-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MBGJ9SPnIDy4t/GhjMpHdba5/B/pdJGhkmo8ENBrxquqny97/JnNGsHlZ0r+5o8F 4U5u129gNZ/lIDwqzf0HzQ== 0000891554-98-001606.txt : 19981229 0000891554-98-001606.hdr.sgml : 19981229 ACCESSION NUMBER: 0000891554-98-001606 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PERFORMANCE ASSET MANAGEMENT FUND IV LTD CENTRAL INDEX KEY: 0001021070 STANDARD INDUSTRIAL CLASSIFICATION: ASSET-BACKED SECURITIES [6189] IRS NUMBER: 330548134 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-28710 FILM NUMBER: 98776049 BUSINESS ADDRESS: STREET 1: 4100 NEWPORT PL STREET 2: STE 400 CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 7142612400 MAIL ADDRESS: STREET 1: 4100 NEWPORT PL STE 400 STREET 2: PERFORMANCE DEVELOPMENT INC CITY: NEWPORT BEACH STATE: CA ZIP: 92660 10QSB 1 FORM 10-QSB 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 0-28710 (Exact name of small business issuer as specified in its charter) Performance Asset Management Fund IV, Ltd., A California Limited Partnership (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) California 33-0548134 (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_ 1 PERFORMANCE ASSET MANAGEMENT FUND IV, 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 2 PERFORMANCE ASSET MANAGEMENT FUND IV, 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 the 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 IV, 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 PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., A CALIFORNIA LIMITED PARTNERSHIP BALANCE SHEETS September 30, 1998 and December 31, 1997 (UNAUDITED)
ASSETS 1998 1997 ------------ ------------ Cash and equivalents $ 1,497,640 $ 1,995,810 Cash held in trust 2,949,656 2,849,998 Investments in distressed loan portfolios, net 9,906,274 7,255,916 Deposit on distressed loan portfolio acquisition -- 2,858,076 Due from affiliate -- 231,443 Other assets 104,977 104,977 ============ ============ Total assets $ 14,458,547 $ 15,296,220 ============ ============ LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 5,350 $ 61,713 Due to affiliates, net 314,115 1,225,572 ------------ ------------ Total liabilities 319,465 1,287,285 ------------ ------------ Commitments and contingencies General partner's deficit (no units outstanding) (1,024,556) (1,039,077) Limited partners' capital (12,000 units authorized; 11,454 and 11,462 units issued and outstanding at at September 30, 1998 and December 31, 1997 respectively) 15,163,638 15,048,012 ------------ ------------ Total partners' capital 14,139,082 14,008,935 ============ ============ Total liabilities and partners' capital $ 14,458,547 $ 15,296,220 ============ ============
The accompanying notes are an integral part of the financial statements. 4 PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three For the Nine Months Ended September 30 Months Ended September 30 ---------------------------- ---------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Portfolio collections $1,259,482 $630,035 $3,746,787 $2,047,261 Less: portfolio basis recovery 1,197,479 606,690 3,569,596 1,998,422 ----------- ----------- ----------- ----------- Net investment income 62,003 23,345 177,191 48,839 ----------- ----------- ----------- ----------- Cost of operations: Collection expense 16,858 47,988 121,061 215,877 Management fee expense 60,113 52,010 191,271 160,734 Professional fees 92,195 2,359 156,675 168,152 Amortization -- 917 -- 2,842 General and administrative expense 125 1,176 1,546 64,976 ----------- ----------- ----------- ----------- Total operating expenses 169,291 104,450 470,553 612,581 ----------- ----------- ----------- ----------- Income (loss) from operations (107,288) (81,105) (293,362) (563,742) Other income: Interest 62,076 (21,303) 175,091 167,337 Other income 7,362 -- 263,468 9,993 ----------- ----------- ----------- ----------- Net income (loss) ($37,850) ($102,408) $145,197 ($386,412) =========== =========== =========== =========== Net income (loss) allocable to general partner ($3,785) ($10,241) $14,521 ($38,641) =========== =========== =========== =========== Net income (loss) allocable to limited partners ($34,065) ($92,167) $130,676 ($347,771) =========== =========== =========== =========== Net income (loss) per limited partnership unit ($2.97) ($8.04) $11.41 ($30.36) =========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements. 5 PERFORMANCE ASSET MANAGEMENT FUND IV, 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 (748,842) 17,683,367 16,934,525 Redemption of 10 partnership units -- (25,000) (25,000) Distributions (222,907) (2,004,399) (2,227,306) Net income (loss) (67,328) (605,956) (673,284) ------------ ------------ ------------ Balance, December 31, 1997 ($1,039,077) $15,048,012 $14,008,935 Redemption of 8 partnership units ($15,050) ($15,050) Net income 14,521 130,676 145,197 ------------ ------------ ------------ Balance, September 30, 1998 ($1,024,556) $15,163,638 $14,139,082 ============ ============ ============
The accompanying notes are an integral part of the financial statements. 6 PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., A CALIFORNIA LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (UNAUDITED)
Sept. 30, 1998 Dec. 31, 1997 -------------- -------------- Cash flows from operating activities: Net income (loss) $145,197 ($386,412) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Amortization -- 2,842 Decrease (increase) in assets: Due from affiliates 231,443 136,022 Increase (decrease) in liabilities: Accounts payable (56,363) (1,001) Due to affiliates (911,458) 158,946 ----------- ----------- Net cash provided by (used in) operating activities (591,181) (89,603) ----------- ----------- Cash flows provided by (used in) investing activities: Recovery of portfolio basis 3,569,596 1,998,422 Cash held in trust (99,658) 3,018,477 Purchase of investments in distressed loan portfolios (6,219,953) (764,586) Deposit on distressed loan portfolio acquisition 2,858,076 -- ----------- ----------- Net cash provided by investing activities 108,061 4,252,313 ----------- ----------- Cash flows provided by (used in) financing activities: Redemption of limited partnership units ($15,050) (25,000) Distributions to partners -- (2,227,303) ----------- ----------- Net cash used in financing activities (15,050) (2,252,303) ----------- ----------- Net (decrease) increase in cash (498,170) 1,910,407 Cash at beginning of period 1,995,810 2,121,545 =========== =========== Cash at end of period $1,497,640 $4,031,952 =========== ===========
The accompanying notes are an integral part of the financial statements. 7 PERFORMANCE ASSET MANAGEMENT FUND IV, LTD., A CALIFORNIA LIMITED PARTNERSHIP Notes to Financial Statements Organization and Description of Business Performance Asset Management Fund IV, Ltd., A California Limited Partnership ("Partnership"), was formed in October 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 an intrastate offering to residents of California pursuant to the provisions of Section 3(A) (11) of the Securities Act of 1933; however, the Partnership did not begin its primary operations until March 1993. The General Partner is Performance Development, Inc., a California corporation ("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 capital of the Partnership plus an amount equal to 6% per annum of the limited partners contributions to the capital of the partnership, yet to be returned. 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 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 losses with cash and equivalent investments. The Partnership received interest income from these investments of $175,091 and $167,337 for the nine months ended September 30, 1998 and September 30, 1997, respectively. 8 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 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 a 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 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 term 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 $2,141,584, 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. 9 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. 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. 10 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 investments 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 the 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 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. 11 Organization Costs, Net Organization costs include legal and other professional fees incurred related to the 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 made in the financial statements, except for the Partnership's minimum state franchise tax liability of $800. All partners report individually on their share of the Partnership's 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 the General Partner's beliefs, expectations and opinions. Forward looking statements 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, 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. 12 Results of Operations The Partnership recorded net investment income of $177,191 for the nine months ended September 30, 1998, a 263% increase from $48,839 for the comparable period in 1997. This increase was generated from additional portfolios that collected in excess of the carrying value of its basis and accordingly is reflected as net investment income. Approximately 5% of portfolio collections received for the nine months ended September 30, 1998 are reflected as income, compared to 2% for the similar period in 1997. Net investment income of $177,191 for the nine months ending September 30, 1998 is the direct result of portfolio collection proceeds from nine of the Partnership's portfolios. These nine portfolios owned by the Partnership contain two portfolios which contributed 48% of the net investment income and seven other portfolios which contributed the remaining net investment income during the nine months ended September 30, 1998. Collections for the months ended July 31, 1998, August 31, 1998, and September 30, 1998, totaled $510,250, $364,611, and $384,621, respectively. The Partnership received proceeds from portfolio sales of $664,759 of which 100% were recorded as recoveries of investment basis and reflected in portfolio collections for the nine months ended September 30, 1998. Proceeds totaling $40,691 were received for the comparable period ended September 30, 1997. The General Partner continues to believe that proceeds from both collection and portfolio account sales will continue in subsequent periods. Total operating expenses of the Partnership decreased 23% to $470,553 for the nine months ended September 30, 1998, from $612,581 for the comparable period in 1997. The decrease is due primarily to a 98% reduction in collection expenses and general and administrative fees. General and administrative fees was $1,546 for the nine months ended September 30, 1998, from $64,976 for the similar period in 1997. Collection expenses decreased 44%, to $121,061 for the nine months ended September 30, 1998 from $215,877 for the same period in 1997. The skip tracing process used by the Partnership to locate and identify debtor accounts decreased during this period, reducing collection expenses. Management fees increased by 16% to $191,271 for the nine months ended September 30, 1998, from $160,734, which was directly related to the increase of investments in distressed loan portfolios and net assets under management. Total operating expenses of the Partnership as a percentage of portfolio collections decreased 17%, to 13% for the nine months ended September 30, 1998 from 30% in the comparable period in 1997. This decrease is primarily attributed to a decrease in general and administrative expenses associated with the Partnership. Total operating expenses of the Partnership increased 61% to $169,291 for the three months ended September 30, 1998 from $104,450 for the comparable period of 1997. The increase in total operating expenses is primarily attributed to an increase in professional fees by 97%. Management fees increased 14% for the quarter ended September 30, 1998 to $60,113 from $52,010 for the similar period ended 1997, due to 13 the acquisition of new portfolios increasing the net assets under management. Collection fees decreased 65% to $16,858, from $47,988. This decrease in collection expenses is due essentially to a reduction in skip tracing used to locate and identify Partnership debtor accounts. Operating expenses as a percentage of portfolio collections decreased 4% to 13% for the three months ended September 30, 1998, compared to 17% for the similar period ended September 30, 1997. The decrease in operating expense as a percent of portfolio collections is primarily attributed to decreased collection expenses. Financial Condition, Liquidity and Capital Resources. The Partnership's total assets decreased approximately 6% to $14,458,547 as of September 30, 1998, from $15,296,220 at December 31, 1997. The decrease was primarily attributed to portfolio collection proceeds of $3,746,787, of which 95% or $3,569,596 was recorded as a reduction of investment portfolio assets. The purchase related to the deposit on distressed loan portfolio acquisition of $2,858,076 was consummated at the beginning of the year, and is reflected in the increase in investments in distressed loan portfolios. The decrease of $231,443 in due from affiliates is primarily the result of the receipt of payments due the Partnership for the prior period's collections. The decrease of $911,458 in due to affiliates during the nine months ended September 30, 1998, was due primarily to the payments of accrued legal expenses and management fees to the General Partner. The Partnership acquired five new distressed portfolio assets in the first nine months of 1998 from a third party financial institutions which specializes in credit card origination. The General Partner anticipates that the Partnership will acquire additional portfolios in the 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-priced distressed portfolios; however, the General Partner will continue to evaluate assets with different pricing and debtor account structure to determine whether such portfolios can generate significant 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. 14 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. 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 the Partnership conducts 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 the 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 the Partnership conducts 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 15 expected to be material to the Partnership's results of operations and financial position and is being expensed as incurred. 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 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 Partnership'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 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 IV, Ltd., A California Limited Partnership -------------------------------- (Registrant) By: ---------------------------------- Vincent E. Galewick President of the General Partner, Performance Development, Inc. 18 EX-27 2 FDS --
5 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. 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 4,447,296 0 104,977 0 9,906,274 0 0 0 14,458,547 319,465 0 0 0 0 14,139,082 14,458,547 0 1,328,920 1,197,479 1,197,479 169,291 0 0 (37,850) 0 0 0 0 0 (37,850) 0 0
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