UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-QSB

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

          For the quarterly period ended   September 30, 2004
                                         ----------------------


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

          For the transition period from__________ to __________

          Commission file number:    0 - 50235
                                 ---------------


                      PERFORMANCE CAPITAL MANAGEMENT, LLC
    ------------------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

                California                                 03-0375751
      ------------------------------           --------------------------------
      State or other jurisdiction of           (IRS Employer Identification No.)
      incorporation or organization


          222 South Harbor Blvd., Suite 400, Anaheim, California 92805
    ------------------------------------------------------------------------
                    (Address of principal executive offices)


                                 (714) 502-3780
                          ---------------------------
                          (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[ ]


Check  whether  the  registrant  filed  all documents and reports required to be
filed  by  Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [X] No [ ]


State the number of shares outstanding of each of the issuer's classes of common
equity,  as of the latest practicable date: As of September 30, 2004, the issuer
had  570,916  LLC  Units  issued  and  outstanding.


Transitional Small Business Disclosure Format (Check one):  Yes [ ]  No[X]


<PAGE>
                      PERFORMANCE CAPITAL MANAGEMENT, LLC

                                    INDEX TO
                        QUARTERLY REPORT ON FORM 10-QSB
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2004


PART I - FINANCIAL INFORMATION                                              PAGE

Item 1   Financial Statements

         Report of Independent Registered Public Accounting Firm. . . . . . .  1

         Consolidated Balance Sheets as of September 30, 2004
         (unaudited) and December 31, 2003 (audited). . . . . . . . . . . . .  2

         Consolidated Statements of Operations for the three and
         nine months ended September 30, 2004 and 2003 (unaudited). . . . . .  3

         Consolidated Statements of Members' Equity for the nine
         months ended September 30, 2004 (unaudited) and the
         year ended December 31, 2003 (audited) . . . . . . . . . . . . . . .  4

         Consolidated Statements of Cash Flows for the nine
         months ended September 30, 2004 and 2003 (unaudited) . . . . . . . .  5

         Consolidated Condensed Notes to the Financial Statements (unaudited)  6

Item 2   Management's Discussion and Analysis of Financial Condition and
         Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 14

Item 3   Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . 23

PART II - OTHER INFORMATION

Item 2    Small Business Issuer Purchases of Equity Securities. . . . . . . . 24

Item 5    Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 24

Item 6    Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 25

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27


<PAGE>
                         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
Anaheim, California

We  have  reviewed  the  accompanying  consolidated balance sheet of Performance
Capital  Management,  LLC  and  its wholly owned subsidiary Matterhorn Financial
Services, LLC, as of September 30, 2004, and the related consolidated statements
of  operations  for the three and nine months ended September 30, 2004 and 2003,
and  consolidated  statements  of  members'  equity  and cash flows for the nine
months  ended  September  30,  2004 and 2003.  All information included in these
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 accounting principles generally accepted in
the  United  States  of  America.

We  have  previously  audited,  in  accordance with auditing standards generally
accepted  in  the  United  States  of  America, the balance sheet of Performance
Capital  Management,  LLC as of December 31, 2003, and the related statements of
operations,  members' equity and cash flows for the year ended December 31, 2003
(not  presented  herein); and in our report dated February 20, 2004 and April 9,
2004,  we expressed an unqualified opinion on those financial statements. In our
opinion,  the  information  set  forth  in  the accompanying balance sheet as of
December  31,  2003,  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


November 12, 2004
Orange, California


                                        1
<PAGE>
<TABLE>
<CAPTION>
                       PERFORMANCE CAPITAL MANAGEMENT, LLC

                           CONSOLIDATED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003

                                                 September 30,     December 31,
                                                     2004             2003
                                                  (unaudited)       (audited)
                                                ---------------  ---------------
<S>                                             <C>              <C>
                                   ASSETS
                                   ------

Cash and cash equivalents                       $     1,490,708  $     1,007,949
Restricted cash                                         100,000           21,448
Other receivables                                        27,524           14,492
Purchased loan portfolios, net                        2,946,433        2,081,496
Property and equipment, net                             285,606          397,924
Deposits                                                 56,588           56,588
Prepaid expenses and other assets                        68,203          135,738
                                                ---------------  ---------------
        Total assets                            $     4,975,062  $     3,715,635
                                                ===============  ===============



                      LIABILITIES AND MEMBERS' EQUITY
                      -------------------------------

LIABILITIES:
    Accounts payable                            $        48,861  $        68,735
    Accrued interest payable                              7,896                -
    Accrued liabilities                                 345,846          313,352
    Income taxes payable                                 15,790           15,790
    Loan payable                                        764,111                -
                                                ---------------  ---------------
      Total liabilities                               1,182,504          397,877

COMMITMENTS AND CONTINGENCIES                                 -                -

MEMBERS' EQUITY                                       3,792,558        3,317,758
                                                ---------------  ---------------
        Total liabilities and members' equity   $     4,975,062  $     3,715,635
                                                ===============  ===============
</TABLE>

The accompanying notes are an integral part of these financial statements.
See Report of Independent Registered Public Accounting Firm.


                                        2
<PAGE>
<TABLE>
<CAPTION>
                                     PERFORMANCE CAPITAL MANAGEMENT, LLC

                                    CONSOLIDATED STATEMENTS OF OPERATIONS



                                            For the three    For the three    For the nine     For the nine
                                            months ended     months ended     months ended     months ended
                                            September 30,    September 30,    September 30,    September 30,
                                                2004             2003             2004             2003
                                             (unaudited)      (unaudited)      (unaudited)      (unaudited)
                                           ---------------  ---------------  ---------------  ---------------
<S>                                        <C>              <C>              <C>              <C>
REVENUES:
    Portfolio collections                  $    2,432,108   $    2,351,314   $    7,157,195   $    7,358,415
    Portfolio sales                             1,376,171                -        4,133,628          505,724
                                           ---------------  ---------------  ---------------  ---------------
      Total revenues                            3,808,279        2,351,314       11,290,823        7,864,139
    Less portfolio basis recovery               2,040,747          894,837        5,269,375        3,598,251
                                           ---------------  ---------------  ---------------  ---------------
NET REVENUES                                    1,767,532        1,456,477        6,021,448        4,265,888
                                           ---------------  ---------------  ---------------  ---------------
OPERATING COSTS AND EXPENSES:
    Salaries and benefits                         947,196        1,050,518        3,037,398        3,231,198
    General and administrative                    637,094          497,399        1,855,045        1,573,330
    Depreciation                                   43,438           50,930          132,796          154,108
                                           ---------------  ---------------  ---------------  ---------------
      Total operating costs and expenses        1,627,728        1,598,847        5,025,239        4,958,636
                                           ---------------  ---------------  ---------------  ---------------

INCOME (LOSS) FROM OPERATIONS                     139,804         (142,370)         996,209         (692,748)
                                           ---------------  ---------------  ---------------  ---------------
OTHER INCOME (EXPENSE):
    Reorganization costs                          (17,575)         (17,364)         (52,578)         (65,384)
    Interest income                                 2,892            3,205            8,475            9,056
    Other income                                    9,064            8,634           38,278            9,914
    Interest expense                               (7,896)                           (7,896)
                                           ---------------  ---------------  ---------------  ---------------
      Total other expense, net                    (13,515)          (5,525)         (13,721)         (46,414)
                                           ---------------  ---------------  ---------------  ---------------

INCOME (LOSS) BEFORE INCOME TAX                   126,289         (147,895)         982,488         (739,162)
  PROVISION

INCOME TAX PROVISION                                  800            2,355           18,190            9,852
                                           ---------------  ---------------  ---------------  ---------------
NET INCOME (LOSS)                          $      125,489   $     (150,250)  $      964,298   $     (749,014)
                                           ===============  ===============  ===============  ===============

NET INCOME (LOSS) PER MEMBER
    UNIT - BASIC AND DILUTED               $         0.22   $        (0.26)  $         1.69   $        (1.31)
                                           ===============  ===============  ===============  ===============
</TABLE>

The accompanying notes are an integral part of these financial statements.
See Report of Independent Registered Public Accounting Firm.


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                     PERFORMANCE CAPITAL MANAGEMENT, LLC

                                  CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY


                                                                                                    Total
                                       Member       Unreturned      Abandoned     Accumulated      Members'
                                        Units         Capital        Capital        Deficit         Equity
                                    -------------  -------------  -------------  -------------  -------------
<S>                                 <C>            <C>            <C>            <C>            <C>
Balance, December 31, 2002               571,550   $ 26,116,880   $           -  $(21,237,826)  $  4,879,054

Distribution to investors                      -       (307,448)              -             -       (307,448)

Member units returned by investors          (634)       (31,926)         31,926             -              -

Net loss                                       -              -               -      (749,014)      (749,014)
                                    -------------  -------------  -------------  -------------  -------------

Balance, September 30, 2003              570,916     25,777,506          31,926   (21,986,840)     3,822,592
                                    -------------  -------------  -------------  -------------  -------------

Distributions to investors                     -       (164,529)              -             -       (164,529)

Net loss                                       -              -               -      (340,305)      (340,305)
                                    -------------  -------------  -------------  -------------  -------------

Balance, December 31, 2003               570,916     25,612,977          31,926   (22,327,145)     3,317,758

Distributions to investors                     -       (489,498)              -             -       (489,498)

Net income                                     -              -               -       964,298        964,298
                                    -------------  -------------  -------------  -------------  -------------

Balance, September 30, 2004              570,916   $ 25,123,479   $      31,926  $(21,362,847)  $  3,792,558
                                    =============  =============  =============  =============  =============
</TABLE>

The accompanying notes are an integral part of these financial statements.
See Report of Independent Registered Public Accounting Firm.


                                        4
<PAGE>
<TABLE>
<CAPTION>
                            PERFORMANCE CAPITAL MANAGEMENT, LLC

                           CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                            For the nine     For the nine
                                                            months ended     months ended
                                                            September 30,    September 30,
                                                                2004             2003
                                                             (unaudited)      (unaudited)
                                                           ---------------  ---------------
<S>                                                        <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                        $      964,298   $     (749,014)
  Adjustments to reconcile net income (loss) to net cash
    provided by operating activities:
      Depreciation                                                132,796          154,108
    (Increase) decrease in assets:
      Other receivables                                           (13,032)          38,155
      Prepaid expenses and other assets                            67,535          (32,869)
      Loan portfolios                                            (864,937)       2,183,371
    Increase (decrease) in liabilities:
      Accounts payable                                            (19,874)         (90,828)
      Accrued interest payable                                      7,896                -
      Pre-petition claims                                               -         (119,737)
      Accrued liabilities                                          32,494         (184,346)
      Income taxes payable                                              -           (7,747)
                                                           ---------------  ---------------
        Net cash provided by operating activities                 307,176        1,191,093
                                                           ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                             (20,478)          (5,399)
                                                           ---------------  ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Distribution to investors                                      (489,498)        (307,448)
  Borrowing on loans payable                                      764,111                -
                                                           ---------------  ---------------
        Net cash provided by financing activities                 274,613         (307,448)
                                                           ---------------  ---------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                           561,311          878,246

CASH AND CASH EQUIVALENTS, beginning of period                  1,029,397          871,534
                                                           ---------------  ---------------

CASH AND CASH EQUIVALENTS, end of period                   $    1,590,708   $    1,749,780
                                                           ===============  ===============

SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:

  Income taxes paid                                        $       18,190   $       18,190
                                                           ---------------  ---------------

  Interest paid                                            $            -   $            -
                                                           ===============  ===============
</TABLE>

The accompanying notes are an integral part of these financial statements.
See Report of Independent Registered Public Accounting Firm.


                                        5
<PAGE>
                            PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

ORGANIZATION AND DESCRIPTION OF BUSINESS
----------------------------------------

Performance  Capital  Management, LLC ("PCM LLC" or the "Company") is 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.  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 Report of Independent Registered Public Accounting Firm.


                                        6
<PAGE>
                            PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE 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.

The  following  is  a  summary  of the ownership interest of Performance Capital
Management,  LLC  pursuant  to  the  terms  of  the  Reorganization  Plan:

<TABLE>
<CAPTION>
Original
Fund's     Number of      Number of        Percentage
Name      Unit Holders  PCM LLC Units  Interest in PCM LLC
--------  ------------  -------------  -------------------
<S>       <C>           <C>            <C>
PAM                370         52,050                    9
PAMII              459         76,700                   13
PAMIII             595         99,900                   18
PAMIV             1553        285,950                   50
PAMV               327         56,950                   10
                        -------------  -------------------
  Totals                      571,550                  100
                        =============  ===================
</TABLE>

The  following  is  a  summary  of the ownership interest of Performance Capital
Management,  LLC  as  of  September  30,  2004:

<TABLE>
<CAPTION>
Original
Fund's      Number of        Percentage
Name      PCM LLC Units  Interest in PCM LLC
--------  -------------  -------------------
<S>       <C>            <C>
PAM              52,000                    9
PAMII            76,700                   13
PAMIII           99,900                   18
PAMIV           285,456                   50
PAMV             56,860                   10
          -------------  -------------------
  Totals        570,916                  100
          =============  ===================
</TABLE>


See Report of Independent Registered Public Accounting Firm.


                                        7
<PAGE>
                            PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

The  Reorganization  Plan  calls  for  distributions to be made first to the LLC
Members  to  the  extent  of  and  in  proportion  to  their  unreturned Capital
Contributions;  and  thereafter  to  the  LLC  Members  in  proportion  to their
respective  percentage  ownership  interest.

The  combination  of  the  Partnerships and PCM INC is summarized as follows (in
thousands):

<TABLE>
<CAPTION>
                                    PAM      PAMII     PAMIII    PAMIV      PAMV     PCM INC     Total
                                 -----------------------------------------------------------------------
<S>                              <C>        <C>       <C>       <C>       <C>       <C>        <C>
Sale of Limited
  Partnership Units              $  5,205   $ 7,670   $ 9,990   $28,595   $ 5,965   $      -   $ 57,425

Distributions
  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          -     38,116

Accumulated 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)    19,878
                                 ============================================================

2002 Distribution to Investors                                                                  (12,000)

Net Loss For The Year Ended
  December 31, 2002                                                                              (2,999)
                                                                                               ---------

Members' Equity PCM, LLC
  at December 31, 2002                                                                            4,879

2003 Distributions to Investors                                                                    (472)

Net Loss For The Year
  Ended December 31, 2003                                                                        (1,089)
                                                                                               ---------

Members' Equity PCM, LLC
  at December 31, 2003                                                                            3,318

2004 Distributions to Investors                                                                    (489)

Net Income For The Period
  Ended September 30, 2004                                                                          964
                                                                                               ---------

Members' Equity PCM, LLC
  at September 30, 2004                                                                        $  3,793
                                                                                               =========
</TABLE>

Performance  Asset  Management  Fund  III, Ltd. and Performance Asset Management
Fund  IV,  Ltd.,  were  reporting  entities under the Securities Exchange Act of
1934.  PAM,  PAMII,  PAMV,  and  PCM  INC  were  not reporting entities.  It was
determined  that  Performance  Capital  Management, 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


See Report of Independent Registered Public Accounting Firm.


                                        8
<PAGE>
                            PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

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. In late December 1998, six entities (See above)
voluntarily  filed  bankruptcy petitions, which were later consolidated into one
case.  Performance  Capital Management, LLC is an entity that was formed for the
purpose  of  reorganizing  the  six  entities. The order acts as a discharge and
termination of any and all liabilities and debts of, and claims against, the six
entities  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,  the  Company  created  a
wholly-owned  subsidiary,  Matterhorn  Financial  Services,  LLC,  a  California
limited  liability  company ("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  contingent  amount  of  any  profits  on the portfolios acquired with a loan.
Portfolios  purchased  using  the  facility  will  be  owned  by  the  Company's
subsidiary,  Matterhorn.  Varde  has  a  first  priority  security  interest  in
Matterhorn's  assets  securing  repayment  of  its  loans.

NOTE 2 - BASIS OF PRESENTATION

Interim Consolidated Condensed Financial Statements
---------------------------------------------------

These  interim  consolidated  condensed  financial statements have been prepared
using generally accepted accounting principles in the United States. The interim
financial  statements  include  all  adjustments,  consisting  solely  of normal
recurring  adjustments,  which  in  management's  opinion are necessary for fair
presentation  of  the  financial  results  for  interim  periods.  The financial
statements  have been prepared consistent with the accounting policies described
in  the  Company's annual audited financial statements. Reference should be made
to  those  statements  included  with  the Company's annual report filed on Form
10-KSB.

Basis of Consolidation
----------------------

The  consolidated  financial  statements include the accounts of PCM LLC and its
wholly-owned special purpose subsidiary Matterhorn. All significant intercompany
balances  and  transactions  have  been  eliminated.

Reporting Entity
----------------

The Company 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,  a wholly owned subsidiary of the Company, became
active  in the third quarter of 2004 under the terms of the credit facility with
Varde  Investment  Partners,  L.P.

Transfer of Assets to Successor Company
---------------------------------------

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


See Report of Independent Registered Public Accounting Firm.


                                        9
<PAGE>
                      PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates
----------------

In  preparing  financial  statements  in  conformity  with accounting principles
generally  accepted  in  the United States of America, management is required to
make  estimates  and  assumptions that affect the reported amounts of assets and

liabilities,  the disclosure of contingent assets and liabilities at the date of
the  financial  statements,  and  the  reported amounts of revenues and expenses
during  the reporting period.  Actual results could differ from those estimates.

Significant  estimates  have  been made by management with respect to the timing
and  amount  of  collection of future cash flows from non-performing credit card
loan  portfolios.  Among  other  things,  the estimated future cash flows of the

portfolios  are  used  to recognize impairment in the purchased loan portfolios.
Management  reviews  the  estimate  of  future collections, and it is reasonably
possible  that  these  estimates  may  change  based on actual results and other
factors.  A  change  could  be  material  to  the  financial  statements.

Purchased Loan Portfolios
-------------------------

Purchased  loan  portfolios  consisted  primarily  of non-performing credit card
accounts.  For  substantially all the Company's acquired portfolios, future cash
flows  cannot  be  reasonably  estimated  in order to record an accretable yield
consistently.  Therefore,  the  Company  utilizes  the  cost  recovery method as
required  by AICPA Practice Bulletin 6.  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  balance  sheets.

The Company provides a valuation allowance for acquired loan portfolios when the
present value of expected future cash flows do not exceed the carrying values of
the  portfolios.

Over the life of the portfolio, the Company's management continues to review the
carrying  values  of  each  loan  for  impairment.  If  the net present value of
estimated  future  cash  flows  falls  below  the  carrying value of the related
portfolio,  the valuation allowance is adjusted accordingly.  Adjustments to the
valuation  allowance  are recorded in the statement of operations as a provision
for  losses  on  loan  portfolios.

Cash and Cash Equivalents
-------------------------

PCM  LLC  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  $1,614,000  as  of  September  30,  2004.  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.

Revenue Recognition
-------------------

Revenue  is  accounted  for  using  the  cost  recovery  method of accounting in
accordance  with  Practice Bulletin No. 6, "Amortization of Discounts on Certain
Acquired  Loans".  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  the  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.  Portfolios sold typically either do not meet
PCM  LLC's  targeted collection characteristics, are located in geographic areas
where PCM LLC is not licensed to collect or are sold for strategic reasons. Loan
portfolios  sold  are  valued  at  the  lower  of  cost  or  market.


See Report of Independent Registered Public Accounting Firm.


                                       10
<PAGE>
                            PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Proceeds  from  strategic  sales of purchased loan portfolios in excess of their
cost  basis  are  recorded  as  net  revenue  when  received.

Members' Equity
---------------

Members'  equity  includes  voting  LLC units held by members and non-voting LLC
units  held  by  one  economic  interest  owner.  As  of September 30, 2004, and
December  31,  2003,  PCM LLC had 547,194 voting LLC units and 23,722 non-voting
LLC  units.  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  members  the Company has not been able to locate.

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 September 30, 2004
and  December  31,  2003  are  as follows.  The carrying amount of cash and cash
equivalents, restricted cash and liabilities approximate their fair values.  The
fair  value  of  purchased  loan  portfolios was determined based on both market
pricing  and  discounted  expected cash flows.  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 September 30, 2004  and December 31, 2003 was 20%.
The  estimated fair value of loan portfolios was $18,200,000  and $15,300,000 at
September  30,  2004  and  December  31,  2003,  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 September 30, 2004 and December 31, 2003 totaled
approximately  $615  million  and  $1.1  billion,  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 balance sheets are as
follows:

<TABLE>
<CAPTION>
                                           As of                     As of
                                     September 30, 2004        December 31, 2003
                                  ------------------------  ------------------------
<S>                               <C>                       <C>
Unrecovered cost balance,
    beginning of period           $             7,619,515   $             9,517,146
Valuation allowance,
    beginning of period                        (5,538,019)               (5,472,952)
                                  ------------------------  ------------------------
Net balance, beginning of period                2,081,496                 4,044,194
Net portfolio activity                            864,937                (1,962,698)
                                  ------------------------  ------------------------
Net balance, end of period        $             2,946,433   $              2,081,496
                                  ========================  ========================
</TABLE>

See Report of Independent Registered Public Accounting Firm.


                                       11
<PAGE>
                      PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 5 - PURCHASED LOAN PORTFOLIOS (CONTINUED)

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

<TABLE>
<CAPTION>
                                       Three months          Three months          Nine months           Nine months
                                          ended                 ended                 ended                 ended
                                    September 30, 2004    September 30, 2003    September 30, 2004    September 30, 2003
                                   --------------------  --------------------  --------------------  --------------------
<S>                                <C>                   <C>                   <C>                   <C>
Purchased loan portfolios          $         3,512,860   $           515,039   $         6,134,311   $         1,414,880
Collections on loan portfolios              (2,432,109)           (2,351,314)           (7,157,195)           (7,358,415)
Sales of loan portfolios                    (1,376,171)                    -            (4,133,628)             (505,724)
Revenue recognized on collections            1,734,692             1,456,477             5,035,217             4,200,748
Revenue recognized on sales                     32,841                     -               986,232                65,140
                                   --------------------  --------------------  --------------------  --------------------
Net portfolio activity             $         1,472,113   $          (379,798)  $           864,937   $        (2,183,371)
                                   ====================  ====================  ====================  ====================
</TABLE>

The  valuation  allowance  related  to  the  loan  portfolios  had  a balance of
$5,538,019  at  September  30,  2004  and  December  31,  2003.

NOTE 6 - OTHER RECEIVABLES

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

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment is as follows:

<TABLE>
<CAPTION>
                                       As of                As of
                                September 30, 2004      Dec. 31, 2003
                                -------------------  -------------------
<S>                             <C>                  <C>
Office furniture and equipment  $           282,820  $           273,835
Computer equipment                          494,223              482,729
Leasehold improvements                       36,982               36,982
                                -------------------  -------------------
Totals                                      814,025              793,546
Less accumulated depreciation               528,419              395,622
                                -------------------  -------------------
Property and equipment, net     $           285,606  $           397,924
                                ===================  ===================
</TABLE>


Depreciation  expense  for  the  three  months ended September 30, 2004 and 2003
amounted  to  $43,438  and  $50,930, respectively.  Depreciation expense for the
nine months ended September 30, 2004 and 2003 amounted to $132,796 and $154,108,
respectively.

NOTE 8 - NOTE PAYABLE

Matterhorn  owed  Varde  approximately  $764,000  under  a  credit  facility  at
September 30, 2004. The loan has minimum payment threshold points with a term of
two  years  and  bears interest at the rate of 12% per annum. Principal payments
are  made  out  of  collections  of portfolios held by Matterhorn. The amount of
remaining  available  credit  under  the  facility  at  September  30,  2004 was
approximately  $24.2  million.  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 approximately $1.0
million  at  September  30,  2004.


See Report of Independent Registered Public Accounting Firm.


                                       12
<PAGE>
                       PERFORMANCE CAPITAL MANAGEMENT, LLC

            CONSOLIDATED CONDENSED NOTES TO THE FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Lease Commitments
-----------------

The  Company  currently  leases  office  space  in  Anaheim,  California under a
non-cancelable  five  year  operating lease.  Under the lease agreement, PCM LLC
must  pay  a basic monthly rental charge plus a portion of the building's common
area  expenses.  Future  minimum lease commitments as of September  30, 2004 are
as  follows:

      Year ending
      September 30,
      -------------
          2005                                        $312,000
          2006                                         320,000
          2007                                          63,000
       Thereafter                                            -

Rental  expense  for the three months ended September 30, 2004 and 2003 amounted
to  $79,638  and  $77,460 respectively. Rental expense for the nine months ended
September  30,  2004  and  2003 amounted to approximately $238,508 and $232,490,
respectively.  The  Company  is  obligated  under  a  five-year  equipment lease
expiring  in  2009  for  minimum  payments  totaling  $4,400  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, 570,916 for the nine
months  ended September 30, 2004 and 571,550 for the nine months ended September
30,  2003.

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 EVENTS

The  reorganization  plan calls for the Company to cancel the equity interest of
unit holders that can not be located. PCMLLC published a list of such members in
April  2004  in a national publication. The Company plans to cancel these member
units  (approximately  7,154) and distributions totaling approximately $152,000.
Current  plans  for  the  fourth  quarter call for the cancellation of units and
reversion  to  the  Company  of  cash  representing  such  distributions.


See Report of Independent Registered Public Accounting Firm.


                                       13
<PAGE>
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.  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 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
filed  with  the  Securities  and  Exchange  Commission  on  April  14,  2004.

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.

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 income statement
we  reduce  our  gross  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.

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


                                       14
<PAGE>
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  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 intercompany balances and transactions
have  been  eliminated.

CRITICAL ACCOUNTING ESTIMATES

We  present investments in portfolios on our 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.


                                       15
<PAGE>
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. Although this accounting policy
may  be  criticized  for  not  matching  portfolio  cost  basis  to revenue on a
proportionate basis over the life of the portfolio, we believe a policy grounded
in  conservatism  is  preferable  to  a  policy  of  attempting  to estimate the
appropriate  matching percentages, due to the distressed nature of the portfolio
assets and the lack of assurance that projected collections will actually occur.

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,  we have a credit facility with Varde
Investment  Partners,  L.P.  ("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.  The  facility  provides  for  Varde  to receive a
contingent  interest  in  portfolio  collections after all funds invested in the
portfolio  have  been  repaid  (with interest) and all servicing costs have been
paid.  We  do  not  record  a  liability for this contingent interest due to the
distressed  nature  of  the  portfolio  assets  and  the  lack of assurance that
collections  sufficient  to  result in a liability to Varde will actually occur.

OPERATING RESULTS

COMPARISON OF RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2004, AND 2003

The  following  discussion  compares our results for the quarter ended September
30,  2004,  to  the quarter ended September 30, 2003. We generated net income of
approximately  $125,000  for the quarter ended September 30, 2004, compared to a
net  loss  of  approximately  $150,000 for the quarter ended September 30, 2003.

Revenue
-------

Our  net  revenues increased to approximately $1.8 million for the quarter ended
September  30,  2004,  from  approximately  $1.5  million  for the quarter ended
September  30, 2003. The following table presents a comparison of the components
of  our  revenues for the quarter ended September 30, 2004, to the quarter ended
September  30,  2003,  as  well as presenting net revenue as a percentage of the
corresponding total revenue (approximate amounts due to rounding):


                                       16
<PAGE>
<TABLE>
<CAPTION>
                                Total             Collections              Sales
                        --------------------  --------------------  --------------------
                           Quarter Ended         Quarter Ended         Quarter Ended
                         9/30/04    9/30/03    9/30/04    9/30/03    9/30/04    9/30/03
                        ---------  ---------  ---------  ---------  ---------  ---------
                           ($in millions)        ($in millions)       ($in millions)
<S>                     <C>        <C>        <C>        <C>        <C>        <C>
Total revenues          $    3.8   $    2.4   $    2.4   $    2.4   $    1.4   $     --
Less basis recovery         (2.0)      (0.9)      (0.7)      (0.9)      (1.3)        --
                        ---------  ---------  ---------  ---------  ---------  ---------
Net revenues            $    1.8   $    1.5   $    1.7   $    1.5   $     --   $     --
                        =========  =========  =========  =========  =========  =========

Net revenue percentage      46.4%      61.9%      71.3%      61.9%       2.4%       0.0%
</TABLE>

Portfolio collections continue to provide most of our total revenues.  Our total
revenues  from  portfolio collections increased slightly, while our net revenues
from  portfolio  collections  increased  somewhat  more.  Our  net revenues from
portfolio  collections  (as well as the corresponding percentage of net revenues
to total revenues) increased principally due to maintaining collection trends on
our older portfolios with low or fully-amortized cost bases while simultaneously
exploiting  portfolios  purchased  during  the  second  half  of  2002.  We have
completely  recovered  the  cost  basis of most of these portfolios purchased in
2002,  resulting  in collections of these portfolios generating net revenue.  We
expect  our 2002 portfolios to continue generating net revenues. During the nine
months  ended  September 30, 2004, we acquired approximately $3.8 million of new
portfolios  (net  of  portions  of  portfolios  we  promptly  resold). In future
quarters,  the  cost  basis  recovery  associated  with  collecting  these  2004
portfolios,  combined  with  others  that  we acquired in 2003, could offset the
increase in net revenue percentage we would otherwise expect our 2002 portfolios
to  generate.

Our  total  revenues from portfolio sales increased dramatically due principally
to  sales of portions of newly acquired portfolios.  We 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.

Excluding the approximately $33,000 of net revenues from sales of portfolios, we
generated  net  income  of approximately $93,000 for the quarter ended September
30,  2004,  which  marks  the first quarter in which we have achieved net income
based  on  our  core  business of portfolio collections.  We believe this result
reflects  the  steady  progress  we  have  made to focus on collecting the right
portfolios  in an efficient manner.  We believe our future results will continue
to  reflect  this  progress, although the "front-loading" of cost basis recovery
from  recent  portfolio  acquisitions  could  once  again cause our statement of
operations  to  show  a  net  loss.

Operating Expenses
------------------

Our  total  operating  costs  and  expenses  remained  relatively  stable  at
approximately  $1.6  million  for each of the quarters ended September 30, 2004,
and  2003.  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,  decreased  to 67.0% for the quarter ended September 30,
2004,  from  68.0%  for  the  quarter  ended  September  30,  2003.  The  slight
improvement  in  this  ratio  results  principally  from  the  increase  in  our
collection  revenues  outpacing  increases  in  our  expenses.  We  believe  our
existing  infrastructure can collect a greater dollar volume of accounts, and we
plan  to  lower this ratio by increasing total revenues from collections without
incurring  a  proportionate  increase  in  operating  costs  and  expenses.  To
accomplish  this  objective, we will continue our efforts to improve the balance
between  our  new  and old portfolios.  The deteriorating market conditions that
have  led  to  increased  portfolio  prices  present  a  continuing  obstacle to
achieving  increases  in  total  revenues  from  collections,  because  of  the
difficulty  in replenishing and then increasing our portfolios.  As discussed in
greater  detail below, we believe that our agreement with Varde will continue to
assist  our  efforts  to  acquire  the  volume of new portfolios it will take to
produce  substantial  increases  in  total  revenues  from  collections.

Our  general and administrative expenses increased to approximately $637,000 for
the  quarter  ended  September  30,  2004,  from  approximately $497,000 for the
quarter  ended  September 30, 2003, due principally to legal expenses associated
with entering into the Varde credit facility, increased use of third parties and
outside  counsel  to  collect accounts and increased expenses for insurance. Our
salaries  and  benefits  expenses  decreased  to  approximately $947,000 for the
quarter  ended  September  30,  2004,  from  approximately  $1.1 million for the
quarter  ended  September


                                       17
<PAGE>
30,  2003,  due  principally  to  reduced  headcount. Our operating expenses may
increase somewhat if we succeed in increasing the volume of accounts we collect,
but  we  expect increases in total revenues to outpace any material increases in
variable  costs  associated  with  our  collection  efforts.

COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004, AND 2003

The  following  discussion  compares  our  results  from  the  nine months ended
September  30,  2004,  to  the  nine  months  ended  September  30,  2003.

We  generated net income of approximately $1.0 million for the nine months ended
September  30,  2004,  compared  to a net loss of approximately $749,000 for the
nine  months ended September 30, 2003. Our operating activities provided cash of
approximately $307,000 for the nine months ended September 30, 2004, as compared
to  providing  cash  of  approximately $1.2 million for the same period in 2003.

Revenue
-------

Our  net  revenues  increased  to approximately $6.0 million for the nine months
ended  September  30,  2004, from approximately $4.3 million for the nine months
ended  September  30,  2003.  The  following  table presents a comparison of the
components  of  our  revenues  for the nine months ended September 30, 2004, and
2003,  as  well  as  presenting net revenue as a percentage of the corresponding
total  revenue  (approximate  amounts  due  to  rounding):

<TABLE>
<CAPTION>
                                 Total                 Collections                Sales
                        -----------------------  -----------------------  -----------------------
                           Nine Months Ended        Nine Months Ended       Nine Months Ended
                         9/30/04      9/30/03     9/30/04      9/30/03     9/30/04      9/30/03
                        ----------  -----------  ----------  -----------  ----------  -----------
                            ($in millions)            ($in millions)          ($in millions)
<S>                     <C>         <C>          <C>         <C>          <C>         <C>
Total revenues          $    11.3   $      7.9   $     7.2   $      7.4   $     4.1   $      0.5
Less basis recovery          (5.3)        (3.6)       (2.2)        (3.2)       (3.1)        (0.4)
                        ----------  -----------  ----------  -----------  ----------  -----------
Net revenues            $     6.0   $      4.3   $     5.0   $      4.2   $     1.0   $      0.1
                        ==========  ===========  ==========  ===========  ==========  ===========

Net revenue percentage       53.3%        54.2%       70.4%        57.1%       23.9%        12.9%
</TABLE>

Portfolio collections continue to provide most of our total revenues.  Our total
revenues  from  portfolio  collections declined slightly, while our net revenues
from  portfolio  collections  increased.  Our  net  revenues  from  portfolio
collections  (as  well  as the corresponding percentage of net revenues to total
revenues)  increased  principally  due  to  maintaining collection trends on our
older  portfolios  with  low  or fully-amortized cost bases while simultaneously
exploiting  portfolios  purchased  during  the  second  half  of  2002.  We have
completely  recovered  the  cost  basis of most of these portfolios purchased in
2002,  resulting  in collections of these portfolios generating net revenue.  We
expect  our 2002 portfolios to continue generating net revenues. During the nine
months  ended  September 30, 2004, we acquired approximately $3.8 million of new
portfolios  (net  of  portions  of  portfolios  we  promptly  resold). In future
periods,  the  cost  basis  recovery  associated  with  collecting  these  2004
portfolios,  combined  with  others  that  we acquired in 2003, could offset the
increase in net revenue percentage we would otherwise expect our 2002 portfolios
to  generate.

Both  our total and net revenues from portfolio sales showed dramatic increases.
As  part  of our program to emphasize efforts to continue to collect some of our
older  portfolios,  we identified a substantial number of older portfolios whose
collection  lives,  from  our perspective, have run their course.  We identified
these  portfolios  as candidates for sale and were able to sell a number of them
in the first six months of 2004 on terms we considered acceptable. We may engage
in  further  sales  if  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.  During the nine months ended September 30, 2004, the
prompt resale of portions of portfolios we purchased provided approximately $2.4
million  of  our  $4.1  million  of  total  revenues  from  portfolio  sales.

Our net income of approximately $1.0 million for the nine months ended September
30,  2004,  is essentially due to the approximately $1.0 million of net revenues
we  derived  from  portfolio  sales.  Without  this  large  volume of sales that


                                       18
<PAGE>
produced net revenues, we would have essentially broken even for the nine months
ended  September  30,  2004.  Although  we  still  have  some  older  portfolios
identified  for  sale, we do not expect future net revenues from portfolio sales
to  be  of  the  same  magnitude that we experienced in the first nine months of
2004.

Operating Expenses
------------------

Our  total  operating  costs  and  expenses  remained  relatively  stable  at
approximately  $5.0  million  for each of the nine-month periods ended September
30,  2004, and 2003. 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 70.2% for the nine months ended September
30, 2004, from 67.4% for the nine months ended September 30, 2003.  The increase
in  this  ratio  results  principally  from  the decrease in total revenues from
collections  to  approximately  $7.2 million for the nine months ended September
30,  2004,  from  approximately $7.4 million for the nine months ended September
30,  2003.  As  discussed  above  in the quarter-to-quarter analysis, we plan to
reduce  this  ratio  by  increasing  total  revenues  from  collections  without
incurring  a  proportionate  increase  in  operating  costs  and  expenses.

Our  general and administrative expenses increased to approximately $1.9 million
for  the  nine  months ended September 30, 2004, from approximately $1.6 million
for  the nine months ended September 30, 2003, due principally to legal expenses
associated  with entering into the Varde credit facility, increased use of third
parties  and  outside counsel to collect accounts and increased expenses for our
independent auditors and insurance. Our salaries and benefits expenses decreased
to approximately $3.0 million for the nine months ended September 30, 2004, from
approximately  $3.2  million  for  the nine months ended September 30, 2003, due
principally  to reduced headcount.  Our operating expenses may increase somewhat
if  we  succeed  in  increasing the volume of accounts we collect, but we expect
increases  in total revenues to outpace any material increases in variable costs
associated  with  our  collection  efforts.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents increased approximately $561,000 in the first nine
months of 2004 to a balance of approximately $1.6 million at September 30, 2004.
During  the  nine months ended September 30, 2004, our portfolio collections and
sales  generated  approximately  $8.9  million  of  cash  (net  of proceeds from
portions  of  portfolios we promptly resold), we borrowed approximately $764,000
to  finance  portfolio  purchases,  and  we  used approximately $4.8 million for
operating  and  other  activities,  approximately  $3.8  million to purchase new
portfolios  (net of portions of portfolios we promptly resold) and approximately
$489,000  for  distributions  to  unit  holders.

During  the  nine  months ended September 30, 2004, we continued making progress
toward,  but  did  not  achieve  results  consistent with, our business plan: to
recover  the  cost  we  pay for our portfolios, repay funds borrowed to purchase
portfolios,  pay  our  collecting  and  operating costs and still have a profit.
Excluding the results from the large volume of portfolio sales in the first nine
months  of  2004, our cost basis recovery of approximately $2.1 million plus our
operating  and  other expenses of approximately $5.1 million essentially equaled
our  total  revenues from collections of approximately $7.2 million.  We believe
this result reflects the steady progress we have made to focus on collecting the
right  portfolios  in  an  efficient manner.  We believe our future results will
continue  to  reflect  this progress, although the "front-loading" of cost basis
recovery from recent portfolio acquisitions could once again cause our statement
of  operations  to  show  a  net  loss.

During  the  fourth  quarter  of  2003,  we  used  some  of the cash reserves we
accumulated  during  the  first  three quarters of 2003 to acquire approximately
$1.1  million of new portfolios. We believe that market conditions for acquiring
new  portfolios improved during the fourth quarter of 2003 but then deteriorated
during  the  first  half  of 2004.  As a result, our portfolio purchases (net of
portions  of portfolios we promptly resold) during the first half of 2004 slowed
to  approximately  $1.6  million.  During  the  third  quarter,  we  acquired
approximately  $2.2  million  of new portfolios on what we considered reasonable
terms,  despite  continued  unfavorable  market  conditions.

The higher prices for portfolios associated with deteriorating market conditions
make  it difficult for us to replenish or increase our portfolios, which in turn
undermines  our ability to implement our strategy to leverage our infrastructure
by  increasing  total  revenues  from  collections.  We  have responded to these
pricing  pressures  by  augmenting our purchases from originating creditors with
purchases  on  the  secondary  market.  Whether  we  can  continue  to  acquire
portfolios  at  a  pace  that will permit us to increase collections to maximize
return  on our existing collection infrastructure will continue


                                       19
<PAGE>
to  depend  on  our  assessment  of  market conditions, as well as the amount of
liquid  cash  and  other  financial  resources  available  to  us.

We  believe  we  continue  to  improve  the  balance  between  our  new  and old
portfolios.  In  addition,  we  believe  that  our procedures to ensure that our
collectors  continue  to focus collection efforts on older portfolios that still
have  returns  to yield, rather than focusing just on the most recently acquired
portfolios,  continue  to  show  results.  By  monitoring  the  results of calls
originated  through  our dialer, we have identified portfolios that require more
cost  to collect than others. Particularly where we have worked to collect these
portfolios  over an extended period of time, we have identified these portfolios
as candidates for sale if we are able to sell them at reasonable prices. We sold
a  number  of  these portfolios in the first six months of 2004. 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.

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. Our
estimate  of the fair value of our portfolios was approximately $18.2 million at
September 30, 2004, and approximately $15.3 million at December 31, 2003. At the
same  time,  the  cost  basis  of our portfolios increased to approximately $3.0
million  at  September 30, 2004, from approximately $2.1 million at December 31,
2003. Our portfolio purchases of approximately $2.2 million in the third quarter
played  a  significant  role  in  the  overall increase in the cost basis of our
portfolios,  as  well as the accompanying increase in fair value. We believe the
estimated  fair  value  of  our  portfolios will increase in the near term as we
continue  to  acquire new portfolios and our sales of older portfolios diminish.
Our  plan  to  leverage  our  infrastructure  contemplates  continued  portfolio
purchases  leading  to an increase in portfolio cost basis, based on reinvesting
cash  proceeds generated by our collection activities, reinvesting proceeds from
sales  of  older  portfolios  and  accessing the Varde credit facility to borrow
funds  to  acquire new portfolios. Whether we are able to achieve this growth in
portfolio  cost  basis-and the timing on which such growth may occur-will depend
on  whether  market  conditions  permit  us to purchase portfolios at reasonable
prices  and  on  our  financial  resources.  While  we  intend  to  continue  to
aggressively  seek  new  portfolios  that we believe we can acquire on favorable
terms,  we  do  not  intend  to  acquire  portfolios  just  to  leverage  our
infrastructure if we believe the portfolio profiles do not justify their prices.

We  used  a discount rate of 20% to determine the estimates of fair value of our
portfolios  at  September  30,  2004, and December 31, 2003. The following table
sets forth alternative estimates of fair value if we assessed collection risk as
higher  (using  a discount rate of 25%) or lower (using a discount rate of 15%).

<TABLE>
<CAPTION>
                                             September 30, 2004   December 31, 2003
                                             -------------------  ------------------
<S>                                          <C>                  <C>
Higher collection risk (25% discount rate)   $      16.9 million  $     14.3 million
Assumed collection risk (20% discount rate)  $      18.2 million  $     15.3 million
Lower collection risk (15% discount rate)    $      19.6 million  $     16.6 million
</TABLE>

Our  estimates  of fair value 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.

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 2003, we made three distributions
totaling  approximately  $472,000.  We made distributions totaling approximately
$489,000  in  January,  April  and July of 2004.  We also made a distribution of
approximately  $162,000  in  October 2004 relating to the third quarter of 2004.

In  the near term, we plan to reinvest some of our cash collections representing
cost  basis  recovery  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.

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


                                       20
<PAGE>
     -    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, large sales of older portfolios and the timing of
distributions  to  our  members, we may not achieve increases in fair value each
quarter.

We  have  a  credit  facility  with  Varde  that we intend to use to enhance our
ability  to  purchase portfolios. 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 us if Varde does not
approve  of the portfolio(s) we propose to acquire, the terms of the acquisition
and  the  terms  for the specific advance under the loan facility. We must agree
with  Varde  on  the  terms  for  each specific advance under the loan facility,
including  such  material  terms  as:

     -    the  relative  sizes of our participation and Varde's in supplying the
          purchase  price;
     -    the  amount  of  servicing  fees  we  will  receive for collecting the
          portfolio;
     -    the  rates  of  return  on  the  funds  advanced  by Varde and us; and
     -    the  split of any excess profits after repayment of the purchase price
          (plus  interest)  to  Varde and us and payment of collection expenses.

It is unlikely that we will ever have outstanding indebtedness of the full $25
million at any one time, due to the cumulative nature of the facility.
Portfolios purchased using the facility will be owned by our subsidiary,
Matterhorn, in which Varde has a first priority security interest securing
repayment of its loans.

When  we  identify a portfolio we would like to acquire using the loan facility,
Matterhorn  will  make  a  proposal  to  Varde,  specifying, among other things:

     -    Total  cost of the portfolio(s), including closing costs and amortized
          expenses;
     -    Proportions  of  the  total  cost to be funded by Varde (not to exceed
          75%)  and  us;
     -    Percentage  of  collections  to  be  paid  to  Performance  Capital
          Management,  LLC  as  a  servicing  fee;
     -    Rates  of  return  on  the  funds  advanced  by  Varde  and  us;  and
     -    Proportions of excess profits to Varde and Matterhorn after payment of
          the  preceding  four  items.

When we make a proposal to Varde, Varde has the opportunity to conduct its own
due diligence concerning the portfolio(s). Varde may accept our proposal, with
or without modifications, in a commitment that will specify the number of days
the commitment remains open. Varde has no obligation to accept a proposal and
may reject a proposal for any reason or for no reason.

Our  agreement with Varde is the most important initiative we have undertaken to
leverage  our infrastructure resources.  We believe that, by accessing the Varde
facility  to  acquire  more  portfolios than we could acquire using only our own
financial resources, our current collection infrastructure will handle a greater
volume  of  accounts.  We also believe that the Varde facility will leverage our
portfolio  acquisition  strategy by permitting us to acquire larger denomination
portfolios.  We  believe  that some of these larger denomination portfolios have
pricing  and  quality  characteristics that are difficult to find in the smaller
denomination  portfolios  that  have  comprised  most of our purchases thus far.
Even with the additional financial resources available through the facility, the
deteriorating  market  conditions  that  have  led to increased portfolio prices
could  frustrate  our strategy to achieve increases in portfolio cost basis.  As
discussed  above,  we  do  not intend to acquire portfolios just to leverage our
infrastructure if we believe the portfolio profiles do not justify their prices.
Please  see  our  Form  8-K filed with the Securities and Exchange Commission on
July  29,  2004,  for  more  information  about  the  Varde  agreement.

At  September  30,  2004,  our  indebtedness  to  Varde  under  the facility was
approximately  $764,000.  This obligation has a two-year term expiring in August
2006  and  bears  interest at a rate of 12% per annum. The timing of payments of
principal and interest depend on the collection performance of the portfolios we
purchased  using  facility funds. The assets of Matterhorn that provide security
for  Varde's  loan  were  carried  at  a  cost  of approximately $1.0 million at
September  30, 2004, although the fair value of those assets likely exceeds that
amount  because  new  portfolios  generally


                                       21
<PAGE>
have  a  fair  value  in  excess of their cost basis. At September 30, 2004, the
remaining  availability  under  the  credit  facility  was  approximately  $24.2
million.

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. To
maximize  the  return  on  our infrastructure, we intend to use the Varde credit
facility  to  increase  the volume of accounts we service other than through new
portfolio  acquisitions  using  only  our  cash  resources.

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.


                                       22
<PAGE>
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  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  September  30,  2004,  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.
As  noted  below,  however,  we  have  identified  a  weakness in our disclosure
controls  and  procedures  that existed during period ending September 30, 2004.

During the process of evaluating and testing the effectiveness of our disclosure
controls  and  procedures,  management  has  identified  a  potential deficiency
involving  the company's failure to timely disclose an event that was reportable
under  new Form 8-K Item 2.03. Disclosure of this event is included in this Form
10-QSB  under  Part  II,  Item  5.  Since identifying this potential deficiency,
management  has begun to monitor this potential deficiency in order to determine
whether  any  further  mitigating  controls  are  necessary.

There  has been no change in our internal controls over financial reporting that
occurred  during  the three months ended September 30, 2004, that has materially
affected,  or  is  reasonably likely to materially affect, our internal controls
over  financial  reporting.


                                       23
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 2. SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

We have not purchased any LLC Units from our members since February 4, 2002, our
inception.  We commenced a procedure authorized by our plan of reorganization to
eliminate  the  interests  of  members  we have not been able to locate. Through
delivery  to  last  known  addresses and public advertising in the newspaper, we
have attempted to notify approximately 42 people or entities listed as investors
in the PAM Funds that they will no longer be members if we do not hear from them
in  six  months.  At this time we believe these investors represent ownership of
approximately  7,154 LLC Units, approximately $307,000 of unreturned capital and
approximately  $152,000  of  uncashed  distribution  checks.  We are planning to
cancel  the  7,154  units and distribution checks in the fourth quarter of 2004.

ITEM 5. OTHER INFORMATION

We  have  a credit facility with Varde Investment Partners, L.P. ("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.  We have previously
reported  our  entry  into this facility in a Form 8-K filed with the Securities
and  Exchange  Commission on July 29, 2004.  Please see this Form 8-K filing for
more  information  about  the  Varde  agreement  generally.

On  August  30,  2004, our wholly-owned subsidiary Matterhorn Financial Services
LLC  ("Matterhorn")  borrowed  approximately  $764,000  under  the  facility  in
connection  with  our  purchase  of  certain  charged-off loan portfolios.  This
obligation  has  a two-year term expiring in August 2006 and bears interest at a
rate  of 12% per annum.  The timing of payments of principal and interest depend
on  the  collection performance of the portfolios Matterhorn purchased using the
funds.

Varde  has  a  first  priority security interest in all the assets of Matterhorn
securing  repayment  of its loans and payment of its interest in excess profits.
Performance  Capital  Management,  LLC,  our  parent  operating  company,  has
guarantied  certain  of  Matterhorn's  performance  obligations  under  the loan
documents.

Varde  may  exercise its rights under its various security interests if an event
of  default  occurs. These rights include demanding the immediate payment of all
amounts  due  to Varde, as well as liquidating the collateral. A failure to make
payments  when due, if not cured within five days, is an event of default. Other
events  of  default  include:

     -    Material  breaches  of  representations  and  warranties;
     -    Uncured  breaches  of  agreements  having  a  material adverse effect;
     -    Bankruptcy  or  insolvency  of  Performance  Capital  Management  or
          Matterhorn;
     -    Fraudulent  conveyances;
     -    Defaults  in  other  debt  or  debt-related  agreements;
     -    Failure  to  pay  judgments  when  due;
     -    Material  loss  or  damage  to,  or  unauthorized  transfer  of,  the
          collateral;
     -    Change  in  control  of  Performance  Capital  Management;
     -    Termination  of  Performance  Capital Management as the Servicer under
          the  Servicing  Agreement;  and
     -    Breach  of  Varde's  right  of  first  refusal  to  finance  portfolio
          acquisitions.

The  assets  of  Matterhorn  that  provide security for Varde's loan include the
portfolios  purchased using the advance by Varde.  The assets of Matterhorn that
provide  security  for Varde's loan were carried at a cost of approximately $1.0
million  at  September  30, 2004, although the fair value of those assets likely
exceeds that amount because new portfolios generally have a fair value in excess
of  their  cost  basis.

Following  this  borrowing, the remaining availability under the credit facility
was  approximately  $24.2  million.

We  have  reported  the foregoing information here in our Form 10-QSB in lieu of
filing  a  Form  8-K,  as  permitted  by  rules  of  the Securities and Exchange
Commission.


                                       24
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS


EXHIBIT
NUMBER   DESCRIPTION
-------  -----------------------------------------------------------------------------------------------------
<C>      <S>
    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)

    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  Master Loan Agreement by and among Performance Capital Management, LLC, Varde Investment
         Partners, L.P. and Matterhorn Financial Services, LLC, dated June 10, 2004 (3)

   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.
         Sec. 1350 *
<FN>

* 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 July 29, 2004 as an exhibit to our report on Form 8-K dated July 13, 2004 and incorporated herein
by reference.
</TABLE>


                                       25
<PAGE>
(b) REPORTS ON FORM 8-K

On  July  29, 2004, we filed a report on Form 8-K dated July 13, 2004 containing
disclosure  Item  5,  which  disclosed our execution of a definitive Master Loan
Agreement  with  Varde  Investment  Partners,  L.P.  ("Varde"),  a  well-known
participant in the debt collection industry, to augment our portfolio purchasing
capacity  using  capital  provided  by  Varde.

This  Form  10-QSB includes disclosure that should have been filed on a Form 8-K
containing  disclosure  Item  2.03  on or before September 3, 2004, disclosing a
material  borrowing  under  our  credit  facility  with  Varde.


                                       26
<PAGE>
                                   SIGNATURES

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

                                         PERFORMANCE CAPITAL MANAGEMENT, LLC


   November 17, 2004                     By: /s/ David J. Caldwell
-----------------------                     -------------------------------
     (Date)                                  Name: David J. Caldwell
                                              Its: Chief Operations Officer


                                       27
<PAGE>
<TABLE>
<CAPTION>
                                                 EXHIBIT INDEX


EXHIBIT
NUMBER   DESCRIPTION
-------  -----------------------------------------------------------------------------------------------------
<C>      <S>
    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)

    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  Master Loan Agreement by and among Performance Capital Management, LLC, Varde Investment
         Partners, L.P. and Matterhorn Financial Services, LLC, dated June 10, 2004 (3)

   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.
         Sec. 1350 *
<FN>

* 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 July 29, 2004 as an exhibit to our report on Form 8-K dated July 13, 2004 and incorporated herein
by reference.
</TABLE>


<PAGE>