UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C.  20549





**FORM
      10-QSB**




x     
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934
 
 For
        the quarterly period ended
MARCH 31, 2007
 
 OR
 
 o     
        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT
        OF 1934
 
 For
        the
        transition period from ____________ to ____________
 Commission
        file number: 0 –
50235


**Performance
                  Capital Management, LLC**(Exact
                  name of small business issuer as specified in its charter)
 
 California
              
              03-0375751State
                  or other jurisdiction ofincorporation
                  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 x  No
      o





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


Yes
o  No
      x





Check
      whether the registrant 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 x   No
      o





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




Transitional
      Small Business Disclosure Format (Check one):  Yes o  No
      x
















**PERFORMANCE
      CAPITAL MANAGEMENT, LLC**





**Index
      to**


**Quarterly
      Report on Form 10-QSB**


**For
      the Quarter Ended March 31, 2007**





**PART
                I – FINANCIAL INFORMATION**
            **Page**Item
                1
            Consolidated
                Financial StatementsReview
                Report of Independent Registered Public Accounting
                Firm
            1Consolidated
                Balance Sheets as of March 31, 2007
                (unaudited) and December 31, 2006 (audited)
            2Consolidated
                Statements of Operations for the quarters ended
                March 31, 2007 and 2006 (unaudited)
            3Consolidated
                Statements of Members’ Equity for the quarters
                ended March 31, 2007 and 2006 (unaudited) and the year ended December
                31,
                2006 (audited)
            4Consolidated
                Statements of Cash Flows for the quarters ended
                March 31, 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
            17Item
                3
            Controls
                and Procedures
            25**PART
                II – OTHER INFORMATION**Item
                5
            Other
                Information
            25Item
                6
            Exhibits
            25**SIGNATURES**
            26





*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 March 31, 2007, and the related consolidated statements
      of
      operations, members’ equity and cash flows for the quarters ended March 31, 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 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 U.S. generally accepted accounting
      principles.





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 balance sheet from which
      it
      has been derived.








/s/
      Moore
      Stephens Wurth Frazer And Torbet, LLP








May
      14,
      2007


Orange,
      California





1
 *Index*





PERFORMANCE
        CAPITAL MANAGEMENT, LLC AND SUBSIDIARY
 
 CONSOLIDATED
        BALANCE SHEETS
 AS
        OF
        MARCH 31, 2007 AND DECEMBER 31, 2006
  March 31,
              
              
              December 31,2007
              
              
              2006(unaudited)
              
              
              (audited)ASSETSCash
                  and cash equivalents
              
              $
              953,518
              
              
              $
              689,888Restricted
                  cash
              
              
              555,852
              
              
              
              491,400Other
                  receivables
              
              
              40,487
              
              
              
              28,984Purchased
                  loan portfolios, net
              
              
              3,827,422
              
              
              
              5,000,942Property
                  and equipment, net
              
              
              427,222
              
              
              
              430,119Deposits
              
              
              38,090
              
              
              
              80,463Prepaid
                  expenses and other assets
              
              
              156,553
              
              
              
              100,274Total
                  assets
              
              $
              5,999,144
              
              
              $
              6,822,070LIABILITIES
                  AND MEMBERS' EQUITYLIABILITIES:Accounts
                  payable
              
              $
              162,126
              
              
              $
              165,996Accrued
                  liabilities
              
              
              460,980
              
              
              
              423,367Accrued
                  interest
              
              
              39,751
              
              
              
              46,040Notes
                  payable
              
              
              3,846,820
              
              
              
              4,455,460Income
                  taxes payable
              
              
              41,180
              
              
              
              27,580Total
                  liabilities
              
              
              4,550,857
              
              
              
              5,118,443COMMITMENTS
                  AND CONTINGENCIES
              
              
              -
              
              
              
              -MEMBERS'
                  EQUITY
              
              
              1,448,287
              
              
              
              1,703,627Total
                  liabilities and members' equity
              
              $
              5,999,144
              
              
              $
              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 Quarter Ended March 31, 2007
                (unaudited)
              
              
              For
                  the Quarter Ended March 31, 2006
                (unaudited)REVENUES:Portfolio
                  collections
              
              $
              3,380,426
              
              
              $
              3,728,936Portfolio
                  sales
              
              
              58,531
              
              
              
              1,532,610Total
                  revenues
              
              
              3,438,957
              
              
              
              5,261,546Less
                  portfolio basis recovery
              
              
              1,561,504
              
              
              
              2,848,305NET
                  REVENUES
              
              
              1,877,453
              
              
              
              2,413,241OPERATING
                  COSTS AND EXPENSES:Salaries
                  and benefits
              
              
              1,118,255
              
              
              
              1,168,750General
                  and administrative
              
              
              679,490
              
              
              
              732,589Depreciation
              
              
              24,368
              
              
              
              25,041Total
                  operating costs and expenses
              
              
              1,822,113
              
              
              
              1,926,380INCOME  FROM
                  OPERATIONS
              
              
              55,340
              
              
              
              486,861OTHER
                  INCOME (EXPENSE):Interest
                  expense and other financing costs
              
              
              (150,277
              )
              
              
              (204,515
              )Interest
                  income
              
              
              3,664
              
              
              
              2,652Other
                  income
              
              
              10,493
              
              
              
              -Total
                  other expense, net
              
              
              (136,120
              )
              
              
              (201,863
              )INCOME
                  (LOSS) BEFORE INCOME TAX PROVISION
              
              
              (80,780
              )
              
              
              284,998INCOME
                  TAX PROVISION
              
              
              13,600
              
              
              
              20,600NET
                  INCOME (LOSS)
              
              $
              (94,380
              )
              
              $
              264,398NET
                  INCOME (LOSS) PER UNITBASIC
                  AND DILUTED
              
              $
              (.17
              )
              
              $
              .47


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


(unaudited)





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
            
            
            
            
            
            
            (168,333
            )
            
            
            
            
            
            
            
            
            
            
            (168,333
            )Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            264,398
            
            
            
            264,398Balance,
                March 31, 2006
            
            
            564,125
            
            
            $
            23,822,647
            
            
            $
            473,803
            
            
            $
            (21,066,704
            )
            
            $
            3,229,746Repurchase
                of units from investors
            
            
            (13,881
            )
            
            
            (574,909
            )
            
            
            574,909
            
            
            
            (65,935
            )
            
            
            (65,935
            )Distributions
                to investors
            
            
            
            
            
            
            (495,188
            )
            
            
            
            
            
            
            
            
            
            
            (495,188
            )Net  loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (964,996
            )
            
            
            (964,996
            )Balance,
                December 31, 2006
            
            
            550,244
            
            
            
            22,752,550
            
            
            
            1,048,712
            
            
            
            (22,097,635
            )
            
            
            1,703,627Distributions
                to investors
            
            
            
            
            
            
            (160,960
            )
            
            
            
            
            
            
            
            
            
            
            (160,960
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (94,380
            )
            
            
            (94,380
            )Balance,
                March 31, 2007
            
            
            550,244
            
            
            $
            22,591,590
            
            
            $
            1,048,712
            
            
            $
            (22,192,015
            )
            
            $
            1,448,287




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 Quarter
                Ended
                March 31, 2007
              
              
              For the Quarter
                Ended
                March 31, 2006(unaudited)
              
              
              (unaudited)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income (loss)
              
              $
              (94,380
              )
              
              $
              264,398Adjustments
                    to reconcile net income (loss) to net cashprovided by operating
                    activities:Depreciation
              
              
              24,368
              
              
              
              25,041(Increase)
                  decrease in assets:Other
                  receivables
              
              
              (11,503
              )
              
              
              (26,189
              )Prepaid
                  expenses and other assets
              
              
              (56,279
              )
              
              
              (71,023
              )Advance
                  on loan portfolio purchase
              
              
              -
              
              
              
              (145,971
              )Loan
                  portfolios
              
              
              1,173,520
              
              
              
              2,503,455Deposits
              
              
              42,373
              
              
              
              -Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              (3,870
              )
              
              
              34,033Accrued
                  liabilities
              
              
              37,613
              
              
              
              130,642Accrued
                  interest
              
              
              (6,289
              )
              
              
              18,506Income
                  taxes payable
              
              
              13,600
              
              
              
              20,600Net
                  cash provided by operating activities
              
              
              1,119,153
              
              
              
              2,753,492CASH
                  FLOWS FROM INVESTING ACTIVITIES:Additions
                  to property and equipment
              
              
              (21,471
              )
              
              
              (32,058
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Net
                  change in restricted cash
              
              
              (64,452
              )
              
              
              (298,492
              )Repayment
                  of loans
              
              
              (608,640
              )
              
              
              (2,620,543
              )Distributions
                  to investors
              
              
              (160,960
              )
              
              
              (168,333
              )Net
                  cash used in financing activities
              
              
              (834,052
              )
              
              
              (3,087,368
              )NET
                  CHANGE IN CASH AND CASH EQUIVALENTS
              
              
              263,630
              
              
              
              (365,934
              )CASH
                  AND CASH EQUIVALENTS, beginning of period
              
              
              689,888
              
              
              
              1,810,677CASH
                  AND CASH EQUIVALENTS, end of period
              
              $
              953,518
              
              
              $
              1,444,743SUPPLEMENTAL
                  DISCLOSURE FOR CASH FLOW INFORMATION:Income
                  taxes paid
              
              $
              -
              
              
              $
              -Interest
                  paid
              
              $
              127,853
              
              
              $
              163,178


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.





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. The entities that were consolidated under the Reorganization
      Plan are as follows:





Performance
      Asset Management Fund, Ltd., - (PAM), a California limited partnership, formed
      in 1991. Units in PAM were sold in a private placement offering.  PAM
      raised $5,205,000 in gross proceeds from the sale of its partnership units.
      PAM
      was not subject to the reporting requirements of the Securities and Exchange
      Commission.





Performance
      Asset Management Fund II, Ltd., - (PAMII), a California limited partnership,
      formed in 1992.  Units in PAMII were sold in a private placement
      offering. PAMII raised $7,670,000 in gross proceeds from the sale of its
      partnership units. PAMII was not subject to the reporting requirements of the
      Securities and Exchange Commission.





Performance
      Asset Management Fund III, Ltd., - (PAMIII), a California limited partnership,
      formed in 1992. Units in PAMIII were sold in a private placement offering.
      PAMIII raised $9,990,000 in gross proceeds from the sale of its partnership
      units. PAMIII was a public limited partnership that was subject to the reporting
      requirements of the Securities and Exchange Commission.





Performance
      Asset Management Fund IV, Ltd., - (PAMIV), a California limited partnership,
      formed in 1992. Units in PAMIV were sold in an intrastate offering to residents
      of California. PAMIV raised $28,595,000 in gross proceeds from the sale of
      its
      partnership units.  PAMIV was a public limited partnership that was
      subject to the reporting requirements of the Securities and Exchange
      Commission.





Performance
      Asset Management Fund V, Ltd., - (PAMV), a California limited partnership,
      formed in 1994. Units in PAMV were sold in a private placement
      offering.  PAMV raised $5,965,000 in gross proceeds from the sale of
      its partnership units.   PAMV was not subject to the reporting
      requirements of the Securities and Exchange Commission.





Performance
      Capital Management, Inc. – (PCM INC), a California corporation incorporated in
      January 1993. PCM INC identified potential portfolio acquisitions, performed
      due
      diligence in conjunction with potential portfolio acquisitions, acquired
      portfolios, and through joint ventures with the limited partnerships (PAM,
      PAMII, PAMIII, PAMIV, and PAMV) collected and sold acquired portfolios. The
      limited partnerships (PAM, PAMII, PAMIII, PAMIV, and PAMV) collectively obtained
      98.5% of the outstanding shares of PCM INC. The minority interest of 1.5% was
      effectively eliminated in the bankruptcy plan.






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
      1 – Organization and Description of Business (continued)**





Pre-petition
      Operations





A
      total
      of approximately $57,450,000 was raised over the period 1991 to 1994 by selling
      limited partnership interests in PAM, PAMII, PAMIII, PAMIV, and PAMV.
      Approximately $8.7 million was deducted for brokerage and organizational
      expenses. Approximately $49 million was used to purchase non-performing credit
      card loan portfolios. These portfolios were typically purchased by the limited
      partnerships from PCM INC.  PCM INC also collected the portfolios
      under joint venture agreements between itself and the limited
      partnerships.





In
      the
      normal course of business, loan portfolios would be purchased, collections
      would
      be made and in some cases the portfolios were sold.  PCM INC was in
      the business of managing these loan portfolios.





PCM
      INC
      generally charged a “mark-up” to the limited partnerships for portfolios
      purchased for the limited partnerships. This markup averaged 35% above the
      price
      PCM INC paid for the portfolios on the open market.  PCM INC was also
      contractually entitled to receive 45% of all monies collected on the
      portfolios.





Reorganization
      Plan





The
      following is a summary of the ownership interest of PCM LLC pursuant to the
      terms of the Reorganization Plan:


Original
                Fund's
                  Name
              
              Number
                of
                  Unit Holders
              
              
              Number
                  of
                PCM
                  LLC Units
              
              
              Percentage
                Interest
                  in PCM LLCPAM
              
              
              370
              
              
              
              52,050
              
              
              
              9PAMII
              
              
              459
              
              
              
              76,700
              
              
              
              13PAMIII
              
              
              595
              
              
              
              99,900
              
              
              
              18PAMIV
              
              
              1553
              
              
              
              285,950
              
              
              
              50PAMV
              
              
              327
              
              
              
              56,950
              
              
              
              10Totals
              
              
              
              
              
              
              571,550
              
              
              
              100




The
      following is a summary of the ownership interest of PCM LLC as of March 31,
      2007:





Original
                    Fund's
                      Name
                  
                  Number
                      of
                    PCM
                      LLC Units
                  
                  
                  Percentage
                    Interest
                      in PCM LLCPAM
                  
                  
                  50,238
                  
                  
                  
                  9PAMII
                  
                  
                  74,169
                  
                  
                  
                  14PAMIII
                  
                  
                  95,647
                  
                  
                  
                  17PAMIV
                  
                  
                  274,185
                  
                  
                  
                  50PAMV
                  
                  
                  56,005
                  
                  
                  
                  10Totals
                  
                  
                  550,244
                  
                  
                  
                  100
  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
      1 – Organization and Description of Business (continued)**





The
      Reorganization Plan calls for distributions to be made first to PCM LLC members
      to the extent of and in proportion to their unreturned Capital Contributions;
      and thereafter to PCM LLC members in proportion to their respective percentage
      ownership interest. The combination of the Partnerships and PCM INC is
      summarized as follows (in thousands):





PAM
              
              
              PAMII
              
              
              PAMIII
              
              
              PAMIV
              
              
              PAMV
              
              
              PCM
                  INC
              
              
              TotalSale
                  of Limited Partnership Units
              
              $
              5,205
              
              
              $
              7,
                  670
              
              
              $
              9,990
              
              
              $
              28,595
              
              
              $
              5,965
              
              
              $
              -
              
              
              $
              57,425Distributions
                  to Investors
              
              
              (3,704
              )
              
              
              (4,137
              )
              
              
              (3,719
              )
              
              
              (6,920
              )
              
              
              (829
              )
              
              
              -
              
              
              
              (19,309
              )Unreturned
                  Capital
              
              
              1,501
              
              
              
              3,533
              
              
              
              6,271
              
              
              
              21,675
              
              
              
              5,136
              
              
              
              -
              
              
              
              38,116Accumulated
                  Deficit
              
              
              (288
              )
              
              
              (1,333
              )
              
              
              (2,424
              )
              
              
              (9,330
              )
              
              
              (2,561
              )
              
              
              (2,302
              )
              
              
              (18,238
              )Cash
                        and Net Assets Transferred to PCM LLC
              
              $
              1,213
              
              
              $
              2,200
              
              
              $
              3,847
              
              
              $
              12,345
              
              
              $
              2,575
              
              
              $
              (2,302
              )
              
              
              19,878Cumulative
                  Distributions for the Period
                  February 4, 2002  through
                  December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (13,804
              )Cumulative
                  Net Loss for the Period February 4, 2002  through
                  December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (3,093
              )Distributions
                  Forfeited
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              152Members’
                  Equity PCM LLC at December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,133Net
                  Income for the Quarter  ended
                  March 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2642006
                  Distributions to Investors
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (168
              )Members’
                  Equity PCM LLC at March 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,2292006
                  Net loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (965
              )2006
                  Distributions to Investors
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (495
              )Repurchase
                  of Units from Investors
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (66
              )Members'
                  Equity PCM LLC at December 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,7032007
                  Net loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (94
              )2007
                  Distributions to Investors
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (161
              )Members'
                  Equity PCM LLC at March 31, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              1,448
  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
      1 - Organization and Description of Business (continued)**





PAM
      III
      and PAM IV were reporting entities under the Securities Exchange Act of 1934.
      PAM, PAMII, PAMV, and PCM INC were not reporting entities. It was determined
      that PCM LLC is a “successor company” under Rule 12g-3 of the Securities
      Exchange Act of 1934, and therefore is subject to the reporting requirements
      of
      the Securities Exchange Act of 1934. PCM LLC’s LLC units are not publicly traded
      securities. The Reorganization Plan placed certain restrictions on the transfer
      of members’ interests.





On
      August
      2, 2004, an order of the United States Bankruptcy Court was entered closing
      the
      Chapter 11 case. The order acts as a discharge and termination of any and all
      liabilities and debts of, and claims against, PCM INC, PAM, PAM II, PAM III,
      PAM
      IV and PAM V that arose at any time before the confirmation order became
      effective 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.





**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 financial statements and
      footnotes for the period ended December 31, 2006 included in the Company's
      Current Report on 10KSB filed with the Securities and Exchange Commission on
      April 2, 2007. The results for the three months ending March 31, 2007 are not
      necessarily indicative of the results to be expected for the full year ending
      December 31, 2007.





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.


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
      2 - Basis of Presentation (continued)**





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.





**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.


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





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 March 31, 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.





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.


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





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 March 31, 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 March 31, 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 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).


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





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 March 31, 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 March 31, 2007 and December 31, 2006 was 20%. The estimated total
      fair value of loan portfolios was $19.5 million and $22.0 million at March
      31,
      2007, and December 31, 2006, respectively, and the estimated retained fair
      value
      of loan portfolios was $19.0 million and $21.3 million at March 31, 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 March 31, 2007 and December 31, 2006
      totaled approximately $799 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
                    ofMar. 31, 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
                
                
                (1,173,520
                )
                
                
                (3,445,782
                )Net
                    balance, end of period
                
                $
                3,827,422
                
                
                $
                5,000,942
  See
            Review Report of Independent Registered Public Accounting Firm.
 13
 *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:





For the Quarter
              
              
              For the QuarterEnded
              
              
              EndedMar. 31, 2007
              
              
              Mar. 31, 2006Purchased
                  loan portfolios, net
              
              $
              387,984
              
              
              $
              344,850Collections
                  on loan portfolios
              
              
              (3,380,426
              )
              
              
              (3,728,936
              )Sales
                  of loan portfolios
              
              
              (58,531
              )
              
              
              (1,532,610
              )Revenue
                  recognized on collections
              
              
              1,887,240
              
              
              
              1,881,514Revenue
                  recognized on sales
              
              
              (9,787
              )
              
              
              531,727Net
                  portfolio activity
              
              $
              (1,173,520
              )
              
              $
              (2,503,455
              )





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





**Note
      6 - Other Receivables**





Other
      receivables consist of collections on portfolios received by third party
      collection agencies and funds due from a portfolio seller for the return of
      certain contractually ineligible accounts improperly included by the seller
      in a
      portfolio purchased by Matterhorn.





**Note
      7 - Property and Equipment**





Property
      and equipment is as follows:





As
                  of
              
              
              As
                  ofMar. 31, 2007
              
              
              Dec. 31, 2006Office
                  furniture and equipment
              
              $
              427,897
              
              
              $
              427,897Computer
                  equipment
              
              
              651,630
              
              
              
              630,159Leasehold
                  improvements
              
              
              113,502
              
              
              
              113,502Totals
              
              
              1,193,029
              
              
              
              1,171,558Less
                  accumulated depreciation
              
              
              765,807
              
              
              
              741,439Property
                  and equipment, net
              
              $
              427,222
              
              
              $
              430,119


Depreciation
      expense for the quarters ended March 31, 2007 and 2006 amounted to $24,368
      and
      $25,041 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 $3.8 million and $4.5
      million at March 31, 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 $12.6 million at March 31, 2007
      and
      December 31, 2006. Each advance has minimum payment threshold points. Each
      advance has a term of two years and bears interest at the rate of 12% per annum.
      These obligations are scheduled to be paid in full on dates ranging from April
      2007 to June 2008, with the approximate following principal payments
      due:


See
          Review Report of Independent Registered Public Accounting Firm.


14
 *Index*




PERFORMANCE
      CAPITAL MANAGEMENT, LLC AND SUBSIDIARY





CONDENSED
      NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


(unaudited)





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





Year
                    ending
                  March 31,2008
              
              $
              3,013,0002009
              
              $
              834,000





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 $12.4 million at March 31, 2007 and December 31, 2006. The assets
      of Matterhorn that provide security for Varde's loan were carried at a cost
      of
      approximately $2.3 million at March 31, 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 March 31,
      will be:





Year
                ending
            
            Approximate
                AnnualMarch 31
            
            Lease
                Commitments2008
            
            $    259,0002009
            
            $    345,0002010
            
            $    350,0002011
            
            $    354,0002012
            
            $    355,000Thereafter
            
            $    697,000





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 March 31, 2007 was
      $155,000.






See
        Review Report of Independent Registered Public Accounting
        Firm.




15
 *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 years ended March 31, 2007 and March 31, 2006 amounted to
      approximately $80,000 and $84,000, 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
      March 31, 2007 and 564,125 for the quarter ended March 31, 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 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. After discussions with Varde regarding the timing of the payment, the
      Company requested and Varde has agreed to give the Company an extension and
      a
      limited forbearance from any action until July 31, 2007. The Company anticipates
      paying the amount due on or before the due date of July 31, 2007.


See
          Review Report of Independent Registered Public Accounting Firm.


16
 *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 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.




17
 *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.




18
 *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 has found that we are capable of
      determining the amount of revenue we expect to generate over the life of a
      portfolio for portfolios that we have sufficient historical data and experience
      to accurately estimate future cash flows. Management and the Audit Committee
      members are currently assessing the consultant’s findings to determine whether
      we should continue using the cost recovery method for all of our portfolios
      or
      use a method that matches portfolio cost basis to revenue over the projected
      life of the portfolio in cases where we have the historical data and experience
      to accurately estimate future cash flows.





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.




19
 *Index*





**OPERATING
      RESULTS**





***Comparison
      of Results for the Quarters Ended March 31, 2007 and
      2006***





The
      following discussion compares our results for the three months ended March
      31,
      2007, to the three months ended March 31, 2006. We had a net loss of $94,000
      for
      the three months ended March 31, 2007, as compared to net income of $264,000
      for
      the three months ended March 31, 2006.





Revenue





Our
      net
      revenues decreased to $1.9 million for the quarter ended March 31, 2007, from
      $2.4 million for the quarter ended March 31, 2006. The following table presents
      a comparison of the components of our revenues for the three months ended March
      31, 2007, to the three months ended March 31, 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
              Ended
                March 31
            
            
            For
                the Quarter
              Ended
                March 31
            
            
            For
                the Quarter
              Ended
                March 312007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006($
                in millions)
            
            
            ($
                in millions)
            
            
            ($
                in millions)Total
                revenues
            
            $
            3.4
            
            
            $
            5.2
            
            
            $
            3.4
            
            
            $
            3.7
            
            
            $
            0.1
            
            
            $
            1.5Less
                basis recovery
            
            
            (1.6
            )
            
            
            (2.8
            )
            
            
            (1.5
            )
            
            
            (1.8
            )
            
            
            (0.1
            )
            
            
            (1.0
            )Net
                revenues
            
            $
            1.9
            
            
            $
            2.4
            
            
            $
            1.9
            
            
            $
            1.9
            
            
            $
            (0.0
            )
            
            $
            0.5Net
                revenue percentage
            
            
            54.6
            %
            
            
            45.9
            %
            
            
            55.8
            %
            
            
            50.5
            %
            
            
            0.0
            %
            
            
            34.7
            %





Portfolio
      collections provided 98.3% of our total revenues in the quarter ended March
      31,
      2007 and 70.9% of our revenues in the quarter ended March 31, 2006. Our total
      revenues from portfolio collections decreased $349,000 due to a decrease in
      portfolio purchases during the latter half of 2006 and the first quarter of
      2007.  Our net revenues from portfolio collections remained
      approximately the same compared to the first quarter of 2006, but the percentage
      of net revenues to total revenues increased from 50.5% to 55.8%. 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 (net of returns) during the year ended
      December 31, 2006 and $388,000 of new portfolios (net of returns) in the first
      quarter of 2007. During 2005, we acquired $11.5 million of new portfolios
      (net of returns; $11.0 million after adjusting for a January 2006 sale of a
      $461,000 portion of a portfolio purchased in December 2005). The cost basis
      recovery associated with collecting portfolios we purchased in the latter half
      of 2005, combined with the portfolios that we purchased in 2006 are becoming
      fully recovered.  This will continue to contribute to the increase in
      net revenue percentage we would expect from our older portfolios (whose cost
      bases we have completely recovered) to generate.





During
      2006, we saw our total revenue from collections increase as we began to exploit
      the large purchases we made in 2005 and the purchases we made in 2006. We
      expect our total collection revenue to be lower in 2007 than it was in 2006
      and
      2005, which is consistent with the $349,000 decrease in collection revenue
      in
      the three months ended March 31, 2007 as compared to the three months ended
      March 31, 2006. The decline is due principally to the current market conditions
      for portfolios, which make purchasing portfolios at a reasonable price
      increasingly 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. 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 continue to acquire new
      portfolios that meet our criteria for generating net income, our collection
      revenue will continue to decline.




20
 *Index*





In
      an
      effort to increase the accounts we service to maximize use of our collection
      infrastructure, we started a program within Performance Capital Management
      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 $15,500 from third-party collections
      arrangements.  We do not yet know how effective this line of business
      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 judicial 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.





Both
      our
      total and net revenues from portfolio sales showed decreases in the quarter
      ended March 31, 2007 over the quarter ended March 31, 2006. As part of our
      program to emphasize efforts to continue to collect and realize a reasonable
      return on some of our older portfolios, in 2006 we identified a 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. In the first quarter of 2006, 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 is essentially due to the net revenues we
      derived from these portfolio sales. We had no similar sales in the first quarter
      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 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.





We
      had a
      net loss from sales of $10,000 in the three months ended March 31, 2007
      compared to net revenues from sales of $532,000 in the three months ended March
      31, 2006.  If we exclude the effect of portfolio sales, our net loss
      for the quarter ended March 31, 2007 decreases to a net loss of $85,000 from
      a
      net loss of $267,000 for the quarter ended March 31, 2006.  Our net
      loss, excluding the effect of portfolio sales, decreased, despite decreased
      total revenues from collections, due to less cost basis recovery (i.e., the
      increase in net revenue percentage discussed above) and to decreased interest
      expense and other financing costs. As our purchasing patterns slow, we believe
      our collection activity may begin to show net income due to front-loaded cost
      basis recovery.





Operating
      Expenses





Our
      total
      operating costs and expenses decreased to $1.8 million from $1.9 million for
      the
      three months ended March 31, 2007 and 2006, respectively. 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
      53.9% for the quarter ended March 31, 2007, from 51.7% for the quarter ended
      March 31, 2006.  The decline in collection efficiency is the result of
      the decrease in collection revenues outpacing the corresponding decrease in
      operating costs and expenses.





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, but we believe we may be nearing
      the point where it may not be possible to achieve further material decreases
      in
      the ratio of operating costs and expenses to total revenues from collections.
      We
      intend to continue monitoring the magnitude of the change in the margin by
      which
      our total collection revenues exceed our operating costs and expenses relative
      to the principal and interest we pay to Varde under the credit facility to
      ensure that the Varde facility provides additional liquidity to us and does
      not
      result in loan payments that will deplete our cash balances. In order to
      maintain the working capital necessary to run our operations, we anticipate
      maintaining 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).





Our
      general and administration expenses decreased by $53,000 to $679,000 for the
      quarter ended March 31, 2007, from $733,000 for the quarter ended March 31,
      2006. Our salaries and benefits expenses remained relatively stable at $1.1
      million for the quarter ended March 31, 2007, as compared to $1.2 million for
      the quarter ended March 31, 2006. Our headcount has remained relatively stable,
      although we still experience significant employee turnover among our collectors.
      We expect our operating expenses to continue to decrease in 2007 as the volume
      of accounts we collect decreases due primarily to a decline in new portfolio
      purchases.




21
 *Index*




**LIQUIDITY
      AND CAPITAL RESOURCES**





Our
      cash
      and cash equivalents increased $264,000 in the first quarter of 2007 to a
      balance of $954,000 at March 31, 2007, from a balance of $690,000 at December
      31, 2006. During the quarter ended March 31, 2007, our portfolio collections
      and
      sales generated $3.4 million of cash, and we used $2.0 million for operating
      and
      other activities, $388,000 to purchase new portfolios, $609,000 to repay loans
      and $161,000 for distributions to unit holders and had a $64,000 net change
      in
      restricted cash.





The
      increase in our cash reserves in the first quarter of 2007 was primarily due
      to
      the relatively lower amount cash reserves reinvested in portfolio purchases
      and
      reduced operating costs and expenses in the first quarter of 2007. We expect
      to
      continue to recoup some of the large cash outlays we made in the fourth quarter
      of 2006 in part through a return of capital from savings on tenant improvement
      costs in our new offices, a reduced lease commitment under our new lease as
      compared to our previous lease, and the continued slow down in portfolio
      purchases. In order to maintain the working capital necessary to run our
      business and purchase new portfolios, however, we may have to reduce the
      frequency and/or amount of distributions to our members in 2007 as compared
      with
      previous years.





The
      large
      cost basis recovery associated with our portfolios has made it difficult to
      generate the profit our business plan calls for and may continue to cause our
      statement of operations to show a net loss. The effect of the cost basis
      recovery is decreasing, however, as new portfolio purchases are slowing and
      older portfolios are becoming fully recovered. Excluding the results from
      portfolio sales in 2007, our cost basis recovery of $1.6 million plus our
      operating, interest and other expenses of $2.0 million exceeded our total
      revenues from collections of $3.4 million.





Under
      the
      loan agreement with Varde, we were required to pay the balance of one of our
      loans in full by the due date of April 28, 2007. The balance outstanding of
      the
      loan on that date was $702,000. 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. After
      discussions with Varde regarding the timing of the payment, we requested and
      Varde has agreed to give us an extension and a limited forbearance from any
      action until July 31, 2007. We anticipate paying the amount due on or before
      the
      due date of July 31, 2007.





During
      2005, we believe we continued to improve the balance between our new and old
      portfolios by purchasing the largest dollar amount of portfolios in one year
      since inception ($11.5 million in 2005; $11.0 million after adjusting for the
      January 2006 rebalancing described in the business description). 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 quarter of 2007, we purchased $388,000 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 continue to 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 2005 and a larger number of
      such
      portfolios 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 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.




22
 *Index*





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 March 31, 2006, decreased $2.5 million
      to $19.5 million from $22.0 million at December 31, 2006. At the same time,
      the
      cost basis of our portfolios decreased to $3.8 million at March 31, 2007, from
      $5.0 million at December 31, 2006. Our estimate of the retained fair value
      of
      our portfolios at March 31, 2007, decreased $2.3 million to $19.0 million from
      $21.3 million at December 31, 2006. Correspondingly, our notes payable used
      to
      purchase portfolios decreased from $4.5 million at December 31, 2006 to $3.8
      million at March 31, 2007.





Our
      estimates of fair value decreased due principally to our collections and
      portfolio sales of $3.4 million exceeding the fair value of the $388,000 of
      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 $388,000 of portfolio purchases made in the first quarter of
      2007.
      Whether the fair value and cost basis of our portfolios will resume the growth
      established 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.





We
      used a
      discount rate of 20% to determine the fair values of our portfolios at March
      31,
      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
                Fair
                  Value
            
            
            Retained
                Fair
                  Value
            
            
            Fair
                  Value of
                Residual
                  InterestsMar
                  31
              2007
            
            
            Dec
                  31
                2006
            
            
            Mar
                  31
              2007
            
            
            Dec
                  31
                2006
            
            
            Mar
                  31
              2007
            
            
            Dec
                  31
                2006($
                in millions)
            
            
            ($
                in millions)
            
            
            ($
                in millions)Higher
                collection risk (25% discount rate)
            
            $
            18.2
            
            
            $
            20.5
            
            
            $
            17.7
            
            
            $
            19.9
            
            
            $
            0.5
            
            
            $
            0.6Assumed
                collection risk (20% discount rate)
            
            $
            19.5
            
            
            $
            22.0
            
            
            $
            19.0
            
            
            $
            21.3
            
            
            $
            0.5
            
            
            $
            0.7Lower
                collection risk (15% discount rate)
            
            $
            21.0
            
            
            $
            23.8
            
            
            $
            20.4
            
            
            $
            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.




23
 *Index*





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. At March 31, 2007, Matterhorn owed
      $3.8 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 $2.3 million at
      March 31, 2007. The loan advances have minimum payment threshold points with
      terms of two years and bear interest at the rate of 12% per annum. These
      obligations are scheduled to be repaid in full on dates ranging from April
      2007
      to June 2008. 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 March 31, 2007 was $12.4
      million. Matterhorn has borrowed a total of $12.6 million, with $3.8 million
      outstanding at March 31, 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,
      and
      assuming our operating results continue to increase at projected levels, 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 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.




24
 *Index*





**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 March 31, 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 March 31, 2007 that has materially affected, or is
      reasonably likely to materially affect, our internal controls over financial
      reporting.







**PART
      II – OTHER INFORMATION**








**ITEM
      5.  OTHER INFORMATION**





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 has found that
      we are capable of determining the amount of revenue we expect to generate over
      the life of a portfolio for portfolios that we have sufficient historical data
      and experience to accurately estimate future cash flows. Management and the
      Audit Committee members are currently assessing the consultant’s findings to
      determine whether we should continue using the cost recovery method for all
      of
      our portfolios or use a method that matches portfolio cost basis to revenue
      over
      the projected life of the portfolio in cases where we have the historical data
      and experience to accurately estimate future cash flows.








**ITEM
      6.  EXHIBITS**





**(a)  Exhibits**





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


25
 *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, LLCMay
                16,
                2007
            
            
            By:
            /s/
              David J. Caldwell(Date)
            
            
            
            Name: 
                David J. CaldwellIts: 
              Chief Operations Officer


26
 *Index*





**EXHIBIT
      INDEX**




**Exhibit
                  No.**
              **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)
                  *31.1
              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 **




*
      Portions of this exhibit have been omitted and filed separately with the
      Securities and Exchanged Commission pursuant to a request for confidential
      treatment.





**
      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.





(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.






27