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 0-28764
(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 of Plan of Operation
PART II
Item 1. Legal Proceedings
Item 2. Exhibits and Reports
Signatures
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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 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 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
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.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
September 30, 1998 and December 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
9/30/98 12/31/97
----------- -----------
<S> <C> <C>
Cash and equivalents $ 385,895 $ 1,109,587
Cash held in trust 2,216,480 2,141,594
Investments in distressed loan portfolios, net 2,244,116 1,663,174
Due from affiliate -- 56,221
Other assets 64,480 64,480
----------- -----------
Total assets $ 4,910,971 $ 5,035,056
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,500 $ 5,219
Due to affiliates, net 391,150 464,128
----------- -----------
Total liabilities 395,650 469,347
----------- -----------
Commitments and contingencies
General partner's deficit (no units outstanding) (400,962) (395,923)
Limited partners' capital (2,000 units authorized;
1,998 units issued and outstanding September 30,
1998, and December 31, 1997) 4,916,283 4,961,632
----------- -----------
Total partners' capital 4,515,321 4,565,709
----------- -----------
Total liabilities and partners' capital $ 4,910,971 $ 5,035,056
=========== ===========
</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
(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 $190,517 $194,043 $677,782 $726,660
Less: portfolio basis recovery 190,517 194,043 677,782 726,660
--------- --------- --------- ---------
Net investment income -- -- -- --
--------- --------- --------- ---------
Cost of operations:
Collection expense 542 8,615 34,331 37,890
Management fee expense 14,302 11,974 44,790 40,875
Professional fees 37,415 6,801 65,160 78,559
Amortization -- 290 -- 923
General and administrative expense 124 667 1,322 7,155
--------- --------- --------- ---------
Total operating expenses 52,383 28,347 145,603 165,402
--------- --------- --------- ---------
Income (loss) from operations (52,383) (28,347) (145,603) (165,402)
Other income:
Interest 31,118 36,054 95,215 111,658
Other income -- -- -- 84
--------- --------- --------- ---------
Net income (loss) ($21,265) $7,707 ($50,388) ($53,660)
========= ========= ========= =========
Net income (loss) allocable to general partner ($2,127) $771 ($5,039) ($5,366)
========= ========= ========= =========
Net income (loss) allocable to limited partners ($19,139) $6,936 ($45,349) ($48,294)
========= ========= ========= =========
Net income (loss) per limited partnership unit ($9.58) $3.47 ($22.70) ($24.17)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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PERFORMANCE ASSET MANAGEMENT FUND III, LTD.,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
For the Nine Months Ended September 30, 1998 and Year Ended December 31,1997
(UNAUDITED)
General Limited
Partner Partners Total
----------- ----------- -----------
Balance, December 31, 1996 (289,959) 5,916,522 5,626,563
Distributions (88,800) (800,400) (889,200)
Net income (loss) (17,164) (154,490) (171,654)
----------- ----------- -----------
Balance, December 31, 1997 ($ 395,923) $ 4,961,632 $ 4,565,709
----------- ----------- -----------
Net income (loss) (5,039) (45,349) (50,388)
----------- ----------- -----------
Balance, September 30, 1998 ($ 400,962) $ 4,916,283 $ 4,515,321
=========== =========== ===========
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 Nine Months Ended September 30, 1998 and 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($ 50,388) ($ 53,660)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization -- 923
Decrease (increase) in assets:
Other assets -- (3)
Due from affiliates 56,221 42,576
Increase (decrease) in liabilities:
Accounts payable (719) 3,785
Due to affiliates (72,978) (202,456)
----------- -----------
Net cash provided by (used in)
operating activities (67,864) (208,835)
----------- -----------
Cash flows provided by (used in) investing activities:
Recovery of portfolio basis 677,782 726,660
Purchase of investments in distressed loan portfolios (1,258,724) (25,475)
Cash held in trust (74,886) 540,514
----------- -----------
Net cash provided by investing activities (655,828) 1,241,699
----------- -----------
Cash flows provided by (used in) financing activities:
Distributions to partners -- (889,200)
----------- -----------
Net cash used in financing activities -- (889,200)
----------- -----------
Net (decrease) increase in cash (723,692) 143,664
Cash at beginning of period 1,109,587 775,755
----------- -----------
Cash at end of period $ 385,895 $ 919,419
=========== ===========
</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
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 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 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 $95,215 and
$111,658 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 Fund 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 the 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, until Trust termination, 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 tem 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 $2,141,594, 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.
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.
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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.
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
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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 general and
administrative expenses.
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.
Professional Fees
Professional fees 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, 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 management's beliefs, expectations and
opinions. Forward looking statements
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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, filed on March 31,
1998, can cause actual results and developments to be materially different from
those expressed or implied by such forward-looking statements.
Results of Operations.
Portfolio collections for the nine months ended September 30, 1998 decreased
approximately 7% to $677,782, from $726,660 for the comparable period ended
1997. The decrease in portfolio collections was due to the lack of portfolio
sales for the nine months ended September 30, 1998, compared to $56,600 for the
same period of 1997. All collections received for the nine months ended
September 30, 1998 were reflected as portfolio recoveries and, accordingly, no
investment income was recorded for this period.
Portfolio collections of $677,782 were received on nine portfolios in 1998. Four
of these nine portfolios comprised 90% of the total book value in investments in
distressed loan portfolios, and accounted for 98 % of the total portfolio
collections, for the nine months ended September 30, 1998. Collections for the
months ended July 31, August 31, and September 30 totaled $63,191, $62,076, and
$65,250, respectively.
The Partnership acquired three new portfolios totaling $1,258,724 during the
first nine months of 1998. These acquisitions offset the decrease in the book
value of investments in distressed loan portfolios. For the nine months ended
September 30, 1998, investments in distressed loan portfolios increased 35%.
Portfolio collections from the three new portfolios represented 19% of total
portfolio collections for the nine months ended September 30, 1998.
The Partnership did not receive proceeds from portfolio sales for the nine
months ended September 30, 1998. For the comparable period ended September 30,
1997, proceeds from portfolio sales of $54,711 were received and recorded as
recoveries of investment basis. The General Partner believes that proceeds from
both collection and portfolio account sales will continue in subsequent periods.
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Total operating expenses decreased 12% to $145,603 for the nine months ended
September 30, 1998, from $165,402 for the comparable period in 1997.
Professional fees decreased 17% to $65,160 from $78,559, primarily related to a
reduction in accounting fees associated with the Partnership's audit and a
reduction in legal fees. General and administrative expenses decreased
approximately 82% from $7,155 to $1,322. This is primarily attributed to
printing expenses related to the annual report sent to the investors, which the
Partnership has yet to incur this year. Operating expenses as a percentage of
portfolio collections totaled approximately 22% for the nine months ended
September 30, 1998, as compared to 23% for the comparable period in 1997. This
decrease relates primarily to a reduction in professional fees and general and
administrative expenses.
Total operating expenses increased 85% to $52,383 for the three months ended
September 30, 1998, compared to $28,347 for the three months ended September 30,
1997. This is primarily attributed to an increase in legal fees. Collection
expense decreased 94% to $542 for the three months ended September 30, 1998 from
$8,615 for the comparable period ended September 30, 1997, due to the absence of
any acquisitions of distressed loan portfolios and costs associated with the
acquisitions. Professional fees rose 450% in the third quarter of 1998 to
$37,415, from $6,801 in the similar period ended 1997, due primarily to an
increase in legal expenses. General and administrative expenses decreased 19% to
$124 for the three months ended September 30, 1998 from $ 667 for the comparable
period 1997, due to the absence of postage expense in 1998, associated with
sending investor distributions. Management fees increased 20% for the three
months ended September 30, 1998 to $14,302 from $11,974 for the three months
ended September 30, 1997, due to an increase of net assets under management.
Operating expenses as a percentage of portfolio collections increased 13% to 28%
for the three months ended September 30, 1998, from 15% for the three months
ended September 30, 1997, due to increased professional fees.
Financial Condition, Liquidity and Capital Resources.
The Partnership's total assets decreased approximately 2% to $4,910,971 as of
September 30, 1998, from $5,035,056 at December 31, 1997. The decrease was
primarily attributed to the reduction of cash and equivalents in order to pay
amounts due to the Partnership's affiliates. The decrease in due to affiliates
of $72,978 was due primarily to payment of management fees and the reimbursement
of legal expenses to the General Partner.
The Partnership acquired three new distressed loan portfolio assets in the first
three quarters of 1998 from third party financial institutions, which specialize
in credit card organizations. The General Partner anticipates that the
Partnership
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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 structures 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 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.
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.
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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 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 modifications 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.
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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 registrant'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 III, 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> 2,602,375
<SECURITIES> 0
<RECEIVABLES> 64,480
<ALLOWANCES> 0
<INVENTORY> 2,244,116
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,910,971
<CURRENT-LIABILITIES> 395,650
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,515,321
<TOTAL-LIABILITY-AND-EQUITY> 4,910,971
<SALES> 0
<TOTAL-REVENUES> 221,635
<CGS> 190,517
<TOTAL-COSTS> 190,517
<OTHER-EXPENSES> 52,383
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (21,265)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,265)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
