UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
Commission file number 0-13736
BANYAN MORTGAGE INVESTORS L.P.
(Exact name of small business issuer as specified in its charter)
Delaware 36-3311607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o KPMG Peat Marwick LLP,
One Boston Place, Boston, Massachusetts 02108
(Address of principal executive offices)
(617) 338-2925
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No .
Depositary units outstanding as of May 5, 1995: 7,627,440
Transitional Small Business Disclosure Format: Yes . No X .
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Balance Sheets
March 31, 1995 and December 31, 1994
(Unaudited)
1995 1994
ASSETS
Cash and Cash Equivalents $ 1,803,601 $ 1,683,162
Interest Receivable on Cash and Cash 3,699 9,196
Equivalents
Investment in Liquidating Trust 1 1
Distribution Receivable from --- 75,227
Liquidating Trust
Prepaid Insurance 33,057 68,392
State Income Tax Refund Receivable --- 46,711
------------ ------------
Total Assets $ 1,840,358 $ 1,882,689
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts Payable and Accrued Expenses $ 302,383 $ 225,296
------------ ------------
Total Liabilities 302,383 225,296
------------ ------------
Commitments and Contingencies --- ---
Partners' Capital
Partners' Capital (7,628,539
Depositary Units Issued) 1,538,145 1,657,563
Treasury Units, at Cost, for 1,099
Depositary Units (170) (170)
------------ ------------
Total Partners' Capital 1,537,975 1,657,393
------------ ------------
Total Liabilities and Partners'
Capital $ 1,840,358 $ 1,882,689
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
2
Book Value Per Unit (7,627,440
Depositary Units Outstanding) $ 0.202 $ 0.217
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
3
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Income and Expenses
for the Three Months Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
INCOME
Interest Income $ 14,824 $ 4,845
EXPENSES
Expenses From Lending Activities:
(Recovery of) Provision for Losses on
Loans, Notes and Interest Receivable (102,420) ---
Other Expenses:
Unitholder Expenses 21,876 59,798
Directors' Fees, Expenses and
Insurance 42,836 61,484
Other Professional Fees 83,928 17,923
General and Administrative 42,974 52,975
Provision for Arbitration and
Litigation With Related Parties 45,048 ---
----------- ------------
Total Other Expenses 236,662 192,180
(Recovery of) Class Action Settlement
Costs and Expenses --- (69,602)
----------- ------------
Total Expenses 134,242 122,578
----------- ------------
Income (Loss) Before Gain on Disposition of
Real Estate (119,418) (117,733)
Gain on Disposition of Real Estate --- 43,752
----------- ------------
Net Income (Loss) $ (119,418) $ (73,981)
=========== ===========
Net Income (Loss) Allocated to General Partner
(1%) $ (1,194) $ (740)
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
4
Net Income (Loss) Allocated to Unitholders
(99%) $ (118,224) $ (73,241)
=========== ===========
Net Income (Loss) Per Unit (Weighted Average
Number of Depositary Units Outstanding $ (0.016) $ (0.010)
7,627,440) =========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
5
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Partners' Capital
for the Three Months Ended March 31, 1995
(Unaudited)
General Treasury
Partner Unitholders Units Total
Partners' Capital
(Deficit), $ (299,711) $1,957,274 $ (170) $1,657,393
December 31, 1994
Net Income (Loss)
(1,194) (118,224) --- (119,418)
----------- ----------- -------- -----------
Partners' Capital
(Deficit),
March 31, 1995 $ (300,905) $ 1,839,050 $ (170) $ 1,537,975
=========== ========== ======== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
6
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1995 and 1994
(Unaudited)
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (119,418) $ (73,981)
Adjustment to Reconcile Net Income (Loss) to
Net Cash Used In Operating Activities:
Gain on Disposition of Real Estate --- (43,752)
Provision for Arbitration and
Litigation With Related Parties 45,048 ---
Net Change In:
Interest Receivable on Cash and Cash
Equivalents 5,497 (2,325)
Distribution Receivable from
Liquidating Trust 75,227 ---
Notes Receivable --- (18,609)
Prepaid Insurance 35,335 15,187
State Income Tax Refund Receivable 46,711 ---
Other Assets --- (16,040)
Accounts Payable and Accrued Expenses 32,039 (1,873)
------------ -------------
Net Cash From Operating Activities 120,439 (141,393)
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Proceeds from Sale of Real Estate --- 342,037
------------ -------------
Net Cash Provided By Investing Activities --- 342,037
Net Increase (Decrease) in Cash and Cash
Equivalents 120,439 200,644
Cash and Cash Equivalents at Beginning of
Period 1,683,162 746,009
------------- --------------
Cash and Cash Equivalents at End of Period $ 1,803,601 $ 946,653
============= ==============
The accompanying notes are an integral part of the consolidated
financial statements.
7
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements
March 31, 1995
(Unaudited)
1. Basis of Presentation
Readers of this quarterly report should refer to the audited
consolidated financial statements for Banyan Mortgage Investors L.P.
(the "Partnership") for the year ended December 31, 1994 which are
included in the Partnership s 1994 Annual Report as certain footnote
disclosures which would substantially duplicate those contained in such
audited statements have been omitted from this report. These interim
financial statements include all adjustments which in the opinion of
management are necessary in order to make the financial statements not
misleading.
On August 19, 1992, the Partnership announced that the Board
of Directors of its general partner instructed management to begin the
process of liquidating the Partnership. The Board of Directors of the
Partnership is expected to adopt a formal plan of liquidation. The
Board does not contemplate the making of any distribution, liquidating
or otherwise, until a formal plan of liquidation is adopted. Management
is uncertain as to the proceeds that the Partnership may ultimately
realize from its investment in a liquidating trust. The Partnership
cannot be liquidated until 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. Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Partnership and its wholly-owned subsidiaries which held
title to the Partnership's properties. All intercompany balances and
transactions have been eliminated in consolidation.
B. Cash and Cash Equivalents
Cash and cash equivalents represent cash held on deposit 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.
8
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
March 31, 1995
(Unaudited)
C. Investment in Liquidating Trust
In connection with the fifth amendment to the Creditor Repayment
Agreement, the Partnership received an interest in a liquidating trust
that was established for the benefit of unsecured creditors of VMS
Realty Partners. The trust holds cash as well as secured and unsecured,
notes and mortgages to individuals, entities, or real estate properties,
most of which are subordinated to those of senior lenders. The
Partnership records its investment in this liquidating trust at its pro
rata portion of the cash assets available for distribution in the trust.
Despite the fact that the Partnership believes that the notes and
mortgages remaining in the trust may have value, they are not accorded
any carrying value due to the uncertainties regarding the timing and
amount of any potential recovery. At March 31, 1995 and December 31,
1994, that pro rata portion amounted to $1.
The Partnership records its portion of all receipts from this trust
as a reduction in the Provision for Losses on Mortgage Loans, Notes and
Interest Receivable, when distributions are declared by the trust. The
trust declared such a distribution on December 29, 1994 in the amount of
$75,227 which was recorded as a receivable at December 31, 1994. During
the three months ended March 31, 1995, the trust declared, and the
Partnership received, $102,420 in additional distributions from the
trust.
D. 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.
E. Book Value and Net Income (Loss) Per Unit
The Book Value per Unit is calculated by dividing Total Partners
Capital by the number of Depositary Units outstanding at the end of the
respective years. Net Income (Loss) per Unit is computed by dividing
Net Income (Loss) by the weighted average number of units outstanding
during the year.
3. Disposition of Real Estate
During the three months ended March 31, 1994, the Partnership
recorded a net gain of $43,752 in connection with its disposition of the
Pebblecreek and Evanston Lock-Up properties.
4. Transactions With Affiliate
9
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
March 31, 1995
(Unaudited)
Administrative costs, primarily salaries and general and
administrative expenses, were reimbursed by the Partnership to Banyan
Management Corporation ("BMC") prior to the decision of Banyan
Management Investors, Inc., the General Partner of the Partnership, to
terminate the Partnership s contractual relationship with BMC on October
27, 1994. Pursuant to the former administrative agreement between BMC
and the Partnership (the "BMC Services Agreement"), from January 1,
1993, through October 27, 1994, these costs were charged to each Banyan
Fund based upon the actual number of hours spent by BMC personnel on
matters related to that Fund. The Partnership's costs during the three
months ended March 31, 1994 were $31,598.
5. Recovery of Class Action Settlement Costs and Expenses
On January 25, 1994, the Partnership received net proceeds of
$69,602 relating to a recovery of payments previously made into an
escrow established as part of the class action settlement of the
litigation captioned In re VMS Securities Litigation. The escrow was
established to provide the officers and directors of the Partnership s
general partner with monies to fund the cost of any litigation in which
they may be named as defendants post settlement of the class action.
Subsequently, the directors released the proceeds from the escrow and
the Partnership purchased an insurance policy to cover the officers and
directors.
6. Arbitration and Litigation with Related Parties
On September 12, 1994, the Board of Directors (the "Board") of the
general partner voted unanimously to terminate the employment by the
Partnership of Mr. Leonard G. Levine, including Mr. Levine s employment
as President of the general partner. The Board also elected Mr. Philip
H. Brady, Jr., one of its members, to serve as Acting President and
Acting Chief Financial Officer of the general partner. On September 16,
1994, the Board received notice that other officers of the general
partner, including the Senior Vice President of Finance and
Administration, the First Vice President, and the Vice President and
General Counsel, had resigned effective September 12, 1994.
Levine Arbitration
On or about October 31, 1994, Mr. Levine initiated an arbitration
proceeding against the Partnership before the American Arbitration
Association. Mr. Levine claimed that he was entitled to an award of
$107,359, plus interest and attorneys fees on account of the
termination of his employment by the Partnership. The Partnership
contested Mr. Levine's claims and, in addition, asserted certain claims
10
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
March 31, 1995
(Unaudited)
against Mr. Levine in the BMC Lawsuit described below. The General
Partner has taken the position that an agreement has been reached to
settle the Levine Arbitration, but a settlement agreement memorializing
that agreement has not been executed because the parties have disagreed
as to certain additional terms that are outside the scope of the
arbitration. Accordingly, the General Partner is unable to predict the
ultimate outcome of the Levine Arbitration at this time. In the three
months ended March 31, 1995, the Partnership recorded a provision for
arbitration and litigation with related parties in the amount of $37,500
in connection with the Levine Arbitration. As of March 31, 1995, the
Partnership has established a reserve in the aggregate amount of $67,500
for the Levine Arbitration, which reserve is included in accounts
payable and accrued expenses.
BMC Lawsuit
On October 27, 1994, the Board determined that BMC had breached
certain of its obligations to the Partnership pursuant to the BMC
Services Agreement and resolved, unanimously, to terminate the BMC
Services Agreement. In a simultaneous action, the Board resolved to
engage KPMG Peat Marwick LLP to provide certain administrative and other
services formerly provided by BMC. Subsequently, the Partnership made
various demands upon BMC for return of the Partnership s books and
records. On November 9, 1994, when these demands proved unsuccessful,
the Partnership and Banyan Mortgage Investors L.P. II commenced
litigation against BMC and Mr. Levine, who continues to serve as
President of BMC. In its lawsuit against BMC and Mr. Levine, the
Partnership sought to recover possession of its funds, books and records
which were under BMC s and Mr. Levine s control. The Partnership also
sought to recover money damages and other relief. On November 22, 1994,
the court ordered BMC to make the books and records of the Partnership
available for copying by the Partnership. In addition, the court
ordered Mr. Levine not to interfere with the Partnership's copying of
its books and records.
BMC answered the complaint in the BMC Lawsuit on November 22, 1994
and denied certain of the material allegations therein and asserted
certain defenses. Mr. Levine answered the complaint on or about
January 25, 1995 and also denied certain of the material allegations
therein and asserted certain additional defenses. On December 1, 1994
BMC filed a counterclaim against the Partnership. In its counterclaim,
BMC sought to recover $65,000 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
11
Banyan Mortgage Investors L.P.
(A Limited Partnership)
Notes to Consolidated Financial Statements (Continued)
March 31, 1995
(Unaudited)
General Partner has conducted settlement negotiations in the BMC
Lawsuit. However, the General Partner is unable to predict the ultimate
outcome of the BMC Lawsuit at this time. The Partnership recorded a
provision for arbitration and litigation with related parties in the
amount of $7,548 in connection with the BMC Lawsuit. As of March 31,
1995, the Partnership has established a reserve in the aggregate amount
of $7,548 for the BMC Lawsuit, which reserve is included in accounts
payable and accrued expenses.
12
Item 2. Management's Discussion and Analysis
General
Banyan Mortgage Investors L.P. (the "Partnership") is a Delaware
limited partnership that was organized on November 2, 1984. The sole
general partner of the Partnership is Banyan Mortgage Investors, Inc.,
an Illinois corporation organized in 1984 (the "General Partner"). The
Partnership was originally established to make various types of real
estate investments through wraparound, first and junior mortgage loans
principally to VMS Realty Partners and entities affiliated with it
(collectively, "VMS"). Mortgage loans made by the Partnership were for
initial terms of three, five or seven years, and were prepayable at any
time without prepayment penalty. In February 1990, the Partnership, in
response to VMS's decision to cease making payments on their mortgage
loans due to their liquidity problems, defaulted on such payments and
suspended all relationships between the Partnership and VMS. The
Partnership has been materially adversely affected by VMS's defaults.
As a result, the Partnership ceased making new loans and suspended
distributions to unitholders in 1990.
On August 19, 1992, the Partnership announced that the General
Partner had instructed management to begin the process of liquidating
the Partnership. The General Partner also instructed management to
investigate the establishment of appropriate reserves to provide for the
settlement of all remaining obligations of the Partnership during its
liquidation. The General Partner believes that an orderly liquidation
remains in the best interest of the Partnership and its unitholders,
given the small size and minimal appreciation potential of remaining
non-cash assets, the lack of operating cash flow, and operating costs
required to maintain the Partnership. Upon disposition of the
Partnership's remaining non-cash assets and resolution of pending legal
proceedings, the General Partner intends to complete the liquidation of
the Partnership as promptly as practicable and to distribute the
remaining cash assets, net of any reserves, to the unitholders. The
General Partner does not contemplate the making of any distribution,
liquidating or otherwise, until the remaining non-cash assets have been
disposed of.
On September 12, 1994, the General Partner terminated the
employment by the Partnership of Mr. Leonard G. Levine, including Mr.
Levine's employment as President of the General Partner. The General
Partner also appointed one of its independent Directors, Mr. Philip H.
Brady, Jr., to serve as the Acting President and Acting Chief Financial
Officer of the General Partner. On September 16, 1994, the General
Partner received notice that William M. Karnes, Senior Vice President,
Finance and Administration, Neil D. Hansen, First Vice President, and
Robert G. Higgins, Vice President and General Counsel, resigned,
effective September 12, 1994, as officers of the General Partner. On or
about October 31, 1994, Mr. Levine initiated an arbitration proceeding
(the "Levine Arbitration") against the Partnership in respect of the
termination of his employment. See Results of Operations under this
Part I, Item 2, Management's Discussion and Analysis, Part II, Item 1,
Legal Proceedings, and Note 6 of Notes to Consolidated Financial
13
Item 2. Management's Discussion and Analysis (Continued)
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 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
Banyan Mortgage Investors L.P. II (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 6
of Notes to Consolidated Financial Statements for additional
descriptions of the BMC Lawsuit and related matters.
In December 1994, the Partnership sold its interest in the
Pebblecreek property. The Pebblecreek property was an unimproved site
approximately 20 miles northwest of downtown Detroit, Michigan. In July
1993, the Partnership sold its interest in the Evanston Lock-Up
property. See Note 3 of Notes to Consolidated Financial Statements for
further information with respect to the sales of the Pebblecreek
property and the Evanston Lock-Up property. The Partnership has no
remaining mortgage loans or real properties.
Liquidity and Capital Resources
Cash and cash equivalents consist of cash and short-term
investments. The Partnership's cash and cash equivalents balance at
March 31, 1995 and December 31, 1994 was $1,803,601 and $1,683,162,
respectively. This increase in cash and cash equivalents is due
primarily to cash distributions received in January and February 1995
from Partners Liquidating Trust, in which the Partnership has a 1.32%
beneficial interest. See Other Information under this Part I, Item 2,
Management's Discussion and Analysis, for further details. The
Partnership also earned interest income on its cash and cash
equivalents. The increase in cash and cash equivalents is offset in
part by the payment of the Partnership's operating expenses, including
litigation expenses incurred in connection with legal proceedings
affecting the Partnership in the first quarter of 1995. See Part II,
Item 1, Legal Proceedings, and Note 6 of Notes to Consolidated Financial
Statements for additional descriptions of the Levine Arbitration, the
BMC Lawsuit and related matters.
The Partnership's future source of liquidity is expected to be
generated through interest earned on short-term investments in
investment-grade securities, the possible receipt of cash distributions
from its beneficial interest in Partners Liquidating Trust and, to a
lesser extent, cash proceeds, if any, from the sale or other disposition
14
Item 2. Management's Discussion and Analysis (Continued)
of the Partnership's beneficial interest in Partners Liquidating Trust.
It is anticipated that this cash generated may be less than the
Partnership's operating expenses during the remaining period of
liquidation. A portion of the Partnership's cash will be used to meet
any shortfall. The General Partner believes that the Partnership's cash
and cash equivalents, together with interest earned on short-term
investments, will be sufficient to meet the Partnership's reasonably
anticipated cash needs for the foreseeable future.
As of March 31, 1995, the General Partner has a deficit capital
balance in the Partnership of $300,905. It is currently anticipated
that the Partnership will be unable to recover this deficit upon
liquidation due to the financial limitations of the General Partner.
The Partnership has no obligation to cover this deficit on behalf of the
General Partner.
On March 31, 1992, the Partnership and other creditors of VMS and
certain other parties executed the Creditor Repayment Agreement with
various VMS entities. The Creditor Repayment Agreement, as amended by
four subsequent amendments thereto, provided for the attempted sale by
various VMS entities of their assets in an orderly manner and the
disposition of the proceeds of such sales to the Partnership and such
other creditors. On November 18, 1993, the Partnership, such other
creditors and parties and various VMS entities executed the fifth
amendment to the Creditor Repayment Agreement and the Partnership
received a distribution of cash equal to $176,041. The Partnership also
received a 1.32% beneficial interest in Partners Liquidating Trust,
which holds additional cash and other assets. In December 1994, the
Partnership accrued $75,227 in distributions from Partners Liquidating
Trust. Such amount has been recorded by the Partnership in 1994 as a
recovery of losses on loans, notes and interest receivable, and the
distribution thereof was received in January 1995. Since December 31,
1994, the Partnership has accrued $102,420 in distributions from
Partners Liquidating Trust, which amounts were received in February
1995. In order to complete the liquidation of the Partnership, the
General Partner is exploring means of selling or otherwise disposing of
the Partnership's beneficial interest in this trust.
At the end of the first quarter of 1995, the Partnership valued its
interest in Partners 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 Partners Liquidating
Trust may have some value. However, those assets are not accorded any
carrying value due to the substantial uncertainties regarding the timing
and amount of potential recoveries. See Other Information under this
Part I, Item 2, Management's Discussion and Analysis, and Note 2 of
Notes to Consolidated Financial Statements for additional descriptions
of the Partnership's interest in Partners Liquidating Trust.
The Partnership's ultimate return of cash to its unitholders is
dependent upon, among other things: (i) the disposition of the
remaining non-cash assets of the Partnership and collection of sale
15
Item 2. Management's Discussion and Analysis (Continued)
proceeds, if any, therefrom; (ii) the possible receipt of cash
distributions from Partners Liquidating Trust resulting from recoveries
on remaining assets of the trust; and (iii) the Partnership's ability to
control its operating and liquidating expenses.
Results of Operations
Total income for the three months ended March 31, 1995 increased to
$14,824 from $4,845 for the three months ended March 31, 1995. This
increase in total income was due primarily to an increase in the amount
of cash and cash equivalents held for investment by the Partnership and
to the increase in interest rates available on such investments.
Total expenses for the three months ended March 31, 1995 increased
to $134,242 from $122,578 for the three months ended March 31, 1994.
The increase in total expenses for the first quarter of 1995 when
compared to the first quarter of 1994 was due principally to costs of
litigation incurred by the Partnership in connection with the Levine
Arbitration and the BMC Lawsuit. These costs were partially offset by a
recovery of losses on loans, notes and interest receivable. During the
quarter ended March 31, 1995, the Partnership recorded a $102,420
recovery of losses on loans, notes and interest receivable as a result
of the $102,420 cash distributions to the Partnership from Partners
Liquidating Trust accrued and received in February 1995. There was no
similar recovery during the quarter ended March 31, 1994. The
Partnership recovered in January 1994 certain expenses in the amount of
$69,602 previously paid into escrow in connection with the class action
settlement of the litigation captioned In re VMS Securities Litigation.
There was no similar recovery during the quarter ended March 31, 1995.
Other expenses increased by $44,482 for the first quarter of 1995
from the first quarter of 1994. This increase was due primarily to the
increases in other professional fees to $83,928 for the first quarter of
1995 from $17,923 for the first quarter of 1994, and the recording of
provisions aggregating $45,048 for arbitration and litigation with
related parties relating to the Levine Arbitration and the BMC Lawsuit.
See Part II, Item 1, Legal Proceedings, and Note 6 of Notes to
Consolidated Financial Statements for additional descriptions of the
Levine Arbitration, the BMC Lawsuit and related matters. These
increases were partially offset by decreases in unitholder expenses,
directors' fees, expenses and insurance, and general and administrative
expenses. Unitholder expenses declined in the amount of $37,922.
Directors' fees, expenses and insurance declined in the amount of
$18,648. General and administrative expenses declined in the amount of
$10,001. Unitholder expenses decreased reflecting continuing efforts by
the General Partner to control such expenses and the shifting of some
costs associated with unitholder services from BMC to outside
professional firms. The decrease in directors' fees, expenses and
insurance is attributable to a decrease in the premium for director's
and officer's insurance and continued cost control efforts by the
General Partner. The decrease in general and administrative expenses to
$42,974 in the first quarter of 1995 from $52,975 in the first quarter
16
Item 2. Management's Discussion and Analysis (Continued)
of 1994 reflects continued efforts by the General Partner to control
such expenses and the shifting of some general and administrative
expenses to outside professional firms.
During the three months ended March 31, 1994, the Partnership
recorded a net gain of $43,752 in connection with the dispositions of
the Pebblecreek property and the Evanston Lock-Up property. See Note 3
of Notes to Consolidated Financial Statements. There was no similar
gain recorded during the three months ended March 31, 1995.
These changes resulted in an increase in the net loss for the three
months ended March 31, 1995 to $119,418 ($0.016 per unit) from $73,981
($0.010 per unit) for the three months ended March 31, 1994.
Other Information
On October 4, 1993, the outstanding capital stock (the "Stock") of
the General Partner was transferred to Banyan Mortgage Investors Holding
Corp. ("Holding Corp.") pursuant to the terms of the class action
settlement entered into by the Partnership on September 25, 1991. Under
the terms of the settlement, VMS Realty, Inc., the prior owner of the
Stock, agreed to transfer the Stock to an entity designated by the
Partnership in return for certain releases. Holding Corp. is an
Illinois corporation owned solely by Mr. Leonard G. Levine, the former
President of the General Partner. Mr. Levine is also the sole director
of Holding Corp. and President of BMC. Mr. Levine is currently involved
in the Levine Arbitration and BMC and Mr. Levine are currently involved
in the BMC Lawsuit. See Part II, Item 1, Legal Proceedings, and Note 6
of Notes to Consolidated Financial Statements for additional
descriptions of the Levine Arbitration and the BMC Lawsuit. Holding
Corp. has transferred the Stock to a ten-year irrevocable voting trust,
the trustees of which are the three directors of the General Partner.
Pursuant to the terms of the voting trust agreement between Holding
Corp. and the trustees of the voting trust, the trustees are required to
vote the Stock in the best interest of the unitholders of the
Partnership. In conjunction with the transfer of the Stock, the name of
the General Partner was changed from VMS Mortgage Investors, Inc. to
Banyan Mortgage Investors, Inc.
On November 18, 1993, the Partnership and other parties executed
the fifth amendment to the Creditor Repayment Agreement and the
Partnership received a 1.32% beneficial interest in Partners Liquidating
Trust. See Note 2 of Notes to Consolidated Financial Statements for
additional descriptions of the Partnership's interest in Partners
Liquidating Trust.
Neither the Partnership nor the General Partner controls Partners
Liquidating Trust or any of its assets. The trustee of Partners
Liquidating Trust is an affiliate of BMC. The trustee is not required
to furnish, and has not furnished, financial statements to the
Partnership with respect to the trust's financial condition and results
of operation for the year ended December 31, 1994. Accordingly, the
17
Item 2. Management's Discussion and Analysis (Continued)
General Partner lacks current information with respect to the financial
condition and results of operation of the trust and its underlying
assets. The General Partner also lacks current information regarding
the value or collectibility of any of the assets of Partners Liquidating
Trust. Accordingly, the General Partner is unable to predict with any
degree of certainty the timing or proceeds, if any, to Partners
Liquidating Trust of any disposition of or recovery on any of the
remaining assets of the trust. Based upon information furnished to the
Partnership on behalf of the trustee of Partners Liquidating Trust, as
of March 1, 1995 Partners Liquidating Trust retained approximately 33
different assets, as follows: 16 "employee notes" evidencing
indebtedness due from individuals; 10 "assignment notes"; 1 "wrap note";
1 "advance note"; 1 "promissory note"; an interest in a corporation; an
interest in a joint venture; a claim for 75% of the proceeds of a note
issued in connection with the settlement of a contract dispute; and a
"chose-in-action". In addition, the trust held approximately 24 other
"assignment notes" which are believed to have been either discharged or
restructured under confirmed plans of reorganization of the parties
liable on such notes. On or about December 29, 1994, certain
beneficiaries of Partners Liquidating Trust purported to amend and
restate the original agreement and declaration of trust dated November
17, 1993 (the "Original Trust Instrument") that established Partners
Liquidating Trust, by an amended and restated declaration of trust dated
as of December 29, 1994 (the "Amended Trust Instrument"). Certain other
beneficiaries, including the Partnership, have taken the position that
the purported amendment of Partners Liquidating Trust was ineffective.
Accordingly, it is unclear whether the rights and obligations of the
trustee and beneficiaries of Partners Liquidating Trust are currently
governed by the terms and provisions of the Original Trust Instrument or
the Amended Trust Instrument. However, the General Partner does not
believe that this dispute will have a material impact on the financial
condition or results of operation of the Partnership.
During the three months ended March 31, 1995, the Partnership
received unsolicited proposals from two unrelated third parties seeking
to acquire the Partnership or a controlling interest in the Partnership.
Neither of those proposals remains active.
Because of the inability to predict with any degree of certainty
the timing or amount of proceeds of any disposition of the Partnership's
remaining non-cash assets, the General Partner is unable to estimate the
timing or amount of any liquidating distribution to unitholders.
18
PART II
Item 1. Legal Proceedings
The Levine Arbitration
On September 12, 1994, the General Partner terminated the
employment by the Partnership of Mr. Leonard G. Levine, including Mr.
Levine's employment as President of the General Partner. The General
Partner also appointed one of its independent Directors, Mr. Philip H.
Brady, Jr., to serve as the Acting President and Acting Chief Financial
Officer of the General Partner. On September 16, 1994, the General
Partner received notice that William M. Karnes, Senior Vice President,
Finance and Administration, Neil D. Hansen, First Vice President, and
Robert G. Higgins, Vice President and General Counsel, resigned,
effective September 12, 1994, as officers of the General Partner.
On or about October 31, 1994, Mr. Levine initiated an arbitration
proceeding (the "Levine Arbitration") against the Partnership before the
American Arbitration Association. Mr. Levine claimed $107,359, plus
interest and attorneys' fees, under the Second Amended and Restated
Employment Agreement, dated as of December 31, 1992, between Mr. Levine
and the Partnership on account of the termination of his employment.
The Partnership contested Mr. Levine's claims and, in addition, asserted
certain claims against Mr. Levine in the BMC Lawsuit. The General
Partner has taken the position that an agreement has been reached to
settle the Levine Arbitration, but a settlement agreement memorializing
that agreement has not been executed because the parties have disagreed
as to certain additional terms that are outside the scope of the
arbitration. Accordingly, the General Partner is unable to predict the
ultimate outcome of the Levine Arbitration at this time. In the three
months ended March 31, 1995, the Partnership recorded a provision for
arbitration and litigation with related parties in the amount of $37,500
in connection with the Levine Arbitration. As of March 31, 1995, the
Partnership has established a reserve in the aggregate amount of $67,500
for the Levine Arbitration, which reserve is included in accounts
payable and accrued expenses. See Part I, Item 2, Management's
Discussion and Analysis, and Note 6 of Notes to Consolidated Financial
Statements for additional descriptions of the Levine Arbitration and
related matters.
The BMC Lawsuit
On October 27, 1994, the General Partner determined that Banyan
Management Corporation ("BMC") had breached various of its obligations
to the Partnership under the Administrative Services Agreement (the "BMC
Services Agreement"), dated as of February 27, 1994, between the
Partnership and BMC, and terminated the BMC Services Agreement. In a
simultaneous action, the Partnership engaged KPMG Peat Marwick LLP to
provide certain administrative and other services formerly provided by
BMC. Subsequently, the Partnership made various demands upon BMC for
return of the Partnership's books and records.
19
Item 1. Legal Proceedings (Continued)
When these demands proved unsuccessful, the Partnership together
with Banyan Mortgage Investors L.P. II commenced litigation (the "BMC
Lawsuit") on November 9, 1994 against BMC and Leonard G. Levine. In the
BMC Lawsuit, the Partnership sought to recover possession of its funds,
books and records which were under BMC's and Mr. Levine's control. The
Partnership also sought money damages and other relief. On November 22,
1994, the court ordered BMC to make the books and records of the
Partnership available for copying by the Partnership. In addition, the
court ordered Mr. Levine not to interfere with the Partnership's copying
of its books and records.
BMC answered the complaint in the BMC Lawsuit on November 22, 1994
and denied certain of the material allegations therein and asserted
certain defenses. Mr. Levine answered the complaint on or about
January 25, 1995 and also denied certain of the material allegations
therein and asserted certain additional defenses. On December 1, 1994
BMC filed a counterclaim against the Partnership. In its counterclaim,
BMC sought to recover $65,000 in contract termination fees from the
Partnership under the BMC Services Agreement and for an order requiring
the Partnership to transfer the capital stock of BMC owned by the
Partnership to BMC. The Partnership denied the material allegations of
BMC's counterclaim and asserted certain additional defenses. The
General Partner has conducted settlement negotiations in the BMC
Lawsuit. However, the General Partner is unable to predict the ultimate
outcome of the BMC Lawsuit at this time. The Partnership recorded a
provision for arbitration and litigation with related parties in the
amount of $7,548 in connection with the BMC Lawsuit. As of March 31,
1995, the Partnership has established a reserve in the aggregate amount
of $7,548 for the BMC Lawsuit, which reserve is included in accounts
payable and accrued expenses. See Part I, Item 2, Management's
Discussion and Analysis, and Note 6 of Notes to Consolidated Financial
Statements for additional descriptions of the BMC Lawsuit and related
matters.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibit is filed as part of this Report:
Exhibit 27.1 Financial Data Schedule (EDGAR Filer)
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1995.
20
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.
BANYAN MORTGAGE INVESTORS L.P.
By: Banyan Mortgage Investors, Inc.
its General Partner
By: /s/ Philip H. Brady, Jr. Date: May 19, 1995
Philip H. Brady, Acting President
and Acting Chief Financial and
Accounting Officer
21
EXHIBIT INDEX
Exhibit No. Page No.
27.1 Financial Data Schedule (EDGAR Filer) 22
22