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   March 31, 2006
                                         ------------------


[ ]  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 [ ]

Indicate  by check mark whether the registrant is a shell company (as defined in
Rule  12b-2  of  the  Exchange  Act).  Yes [ ]   No  [X]

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

As of May 1, 2006, the issuer had 564,125 LLC Units issued and outstanding.


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


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

                                                     INDEX TO
                                         QUARTERLY REPORT ON FORM 10-QSB
                                       FOR THE QUARTER ENDED MARCH 31, 2006


PART I -   FINANCIAL INFORMATION                                                                             PAGE
<S>        <C>                                                                                               <C>
Item 1     Consolidated Financial Statements

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

           Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005 (audited). . .    2

           Consolidated Statements of Operations for the quarters ended March 31, 2006 and 2005 (unaudited).    3

           Consolidated Statements of Members' Equity for the quarters ended March 31, 2006 and
           2005 (unaudited) and the year ended December 31, 2005 (audited) . . . . . . . . . . . . . . . . .    4

           Consolidated Statements of Cash Flows for the quarters ended March 31, 2006 and 2005 (unaudited).    5

           Condensed Notes to the Consolidated Financial Statements (unaudited). . . . . . . . . . . . . . .    6

Item 2     Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . .   16

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

PART II -  OTHER INFORMATION

Item 2     Changes in Securities and Small Business Issuer Purchases of Equity Securities. . . . . . . . . .   24

Item 6     Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   24

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   26
</TABLE>


<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  as  of  March  31, 2006, and the related consolidated
statements  of operations, members' equity and cash flows for the quarters ended
March  31,  2006  and  2005.  All  information  included  in  these consolidated
financial  statements  is  the  representation  of the management of Performance
Capital  Management,  LLC.

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

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

We  have  previously  audited,  in  accordance  with the standards of the Public
Company  Accounting  Oversight  Board  (United States), the consolidated balance
sheet  of  Performance  Capital Management, LLC as of December 31, 2005, and the
related  consolidated  statements  of operations, members' equity and cash flows
for  the  year ended December 31, 2005 (not presented herein); and in our report
dated  March 20, 2006, we expressed an unqualified opinion on those consolidated
financial  statements.  In  our  opinion,  the  information  set  forth  in  the
accompanying  consolidated  balance  sheet  as  of  December 31, 2005, is fairly
stated, in all material respects, in relation to the balance sheet from which it
has  been  derived.


/s/ Moore Stephens Wurth Frazer And Torbet, LLP


May 5, 2006
Orange, California


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

                           CONSOLIDATED BALANCE SHEETS
                   AS OF MARCH 31, 2006 AND DECEMBER 31, 2005


                                              March 31,     December 31,
                                                 2006           2005
                                             (unaudited)     (audited)
                                             ------------  --------------
<S>                                          <C>           <C>
                               ASSETS
                               ------

Cash and cash equivalents                    $  1,444,743  $    1,810,677
Restricted cash                                   678,844         380,352
Other receivables                                  51,867          25,678
Advance on loan portfolio purchase                145,971               -
Purchased loan portfolios, net                  5,943,269       8,446,724
Property and equipment, net                       148,186         141,169
Deposits                                           57,746          57,746
Prepaid expenses and other assets                 161,866          90,843
                                             ------------  --------------

      Total assets                           $  8,632,492  $   10,953,189
                                             ============  ==============




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

LIABILITIES:

  Accounts payable                           $    112,677  $       78,644
  Accrued liabilities                             477,196         346,554
  Accrued interest                                 48,731          30,225
  Notes payable                                 4,715,962       7,336,505
  Income taxes payable                             48,180          27,580
                                             ------------  --------------
    Total liabilities                           5,402,746       7,819,508

COMMITMENTS AND CONTINGENCIES                           -               -

MEMBERS' EQUITY                                 3,229,746       3,133,681
                                             ------------  --------------

      Total liabilities and members' equity  $  8,632,492  $   10,953,189
                                             ============  ==============
</TABLE>

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


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

                       CONSOLIDATED STATEMENTS OF OPERATIONS


                                                For the Quarter    For the Quarter
                                                     Ended              Ended
                                                   March 31,          March 31,
                                                     2006               2005
                                                  (unaudited)        (unaudited)
                                               -----------------  -----------------
<S>                                            <C>                <C>
REVENUES:
  Portfolio collections                        $      3,728,936   $      3,188,207
  Portfolio sales                                     1,532,610                  -
                                               -----------------  -----------------
      Total revenues                                  5,261,546          3,188,207
  Less portfolio basis recovery                       2,848,305          1,560,131
                                               -----------------  -----------------

NET REVENUES                                          2,413,241          1,628,076
                                               -----------------  -----------------

OPERATING COSTS AND EXPENSES:
  Salaries and benefits                               1,168,750          1,117,716
  General and administrative                            732,589            761,087
  Depreciation                                           25,041             42,833
                                               -----------------  -----------------
      Total operating costs and expenses              1,926,380          1,921,636
                                               -----------------  -----------------

INCOME (LOSS) FROM OPERATIONS                           486,861           (293,560)
                                               -----------------  -----------------

OTHER INCOME (EXPENSE):
  Interest expense and other financing costs           (204,515)           (56,457)
  Reorganization costs                                        -               (190)
  Interest income                                         2,652              3,395
  Other income                                                -              1,669
                                               -----------------  -----------------
      Total other expense, net                         (201,863)           (51,583)
                                               -----------------  -----------------

INCOME (LOSS) BEFORE INCOME TAX PROVISION               284,998           (345,143)

INCOME TAX PROVISION                                     20,600             17,600
                                               -----------------  -----------------

NET INCOME (LOSS)                              $        264,398   $       (362,743)
                                               =================  =================

NET INCOME (LOSS) PER UNIT
  BASIC AND DILUTED                            $            .47   $           (.64)
                                               =================  =================
</TABLE>

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


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

                            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, 2004          563,861  $24,633,642   $  489,244   $(21,536,538)  $3,586,348

Reinstatement of units to investor       65        3,503       (3,503)                          -


Distributions to investors                      (164,629)                                (164,629)

Net loss                                                                    (362,743)    (362,743)

                                    -------  ------------  -----------  -------------  -----------
Balance, March 31, 2005             563,926   24,472,516      485,741    (21,899,281)   3,058,976

Distributions to investors                      (493,474)                                (493,474)

Net income                                                                   568,179      568,179

                                    -------  ------------  -----------  -------------  -----------
Balance, December 31, 2005          563,926   23,979,042      485,741    (21,331,102)   3,133,681

Reinstatement of units to investor      199       11,938      (11,938)                          -

Distributions to investors                      (168,333)                                (168,333)

Net income                                                                   264,398      264,398

                                    -------  ------------  -----------  -------------  -----------
Balance, March 31, 2006             564,125  $23,822,647   $  473,803   $(21,066,704)  $3,229,746
                                    =======  ============  ===========  =============  ===========
</TABLE>

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


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

                                 CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                   For the Quarter    For the Quarter
                                                                        Ended              Ended
                                                                   March 31, 2006     March 31, 2005
                                                                     (unaudited)        (unaudited)
                                                                  -----------------  -----------------
<S>                                                               <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                               $        264,398   $       (362,743)
  Adjustments to reconcile net income (loss) to net cash
      provided by (used in) operating activities:
        Depreciation                                                        25,041             42,833
      (Increase) decrease in assets:
        Other receivables                                                  (26,189)          (303,190)
        Prepaid expenses and other assets                                  (71,023)           (81,347)
        Advance on loan portfolio purchase                                (145,971)
        Loan portfolios                                                  2,503,455           (890,096)
      Increase (decrease) in liabilities:
        Accounts payable                                                    34,033             75,306
        Accrued liabilities                                                130,642              2,515
        Accrued interest                                                    18,506             22,578
        Income taxes payable                                                20,600             13,600
                                                                  -----------------  -----------------
            Net cash provided by (used in) operating activities          2,753,492         (1,480,544)
                                                                  -----------------  -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                                      (32,058)            (2,996)
                                                                  -----------------  -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Loan proceeds from borrowing                                                 -          1,718,614
    Repayment of loans                                                  (2,620,543)          (337,321)
    Distributions to investors                                            (168,333)          (164,629)
                                                                  -----------------  -----------------
            Net cash provided by (used in) financing activities         (2,788,876)         1,216,664
                                                                  -----------------  -----------------

NET CHANGE IN CASH AND CASH EQUIVALENTS                                    (67,442)          (266,876)

CASH AND CASH EQUIVALENTS, beginning of period                           2,191,029          2,042,360
                                                                  -----------------  -----------------

CASH AND CASH EQUIVALENTS, end of period                          $      2,123,587   $      1,775,484
                                                                  =================  =================

SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:

  Income taxes paid                                               $              -   $          4,000
                                                                  =================  =================

  Interest paid                                                   $        163,178   $         33,881
                                                                  =================  =================
</TABLE>

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


                                        5
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

Performance Capital Management, LLC ("PCM LLC") and its wholly-owned subsidiary,
Matterhorn  Financial  Services, LLC ("Matterhorn") (collectively the "Company",
unless  stated  otherwise)  are  engaged  in  the  business  of acquiring assets
originated  by  federal  and  state  banks and other sources, for the purpose of
generating  income  and  cash  flow  from managing, collecting, or selling those
assets.  These  assets  consist  primarily  of  non-performing  credit card loan
portfolios  and  are  purchased  and  sold  as  portfolios  ("portfolios").
Additionally,  some  of the loan portfolios are assigned to third party agencies
for  collection.

Reorganization under bankruptcy
-------------------------------

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

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

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

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

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

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

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


See Review Report of Independent Registered Public Accounting Firm.

                                        6
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

Pre-petition operations
-----------------------

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

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

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

Reorganization plan
-------------------

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

<TABLE>
<CAPTION>
  Original     Number of      Number of        Percentage
Fund's 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  March  31,  2006:

<TABLE>
<CAPTION>
   Fund's       Number of        Percentage
    Name      PCM LLC Units  Interest in PCM LLC
------------  -------------  -------------------
<S>           <C>            <C>
PAM                  51,565                    9
PAMII                76,101                   14
PAMIII               97,759                   17
PAMIV               282,179                   50
PAMV                 56,521                   10
              -------------  -------------------
      Totals        564,125                  100
              =============  ===================
</TABLE>

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):


See Review Report of Independent Registered Public Accounting Firm.


                                        7
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

<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
                                   ===========================================================

Cumulative Distributions For The
  Period February 4, 2002
  Through December 31, 2004                                                                      (13,146)

Cumulative Net Loss For The
  Period February 4, 2002
  Through December 31, 2004                                                                       (3,298)

Distributions Forfeited                                                                              152

Members' Equity PCM, LLC                                                                        ---------
  at December 31, 2004                                                                             3,586

2005 Distributions to Investors                                                                     (165)

Net Loss For The Quarter
  Ended March 31, 2005                                                                              (362)

Members' Equity PCM, LLC                                                                        ---------
  at March 31, 2005                                                                                3,059

2005 Distributions to Investors                                                                     (493)

Net Income For The Nine Months
  Ended December 31, 2005                                                                            567

Members' Equity PCM, LLC                                                                        ---------
  at December 31, 2005                                                                             3,133

2006 Distributions to Investors                                                                     (168)

Net Income For The Quarter
  Ended March 31, 2006                                                                               264

Members' Equity PCM, LLC                                                                        ---------
  at March 31, 2006                                                                             $  3,229
                                                                                                =========
</TABLE>

See Review Report of Independent Registered Public Accounting Firm.


                                        8
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

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

On  August  2,  2004, an order of the United States Bankruptcy Court was entered
closing  the  Chapter  11 case. The order acts as a discharge and termination of
any  and all liabilities and debts of, and claims against, PCM INC, PAM, PAM II,
PAM  III,  PAM IV and PAM V that arose at any time before the confirmation order
became  effective  on  February  4,  2002.

Wholly-owned Subsidiary
-----------------------

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

NOTE 2 - BASIS OF PRESENTATION

Reporting entity
----------------

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

Fresh start accounting
----------------------

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

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

1.   The  reorganization value of the entity should be allocated to the entity's
     assets  following  FAS  141;
2.   Liabilities other than deferred taxes should be stated at present values of
     amounts  to  be  paid  using  current  interest  rates;
3.   Deferred  taxes  should  be presented in conformity with generally accepted
     accounting principles. Benefits realized from preconfirmation net operating
     loss  carryforwards should reduce reorganization value in excess of amounts
     allocable  to identifiable assets and other intangibles until exhausted and
     be  reported  as  a  direct  addition  to  paid-in  capital  thereafter;

See Review Report of Independent Registered Public Accounting Firm.


                                        9
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - BASIS OF PRESENTATION (CONTINUED)

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

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

1.   Adjustments to the historical amounts of individual assets and liabilities;
2.   The  amount  of  debt  forgiveness;
3.   The  amount  of  prior  retained  earnings  or  deficit  eliminated;  and
4.   Other  important  matters  in  determining  reorganization  value.

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

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

As  part  of  the  Reorganization  Plan,  no  debt  forgiveness  existed and all
liabilities  subject  to  compromise  were  presented on the face of the balance
sheet  as pre-petition claims with disclosures required by SOP 90-7 presented in
Note  10.  These  claims  have  been  paid  or  settled  by  December  31, 2003.

Transfer of assets to successor company
---------------------------------------

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

NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

Use of estimates
----------------

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

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.

See Review Report of Independent Registered Public Accounting Firm.


                                       10
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

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

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

Cash and cash equivalents
-------------------------

The  Company  defines  cash  equivalents  as cash, money market investments, and
overnight  deposits  with  original  maturities  of less than three months. Cash
equivalents are valued at cost, which approximates market. The Company maintains
cash  balances,  which  exceeded  federally insured limits by approximately $1.9
million as of March 31, 2006. The Company has not experienced any losses in such
accounts. Management believes it is not exposed to any significant risks on cash
in  bank  accounts.

Restricted  cash  consists  principally  of  cash  held  in a segregated account
pursuant  to  the  Company's  credit  facility with Varde. The Company and Varde
settle  the  status  of  these  funds  on a monthly basis pursuant to the credit
facility.  The  proportion  of  the  restricted  cash  ultimately  disbursed  by
Matterhorn to Varde and PCM LLC depends upon a variety of factors, including the
portfolios  from  which the cash is collected, the size of servicing fees on the
portfolios  that  generated  the  cash,  and the priority of payments due on the
portfolios  that  generated  the  cash.

Property and equipment
----------------------

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

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

Long-term  assets  of  the  Company  are  reviewed  annually as to whether their
carrying  value  has become impaired. Management considers assets to be impaired
if  the  carrying  value  exceeds  the  future projected cash flows from related
operations.  Management  also  re-evaluates  the  periods  of  amortization  to
determine  whether subsequent events and circumstances warrant revised estimates
of  useful  lives.  As  of March 31, 2006, management expects these assets to be
fully  recoverable.

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
cost  of  purchased  loan  portfolios  are  then  recognized  as  net  revenue.

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

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

See Review Report of Independent Registered Public Accounting Firm.


                                       11
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE  3  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

Income taxes
------------

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

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

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

Members'  equity  includes  voting  LLC units held by members and non-voting LLC
units  held  by  one  economic interest owner. As of March 31, 2006, PCM LLC had
540,403  voting LLC units (540,204 LLC units as of December 31, 2005) and 23,722
non-voting  LLC  units  (23,722  LLC  units  as of December 31, 2005). 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. In the first quarter of 2006,
199  units  of  previously  cancelled units were reinstated due to a beneficiary
heir  establishing  ownership.

NOTE  4  -  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS

The  estimated  fair  value and the methods and assumptions used to estimate the
fair values of the financial instruments of the Company as of March 31, 2006 and
December  31,  2005  are  as  follows.  The  carrying  amount  of  cash and cash
equivalents,  restricted cash and liabilities approximate their fair values. The
total  and  retained  fair  values  of purchased loan portfolios were determined
based  on both market pricing and discounted expected cash flows. The total fair
value  of  the  Company's  portfolios  includes  fair  value attributable to the
residual  interests  of  third  parties in collections once all funds (including
funds  invested  by  the Company) invested in a portfolio have been repaid (with
interest)  and all servicing fees have been paid. The retained fair value of the
Company's  portfolios  excludes  fair  value  attributable  to  these  residual
interests.  The  discount rate is based on an acceptable rate of return adjusted
for  the  risk  inherent  in  the loan portfolios. The discount rate utilized at
March  31, 2006 and December 31, 2005 was 20%. The estimated total fair value of
loan  portfolios  was  $24.2  million  and  $28.0 million at March 31, 2006, and
December  31,  2005, respectively, and the estimated retained fair value of loan
portfolios  was  $23.5 million and $27.5 million at March 31, 2006, and December
31,  2005,  respectively.

NOTE  5  -  PURCHASED  LOAN  PORTFOLIOS

The Company acquires portfolios of non-performing credit card loans from federal
and  state  banks  and  other sources. These loans are acquired at a substantial
discount  from  the  actual  outstanding  balance.  The  aggregate  outstanding
contractual  loan  balances  at  March  31,  2006  and December 31, 2005 totaled
approximately  $720  million  and  $749  million,  respectively.

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


See Review Report of Independent Registered Public Accounting Firm.


                                       12
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - PURCHASED LOAN PORTFOLIOS (CONTINUED)

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

<TABLE>
<CAPTION>
                                       As of            As of
                                   Mar. 31, 2006    Dec. 31, 2005
                                  ---------------  ---------------
<S>                               <C>              <C>
Unrecovered cost balance,
  beginning of period             $    8,505,065   $    3,003,642
Valuation allowance,
  beginning of period                    (58,341)         (12,000)
                                  ---------------  ---------------
Net balance, beginning of period       8,446,724        2,991,642
Net portfolio activity                (2,503,455)       5,455,082
                                  ---------------  ---------------
Net balance, end of period        $    5,943,269   $    8,446,724
                                  ===============  ===============
</TABLE>

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

<TABLE>
<CAPTION>
                                    For the Quarter    For the Quarter
                                         Ended              Ended
                                     Mar. 31, 2006      Mar. 31, 2005
                                   -----------------  -----------------
<S>                                <C>                <C>
Purchased loan portfolios, net     $        344,850   $      2,450,227
Collections on loan portfolios           (3,728,936)        (3,188,207)
Sales of loan portfolios                 (1,532,610)                 -
Revenue recognized on collections         1,881,514          1,628,076
Revenue recognized on sales                 531,727                  -
                                   -----------------  -----------------
Net portfolio activity             $     (2,503,455)  $        890,096
                                   =================  =================
</TABLE>

The  valuation allowance related to the loan portfolios had a balance of $58,341
at  March  31,  2006  and  December  31,  2005.

NOTE  6  -  OTHER  RECEIVABLES

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

NOTE  7  -  PROPERTY  AND  EQUIPMENT

Property and equipment is as follows:

<TABLE>
<CAPTION>
                                    As of           As of
                                Mar. 31, 2006   Dec. 31, 2005
                                --------------  --------------
<S>                             <C>             <C>
Office furniture and equipment  $      287,142  $      286,822
Computer equipment                     557,165         525,427
Leasehold improvements                  36,982          36,982
                                --------------  --------------
  Totals                               881,289         849,231
Less accumulated depreciation          733,103         708,062
                                --------------  --------------
  Property and equipment, net   $      148,186  $      141,169
                                ==============  ==============
</TABLE>

Depreciation  expense for the quarters ended March 31, 2006 and 2005 amounted to
$25,041  and  $42,833  respectively.


See Review Report of Independent Registered Public Accounting Firm.


                                       13
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE  8  -  NOTES  PAYABLE

The  Company has entered into an agreement for a credit facility with Varde that
provides  for  up  to  $25  million of capital (counting each dollar loaned on a
cumulative  basis)  over  a  five-year  term  ending  in  July  2009.  PCM LLC's
wholly-owned  subsidiary  Matterhorn  owed  approximately  $4.7 million and $7.3
million  at  March  31,  2006,  and  December  31, 2005, respectively, under the
facility in connection with its purchase of certain charged-off loan portfolios.
The  total amount borrowed was approximately $10.2 million at March 31, 2006 and
December  31,  2005.  Each  advance  has  minimum payment threshold points. Each
advance has a term of two years and bears interest at the rate of 12% per annum.
These  obligations  are scheduled to be paid in full on dates ranging from April
2007  to  December  2007, with the approximate following principal payments due:

<TABLE>
<CAPTION>
          Year ending
           March 31,
          -----------
<S>                        <C>
             2007          $945,000
             2008          $3,771,000
</TABLE>

Once all funds (including funds invested by the Company) invested in a portfolio
financed  by  Varde have been repaid (with interest) and all servicing fees have
been  paid,  Varde  will  begin to receive a residual interest in collections of
that  portfolio.  Depending  on the performance of the portfolio, these residual
interests  may never be paid, they may begin being paid a significant time later
than  Varde's  loan is repaid (i.e., after the funds invested by the Company are
repaid  with  interest),  or,  in  circumstances  where  the  portfolio performs
extremely well, the loan could be repaid early and Varde could conceivably begin
to  receive its residual interest on or before the date that the loan obligation
was originally scheduled to be paid in full. Varde has a first priority security
interest  in  all  the assets of Matterhorn, securing repayment of its loans and
payment  of  its  residual  interest. PCM LLC, our parent operating company, has
guarantied  certain  of  Matterhorn's  operational  obligations  under  the loan
documents.  The  amount  of  remaining  available  credit under the facility was
approximately  $14.8 million at March 31, 2006 and December 31, 2005. The assets
of  Matterhorn  that provide security for Varde's loan were carried at a cost of
approximately  $5.0  million  at  March  31,  2006.

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 March 31, 2006 are as follows:

<TABLE>
<CAPTION>
          Year ending
           March 31,
          -----------
<S>                        <C>
          2007             $214,000
          Thereafter              -
</TABLE>

Rental  expense  for  the  quarter  ended  March  31,  2006 and 2005 amounted to
approximately  $83,975  and  $81,597, respectively. The Company timely exercised
its  option to renew the lease on its existing office space, but the contractual
provisions  in  the  lease  do  not  guarantee  that  a  renewal will occur. the
Company's landlord will propose new economic terms to the Company as part of the
option  exercise  process,  which  the Company then may accept or reject. In the
meantime,  the Company continues to explore other alternatives for office space.
The  Company  is  obligated under a five year equipment lease, expiring in 2009,
for  minimum  payments  of  $4,800  per  year.


See Review Report of Independent Registered Public Accounting Firm.


                                       14
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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, 564,125 for the quarter
ended  March  31,  2006  and  563,926  for  the  quarter  ended  March 31, 2005.

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

In  two separate transactions closed on April 3 and 4, 2006, Matterhorn borrowed
approximately  $1.4 million under the Varde loan facility in connection with the
purchase of certain charged-off loan portfolios. Each of these obligations has a
two-year  term  expiring  in  April 2008 and bears interest at a rate of 12% per
annum.  The  timing  of  payments  of  principal  and  interest  depends  on the
collection  performance  of  the  portfolios  Matterhorn  purchased  using these
borrowed funds. Following these borrowings, the remaining availability under the
credit  facility  is  approximately  $13.4  million.


See Review Report of Independent Registered Public Accounting Firm.


                                       15
<PAGE>
               PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

            CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

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

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

The  following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited 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  March  31,  2006.


OVERVIEW

We  acquire  assets  originated  by  federal  and  state  banking  and  savings
institutions,  loan  agencies,  and other sources, for the purpose of generating
income  and  cash flow from collecting or selling those assets. Typically, these
assets  consist of charged-off credit card contracts. These assets are typically
purchased  and  sold  as  portfolios.  We purchase portfolios using our own cash
resources  and  funds  borrowed  from  a  third  party.

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

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

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


                                       16
<PAGE>
Our  net  revenues  from  portfolio collections may vary from quarter to quarter
because  the  number  and  magnitude of portfolios where we are still recovering
costs  may  vary, and because the return rates of portfolios whose costs we have
already  recovered  in full may vary. Similarly, our net revenues from portfolio
sales  may vary from quarter to quarter depending on the number and magnitude of
portfolios  (or  portions)  we  decide to sell and the market values of the sold
portfolios  (or  portions)  relative  to  their  cost  bases.

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

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

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

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

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


BASIS OF PRESENTATION

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


                                       17
<PAGE>
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.

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

When  we  collect  an  account  in  a portfolio, we reduce the cost basis of the
portfolio dollar-for-dollar until we have completely recovered the cost basis of
the  portfolio. We believe this method of accounting for the amortization of the
purchase  price  of  our  portfolios is conservative and minimizes the effect of
estimation  on  our  results  of  operations.  This  policy  has  the  effect of
"front-loading"  expenses,  however,  and  may  result  in a portfolio initially
showing  no  net  revenue for a period of time and then showing only net revenue
once  we  have  recovered its entire cost basis. We believe a policy grounded in
conservatism  is  preferable  to  a policy of attempting to match portfolio cost
basis to revenue on a proportionate basis over the life of the portfolio, 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, our credit facility with Varde provides
for  up  to  $25 million of capital (counting each dollar loaned on a cumulative
basis)  over  a  five-year  term  ending in July 2009. The facility provides for
Varde  to  receive  a residual interest in portfolio collections after all funds
invested  in  the  portfolio  have been repaid (with interest) and all servicing
fees have been paid. We do not record a liability for contingent future payments
of  residual  interests due to the distressed nature of the portfolio assets and
the  lack of assurance that collections sufficient to result in a liability will
actually  occur.  When  such  payments  actually  occur,  we reflect them in our
statement  of  operations  as  other  financing  costs.

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


                                       18
<PAGE>
OPERATING RESULTS

COMPARISON OF RESULTS FOR THE QUARTERS ENDED MARCH 31, 2006 AND 2005

The  following  discussion  compares our results for the quarter ended March 31,
2006, to the quarter ended March 31, 2005. We had net income of $264,000 for the
quarter  ended  March  31,  2006,  as compared to a net loss of $363,000 for the
quarter  ended  March  31,  2005.

Revenue
-------

Our net revenues increased to $2.4 million for the quarter ended March 31, 2006,
from  $1.6  million  for  the  quarter ended March 31, 2005. The following table
presents  a  comparison  of the components of our revenues for the quarter ended
March  31,  2006, to the quarter ended March 31, 2005, as well as presenting net
revenue  as a percentage of the corresponding total revenue (approximate amounts
due  to  rounding):

<TABLE>
<CAPTION>
                               Total             Collections           Sales
                        -------------------  -------------------  ----------------
                          For the Quarter      For the Quarter     For the Quarter
                          Ended March 31       Ended March 31      Ended March 31
                          2006      2005      2006       2005      2006      2005
                        -------  ----------  -------  ----------  -------  -------
                         ($ in millions)      ($ in millions)     ($ in millions)
<S>                     <C>      <C>         <C>      <C>         <C>      <C>
Total revenues          $  5.2   $     3.2   $  3.7   $     3.2   $  1.5   $   ---
Less basis recovery       (2.8)       (1.6)    (1.8)       (1.6)    (1.0)      ---
                        -------  ----------  -------  ----------  -------  -------
Net revenues            $  2.4   $     1.6   $  1.9   $     1.6   $  0.5   $   ---
                        =======  ==========  =======  ==========  =======  =======
Net revenue percentage    45.9%       51.1%    50.5%       51.1%    34.7%      N/A
</TABLE>

Portfolio  collections provided 70.9% of our total revenues in the quarter ended
March  31,  2006  and  all  of our total revenues in the quarter ended March 31,
2005.  Our total revenues from portfolio collections increased substantially due
to  collections  from  recently purchased portfolios and increased efficiency in
collection  procedures for both recently purchased and older portfolios. Our net
revenues from portfolio collections increased by $253,000, but the percentage of
net  revenues to total revenues stayed about the same. These results reflect the
fact  that  recently purchased portfolios (which provide no net revenues because
of  front-loaded  cost basis recovery) continue to provide a substantial portion
of  our  increased  total  collection  revenues.  During 2005, we acquired $11.5
million  of  new portfolios (net of returns; $11.0 million after adjusting for a
January  2006  sale  of  a $461,000 portion of a portfolio purchased in December
2005).  In the first quarter of 2006 we acquired $345,000 of new portfolios (net
of  returns), and in April 2006, we acquired another $1.6 million of portfolios.
We  have seen our total revenue from collections increase as we begin to exploit
the  large  purchases  we made in 2005 and expect to continue making in 2006. We
expect  to  continue to have strong total collection revenue as we collect these
recent  portfolio  purchases. The cost basis recovery associated with collecting
these  2005  portfolios,  combined  with  the  portfolios  that  we have already
acquired  in  2006  and  additional portfolios we plan to acquire in 2006, could
continue  to  offset  the  increase in net revenue percentage we would otherwise
expect  our  2003  and  2004  portfolios  (whose  cost  bases we have completely
recovered)  to  generate  and  actually  result  in a further decline in our net
revenue  percentage.

Both  our  total and net revenues from portfolio sales showed increases. As part
of  our  program  to  emphasize  efforts  to  continue  to collect and realize a
reasonable return on our portfolios, we identified one larger portfolio that was
not performing to our expectations. We sold this portfolio for $1.1 million with
Varde's  consent in the first quarter of 2006 on terms we considered acceptable.
We  also  sold  a $462,000 portion of a portfolio purchased in December 2005. No
similar  sales  were made in the first quarter of 2005. 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.

If  we  exclude  the  effect  of portfolio sales for the quarter ended March 31,
2006,  our  net  income  for  the quarter decreased to a net loss of $267,000 as
compared  to  a  net  loss of $363,000 for the quarter ended March 31, 2005. The
quarter ended March 31, 2005 did not have portfolio sales. As long as we succeed
at  using  the  Varde facility to increase portfolio purchases on a year-to-year
basis,  we  do  not  expect  our  collection activity to show net income, due to


                                       19
<PAGE>
front-loaded  cost  basis  recovery. If our purchasing patterns slow, we believe
that  our  collection  activity  will  begin to show net income. Our overall net
income of $264,000 in the quarter ended March 31, 2006 is essentially due to the
net  revenues  we  derived  from  portfolio  sales.

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

Our  total operating costs and expenses remained at $1.9 million for each of the
quarters  ended  March  31,  2006  and  2005.  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 51.7% for the
quarter  ended  March 31, 2006, from 60.3% for the quarter ended March 31, 2005.
This  efficiency  improvement  results  from  the  ongoing implementation of our
three-part  strategy  to  improve  collection  performance: (1) increasing total
collection  revenues by capitalizing on the increased volume of accounts we have
available to collect; (2) using our existing infrastructure to collect a greater
dollar  volume of accounts; and (3) continuing to reduce variable costs required
to  collect  each  dollar  of revenue. We believe that our agreement with Varde,
discussed  in greater detail below, has played a significant role in enabling us
to  increase  the volume of accounts we have available to collect. The increased
revenues  that result from collecting a greater volume of accounts have outpaced
increased variable and other collection costs. We plan to continue following our
strategy  of increasing total revenues (while holding infrastructure costs down)
and  reducing  variable costs required to collect each dollar of revenue, but we
believe  we  may  be  nearing  the point where it may not be possible to achieve
further material decreases in the ratio of operating costs and expenses to total
revenues from collections. We intend to continue monitoring the magnitude of the
change in the margin by which our total collection revenues exceed our operating
costs  and expenses relative to the principal and interest we pay to Varde under
the  credit  facility  to  ensure  that  the  Varde facility provides additional
liquidity  to us and does not result in loan payments that will deplete our cash
balances.  In  order  to  maintain  the  working  capital  necessary  to run our
operations,  we  anticipate  maintaining a careful balance between portfolios we
purchase using our own cash (where collection revenues are immediately available
to us in full) and portfolios we purchase using the Varde credit facility (where
we must immediately apply a substantial portion of collections to debt service).

Our general and administration expenses decreased by $28,000 to $733,000 for the
quarter  ended  March  31,  2006,  from $761,000 for the quarter ended March 31,
2005.  Our  salaries  and  benefits  expenses remained relatively stable at $1.2
million  for  the  quarter ended March 31, 2006, as compared to $1.1 million for
the  quarter ended March 31, 2005. Our headcount has remained relatively stable,
although we still experience significant employee turnover among our collectors.
Our  operating  expenses  may  continue  to  increase in 2006 as we increase the
volume  of  accounts  we  collect,  but we expect increases in total revenues to
continue  to  outpace  any  material  increases  in  costs  associated  with our
collection  efforts.  Our ability to sustain revenue increases that outpace cost
increases  depends  on  our  ability  to  continue  to  identify  and make large
dollar-volume  purchases  of  portfolios  at  prices  we believe are reasonable.

LIQUIDITY AND CAPITAL RESOURCES

Our  cash and cash equivalents decreased $67,000 in the first quarter of 2006 to
a  balance of $2.1 million at March 31, 2006. During the quarter ended March 31,
2006, our portfolio collections and sales generated $5.3 million of cash, and we
used  $2.2  million for operating and other activities, $345,000 to purchase new
portfolios  (net  of  returns),  $2.6  million  to  repay loans and $168,000 for
distributions  to  unit  holders.

The  large  cost  basis  recovery associated with the recent rapid growth in our
portfolios  has  made  it  difficult  to  generate  the profit called for in our
business  plan:  to  recover  the  cost  we  pay for our portfolios, repay funds
borrowed  to  purchase  portfolios,  pay  our collecting and operating costs and
still  have  a profit. Excluding the results from portfolio sales in the quarter
ended  March  31,  2006,  our  cost  basis  recovery  of  $1.8  million plus our
operating,  interest  and  other  expenses of $2.1 million slightly exceeded our
total revenues from collections of $3.7 million. We generated sufficient cash to
repay  the portion of borrowed funds that came due in the first quarter of 2006.
We  believe  these  results reflect 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 our recent large portfolio purchases could continue to
cause  our  statement  of  operations  to  show  a  net  loss.

During  2005  we believe we continued to improve the balance between our new and
old portfolios by purchasing the largest dollar amount of portfolios in one year
since  inception  ($11.5  million in 2005; $11.0 million after adjusting for the
January  2006  sale described above). We may not match that level of activity in
2006,  but  we  plan  to  continue


                                       20
<PAGE>
adding  new  portfolios  if we can purchase them at reasonable prices. Including
the  purchases  we  made in April, we have added $2.0 million of portfolios thus
far  in  2006.  Because of the improvement in the volume of portfolios available
for  collection,  we  expect  to  add  collection personnel to capitalize on our
infrastructure  capacity,  with  increased  total  revenues  from  collections
outpacing  increased  costs associated with added headcount. Whether we continue
to acquire portfolios at the same pace as in 2005 will continue to depend on our
assessment  of market conditions, as well as the amount of liquid cash and other
financial  resources  available  to  us.

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. We have used our dialer to ensure that our collectors continue to focus
on portfolios other than those we have most recently acquired. By monitoring the
results  of  calls  originated  through  our dialer, we identify portfolios that
require  more  cost  to collect than others. As a result of these procedures, we
identified  a larger portfolio that was not performing as well as we wanted, and
we  sold  it  during  the  first  quarter  of  2006.  We believe this process of
constantly  evaluating  portfolio  returns  against  costs  of collection should
continue  to  improve  the  balance  between our new and old portfolios. Current
plans  for  2006 do not call for the sale of a large number of older portfolios,
but  we  may  engage  in  further  sales  if  we  believe  market conditions are
acceptable.

Our  portfolios  provide our principal long-term source of liquidity. Over time,
we  expect to convert our portfolios to cash in an amount that equals or exceeds
the  cost basis of our portfolios. In addition, some portfolios whose cost bases
we  have  completely  recovered  will  continue to return collections to us. The
total  fair  value  of  our  portfolios  includes fair value attributable to the
residual  interests  of  third  parties in collections once all funds (including
funds  invested  by us) invested in a portfolio have been repaid (with interest)
and all servicing fees have been paid. The retained fair value of our portfolios
excludes  fair  value  attributable to these residual interests. Our estimate of
the total fair value of our portfolios at March 31, 2006, decreased $3.8 million
to  $24.2 million from $28.0 million at December 31, 2005. At the same time, the
cost  basis  of our portfolios decreased to $5.9 million at March 31, 2006, from
$8.4  million  at  December 31, 2005. Our estimate of the retained fair value of
our  portfolios  at March 31, 2006, decreased $4.0 million to $23.5 million from
$27.5  million  at  December  31,  2005.

Our  estimates  of  fair  value  and  our  portfolio cost basis decreased due to
several  factors:  (1)  after  acquiring $11.5 million of portfolios in 2005, we
acquired  only  $345,000 of new portfolios during the first quarter of 2006; (2)
we  had  total  collections  of  $3.7  million  during the first quarter (with a
related  cost basis recovery of $1.8 million); and (3) we sold portfolios in the
amount  of  $1.5  million  (with a related cost basis recovery of $1.0 million).
Whether  the  fair value and cost basis of our portfolios will resume the growth
established  in  2005  will  depend  on  our  ability  to  find  portfolios at a
reasonable  price in a very competitive market. If we can find reasonably priced
portfolios,  we believe our portfolio fair value and cost basis will increase in
the  near  term because we can use the Varde credit facility as well as reinvest
some cash proceeds from collections to purchase new portfolios. Long-term growth
in  portfolio fair value and cost basis will depend on whether market conditions
continue  to  permit  us  to purchase portfolios at reasonable prices and on our
financial  resources.

We used a discount rate of 20% to determine the fair values of our portfolios at
March 31, 2006 and December 31, 2005. The following table sets forth alternative
estimates  of  total  fair  value,  retained fair value, and the portion of fair
value  attributable to residual interests of third parties in collections, if we
assessed  collection  risk  as  higher  (using  a discount rate of 25%) or lower
(using  a  discount  rate  of  15%).

<TABLE>
<CAPTION>
                                                    Total              Retained        Fair Value of
                                                  Fair Value          Fair Value     Residual Interests
                                             ------------------  ------------------  ------------------
                                               Mar 31    Dec 31    Mar 31   Dec 31    Mar 31    Dec 31
                                                2006      2005      2006     2005      2006      2005
                                             --------  --------  --------  --------  --------  --------
                                               ($ in millions)    ($ in millions)      ($ in millions)
<S>                                          <C>       <C>       <C>       <C>       <C>       <C>
Higher collection risk (25% discount rate)   $   22.5  $   26.2  $   21.8  $   25.7  $    0.7  $    0.5
Assumed collection risk (20% discount rate)  $   24.2  $   28.0  $   23.5  $   27.5  $    0.7  $    0.5
Lower collection risk (15% discount rate)    $   26.2  $   30.3  $   25.3  $   29.7  $    0.9  $    0.6
</TABLE>


                                       21
<PAGE>
Our  estimates of fair values also would change if we revised our projections of
the  magnitude  and  timing  of  future  collections.  Because  of  the inherent
uncertainty associated with predicting future events, our determinations of fair
value  at any particular point in time are only estimates, and actual fair value
could  ultimately  vary  significantly  from  our  estimate.

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

In  the near term, we plan to reinvest some of our cash collections representing
cost  basis recovery to acquire additional portfolios and use the Varde facility
to  acquire  additional  portfolios  to  continue  growing the fair value of our
portfolios  on a quarter to quarter basis. Ultimately we plan to reinvest all of
the  cash  representing  cost  basis recovery, plus a portion of excess cash, to
acquire  additional  portfolios.

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

     -    Provide an annuity without impairing the value of the business; and
     -    Grow the business to increase the annuity.

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

In  the  near term we plan to use some of our cash collections representing cost
basis  recovery  to  make  distributions  to  our  members and interest holders.
Ultimately  we  plan  to generate cash in excess of our collection and operating
costs  and  our  cost  basis recovery and to use some of the excess cash to make
distributions  to  our members and interest holders. Beginning in April 2003, we
began  making  quarterly  distributions.  During  2005,  we  made  distributions
totaling $658,000. We made distributions of $165,000 in each of January 2006 and
April  2006  relating  to  quarters  ended December 31, 2005 and March 31, 2006,
respectively.

Our  agreement  with  Varde provides us with a source of capital to purchase new
portfolios.  The  agreement provides up to $25 million of capital (counting each
dollar  loaned  on a cumulative basis) over a five-year term. We will never have
outstanding  indebtedness  approaching the full $25 million at any one time, due
to  the  cumulative  nature  of the facility. At March 31, 2006, Matterhorn owed
$4.7  million  under  the  facility  in  connection  with  purchases  of certain
charged-off  loan  portfolios.  Under  the  credit  facility,  Varde has a first
priority security interest in Matterhorn's assets. The assets of Matterhorn that
provide  security  for  Varde's  loan  were carried at a cost of $5.0 million at
March  31,  2006.  The  loan advances have minimum payment threshold points with
terms  of  two  years  and  bear  interest  at  the rate of 12% per annum. These
obligations  are scheduled to be repaid in full on dates ranging from April 2007
to  December 2007. Once all funds (including those invested by us) invested in a
portfolio  financed  by Varde have been repaid (with interest) and all servicing
fees  have  been  paid,  Varde  will  begin  to  receive  a residual interest in
collections  of  that  portfolio. Depending on the performance of the portfolio,
these  residual  interests  may  never  be  paid,  they  may  begin being paid a
significant  time  later  than  Varde's  loan  is  repaid (i.e., after the funds
invested  by  us  are  repaid  with  interest),  or,  in circumstances where the
portfolio  performs  extremely  well,  the  loan could be repaid early and Varde
could  conceivably  begin to receive its residual interest on or before the date
that  the  loan  obligation  was  originally  scheduled  to  be  paid  in  full.

The  amount  of  remaining available credit under the facility at March 31, 2006
was  $14.8  million. Matterhorn has borrowed a total of $10.2 million, with $4.7
million  outstanding  at  March 31, 2006. In two separate transactions closed on
April  3  and  4, 2006, Matterhorn borrowed approximately $1.4 million under the
Varde  loan facility in connection with our purchase of certain charged-off loan
portfolios. Each of these obligations has a two-year term expiring in April 2008
and  bears  interest  at  a  rate  of  12%  per annum. The timing of payments of
principal  and  interest depends on the collection performance of the portfolios
Matterhorn purchased using these borrowed funds. Following these borrowings, the
remaining availability under the credit facility is approximately $13.4 million.


                                       22
<PAGE>
There  can  be  no  assurance  that  Varde  will advance any new money under the
facility,  because  in  each  instance Varde must approve of the portfolio(s) we
propose to acquire and the terms of the acquisition. We do not have any plans to
raise  equity  capital.  Based  on  our  cash  position  and  current  financial
resources,  and assuming our operating results continue to increase at projected
levels,  we  believe we have adequate capital resources to continue our business
as  presently  conducted  for the foreseeable future. We plan to continue to use
the  Varde  credit  facility to maximize the return on our infrastructure and to
continue to reduce variable costs required to collect each dollar of revenue. We
will  continue to consider other alternatives to increase the volume of accounts
we  service  other  than  through new portfolio acquisitions using only our cash
resources,  however,  if  the  economic  returns  to  us  seem  reasonable.

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

We  timely exercised our option to renew the lease on our existing office space,
but the contractual provisions in our lease do not guarantee that a renewal will
occur.  Our landlord will propose new economic terms to us as part of the option
exercise  process,  which  we  then  may  accept  or reject. In the meantime, we
continue  to  explore  other  alternatives  for  office  space.


ITEM 3.  CONTROLS AND PROCEDURES

In  accordance  with  the  Exchange Act, we carried out an evaluation, under the
supervision  and  with  the  participation  of  management,  including our Chief
Operations  Officer  and  our  Accounting  Manager,  of the effectiveness of our
disclosure  controls  and procedures as of the end of the period covered by this
report.  In  designing  and  evaluating  disclosure  controls  and  procedures,
management  recognized  that  any  controls  and  procedures, no matter how well
designed  and  operated,  can provide only reasonable assurance of achieving the
desired control objectives. Further, the design of a control system must reflect
the  fact  that  there  are  resource  constraints.  Because  of  the  inherent
limitations  in  all  control  systems,  no  evaluation  of controls can provide
absolute  assurance  that all control issues and instances of fraud, if any, may
be  detected.  Based  on  this  evaluation, our Chief Operations Officer and our
Accounting  Manager  concluded  that our disclosure controls and procedures were
effective as of March 31, 2006, 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 previously identified a weakness in our disclosure controls
and  procedures  that  existed  during  the  period  ended  September  30, 2004.

During the process of evaluating and testing the effectiveness of our disclosure
controls  and  procedures  for  the  period ended September 30, 2004, management
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  was included in our Form 10-QSB for the quarter ended September
30,  2004,  under  Part II, Item 5. Since identifying this potential deficiency,
management  monitored this potential deficiency to determine whether any further
mitigating  controls are necessary. On December 30, 2005, we had a closing under
the  Varde  credit  facility,  which  we disclosed in a Form 8-K under Item 2.03
dated December 30, 2005 and filed on February 1, 2006. The Form 8-K was filed 28
days  late.  We  closed this transaction on a tight time line to accommodate the
seller's  desire  to  consummate the transaction in 2005, and we then rebalanced
this  purchase  in  January  2006,  with  Varde's  consent,  by  transferring
approximately $750,000 of the portfolio to Performance Capital Management and by
selling  approximately  $461,000  of  the portfolio to a third party. During the
several  weeks  over  which  we  rebalanced  this  purchase,  we  overlooked our
obligation  to  file  the  required Form 8-K. We intend to formalize a checklist
process  to  be  used in connection with future Varde closings to better control
all aspects of such transactions, including monitoring the reporting of closings
on  Form  8-K  on  a  timely  basis.

Two  closings  under  the Varde credit facility occurred on April 3 and April 4,
2006,  and  we  timely  filed a current report on Form 8-K under Item 2.03 dated
April  3,  2006  and  filed  on  April  5,  2006.

There  has been no change in our internal controls over financial reporting that
occurred  during  the  first quarter of 2006 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.  CHANGES  IN  SECURITIES  AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY
SECURITIES

We  did  not  purchase  any  LLC Units from our members during the quarter ended
March  31,  2006.  However,  we  completed  a procedure at the end of the fourth
quarter 2004 authorized by our plan of reorganization to cancel the interests of
members  we  have  not  been  able to locate. In January 2005, a total of 65 LLC
Units  of  the  previously cancelled LLC Units were reinstated. In January 2006,
199  of  the  previously  cancelled  LLC  Units  were  reinstated due to an heir
establishing  ownership.


ITEM 6.  EXHIBITS

(a)  EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER   DESCRIPTION
-------  --------------------------------------------------------------------------------------------------
<S>      <C>
  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   Indemnification Agreement dated August 8, 2005 between Performance Capital Management, LLC
         and Edward Rucker

  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 *
</TABLE>

*  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


                                       24
<PAGE>
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.


                                       25
<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


   May 12, 2006                  By:  /s/ David J. Caldwell
---------------------               ---------------------------------------
      (Date)                          Name: David J. Caldwell
                                      Its: Chief Operations Officer


                                       26
<PAGE>
<TABLE>
<CAPTION>
                                                EXHIBIT INDEX

EXHIBIT
NUMBER   DESCRIPTION
-------  --------------------------------------------------------------------------------------------------
<S>      <C>
  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   Indemnification Agreement dated August 8, 2005 between Performance Capital Management, LLC
         and Edward Rucker

  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 *
</TABLE>

*  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.