UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1996 OR ___ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________to__________ Commission File Number 0-13158 DELPHI FILM ASSOCIATES III (Exact name of registrant as specified in its charter) New York 13-3177344 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 666 Third Avenue, New York, New York 10017 (Address of principal executive offices) (Zip Code) (212) 983-9040 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No____ DELPHI FILM ASSOCIATES III (A New York Limited Partnership) BALANCE SHEETS (000's Omitted) Unaudited June December 30, 31, 1996 1995 ASSETS Cash $ $ 191 155 Short-Term Investments 547 986 Receivable from Columbia-Delphi III Productions 534 640 Receivable from Tri-Star-Delphi III Productions 307 503 Interest in Motion Picture Venture-Columbia- Delphi III Productions 118 132 Interest in Motion Picture Venture-Tri-Star- Delphi III Productions 428 456 Total $ $ Assets 2,125 2,872 LIABILITIES AND PARTNERS' CAPITAL Liabilities: Accrued Expenses and Accounts $ $ Payable 26 55 Total Liabilities 26 55 Partners' Capital (Note 2): General Partner 63 70 Limited Partners 2,036 2,747 Total Partners' Capital 2,099 2,817 Total Liabilities and Partners' $ $ Capital 2,125 2,872 See accompanying notes to the financial statements. DELPHI FILM ASSOCIATES III (A New York Limited Partnership) STATEMENTS OF OPERATIONS (000's Omitted, except net (loss) profit per unit) Unaudited For the Three Months For the Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Interest Income $ $ $ $ 13 18 26 34 Expenses: Operating Expenses 76 66 139 127 76 66 139 127 Loss before Share of Profit in Motion Picture (63) (48) (113) (93) Ventures Share of Profit in Motion Picture Venture--Columbia- Delphi III Productions 10 46 109 64 Share of Profit in Motion Picture Venture--Tri-Star- Delphi III Productions 42 175 119 356 Net (Loss) Profit $ $ $ $ (11) 173 115 327 Net (Loss) Profit Per Unit of Limited Partnership Interest (9,702 Units) $ $ $ $ (1) 17 12 33 See accompanying notes to the financial statements. DELPHI FILM ASSOCIATES III (A New York Limited Partnership) STATEMENTS OF CASH FLOWS (000's Omitted) Unaudited For the Six Months Ended June 30, 1996 1995 Cash Flow From Operating Activities: Net Profit $ $ 115 327 Adjustments to reconcile Net Profit to net cash provided by operating activities: Share of Profit in Motion Picture Ventures (228) (420) Distributions from Joint 270 531 Ventures Changes in Assets and Liabilities: Decrease (Increase) in Receivables from Joint Ventures, net 302 (83) Decrease in Accrued Expenses and Accounts Payable (29) (30) Net Cash Provided by Operating Activities 430 325 Cash Flow From Investing Activities: Purchases of Short-Term (2,160) (1,586) Investments Redemptions of Short-Term Investments 2,599 1,616 Net Cash Provided by Investing Activities 439 30 Cash Flow from Financing Activities: Distribution to Partners (833) (343) Net Cash Used by Financing Activities (833) (343) Increase In Cash 36 12 Cash at beginning of period 155 132 Cash at end of period $ $ 191 144 See accompanying notes to the financial statements. DELPHI FILM ASSOCIATES III (A New York Limited Partnership) NOTES TO FINANCIAL STATEMENTS Unaudited 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. There has been no material change in the information disclosed in the notes to financial statements of the Partnership included in the Annual Report on Form 10-K for the year ended December 31, 1995. The information furnished includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Partnership as of June 30, 1996 and the results of operations and cash flows for the periods ended June 30, 1996 and 1995. Results of operations for the three and six month periods ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year. 2. Current Operations As of June 30, 1996, all thirty-four films in which the Partnership has an interest had been released. All of these films have completed their theatrical release and are being distributed in various ancillary markets. As of June 30 1996, the Partnership received in the aggregate approximately $553,000 and $1,613,000 from the Columbia Joint Venture and the Tri-Star Joint Venture, respectively, which represents accrued distribution fees paid with respect to the Distribution Fee Reduction Payments. These payments are net of amounts withheld by each Distributor for the recoupment of the Advances made by each Distributor. Since these Distribution Fee Reduction Payments were not sufficient to enable either Joint Venture to recoup amounts spent by the respective Joint Venture for the production of films and the acquisition of interests in films (excluding amounts spent for payments in the nature of interest) (the "Expenditures"), each Distributor is required to pay to each Joint Venture an amount equal to all subsequent distribution fees earned by it from the distribution of films on behalf of that Joint Venture up to that Joint Venture's unrecouped Expenditures. If a Joint Venture is able to recoup its Expenditures, the respective Distributor would be entitled to recoup these payments, with interest, from amounts thereafter otherwise payable to the Partnership. Based on the anticipated performance of the Partnership's films, each Distributor is required to continue making Distribution Fee Reduction Payments with respect to its films. Accordingly, the Partnership's share of distribution fees earned and expected to be earned by the Distributors as of June 30, 1996 of approximately $23,000 and $248,000 have been accrued by the Partnership as a receivable from the Columbia Joint Venture and the Tri-Star Joint Venture, respectively. For the purpose of computing the net (loss) profit per unit, the net (loss) profit for the period is allocated 99% to the limited partners and 1% to the General Partner. 3. Additional Information Additional information, including the audited year end 1995 Financial Statements and the Summary of Significant Accounting Policies, is included in the Partnership's Annual Report on Form 10-K for the year ended December 31, 1995 on file with the Securities and Exchange Commission. Management's Discussion and Analysis of Financial Condition And Results of Operations a. Financial Condition The Partnership has fully satisfied its commitments to contribute funds to the Joint Ventures for the production of, and acquisition of interests in, films. At June 30, 1996, the Partnership held cash of approximately $191,000 and short-term investments of approximately $547,000. Based on the performance of the films released through the Columbia Joint Venture and the Tri-Star Joint Venture, as of June 30,1996, the Distributors made Distribution Fee Reduction Payments with respect to their films of which approximately $553,000 and $1,613,000, respectively, was allocated to the Partnership. The payments are net of amounts withheld by the Distributor for the recoupment of Advances made by each Distributor. Since these payments were not sufficient to enable either Joint Venture to recoup its Expenditures, each Distributor is required to pay its respective Joint Venture an amount equal to all subsequent distribution fees earned by it from the distribution of films on behalf of that Joint Venture up to its unrecouped Expenditures. If a Joint Venture is able to recoup its Expenditures, the respective Distributor will be entitled to recoup these payments, with interest, from amounts thereafter otherwise payable to the Partnership. The Partnership is in the process of evaluating the value of its interest in the film assets for the purpose of possibly selling that interest and eventually liquidating the Partnership. The General Partner anticipates that the Partnership will be liquidated by the end of 1996. No assurance can be provided that the film assets will be successfully sold, or if sold, when such sale would occur. Upon the ultimate sale of the film assets, the Partnership will commence taking steps to dissolve and liquidate. Since the Partnership's obligation to make contributions to the Joint Ventures for the production of, and acquisition of interests in, films has been satisfied, all revenues received by the Partnership is used to establish a reserve for operating expenses of the Partnership and, to the extent possible, to make cash distributions to partners. The Partnership does not anticipate significant future revenues and accordingly, the Partnership does not currently anticipate making cash distributions to partners on a quarterly basis. However, the Partnership may make future distributions if it realizes proceeds from its interest in films or from the sale of its interest in films (should the sale occur) net of a reserve for the Partnership's operating expenses. The Partnership commenced cash distributions to its partners in February 1986. Distributions to limited partners through June 30, 1996 have aggregated $3,155 per unit (63.1% of the limited partners' original $5,000 investment in the Partnership), including $85 per unit that was distributed on May 30, 1996. b. Results of Operations The Partnership's operating results are primarily dependent upon the operating results of the Joint Ventures and are significantly impacted by the Joint Ventures' policies. The performance of each film is based upon the amount expended for production and other costs associated with a film and the revenue generated by a film. The amount and timing of revenue generated by each film is dependent upon the degree of acceptance by the consumer public and the particular ancillary market in which the film is then being exhibited. Amounts contributed toward each film are compared periodically to the expected total revenue to be generated for that film, and write-downs may occur to the extent the amounts invested exceed the expected total revenue for that film. Additionally, each Joint Venture records income with respect to the Distribution Fee Reduction Payments, to the extent available, which may allow it to recover its investment in films. For the three months ended June 30, 1996, the Columbia Joint Venture had a net profit of which the Partnership's share was approximately $10,000, due primarily to the profitable results of certain films. The Tri-Star Joint Venture had a net profit of which the Partnership's share was approximately $42,000, due primarily to the profitable results of certain films. In addition, the Partnership earned approximately $13,000 of interest income from its short-term investments and incurred approximately $76,000 of expenses from its operations, resulting in an overall net loss to the Partnership of approximately $11,000. For the three months ended June 30, 1995, the Columbia Joint Venture had a net profit of which the Partnership's share was approximately $46,000, due primarily to the profitable results of certain films. The Tri-Star Joint Venture had a net profit of which the Partnership's share was approximately $175,000, due primarily to the profitable results of certain films. In addition, the Partnership earned approximately $18,000 of interest income from its short-term investments and incurred approximately $66,000 of expenses from its operations, resulting in an overall net profit to the Partnership of approximately $173,000. For the six months ended June 30, 1996 the Columbia Joint Venture had a net profit of which the Partnership's share was approximately $109,000, due primarily to the profitable results of certain films. The Tri-Star Joint Venture had a net profit of which the Partnership's share was approximately $119,000, due primarily to the profitable results of certain films. In addition, the Partnership earned approximately $26,000 of interest income from its short-term investments and incurred approximately $139,000 of expenses from its operations, resulting in an overall net profit to the Partnership of approximately $115,000. For the six months ended June 30, 1995, the Columbia Joint Venture had a net profit of which the Partnership's share was approximately $64,000, due primarily to the profitable results of certain films. The Tri-Star Joint Venture had a net profit of which the Partnership's share was approximately $356,000, due primarily to the profitable results of certain films and the accrual of Distribution Fee Reduction Payments. In addition, the Partnership earned approximately $34,000 of interest income from its short-term investments and incurred approximately $127,000 of expenses from its operations, resulting in an overall net profit to the Partnership of approximately $327,000. The decrease in interest income for the three and six month periods ended June 30, 1996 as compared with the corresponding periods in 1995 is due primarily to lower interest rates earned on short-term investments during 1996. The increase in operating expenses for the three and six month periods ended June 30, 1996 as compared with the corresponding periods in 1995, is due primarily to the increase in the reimbursement to the General Partner for out- of-pocket expenses incurred in connection with its management of the Partnership's business. COLUMBIA-DELPHI III PRODUCTIONS (A Joint Venture) BALANCE SHEETS (000's Omitted) Unaudited June December 30, 31, 1996 1995 ASSETS Motion Picture Production and Advertising Costs, net of accumulated amortization of $76,788 and $76,726, $ $ respectively 698 760 Motion Picture Costs Recoverable from Distribution Fees 89 171 Receivable from Columbia Pictures (Distributor) 1,660 2,010 Total $ 2,447 $ Assets 2,941 LIABILITIES AND VENTURERS' CAPITAL Liabilities: Payable to Columbia Pictures $ $ Industries, Inc. 1,215 1,541 Payable to Delphi Film Associates III 534 640 Total Liabilities 1,749 2,181 Venturers' Capital: Columbia Pictures Industries, 565 613 Inc. Delphi Film Associates III 133 147 Total Venturers' Capital 698 760 Total Liabilities and Venturers' $ $ 2,941 Capital 2,447 See accompanying notes to the financial statements. COLUMBIA - DELPHI III PRODUCTIONS (A Joint Venture) STATEMENTS OF OPERATIONS (000's Omitted) Unaudited For the Three Months For the Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Net Revenue From Motion Picture Exploitation $ $ $ $ 36 199 414 285 Less: Amortization of Motion Picture Production and Advertising Costs 4 32 62 75 Income from Operations 32 167 352 210 Accrued Distribution Fee Reduction 0 0 16 0 Net Income $ $ $ $ 32 167 368 210 See accompanying notes to the financial statements. COLUMBIA - DELPHI III PRODUCTIONS (A Joint Venture) STATEMENTS OF CASH FLOWS (000's Omitted) Unaudited For the Six Months Ended June 30, 1996 1995 Cash Flow From Operating Activities: Net Income $ $ 368 210 Adjustments to reconcile Net Income to net cash provided by operating activities: Amortization of Motion Picture Production and Advertising Costs 62 75 Accrued Distributions to 432 185 Venturers Changes in Assets and Liabilities: Decrease in Payable to Columbia Pictures Industries, (326) (156) Inc. Decrease in Receivable from Columbia Pictures 350 71 (Distributor) Decrease in Motion Picture Costs Recoverable from 82 141 Distribution Fees Decrease in Payable to Delphi Film Associates III, net (106) (29) Decrease in Advance to Delphi Film Associates III 0 (27) Net Cash Provided by Operating Activities 862 470 Cash Flow from Financing Activities: Distributions to Venturers (862) (470) Net Cash Used by Financing Activities (862) (470) Net Change in Cash 0 0 Cash at beginning of period 0 0 Cash at end of period $ $ 0 0 See accompanying notes to the financial statements. COLUMBIA - DELPHI III PRODUCTIONS (A Joint Venture) NOTES TO FINANCIAL STATEMENTS Unaudited 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. There has been no material change in the information disclosed in the notes to financial statements of the Joint Venture included in the Annual Report on Form 10-K of Delphi Film Associates III (the "Partnership") for the year ended December 31, 1995. The information furnished includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Joint Venture as of June 30, 1996 and the results of its operations and cash flows for the periods ended June 30, 1996 and 1995. Results of operations for the period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year. 2. Current Operations All seven films in which the Joint Venture has an interest have completed their theatrical release and are being distributed in various ancillary markets. For the three and six month periods ended June 30, 1996, the Joint Venture is reporting net revenue of $36,000 and $414,000, respectively, due primarily to the performance of its films in the worldwide free and pay television markets. For the three and six month periods ended June 30, 1995, the Joint Venture reported net revenue of $199,000 and $285,000, respectively, due primarily to the performance of its films in the worldwide free television, pay television and worldwide home video markets. 3. Distribution Fee Reduction The Joint Venture was entitled to a payment from its Distributor in reduction of the Distributor's aggregate distribution fee if, by June 30, 1991, the Joint Venture had not received, in the aggregate, from net proceeds and gross receipts (excluding amounts paid to the Joint Venture for the recovery of advertising and promotion charge payments) an amount at least equal to the amounts spent by the Joint Venture for the production of films and the acquisition of interests in films (excluding certain amounts spent for payments in the nature of interest) (the "Expenditures"). Payments totaling $2,434,000 were made to the Joint Venture representing the aggregate distribution fee previously received by its Distributor. The payment to the Joint Venture was allocated to the Partnership and Columbia based on their respective percentage interest in a film for which a distribution fee was received. In addition, the Distributor is required to pay to the Joint Venture an amount equal to all subsequent distribution fees earned by it until the Joint Venture has recouped an amount equal to its Expenditures. Accordingly, $89,000 has been accrued as Motion Picture Costs Recoverable from Distribution Fees as of June 30, 1996, in the accompanying financial statements. 4. Additional Information Additional information, including the audited year end 1995 Financial Statements and the Summary of Significant Accounting Policies, is included in the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1995. TRI-STAR -DELPHI III PRODUCTIONS (A Joint Venture) BALANCE SHEETS (000's Omitted) Unaudited June December 30, 31, 1996 1995 ASSETS Motion Picture Production and Advertising Costs, net of accumulated amortization of $194,749 and $194,664, $ 2,581 $ respectively 2,666 Motion Picture Costs Recoverable from Distribution Fees 1,011 1,432 Receivable from TriStar Pictures, Inc. (Distributor) 323 476 Total $ 3,915 $ Assets 4,574 LIABILITIES AND VENTURERS' CAPITAL Liabilities: Payable to TriStar Pictures, $ 1,027 $ Inc. 1,405 Payable to Delphi Film Associates III 307 503 Total Liabilities 1,334 1,908 Venturers' Capital: TriStar Pictures, Inc. 2,153 2,210 Delphi Film Associates III 428 456 Total Venturers' Capital 2,581 2,666 Total Liabilities and Venturers' $ $ Capital 3,915 4,574 See accompanying notes to the financial statements. TRI-STAR-DELPHI III PRODUCTIONS (A Joint Venture) STATEMENTS OF OPERATIONS (000's Omitted) Unaudited For the Three Months For the Six Months Ended June 30, Ended June 30, 1996 1995 1996 1995 Net Revenue From Motion Picture Exploitation $ $ $ $ 179 893 533 1,010 Less: Amortization of Motion Picture Production and Advertising Costs 26 315 85 337 Income from Operations 153 578 448 673 Accrued Distribution Fee Reduction 0 0 0 461 Net Income $ $ $ $ 153 578 448 1,134 See accompanying notes to the financial statements. TRI-STAR - DELPHI III PRODUCTIONS (A Joint Venture) STATEMENTS OF CASH FLOWS (000's Omitted) Unaudited For the Six Months Ended June 30, 1996 1995 Cash Flow From Operating Activities: Net Income $ $ 448 1,134 Adjustments to reconcile Net Income to net cash provided by operating activities: Amortization of Motion Picture Production and Advertising Costs 85 337 Accrued Distributions to 574 (557) Venturers Changes in Assets and Liabilities: (Decrease) Increase in Payable to Delphi Film Associates III, net (196) 112 (Decrease ) Increase in Payable to TriStar Pictures, Inc. (378) 445 Decrease (Increase) in Receivable from TriStar Pictures, Inc. 153 (419) (Distributor) Decrease (Increase) in Motion Picture Costs Recoverable from Distribution Fees 421 (138) Net Cash Provided by Operating Activities 1,107 914 Cash Flow From Financing Activities: Distributions to Venturers (1,107) (914) Net Cash Used by Financing Activities (1,107) (914) Net Change in Cash 0 0 Cash at beginning of period 0 0 Cash at end of period $ $ 0 0 See accompanying notes to the financial statements. TRISTAR - DELPHI III PRODUCTIONS (A Joint Venture) NOTES TO FINANCIAL STATEMENTS Unaudited 1. Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. They do not include all information and notes required by generally accepted accounting principles for complete financial statements. There has been no material change in the information disclosed in the notes to financial statements of the Joint Venture included in the Annual Report on Form 10-K of Delphi Film Associates III (the "Partnership") for the year ended December 31, 1995. The information furnished includes all adjustments which are, in the opinion of management, necessary to present fairly the financial position of the Joint Venture as of June 30, 1996 and the results of its operations and cash flows for the periods ended June 30, 1996 and 1995. Results of operations for the period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year. 2. Current Operations All twenty-seven films in which the Joint Venture has an interest have completed their theatrical release and are being distributed in various ancillary markets. For the three and six month periods ended June 30, 1996 the Joint Venture is reporting net revenue of $179,000 and $533,000, respectively, due primarily to the performance of its films in the worldwide free and pay television markets. For the three and six month periods ended June 30, 1995, the Joint Venture reported net revenue of $893,000 and $1,010,000, respectively, due primarily to the performance of its films in the worldwide free and pay television markets. For the six month period ended June 30, 1995, the Joint Venture recorded an increase of $461,000 in Motion Picture Costs Recoverable from Distribution Fees due to a change in the estimated distribution fee to be earned by its Distributor. 3. Distribution Fee Reduction The Joint Venture was entitled to a payment from its Distributor in reduction of the Distributor's aggregate distribution fee if, by June 30, 1991, the Joint Venture had not received, in the aggregate, from net proceeds and gross receipts (excluding amounts paid to the Joint Venture for the recovery of advertising and promotion charge payments) an amount at least equal to the amounts spent by the Joint Venture for the production of films and the acquisition of interests in films (excluding certain amounts spent for payments in the nature of interest) (the "Expenditures"). Payments totaling $4,998,000 were made to the Joint Venture representing the aggregate distribution fee previously received by its Distributor. The payment to the Joint Venture was allocated to the Partnership and TriStar based on their respective percentage interest in the films for which a distribution fee was received. The Distributor is required to pay to the Joint Venture an amount equal to all subsequent distribution fees earned by it until the Joint Venture has recouped an amount equal to its Expenditures. Accordingly, $1,011,000 has been accrued as Motion Picture Costs Recoverable from Distribution Fees as of June 30, 1996, in the accompanying financial statements. 4. Additional Information Additional information, including the audited year end 1995 Financial Statements and the Summary of Significant Accounting Policies, is included in the Annual Report on Form 10-K of the Partnership for the year ended December 31, 1995. PART II Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3.Defaults Upon Senior Securities None Item 4.Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6.Exhibits and Reports on Form 8-K A). Exhibits EXHIBIT NUMBERDESCRIPTIONPAGE NUMBER 27 Financial Data Schedule B). Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DELPHI FILM ASSOCIATES III A New York Limited Partnership By: THE DELPHI GROUP, General Partner By: ML Film Entertainment, Inc., Managing Partner August 12, 1996 /s/ Diane T. Herte________________ Date Diane T. Herte Treasurer of the Managing Partner of the General Partner (principal financial officer and principal accounting officer of the Registrant) August 12, 1996 /s/ Steven N. Baumgarten__________ Date Steven N. Baumgarten Director and Vice President of the Managing Partner of the General Partner