
Directors of the Fund in connection with the utilization of the Fund's
net cash proceeds in excess of those needed for operations. The
distribution strategies included various options such as a pro-rata
distribution to all stockholders, an open-market stock repurchase
program, or a self tender offer. On April 28, 1995, the Fund's Board of
Directors commenced a self tender offer whereby the Fund offered to
acquire from its stockholders up to 10,000,000 shares at a price of
$1.70 per share. The tender offer was commenced on May 5, 1995 and
expired at midnight on June 5, 1995. The trading price of the Fund's
stock on the last day prior to commencement of the tender offer was
$1.31 per share. The tender offer resulted in the purchase by the Fund
of 9,309,747 shares for a total purchase price of $15,826,570. The
Fund's management will continue to periodically assess the status of the
Fund's assets, evaluate its distribution policy and the overall business
plan for the Fund as cash proceeds are recovered from its current
assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term
investments. The Fund's cash and cash equivalents balance at June 30,
1995 and December 31, 1994 was $2,375,652 and $290,366, respectively.
The increase in total cash and cash equivalents of approximately
$2,085,000 is primarily due to the receipt of approximately $21,500,000
relating to proceeds from the resolution of the Key Biscayne project and
the settlement of the Key Biscayne litigation. See Litigation and
Contingencies for further details. Also contributing to this increase
in total cash and cash equivalents was approximately $200,000 relating
to proceeds received from the sale of the Palmdale property and a
portion of the Lindfield Single Family property in June 1995 (see
Results of Operations for further details), the receipt of forfeited
proceeds from sales contracts of $43,824 relating to the Hemet III
property, Lindfield's Single Family property and Lake Rogers property,
the receipt of a final principal payment of $16,000 relating to the
Fund's Chino Hill mortgage loan, a $23,277 recovery of losses on loans,
notes and interest receivable relating to the VMS liquidating trust and
the receipt of interest earned on the Fund's short term investments.
Partially offsetting these cash receipts was the Fund's purchase of its
shares of common stock pursuant to the self tender offer totalling
$15,826,570 as discussed above, the payment of approximately $902,000
related to entitlement, litigation and holding costs associated with the
Rancho Malibu property, the repayment of $730,229 to Banyan Strategic
Realty Trust ("BSRT") relating to advances made on behalf of the Fund
for H Street Assemblage expenditures, $262,201 in payments of
liabilities assumed relating to legal costs associated with the Key
Biscayne settlement and the payment of the Fund's operating expenses.
During 1993, THSP Associates Limited Partnership II ("THSP")
(formerly known as Banyan Mortgage Investors L.P. III) advanced all
costs, totalling $2,232,320, associated with the development of the Key
Biscayne Project, including the Fund's share of such costs. As provided
in the Joint Development Agreement, all advances made by THSP for the
Fund's share of the Key Biscayne Project bore interest at a rate of 15%
per annum until repaid. On November 24, 1993, the Fund repaid $865,000
to THSP representing a principal payment of $692,000 and accrued
interest of $173,000.
As of December 31, 1994, the Fund's total payable to THSP was
approximately $1,725,000 which represented the principal balance of
$1,540,000 as of December 31, 1993 plus accrued interest through
December 31, 1994. The Fund's obligation with respect to these advances
was discharged pursuant to the settlement of Key Biscayne litigation on
March 16, 1995. See Litigation and Contingencies for further details.
The Fund has entered into a partnership agreement with Banyan
Strategic Realty Trust ("BSRT") regarding the ownership and operation of
the H Street Assemblage (the "H Street Venture"). Under the terms of
this Agreement, BSRT has the right, but is not obligated, to advance
expenditures on behalf of the Fund. During 1994 and 1993, BSRT advanced
to the H Street Venture all funds expended on the H Street Assemblage,
including the Fund's portion. As provided in the H Street partnership
agreement, all advances made by BSRT for the Fund's share of the H
Street Venture's expenses bore interest at a rate of prime plus 2% per
annum until repaid. As of December 31, 1994, the Fund's total payable
to BSRT was approximately $730,000. On March 24, 1995, the Fund repaid
the December 31, 1994 outstanding balance of approximately $730,000 to
BSRT. As of June 30, 1995, the H Street advances, and all interest
thereon, made by BSRT have been repaid in full by the Fund.
On February 9, 1995, the Fund received a cash distribution of
$23,277 related to its interest in a liquidating trust established for
the benefit of the unsecured creditors of VMS Realty Partners and its
affiliates. During the quarter ended March 31, 1995, the Fund recorded
a $23,277 recovery of losses on mortgage loans, notes and interest
receivable on its consolidated statement of income and expenses related
to the distribution received from the liquidating trust.
The Fund's future source of liquidity is expected to be funded
from cash proceeds from the sale of its properties, collection of
principal and interest on the Fund's mortgage loans, distributions of
cash from the liquidating trust of which the Fund is a beneficiary and
interest earned on the Fund's short-term investments. At the present
time, the Fund's cash position, as well as anticipated cash to be
generated from the sale of land parcels which had collateralized the
Westholme loans, is anticipated to provide adequate liquidity to meet
the Fund's operating expenses plus the holding costs and operating
expenses consistent with the Fund's business plan for the H Street
Assemblage, Rancho Malibu property and the land parcels acquired through
the Westholme foreclosure.
As of June 30, 1995 and December 31, 1994, the Fund's mortgage
loan portfolio consisted of two and three loans, respectively, with
carrying values totaling $785,000 and $801,000, respectively. During
the quarter ended March 31, 1995, the Fund received a final principal
and interest payment on the Chino Hills loan totaling $16,360.
On a quarterly basis, management reviews the mortgage loans in the
Fund's portfolio and records appropriate loss provisions. The
provisions are based upon a number of factors, including analysis of the
value of the collateral and, in certain cases, ongoing negotiations
regarding disposition of this collateral, as well as consideration of
the general business conditions affecting the Fund's portfolio.
Management also reviews the investment properties held by the Fund on a
quarterly basis and, when it has been determined that a permanent
impairment in the value of a given property has occurred, the carrying
value of the property is then written down to its fair value.
Management has determined not to take any write downs for the quarter
ended June 30, 1995.
The Fund's ability to make future distributions to its
stockholders is dependent upon, among other things: (i) the eventual
sales price of properties to which the Fund has taken title; (ii)
operating results of the Fund's properties; (iii) the Fund's ability to
control its operating expenses; and (iv) the general improvement of
conditions in the real estate markets where the Fund's properties or
loan collateral are located. As discussed above, pursuant to the
direction of the Fund's Board of Directors, the Fund, on May 5, 1995
commenced a self tender offer which caused a distribution of the net
cash proceeds of $15,826,570 in excess of those needed for operations.
RESULTS OF OPERATIONS
Total income for the six months ended June 30, 1995 increased to
$254,261 from $65,941 for the six months ended June 30, 1994. This
increase was due to an increase in income on investments offset
partially by a decrease in interest on loans. The increase in income on
investments is due to an increase in cash available for investment due
primarily to the proceeds received on March 17, 1995 from the resolution
of the Key Biscayne project pursuant to the settlement of the Key
Biscayne litigation as discussed above. The decrease in interest on
loans is due primarily to a decrease in loans receivable. Loans
receivable decreased in 1995 when compared to 1994 due to the Westholme
Partners Notes I and II foreclosures which occurred in March of 1994.
Total expenses for the six months ended June 30, 1995 decreased to
$2,288,334 from $2,521,606 for the six months ended June 30, 1994. This
decrease of approximately $233,000 for the six months ended June 30,
1995 when compared to the prior year's period is due primarily to a
decrease of approximately $658,000 in total expenses from property
operating activities partially offset by an increase of approximately
$425,000 in total other expenses. The decrease in total property
operating expenses is due primarily to a decrease in interest expense on
advances from affiliates, a decrease in net loss from operations of
foreclosed real estate held for sale and a decrease in net loss from
operations of real estate venture. Interest on advances from affiliates
decreased due to the Fund's settlement of the Key Biscayne litigation
whereby the Fund's payable to THSP as of December 31, 1994 was
discharged in 1995. In addition, during March 1995 the Fund paid in
full the total outstanding advances to BSRT in relation to the H Street
Assemblage expenditures thereby creating a further decrease in interest
on advances from affiliates. As a result of the Key Biscayne
settlement, net loss from operations of foreclosed real estate held for
sale decreased approximately $540,000 for the six month period in 1995
when compared to the same period in 1994 due to the elimination of real
estate tax expense and other holding costs associated with the Fund's
interest in the Key Biscayne Project. See below for discussion of the
decrease in net loss from operations of real estate venture. The
decrease in total property operating expenses is partially offset by the
$39,846 net loss on the disposition of foreclosed real estate held for
sale relating to the disposition of Fund's interest in the Palmdale
property and a portion of the Lindfield's Single Family property in 1995
(see below for further details). The increase in total other expenses
is due primarily to increases in other professional fees and general and
administrative expenses, as well as a $242,603 recovery of class action
settlement costs and expenses recorded in 1994 relating to the release
of an escrow established as part of the 1992 class action settlement of
the VMS securities litigation. Other professional fees increased due to
the Fund's legal costs regarding the Key Biscayne litigation. General
and administrative expenses increased due to the increase in the hours
and expenses allocated to the Fund by Banyan Management Corp. personnel
as a result of the Key Biscayne litigation. In addition, general and
administrative costs further increased as a result of additional
administrative expenses associated with the Rancho Malibu litigation and
entitlement activities (see below for details). These changes were
offset by decreases in stockholder expenses and directors' fees,
expenses and insurance. The decrease in stockholder expenses is due to
the timing of the payment for proxy costs of the Fund. Director's fees,
expenses and insurance decreased due to a decrease in the number of
meetings held during 1995 as compared to the same period in 1994.
The above discussed changes resulted in an decrease in the net
loss for the six months ended June 30, 1995 to $2,034,073 ($0.11 per
share) from $2,455,665 ($0.13 per share) for the six months ended June
30, 1994.
Total income for the three months ended June 30, 1995 increased to
$210,854 from $26,496 for the three months ended June 30, 1994. This
increase was due primarily to an increase in income on investments. The
increase in income on investments is due to an increase in cash
available for investment due primarily to the proceeds received on March
17, 1995 from the resolution of the Key Biscayne litigation as discussed
above.
Total expenses for the three months ended June 30, 1995 decreased
to $972,648 from $1,409,062 for the three months ended June 30, 1994.
This decrease of approximately $436,000 for the three months ended June
30, 1995 when compared to the prior year's period is due primarily to a
decrease of approximately $375,000 in total expenses from property
operating activities and approximately $61,000 in total other expenses.
The decrease in total property operating expenses is due primarily to a
decrease in interest expense on advances from affiliates and a decrease
in net loss from operations of foreclosed real estate held for sale.
Interest on advances from affiliates decreased due to the Fund's
settlement of the Key Biscayne litigation whereby the Fund's payable to
THSP as of December 31, 1994 was discharged in 1995. In addition,
during March 1995, the Fund paid in full the total outstanding advances
to BSRT in relation to the H Street Assemblage expenditures thereby
creating a further decrease in interest on advances from affiliates. As
a result of the settlement agreement with THSP relating to the Key
Biscayne project during March 1995, net loss from operations of
foreclosed real estate held for sale decreased by approximately $300,000
in 1995 as compared to the same period in 1994. The decrease in total
other expenses is due primarily to decreases in stockholder expenses,
directors fees, expenses and insurance and other professional fees. The
decrease in stockholder expenses is due to the timing of the payment for
proxy costs of the Fund. Director's fees, expenses and insurance
decreased due to a decrease in the number of meetings held during 1995
as compared to the same period in 1994. Other professional fees
decreased due to nonrecurring legal costs incurred in 1994 relating to
the Fund's Key Biscayne litigation.
During the six and three months ended June 30, 1995, the Fund
recognized a net loss of $59,933 and $33,685, respectively, from the
operations of the H Street Venture. The decrease in the net loss for
1995 when compared to net losses for the six months and quarter ended
June 30, 1994 of $107,681 and $66,822, respectively, is primarily due to
a reduction in legal costs paid in 1994 relating to the successful real
estate tax appeal which reduced the property's assessed taxable value in
1994. In addition, legal and entitlement costs for 1995 were further
reduced when compared to 1994 due to the nonrecurring payment for
professional services associated with obtaining the historic
preservation rights in 1994. The Fund has completed and obtained the
zoning, entitlement and historic preservation rights for the development
of an approximately 300,000 square foot commercial building on the H
Street Assemblage. The Fund has not made any significant capital
expenditures on this asset and is allowing occupancy to decline by
selectively retenanting the Victor building at the H Street Assemblage
with short term leases so that the building will be more marketable to a
potential buyer which would need to vacate the Victor building before
the H Street Assemblage can be redeveloped. The H Street Venture is
currently marketing the H Street Assemblage for sale.
The above discussed changes resulted in an decrease in the net
loss for the three months ended June 30, 1995 to $761,794 ($0.05 per
share) from $1,382,566 ($0.07 per share) for the three months ended June
30, 1994.
PROPERTY OPERATIONS
Rancho Malibu is a 274-acre parcel of undeveloped land north of
Malibu, California owned by a joint venture between the Fund and Banyan
Mortgage Investment Fund (the "Venture"). From the acquisition date,
the Venture has engaged in zoning and entitlement activities which have
been opposed by the City of Malibu. The city initiated two separate
legal actions intended to preclude the issuance of a Coastal Development
Permit, the most recent of which has been decided in favor of the
Venture and as to which the City of Malibu is appealing. The parties to
the appeal have filed briefs and are awaiting the scheduling of oral
arguments.
Concurrent with the aforementioned appeal, the Venture is pursuing
entitlements before the County of Los Angeles. On May 30, 1995, the Los
Angeles County Regional Planning Commission, in a 3 to 2 vote, gave
preliminary approval to a revised plan to develop a fifty-one unit
housing community on the Rancho Malibu property. Formal findings have
been drafted and will be presented to the Commissioners for approval at
a later meeting as soon as the matter is placed by the Commission on the
Commissioners' agenda. Once the findings are approved, the approval
will be final unless appealed to the Los Angeles County Board of
Supervisors. If appealed, no permit can be obtained and no development
activities can commence until the Board of Supervisors acts.
Development of the property is also contingent upon the issuance of a
permit from the California Coastal Commission. An action to set aside
that permit was brought by the City of Malibu in early 1994 and is
currently on appeal as described above.
During the six months ended June 30, 1995, the Fund expensed
approximately $902,000 on Rancho Malibu relating to entitlement
activities, holding costs and litigation. These costs were included in
total expenses from property operating activities on the Fund's
consolidated statements of income and expenses. As of June 30, 1995 and
December 31, 1994, the Fund's carrying value of the property was
$13,841,549.
The realization of this carrying value is based on the present
intent of the Fund to complete the zoning and entitlement efforts and to
then assess its options regarding the Rancho Malibu project, including
all alternatives from site development to a bulk land sale. Management
of the Fund estimates that if the Rancho Malibu property were to be sold
before the zoning and entitlement process was complete, the net
realizable value of the property would decline to approximately
$5,000,000 to $7,000,000.
On June 16, 1995, the Fund sold six of the total of eleven lots of
the Lindfield's Single Family property to an unaffiliated third party
for $54,000. After prorations for closing costs of approximately $900
and payment of assumed liabilities of approximately $900, the Fund
received net proceeds of approximately $52,200 and recognized a gain of
approximately $9,500 on the sale.
On June 20, 1995, the Fund sold the Palmdale property to an
unaffiliated third party for approximately $350,300. After prorations
for closing costs of approximately $24,600 and payment of assumed
liabilities of approximately $178,200, the Fund received net proceeds of
approximately $147,500 and recognized a loss of approximately $49,300 on
the sale.
LITIGATION AND CONTINGENCIES
On May 25, 1994, Banyan Strategic Land Fund II and its subsidiary,
VSLF II Key Biscayne Hotel Corp. (collectively referred to as the
"Fund") filed in Illinois a multi-count complaint (the "Illinois
Complaint") against THSP Associates Limited Partnership II ("THSP"),
formerly known as Banyan Mortgage Investors L.P. III and its affiliate,
VMLP III Key Biscayne Villas Limited Partnership, an Illinois limited
partnership, (collectively referred to as the "Partnership"). On
September 9, 1994, the Fund, with leave of court, filed an amended
complaint adding as additional defendants three individual directors of
the Partnership. The Illinois Complaint sought, in part, a declaration
of the rights and obligations of the Fund and the Partnership with
respect to their joint development of, and rights to receive proceeds
from, a project on the island of Key Biscayne, Florida, known as the Key
Biscayne Hotel and Villas.
On June 30, 1994, the Partnership filed a complaint in Florida
(the "Florida Complaint") against the Fund which was subsequently
amended to include the Fund's president and Banyan Management Corp. as
additional defendants. The Florida Complaint sought to quiet title in
respect to the Key Biscayne property and also contained allegations of
fraud and breach of fiduciary duty.
On March 16, 1995, the Fund executed a settlement agreement with
the Partnership. Pursuant to the settlement agreement, on March 17,
1995, the Fund received cash and other consideration totalling
approximately $24,700,000 and transferred to a subsidiary of THSP
ownership of the Fund's 22-acre site in Key Biscayne, Florida. The Fund
also released all claims it had asserted to an adjacent parcel owned by
THSP. In addition, the Fund and THSP consensually terminated all
litigation currently pending in Illinois and Florida as discussed above
and exchanged mutual releases.
Of the $24,700,000 settlement, the Fund received approximately
$21,500,000 in cash. The remaining $3,200,000 was used to pay
approximately $1,500,000 in closing costs and prorations and to
discharge the Fund's liability of approximately $1,700,000 due THSP for
advances made to the Fund pursuant to a prior agreement between the Fund
and THSP. As a result of the settlement, the Fund recorded a year-end
valuation provision of approximately $19,700,000 which represented the
difference between the net book value of the Fund's investment in the
Key Biscayne project less the settlement amount as reduced by closing
costs and prorations.
As a result of the settlement of the litigation with THSP, a major
uncertainty was removed which had negatively impacted the Fund. The
amount of the settlement was less than the net book value of the Key
Biscayne Property, but the Fund's ability to fully recover its carrying
value was contingent upon its ability to jointly develop the Key
Biscayne project with THSP. As the litigation and settlement
negotiations evolved, it became evident to management of the Fund that
joint development of the Key Biscayne property would occur, if at all,
only after a costly and protracted legal battle. By accepting the
settlement, the Fund intends to redirect its resources toward the
successful completion of its business plans for its remaining assets.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are included with this Report.
(b) No Reports on Form 8-K were filed during the quarter ended
June 30, 1995.
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
Report to be signed on its behalf by the undersigned thereunto duly
authorized.
BANYAN STRATEGIC LAND FUND II
By: /s/ Leonard G. Levine Date: August 9, 1995
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: August 9, 1995
Joel L. Teglia, Vice President
Finance and Administration, Chief
Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from
Banyan Strategic Land Fund II's Form 10QSB for the six months ended
June 30, 1995 and is qualified in its entirety by reference to such
Form 10QSB."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,375,652
<SECURITIES> 0
<RECEIVABLES> 877,346
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,467,998
<PP&E> 23,240,511
<DEPRECIATION> 0
<TOTAL-ASSETS> 27,108,638
<CURRENT-LIABILITIES> 804,822
<BONDS> 0
<COMMON> 26,303,816
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,108,638
<SALES> 0
<TOTAL-REVENUES> 254,261
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,311,611
<LOSS-PROVISION> (23,277)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,034,073)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,034,073)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,034,073)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
