Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-28710
(Exact name of small business issuer as
specified in its charter)
Performance Asset Management Fund IV, Ltd., A California Limited Partnership
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
California 33-0548134
(Address of principal executive offices)
4100 Newport Place, Suite 400, Newport Beach, California
(Issuer's telephone number)
(714) 261-2400
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such report(s), and (2)
has been subject to such filing requirements for the past 90 days. Yes _X_ No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant
filed all documents and reports required to be filed by Section 12, 13 or 15(d)
of the Exchange Act after the distribution of securities under a plan confirmed
by court. Yes ___ No ___.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: N/A
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
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PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO FORM 10-QSB
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Plan of Operation
PART II
Item 1. Legal Proceedings
Item 2. Exhibits and Reports
Signatures
2
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PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
PART I
ITEM 1. FINANCIAL STATEMENTS
Index to the Financial Statements for the Partnership:
Balance Sheets as of September 30, 1998 and December 31, 1997 .......4
Statements of Operations for the Three and Nine months Ended
September 30, 1998 and September 30, 1997 ...................5
Statements of Partners' Capital (Deficit) for the Nine months Ended
September 30, 1998 and the year ended December 31, 1997 .... 6
Statements of Cash Flows for the Nine Months Ended September 30,
1998 and September 30, 1997 .................................7
Notes to Financial Statements ...................................... 8
The financial statements have been prepared by Performance Asset
Management Fund IV, Ltd., A California Limited Partnership
("Partnership"), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
The Partnership believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the
Partnership's financial statements for the year ended December 31,
1997. The financial information presented reflects all adjustments,
consisting only of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair statement of the results
for the interim periods presented.
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PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1998 and December 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------ ------------
<S> <C> <C>
Cash and equivalents $ 1,497,640 $ 1,995,810
Cash held in trust 2,949,656 2,849,998
Investments in distressed loan portfolios, net 9,906,274 7,255,916
Deposit on distressed loan portfolio acquisition -- 2,858,076
Due from affiliate -- 231,443
Other assets 104,977 104,977
============ ============
Total assets $ 14,458,547 $ 15,296,220
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 5,350 $ 61,713
Due to affiliates, net 314,115 1,225,572
------------ ------------
Total liabilities 319,465 1,287,285
------------ ------------
Commitments and contingencies
General partner's deficit (no units outstanding) (1,024,556) (1,039,077)
Limited partners' capital (12,000 units authorized;
11,454 and 11,462 units issued and outstanding at
at September 30, 1998 and December 31, 1997 respectively) 15,163,638 15,048,012
------------ ------------
Total partners' capital 14,139,082 14,008,935
============ ============
Total liabilities and partners' capital $ 14,458,547 $ 15,296,220
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended September 30 Months Ended September 30
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Portfolio collections $1,259,482 $630,035 $3,746,787 $2,047,261
Less: portfolio basis recovery 1,197,479 606,690 3,569,596 1,998,422
----------- ----------- ----------- -----------
Net investment income 62,003 23,345 177,191 48,839
----------- ----------- ----------- -----------
Cost of operations:
Collection expense 16,858 47,988 121,061 215,877
Management fee expense 60,113 52,010 191,271 160,734
Professional fees 92,195 2,359 156,675 168,152
Amortization -- 917 -- 2,842
General and administrative expense 125 1,176 1,546 64,976
----------- ----------- ----------- -----------
Total operating expenses 169,291 104,450 470,553 612,581
----------- ----------- ----------- -----------
Income (loss) from operations (107,288) (81,105) (293,362) (563,742)
Other income:
Interest 62,076 (21,303) 175,091 167,337
Other income 7,362 -- 263,468 9,993
----------- ----------- ----------- -----------
Net income (loss) ($37,850) ($102,408) $145,197 ($386,412)
=========== =========== =========== ===========
Net income (loss) allocable to general partner ($3,785) ($10,241) $14,521 ($38,641)
=========== =========== =========== ===========
Net income (loss) allocable to limited partners ($34,065) ($92,167) $130,676 ($347,771)
=========== =========== =========== ===========
Net income (loss) per limited partnership unit ($2.97) ($8.04) $11.41 ($30.36)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
(DEFICIT) For the Nine Months Ended September 30, 1998
and Year Ended December 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1996 (748,842) 17,683,367 16,934,525
Redemption of 10 partnership units -- (25,000) (25,000)
Distributions (222,907) (2,004,399) (2,227,306)
Net income (loss) (67,328) (605,956) (673,284)
------------ ------------ ------------
Balance, December 31, 1997 ($1,039,077) $15,048,012 $14,008,935
Redemption of 8 partnership units ($15,050) ($15,050)
Net income 14,521 130,676 145,197
------------ ------------ ------------
Balance, September 30, 1998 ($1,024,556) $15,163,638 $14,139,082
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS For
the Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, 1998 Dec. 31, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $145,197 ($386,412)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization -- 2,842
Decrease (increase) in assets:
Due from affiliates 231,443 136,022
Increase (decrease) in liabilities:
Accounts payable (56,363) (1,001)
Due to affiliates (911,458) 158,946
----------- -----------
Net cash provided by (used in)
operating activities (591,181) (89,603)
----------- -----------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis 3,569,596 1,998,422
Cash held in trust (99,658) 3,018,477
Purchase of investments in distressed loan portfolios (6,219,953) (764,586)
Deposit on distressed loan portfolio acquisition 2,858,076 --
----------- -----------
Net cash provided by investing activities 108,061 4,252,313
----------- -----------
Cash flows provided by (used in) financing activities:
Redemption of limited partnership units ($15,050) (25,000)
Distributions to partners -- (2,227,303)
----------- -----------
Net cash used in financing activities (15,050) (2,252,303)
----------- -----------
Net (decrease) increase in cash (498,170) 1,910,407
Cash at beginning of period 1,995,810 2,121,545
=========== ===========
Cash at end of period $1,497,640 $4,031,952
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
PERFORMANCE ASSET MANAGEMENT FUND IV, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
Organization and Description of Business
Performance Asset Management Fund IV, Ltd., A California Limited
Partnership ("Partnership"), was formed in October 1992, for the purpose of
acquiring investments in or direct ownership of distressed loan portfolios
from financial institutions and other sources. Interests in the Partnership
were sold in an intrastate offering to residents of California pursuant to
the provisions of Section 3(A) (11) of the Securities Act of 1933; however,
the Partnership did not begin its primary operations until March 1993. The
General Partner is Performance Development, Inc., a California corporation
("General Partner").
The Partnership terminates at December 31, 2005. At that time, the
Partnership will distribute any remaining cash after payment of Partnership
obligations following the sale or collection of all assets.
Profits, losses, and cash distributions are allocated 90% to the limited
partners and 10% to the General Partner until such time as the limited
partners have received cash equal to 100% of their contributions to the
capital of the Partnership plus an amount equal to 6% per annum of the
limited partners contributions to the capital of the partnership, yet to be
returned. Thereafter, Partnership profits, losses, and cash distributions
will be allocated 70% to the limited partners and 30% to the General
Partner.
Cash and Equivalents
The Partnership defines cash equivalents as all highly liquid investments
with an original maturity of three months or less. The Partnership
maintains cash balances at one bank in accounts which, at times, may exceed
federally insured limits. The Partnership uses a cash management system
whereby idle cash balances are transferred daily into a master account and
invested in high quality, short-term securities that do not enjoy the
benefit of the federal insurance. The General Partner believes that these
cash balances are not subject to any significant credit risk, due to the
nature of the investments and the strength of the bank and has not
experienced any losses with cash and equivalent investments.
The Partnership received interest income from these investments of $175,091
and $167,337 for the nine months ended September 30, 1998 and September 30,
1997, respectively.
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Cash Held in Trust
The General Partner was planning to reorganize and merge the Partnership
and Performance Asset Management Fund, Ltd., A California Limited
Partnership; Performance Asset Management Fund II, Ltd., A California
Limited Partnership; Performance Asset Management IV, Ltd., A California
Limited Partnership; Performance Asset Management Fund V, Ltd., A
California Limited Partnership, all affiliates of the partnership ("PAM
Funds"), and Performance Capital Management, Inc., a California corporation
of another affiliate of the Partnership ("PCM"), with and into Performance
Asset Management Company, a Delaware Corporation ("PAMCO") ("Rollup"). In
an effort to accomplish the Rollup, the General Partner, on behalf of the
Partnership and the PAM Funds, entered into an agreement on December 12,
1995, with the State of California Department of Corporations
("Department"), pursuant to the provisions of which the Performance Asset
Management Fund Trust ("Trust") was created. Certain funds of the
Partnership are held by the Trust and these funds held in trust are subject
to the terms of the Trust agreement. The Trust was the recipient of those
funds resulting from a settlement of certain then pending litigation
between the Partnership and its affiliates and West Capital Financial
Services Corp. and its affiliates. The funds held by the Trust must not be
less than $5,000,000, which is comprised of funds from the Partnership and
the PAM Funds. The Trust agreement specifies that the Trust will terminate
and the trustee will distribute all of the remaining funds held by the
trustee on August 16, 1998 if the Rollup is not completed by such date. The
Department opposed the termination of the Trust on August 16, 1998. As a
result, the term of the Trust was extended to November 18, 1998; and the
General Partner anticipates that the term of the trust will be extended
again. The Partnership is attempting to reach an agreement with the
Department regarding the termination of the Trust and the disposition of
the Partnership's funds held by the Trust. The Partnership's share of the
Trust's funds at September 30, 1998 and December 31, 1997, was $2,216,480
and $2,141,584, respectively.
Litigations
On or about November 12, 1998, attorneys for the General Partner were
informed by the State of California Commissioner of Corporations
("Commissioner") that the Commissioner then intended to file an action in
Los Angeles Superior Court seeking to have appointed a receiver to take
over the affairs of the Partnership and its affiliated entities.
Additionally, a hearing in Los Angeles County Superior Court is scheduled
to occur at 8:30 A.M. on November 16, 1998, for the purpose of the Court's
determination whether or not such a receiver is necessary or appropriate.
The General Partner intends, for and on behalf of the Partnership, to
oppose the appointment of such a receiver.
The Commissioner has informed attorneys for the General Partner that the
Commissioner has determined that certain affiliates of the Partnership,
i.e., Vincent E. Galewick; Income Network Company, the Placement Manager of
the offer and sale of the Units in the Partnership; Performance Asset
Management Company, a Delaware corporation ("PAMCO"); and Performance
Telecom Services, LLC, a California limited liability company ("PTS"),
filed documents with the Commissioner which contained misrepresentations of
material fact; and, additionally, those documents omitted to specify
certain material facts which, in the opinion of the Commissioner, should
have been included therein. Those affiliates disagree significantly with
the determination of the Commissioner and intend to oppose any litigation
or other enforcement action commenced by the Commissioner against those
affiliates.
9
<PAGE>
Additionally, on or about November 6, 1998, the Commissioner issued to
Vincent E. Galewick and Income Network Company two (2) cease and refrain
orders. One such order orders Mr. Galewick and Income Network Company to
desist and refrain from the further offer and sale in the State of
California of securities by means of misrepresentation or omissions of
material facts in violation of Section 25401 of the California Corporate
Securities Law of 1968 ("Law"). Mr. Galewick and Income Network Company
deny that either of them have offered or sold securities in the State of
California by means of misrepresentation or omissions of material facts.
Neither Mr. Galewick nor Income Network Company believe that either Income
Network Company or Mr. Galewick is participating in the offer or sale in
the State of California of securities by means of misrepresentation or
omissions of material facts in violation of Section 25401 of the Law. The
second order issued to Mr. Galewick only orders Mr. Galewick to desist and
refrain from the further offer and sale in the State of California of
securities unless and until qualification of those securities has been made
pursuant to the provisions of the Law.
The Commissioner believes that Mr. Galewick and certain of his affiliates
have made certain misrepresentations and omissions of material facts in
certain applications to qualify (register) securities with the
Commissioner. Those misrepresentations and omissions relate to (i) the
affairs of Desert Hot Springs Resort Limited Partners, Series A, Ltd. and
Desert Hot Springs Resort Limited Partners, Series B, Ltd., two California
limited partnerships for which Performance Development, Inc. (wholly owned
by Mr. Galewick and which serves as the General Partner of the Partnership)
serves as the General Partner (collectively, "DHSRLP"); (ii) certain
litigation filed by SunAmerica, Inc. and certain of its affiliates
(collectively, "SunAmerica") against Mr. Galewick and certain of his
affiliates alleging fraud and deceit, gross negligence and violations of
Section 10(b) of the Securities Exchange act of 1934 and Rule 10b-5; and
(iii) compensation paid by the Partnership and other similar California
limited partnerships to various affiliates of the General Partner and
Income Network Company. Mr. Galewick and those affiliates believe that (i)
no such misrepresentations or omissions of material facts were, in fact,
made relating either to (a) DHSRLP or (b) the SunAmerica litigation and
(ii) SunAmerica has no basis for its litigation against Mr. Galewick or
those affiliates. The General Partner believes that appropriate disclosure
regarding compensation paid by the Partnership and those other partnerships
to those affiliates was made.
10
<PAGE>
On November 12, 1998, the Commissioner issued an order pursuant to the
provisions of Section 25531 of the California Corporations Code appointing
Barry A. Fisher as a Keeper for Income Network Company ("Keeper")
("Order"). Pursuant to the provisions of the Order, the Keeper shall take
possessions of all books, records, accounts and other papers of Income
Network Company. Additionally, the Keeper is authorized, empowered and
directed to employ attorneys and such other persons as the Keeper may deem
to be necessary to assist the Keeper in the performance of his duties
contemplated by the provisions of the Order. The Keeper is to undertake an
independent review into the books, records, accounts and other papers of
Income Network Company and file with the Department an inventory of all
books, records, accounts and other papers of Income Network Company of
which he shall then have reviewed, observed and/or discovered pursuant to
the provisions of the Order. The Order does not allow the Keeper to take
possession of or interfere in the business of the affiliates of Income
Network Company. Income Network Company has notified the Commissioner that
Income Network Company intends to take any and all legal action necessary
or appropriate, including a hearing in Los Angeles County Superior court,
to cause the Keeper to be removed from Income Network Company and his
powers, granted pursuant to the provisions of the Order, terminated.
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of cost
or estimated net realizable value. Amounts collected are treated as a
reduction to the carrying basis of the related investments on an individual
portfolio basis and are reported in the Statement of Operations as
portfolio collections. Under the cost recovery method of revenue
recognition used by the Partnership, net investment income is not
recognized until 100% recovery of the carrying value of the investment in
each portfolio occurs. Estimated net realizable value represents the
management's estimates, based on its present plans and intentions, of the
present value of future collections. Due to the distressed nature of these
investments, no interest is earned on outstanding balances, and there is no
assurance that the unpaid principal balances of these investments will
ultimately be collected. Any adjustments reducing the carrying value of the
individual portfolios are recorded in the results of operations as a
general and administrative expense.
11
<PAGE>
Organization Costs, Net
Organization costs include legal and other professional fees incurred
related to the
organization of the Partnership. These costs are capitalized and amortized
using the straight-line method over five years. Organization costs were
fully amortized at December 31, 1997.
Professional Fees
Professional fees are incurred in relation to ongoing accounting and legal
assistance.
Income Taxes
No provision for income taxes has been made in the financial statements,
except for the Partnership's minimum state franchise tax liability of $800.
All partners report individually on their share of the Partnership's
operating results.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reported period. Actual results could differ from the estimates.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Disclosure regarding: Forward Looking Statements
The information contained in this report on Form 10-QSB, other than
historical facts, contains "forward-looking statements" (as such term is
defined within the meaning of the Private Securities Litigation Reform Act
of 1995) including, without limitation, statements as to the Partnership's
objective to grow through future portfolio acquisitions, portfolio account
sales, the Partnership's ability to realize operating efficiencies in the
integration of its acquisitions, trends in the Partnership's future
operating performance, and statements as to the Partnership's or the
General Partner's beliefs, expectations and opinions. Forward looking
statements may be identified by the use of forward looking terminology,
such as "may", "will", "expect", "estimate", "anticipate", "probable",
"possible", "should", "continue", or similar terms, variations of those
terms or the negative of those terms. Forward-looking statements are
subject to risks and uncertainties and may be affected by various factors
which may cause actual results to differ materially from those in the
forward-looking statements. In addition to the factors discussed in this
Report, certain risks, uncertainties and other factors, including, without
limitation, the risk that the Partnership will not be able to realize
operating efficiencies in the integration of its acquisitions, risks
associated with growth and future acquisitions, fluctuations in quarterly
operating results, and the other risks detailed from time to time in the
Partnership's filings with the Securities and Exchange Commission,
including the Partnership's Annual Report on Form 10-KSB, dated on March
31, 1998, can cause actual results and developments to be materially
different from those expressed or implied by such forward-looking
statements.
12
<PAGE>
Results of Operations
The Partnership recorded net investment income of $177,191 for the nine
months ended September 30, 1998, a 263% increase from $48,839 for the
comparable period in 1997. This increase was generated from additional
portfolios that collected in excess of the carrying value of its basis and
accordingly is reflected as net investment income. Approximately 5% of
portfolio collections received for the nine months ended September 30, 1998
are reflected as income, compared to 2% for the similar period in 1997.
Net investment income of $177,191 for the nine months ending September 30,
1998 is the direct result of portfolio collection proceeds from nine of the
Partnership's portfolios. These nine portfolios owned by the Partnership
contain two portfolios which contributed 48% of the net investment income
and seven other portfolios which contributed the remaining net investment
income during the nine months ended September 30, 1998. Collections for the
months ended July 31, 1998, August 31, 1998, and September 30, 1998,
totaled $510,250, $364,611, and $384,621, respectively.
The Partnership received proceeds from portfolio sales of $664,759 of which
100% were recorded as recoveries of investment basis and reflected in
portfolio collections for the nine months ended September 30, 1998.
Proceeds totaling $40,691 were received for the comparable period ended
September 30, 1997. The General Partner continues to believe that proceeds
from both collection and portfolio account sales will continue in
subsequent periods.
Total operating expenses of the Partnership decreased 23% to $470,553 for
the nine months ended September 30, 1998, from $612,581 for the comparable
period in 1997. The decrease is due primarily to a 98% reduction in
collection expenses and general and administrative fees. General and
administrative fees was $1,546 for the nine months ended September 30,
1998, from $64,976 for the similar period in 1997. Collection expenses
decreased 44%, to $121,061 for the nine months ended September 30, 1998
from $215,877 for the same period in 1997. The skip tracing process used by
the Partnership to locate and identify debtor accounts decreased during
this period, reducing collection expenses. Management fees increased by 16%
to $191,271 for the nine months ended September 30, 1998, from $160,734,
which was directly related to the increase of investments in distressed
loan portfolios and net assets under management.
Total operating expenses of the Partnership as a percentage of portfolio
collections decreased 17%, to 13% for the nine months ended September 30,
1998 from 30% in the comparable period in 1997. This decrease is primarily
attributed to a decrease in general and administrative expenses associated
with the Partnership.
Total operating expenses of the Partnership increased 61% to $169,291 for
the three months ended September 30, 1998 from $104,450 for the comparable
period of 1997. The increase in total operating expenses is primarily
attributed to an increase in professional fees by 97%. Management fees
increased 14% for the quarter ended September 30, 1998 to $60,113 from
$52,010 for the similar period ended 1997, due to
13
<PAGE>
the acquisition of new portfolios increasing the net assets under
management. Collection fees decreased 65% to $16,858, from $47,988. This
decrease in collection expenses is due essentially to a reduction in skip
tracing used to locate and identify Partnership debtor accounts.
Operating expenses as a percentage of portfolio collections decreased 4% to
13% for the three months ended September 30, 1998, compared to 17% for the
similar period ended September 30, 1997. The decrease in operating expense
as a percent of portfolio collections is primarily attributed to decreased
collection expenses.
Financial Condition, Liquidity and Capital Resources.
The Partnership's total assets decreased approximately 6% to $14,458,547 as
of September 30, 1998, from $15,296,220 at December 31, 1997. The decrease
was primarily attributed to portfolio collection proceeds of $3,746,787, of
which 95% or $3,569,596 was recorded as a reduction of investment portfolio
assets. The purchase related to the deposit on distressed loan portfolio
acquisition of $2,858,076 was consummated at the beginning of the year, and
is reflected in the increase in investments in distressed loan portfolios.
The decrease of $231,443 in due from affiliates is primarily the result of
the receipt of payments due the Partnership for the prior period's
collections.
The decrease of $911,458 in due to affiliates during the nine months ended
September 30, 1998, was due primarily to the payments of accrued legal
expenses and management fees to the General Partner.
The Partnership acquired five new distressed portfolio assets in the first
nine months of 1998 from a third party financial institutions which
specializes in credit card origination. The General Partner anticipates
that the Partnership will acquire additional portfolios in the future.
Future acquisitions will depend on the asset market, which continues to
grow in size and diversity. The General Partner believes that the
Partnership will continue to acquire low-priced distressed portfolios;
however, the General Partner will continue to evaluate assets with
different pricing and debtor account structure to determine whether such
portfolios can generate significant immediate cash flows and provide
additional liquidity to the Partnership.
The Partnership has made no future commitments with credit card originators
and other financial institutions to acquire portfolio assets. The General
Partner and Performance Capital Management, Inc., a California corporation
and an affiliate of the General Partner ("PCM"), plan to use their present
contacts and relationships to identify and acquire additional assets at
optimal prices, and believe that they will have no difficulty in
identifying and acquiring such assets. The General Partner believes that
current cash reserves and future portfolio collection proceeds will be
sufficient to acquire portfolio assets in the next twelve months.
At this time the General Partner has withdrawn the application for the
Rollup of the Partnership with the PAM Funds into PAMCO. This is due to the
continuing regulatory delays and complexity of the reorganization of the
Rollup. The General Partner has resumed distributions to its investors in
the fourth quarter of 1998.
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<PAGE>
Impact of Additional Partnership Acquisitions and Resources on Operations.
The General Partner anticipates that additional future portfolio
acquisitions and continued expansion will improve the Partnership's
liquidity, profitability and financial condition, as a result of increased
portfolio collections and sales. The General Partner believes that PCM must
continue to increase the amount of its collection representatives and human
resources in order to supplement such growth. PCM has signed a lease for
over 18,000 square feet of office space into which, it plans to move and
expand its facilities during the fourth quarter of 1998. The General
Partner believes that this move provides the adequate operating facilities
for the future growth of PCM, which will subsequently increase portfolio
collections for the Partnership.
The proposal by the General Partner, pursuant to which the PAM Funds and
the Partnership would merge with and into PAMCO, has been withdrawn. The
General Partner has re-evaluated its objectives due to the lengthy delays
that have been experienced in accomplishing the Rollup. Due to the change
of plans for the Rollup, the General Partner has resumed investor
distributions during the fourth quarter of 1998.
Year 2000 Compliance.
The General Partner recognizes that the arrival of the Year 2000 poses a
unique challenge to the ability of the computer systems of PCM used to
service, manage and collect the portfolios in which the Partnership has an
interest, to recognize properly and process date sensitive information
related to the date change from December 31, 1999 to January 1, 2000. As
the century date change occurs, date-sensitive systems may recognize the
Year 2000 as 1900, or not at all. This inability to recognize or treat
properly the Year 2000 may cause PCM's computer systems to process
financial and operational information incorrectly, which could have a
material adverse effect on the Partnership's results of operations. PCM has
assessed and begun remedial work relating to PCM's computer software
programs and business processes to provide for PCM's ability to continue to
function effectively.
In 1997, PCM began the process of identifying, evaluating and implementing
changes to PCM's computer programs necessary to address the Year 2000
issue. The General Partner is currently addressing the Partnership's
internal Year 2000 issue by coordinating with PCM in connection with PCM's
modification of existing programs and conversions to new programs. The
General Partner is also in communication with financial institutions and
other entities with which the Partnership conducts business to help them
identify and resolve the Year 2000 issue as it relates to the Partnership's
business operations. An assessment of the readiness of those third party
institutions and entities with which the Partnership does business is
ongoing. While PCM and the General Partner are confident that PCM will
complete the assessment and remediation of PCM's computer software, there
can be no assurance that the necessary modifications and conversions by
those third party institutions and entities with which the Partnership
conducts business will be completed in a timely manner, which could have a
material adverse effect on the Partnership's results of operations. The
total cost to the Partnership associated with the required modifications
and conversions is not
15
<PAGE>
expected to be material to the Partnership's results of operations and
financial position and is being expensed as incurred.
PART II
Item 1. Legal Proceedings.
On or about November 12, 1998, attorneys for the General Partner were
informed by the State of California Commissioner of Corporations
("Commissioner") that the Commissioner then intended to file an action in
Los Angeles Superior Court seeking to have appointed a receiver to take
over the affairs of the Partnership and its affiliated entities.
Additionally, a hearing in Los Angeles County Superior Court is scheduled
to occur at 8:30 A.M. on November 16, 1998, for the purpose of the Court's
determination whether or not such a receiver is necessary or appropriate.
The General Partner intends, for and on behalf of the Partnership, to
oppose the appointment of such a receiver.
The Commissioner has informed attorneys for the General Partner that the
Commissioner has determined that certain affiliates of the Partnership,
i.e., Vincent E. Galewick; Income Network Company, the Placement Manager of
the offer and sale of the Units in the Partnership; Performance Asset
Management Company, a Delaware corporation ("PAMCO"); and Performance
Telecom Services, LLC, a California limited liability company ("PTS"),
filed documents with the Commissioner which contained misrepresentations of
material fact; and, additionally, those documents omitted to specify
certain material facts which, in the opinion of the Commissioner, should
have been included therein. Those affiliates disagree significantly with
the determination of the Commissioner and intend to oppose any litigation
or other enforcement action commenced by the Commissioner against those
affiliates.
Additionally, on or about November 6, 1998, the Commissioner issued to
Vincent E. Galewick and Income Network Company two (2) cease and refrain
orders. One such order orders Mr. Galewick and Income Network Company to
desist and refrain from the further offer and sale in the State of
California of securities by means of misrepresentation or omissions of
material facts in violation of Section 25401 of the California Corporate
Securities Law of 1968 ("Law"). Mr. Galewick and Income Network Company
deny that either of them have offered or sold securities in the State of
California by means of misrepresentation or omissions of material facts.
Neither Mr. Galewick nor Income Network Company believe that either Income
Network Company or Mr. Galewick is participating in the offer or sale in
the State of California of securities by means of misrepresentation or
omissions of material facts in violation of Section 25401 of the Law. The
second order issued to Mr. Galewick only orders Mr. Galewick to desist and
refrain from the further offer and sale in the State of California of
securities unless and until qualification of those securities has been made
pursuant to the provisions of the Law.
16
<PAGE>
The Commissioner believes that Mr. Galewick and certain of his affiliates
have made certain misrepresentations and omissions of material facts in
certain applications to qualify (register) securities with the
Commissioner. Those misrepresentations and omissions relate to (i) the
affairs of Desert Hot Springs Resort Limited Partners, Series A, Ltd. and
Desert Hot Springs Resort Limited Partners, Series B, Ltd., two California
limited partnerships for which Performance Development, Inc. (wholly owned
by Mr. Galewick and which serves as the General Partner of the Partnership)
serves as the General Partner (collectively, "DHSRLP"); (ii) certain
litigation filed by SunAmerica, Inc. and certain of its affiliates
(collectively, "SunAmerica") against Mr. Galewick and certain of his
affiliates alleging fraud and deceit, gross negligence and violations of
Section 10(b) of the Securities Exchange act of 1934 and Rule 10b-5; and
(iii) compensation paid by the Partnership and other similar California
limited partnerships to various affiliates of the General Partner and
Income Network Company. Mr. Galewick and those affiliates believe that (i)
no such misrepresentations or omissions of material facts were, in fact,
made relating either to (a) DHSRLP or (b) the SunAmerica litigation and
(ii) SunAmerica has no basis for its litigation against Mr. Galewick or
those affiliates. The General Partner believes that appropriate disclosure
regarding compensation paid by the Partnership and those other partnerships
to those affiliates was made.
On November 12, 1998, the Commissioner issued an order pursuant to the
provisions of Section 25531 of the California Corporations Code appointing
Barry A. Fisher as a Keeper for Income Network Company ("Keeper")
("Order"). Pursuant to the provisions of the Order, the Keeper shall take
possessions of all books, records, accounts and other papers of Income
Network Company. Additionally, the Keeper is authorized, empowered and
directed to employ attorneys and such other persons as the Keeper may deem
to be necessary to assist the Keeper in the performance of his duties
contemplated by the provisions of the Order. The Keeper is to undertake an
independent review into the books, records, accounts and other papers of
Income Network Company and file with the Department an inventory of all
books, records, accounts and other papers of Income Network Company of
which he shall then have reviewed, observed and/or discovered pursuant to
the provisions of the Order. The Order does not allow the Keeper to take
possession of or interfere in the business of the affiliates of Income
Network Company. Income Network Company has notified the Commissioner that
Income Network Company intends to take any and all legal action necessary
or appropriate, including a hearing in Los Angeles County Superior court,
to cause the Keeper to be removed from Income Network Company and his
powers, granted pursuant to the provisions of the Order, terminated.
Other than as specified above, no additional proceedings have occurred
since August 12, 1998, the date of the latest report provided. In addition,
no material developments are noted with respect to those matters described
in the latest report dated August 12, 1998. Reference is made to the
Partnership's Form 10-KSB dated March 31, 1998, in which such legal
proceedings were reported in Part I, Item 3, "Legal Proceedings". The
registrant, by this reference, makes that disclosure a part of this Form
10-QSB.
Item 2. Exhibits and Reports.
(a) Exhibits
Exhibit Number Exhibit
1 Certificate of Limited Partnership Form LP-1 (Charter
Document) *
2 Agreement of Limited Partnership (Instrument defining the
rights of Security Holders) **
* Reference is made to the Partnership's Form 10-KSB, dated March 31, 1997,
in which that Certificate of Limited Partnership was included as an
exhibit. The Partnership, by this reference, makes that Certificate of
Limited Partnership a part of this Form 10-QSB.
** Reference is made to the Partnership's Form 10-KSB, dated March 31, 1997,
in which that Agreement of Limited Partnership was included as an exhibit.
The Partnership, by this reference, makes that Agreement of Limited
Partnership a part of this Form 10-QSB.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Partnership
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: November 10, 1998 Performance Asset Management Fund IV, Ltd.,
A California Limited Partnership
--------------------------------
(Registrant)
By:
----------------------------------
Vincent E. Galewick
President of the General Partner,
Performance Development, Inc.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF SEPTEMBER 30, 1998 AND STATEMENT OF OPERATIONS FOR THE QUARTER
ENDING SEPT. 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,447,296
<SECURITIES> 0
<RECEIVABLES> 104,977
<ALLOWANCES> 0
<INVENTORY> 9,906,274
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,458,547
<CURRENT-LIABILITIES> 319,465
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,139,082
<TOTAL-LIABILITY-AND-EQUITY> 14,458,547
<SALES> 0
<TOTAL-REVENUES> 1,328,920
<CGS> 1,197,479
<TOTAL-COSTS> 1,197,479
<OTHER-EXPENSES> 169,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (37,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,850)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
