UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C.  20549





**FORM
      10-QSB**





T
            QUARTERLY
                REPORT UNDER SECTION 13
                OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      quarterly period ended June 30, 2007





OR





£
            TRANSITION
                REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
                OF
                1934





For
      the
      transition period from__________ to __________





Commission
      file number: 0 – 50235







**Performance
                    Capital Management, LLC**(Exact
                    name of small business issuer as specified in its charter)
   California
                
                03-0375751State
                    or other jurisdiction of incorporation or organization
                
                (IRS
                    Employer Identification No.)
   7001
                    Village Drive. Suite 255, Buena Park,
                    California  90621(Address
                    of principal executive offices)
   (714)
                    736-3780(Issuer's
                    telephone number)





(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 issuer was required to file such reports), and (2) has been subject
      to
      such filing requirements for the past 90 days.  Yes T No
£





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
£  No
      T





Check
      whether the issuer has filed 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 a court.     Yes T   No
£





As
      of
      August 1, 2007, the issuer had 550,244 LLC Units issued and
      outstanding.




Transitional
      Small Business Disclosure Format (Check one):  Yes £  No
      T













**PERFORMANCE
      CAPITAL MANAGEMENT, LLC**





**Index
      to**


**Quarterly
      Report on Form 10-QSB**


**For
      the Quarter Ended June 30, 2007**








**PART
                I – FINANCIAL INFORMATION**
            
            **Page**Item
                1
            Consolidated
                Financial StatementsReview
                Report of Independent Registered Public Accounting
                Firm
            
            1Consolidated
                Balance Sheets as of June 30, 2007 (unaudited) and
                December 31, 2006 (audited)
            
            2Consolidated
                Statements of Operations for the quarters and six
                months ended June 30, 2007 and 2006 (unaudited)
            
            3Consolidated
                Statements of Members’ Equity for the six months
                ended June 30, 2007 (unaudited) and the year ended December 31,
                2006
            
            4Consolidated
                Statements of Cash Flows for the six months ended
                June 30, 2007 and 2006 (unaudited)
            
            5Condensed
                Notes to the Consolidated Financial Statements
                (unaudited)
            
            6Item
                2
            Management’s
                Discussion and Analysis of Financial Condition
                and Results of Operations
            
            14Item
                3
            Controls
                and Procedures
            
            24**PART
                II – OTHER INFORMATION**Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            
            25Item
                5
            Other
                Information
            
            25Item
                6
            Exhibits
            
            26**SIGNATURES**
            
            27





*Index*





**PART
      I – FINANCIAL INFORMATION**





**ITEM
      1.  FINANCIAL STATEMENTS**








[MOORE
      STEPHENS WURTH FRAZER AND TORBET, LLP LETTERHEAD]








REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To
      the
      Board of Directors


Performance
      Capital Management, LLC


Buena
      Park, California





We
      have
      reviewed the accompanying consolidated balance sheet of Performance Capital
      Management, LLC as of June 30, 2007, and the related consolidated statements
      of
      operations for the three-month and six-month periods ended June 30, 2007
      and 2006, and the consolidated statements of members’ equity and the
      consolidated statements of cash flows for the six-month periods ended June
      30,
      2007 and 2006. All information included in these consolidated financial
      statements is the representation of the management of Performance Capital
      Management, LLC.





We
      conducted our review in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). A review of interim financial
      information consists principally of applying analytical procedures and making
      inquiries of persons responsible for financial and accounting
      matters.  It is substantially less in scope than an audit conducted in
      accordance with the standards of the Public Company Accounting Oversight Board,
      the objective of which is the expression of an opinion regarding the
      consolidated financial statements taken as a whole.  Accordingly, we
      do not express such an opinion.





Based
      on
      our reviews, we are not aware of any material modifications that should be
      made
      to the accompanying consolidated financial statements referred to above for
      them
      to be in conformity with accounting principles generally accepted in the United
      States of America.





We
      have
      previously audited, in accordance with the standards of the Public Company
      Accounting Oversight Board (United States), the consolidated balance sheet
      of
      Performance Capital Management, LLC as of December 31, 2006, and the related
      consolidated statements of operations, members’ equity and cash flows for the
      year ended December 31, 2006 (not presented herein); and in our report dated
      March 22, 2007, we expressed an unqualified opinion on those consolidated
      financial statements.  In our opinion, the information set forth in
      the accompanying consolidated balance sheet as of December 31, 2006, is fairly
      stated, in all material respects, in relation to the consolidated balance sheet
      from which it has been derived.








/s/
      Moore
      Stephens Wurth Frazer And Torbet, LLP








August
      10, 2007


Orange,
      California





1
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      JUNE 30, 2007 AND DECEMBER 31, 2006





June
                30,
              2007
            
            
            December
                31,
              2006(unaudited)
            
            
            (audited)ASSETSCash
                and cash equivalents
            
            $
            713,996
            
            
            $
            689,888Restricted
                cash
            
            
            460,837
            
            
            
            491,400Other
                receivables
            
            
            22,727
            
            
            
            28,984Purchased
                loan portfolios, net
            
            
            4,426,590
            
            
            
            5,000,942Property
                and equipment, net
            
            
            409,008
            
            
            
            430,119Deposits
            
            
            38,090
            
            
            
            80,463Prepaid
                expenses and other assets
            
            
            119,077
            
            
            
            100,274Total
                assets
            
            $
            6,190,325
            
            
            $
            6,822,070LIABILITIES
                AND MEMBERS' EQUITYLIABILITIES:Accounts
                payable
            
            $
            123,158
            
            
            $
            165,996Accrued
                liabilities
            
            
            546,150
            
            
            
            423,367Accrued
                interest
            
            
            41,098
            
            
            
            46,040Notes
                payable
            
            
            4,558,899
            
            
            
            4,455,460Income
                taxes payable
            
            
            12,000
            
            
            
            27,580Total
                liabilities
            
            
            5,281,305
            
            
            
            5,118,443COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            
            -MEMBERS'
                EQUITY
            
            
            909,020
            
            
            
            1,703,627Total
                liabilities and members' equity
            
            $
            6,190,325
            
            
            $
            6,822,070





The
      accompanying notes are an integral part of these consolidated financial
      statements.


See
      Review Report of Independent Registered Public Accounting Firm.





2
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONSOLIDATED
      STATEMENTS OF OPERATIONS





For
                the six
            
            
            For
                the sixmonths
            
            
            monthsFor
                the quarter
            
            
            For
                the quarter
            
            
            ended
            
            
            endedended
            
            
            ended
            
            
            June
                30,
            
            
            June
                30,June
                30, 2007
            
            
            June
                30, 2006
            
            
            2007
            
            
            2006(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)
            
            
            (unaudited)REVENUES:Portfolio
                collections
            
            $
            2,966,928
            
            
            $
            3,508,153
            
            
            $
            6,347,354
            
            
            $
            7,237,089Portfolio
                sales
            
            
            96,082
            
            
            
            -
            
            
            
            154,613
            
            
            
            1,532,610Total
                revenues
            
            
            3,063,010
            
            
            
            3,508,153
            
            
            
            6,501,967
            
            
            
            8,769,699Less
                portfolio basis recovery
            
            
            1,415,787
            
            
            
            1,676,563
            
            
            
            2,977,291
            
            
            
            4,524,868NET
                REVENUES
            
            
            1,647,223
            
            
            
            1,831,590
            
            
            
            3,524,676
            
            
            
            4,244,831OPERATING
                COSTS AND EXPENSES:Salaries
                and benefits
            
            
            1,042,697
            
            
            
            1,024,327
            
            
            
            2,160,952
            
            
            
            2,193,077General
                and administrative
            
            
            825,533
            
            
            
            777,056
            
            
            
            1,505,023
            
            
            
            1,509,645Depreciation
            
            
            25,327
            
            
            
            27,437
            
            
            
            49,695
            
            
            
            52,478Total
                operating costs and expenses
            
            
            1,893,557
            
            
            
            1,828,820
            
            
            
            3,715,670
            
            
            
            3,755,200INCOME
                (LOSS) FROM OPERATIONS
            
            
            (246,334
            )
            
            
            2,770
            
            
            
            (190,994
            )
            
            
            489,631OTHER
                INCOME (EXPENSE):Interest
                expense and other financing costs
            
            
            (137,204
            )
            
            
            (205,746
            )
            
            
            (287,481
            )
            
            
            (410,261
            )Interest
                income
            
            
            5,192
            
            
            
            3,941
            
            
            
            8,856
            
            
            
            6,593Other
                income
            
            
            -
            
            
            
            -
            
            
            
            10,493
            
            
            
            -Total
                other expense, net
            
            
            (132,012
            )
            
            
            (201,805
            )
            
            
            (268,132
            )
            
            
            (403,668
            )INCOME
                (LOSS) BEFORE INCOME TAX PROVISION
            
            
            (378,346
            )
            
            
            (199,035
            )
            
            
            (459,126
            )
            
            
            85,963INCOME
                TAX PROVISION
            
            
            0
            
            
            
            5,790
            
            
            
            13,600
            
            
            
            26,390NET
                INCOME (LOSS)
            
            $
            (378,346
            )
            
            $
            (204,825
            )
            
            $
            (472,726
            )
            
            $
            59,573NET
                INCOME (LOSS) PER MEMBER UNIT – BASIC AND DILUTED
            
            $
            (.69
            )
            
            $
            (.36
            )
            
            $
            (.86
            )
            
            $
            .11





The
      accompanying notes are an integral part of these consolidated financial
      statements.


See
      Review Report of Independent Registered Public Accounting Firm.





3
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONSOLIDATED
      STATEMENTS OF MEMBERS' EQUITY





TotalMember
            
            
            Unreturned
            
            
            Abandoned
            
            
            Accumulated
            
            
            Members'Units
            
            
            Capital
            
            
            Capital
            
            
            Deficit
            
            
            EquityBalance,
                December 31, 2005
            
            
            563,926
            
            
            $
            23,979,042
            
            
            $
            485,741
            
            
            $
            (21,331,102
            )
            
            $
            3,133,681Reinstatement
                of units to investor
            
            
            199
            
            
            
            11,938
            
            
            
            (11,938
            )
            
            
            
            
            
            
            -Distributions
                to investors
            
            
            
            
            
            
            (333,322
            )
            
            
            
            
            
            
            
            
            
            
            (333,322
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            59,573
            
            
            
            59,573Balance,
                June 30, 2006
            
            
            564,125
            
            
            
            23,657,658
            
            
            
            473,803
            
            
            
            (21,271,529
            )
            
            
            2,859,932Repurchase
                of units from investors
            
            
            (13,881
            )
            
            
            (574,909
            )
            
            
            574,909
            
            
            
            (65,935
            )
            
            
            (65,935
            )Distributions
                to investors
            
            
            
            
            
            
            (330,199
            )
            
            
            
            
            
            
            
            
            
            
            (330,199
            )Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (760,171
            )
            
            
            (760,171
            )Balance,
                December 31, 2006
            
            
            550,244
            
            
            
            22,752,550
            
            
            
            1,048,712
            
            
            
            (22,097,635
            )
            
            
            1,703,627Distributions
                to investors
            
            
            
            
            
            
            (321,881
            )
            
            
            
            
            
            
            
            
            
            
            (321,881
            )Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (472,726
            )
            
            
            (472,726
            )Balance,
                June 30, 2007
            
            
            550,244
            
            
            $
            22,430,669
            
            
            $
            1,048,712
            
            
            $
            (22,570,361
            )
            
            $
            909,020





The
      accompanying notes are an integral part of these consolidated financial
      statements.


See
      Review Report of Independent Registered Public Accounting Firm.





4
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONSOLIDATED
      STATEMENTS OF CASH FLOWS




For
                  the six months
              
              
              For
                  the six monthsended
              
              
              endedJune
                  30, 2007
              
              
              June
                  30, 2006(unaudited)
              
              
              (unaudited)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income (loss)
              
              $
              (472,726
              )
              
              $
              59,573Adjustments
                  to reconcile net income (loss) to net cash provided by operating
                  activities:Depreciation
              
              
              49,695
              
              
              
              52,478(Increase)
                  decrease in assets:Other
                  receivables
              
              
              6,257
              
              
              
              (8,962
              )Prepaid
                  expenses and other assets
              
              
              (18,803
              )
              
              
              (24,080
              )Deposits
              
              
              42,373Loan
                  portfolios
              
              
              574,352
              
              
              
              835,125Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              (42,838
              )
              
              
              (9,894
              )Accrued
                  liabilities
              
              
              122,783
              
              
              
              138,869Accrued
                  interest
              
              
              (4,942
              )
              
              
              24,546Income
                  taxes payable
              
              
              (15,580
              )
              
              
              (2,790
              )Net
                  cash provided by operating activities
              
              
              240,571
              
              
              
              1,064,865CASH
                  FLOWS FROM INVESTING ACTIVITIES:Additions
                  to property and equipment
              
              
              (28,584
              )
              
              
              (70,578
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Net
                  change in restricted cash
              
              
              30,563
              
              
              
              (190,849
              )Loan
                  proceeds from borrowing
              
              
              1,396,825
              
              
              
              2,379,418Repayment
                  of loans
              
              
              (1,293,386
              )
              
              
              (3,237,739
              )Distributions
                  to investors
              
              
              (321,881
              )
              
              
              (333,322
              )Net
                  cash used in financing activities
              
              
              (187,879
              )
              
              
              (1,382,492
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              24,108
              
              
              
              (388,205
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              689,888
              
              
              
              1,810,677CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              713,996
              
              
              $
              1,422,472SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Income
                  taxes paid
              
              $
              29,180
              
              
              $
              29,180Interest
                  paid
              
              $
              238,526
              
              
              $
              327,612





The
      accompanying notes are an integral part of these consolidated financial
      statements.


See
      Review Report of Independent Registered Public Accounting Firm.





5
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      1 – Organization and Description of Business**





Performance
      Capital Management, LLC (“PCM LLC”) and its wholly-owned subsidiary, Matterhorn
      Financial Services, LLC (“Matterhorn”) (collectively the “Company”, unless
      stated otherwise) are engaged in the business of acquiring assets originated
      by
      federal and state banks and other sources, for the purpose of generating income
      and cash flow from managing, collecting, or selling those assets. These assets
      consist primarily of non-performing credit card loan portfolios and are
      purchased and sold as portfolios (“portfolios”). Additionally, some of the loan
      portfolios are assigned to third-party agencies for collection. These
      consolidated financial statements should be read in conjunction with the audited
      consolidated financial statements and footnotes for the year ended December
      31,
      2006 included in the Company's Current Report on Form 10-KSB filed with the
      Securities and Exchange Commission on April 2, 2007.





Reorganization
      under Bankruptcy





PCM
      LLC
      was formed under a Chapter 11 Bankruptcy Reorganization Plan and operating
      agreement. The plan called for the consolidation of five California limited
      partnerships and a California corporation into the new California limited
      liability company. The five California limited partnerships were formed for
      the
      purpose of acquiring investments in or direct ownership of non-performing credit
      card loan portfolios from financial institutions and other sources. The assets
      of the five limited partnerships consisted primarily of non-performing credit
      card loans, as well as cash. In late December 1998, these six entities
      voluntarily filed bankruptcy petitions, which were later consolidated into
      one
      case. PCM LLC was formed on January 14, 2002 and commenced operations upon
      the
      confirmation of its Bankruptcy Reorganization Plan (“Reorganization Plan”) on
      February 4, 2002.





Wholly-owned
      Subsidiary





In
      July
      2004, the Company completed a credit facility (effective June 10, 2004) with
      Varde Investment Partners, L.P. (“Varde”), a participant in the debt collection
      industry, to augment portfolio purchasing capacity using capital provided by
      Varde. To implement the agreement, PCM LLC created a wholly-owned subsidiary,
      Matterhorn. The facility provides for up to $25 million of capital (counting
      each dollar loaned on a cumulative basis) over a five-year term. Varde is not
      under any obligation to make a loan to Matterhorn and Varde must agree on the
      terms for each specific advance under the loan facility. Under the terms of
      the
      facility, Varde will receive both interest and a portion of any residual
      collections on the portfolios acquired with a loan, after repayment of the
      purchase price (plus interest) to Varde and the Company and payment of servicing
      fees. Portfolios purchased using the facility will be owned by PCM LLC's
      subsidiary, Matterhorn. Varde has a first priority security interest in
      Matterhorn's assets securing repayment of its loans. In June 2007, the Company
      entered into an amendment to the Master Loan Agreement with Varde. The amendment
      extends the maturity date for principal and any other accrued but unpaid amounts
      on each loan from up to two years to up to three years.





**Note
      2 - Basis of Presentation**





The
      unaudited consolidated financial statements have been prepared by the Company
      pursuant to the rules and regulations of the Securities and Exchange Commission.
      The information furnished herein reflects all adjustments (consisting of normal
      recurring accruals and adjustments) which are, in the opinion of management,
      necessary to fairly present the operating results for the respective periods.
      Certain information and footnote disclosures normally present in annual
      consolidated financial statements prepared in accordance with accounting
      principles generally accepted in the United States of America have been omitted
      pursuant to such rules and regulations. These consolidated financial statements
      should be read in conjunction with the audited consolidated financial statements
      and footnotes for the year ended December 31, 2006 included in the Company's
      Current Report on Form 10-KSB filed with the Securities and Exchange Commission
      on April 2, 2007. The results for the six months ending June 30, 2007 are not
      necessarily indicative of the results to be expected for the full year ending
      December 31, 2007.





See
      Review Report of Independent Registered Public Accounting Firm.





6
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      2 - Basis of Presentation (continued)**





Reporting
      Entity





PCM
      LLC
      is a successor entity of six companies emerging from bankruptcy (see Note 1).
      The accompanying balance sheets, statements of operations, members’ equity, and
      cash flows include balances and transactions since the emergence from
      bankruptcy. Matterhorn was consolidated in the financial statements as a
      wholly-owned subsidiary starting in the third quarter of 2004.





Fresh
      Start Accounting





Statement
      of Position 90-7 issued by the American Institute of Certified Public
      Accountants (“SOP 90-7”) addresses accounting for companies in reorganization
      under the bankruptcy code. For certain entities, SOP 90-7 requires “fresh start
      accounting” which records a revaluation of assets to fair values and an
      adjustment of liabilities to present values.





SOP
      90-7
      also requires the following procedures for entities that adopt fresh start
      accounting:





1.
            The
                reorganization value of the entity should be allocated to the entity’s
                assets following FAS 141;





2.
            Liabilities
                other than deferred taxes should be stated at present values of amounts
                to
                be paid using current interest
                rates;





3.
            Deferred
                taxes should be presented in conformity with generally accepted accounting
                principles. Benefits realized from preconfirmation net operating
                loss
                carryforwards should reduce reorganization value in excess of amounts
                allocable to identifiable assets and other intangibles until exhausted
                and
                be reported as a direct addition to paid-in capital
                thereafter;





4.
            Changes
                in accounting principles that will be required for the emerging entity
                within the twelve months following the adoption of fresh start accounting
                should be adopted at the same time fresh start accounting is
                adopted.





SOP
      90-7
      also requires the following disclosure in the initial financial statements
      after
      fresh start accounting has been adopted:





1.
            Adjustments
                to the historical amounts of individual assets and
                liabilities;


2.
            The
                amount of debt forgiveness;


3.
            The
                amount of prior retained earnings or deficit eliminated;
                and


4.
            Other
                important matters in determining reorganization
                value.





Management
      reviewed these requirements and determined that fresh start accounting was
      not
      applicable because assets exceeded liabilities prior to confirmation of the
      plan
      and existing limited partners retained a majority interest in the successor
      entity.





For
      entities that do not meet the requirements for fresh start accounting, SOP
      90-7
      requires that liabilities compromised by a confirmed bankruptcy plan be stated
      at present value of amounts to be paid, using current interest rates. Debt
      forgiveness, if any, should be reported as an extraordinary item.





As
      part
      of the Reorganization Plan, no debt forgiveness existed and all liabilities
      subject to compromise were presented on the face of the balance sheet as
      pre-petition claims with disclosures required by SOP 90-7. These claims have
      been paid or settled by December 31, 2003.





Transfer
      of Assets to Successor Company





Assets
      were transferred at historical carrying values and liabilities were assumed
      as
      required by the bankruptcy confirmation plan.





See
      Review Report of Independent Registered Public Accounting Firm.





7
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      3 - Summary of Significant Accounting Policies**





Use
      of
      Estimates





In
      preparing financial statements in conformity with accounting principles
      generally accepted in the United States of America, management is required
      to
      make estimates and assumptions that affect the reported amounts of assets and
      liabilities, the disclosure of contingent assets and liabilities at the date
      of
      the financial statements, and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





Significant
      estimates have been made by management with respect to the timing and amount
      of
      collection of future cash flows from non-performing credit card loan portfolios.
      Among other things, the estimated future cash flows of the portfolios are used
      to recognize impairment in the purchased loan portfolios. Management reviews
      the
      estimate of future collections and it is reasonably possible that these
      estimates may change based on actual results and other factors. A change could
      be material to the financial statements.





Purchased
      Loan Portfolios





Purchased
      loan portfolios consisted primarily of non-performing credit card accounts.
      For
      substantially all the Company’s acquired portfolios, future cash flows cannot be
      reasonably estimated in order to record an accretable yield consistently.
      Therefore, the Company utilizes the cost recovery method as required by AICPA
      SOP 03-3. Application of the cost recovery method requires that any amounts
      received be applied first against the recorded amount of the portfolios; when
      that amount has been reduced to zero, any additional amounts received are
      recognized as net revenue. Acquired portfolios are initially recorded at their
      respective costs, and no accretable yield is recorded on the accompanying
      consolidated balance sheets.





The
      Company provides a valuation allowance for an acquired loan portfolio when
      the
      present value of expected future cash flows does not exceed the carrying value
      of the portfolio.





Over
      the
      life of the portfolio, the Company’s management continues to review the carrying
      values of each loan for impairment. If net present value of expected future
      cash
      flows falls below the carrying value of the related portfolio, the valuation
      allowance is adjusted accordingly.





Cash
      and Cash Equivalents





The
      Company defines cash equivalents as cash, money market investments, and
      overnight deposits with original maturities of less than three months. Cash
      equivalents are valued at cost, which approximates market. The Company maintains
      cash balances, which exceeded federally insured limits by approximately $0.9
      million as of June 30, 2007. The Company has not experienced any losses in
      such
      accounts. Management believes it is not exposed to any significant risks on
      cash
      in bank accounts.





Restricted
      cash consists principally of cash held in a segregated account pursuant to
      the
      Company’s credit facility with Varde.  The Company and Varde settle
      the status of these funds on a monthly basis pursuant to the credit
      facility.  The proportion of the restricted cash ultimately disbursed
      by Matterhorn to Varde and PCM LLC depends upon a variety of factors, including
      the portfolios from which the cash is collected, the size of servicing fees
      on
      the portfolios that generated the cash, and the priority of payments due on the
      portfolios that generated the cash. Restricted cash is not considered to be
      a
      cash equivalent.





Property
      and Equipment





Property
      and equipment are carried at cost and depreciation is computed over the
      estimated useful lives of the assets ranging from 3 to 7 years. The Company
      uses
      the straight-line method of depreciation. Property and equipment transferred
      under the reorganization plan were transferred at net book value. Depreciation
      is computed on the remaining useful life at the time of transfer.





See
      Review Report of Independent Registered Public Accounting Firm.





8
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      3 - Summary of Significant Accounting Policies (continued)**





The
      related cost and accumulated depreciation of assets retired or otherwise
      disposed of are removed from the accounts and the resultant gain or loss is
      reflected in earnings. Maintenance and repairs are expensed currently while
      major betterments are capitalized.





Long-term
      assets of the Company are reviewed annually as to whether their carrying value
      has become impaired.  Management considers assets to be impaired if
      the carrying value exceeds the future projected cash flows from related
      operations. Management also re-evaluates the periods of amortization to
      determine whether subsequent events and circumstances warrant revised estimates
      of useful lives. As of June 30, 2007, management expects these assets to be
      fully recoverable.





Leases
      and Leasehold Improvements





PCM
      LLC
      accounts for its leases under the provisions of SFAS No. 13, “Accounting
      for Leases,” and subsequent amendments, which require that leases be evaluated
      and classified as operating leases or capital leases for financial reporting
      purposes. The Company’s office lease is accounted for as an operating
      lease. The office lease contains certain provisions for incentive payments,
      future rent increases, and periods in which rent payments are reduced. The
      total
      amount of rental payments due over the lease term is being charged to rent
      expense on a straight-line method over the term of the lease. The difference
      between the rent expense recorded and the amount paid is credited or charged
      to
“Deferred rent obligation,” which is included in “Accrued liabilities” in the
      accompanying Consolidated Balance Sheets. In addition, leasehold improvements
      associated with this operating lease are amortized over the lease
      term.





Revenue
      Recognition





Revenue
      is accounted for using the cost recovery method of accounting in accordance
      with
      SOP 03-3, “Accounting for Loans or Certain Securities Acquired in a Transfer.”
Under the cost recovery method of accounting, all cash receipts relating to
      individual loan portfolios are applied first to recover the cost of the
      portfolios, prior to recognizing any revenue. Cash receipts in excess of cost
      of
      purchased loan portfolios are then recognized as net revenue.





Loan
      portfolio sales occur after the initial portfolio analysis is performed and
      the
      loan portfolio is acquired.  Portions of portfolios sold typically do
      not meet the Company’s targeted collection characteristics. Loan portfolios sold
      are valued at the lower of cost or market.





Proceeds
      from strategic sales of purchased loan portfolios are recorded as revenue when
      received.





Income
      Taxes





PCM
      LLC
      is treated as a partnership for Federal income tax purposes and does not incur
      Federal income taxes. Instead, its earnings and losses are included in the
      personal returns of its members.





PCM
      LLC
      is also treated as a partnership for state income tax purposes. The State of
      California imposes an annual corporation filing fee and an annual limited
      liability company fee.





Members’
      Equity





Members’
      equity includes voting LLC units held by members and non-voting LLC units held
      by one economic interest owner. As of June 30, 2007, PCM LLC had 526,522 voting
      LLC units and 23,722 non-voting LLC units. Retired or abandoned capital
      represents LLC units that are either voluntarily returned to the Company by
      a
      member or LLC units that are redeemed and cancelled following a procedure
      authorized by PCM LLC’s plan of reorganization to eliminate the interests of PCM
      LLC members that PCM LLC has not been able to locate. In the first quarter
      of
      2006, 199 LLC units of previously cancelled LLC units were reinstated due to
      a
      beneficiary heir establishing ownership. In December 2006, 13,881 LLC units,
      which were purchased for approximately $66,000, were retired in connection
      with
      the





See
      Review Report of Independent Registered Public Accounting Firm.





9
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      3 - Summary of Significant Accounting Policies (continued)**





Company’s
      odd lot buy back program (discussed in further detail in the Company’s annual
      report on Form 10-KSB for the year ended December 31, 2006).





Reclassifications





Certain
      amounts in the prior periods have been reclassified to conform to the current
      period financial statement presentation.  These reclassifications have
      no effect on previously recorded net income.





**Note
      4 – Fair Value of Financial Instruments**





The
      estimated fair value and the methods and assumptions used to estimate the fair
      values of the financial instruments of the Company as of June 30, 2007 and
      December 31, 2006 are as follows. The carrying amount of cash and cash
      equivalents, restricted cash and liabilities approximate their fair values.
      The
      total and retained fair values of purchased loan portfolios were determined
      based on both market pricing and discounted expected cash flows. The total
      fair
      value of the Company’s portfolios includes fair value attributable to the
      residual interests of third parties in collections once all funds (including
      funds invested by the Company) invested in a portfolio have been repaid (with
      interest) and all servicing fees have been paid.  The retained fair
      value of the Company’s portfolios excludes fair value attributable to these
      residual interests. The discount rate is based on an acceptable rate of return
      adjusted for the risk inherent in the loan portfolios. The discount rate
      utilized at June 30, 2007 and December 31, 2006 was 20%. The estimated total
      fair value of loan portfolios was $21.2 million and $22.0 million at June 30,
      2007, and December 31, 2006, respectively, and the estimated retained fair
      value
      of loan portfolios was $20.6 million and $21.3 million at June 30, 2007, and
      December 31, 2006, respectively.





**Note
      5 - Purchased Loan Portfolios**





The
      Company acquires portfolios of non-performing credit card loans from federal
      and
      state banks and other sources.  These loans are acquired at a
      substantial discount from the actual outstanding balance. The aggregate
      outstanding contractual loan balances at June 30, 2007 and December 31, 2006
      totaled approximately $830 million and $800 million, respectively.




The
      Company initially records acquired loans at cost.  To the extent that
      the cost of a particular loan portfolio exceeds the net present value of
      estimated future cash flows expected to be collected, a valuation allowance
      is
      recognized in the amount of such impairment.




The
      carrying amount of loans included in the accompanying consolidated balance
      sheets are as follows:




As
                of
            
            
            As
                ofJune
                30, 2007
            
            
            Dec.
                31, 2006Unrecovered
                cost balance,beginning of period
            
            $
            5,059,283
            
            
            $
            8,505,065Valuation
                allowance, beginning of period
            
            
            (58,341
            )
            
            
            (58,341
            )Net
                balance, beginning of period
            
            
            5,000,942
            
            
            
            8,446,724Net
                portfolio activity
            
            
            (574,352
            )
            
            
            (3,445,782
            )Net
                balance, end of period
            
            $
            4,426,590
            
            
            $
            5,000,942




See
      Review Report of Independent Registered Public Accounting Firm.





10
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)




**Note
      5 - Purchased Loan Portfolios (continued)**





The
      activity in the loan portfolios in the accompanying consolidated financial
      statements is as follows:





Quarter
            
            
            Quarter
            
            
            Six
                Months
            
            
            Six
                MonthsEnded
            
            
            Ended
            
            
            Ended
            
            
            Ended30-Jun-07
            
            
            30-Jun-06
            
            
            30-Jun-07
            
            
            30-Jun-06Purchased
                loan portfolios- net
            
            $
            2,014,955
            
            
            $
            3,344,893
            
            
            $
            2,402,939
            
            
            $
            3,689,743Collections
                on loan portfolios
            
            
            (2,966,928
            )
            
            
            (3,508,153
            )
            
            
            (6,347,354
            )
            
            
            (7,237,089
            )Sales
              of loan portfolios
            
            
            (96,082
            )
            
            
            -
            
            
            
            (154,613
            )
            
            
            (1,532,610
            )Revenue
                recognized on collections
            
            
            1,622,647
            
            
            
            1,831,590
            
            
            
            3,509,887
            
            
            
            3,713,104Revenue
                recognized on sales
            
            
            24,576
            
            
            
            -
            
            
            
            14,789
            
            
            
            531,727Net
                portfolio activity
            
            $
            599,168
            
            
            $
            1,668,330
            
            
            $
            (574,352
            )
            
            $
            (835,125
            )





The
      valuation allowance related to the loan portfolios had a balance of $58,341
      at
      June 30, 2007 and December 31, 2006.





**Note
      6 - Other Receivables**





Other
      receivables consist of collections on portfolios received by third party
      collection agencies.





**Note
      7 - Property and Equipment**





Property
      and equipment is as follows:





As
                of
            
            
            As
                ofJune
                30, 2007
            
            
            Dec.
                31, 2006Office
                furniture and equipment
            
            $
            432,139
            
            
            $
            427,897Computer
                equipment
            
            
            654,501
            
            
            
            630,159Leasehold
                improvements
            
            
            113,502
            
            
            
            113,502Totals
            
            
            1,200,142
            
            
            
            1,171,558Less
                accumulated depreciation
            
            
            791,134
            
            
            
            741,439Property
                and equipment, net
            
            $
            409,008
            
            
            $
            430,119





Depreciation
      expense for the three months ended June 30, 2007 and 2006 amounted to $25,327
      and $27,437, respectively. Depreciation expense for the six months ended June
      30, 2007 and 2006 amounted to $49,695 and $52,478, respectively.





**Note
      8 – Notes Payable**





The
      Company has entered into an agreement for a credit facility with Varde that
      provides for up to $25 million of capital (counting each dollar loaned on a
      cumulative basis) over a five-year term ending in July 2009. PCM LLC’s
      wholly-owned subsidiary Matterhorn owed approximately $4.6 million and $4.5
      million at June 30, 2007, and December 31, 2006, respectively, under the
      facility in connection with its purchase of certain charged-off loan portfolios.
      The total amount borrowed was approximately $14.0 million at June 30, 2007
      and
      $12.6 million at December 31, 2006. Each advance has minimum payment threshold
      points. Each advance has a term of up to three years and bears interest at
      the
      rate of 12% per annum. These obligations are scheduled to be paid in full on
      dates ranging from December 2007 to June 2010, with the approximate following
      principal payments due:





See
      Review Report of Independent Registered Public Accounting Firm.





11
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      8 – Notes Payable (continued)**





Year
                  endingJune
                30,2008
            
            $
            2,993,0002009
            
            $
            1,149,0002010
            
            $
            417,000





Once
      all
      funds (including funds invested by the Company) invested in a portfolio financed
      by Varde have been repaid with interest and all servicing fees have been paid,
      Varde will begin to receive a residual interest in collections of that
      portfolio. Depending on the performance of the portfolio, these residual
      interests may never be paid, they may begin being paid a significant time later
      than Varde’s loan is repaid (i.e., after the funds invested by the Company are
      repaid with interest), or, in circumstances where the portfolio performs
      extremely well, the loan could be repaid early and Varde could conceivably
      begin
      to receive its residual interest on or before the date that the loan obligation
      was originally scheduled to be paid in full. Varde has a first priority security
      interest in all the assets of Matterhorn, securing repayment of its loans and
      payment of its residual interest. PCM LLC, our parent operating company, has
      guarantied certain of Matterhorn's operational obligations under the loan
      documents. The amount of remaining available credit under the facility was
      approximately $11.0 million at June 30, 2007 and $12.4 at December 31, 2006.
      The
      assets of Matterhorn that provide security for Varde's loan were carried at
      a
      cost of approximately $3.0 million at June 30, 2007.





**Note
      9 - Commitments and Contingencies**





Lease
      Commitments





On
      July
      17, 2006, PCM LLC entered into an Office Lease Agreement to lease office space
      in Buena Park, California.  PCM LLC is using the leased premises as
      its principal executive offices and operating facility.





The
      term
      of the lease is 87 months and commenced on December 1, 2006, and will expire
      on
      February 28, 2014. PCM LLC has an option to renew the lease for one additional
      five-year term at the then prevailing "fair market rental rate" at the end
      of
      the term.





The
      base
      rent will increase on a yearly basis throughout the term. Future minimum lease
      commitments under the Buena Park lease for the twelve months ended June 30,
      will
      be:





Year
                ending
            
            Approximate
                AnnualJune
                30
            
            Lease
                Commitments2008
            
            $
            302,0002009
            
            $
            345,0002010
            
            $
            352,0002011
            
            $
            355,0002012
            
            $
            358,000Thereafter
            
            $
            606,000





In  addition  to  the  base
      rent, PCM LLC must pay its pro rata share of the increase in operating expenses,
      property taxes and property insurance for the building above the total dollar
      amount of operating expenses, property taxes and
      property  insurance  for  the 2006 base
      calendar  year.





The
      building lease contains provisions for incentive payments, future rent
      increases, or periods in which rent payments are reduced. As the Company
      recognizes rent expense on a straight-line basis, the difference between the
      amount paid and the amount charged to rent expense is recorded as a liability.
      The amount of deferred rent liability at June 30, 2007 was
      $192,000.





See
      Review Report of Independent Registered Public Accounting Firm.





12
 *Index*





PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





**Note
      9 - Commitments and Contingencies (continued)**





Rental
      expense for the three months ended June 30, 2007 and June 30, 2006 amounted
      to
      approximately $80,000 and $84,000, respectively.  Rental expense for
      the six months ended June 30, 2007 and June 30, 2006 amounted to approximately
      $160,000 and $168,000, respectively.   PCM LLC is obligated under
      two five-year equipment leases, one expiring in 2009 with minimum payments
      of
      $4,800 per year and the other lease expiring in 2011 with minimum payments
      of
      $3,900 per year.





**Note
      10 - Earnings Per Member Unit**





Basic
      and
      diluted earnings per member unit are calculated based on the weighted average
      number of member units issued and outstanding, 550,244 for the quarter ended
      June 30, 2007 and 564,125 for the quarter ended June 30, 2006.





**Note
      11 - Employee Benefit Plans**





The
      Company has a defined contribution plan covering all eligible full-time
      employees of Performance Capital Management (the Plan Sponsor) who are currently
      employed by the Company and have completed six months of service from the time
      of enrollment. The Plan was established by the Plan Sponsor to provide
      retirement income for its employees and is subject to the provisions of the
      Employee Retirement Income Security Act of 1974, as amended
      (ERISA).





The
      Plan
      is a contributory plan whereby participants may contribute a percentage of
      pre-tax annual compensation as outlined in the Plan agreement and as limited
      by
      Federal statute.  Participants may also contribute amounts
      representing distributions from other qualified defined benefit or contribution
      plans.  The Plan Sponsor does not make matching
      contributions.





**Note
      12 – Subsequent Event**





Under
      the
      loan agreement with Varde, the Company was required to pay the balance of one
      of
      its loans in full by the due date of April 28, 2007. The balance outstanding
      of
      the loan on that date was approximately $702,000. The balance outstanding of
      the
      loan at June 30, 2007 was $596,000. The portfolio continues to generate
      revenue through collections but at a slower rate than forecasted and, therefore,
      has not produced enough income to make the Varde payment by its due date. In
      May
      2007, Varde gave the Company an extension and a limited forbearance from any
      action until July 31, 2007. After further discussions with Varde regarding
      the
      timing of the payment, in July 2007, the Company obtained another extension
      and
      limited forbearance from any action until December 31, 2007.




See Review Report of Independent Registered Public Accounting
      Firm.




13
 *Index*





**ITEM
      2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF
      FINANCIAL CONDITION AND RESULTS OF OPERATIONS**





Except
      for the historical information presented in this document, the matters discussed
      in this Form 10-QSB, and specifically in “Management's Discussion and Analysis
      of Financial Condition and Results of Operations,” or otherwise incorporated by
      reference into this document contain “forward-looking statements” (as such term
      is defined in the Private Securities Litigation Reform Act of 1995). These
      statements can be identified by the use of forward-looking terminology such
      as
“believes,” “plans,” “expects,” “may,” “will,” “intends,” “should,” “plan,” or
“anticipates” or the negative thereof or other variations thereon or comparable
      terminology, or by discussions of strategy that involve risks and uncertainties.
      The safe harbor provisions of Section 21E of the Securities Exchange Act of
      1934, as amended, and Section 27A of the Securities Act of 1933, as amended,
      apply to forward-looking statements made by Performance Capital Management,
      LLC.
      You should not place undue reliance on forward-looking statements due to their
      inherent uncertainty. Forward-looking statements involve risks and
      uncertainties. The actual results that we achieve may differ materially from
      any
      forward-looking statements due to such risks and uncertainties. These
      forward-looking statements are based on current expectations, and we assume
      no
      obligation to update this information. Readers are urged to carefully review
      and
      consider the various disclosures made by us in this report on Form 10-QSB and
      in
      our other reports filed with the Securities and Exchange Commission that attempt
      to advise interested parties of the risks and factors that may affect our
      business.





The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the unaudited consolidated
      financial statements and accompanying notes and the other financial information
      appearing elsewhere in this report and with the financial information contained
      in our report on Form 10-KSB for the year ended December 31, 2006.








**OVERVIEW**





We
      acquire assets originated by federal and state banking and savings institutions,
      loan agencies, and other sources, for the purpose of generating income and
      cash
      flow from collecting or selling those assets. Typically, these assets consist
      of
      charged-off credit card contracts. These assets are typically purchased and
      sold
      as portfolios. We purchase portfolios using our own cash resources and funds
      borrowed from a third party. In January 2007, we started a third-party
      collection program to engage in the collection of debt on behalf of other
      parties, whereby we earn fees contingent upon the amount we collect. We will
      enter into third-party collection arrangements that we believe will increase
      our
      collection efficiency.





Before
      purchasing a portfolio, we conduct due diligence to assess the value of the
      portfolio. We try to purchase portfolios at a substantial discount to the actual
      amount of money that they will ultimately produce, so that we can recover the
      cost we pay for portfolios, repay funds borrowed to purchase portfolios, pay
      our
      collection and operating costs and still have a profit. We believe that market
      conditions currently make it difficult, although not impossible, to purchase
      portfolios at prices that will permit us to accomplish these objectives. We
      record our portfolios at cost based on the purchase price. We reduce the cost
      bases of our portfolios on a portfolio-by-portfolio basis based on collections,
      sales of some or all of the portfolio and impairment of net realizable
      value.





We
      frequently sell certain portions of portfolios we purchase, in many instances
      to
      retain those accounts that best fit our collection profile and to reduce our
      purchase commitment by reselling the others. We then collect those accounts
      we
      retain as a distinct portfolio. We do not generally purchase loan portfolios
      solely with a view to their resale, and for this reason we generally do not
      show
      portfolios on our balance sheet as "held for investment". From time to time
      we
      sell some of our portfolios either to capitalize on market conditions, to
      dispose of a portfolio that is not performing or to dispose of a portfolio
      whose
      collection life, from our perspective, has run its course. When we engage in
      these sales, we continue collecting the portfolio right up until the closing
      of
      the sale.





We
      earn
      revenues from collecting our portfolios and from selling our portfolios or
      portions of our portfolios. We recognize gross revenue when we collect an
      account and when we sell a portfolio or a portion of it. On our statement of
      operations, we reduce our total revenues by the cost basis recovery of our
      portfolios to arrive at net revenue.  For collections, we reduce the
      cost basis of the portfolio dollar-for-dollar until we have completely recovered
      the cost basis of the portfolio.  When we sell a portfolio
      or a portion of it, to the extent of
      remaining cost basis for the portfolio,  we reduce the cost
      basis of the portfolio by a percentage
      of  the original  portfolio cost.





14
 *Index*





Our
      net
      revenues from portfolio collections may vary from quarter to quarter because
      the
      number and magnitude of portfolios where we are still recovering costs may
      vary,
      and because the return rates of portfolios whose costs we have already recovered
      in full may vary. Similarly, our net revenues from portfolio sales may vary
      from
      quarter to quarter depending on the number and magnitude of portfolios (or
      portions) we decide to sell and the market values of the sold portfolios (or
      portions) relative to their cost bases.





We
      refer
      to the discounted present value of the actual amount of money that we believe
      a
      portfolio will ultimately produce as the “fair value” of the portfolio. If we
      conduct our business successfully, the aggregate fair value of our portfolios
      should be substantially greater than the aggregate cost basis of our portfolios
      presented on our balance sheet. We must make assumptions to determine fair
      value, the most significant of which are the magnitude and timing of future
      collections and the discount rate used to determine present value. Because
      of
      the inherent uncertainty associated with predicting future events, our
      determinations of fair value at any particular point in time are only estimates,
      and actual fair value could ultimately vary significantly from our
      estimate.





In
      general, we expect increases in the cost basis of our portfolios presented
      on
      our balance sheet to accompany increases in portfolio fair value. The magnitude
      and timing of our collections could cause cost basis to decline in some quarters
      when fair value actually increases, however, because we “front-load” our cost
      basis recovery instead of matching portfolio cost basis recovery to revenue
      on a
      proportionate basis over the life of the portfolio. Our purchasing patterns
      could reinforce this divergence. A decrease in the magnitude of new portfolio
      acquisitions (i.e., failing to reinvest all of cash collections representing
      cost basis recovery) may still result in a fair value increase because new
      portfolios generally have a fair value that exceeds their purchase
      price.





We
      plan
      to realize the difference between fair value and cost basis over time as we
      collect our portfolios. We generally collect our portfolios over periods of
      time
      ranging from three to seven years, with the bulk of a portfolio's yield coming
      in the first three years we collect it. If we succeed in collecting our
      portfolios and realize the difference between fair value and cost basis of
      our
      portfolios, we will recover the cost we paid for them, repay the loans used
      to
      purchase them, pay our collection and operating costs, and still have excess
      cash.





Our
      statement of operations generally will report proportionately low net revenues
      in periods that have substantial collections of recently purchased portfolios,
      due to the “front-loaded” cost basis recovery associated with new portfolios. As
      a result, during times of rapid growth in our portfolio purchases (and probably
      for several quarters thereafter), our statement of operations will likely show
      a
      net loss. As purchases slow and more collections come from older portfolios
      whose cost bases have been completely recovered, our statement of operations
      will begin to report net income, assuming our portfolios perform over time
      as
      anticipated and we collect them in an efficient manner. For the foreseeable
      future, we intend to continue seeking new large dollar-volume portfolio
      purchases using our loan facility with Varde Investment Partners, L.P.
      (“Varde”).





Our
      operating costs and expenses consist principally of salaries and benefits and
      general and administrative expenses.  Fluctuations in our salaries and
      benefits correspond roughly to fluctuations in our headcount. Our general and
      administrative expenses include non-salaried collection costs, telephone, rent
      and professional expenses. Fluctuations in telephone and collection costs
      generally correspond to the volume of accounts we are attempting to collect.
      Professional expenses tend to vary based on specific issues we must
      resolve.








**BASIS
      OF PRESENTATION**





We
      present our financial statements based on our February 4, 2002, emergence from
      bankruptcy being treated as the inception of our business. In our emergence
      from
      bankruptcy, we succeeded to the assets and liabilities of six entities that
      were
      in bankruptcy. The equity owners of these entities approved a reorganization
      plan under which the owners of these six entities agreed to receive ownership
      interests in Performance Capital Management, LLC, in exchange for their
      ownership interests in the predecessor entities.  Our consolidated
      financial  statements  include  the  accounts  of  our
      parent operating company, Performance Capital  Management, LLC, and
      its wholly-owned  special purpose subsidiary  Matterhorn
      Financial Services LLC, a California limited liability company (“Matterhorn").
      All significant inter-company balances and transactions have been
      eliminated.





15
 *Index*





**CRITICAL
      ACCOUNTING ESTIMATES**





We
      present investments in portfolios on our consolidated balance sheet at the
      lower
      of cost, market, or estimated net realizable value. As discussed above, we
      reduce the cost basis of a portfolio on a proportionate basis when we sell
      a
      portion of the portfolio, and we treat amounts collected on a portfolio as
      a
      reduction to the carrying basis of the portfolio on an individual portfolio
      basis. When we present financial statements we assess the estimated net
      realizable value of our portfolios on a portfolio-by-portfolio basis, and we
      reduce the value of any portfolio that has suffered impairment because its
      cost
      basis exceeds its estimated net realizable value. Estimated net realizable
      value
      represents management’s estimates, based upon present plans and intentions, of
      the discounted present value of future collections. We must make assumptions
      to
      determine estimated net realizable value, the most significant of which are
      the
      magnitude and timing of future collections and the discount rate used to
      determine present value. Once we write down a particular portfolio, we do not
      increase it in subsequent periods if our plans and intentions or our assumptions
      change.





We
      present the fair value of our portfolios only in the notes to our financial
      statements, not in the basic financial statements themselves. In order to
      understand our financial statements, the reader must understand the concepts
      involved in estimation of the fair value of our portfolios, as discussed in
      the
      section above entitled “Overview”. Because of the inherent uncertainty
      associated with predicting future events, our determinations of fair value
      at
      any particular point in time are only estimates, and actual fair value could
      ultimately vary significantly from our estimate.





When
      we
      collect an account in a portfolio, we reduce the cost basis of the portfolio
      dollar-for-dollar until we have completely recovered the cost basis of the
      portfolio. We believe this method of accounting for the amortization of the
      purchase price of our portfolios is conservative and minimizes the effect of
      estimation on our results of operations. This policy has the effect of
“front-loading” expenses, however, and may result in a portfolio initially
      showing no net revenue for a period of time and then showing only net revenue
      once we have recovered its entire cost basis. We recently retained an outside
      consultant to conduct a study to determine whether we should continue using
      the
      cost recovery method of accounting for all of our portfolios or switch to a
      method that matches portfolio cost basis to revenue over the projected life
      of
      the portfolio. The accounting method used depends largely upon a determination
      of our ability to accurately project the timing and amount of collections for
      portfolios we acquire. The consultant found that we are capable of determining
      the amount of revenue a portfolio is expected to generate over its life for
      portfolios that we have sufficient historical data and experience to accurately
      estimate future cash flows. As a result, our Board of Directors, with the
      assistance of management, is currently assessing
      our portfolios to determine which, if any, we have sufficient historical data
      and experience to accurately estimate the timing of collections revenue over
      its
      life.  At the same time, we are studying the mechanics of the interest
      method of accounting to determine how to apply it to a portfolio where we
      believe we can accurately estimate revenue flow over its
      life.




When
      we
      sell a portfolio or a portion of it, to the extent of remaining cost basis
      for
      the portfolio, we reduce the cost basis of the portfolio by a percentage of
      the
      original portfolio cost. Our policy does not take into account whether the
      portion of the portfolio we are selling may be more or less valuable than the
      remaining accounts that comprise the portfolio. We believe our policy, which
      is
      grounded in this objective measure for cost basis recovery, is preferable to
      a
      policy that would attempt to estimate whether a portion of a portfolio being
      sold is more or less valuable than the remaining accounts that comprise the
      portfolio, because our policy minimizes the effect of estimation on our results
      of operations.





As
      discussed in greater detail below, our credit facility with Varde provides
      for
      up to $25 million of capital (counting each dollar loaned on a cumulative basis)
      over a five-year term ending in July 2009. The facility provides for Varde
      to
      receive a residual interest in portfolio collections after all funds invested
      in
      the portfolio have been repaid (with interest) and all servicing fees have
      been
      paid. We do not record a liability for contingent future payments of residual
      interests due to the distressed nature of the portfolio assets and the lack
      of
      assurance that collections sufficient to result in a liability will actually
      occur. When such payments actually occur, we reflect them in our statement
      of
      operations as other financing costs.





For
      ease
      of presentation in the following discussions of “Operating Results” and
“Liquidity and Capital Resources”, we round amounts less than one million
      dollars to the nearest thousand dollars and amounts greater than one million
      dollars to the nearest hundred thousand dollars.





16
 *Index*





**OPERATING
      RESULTS**





***Comparison
      of Results for the Quarters Ended June 30, 2007 and
      2006***





The
      following discussion compares our results for the three months ended June 30,
      2007, to the three months ended June 30, 2006. We had a net loss of $378,000
      for
      the three months ended June 30, 2007, as compared to a net loss of $205,000
      for
      the three months ended June 30, 2006.





Revenue





Our
      net
      revenues decreased to $1.6 million for the quarter ended June 30, 2007, from
      $1.8 million for the quarter ended June 30, 2006. The following table presents
      a
      comparison of the components of our revenues for the three months ended June
      30,
      2007, to the three months ended June 30, 2006, as well as presenting net revenue
      as a percentage of the corresponding total revenue (approximate amounts due
      to
      rounding):





Total
            
            
            Collections
            
            
            SalesFor
                the Quarter
            
            
            For
                the Quarter
            
            
            For
                the QuarterEnded
                June 30,
            
            
            Ended
                June 30
            
            
            Ended
                June 302007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006($
                in millions)
            
            
            ($
                in millions)
            
            
            ($
                in millions)Total
                revenues
            
            $
            3.0
            
            
            $
            3.5
            
            
            $
            2.9
            
            
            $
            3.5
            
            
            $
            0.1
            
            
            $
            -Less
                basis recovery
            
            
            (1.4
            )
            
            
            (1.7
            )
            
            
            (1.3
            )
            
            
            (1.7
            )
            
            
            (0.1
            )
            
            
            -Net
                revenues
            
            $
            1.6
            
            
            $
            1.8
            
            
            $
            1.6
            
            
            $
            1.8
            
            
            $
            0.0
            
            
            $
            -Net
                revenue percentage
            
            
            53.8
            %
            
            
            52.2
            %
            
            
            54.7
            %
            
            
            52.2
            %
            
            
            25.6
            %
            
            
            -





Portfolio
      collections provided 96.9% of our total revenues in the quarter ended June
      30,
      2007 and 100% of our total revenues in the quarter ended June 30, 2006. Our
      total revenues from portfolio collections decreased by $541,000 in the second
      quarter of 2007 as compared to the second quarter of 2006 due to a decrease
      in
      portfolio purchases during the latter half of 2006 and the first half of 2007
      as
      compared with prior periods.  Our net revenues from portfolio
      collections decreased by $209,000 in the second quarter of 2007 as compared
      to
      the second quarter of 2006, but the percentage of net revenues to total revenues
      increased from 52.2% to 54.7%. These results reflect the fact that recently
      purchased portfolios (which provide no net revenues because of front-loaded
      cost
      basis recovery) have leveled off, which tends to increase net revenues due
      to
      less basis recovery.





We
      acquired $4.2 million of new portfolios during the year ended December 31,
      2006
      and $2.4 million of new portfolios during the first half of 2007, $2.0 million
      of which was purchased in the latter part of the second quarter of
      2007. During 2005, we acquired $11.5 million of new portfolios ($11.0
      million after adjusting for a January 2006 sale of a $461,000 portion of a
      portfolio purchased in December 2005). In the near term, the cost basis recovery
      associated with collecting portfolios we purchased in 2005 and 2006, combined
      with the portfolios that we purchased in 2007 and additional portfolios we
      anticipate purchasing in 2007, and a slower rate of collections for some
      portfolios, may offset the increase in net revenue percentage we would
      otherwise expect from our older portfolios (whose cost bases we have completely
      recovered) to generate and actually result in a decline in our net revenue
      percentage.





During
      2006, we saw our total revenue from collections increase as we began to exploit
      the purchases we made in 2005 and 2006. We expect our total collection revenue
      to be lower in 2007 than it was in 2006 and 2005, which is consistent with
      the
      $541,000 decrease in collection revenue in the three months ended June 30,
      2007
      as compared to the three months ended June 30, 2006. The decline is due
      principally to the current market conditions for portfolios, which continues
      to
      make purchasing portfolios at a reasonable price difficult. During the fourth
      quarter of 2005 and the first quarter of 2006, analysts and participants in
      the
      debt-buying industry began to speculate whether charged-off debt is overpriced.
      The March 2006 issue of Kaulkin Ginsberg’s Global Debt Buying Report reports
      that prices in the debt buying market doubled over the two years between 2003
      and 2005. The February 2006 issue of Collections and Credit Risk focused on
      the
      influx of $350 million to $400 million of public and private capital the
      industry has seen since November 2002 - and the demands of that capital to
      be
      deployed to earn returns - as a primary cause of price increases.





17
 *Index*




The article does not predict imminent price decreases,
      however, suggesting instead that capital will not exit the industry (and relieve
      price pressures) until debt buyers and collectors begin to report unfavorable
      operating results. These market conditions are expected to continue in 2007.
      If
      we are unable to acquire new portfolios that meet our criteria for generating
      net income, our collection revenue will continue to decline. In June 2007,
      we purchased $2.0 million of portfolios resulting in total portfolio purchases
      for the first half of 2007 of $2.4 million as compared to $3.7 million of
      portfolio purchases in the first half of 2006.




Portfolio
      sales showed net revenue of $25,000 in the quarter ended June 30, 2007 compared
      to no portfolio sales in the second quarter 2006. We may engage in further
      sales
      if we identify portfolios that are not performing to our expectations and we
      believe market conditions are acceptable. We continue collection efforts for
      certain accounts in these portfolios right up until the point of sale. We also
      anticipate continuing to sell portions of newly acquired portfolios from time
      to
      time, but we do not expect to generate substantial net revenues from these
      sales.





Operating
      Expenses





Our
      total
      operating costs and expenses were at $1.9 million for the three months ended
      June 30, 2007 and $1.8 million for the three months ended June 30, 2006. Our
      ratio of operating costs and expenses to total revenues from collections (i.e.,
      excluding the effect of portfolio sales), a measure of collection efficiency,
      increased to 63.8% for the quarter ended June 30, 2007, from 52.1% for the
      quarter ended June 30, 2006.  The decline in collection efficiency is
      the result of the decrease in collection revenues outpacing the corresponding
      decrease in operating costs and expenses. The increase in operating costs and
      expenses was due to our increased emphasis on legal collections, which has
      resulted in an increase in legal costs.





We
      intend
      to continue monitoring our collection efficiency and reduce variable costs
      required to collect each dollar of revenue when necessary to maintain the
      working capital needed to run our operations.  In order to maintain the
      working capital necessary to run our operations, we will continue to strive
      to
      maintain a careful balance between portfolios we purchase using our own cash
      (where collection revenues are immediately available to us in full) and
      portfolios we purchase using the Varde credit facility (where we must
      immediately apply a substantial portion of collections to debt service). These
      efforts have been somewhat hampered recently due to our lower cash reserves
      and
      higher portfolio prices, which has resulted in the continued use of the Varde
      facility to compete effectively for portfolios and a corresponding decrease
      in
      the percentage of our own funds used to purchase the portfolios. We expect
      these
      circumstances to proportionately increase our interest expense and other
      financing costs.





Our
      general and administration expenses increased by $49,000 to $826,000 for the
      quarter ended June 30, 2007, from $777,000 for the quarter ended June 30, 2006.
      This was due to a large extent on the costs resulting from the increased use
      of
      legal collections. Our salaries and benefits expenses remained stable at $1.0
      million for the quarters ended June 30, 2007 and June 30, 2006.





We
      continue to manage our existing infrastructure in order to maximize
      efficiencies. Our headcount of collectors was slightly lower at June 30, 2007
      as
      compared to June 30, 2006 due primarily to our efforts to: (i) keep our
      collections infrastructure in line with our portfolio acquisitions; (ii) focus
      collections on those portfolios or portions of portfolios that we believe will
      generate the most revenue in the near term; and (iii) significantly increase
      our
      legal collections using internal staff and third party law firms.  We
      do not anticipate needing to add personnel in connection with the increased
      use
      of legal collections since most of those collection efforts are performed by
      third parties.  In addition, we are working to improve the significant
      employee turnover we have experienced among our collectors in an effort to
      reduce expenses associated with recruitment and training.





18
 *Index*




***Comparison
      of Results for the Six Months Ended June 30, 2007 and
      2006***




The
      following discussion compares our results for the six months ended June 30,
      2007, to the six months ended June 30, 2006. We had a net loss of $473,000
      for
      the six months ended June 30, 2007, compared to net income of $60,000 for the
      six months ended June 30, 2006.





Revenue





Our
      net
      revenues decreased to $3.5 million for the six months ended June 30, 2007,
      from
      $4.2 million for the six months ended June 30, 2006. Our total revenues
      decreased by $2.3 million to $6.5 million in the first half of 2007 as compared
      to the first half of 2006. The following table presents a comparison of the
      components of our revenues for the six months ended June 30, 2007 and 2006,
      as
      well as presenting net revenue as a percentage of the corresponding total
      revenue (approximate amounts due to rounding):





Total
            
            
            Collections
            
            
            SalesFor
                the Six Months
            
            
            For
                the Six Months
            
            
            For
                the Six MonthsEnded
                June 30,
            
            
            Ended
                June 30,
            
            
            Ended
                June 30,2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006($
                in millions)
            
            
            ($
                in millions)
            
            
            ($
                in millions)Total
                revenues
            
            $
            6.5
            
            
            $
            8.7
            
            
            $
            6.3
            
            
            $
            7.2
            
            
            $
            0.2
            
            
            $
            1.5Less
                basis recovery
            
            
            (3.0
            )
            
            
            (4.5
            )
            
            
            (2.8
            )
            
            
            (3.5
            )
            
            
            (0.2
            )
            
            
            (1.0
            )Net
                revenues
            
            $
            3.5
            
            
            $
            4.2
            
            
            $
            3.5
            
            
            $
            3.7
            
            
            $
            0.0
            
            
            $
            0.5Net
                Revenue Percentage
            
            
            54.2
            %
            
            
            48.4
            %
            
            
            55.3
            %
            
            
            51.3
            %
            
            
            9.6
            %
            
            
            34.7
            %





Portfolio
      collections provided 97.6% of our total revenues for the six months ended June
      30, 2007 and 82.5% of our total revenues for the six months ended June 30,
      2006.
      Total portfolio collection revenue decreased by $890,000 during the first half
      of 2007 over the same period in 2006. Our net revenues from portfolio
      collections decreased by $203,000 to $3.5 million for the six months ended
      June
      30, 2007 from $3.7 million in the six months ended June 30, 2006 and the
      percentage of net revenues to total revenues increased 4.0% to 55.3% for the
      six
      months ended June 30, 2007 from 51.3% for the six months ended June 30, 2006.
      These results reflect the fact that portfolio purchases have decreased,
      resulting in a decrease in collection revenue from new portfolios, and cost
      recovery has simultaneously decreased but at a slightly higher rate as older
      and
      larger portfolios become fully recovered and begin to generate net
      revenue.





During
      the six months ended June 30, 2006, we acquired $3.7 million of new
      portfolios.  During 2005, we acquired $11.5 million of new portfolios
      ($11.0 million after adjusting for a January 2006 sale of a $461,000 portion
      of
      a portfolio purchased in December 2005).  In June 2007, we purchased
      $2.0 million of new portfolios resulting in total portfolio purchases in the
      first half of 2007 of $2.4 million as compared to $3.7 million of portfolio
      purchases during the first half of 2006. We have seen our total revenue from
      collections decrease as we begin to experience the effects of fewer portfolio
      purchases.  We do not expect our total collection revenue in 2007 to
      be as large as our 2006 portfolio collection revenue. The increase in net
      revenue as a percentage of portfolio collections could be offset in the latter
      part of 2007 if we are able to obtain portfolios that are priced at a reasonable
      level. The cost basis recovery associated with collecting portfolios we
      purchased in 2005 and 2006, combined with the portfolios that we have already
      acquired in 2007 and additional portfolios we anticipate acquiring in 2007,
      could continue to offset the increase in net revenue percentage we would
      otherwise expect our older portfolios (whose cost bases we have completely
      recovered) to generate and actually result in a decline in our net revenue
      percentage.





In
      an
      effort to increase the accounts we service to maximize use of our collection
      infrastructure, we started a program in the first half of 2007 to collect debt
      owned by others. In January 2007, we entered into a third-party collection
      arrangement and began collecting on portfolios owned by another party.
      Third-party debt collection arrangements are generally commission-based with
      the
      objective of earning fees in excess of the costs to collect. We will enter
      into
      third-party collection arrangements that we believe will generate enough income
      in fees to generate net returns. We generated additional net revenue of $61,000
      from third-party collections arrangements during the first half of
      2007.  We do not yet know how effective this program will be at
      supplementing the revenue we generate from portfolio collections. Our success
      is
      largely dependent upon the volume of such arrangements we secure and the quality
      and types of debt we service for third parties. If the portfolios have been
      heavily worked or we are not experienced at collecting the type of accounts
      being serviced, we may not generate income from such third party collections
      in
      excess of our costs of collection. In addition to acquiring our own portfolios
      and acting as a third-party collection agency, we are looking at other
      collection strategies in an effort to increase our revenues and collection
      efficiency, such as expanding use of the legal process to collect specific
      accounts determined to be suitable for such an approach and improving the
      accuracy and currency of debtor contact information contained in our
      databases.





19
 *Index*





We
      have
      substantially increased our legal collections efforts in the first half 2007
      as
      we seek to generate revenue from accounts we believe might otherwise not be
      collectible. We initiate collection lawsuits on our own behalf, thereby
      internalizing the costs of such collections. We also utilize our network of
      third party law firms on a commission basis in cases where we determine that
      it
      is financially or strategically prudent. Legal collections tend to have longer
      time horizons but are expected to contribute to an increase in returns over
      two
      to five years. The method used to select accounts for legal collections is
      a
      critical component of a successful legal collections program. If accounts are
      accurately selected, overall collection efficiency should increase. We do not
      have a set policy regarding when to initiate legal process; we exercise our
      judgment based on a variety of factors to determine when we believe using legal
      process is appropriate.





Both
      our
      total and net revenues from portfolio sales showed significant decreases. As
      part of our program to emphasize efforts to continue to collect and realize
      a
      reasonable return on our portfolios, in 2006 we identified one larger portfolio
      that was not performing to our expectations. We sold this portfolio for $1.1
      million with Varde’s consent in the first quarter of 2006 on terms we considered
      acceptable. We also sold a $461,000 portion of a portfolio purchased in December
      2005. Our overall net income of $264,000 in the quarter ended March 31,
      2006 was essentially due to the net revenues we derived from these
      portfolio sales. We had no similar sales in the first half of 2007. We may
      engage in further sales if we identify portfolios that are not performing to
      our
      expectations and we believe market conditions are acceptable. We continue
      collection efforts for certain accounts in portfolios right up until the point
      of sale. We also anticipate continuing to sell portions of newly acquired
      portfolios from time to time, but we do not expect to generate substantial
      net
      revenues from these sales.





Net
      revenues from portfolio sales of $15,000 for the six months ended June 30,
      2007
      as compared to $532,000 for the six months ended June 30, 2006, a $517,000
      decrease, was primarily responsible for increasing our net loss to $473,000
      for
      the six months ended June 30, 2007, from net income of $60,000 for the six
      months ended June 30, 2006.  If we exclude the effect of portfolio
      sales, our net income for the six months ended June 30, 2006 decreased to a
      net
      loss of $472,000, and our net loss for the six months ended June 30,
      2007 increased to $488,000.  Our net loss, excluding the effect
      of portfolio sales, increased due to decreased total revenues from collections.
      If our purchasing patterns continue to be slow, however, we believe our
      collection activity may eventually show net income due to front-loaded cost
      basis recovery.





Operating
      Expenses





Our
      total
      operating costs and expenses decreased slightly to $3.7 million at June 30,
      2007
      from $3.8 million for the six months ended June 30, 2006. Our ratio of operating
      costs and expenses to total revenues from collections (i.e., excluding the
      effect of portfolio sales), a measure of collection efficiency, increased to
      58.5% for the six months ended June 30, 2007, from 51.9% for the six months
      ended June 30, 2006. This percentage does not include the effects of interest
      expense and other financing costs decreasing from $410,000 for the six months
      ended June 30, 2006 to $287,000 for the same period in 2007. If interest and
      other financing costs are added to total operating cost and expenses to
      calculate the ratio of operating expenses to total revenue from collections,
      the
      percentages would be 63.1% for the six months ended June 30, 2007 as compared
      to
      57.6% for the six months ended June 30, 2006.  Our three-part strategy
– increased collections, infrastructure leveraging and variable cost reduction
–
helped us accomplish this efficiency improvement. We were not successful in
      executing our plan to continue increasing total revenues (while holding
      infrastructure costs down) and reducing variable costs required to collect
      each
      dollar of revenue.  Our primary obstacle has been the inability to
      obtain sufficient portfolios at reasonable prices, which has caused a decrease
      in portfolio collections.  We believe that our agreement with Varde
      has played, and will continue to play, a significant role in enabling us to
      purchase additional portfolios and thereby increase the volume of accounts
      we
      have available to collect. Any portfolio purchases, whether using the Varde
      facility or our own funds, depends largely upon the availability of reasonably
      priced portfolios.





20
 *Index*





Our
      interest expense and other financing costs decreased to $287,000 for the six
      months ended June 30, 2007 from $410,000 for the six months ended June 30,
      2006.
      This corresponds with the decrease in amount of loans payable to
      Varde.  This trend was offset somewhat by the purchases we made in
      June 2007.  In order to maintain the working capital necessary to run our
      operations, we will continue to strive to maintain a careful balance between
      portfolios we purchase using our own cash (where collection revenues are
      immediately available to us in full) and portfolios we purchase using the Varde
      credit facility (where we must immediately apply a substantial portion of
      collections to debt service). These efforts have been somewhat hampered recently
      due to our lower cash reserves and higher portfolio prices, which has resulted
      in the continued use of the Varde facility to compete effectively for portfolios
      and a corresponding decrease in the percentage of our own funds used to purchase
      the portfolios. We expect these circumstances to proportionately increase our
      interest and other financing costs.





Our
      salaries and benefits expenses remained at $2.2 million for the first half
      of
      2007 and 2006. Our general and administrative expenses remained stable at $1.5
      million for the six months ended June 30, 2006 and 2007. In June 2007, we were
      able to purchase $2.0 million of portfolios resulting in total portfolio
      purchases during the first half of 2007 of $2.4 million as compared to $3.7
      million of portfolio purchases during the first half of 2006. We expect our
      operating expenses to remain relatively constant due to our efforts to continue
      to utilize our existing infrastructure as we work to increase portfolio
      collection revenues.








**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      cash,
      including restricted cash, and cash equivalents remained constant at $1.2
      million at June 30, 2007 and December 31, 2006. During the six months ended
      June
      30, 2007, our portfolio collections and sales generated $6.5 million of cash,
      we
      borrowed $1.4 million, and we used $3.9 million for operating and other
      activities, $2.4 million to purchase new portfolios, $1.3 million to repay
      loans, $322,000 for distributions to unit holders, and $29,000 to acquire
      computer and office equipment.





The
      large
      cost basis recovery associated with our portfolios has made it difficult to
      generate the profit called for in our business plan – to recover the cost we pay
      for our portfolios, repay funds borrowed to purchase portfolios, pay our
      collecting and operating costs and still have a profit – and may continue to
      cause our statement of operations to show a net loss. Excluding the results
      from
      portfolio sales in the six months ended June 30, 2007, our cost basis recovery
      of $2.8 million plus our operating, interest and other expenses of $3.9 million
      exceeded our total revenues from collections of $6.3 million. We believe these
      results are partly due to the higher prices of recently purchased portfolios.
      In
      an effort to offset the decline in portfolio purchases, we continue to strive
      to
      maximize the use of our collections infrastructure by focusing our efforts
      on
      collecting the right portfolios or portions of portfolios in an efficient manner
      as well as increase our legal collections. We believe our future results will
      reflect progress in this area, although the “front-loading” of cost basis
      recovery from portfolios we are able to purchase could continue to cause our
      statement of operations to show a net loss.





We
      did
      not experience the increase in our cash reserves that we expected in the first
      half of 2007 largely due to the decrease in collection revenues and expenditures
      to purchase new portfolios. In order to maintain the working capital necessary
      to run our business and purchase new portfolios, we may have to reduce the
      frequency and/or amount of distributions to our members in 2007 as compared
      with
      previous years. We will also continue to monitor our collection infrastructure
      to maximize efficiencies in an effort to maintain or reduce
      expenses.





According
      to the February 2006 issue of Collections and Credit Risk, the increasing prices
      of portfolios have resulted in buyers having to abandon the old rule of thumb
      that they will collect three times a portfolio’s purchase price in three years
      and instead are settling for collecting two to two and a half times the
      portfolio’s purchase price in three to five years. In addition, our
      participation in portfolio purchases using the Varde credit facility has been
      decreasing, which has proportionately increased the size of the Varde loans
      and
      we expect will result in an increase in our interest expense and other financing
      costs. In June 2007, we entered into an amendment to the Master Loan Agreement
      with Varde to address these issues. The amendment extends the maturity date
      for
      principal and any other accrued but unpaid amounts on each loan from up to
      two
      years to up to three years. This change was made to allow more time for a
      portfolio purchased using the Varde facility to generate sufficient collection
      revenues to pay the balance of the Varde loans in full by their due
      dates.





21
 *Index*





Under
      the
      loan agreement with Varde, the Company was required to pay the balance of one
      of
      its loans in full by the due date of April 28, 2007. The balance outstanding
      of
      the loan on that date was approximately $702,000. The balance outstanding of
      the
      loan at June 30, 2007 was $596,000. The portfolio continues to generate
      revenue through collections but at a slower rate than forecasted and, therefore,
      has not produced enough income to make the Varde payment by its due date. In
      May
      2007, Varde gave the Company an extension and a limited forbearance from any
      action until July 31, 2007. After further discussions with Varde regarding
      the
      timing of the payment and consistent with the amendment to the Master Loan
      Agreement to extend maturity dates of loans, in July 2007, the Company obtained
      another extension and limited forbearance from any action until December 31,
      2007.





During
      2006, we purchased $4.2 million of portfolios. The current market conditions
      make it likely that we will acquire portfolios at the same or a slower pace
      in
      2007 as in 2006.  In the first half of 2007, we purchased $2.4 million
      of new portfolios.  What we purchase will continue to depend on our
      assessment of market conditions, as well as the amount of liquid cash and other
      financial resources available to us.  In an attempt to compete in a
      highly competitive marketplace and operate as efficiently as possible, we will
      continue to focus on becoming more sophisticated in determining which portfolios
      or portions of portfolios provide the greatest return and which bring collection
      efficiency down. As a result of this analysis, we continue to focus our
      collection efforts on those portions of portfolios that we expect will generate
      the most returns.





We
      have
      used our dialer to ensure that our collectors focus on portfolios that continue
      to show results. By monitoring the results of calls originated through our
      dialer, we identified portfolios that required more cost to collect than others.
      Particularly where we had worked to collect these portfolios over an extended
      period of time, we determined that some of our portfolios’ collection lives had
      run their course from our perspective. We sold a number of older portfolios
      identified by this process in the first quarter of 2006. We believe this process
      of constantly evaluating portfolio returns against costs of collection should
      continue to improve the balance between our new and old portfolios. We may
      engage in further sales in the last half of 2007 if we believe market conditions
      are acceptable and portfolio performance is not up to our expectations, but
      do
      not anticipate sales at the same levels as in the prior two years.





Our
      portfolios provide our principal long-term source of liquidity. Over time,
      we
      expect to convert our portfolios to cash in an amount that equals or exceeds
      the
      cost basis of our portfolios. In addition, some portfolios whose cost bases
      we
      have completely recovered will continue to return collections to us. The total
      fair value of our portfolios includes fair value attributable to the residual
      interests of third parties in collections once all funds (including funds
      invested by us) invested in a portfolio have been repaid (with interest) and
      all
      servicing fees have been paid. The retained fair value of our portfolios
      excludes fair value attributable to these residual interests. Our estimate
      of
      the total fair value of our portfolios at June 30 2007, decreased $0.8 million
      to $21.2 million from $22.0 million at December 31, 2006. At the same time,
      the
      cost basis of our portfolios decreased to $4.4 million at June 30, 2007, from
      $5.0 million at December 31, 2006. Our estimate of the retained fair value
      of
      our portfolios at June 30, 2007, decreased $0.7 million to $20.6 million from
      $21.3 million at December 31, 2006. Correspondingly, our notes payable used
      to
      purchase portfolios increased from $4.5 million at December 31, 2006 to $4.6
      million at June 30, 2007.





Our
      estimates of fair value decreased due principally to our collections and
      portfolio sales of $6.5 million exceeding the fair value of the $2.4 million
      of
      new portfolio purchases in 2007. Our portfolio cost basis also decreased, due
      principally to the cost basis recovery associated with our collections and
      sales
      exceeding the $2.4 million of portfolio purchases made in the
      first  half of 2007. Whether the fair value and cost basis of our
      portfolios will resume the growth we experienced in 2005 will depend on our
      ability to find portfolios at a reasonable price in a very competitive market.
      The purchase of portfolios is also limited by the amount of cash we have
      available to purchase portfolios. If we can find reasonably priced portfolios,
      we believe our portfolio fair value and cost basis will increase in the near
      term because we can use the Varde credit facility as well as reinvest some
      cash
      proceeds from collections to purchase new portfolios. Long-term growth in
      portfolio fair value and cost basis will depend on whether market conditions
      continue to permit us to purchase portfolios at reasonable prices and on our
      financial resources.





22
 *Index*





We
      used a
      discount rate of 20% to determine the fair values of our portfolios at June
      30,
      2007 and December 31, 2006. The following table sets forth alternative estimates
      of total fair value, retained fair value, and the portion of fair value
      attributable to residual interests of third parties in collections, if we
      assessed collection risk as higher (using a discount rate of 25%) or lower
      (using a discount rate of 15%).





Total
            
            
            Retained
            
            
            Fair
                  Value ofFair
                  Value
            
            
            Fair
                  Value
            
            
            Residual
                  InterestsJun
                  30
            
            
            Dec
                  31
            
            
            Jun
                  30
            
            
            Dec
                  31
            
            
            Jun
                  30
            
            
            Dec
                  312007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006($
                in millions)
            
            
            ($
                in millions)
            
            
            ($
                in millions)Higher
                collection risk (25% discount rate)
            
            $
            19.8
            
            
            $
            20.5
            
            
            $
            19.3
            
            
            $
            19.9
            
            
            $
            0.5
            
            
            $
            0.6Assumed
                collection risk (20% discount rate)
            
            $
            21.2
            
            
            $
            22.0
            
            
            $
            20.6
            
            
            $
            21.3
            
            
            $
            0.6
            
            
            $
            0.7Lower
                collection risk (15% discount rate)
            
            $
            22.8
            
            
            $
            23.8
            
            
            $
            22.2
            
            
            $
            23.0
            
            
            $
            0.6
            
            
            $
            0.8





Our
      estimates of fair values also would change if we revised our projections of
      the
      magnitude and timing of future collections. Because of the inherent uncertainty
      associated with predicting future events, our determinations of fair value
      at
      any particular point in time are only estimates, and actual fair value could
      ultimately vary significantly from our estimate.





We
      do not
      present the portion of fair value attributable to residual interests of third
      parties in collections as a liability in our financial statements, although
      it
      does represent a contingent obligation to make payments to a third
      party.  Because we will receive a servicing fee and our share of
      residual collections, we believe collections of the specified portfolios will
      generate funds sufficient to pay these residual interests to third parties
      as
      they come due and cover our operating costs, with the potential for some profit
      on our part.  If our collection efficiency declines significantly,
      however, we might have to use some of our own capital to cover operating
      costs.





In
      the
      near term, we plan to reinvest some of our cash collections representing cost
      basis recovery to acquire additional portfolios and use the Varde facility
      to
      acquire additional portfolios to continue growing the fair value of our
      portfolios on a quarter to quarter basis. Ultimately we plan to reinvest all
      of
      the cash representing cost basis recovery, plus a portion of excess cash, to
      acquire additional portfolios. With a decrease in collection revenues, however,
      we have recently reserved a greater portion of our cash to pay for operating
      expenses and a correspondingly lower amount to reinvest in new
      portfolios.





Our
      Board
      of Directors has described this strategy as having two parts:





•
            Provide
                an annuity without impairing the value of the business;
                and


•
            Grow
                the business to increase the
                annuity.





Due
      to
      factors such as the availability of new portfolios, market pricing conditions
      for new portfolios, the timing of loan repayments and residual interest payments
      to Varde, and the timing of distributions to our members, we may not achieve
      increases in fair value each quarter.





In
      the
      near term we plan to use some of our cash collections representing cost basis
      recovery to make distributions to our members and interest holders. Ultimately
      we plan to generate cash in excess of our collection and operating costs and
      our
      cost basis recovery and to use some of the excess cash to make distributions
      to
      our members and interest holders. Beginning in April 2003, we began making
      quarterly distributions. During 2006, we made distributions totaling $664,000.
      We made a distribution of $161,000 in January 2007 and April 2007 relating
      to
      quarters ended December 31, 2006 and March 31, 2007, respectively. In order
      to
      maintain the working capital necessary to run our business, however, we may
      have
      to reduce the frequency and/or amount of distributions to our members in 2007
      as
      compared with previous years.




Our agreement with Varde provides us with a source of capital
      to purchase new portfolios. The agreement provides up to $25 million of capital
      (counting each dollar loaned on a cumulative basis) over a five-year term.
      We
      will never have outstanding indebtedness approaching the full $25 million at
      any
      one time, due to the cumulative nature of the facility.




23
 *Index*





At
      June 30, 2007, Matterhorn owed $4.6 million under the facility in connection
      with purchases of certain charged-off loan portfolios. Under the credit
      facility, Varde has a first priority security interest in Matterhorn’s assets.
      The assets of Matterhorn that provide security for Varde's loan were carried
      at
      a cost of $3.0 million at June 30, 2007. The loan advances have minimum payment
      threshold points with terms of up to three years and bear interest at the rate
      of 12% per annum. These obligations are scheduled to be repaid in full on dates
      ranging from December 2007 to June 2010. Once all funds (including those
      invested by us) invested in a portfolio financed by Varde have been repaid
      (with
      interest) and all servicing fees have been paid, Varde will begin to receive
      a
      residual interest in collections of that portfolio. Depending on the performance
      of the portfolio, these residual interests may never be paid, they may begin
      being paid a significant time later than Varde’s loan is repaid (i.e., after the
      funds invested by us are repaid with interest), or, in circumstances where
      the
      portfolio performs extremely well, the loan could be repaid early and Varde
      could conceivably begin to receive its residual interest on or before the date
      that the loan obligation was originally scheduled to be paid in full. The amount
      of remaining available credit under the facility at June 30, 2007 was $11.0
      million. Matterhorn has borrowed a total of $14.0 million, with $4.6 million
      outstanding at June 30, 2007.





There
      can
      be no assurance that Varde will advance any new money under the facility,
      because in each instance Varde must approve of the portfolio(s) we propose
      to
      acquire and the terms of the acquisition. We do not have any plans to raise
      equity capital. Based on our cash position and current financial resources,
      we
      believe we have adequate capital resources to continue our business as presently
      conducted for the foreseeable future. We plan to continue to use the Varde
      credit facility to maximize the return on our infrastructure and to continue
      to
      reduce variable costs required to collect each dollar of revenue. We have also
      taken steps, such as increased legal collections and third party collections
      arrangements, and will continue to consider other alternatives to increase
      the
      volume of accounts we service other than through new portfolio acquisitions
      using only our cash resources, however, if the economic returns to us seem
      reasonable.





We
      do not
      have any contractual commitments to make capital expenditures, and we have
      not
      budgeted any capital expenditures for the coming year. We may from time to
      time
      acquire capital assets on an as needed basis. Our most significant capital
      assets are our dialer and our telephone switch, which we do not anticipate
      having to replace within the next year.








**ITEM
      3.  CONTROLS AND PROCEDURES**





In
      accordance with the Exchange Act, we carried out an evaluation, under the
      supervision and with the participation of management, including our Chief
      Operations Officer and our Accounting Manager, of the effectiveness of our
      disclosure controls and procedures as of the end of the period covered by this
      report. In designing and evaluating disclosure controls and procedures,
      management recognized that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives. Further, the design of a control system must reflect
      the fact that there are resource constraints. Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      may
      be detected. Based on this evaluation, our Chief Operations Officer and our
      Accounting Manager concluded that our disclosure controls and procedures were
      effective as of June 30, 2007, to provide reasonable assurance that information
      required to be disclosed in our reports filed or submitted under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in the Securities and Exchange Commission’s rules and
      forms.





There
      has
      been no change in our internal controls over financial reporting that occurred
      during the quarter ended June 30, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal controls over financial
      reporting.





24
 *Index*





**PART
      II – OTHER INFORMATION**





**ITEM
      4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





On
      June
      11, 2007, we held our annual meeting of members in Orange, California. At the
      meeting, our members were asked to vote on the election of Class II directors
      to
      the Board of Directors. All of the directors nominated for election served
      as
      directors immediately prior to the annual meeting. The following directors
      were
      elected by our members as a result of the following votes:





**Directors**
            
            **Votes
                “For” Election**
            
            **Votes
                “Withheld”**Lester
                Bishop
            
            192,941
            
            5,054Larry
                Smith
            
            193,639
            
            4,355David
                Barnhizer
            
            193,639
            
            4,355Sanford
                Lakoff
            
            192,941
            
            5,054





The
      following Class I directors continued to serve as directors following the annual
      meeting:  Ms. Larisa Gadd; Mr. Rodney Woodworth; and Mr. Donald
      Rutherford.





In
      addition to the election of directors, the following matters were voted upon
      at
      the annual meeting:





·
            To
                ratify the board of directors’ selection and appointment of Moore Stephens
                Wurth Frazer and Torbet, LLP, as independent auditors for Performance
                Capital Management, LLC for the fiscal year ending December 31, 2007.
                The
                votes were cast as follows: 192,520 in favor of ratification; 1,294
                against ratification; and 4,180
                abstaining.





·
            To
                approve the minutes from the 2006 Annual Meeting. The votes were
                cast as
                follows: 197,994 in favor of approval; 0 against approval; and 0
                abstaining.





No
      other
      matters were submitted to our members at the annual meeting.








**ITEM
      5.  OTHER INFORMATION**





Accounting
      Method





We
      recently retained an outside consultant to conduct a study to determine whether
      we should continue using the cost recovery method of accounting for all of
      our
      portfolios or switch to a method that matches portfolio cost basis to revenue
      over the projected life of the portfolio. The accounting method used depends
      largely upon a determination of our ability to accurately project the timing
      and
      amount of collections for portfolios we acquire. The consultant found that
      we
      are capable of determining the amount of revenue a portfolio is expected to
      generate over its life for portfolios that we have sufficient historical data
      and experience to accurately estimate future cash flows. As a result, our Board
      of Directors, with the assistance of management, is currently assessing
      our portfolios to determine which, if any, we have sufficient historical data
      and experience to accurately estimate the timing of collections revenue over
      its
      life.  At the same time, we are studying the mechanics of the interest
      method of accounting to determine how to apply it to a portfolio where we
      believe we can accurately estimate revenue flow over its
      life.




Amendment
      to Master Loan Agreement with Varde





According
      to the February 2006 issue of Collections and Credit Risk, the increasing prices
      of portfolios have resulted in buyers having to abandon the old rule of thumb
      that they will collect three times a portfolio’s purchase price in three years
      and instead are settling for collecting two to two and a half times the
      portfolio’s purchase price in three to five years. In addition, our
      participation in portfolio purchases using the Varde credit facility has been
      decreasing, which has proportionately increased the size of the Varde loans
      and
      we expect will increase our financing and interest expenses. In June 2007,
      we entered into an amendment to the Master Loan Agreement with Varde to address
      these issues. The amendment extends the maturity date for principal and any
      other accrued but unpaid amounts on each loan from up to two years to up to
      three years. This change was made to allow more time for a portfolio purchased
      using the Varde facility to generate sufficient collection revenues to pay
      the
      balance of the loans in full by their due dates. The
      amendment agreement is filed an exhibit to this report on Form 10-QSB and
      incorporated herein by reference.




25
 *Index*





Executive
      Officer Employment Agreements





On
      July
      11, 2007, we entered into new employment agreements with our three executive
      officers: David Caldwell; William Constantino; and Darren Bard. The new
      agreements contain substantially the same terms as the old agreements. The
      employment agreements are filed as exhibits to this report on Form 10-QSB and
      incorporated herein by reference.





The
      term
      of the new employment agreements is five years. The agreements provide for
      annual salaries for David Caldwell, William Constantino and Darren Bard of
      $220,000, $150,000 and $150,000, respectively. Salary increases during the
      term
      of the agreements may be made at the discretion of the Board of Directors.
      Any
      bonuses paid to executives are at the discretion of the Board of Directors.
      The
      Board of Directors may set up a specific bonus program for a predetermined
      length of time. The agreements provide that the executive officers shall receive
      the following additional benefits: three weeks of paid vacation; paid holidays;
      paid sick days; and health care benefits.





The
      executive officers are authorized to incur reasonable business expenses for
      promoting the business, including expenditures for entertainment and
      travel.





Each
      of
      the agreements provides that we will indemnify the executive officer, if he
      is
      made a party to or threatened to be made a party to, or otherwise involved
      in,
      any proceeding commenced during the employment term, or after the employment
      term, because the executive is or was an employee or agent of Performance
      Capital Management, LLC.  The indemnification includes any and all
      expenses, judgments, fines, penalties, settlements, and other amounts, actually
      and reasonably incurred by the executive officer in connection with the defense
      or settlement of any such proceeding. The executive officer must have acted
      in
      good faith and in a manner that the executive reasonably believed to be in
      the
      best interests of Performance Capital Management, LLC and, in a criminal
      proceeding, the executive must have no reasonable cause to believe that his
      conduct was unlawful. Any and all expenses, including filing fees, costs of
      investigation, attorney’s fees, messenger and delivery expenses, postage, court
      reporters’ fees and similar fees and expenses, incurred by the executive officer
      in any proceeding for which the executive officer is reasonably entitled to
      indemnification shall be advanced by Performance Capital Management, LLC prior
      to the final disposition of the proceeding subject to considerations of
      reasonableness. The indemnification contemplated by the agreements is not to
      be
      deemed exclusive of any other rights the executive may have to indemnification.
      We have been advised that the SEC takes the position that these indemnification
      provisions do not affect the liability of any executive officer or director
      under applicable federal and state securities laws.





If
        during
        the term of the agreement the Board of Directors takes action to bring liquidity
        to all of our unit holders, the Board of Directors intends to compensate
        the
        executive officers as long as they are employed by us at the time of the
        liquidity event (i.e. sale of the company or registration of the company’s
        units). The executives will have the option of receiving either: (1) a sum
        equal
        to the total of their annual salaries divided by the total number of executive
        officers employed by the company at the time of the action; or (2) 10% of
        the
        payment in kind actually distributed to the unit holders divided by the total
        number of executives officers employed by the company at the time of the
        action.
  If
        we
        terminate the employment agreement without cause, we are obligated to pay
        the
        executive severance in an amount equal to six (6) months of the executive’s
        salary unless the executive accepts employment with another Debt
        Buyer.





We
      reserve the right to terminate the agreement “for cause” if the executive
      willfully breaches or habitually neglects the duties that he is required to
      perform pursuant to the provisions of the agreement, or commits acts of
      dishonesty, fraud, misrepresentation or other acts of moral turpitude as would
      prevent the effective performance of his duties. If we terminate the agreement
      “for cause”, we must pay the executive any compensation due under the agreement,
      including any unused vacation, prorated through the date of termination, and
      we
      shall have the option to purchase the entire ownership interest of the
      executive, if any, in accordance with the agreement at fair market value as
      determined by the Board of Directors. The executive officer may terminate the
      agreement by giving us at least thirty (30) days written notice, which
      termination will be treated as for cause.





The
      agreements will not be terminated by any voluntary or involuntary dissolution
      of
      Performance Capital Management, LLC resulting from either a merger or
      consolidation in which Performance Capital Management, LLC is not the
      consolidated or surviving company, or a transfer of all or substantially all
      of
      the assets of Performance Capital Management, LLC. Any rights, benefits and
      obligations under the agreements are to be assigned to the surviving or
      resulting company or the transferee of Performance Capital Management, LLC’s
      assets. In the event any merger, consolidation or transfer of assets results
      in
      an executive’s termination, the termination shall be considered without
      cause.








**ITEM
      6.  EXHIBITS**





An
      Exhibit Index precedes the exhibits following the signature page and is
      incorporated herein by reference.





26
 *Index*





**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




PERFORMANCE
                  CAPITAL MANAGEMENT, LLC







August
                13, 2007
            
            By:
            /s/
                David J. Caldwell(Date)
            
            
            Name:
                David J. CaldwellIts:
                Chief Operations Officer





27
 *Index*





**EXHIBIT
      INDEX**





**Exhibit**
              **Number**
            
            **Description**2.1
            
            Joint
                Chapter 11 Plan of Reorganization Proposed by Chapter 11 Trustee
                and the
                Official Committee of Equity Security Holders effective February
                4, 2002
                (1)2.2
            
            First
                Amended Disclosure Statement Describing Joint Chapter 11 Plan Proposed
                by
                Chapter 11 Trustee and the Official Committee of Equity Security
                Holders
                approved on October 12, 2001 (1)3.1
            
            Performance
                Capital Management, LLC Articles of Organization (1)3.2
            
            Operating
                Agreement for Performance Capital Management, LLC (1)3.3
            
            First
                Amendment to Operating Agreement for Performance Capital Management,
                LLC
                (1)3.4
            
            Second
                Amendment to Operating Agreement for Performance Capital Management,
                LLC
                (2)3.5
            
            Third
                Amendment to Operating Agreement for Performance Capital Management,
                LLC
                (3)4.1
            
            Specimen
                Performance Capital Management, LLC Unit Certificate
                (1)4.2
            
            Specimen
                Performance Capital Management, LLC Economic Interest Unit Certificate
                (1)4.3
            
            Provisions
                in the Operating Agreement for Performance Capital Management, LLC
                pertaining to the rights of LLC Unit holders (see Exhibits 3.2 and
                3.3)
                (1)10.1
            
            Office
                Lease Agreement by and between LBA Realty Fund-Holding Co. II, LLC
                and
                Performance Capital Management, LLC dated July 17, 2006
                (4)10.2
            
            Amendment
                to Master Loan Agreement by and among Matterhorn Financial Services
                LLC,
                Performance Capital Management, LLC and Varde Investment Partners,
                L.P.
                dated June 1, 200710.3
            
            Agreement
                of Employment by and between Performance Capital Management, LLC
                and David
                J. Caldwell dated July 11, 200710.4
            
            Agreement
                of Employment by and between Performance Capital Management, LLC
                and
                Darren S. Bard dated July 11, 200710.5
            
            Agreement
                of Employment by and between Performance Capital Management, LLC
                and
                William D. Constantino dated July 11, 200731.1
            
            Certification
                of Chief Executive Officer Pursuant to Rule 13a-14(a)31.2
            
            Certification
                of Principal Financial Officer Pursuant to Rule
                13a-14(a)32.1
            
            Certification
                of Principal Executive Officer and Principal Financial Officer Pursuant
                to
                18 U.S.C. § 1350 *





*
      The
      certifications filed under Exhibit 32.1 are not deemed “filed” for purposes of
      Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated
      by reference into any filing of Performance Capital Management, LLC under the
      Securities Exchange Act of 1933, as amended, or the Securities Exchange Act
      of
      1934, as amended, whether made before or after the date hereof irrespective
      of
      any general incorporation by reference language contained in any such filing,
      except to the extent that Performance Capital Management, LLC specifically
      incorporates it by reference.





*Index*





(1)
      Filed
      on April 2, 2003 as an exhibit to our report on Form 8-K dated February 4,
      2002,
      and incorporated herein by reference.





(2)
      Filed
      on November 14, 2003 as an exhibit to our report on Form 10-QSB for the period
      ended September 30, 2003, and incorporated herein by reference.





(3)
      Filed
      on August 14, 2006 as an exhibit to our report on Form 10-QSB for the period
      ended June 30, 2006, and incorporated herein by reference.





(4)
      Filed
      on November 14, 2006 as an exhibit to our report on Form 10-QSB for the period
      ended September 30, 2006, and incorporated herein by reference.