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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-28764
(Exact name of small business issuer as
specified in its charter)
PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED PARTNERSHIP
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
CALIFORNIA 33-0526128
(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
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Transitional Small Business Disclosure Format (check one):
Yes No X
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO FORM 10-QSB
PART I
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II
Item 1. Legal Proceedings
Item 2. Exhibits and Reports
Signatures
2
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Index to the Financial Statements for the Partnership:
Balance Sheets, June 30, 1997 and December 31, 1996.......................4
Statements of Operations, For the Three and Six Months Ended June 30,
1997 and June 30, 1996.............................................5
Statements of Partnership Capital, For the Six Months Ended
June 30, 1997 and Year Ended December 31, 1996.....................6
Statements of Cash Flows, For the Six Months Ended June 30,
1997 and June 30, 1996.............................................7
Notes to Financial Statements.............................................8
</TABLE>
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
June 30, 1997 and December 31, 1996
----------------
ASSETS
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash and equivalents $829,346 $775,755
Cash held in trust 2,091,560 2,656,338
Investments in distressed loan portfolios, net 2,033,929 2,566,546
Due from affiliate 213,352 56,039
Other assets 64,480 64,477
Organization costs, net 290 923
---------- ----------
Total assets $5,232,957 $6,120,078
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $8,469 $715
Due to affiliates, net 326,492 492,800
---------- ----------
Total liabilities 334,961 493,515
---------- ----------
Commitments and contingencies
Partners' capital 4,897,996 5,626,563
---------- ----------
Total liabilities and partners' capital $5,232,957 $6,120,078
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED JUNE 30 MONTHS ENDED JUNE 30
---------------------------- ----------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Portfolio collections $ 317,249 $4,346,595 $ 532,617 $4,459,832
Less: portfolio basis recovery 317,249 3,437,942 532,617 3,538,914
---------- ---------- ---------- ----------
Net investment income - 908,653 - 920,918
---------- ---------- ---------- ----------
Cost of operations:
Collection expense 29,065 18,471 29,275 36,771
Management fee expense 13,626 8,348 28,901 32,253
Professional fees 37,353 44,375 71,758 72,897
Amortization 289 289 633 578
General and administrative expense 5,548 3,177 6,488 3,431
---------- ---------- ---------- ----------
Total operating expenses 85,881 74,660 137,055 145,931
---------- ---------- ---------- ----------
Income (loss) from operations (85,881) 833,993 (137,055) 774,987
Other income:
Interest 65,887 34,435 75,604 37,569
Other income - - 84 -
========== ========== ========== ==========
Net income (loss) ($ 19,994) $ 868,428 ($ 61,367) $ 812,555
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND YEAR ENDED DECEMBER 31,1996
----------------
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995 ($ 322,499) $ 5,597,599 $ 5,275,100
Distributions (35,775) (295,925) (331,700)
Net income 68,315 614,848 683,163
----------- ----------- -----------
Balance, December 31, 1996 (289,959) 5,916,522 5,626,563
Distributions (66,600) (600,600) (667,200)
Net income (6,137) (55,230) (61,367)
=========== =========== ===========
Balance, June 30, 1997 ($ 362,696) $ 5,260,692 $ 4,897,996
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
----------------
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 61,367) $ 812,555
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization 633 578
Decrease (increase) in assets:
Other assets (3) 165,815
Due from affiliates (157,313) (3,257)
Increase (decrease) in liabilities:
Accounts payable 7,754 (2,523)
Due to affiliates (166,308) 41,595
----------- -----------
Net cash provided by (used in)
operating activities (376,604) 1,014,763
----------- -----------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis 532,617 3,538,914
Receivable from West Capital - 927,540
Cash held in trust 564,778 (1,951,561)
Purchase of investments in distressed loan portfolios - -
----------- -----------
Net cash provided by investing activities 1,097,395 2,514,893
----------- -----------
Cash flows provided by (used in) financing activities:
Redemption of limited partnership units - -
Distributions to partners (667,200) -
----------- -----------
Net cash used in financing activities (667,200) 0
----------- -----------
Net (decrease) increase in cash 53,591 3,529,656
Cash at beginning of period 775,755 210,140
=========== ===========
Cash at end of period $ 829,346 $ 3,739,796
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
1. Organization and Description of Business
Performance Asset Management Fund III, Ltd., A California Limited
Partnership, was formed in September 1992, for the purpose of acquiring
distressed loan portfolios from financial institutions and other sources
("Partnership"). Interests in the Partnership were sold in a private
placement offering pursuant to Regulation D promulgated by the
Securities and Exchange Commission on a "best efforts" basis; however,
the Partnership did not begin its primary operations until October 1992.
The General Partner of the Partnership is Performance Development, Inc.,
a California corporation ("General Partner").
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 been returned 100% of their initial capital contributions
to the Partnership. Thereafter, Partnership profits, losses and cash
distributions are 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 a maturity of three months or less when purchased. The
Partnership maintains its 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 swept daily into a
master account and invested in high quality, short-term securities. 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
fact that the Partnership has not experienced any past losses with cash
and equivalent investments.
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Cash Held in Trust
The General Partner anticipates that the Partnership and the other
similar California limited Partnerships for which the General Partner
serves as general partner ("PAM Funds") may, in the future, be
reorganized and merged with and into one corporation. In an effort to
accomplish that reorganization and merger on terms and conditions
consistent with the intent of the General Partner, on December 12, 1995,
the General Partner, on behalf of the Partnership and the PAM Funds, and
the State of California Department of Corporations entered into an
agreement pursuant to the provisions of which the Performance Asset
Management Fund Trust ("Trust") was created. These funds are subject to
the terms of the Trust's agreement. The Trust was the recipient of a
portion of the funds resulting from a settlement of certain litigation
between the Partnership and its affiliates and West Capital Financial
Services Corp. ("WCFSC") and its affiliates.
Investments in Distressed Loan Portfolios and Revenue Recognition
Investments in distressed loan portfolios are carried at the lower of
cost, market, or estimated net realizable value. Amounts collected are
treated as a reduction to the carrying basis of the related investment
on an individual portfolio basis. Accordingly, income is not recognized
until 100% recovery of the original cost of the investment in each
portfolio occurs. Estimated net realizable value represents 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 will ultimately be
collected. Any adjustments to the carrying value of the individual
portfolios are recorded in the results of operations.
Organization Costs, Net
Organization costs include legal and other professional fees incurred
which are related to the organization of the Partnership. These costs
are capitalized and amortized using the straight-line method over five
years. Accumulated amortization at June 30, 1997 and December 31, 1996
totaled $5,496 and $4,863, respectively.
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 are taxed individually on their share of the
Partnership's earnings and losses.
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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
estimate.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS.
The information contained in this report on Form 10-Q, 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
and 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, expectations and opinions.
Forward looking statements may be identifies 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-K, dated on March 31, 1997, can cause actual
results and developments to be materially different from those expressed
or implied by such forward-looking statements
10
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The Partnership did not record net investment revenue for the six months
ended June 30, 1997, compared to $920,918 for the similar period in
1996. The decrease resulted from a reduction in portfolio collections of
88% for the six months ended June 30, 1997 to $532,617, from $4,459,832
for the comparable period ended 1996. This decrease in collections was
due primarily to the receipt of proceeds resulting from a settlement
agreement with WCFSC in 1996. The settlement agreement terminated all
servicing relations with WCFSC and assigned and transferred certain
distressed loan portfolios to WCFSC in exchange for the payment of
certain funds owed the Partnership and its affiliates. As a result of
the settlement agreement, the Partnership recorded revenue of $920,918
from twelve portfolios, most of which recovered 100% of their investment
bases during the first half of 1996. All collections received for the
six months ended June 30, 1997 were reflected as portfolio recoveries,
and accordingly, no investment revenue was recorded for this period. In
comparison, approximately 21% of portfolio collections received for the
similar period in 1996 was reflected as revenue.
Portfolio collection proceeds of $532,617 were received on four
portfolios during the first six months of 1997, reducing the book value
of total investments in distressed loan portfolios 21% to $2,033,929, as
of June 30, 1997, from $2,566,546 at December 31, 1996. Three of these
four portfolios comprised 96% of the total book value in investments in
distressed loan portfolios, which accounted for 98% of the total
portfolio collections, for the six months ended June 30, 1997.
Collections for the months ended April 30, 1997, May 31, 1997, and June
30, 1997, totaled $90,584, $109,453, and $117,212, respectively. The
Partnership did not acquire any portfolios for the first six months of
1997.
The Partnership received proceeds from portfolio sales of $52,002, which
were recorded as recoveries of investment bases and reflected in
portfolio collections for the month ended June 30, 1997. No such
proceeds were received for the comparable period ended June 30, 1996.
The General Partner continues to believe that proceeds from both
collection proceeds and portfolio account sales will increase in
subsequent periods and estimates that proceeds from portfolio sales
accounts should exceed those amounts recorded in the fiscal year ended
1996.
Total operating expenses of the Partnership decreased 6% to $137,055 for
the six months ended June 30, 1997, from $145,931 for the comparable
period in 1996. Collection expenses decreased 20% to $29,275 from
$36,771 due to a reduction in costs associated with the identification
of Partnership debtors and lack of expenses related to the acquisition
of portfolios, which costs include certain direct mailing expenses and
other credit bureau costs incurred in previous periods. The Partnership
also realized a reduction in management fees by 10% to $28,901 for the
six months ended June 30, 1997, attributed to the reduction in net
assets under management caused by the sale and transfer of investments
in distressed loan portfolios in accordance with the settlement
agreement with WCFSC. Operating expenses as a percentage of portfolio
collections totaled approximately 26% for the first six months ended
June 30, 1997, as compared to 3% for the comparable period in 1996. The
increase is due primarily from the proceeds received from the settlement
agreement with WCFSC in 1996.
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Total operating expenses of the Partnership increased 68% to $85,881 for
the second quarter of 1997 from $51,174 for the first quarter of 1997.
The increase is primarily attributed to the increase in collection
expenses of 137%, caused by skip trace processing conducted to identify
and contact additional active collection accounts. Management fees
decreased 11% for the quarter ended June 30, 1997 to $13,626 from
$15,275 due to the continued reduction of net assets under management
recorded in the first quarter of 1997. Professional fees increased 9% in
the second quarter of 1997 to $37,353, from $34,405 in the first quarter
which was primarily due to additional accounting and consulting
expenses.
Total operating expenses as a percentage of portfolio collections
increased to 26% for the six months ended June 30, 1997, from 3% in the
comparable period in 1996. This increase relates to collection proceeds
received from the settlement agreement with WCFSC for the six months
ended June 30, 1996. Comparatively, operating expenses as a percentage
of portfolio collections increased to 27% for the three months ended
June 30, 1997, from 24% for the first quarter in 1997.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
The Partnership's total assets decreased approximately 10% to $5,232,957
as of June 30, 1997, from $5,790,620 at March 31, 1997. The decrease was
primarily attributed to portfolio proceeds of $317,250 of which 100%
were recorded as reduction of investment portfolio assets. The decrease
in cash held in trust (by the Trust) for the first six months of 1997 of
$564,778 was partially offset by interest income of $55,242 recorded by
the Trust during the second quarter of 1997.
The decrease of $209,688 in due to affiliates during the second quarter
of 1997 was due primarily to repayment of accrued management fees and
distributions to the General Partner.
The Partnership did not acquire any new distressed portfolio assets in
the three months ended June 30, 1997; however, the General Partner
anticipates that the Partnership will acquire additional portfolios in
the near 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-end-priced
distressed portfolios; however, the General Partner will continue to
evaluate assets with different pricing and debtor account structure in
order to determine whether such portfolios can generate strong immediate
cash flows and provide additional liquidity to the Partnership.
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The Partnership has made no future commitments with credit card
originators and other financial institutions to acquire portfolio
assets. The General Partner plans to use its present contacts and
relationships to identify and acquire additional assets at optimal
prices, and believes that it will have no difficulties in identifying
and acquiring such assets. The General Partner anticipates that the
Partnership will suspend distributions to its partners in the third
quarter of 1997 in anticipation of the contemplated reorganization of
the Partnership with other affiliated partnerships and Performance
Capital Management ("PCM"), a California corporation and an affiliate of
the General Partner. The General Partner also believes current cash
reserves and future portfolio collection proceeds will be sufficient to
acquire anticipated portfolio assets in the next twelve months.
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, which will result from
increased portfolio collections and sales. The General Partner believes
that PCM, which serves as the servicer of the Partnership's portfolios
of indebtedness ("PCM") must continue to increase the amount of its
collection representatives and human resources in order to supplement
such growth to the Partnership. The General Partner, in conjunction with
PCM and other affiliated companies and partnerships is seeking to lease
approximately 57,000 square feet of office space in which PCM and the
Partnership plan to move their facilities. The General Partner believes
that this move provides the Partnership with the adequate operating
facilities for the future growth of the Partnership through the end of
1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
No additional proceedings have occurred since May 15, 1997, 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
May 15, 1997. Reference is made to the Partnership's Form 10-KSB dated
March 31, 1997, in which such legal proceedings were reported in Part I,
Item 3. "Legal Proceedings". The Partnership, by this reference, makes
that disclosure a part of this Form 10-QSB.
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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) **
27.1 Financial Data Schedule
* 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.
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: August 1, 1997 Performance Asset Management Fund III, Ltd., A California
Limited Partnership
(Registrant)
By: /S/ Vincent E. Galewick
---------------------------------------
Vincent E. Galewick
President of the General Partner.
Performance Development, Inc.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AS OF JUNE 30, 1997 AND THE STATEMENT OF OPERATIONS FOR THE QUARTER ENDING
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q FOR THE
QUARTER ENDING JUNE 30, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,920,906
<SECURITIES> 0
<RECEIVABLES> 277,832
<ALLOWANCES> 0
<INVENTORY> 2,033,929
<CURRENT-ASSETS> 290
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,232,957
<CURRENT-LIABILITIES> 334,961
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,897,996
<TOTAL-LIABILITY-AND-EQUITY> 5,232,957
<SALES> 0
<TOTAL-REVENUES> 65,887
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 85,881
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19,994)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
