Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________ to __________
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]
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
Index to the Financial Statements for the Partnership:
Balance Sheets as of March 31, 1998 ...................................4
Statements of Operations for the Three Months Ended March 31,
1998 and March 31, 1997................................................5
Statements of Cash Flows for the Three Months Ended March 31,
1998 and March 31, 1997................................................6
Notes to Financial Statements..........................................7
The financial statements have been prepared by Performance Asset Management
Fund III, 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.
3
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<TABLE>
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEET
March 31, 1998
--------------
ASSETS
<CAPTION>
1998
---------
<S> <C>
Cash and equivalents $275,771
Cash held in trust 2,166,314
Investments in distressed loan portfolios, net 2,457,345
Due from affiliate 162,898
Other assets 64,480
Organization costs, net -
---------
Total assets $5,126,808
=========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $4,500
Due to affiliates, net 583,976
---------
Total liabilities 588,476
Commitments and contingencies
General partner's deficit (no units outstanding) (398,662)
Limited partners' capital (2,000 units authorized;
1,998 units issued and outstanding at March 31, 1998) 4,936,994
---------
Total liabilities and partners' capital $5,126,808
=========
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
<TABLE>
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
---------------------------------------------------
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Portfolio collections $237,044 $215,368
Less: portfolio basis recovery 237,044 215,368
------- -------
Net investment income - -
Cost of operations:
Collection expense 27,338 210
Management fee expense 15,900 15,275
Professional fees 18,335 34,405
Amortization - 344
General and administrative expense 157 940
------- -------
Total operating expenses 61,730 51,174
------- -------
Loss from operations (61,730) (51,174)
Other income:
Interest 34,353 9,717
Other - 84
------- -------
Net (loss) ($27,377) ($41,373)
======= =======
Net income (loss) allocable to general partner ($2,738) ($4,137)
====== ======
Net income (loss) allocable to limited partners ($24,639) ($37,236)
====== ======
Net income (loss) per limited partnership unit ($12.33) ($18.64)
====== ======
<FN>
The accompanying notes are an integral part of the financial statements.
</TABLE>
5
<PAGE>
<TABLE>
PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 1998 and 1997
--------------------------------------------------
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($27,377) ($41,373)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Amortization - 344
Decrease (increase) in assets:
Other assets - -
Due from affiliates (106,677) (153,259)
Increase (decrease) in liabilities:
Accounts payable (719) 2,735
Due to affiliates 119,848 43,380
------- -------
Net cash provided by (used in) operating
activities (14,925) (148,173)
Cash flows provided by (used in) investing
activities:
Recovery of portfolio basis 237,044 215,368
Cash held in trust (24,720) 352,240
Purchase of investments in distressed
loan portfolios (1,031,215) -
------- -------
Net cash provided by investing activities (818,891) 567,608
Cash flows provided by (used in) financing
activities:
Distributions to partners - (334,200)
------- -------
Net cash used in financing activities 0 (334,200)
------- -------
Net (decrease) increase in cash (833,816) 85,235
Cash at beginning of period 1,109,587 775,755
------- -------
Cash at end of period $275,771 $860,990
======= =======
<FN>
The accompanying notes are an integral part of the financial statements.
6
</TABLE>
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to Financial Statements
-----------------------------
Organization and Description of Business
----------------------------------------
Performance Asset Management Fund III, Ltd., A California Limited
Partnership ("Partnership"), was formed in September 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 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 ("PDI") ("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
Partnership. Thereafter, Partnership profits, losses and cash distribu-
tions 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 an original maturity of three months or less. 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 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 past losses with cash and equivalent investments.
The Partnership received interest income from these investments of $34,353
and $9,717 for the three months ended March 31, 1998 and March 31, 1997,
respectively.
7
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Cash Held in Trust
------------------
The General Partner anticipates that 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 Fund IV, Ltd., A California Limited Partnership; and,
Performance Asset Management Fund V, Ltd., A California Limited Partner-
ship, all affiliates of the Partnership ("PAM Funds") may, in the future,
be reorganized and merged 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, 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 the settlement of
certain then pending litigation between the Partnership and its affiliates
and West Capital Financial Services Corp. ("WCFSC") and its affiliates.
The trust fund balance, until Trust termination, must exceed $5,000,000
which is comprised of funds from the Partnership and the PAM Funds. The
Trust will terminate and the trustee will distribute all of the remaining
funds held by the trustee on August 18, 1998, if the Rollup is not com-
pleted by such date. The Partnership's share of the Trust's funds at March
31, 1998 and December 31, 1997 was $2,166,314 and $2,141,594, respectively.
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 investment 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
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 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.
Organization Costs, Net
-----------------------
Organization costs include legal and other professional fees incurred
related to the initial 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.
8
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Professional Expenses
---------------------
Professional expenses are incurred in relation to ongoing accounting and
legal assistance.
Income Taxes
------------
No provision for income taxes has been provided for in the financial
statements, except for the Partnership's minimum state franchise tax
liability of $800. All partners report individually on their share of
Partnership 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 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 identified by the use of forward looking
terminology, such as "may", "will", "expect", "believes", "estimate",
"anticipate", "probable", "possible", "should", "could", "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.
9
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Results of Operations.
----------------------
Collections for the three months ended March 31, 1998 increased 10% to
$237,044 from $215,368 for the comparable period ended March 31, 1997.
This increase is due to the acquisition of an additional portfolio that is
being serviced by the Partnership's affiliated servicer, Performance
Capital Management Inc., a California corporation ("PCM"). All
collections received for the three months ended March 31, 1998 were
reflected as portfolio recoveries and, accordingly, no investment income
was recorded for this period.
The Partnership acquired one portfolio during the first quarter of 1998.
Collections from this portfolio and one other portfolio comprised approx-
imately 65% of total portfolio collections for the three months ended March
31, 1998. Collections for the months ended January 31, 1998, February 28,
1998, and March 31, 1998, totaled $74,146, $65,868, and $97,030, respec-
tively.
Total operating expenses was 26% of portfolio collections for the three
months ended March 31, 1998, which compares to 24% for the comparable
period ended 1997. Total operating expenses increased 20.6% to $61,730
for the three months ended March 31, 1998, compared to $51,174 for the
three months ended March 31, 1997. This increase is primarily due to the
increase in collection expenses to $27,338 for the first quarter of 1998,
compared to $210 for the similar period in 1997. The increase in collec-
tion expenses is attributed to the acquisition of one large portfolio in
the first quarter of 1998. At the time that the Partnership acquires a
portfolio, certain initial collection expenses are associated with the
acquisition that includes direct mailing expenses and other costs. These
expenses were not necessary during the first quarter of 1997 because there
were no portfolio acquisitions during that period. The Partnership
realized a decrease in professional fees of approximately 47% to $18,335
for the three months ended March 31, 1998 from $34,405 for the similar
period ended 1997. This decrease is related to fewer legal fees associated
with the Rollup.
Financial Condition, Liquidity and Capital Resources.
-----------------------------------------------------
The Partnership's total assets increased approximately 2% to $5,126,808
as of March 31, 1998, from $5,035,056 at December 31, 1997. The increase
was primarily attributed to the acquisition of one portfolio that offset
the reduction of investments in distressed loan portfolios. This increase
in investments in distressed loan portfolios is directly related to the
decrease of $833,816 in cash and equivalents. Due from affiliates
increased 189% to $162,898 from $56,221, which was primarily the result of
increased portfolio collections from existing portfolios, as well as
portfolio collections from the new portfolio, recorded but not yet paid.
The increase in due to affiliates as of March 31, 1998 was due primarily
to management fees and the reimbursement of legal expenses to the General
Partner recorded but not yet paid.
10
<PAGE>
The Partnership acquired one new distressed portfolio asset during the
three months ended March 31, 1998. 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 it will
continue to acquire low-end-priced distressed portfolios for the
Partnership; 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.
The Partnership has made no future commitments with credit card origi-
nators and other financial institutions to acquire portfolio assets.
The General Partner and 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 difficulties in identifying
and acquiring such assets. Distributions were suspended in the third
quarter of 1997 in anticipation of the contemplated reorganization of
the Partnership with the PAM Funds into PAMCO. 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 acquisi-
tions and continued expansion will improve the Partnership's liquidity,
profitability and financial condition, as a result of increased portfolio
collections. The General Partner anticipates that in order to supplement
such growth, PCM must continue to increase the amount of its collection
representatives and human resources. The General Partner anticipates that
existing management will be able to supervise the additional portfolio
growth of the Partnership. The General Partner, in conjunction with PCM
and other affiliates, is seeking office space in which PCM and the
Partnership plan to move their facilities. The General Partner believes
that this move will provide the Partnership with the adequate operating
facilities for the future growth of the Partnership.
A proposal is currently under consideration by the General Partner,
pursuant to which the PAM Funds and the Partnership would merge with and
into PAMCO. The result of the proposed merger would be that a series of
interrelated changes to the current organizational form of PAMCO would
be implemented, including (a) merging the Partnership and the PAM Funds
with and into PAMCO, as a result of which PAMCO would be the sole
surviving entity; (b) terminating the PAM Funds and the Partnership and
(c) converting the Limited Partners interests in the Partnership into
common shares issued by PAMCO.
11
<PAGE>
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 finan-
cial 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 PCM and the Partnership conduct 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 assessment and remediation of PCM's
computer software, there can be no assurance that the necessary modifica-
tions and conversions by those third party institutions and entities with
which PCM and the Partnership conduct 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 expected
to be material to the Partnership's results of operations and financial
position and is being expensed as incurred.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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 Partnership, by this reference, makes that disclosure
a part of this Form 10-QSB.
12
<PAGE>
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.
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: May 15, 1998 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.
13
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 275771
<SECURITIES> 0
<RECEIVABLES> 162898
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5126808
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5126808
<CURRENT-LIABILITIES> 588476
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5126808
<SALES> 237044
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 61730
<LOSS-PROVISION> 237044
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (27377)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27377)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27377)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
