##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2006.
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from            to
 Commission
file number 021-55571
 Performance Home Buyers, LLC
  Ohio
    
    31-1724135(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)4130 Linden Avenue, Dayton, OH
    
    45432(Address of principal executive offices)
    
    (Zip Code)
 (937) 298-2274
 N/A
 o þ
 o þ




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##### 



PagePART I FINANCIAL INFORMATION
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets as of December 31, 2005 and March 31, 2006
    
    
    1Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2006
    
    
    2Consolidated Statement of Changes in Deficit for the Three Months Ended March 31, 2006
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2005 and 2006
    
    
    4Notes to Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis or Plan of Operation
    
    
    19Item 3. Controls and Procedures
    
    
    24PART II OTHER INFORMATION
    
    
    24Item 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 6. Exhibits
    
    
    24Signatures
    
    
    25Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
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##### Table of Contents



Part I
 Financial Information
 
 Item 1. Financial Statements
 PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSINVENTORIES  RESIDENTIAL PROPERTY
    
    $
    12,097,135
    
    
    $
    12,089,890RENTAL PROPERTY  NET
    
    
    4,146,939
    
    
    
    4,199,039OTHER ASSETSCash
    
    
    26,061
    
    
    
    51,017Other assets
    
    
    86,463
    
    
    
    101,309Restricted cash
    
    
    1,179,646
    
    
    
    1,179,597Equipment and furnishings  net
    
    
    54,411
    
    
    
    61,451Loan costs  net
    
    
    95,941
    
    
    
    92,0821,442,522
    
    
    
    1,485,456TOTAL ASSETS
    
    $
    17,686,596
    
    
    $
    17,774,385LIABILITIES AND DEFICITNOTES, MORTGAGES AND OTHER OBLIGATIONS PAYABLE
    
    $
    24,365,839
    
    
    $
    23,996,684OTHER LIABILITIESAccounts payable and accrued liabilities
    
    
    2,228,281
    
    
    
    1,781,883Due to owners and officers
    
    
    144,586
    
    
    
    144,586Buyer deposits
    
    
    421,507
    
    
    
    410,2242,794,374
    
    
    
    2,336,693TOTAL LIABILITIES
    
    
    27,160,213
    
    
    
    26,333,377COMMITMENTS AND CONTINGENCIESDEFICITControlling interest
    
    
    (5,185,199
    )
    
    
    (4,336,948
    )Noncontrolling interest
    
    
    (4,288,418
    )
    
    
    (4,222,044
    )(9,473,617
    )
    
    
    (8,558,992
    )TOTAL LIABILITIES AND DEFICIT
    
    $
    17,686,596
    
    
    $
    17,774,385
  -1-




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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended March 31,2006
    
    
    2005(Unaudited)NET SALES OF RESIDENTIAL PROPERTY
    
    $
    739,452
    
    
    $
    1,288,697NET SALES OF RENTAL PROPERTY
    
    
    128,426
    
    
    
    RENTAL INCOME
    
    
    136,044
    
    
    
    52,751OTHER OPERATING INCOME
    
    
    21,836
    
    
    
    43,9581,025,758
    
    
    
    1,385,406COST OF RESIDENTIAL PROPERTY SOLD
    
    
    707,272
    
    
    
    1,005,725COST OF RENTAL PROPERTY SOLD
    
    
    99,758
    
    
    
    COST OF RENTAL OPERATIONS
    
    
    125,633
    
    
    
    56,746932,663
    
    
    
    1,062,471GROSS PROFIT
    
    
    93,095
    
    
    
    322,935SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES
    
    
    554,853
    
    
    
    453,150LOSS FROM OPERATIONS
    
    
    (461,758
    )
    
    
    (130,215
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (502,737
    )
    
    
    (690,201
    )Interest expense on
subordinated preferred member
obligations
    
    
    (36,000
    )
    
    
    (36,000
    )Interest income
    
    
    199,858
    
    
    
    305,460Debt forgiveness income
    
    
    5,175
    
    
    
    Miscellaneous
    
    
    18,423
    
    
    
    9,547(315,281
    )
    
    
    (411,194
    )NET LOSS
    
    
    (777,039
    )
    
    
    (541,409
    )LESS NET LOSS ATTRIBUTABLE TO
NONCONTROLLING INTEREST
    
    
    (60,654
    )
    
    
    (154,221
    )NET LOSS ATTRIBUTABLE TO
CONTROLLING INTEREST
    
    $
    (716,385
    )
    
    $
    (387,188
    )
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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT
 (Unaudited)
 Performance Home Buyers, LLCClass A Preferred
    
    
    Class C Preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Variable
    
    
    TotalMembers
    
    
    Members *
    
    
    Common Members
    
    
    
    
    
    
    
    
    
    
    Interest
    
    
    AccumulatedAmount
    
    
    Units
    
    
    Amount
    
    
    Units
    
    
    Amount
    
    
    Units
    
    
    Eliminations
    
    
    Total
    
    
    Entities
    
    
    DeficitBalance  December
31, 2005
    
    $
    1,000,000
    
    
    
    200.0
    
    
    $
    1,818,685
    
    
    
    1,818,685
    
    
    $
    (6,967,537
    )
    
    
    1,000.0
    
    
    $
    (188,096
    )
    
    $
    (4,336,948
    )
    
    $
    (4,222,044
    )
    
    $
    (8,558,992
    )Capital
contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,030
    
    
    
    2,030Distributions
    
    
    (51,111
    )
    
    
    
    
    
    
    (79,723
    )
    
    
    
    
    
    
    (1,032
    )
    
    
    
    
    
    
    
    
    
    
    (131,866
    )
    
    
    (7,750
    )
    
    
    (139,616
    )Net income (loss)
    
    
    51,111
    
    
    
    
    
    
    
    79,723
    
    
    
    
    
    
    
    (827,434
    )
    
    
    
    
    
    
    (19,785
    )
    
    
    (716,385
    )
    
    
    (60,654
    )
    
    
    (777,039
    )Balance  March 31,
2006
    
    $
    1,000,000
    
    
    
    200.0
    
    
    $
    1,818,685
    
    
    
    1,818,685
    
    
    $
    (7,796,003
    )
    
    
    1,000.0
    
    
    $
    (207,881
    )
    
    $
    (5,185,199
    )
    
    $
    (4,288,418
    )
    
    $
    (9,473,617
    )
 
 *
    
    Does not include Class C Preferred units issued to the VIE (Note 6).
  -3-




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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedMarch 31,2006
    
    
    2005(Unaudited)OPERATING ACTIVITIESNet loss attributable to controlling interest
    
    $
    (716,385
    )
    
    $
    (387,188
    )Adjustments to reconcile net loss attributable to
controlling interest to net cash used by
operating activities:Net loss attributable to noncontrolling interest
    
    
    (60,654
    )
    
    
    (154,221
    )Depreciation
    
    
    45,344
    
    
    
    20,631Amortization of loan costs
    
    
    7,142
    
    
    
    7,173Amortization of premium on mortgage obligations
    
    
    (8,775
    )
    
    
    (9,234
    )Debt forgiveness income
    
    
    (5,175
    )
    
    
    Loss on disposal of equipment and furnishings
    
    
    
    
    
    
    999Changes in operating assets and liabilities:Inventories  residential property
    
    
    (93,207
    )
    
    
    (436,780
    )Rental property  net
    
    
    99,758
    
    
    
    Other assets
    
    
    14,846
    
    
    
    64,176Accounts payable and accrued liabilities
    
    
    334,181
    
    
    
    102,123Buyer deposits
    
    
    11,283
    
    
    
    48,752Net Cash Used by Operating Activities
    
    
    (371,642
    )
    
    
    (743,569
    )FINANCING ACTIVITIESBorrowings on mortgage and bank notes payable
    
    
    1,958,785
    
    
    
    3,129,520Principal payments on mortgage and bank notes
payable
    
    
    (1,476,403
    )
    
    
    (2,410,375
    )Borrowings on notes payable  individuals
    
    
    
    
    
    
    70,000Principal payments on notes payable  individuals
    
    
    (118,268
    )
    
    
    (35,354
    )Borrowings on subordinated debt obligations
    
    

    5,232Principal payments on subordinated debt
obligations
    
    
    (2,358
    )
    
    
    (83,960
    )Loan costs
    
    
    (11,001
    )
    
    
    Restricted cash on deposit to collateralize
mortgage obligations
    
    
    (49
    )
    
    
    (20,000
    )Capital contributions
    
    
    2,030
    
    
    
    189,509Distributions to members and owners
    
    
    (11,282
    )
    
    
    (185,483
    )Borrowings from owners and officers
    
    
    
    
    
    
    60,000Net Cash Provided by Financing Activities
    
    
    346,686
    
    
    
    713,857NET DECREASE IN CASH
    
    
    (24,956
    )
    
    
    (29,712
    )CASHBeginning of period
    
    
    51,017
    
    
    
    142,611End of period
    
    $
    26,061
    
    
    $
    112,899
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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (UNAUDITED)
 NOTE 1  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The accompanying unaudited consolidated financial statements have been prepared in accordance
with accounting principals generally accepted in the United States of America for interim financial
information. They do not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the three-month period
ended March 31, 2006 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2006. For further information, refer to the consolidated financial
statements and footnotes for the year ended December 31, 2005
included in our SB-2/A Registration
Statement.
 Description of Business
 Principals of Consolidation Consolidation of Variable Interest Entities Implicit Variable Interest under FASB Interpretation No. 46 (revised December
31, 2003)
  Revenue Recognition
 Estimates
 Credit Risk
 Inventories  Residential Property
 -5-




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##### Table of Contents



Rental Property
 Restricted Cash
 Equipment and Furnishings
 Loan Costs
  2006
    
    $
    22,5112007
    
    
    22,5112008
    
    
    22,5112009
    
    
    13,6972010
    
    
    5,843
 Fair Value of Financial Instruments
 Income Taxes
  Recently Issued Accounting Pronouncements
 NOTE 2  VARIABLE INTEREST ENTITIES
   -6-




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Group 1 Entities
      -7-




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##### Table of Contents



Group 2 Entities
     Group 3 Entities
         Group 4 Entities
      -8-




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##### Table of Contents



CONSOLIDATING BALANCE SHEET
MARCH 31, 2006
 PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedASSETSINVENTORIES  RESIDENTIAL PROPERTY
    
    $
    10,532,467
    
    
    $
    1,743,911
    
    
    $
    (179,243
    )
    
    $
    12,097,135RENTAL PROPERTY  NET
    
    
    3,916,832
    
    
    
    258,745
    
    
    
    (28,638
    )
    
    
    4,146,939OTHER ASSETSCash
    
    
    4,554
    
    
    
    21,507
    
    
    
    
    
    
    
    26,061Other assets
    
    
    76,729
    
    
    
    16,398
    
    
    
    (6,664
    )
    
    
    86,463Restricted cash
    
    
    1,175,646
    
    
    
    4,000
    
    
    
    
    
    
    
    1,179,646Equipment and furnishings  net
    
    
    54,411
    
    
    
    
    
    
    
    
    
    
    
    54,411Loan costs  net
    
    
    54,700
    
    
    
    41,241
    
    
    
    
    
    
    
    95,9411,366,040
    
    
    
    83,146
    
    
    
    (6,664
    )
    
    
    1,442,522TOTAL ASSETS
    
    $
    15,815,339
    
    
    $
    2,085,802
    
    
    $
    (214,545
    )
    
    $
    17,686,596LIABILITIES AND DEFICITNOTES, MORTGAGES AND OTHER OBLIGATIONS
PAYABLE
    
    $
    18,579,320
    
    
    $
    5,786,519
    
    
    $
    
    
    
    $
    24,365,839OTHER LIABILITIESAccounts payable and accrued liabilities
    
    
    1,743,694
    
    
    
    491,251
    
    
    
    (6,664
    )
    
    
    2,228,281Due to owners and officers
    
    
    110,000
    
    
    
    34,586
    
    
    
    
    
    
    
    144,586Buyer deposits
    
    
    359,643
    
    
    
    61,864
    
    
    
    
    
    
    
    421,5072,213,337
    
    
    
    587,701
    
    
    
    (6,664
    )
    
    
    2,794,374TOTAL LIABILITIES
    
    
    20,792,657
    
    
    
    6,374,220
    
    
    
    (6,664
    )
    
    
    27,160,213DEFICIT
    
    
    (4,977,318
    )
    
    
    (4,288,418
    )
    
    
    (207,881
    )
    
    
    (9,473,617
    )TOTAL LIABILITIES AND DEFICIT
    
    $
    15,815,339
    
    
    $
    2,085,802
    
    
    $
    (214,545
    )
    
    $
    17,686,596
 CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2005
 PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedASSETSINVENTORIES  RESIDENTIAL PROPERTY
    
    $
    10,420,046
    
    
    $
    1,829,302
    
    
    $
    (159,458
    )
    
    $
    12,089,890RENTAL PROPERTY  NET
    
    
    3,845,353
    
    
    
    382,324
    
    
    
    (28,638
    )
    
    
    4,199,039OTHER ASSETSCash
    
    
    15,766
    
    
    
    35,251
    
    
    
    
    
    
    
    51,017Other assets
    
    
    91,410
    
    
    
    17,799
    
    
    
    (7,900
    )
    
    
    101,309Restricted cash
    
    
    1,175,597
    
    
    
    4,000
    
    
    
    
    
    
    
    1,179,597Equipment and furnishings  net
    
    
    61,451
    
    
    
    
    
    
    
    
    
    
    
    61,451Loan costs  net
    
    
    48,501
    
    
    
    43,581
    
    
    
    
    
    
    
    92,0821,392,725
    
    
    
    100,631
    
    
    
    (7,900
    )
    
    
    1,485,456TOTAL ASSETS
    
    $
    15,658,124
    
    
    $
    2,312,257
    
    
    $
    (195,996
    )
    
    $
    17,774,385LIABILITIES AND DEFICITNOTES, MORTGAGES AND OTHER OBLIGATIONS
PAYABLE
    
    $
    18,009,116
    
    
    $
    5,987,568
    
    
    $
    
    
    
    $
    23,996,684OTHER LIABILITIESAccounts payable and accrued liabilities
    
    
    1,355,467
    
    
    
    434,316
    
    
    
    (7,900
    )
    
    
    1,781,883Due to owners and officers
    
    
    110,000
    
    
    
    34,586
    
    
    
    
    
    
    
    144,586Buyer deposits
    
    
    332,393
    
    
    
    77,831
    
    
    
    
    
    
    
    410,2241,797,860
    
    
    
    546,733
    
    
    
    (7,900
    )
    
    
    2,336,693TOTAL LIABILITIES
    
    
    19,806,976
    
    
    
    6,534,301
    
    
    
    (7,900
    )
    
    
    26,333,377DEFICIT
    
    
    (4,148,852
    )
    
    
    (4,222,044
    )
    
    
    (188,096
    )
    
    
    (8,558,992
    )TOTAL LIABILITIES AND DEFICIT
    
    $
    15,658,124
    
    
    $
    2,312,257
    
    
    $
    (195,996
    )
    
    $
    17,774,385
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##### Table of Contents



CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2006
 PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedNET SALES OF RESIDENTIAL PROPERTY
    
    $
    506,162
    
    
    $
    233,290
    
    
    $
    
    
    
    $
    739,452NET SALES OF RENTAL PROPERTY
    
    
    128,426
    
    
    
    
    
    
    
    
    
    
    
    128,426RENTAL INCOME
    
    
    128,994
    
    
    
    7,050
    
    
    
    
    
    
    
    136,044OTHER OPERATING INCOME
    
    
    21,836
    
    
    
    
    
    
    
    
    
    
    
    21,836785,418
    
    
    
    240,340
    
    
    
    
    
    
    
    1,025,758COST OF RESIDENTIAL PROPERTY SOLD
    
    
    483,203
    
    
    
    225,902
    
    
    
    (1,833
    )
    
    
    707,272COST OF RENTAL PROPERTY SOLD
    
    
    100,216
    
    
    
    
    
    
    
    (458
    )
    
    
    99,758COST OF RENTAL OPERATIONS
    
    
    117,384
    
    
    
    8,249
    
    
    
    
    
    
    
    125,633700,803
    
    
    
    234,151
    
    
    
    (2,291
    )
    
    
    932,663GROSS PROFIT
    
    
    84,615
    
    
    
    6,189
    
    
    
    2,291
    
    
    
    93,095SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    492,408
    
    
    
    206,369
    
    
    
    (143,924
    )
    
    
    554,853LOSS FROM OPERATIONS
    
    
    (407,793
    )
    
    
    (200,180
    )
    
    
    146,215
    
    
    
    (461,758
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (423,083
    )
    
    
    (79,654
    )
    
    
    
    
    
    
    (502,737
    )Interest expense on subordinated preferred member obligations
    
    
    (36,000
    )
    
    
    
    
    
    
    
    
    
    
    (36,000
    )Interest income
    
    
    155,044
    
    
    
    44,814
    
    
    
    
    
    
    
    199,858Debt forgiveness income
    
    
    
    
    
    
    5,175
    
    
    
    
    
    
    
    5,175Miscellaneous
    
    
    15,232
    
    
    
    169,191
    
    
    
    (166,000
    )
    
    
    18,423(288,807
    )
    
    
    139,526
    
    
    
    (166,000
    )
    
    
    (315,281
    )NET LOSS
    
    $
    (696,600
    )
    
    $
    (60,654
    )
    
    $
    (19,785
    )
    
    $
    (777,039
    )
 CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2005
 PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedNET SALES OF RESIDENTIAL PROPERTY
    
    $
    1,230,541
    
    
    $
    58,156
    
    
    $
    
    
    
    $
    1,288,697RENTAL INCOME
    
    
    5,848
    
    
    
    46,903
    
    
    
    
    
    
    
    52,751OTHER OPERATING INCOME
    
    
    43,958
    
    
    
    
    
    
    
    
    
    
    
    43,9581,280,347
    
    
    
    105,059
    
    
    
    
    
    
    
    1,385,406COST OF RESIDENTIAL PROPERTY SOLD
    
    
    960,651
    
    
    
    50,578
    
    
    
    (5,504
    )
    
    
    1,005,725COST OF RENTAL OPERATIONS
    
    
    24,369
    
    
    
    32,377
    
    
    
    
    
    
    
    56,746985,020
    
    
    
    82,955
    
    
    
    (5,504
    )
    
    
    1,062,471GROSS PROFIT
    
    
    295,327
    
    
    
    22,104
    
    
    
    5,504
    
    
    
    322,935SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    414,483
    
    
    
    220,235
    
    
    
    (181,568
    )
    
    
    453,150LOSS FROM OPERATIONS
    
    
    (119,156
    )
    
    
    (198,131
    )
    
    
    187,072
    
    
    
    (130,215
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (492,396
    )
    
    
    (197,805
    )
    
    
    
    
    
    
    (690,201
    )Interest expense on subordinated preferred member obligations
    
    
    (36,000
    )
    
    
    
    
    
    
    
    
    
    
    (36,000
    )Interest income
    
    
    281,335
    
    
    
    24,125
    
    
    
    
    
    
    
    305,460Miscellaneous
    
    
    957
    
    
    
    217,590
    
    
    
    (209,000
    )
    
    
    9,547(246,104
    )
    
    
    43,910
    
    
    
    (209,000
    )
    
    
    (411,194
    )NET LOSS
    
    $
    (365,260
    )
    
    $
    (154,221
    )
    
    $
    (21,928
    )
    
    $
    (541,409
    )
 -10-




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##### Table of Contents



NOTE 3  BALANCE SHEET INFORMATION
 March 31,
    
    
    December 31,2006
    
    
    2005INVENTORIES  RESIDENTIAL PROPERTYProperty under land contractsAcquisition costs
    
    $
    6,457,032
    
    
    $
    5,845,514Rehabilitation costs
    
    
    2,102,264
    
    
    
    1,903,330Capitalized interest
    
    
    28,935
    
    
    
    14,166Other costs
    
    
    492,489
    
    
    
    457,4579,080,720
    
    
    
    8,220,467Property available for saleAcquisition costs
    
    
    2,113,697
    
    
    
    2,711,426Rehabilitation costs
    
    
    749,550
    
    
    
    961,515Capitalized interest
    
    
    5,210
    
    
    
    14,979Other costs
    
    
    147,958
    
    
    
    181,5033,016,415
    
    
    
    3,869,423$
    12,097,135
    
    
    $
    12,089,890RENTAL PROPERTY  NETAcquisition costs
    
    $
    2,784,400
    
    
    $
    2,798,503Rehabilitation costs
    
    
    1,216,885
    
    
    
    1,223,048Capitalized interest
    
    
    4,593
    
    
    
    4,593Other costs
    
    
    243,285
    
    
    
    244,5404,249,163
    
    
    
    4,270,684Less accumulated depreciation
    
    
    102,224
    
    
    
    71,645$
    4,146,939
    
    
    $
    4,199,039OTHER ASSETSReceivables
    
    $
    36,835
    
    
    $
    38,847Prepaid expenses
    
    
    4,768
    
    
    
    11,768Escrow deposits
    
    
    44,860
    
    
    
    50,694$
    86,463
    
    
    $
    101,309EQUIPMENT AND FURNISHINGS  NETOffice equipment
    
    $
    108,606
    
    
    $
    108,606Furnishings
    
    
    9,627
    
    
    
    9,627Vehicles
    
    
    20,600
    
    
    
    20,600Total cost
    
    
    138,833
    
    
    
    138,833Less accumulated depreciation
    
    
    84,422
    
    
    
    77,382$
    54,411
    
    
    $
    61,451ACCOUNTS PAYABLE AND ACCRUED LIABILITIESAccounts payable
    
    $
    548,844
    
    
    $
    526,318Accrued interest
    
    
    706,716
    
    
    
    576,924Accrued real estate taxes
    
    
    611,183
    
    
    
    541,091Other accrued liabilities
    
    
    361,538
    
    
    
    137,550$
    2,228,281
    
    
    $
    1,781,883
 -11-




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##### Table of Contents



NOTE 4  NOTES, MORTGAGES AND OTHER OBLIGATIONS PAYABLE
 March 31,
    
    
    December 31,2006
    
    
    2005PHB, LLCNotes payable  banks, interest from 5.90% to 6.50%, collateralized
by a first mortgage on residential properties and guarantees of the
common and subordinated preferred members, and due through January
2024
    
    $
    5,793,846
    
    
    $
    5,097,412Notes payable  bank, interest at 6.00%, collateralized by a first
mortgage on residential properties and guarantees of the common and
subordinated preferred members, and matured January 2006
    
    
    2,212,680
    
    
    
    2,306,946Notes payable  banks, interest from 5.13% to 6.00%, collateralized
by a first mortgage on residential properties and guarantees of the
common and subordinated preferred members, and due through July 2010
    
    
    5,717,876
    
    
    
    5,825,876Notes payable  other, interest from 5.25% to 12.50% with an
effective rate of 6.25%, collateralized by a first mortgage on
residential properties, and due through January 2026
    
    
    1,710,974
    
    
    
    1,515,282Notes payable  bank, interest at 5.75%, collateralized by guarantees
of the common and subordinated preferred members, and due through
December 2009
    
    
    205,000
    
    
    
    211,000Notes payable  individuals, interest from 5.00% to 12.00% with a
weighted average rate of 10.25%, collateralized by a guarantee of a
common member, and due through April 2006
    
    
    1,187
    
    
    
    4,718Demand notes payable  individuals, interest from 10.13% to 12.85%
with a weighted average rate of 12.12%, collateralized by a guarantee
of a common member
    
    
    135,013
    
    
    
    248,012Subordinated debt obligations  preferred members, interest at
18.35%, unsecured, and due through November 2007
    
    
    500,000
    
    
    
    500,000Subordinated debt obligation  preferred member, interest at 18.35%,
plus an incentive equal to 4.00% of monthly common member
distributions, unsecured, and due through August 2007
    
    
    1,104,344
    
    
    
    1,104,344Subordinated debt obligation  subordinated preferred members,
interest at 18.35%, unsecured, and due through December 2008
    
    
    698,400
    
    
    
    695,526Subordinated debt obligations  interest due at 18.35%, unsecured,
and due through July 2007
    
    
    100,000
    
    
    
    100,000Class B subordinated preferred member obligations (Note 6)
    
    
    400,000
    
    
    
    400,00018,579,320
    
    
    
    18,009,116Variable Interest EntitiesNote payable  mortgage company, effective interest at 6.25%
(contractual interest at 6.00%), collateralized by a first mortgage
on commercial property, and due August 2034
    
    
    965,325
    
    
    
    969,691Note payable  other, interest at 8.00%, collateralized by a second
mortgage on commercial property and the guarantees of a common and a
subordinated preferred member of PHB, LLC, and matured December 2004
    
    
    150,000
    
    
    
    150,000Notes payable  bank, interest at 5.00%, collateralized by a first
mortgage on residential properties and the guarantee of a
subordinated preferred member of PHB, LLC, and due February 2006
    
    
    128,400
    
    
    
    182,800Notes payable  bank, interest at an effective rate of 6.25%
(contractual interest at 6,75%), collateralized by a first mortgage
on residential properties, certificates of deposit and the guarantee
of a subordinated preferred member of PHB, LLC, and matured February
2006
    
    
    355,024
    
    
    
    355,263Notes payable  bank interest at 5.00%, collateralized by a first
mortgage on residential properties and the guarantee of a
subordinated preferred member of PHB, LLC, and due January 2024
    
    
    36,587
    
    
    
    114,377Note payable  banks, interest from 5.25% to 12.00% with an effective
rate of 6.25% (weighted average contractual rate of 7.76%),
collateralized by a first mortgage on commercial property and the
guarantees of two common and a preferred member of PHB, LLC, and due
through June 2024
    
    
    68,506
    
    
    
    139,363Note payable  others, interest from 6.50% to 11.00% with effective
interest at 6.25% (weighted average rate contractual rate of 8.00%),
collateralized by a first mortgage on residential properties, and due
January 2026
    
    
    211,825
    
    
    
    214,426Note payable  other, interest at 2.40%, collateralized by a second
mortgage on residential properties, and due November 2010
    
    
    250,000
    
    
    
    250,000Unsecured demand notes payable  individuals, interest from 10.13% to
20.00% with a weighted average rate of 13.90%, past due
    
    
    340,337
    
    
    
    507,586Unsecured notes payable  individuals, interest from 10.00% to 20.00%
with a weighted average rate of 11.44%, past due
    
    
    42,647
    
    
    
    42,647Unsecured demand notes payable  individuals, interest from 10.99% to
20.00% with a weighted average rate of 15.12%, due through March 2009
    
    
    150,000
    
    
    
    150,000Unsecured notes payable  individuals, interest from 10.00% to 20.00%
with a weighted average rate of 16.60%, due through October 2009
    
    
    307,135
    
    
    
    308,873Unsecured notes payable  individuals, interest at 5% through May 2010
    
    
    2,780,733
    
    
    
    2,602,5425,786,519
    
    
    
    5,987,568$
    24,365,839
    
    
    $
    23,996,684
 -12-




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##### Table of Contents



2006
    
    $
    5,270,9202007
    
    
    2,798,3282008
    
    
    1,213,9792009
    
    
    1,069,8752010
    
    
    5,096,803Thereafter
    
    
    8,546,779$
    23,996,684
      -13-




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##### Table of Contents



NOTE 5  DUE TO OWNERS AND OFFICERS
 March 31, 2006 &December 31, 2005Unsecured, due May 2010, including interest at 5.0%
    
    $
    50,000Unsecured, due May 2010, including interest at 18.35%
    
    
    60,000Due on demand, including interest at 10.00%
    
    
    34,586$
    144,586
  NOTE 6  DEFICIT
 PHB, LLC
          -14-




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##### Table of Contents



Variable Interest Entities
  NOTE 7  OPERATING LEASES  LESSEE
  NOTE 8  OPERATING LEASES  LESSOR
   2006
    
    $
    286,7372007
    
    
    10,1702008
    
    
    6,0002009
    
    
    6,0002010
    
    
    6,000Thereafter
    
    
    22,000
 NOTE 9  CONTINGENCIES
  Employee Allegation
  -15-




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##### Table of Contents



Delinquent Notes  Threatened Litigation
  Delinquent VIE Notes
     Ohio Division of Securities
   -16-




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##### Table of Contents



Delinquent Tax Obligations
  NOTE 10  GOING CONCERN
      -17-




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##### Table of Contents



NOTE 11  SUPPLEMENTAL CASH FLOW INFORMATION
 Three Months Ended March 31,2006
    
    2005Cash paid for interest
    
    $
    402,945
    
    
    $
    860,320Cash paid for interest on subordinated preferred member obligations
    
    
    6,000
    
    
    
    36,000Noncash transactions:Basis of residential real property transferred to rental property
    
    
    85,962
    
    
    
    Accrued distributions to members and owners
    
    
    128,334
    
    
    
    
 -18-




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##### Table of Contents



Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
 The following Managements Discussion and Analysis of Financial Condition and Results of
Operation, contains forward-looking statements which are provided under the safe harbor
protection of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are
generally written in the future tense and/or are preceded by words such as will, may, should,
could, expect, suggest, believe, anticipate, intend, plan, or other similar words.
Forward-looking statements are not guarantees of future performance and involve risks and
uncertainties. The forward-looking statements contained in this report are based on information
that is currently available to us and expectations and assumptions that we deem reasonable at the
time the statements were made. We do not undertake any obligation to update any forward-looking
statements in this report or in any of our other communications, except as required by law. All
such forward-looking statements should be read as of the time the statements were made and with the
recognition that these forward-looking statements may not be complete or accurate at a later date.
Many factors may cause actual results to differ materially from those expressed or implied by the
forward-looking statements contained in this report. These factors include, but are not limited
to, those risks described in Amendment No. 6 to our Registration Statement on Form SB-2 filed on
May 11, 2006..
 Overview
     Critical Accounting Policies
 Principals of Consolidation.
 Revenue Recognition.
 Estimates.
 -19-




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##### Table of Contents



Credit Risk.
 Inventories  Residential Property.
 Rental Property.
 Fair Value of Financial Instruments.
 Income Taxes.
  Recently Issued Accounting Pronouncements.
 Financial Operations Overview
 Three Months Ended March 31, 2006 Compared with the Three Months Ended March 31, 2005.
 Net Sales, Rental Income and Other Operating Income.
  Percentage2006
    
    
    2005
    
    
    Increase/(Decrease)
    
    
    Increase/(Decrease)Net sales of residential property
    
    $
    739,452
    
    
    $
    1,288,697
    
    
    $
    (549,245
    )
    
    
    (42.6
    )%Net sales of rental property
    
    
    128,426
    
    
    
    
    
    
    
    128,426
    
    
    
    
    %Rental income
    
    
    136,044
    
    
    
    52,751
    
    
    
    83,293
    
    
    
    157.9
    %Other operating income
    
    
    21,836
    
    
    
    43,958
    
    
    
    (22,122
    )
    
    
    (50.3
    )%$
    1,025,758
    
    
    $
    1,385,406
    
    
    $
    (359,648
    )
    
    
    (26.0
    )%
  -20-




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##### Table of Contents



Gross Profit:
  Percentage2006
    
    
    2005
    
    
    Increase/(Decrease)
    
    
    Increase/(Decrease)Gross profit on sales of residential property
    
    $
    32,180
    
    
    $
    282,972
    
    
    $
    (250,792
    )
    
    
    (88.6
    )%Gross profit on sales of rental property
    
    
    28,668
    
    
    
    
    
    
    
    28,668
    
    
    
    
    %Gross profit (loss) on rental operations
    
    
    10,411
    
    
    
    (3,995
    )
    
    
    14,406
    
    
    
    
    %Other operating income
    
    
    21,836
    
    
    
    43,958
    
    
    
    (22,122
    )
    
    
    (50.3
    )%$
    93,095
    
    
    $
    322,935
    
    
    $
    (229,840
    )
    
    
    (71.2
    )%
  Selling, General and Administrative Expenses.
  PercentageIncrease/
    
    
    Increase/2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)Salaries and benefits
    
    $
    255,377
    
    
    $
    216,062
    
    
    $
    39,315
    
    
    
    18.2
    %Legal and accounting
    
    
    218,695
    
    
    
    164,296
    
    
    
    54,399
    
    
    
    33.1
    %Insurance
    
    
    5,956
    
    
    
    5,974
    
    
    
    (18
    )
    
    
    (0.3
    )%Depreciation and amortization
    
    
    13,722
    
    
    
    15,049
    
    
    
    (1,327
    )
    
    
    (8.8
    )%
 -21-




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##### Table of Contents



PercentageIncrease/
    
    
    Increase/2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)Advertising
    
    
    6,607
    
    
    
    9,338
    
    
    
    (2,731
    )
    
    
    (29.2
    )%Rent
    
    
    7,222
    
    
    
    8,159
    
    
    
    (937
    )
    
    
    (11.5
    )%Telephone
    
    
    3,436
    
    
    
    11,332
    
    
    
    (7,896
    )
    
    
    (69.67
    )%Other general and administrative
    
    
    43,838
    
    
    
    22,940
    
    
    
    20,898
    
    
    
    91.1
    %$
    554,853
    
    
    $
    453,150
    
    
    $
    101,703
    
    
    
    22.4
    %
  Loss From Operations and Other Income (Expense).
  Liquidity and Capital Resources
 Operations
 Property Transactions.
  Liquidity
     Growth and Challenges
 Growth and Challenges.
 
    
    Increasing the number of houses cashed out through permanent third party financing obtained by our buyers.
    
    Reestablishing bank credit line availability through the sale of our renewable notes to enable us to
acquire and rehabilitate a greater number of homes.
    
    Securing additional capital
 -22-




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##### Table of Contents




    
    Retiring our Class A preferred units, Class B preferred units and 18.35% subordinated debt units, all of
which are high interest rate obligations
  -23-




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##### Table of Contents



Item 3.
Controls and Procedures
         
 Part II
Other Information
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  -24-




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##### Table of Contents



SIGNATURES
  Performance Home Buyers, LLC(Registrant)Date: June 26, 2006
    By:
    /s/ Peter E. JulianPeter E. JulianChief Executive Officer(Principal Executive Officer)By:

/s/
Lawrence N. HoffmanLawrence N. HoffmanChief Financial Officer(Principal Financial Officerand Principal Accounting Officer) -25-




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.

    
    Description of Exhibit
    
    Page3.1
    
    
    Articles of Organization of Performance Home Buyers, LLC and amendments (incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form SB-2 filed by
Performance Home Buyers, LLC with the Securities and Exchange Commission (SEC) on
November 9, 2005 (File No. 333-129604) (the Registration Statement)).3.2
    
    
    Bylaws of Performance Home Buyers, LLC (incorporated by reference to Exhibit 3.2 to
the Registration Statement (File No. 333-129604)).4.1
    
    
    Amended and Restated Operating Agreement dated May 15, 2005 (incorporated by
reference to Exhibit 4.1 to the Registration Statement (File No. 333-129604)).4.2
    
    
    Cross Purchase/Redemption Agreement dated May 15, 2005 between Peter E. Julian, E.
Randall Porter, Mark J. Fitzgerald, Wayne Hawkins and Performance Home Buyers, LLC
(incorporated by reference to Exhibit 4.2 to the Registration Statement (File No.
333-129604)).4.3
    
    
    Form of Indenture (incorporated by reference to Exhibit 4.3 to Amendment No. 3 to the
Registration Statement on Form SB-2 filed by Performance Home Buyers, LLC with the
SEC on April 14, 2006 (File No. 333-129604) (the 3rd Amendment)).4.4
    
    
    Form of Subscription Agreement (incorporated by reference to Exhibit 4.4 to the
Registration Statement (File No. 333-129604)).10.1
    
    
    Amended and Restated Management Agreement between Performance Home Buyers, LLC and
Performance Home Buyers, Inc. dated effective October 31, 2005 (incorporated by
reference to Exhibit 10.1 to the Registration Statement (File No. 333-129604)).10.2
    
    
    Lease dated November 3, 2005 between Officetown East Co. and Performance Home Buyers,
LLC (incorporated by reference to Exhibit 10.1 to the Registration Statement (File
No. 333-129604)).10.3
    
    
    Promissory Note in the principal amount of $60,000 dated January 12, 2005 made
payable to Russell E. Spruill (incorporated by reference to Exhibit 10.3 to the
Registration Statement (File No. 333-129604)).10.4
    
    
    Acknowledgement of Right of First Opportunity by Performance Home Buyers, Inc., Peter
E. Julian, E. Randall Porter, Mark J. Fitzgerald, Wayne Hawkins and Lawrence Hoffman,
and acknowledged by Performance Home Buyers, LLC, dated effective February 6, 2006
(incorporated by reference to Exhibit 10.4 to Amendment No. 2 the Registration
Statement on Form SB-2 filed by Performance Home Buyers, LLC with the SEC on February
8, 2006 (File No. 333-129604) (the 2nd Amendment)).10.5
    
    
    Form of Loan Agreement between certain variable interest entities (VIEs) and
investors in such VIEs regarding the restructuring of the debt owed by the VIEs to
such investors (incorporated by reference to Exhibit 10.5 to the 2nd
Amendment (File No. 333-129604)).10.6
    
    
    Contract for Joint Venture between Performance Home Buyers, LLC and Nations First
Mortgage Banc, Inc. dated December 12, 2005 (incorporated by reference to Exhibit
10.6 to the 2nd Amendment (File No. 333-129604)).10.7
    
    
    Form of Escrow Agreement between the Escrow Agent, Performance Home Buyers, LLC and
Sumner Harrington Ltd. (incorporated by reference to Exhibit 10.7 to the
2nd Amendment (File No. 333-129604)).
 -26-




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##### Table of Contents



Exhibit No.

    
    Description of Exhibit
    
    Page10.8
    
    
    Form of Agency Agreement between Herring Bank, Performance Home Buyers, LLC and a
title insurance company (incorporated by reference to Exhibit 10.8 to the
2nd Amendment (File No. 333-129604)).10.9
    
    
    Agreement for Services between Performance Home Buyers, LLC and Performance Home
Buyers, Inc. dated effective March 1, 2006 (incorporated by reference to Exhibit 10.9
to the 3rd Amendment (File No. 333-129604)).31.1
    
    
    Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under
the Securities Exchange Act of 1934 (filed herewith electronically).31.2
    
    
    Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under
the Securities Exchange Act of 1934 (filed herewith electronically).32.1
    
    
    Section 1350 Certification of Chief Executive Officer (filed herewith electronically).32.2
    
    
    Section 1350 Certification of Chief Financial Officer (filed herewith electronically).
 -27-