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, 1997 [ ] 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 California 33-0526128 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 	 (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) N/A 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] 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 on Form 8-K Signatures 2 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, March 31, 1997 and December 31, 1996 4 Statements of Operations, For the Three Months Ended March 31, 1997 and March 31, 1996 5 Statements of Partnership Capital, For the Three Months Ended March 31, 1997 and Year Ended December 31, 1996 6 Statements of Cash Flows, For the Three Months Ended March 31, 1997 and March 31, 1996 7 Notes to Financial Statements 8 3 PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEETS March 31, 1997 and December 31, 1996 ________________ ASSETS 1997 (Unaudited) 1996 -------- -------- Cash and equivalents $860,990 $775,755 Cash held in trust 2,304,098 2,656,338 Investments in distressed loan portfolios, net 2,351,178 2,566,546 Due from affiliate 209,298 56,039 Other assets 64,477 64,477 Organization costs, net 579 923 -------- -------- Total assets $5,790,620 $6,120,078 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Accounts payable $3,450 $715 Due to affiliates, net 536,180 492,800 -------- -------- Total liabilities 539,630 493,515 -------- -------- Commitments and contingencies Partners' capital 5,250,990 5,626,563 -------- -------- Total liabilities and partners' capital $5,790,620 $6,120,078 ========= ========= <FN> The accompanying notes are an integral part of the financial statements. 4 PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) For the Three Months Ended March 31, 1997 and 1996 ________________ 1997 1996 -------- -------- Portfolio collections $215,368 $113,237 Less: portfolio basis recovery 215,368 100,972 -------- -------- Net investment income - 12,265 -------- -------- Cost of operations: Collection expense 210 18,300 Management fee expense 15,275 23,905 Professional fees 34,405 28,522 Amortization 344 289 General and administrative expense 940 256 -------- -------- Total operating expenses 51,174 71,272 -------- -------- Income (loss) from operations (51,174) (59,007) Other income: Interest 9,717 3,134 Other income 84 - -------- -------- Net income (loss) ($41,373) ($55,873) ======== ======== <FN> The accompanying notes are an integral part of the financial statements. 5 PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) For the Three Months Ended March 31, 1997 and Year Ended December 31,1996 (Unaudited) ________________ General Limited Partner Partners Total ---------- ---------- ---------- Balance, December 31, 1995 ($322,499) $5,597,599 $5,275,100 Distributions (35,775) (295,925) (331,700) Net income 68,315 614,848 683,163 ---------- ---------- ---------- Balance, December 31, 1996 (289,959) 5,916,522 5,626,563 Distributions (33,300) (300,900) (334,200) Net income (4,137) (37,236) (41,373) ---------- ---------- ---------- Balance, March 31, 1997 ($327,396) $5,578,386 $5,250,990 ========== ========== ========== <FN> The accompanying notes are an integral part of the financial statements. 6 PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1997 and 1996 (Unaudited) ________________ 1997 1996 -------- -------- Cash flows from operating activities: Net income (loss) ($41,373) ($55,873) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization 344 289 Decrease (increase) in assets: Other assets - 110,219 Due from affiliates (153,259) - Increase (decrease) in liabilities: Accounts payable 2,735 9,588 Due to affiliates 43,380 59,281 -------- -------- Net cash provided by (used in) operating activities (148,173) 123,504 -------- -------- Cash flows provided by (used in) investing activities: Recovery of portfolio basis 215,368 100,972 Cash held in trust 352,240 12,639 Purchase of investments in distressed loan portfolios - - -------- -------- Net cash provided by investing activities 567,608 113,611 -------- -------- Cash flows provided by (used in) financing activities: Redemption of limited partnership units - - Distributions to partners (334,200) - -------- -------- Net cash used in financing activities (334,200) - -------- -------- Net (decrease) increase in cash 85,235 237,115 Cash at beginning of period 775,755 210,140 -------- -------- Cash at end of period $860,990 $447,255 ======== ======== <FN> The accompanying notes are an integral part of the financial statements. 7 PERFORMANCE ASSET MANAGEMENT FUND III, LTD., A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements 1. Organization and Description of Business ---------------------------------------- Performance Asset Management Fund III, Ltd., a California limited partnership was formed in September 1992, for the purpose of acquiring distressed loan portfolios from financial institutions and other sources. 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 is Performance Development, Inc., a California corporation ("PDI"). Profits, losses, and cash distributions are allocated 90% to the limited partners and 10% to the General Partner until such time as the limited partners have been returned 100% of their initial capital contributions to the Partnership. Thereafter, Partnership profits, losses and cash distributions are allocated 70% to the limited partners and 30% to the General Partner. Cash and Equivalents - -------------------- The Partnership defines cash equivalents as all highly liquid investments with a maturity of three months or less when purchased. The Partnership maintains its cash balances at one bank in accounts which, at times, may exceed federally insured limits. The Partnership uses a cash management system whereby idle cash balances are swept daily into a master account and invested in high quality, short-term securities. The Partnership's management believes that these cash balances are not subject to any significant credit risk due to the nature of the investments and has not experienced any past losses with cash and equivalent investments. Cash Held in Trust - ------------------ The General Partner anticipates that the Partnership and the PAM Funds may, in the future, be reorganized and merged with and into one corporation. In an effort to accomplish that reorganization and merger on terms and conditions consistent with the intent of the General Partner, on December 12, 1995, the General Partner, on behalf of the Partnership and the PAM Funds, and the State of California Department of Corporations entered into an agreement pursuant to the provisions of which the Performance Asset Management Fund Trust ("Trust") was created. These funds are subject to the terms of the Trust Agreement. The Trust was the recipient of a portion of the funds resulting from a settlement of certain litigation between the Partnership and its affiliates and West Capital Financial Services Corp. ("WCFSC") and its affiliates. 8 Investments in Distressed Loan Portfolios and Revenue Recognition - ----------------------------------------------------------------- Investments in distressed loan portfolios are carried at the lower of cost, market, or estimated net realizable value. Amounts collected are treated as a reduction to the carrying basis of the related investment on an individual portfolio basis. Accordingly, income is not recognized until 100% recovery of the original cost of the investment in each portfolio occurs. Estimated net realizable value represents management's estimates, based on its present plans and intentions, of the present value of future collections. Due to the distressed nature of these investments, no interest is earned on outstanding balances, and there is no assurance that the unpaid principal balances will ultimately be collected. Any adjustments to the carrying value of the individual portfolios are recorded in the results of operations. Organization Costs, Net - ----------------------- Organization costs include legal and other professional fees incurred related to the initial organization of the Partnership. These costs are capitalized and amortized using the straight-line method over five years. Accumulated amortization at March 31, 1997 and December 31, 1996 totaled $5,207 and $4,863, respectively. Income Taxes - ------------ No provision for income taxes has been made in the financial statements, except for the Partnership's minimum state franchise tax liability of $800. All partners are taxed individually on their share of the Partnership's earnings and losses. Estimates - --------- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from the estimate. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations. - ---------------------- Collections for the three months ended March 31, 1997 from the Partnership's portfolios increased approximately 90% to $215,368 from $113,237 for the comparable period in 1996. This increase was due primarily to additional active portfolios being serviced by the Partnership's affiliate servicer, Performance Capital Management (PCM). In early 1996 the Partnership had a number of portfolios serviced by a third party servicer. In March 1996 the Partnership terminated all servicing relations with the third party servicer and entered into a settlement agreement to sell any remaining portfolio assets held by the servicer to the servicer. The Partnership acquired three portfolios in the last quarter of 1996 from a single third party financial institution specializing in credit card origination. During the first quarter of 1997 collections from these portfolios comprised approximately 96% of all portfolio collections in the period. Due to the recent acquisition of these portfolios, the Partnership did not record any net investment revenue for the quarter ended March 31, 1997, compared to net investment revenue of $12,265 recorded for the comparable period in 1996. During the first quarter of 1997 the Partnership did not have any portfolios in which 100% of cost had been recovered, as compared to six portfolios at 100% cost recovery during the comparable period in 1996. Accordingly, none of the portfolio collections in the three months ended March 31, 1997 resulted in revenue recognition for the Partnership, compared to 10.83% for the comparable three months ended March 31, 1996. The Partnership recorded proceeds from portfolio sales of $15,046 for the three months ended March 31, 1997. No such proceeds were received for the comparable period ended March 31, 1996. The Partnership's management believes that proceeds from both collection procedures and portfolio account sales will increase in subsequent periods and estimates that proceeds from portfolio sales accounts should exceed those amounts recorded in the fiscal year ended 1996. Total operating expenses decreased 28% to $51,174 for the three months ended March 31, 1997, from $71,272 for the comparable period in 1996. Operating expenses as a percentage of portfolio collections totaled approximately 24% as compared to 63% for the comparable period in 1996. The decrease is due primarily to a reduction in collection expenses attributed to streamlined collection procedures implemented in 1996, as well as a reduction in management fees attributed to the sale and liquidation of less productive portfolio assets. The Partnership Management anticipates stronger collection activity in subsequent quarters based on current Partnership growth and past historic operational trends. In addition, the Partnership's affiliate servicer, PCM has completed additional enhancements to its existing collection platform which should improve the Partnership's ability to locate present and future debtor customers more quickly and easily than in the past. This enhancement should provide additional opportunities for PCM's collection representatives to increase portfolio collections. 10 Financial Condition, Liquidity and Capital Resources. - ---------------------------------------------------- The Partnership's total assets decreased approximately 5% to $5,790,620 as of March 31, 1997, from $6,120,078 at December 31, 1996. The decrease was primarily attributable to distributions made to limited partner investors of $300,900 which were generated from collections on portfolio accounts. The Partnership received portfolio proceeds of $215,368, of which 100% were recorded as recovery of portfolio assets. The Partnership did not acquire any new distressed portfolio assets in the three months ended March 31, 1997, however Partnership Management anticipates that it 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 Partnership believes it will continue to acquire low-end-priced distressed portfolios; however, Partnership Management will continue to evaluate assets with different pricing and structure which will continue to generate strong immediate cash flows and provide additional liquidity to provide limited partner distributions and also allow Partnership Management to acquire additional portfolio assets. The Partnership has made no future commitments with credit card originators and other financial institutions to acquire portfolio assets. Partnership Management plans to use its present contacts and relationships to identify and acquire additional assets as optimal prices, and believes that it will have no difficulties in identifying and acquiring such assets. Management 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 Partnership Management anticipates that additional portfolio acquisitions and continued expansion will improve the Partnership's liquidity, profitability and financial condition, as a result of increased portfolio collections and sales. Management believes that in order to supplement such growth, PCM must continue to increase the amount of collection representatives and human resources. The Partnership's General Partner, in conjunction with PCM and other affiliated companies and partnerships, is presently evaluating additional operating facilities which will provide for future growth. Management anticipates that the Partnership and PCM will obtain additional operating space in order to facilitate its anticipated expansion by the end of its present fiscal years. In addition, Management believes that existing management will be sufficient to facilitate the anticipated additional growth of the Partnership. 11 PART II - OTHER INFORMATION Item 1. Legal Proceedings. No additional proceedings have occurred since March 31, 1997, the date of the latest report provided. In addition, no material developments are noted with respect to those matters described in the latest report dated March 31, 1997. Reference is made to the registrant's Form 10-KSB dated March 31, 1997, 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 on Form 8-K. (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 registrant's Form 10-KSB, dated March 31, 1997, in which that Certificate of Limited Partnership was included as an exhibit. The registrant, by this reference, makes that Certificate of Limited Partnership a part of this Form 10-QSB filing. ** Reference is made to the registrant's Form 10-KSB, dated March 31, 1997, in which that Agreement of Limited Partnership was included as an exhibit. The registrant, by this reference, makes that Agreement of Limited Partnership a part of this Form 10-QSB filing. 12 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: April 1, 1997	Performance Asset Management Fund III, Ltd., A California Limited Partnership -------------------------------------------- 			 (Registrant) By: /S/Vincent E. Galewick ---------------------- Vincent E. Galewick President of the General Partner Performance Development, Inc. 13