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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 June 30, 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
    
    (I.R.S. Employerincorporation or organization)
    
    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 INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005
    
    
    1Condensed Consolidated Statements of Operations for the Three Months Ended and Six Months Ended June 30, 2006 and 2005
    
    
    2Condensed Consolidated Statements of Changes in Deficit for the Six Months Ended June 30, 2006
    
    
    3Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion
and Analysis or Plan of Operation
    
    
    15Item 3. Controls and Procedures
    
    
    21PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    22Item 1A. Risk Factors
    
    
    22Item 6. Exhibits
    
    
    22Signatures
    
    
    23Exchange AgreementPromissory NotePromissory NotePromissory NoteCertification of Chief Executive OfficerCertification of Chief Financial OfficerSection 1350 Certification of Chief Executive OfficerSection 1350 Certification of Chief Financial Officer
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PART
I
FINANCIAL INFORMATION
 PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSINVENTORIES  RESIDENTIAL PROPERTY
    
    $
    12,459,789
    
    
    $
    12,089,890RENTAL PROPERTY  NET
    
    
    3,727,521
    
    
    
    4,199,039OTHER ASSETSCash
    
    
    13,466
    
    
    
    51,017Other assets
    
    
    110,923
    
    
    
    101,309Restricted cash
    
    
    926,178
    
    
    
    1,179,597Equipment and furnishings  net
    
    
    47,386
    
    
    
    61,451Loan costs  net
    
    
    94,148
    
    
    
    92,0821,192,101
    
    
    
    1,485,456TOTAL ASSETS
    
    $
    17,379,411
    
    
    $
    17,774,385LIABILITIES AND DEFICITNOTES, MORTGAGES AND OTHER OBLIGATIONS PAYABLE
    
    $
    23,580,961
    
    
    $
    23,996,684OTHER LIABILITIESAccounts payable and accrued liabilities
    
    
    3,210,912
    
    
    
    1,781,883Due to owners and officers
    
    
    420,186
    
    
    
    144,586Buyer deposits
    
    
    419,994
    
    
    
    410,2244,051,092
    
    
    
    2,336,693TOTAL LIABILITIES
    
    
    27,632,053
    
    
    
    26,333,377COMMITMENTS AND CONTINGENCIESDEFICITControlling interest
    
    
    (5,769,374
    )
    
    
    (4,336,948
    )Noncontrolling interest
    
    
    (4,483,268
    )
    
    
    (4,222,044
    )(10,252,642
    )
    
    
    (8,558,992
    )TOTAL LIABILITIES AND DEFICIT
    
    $
    17,379,411
    
    
    $
    17,774,385
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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005NET SALES OF RESIDENTIAL PROPERTY
    
    $
    1,368,311
    
    
    $
    2,920,678
    
    
    $
    2,107,763
    
    
    $
    4,209,375NET SALES OF RENTAL PROPERTY
    
    
    56,265
    
    
    
    
    
    
    
    184,691
    
    
    
    RENTAL INCOME
    
    
    125,358
    
    
    
    58,758
    
    
    
    261,402
    
    
    
    111,509OTHER OPERATING INCOME
    
    
    49,061
    
    
    
    
    
    
    
    70,897
    
    
    
    43,9581,598,995
    
    
    
    2,979,436
    
    
    
    2,624,753
    
    
    
    4,364,842COST OF RESIDENTIAL PROPERTY SOLD
    
    
    1,108,582
    
    
    
    2,205,069
    
    
    
    1,815,854
    
    
    
    3,210,794COST OF RENTAL PROPERTY SOLD
    
    
    54,356
    
    
    
    
    
    
    
    154,114
    
    
    
    COST OF RENTAL OPERATIONS
    
    
    100,737
    
    
    
    61,254
    
    
    
    226,370
    
    
    
    118,0001,263,675
    
    
    
    2,266,323
    
    
    
    2,196,338
    
    
    
    3,328,794GROSS PROFIT
    
    
    335,320
    
    
    
    713,113
    
    
    
    428,415
    
    
    
    1,036,048SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    715,536
    
    
    
    480,422
    
    
    
    1,270,389
    
    
    
    933,572INCOME (LOSS) FROM OPERATIONS
    
    
    (380,216
    )
    
    
    232,691
    
    
    
    (841,974
    )
    
    
    102,476OTHER INCOME (EXPENSE)Interest expense
    
    
    (517,366
    )
    
    
    (678,362
    )
    
    
    (1,020,103
    )
    
    
    (1,368,563
    )Interest expense on subordinated preferred member obligations
    
    
    (36,000
    )
    
    
    (36,000
    )
    
    
    (72,000
    )
    
    
    (72,000
    )Interest income
    
    
    229,138
    
    
    
    282,998
    
    
    
    428,996
    
    
    
    588,458Debt forgiveness income
    
    
    
    
    
    
    121,483
    
    
    
    5,175
    
    
    
    121,483Miscellaneous
    
    
    (17,127
    )
    
    
    (23,350
    )
    
    
    1,296
    
    
    
    (13,803
    )(341,355
    )
    
    
    (333,231
    )
    
    
    (656,636
    )
    
    
    (744,425
    )NET LOSS
    
    
    (721,571
    )
    
    
    (100,540
    )
    
    
    (1,498,610
    )
    
    
    (641,949
    )LESS NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
    
    
    (212,495
    )
    
    
    (67,953
    )
    
    
    (273,149
    )
    
    
    (222,174
    )NET LOSS ATTRIBUTABLE TO CONTROLLING INTEREST
    
    $
    (509,076
    )
    
    $
    (32,587
    )
    
    $
    (1,225,461
    )
    
    $
    (419,775
    )
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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONDENSED CONSOLIDATED STATEMENTS 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
    )Deconsolidation
of PHBIII deficit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25,747
    
    
    
    25,747Capital
Contributions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,030
    
    
    
    2,030Distributions
    
    
    (102,222
    )
    
    
    
    
    
    
    (102,457
    )
    
    
    
    
    
    
    (2,286
    )
    
    
    
    
    
    
    
    
    
    
    (206,965
    )
    
    
    (15,852
    )
    
    
    (222,817
    )Net income (loss)
    
    
    102,222
    
    
    
    
    
    
    
    102,457
    
    
    
    
    
    
    
    (1,432,431
    )
    
    
    
    
    
    
    2,291
    
    
    
    (1,225,461
    )
    
    
    (273,149
    )
    
    
    (1,498,610
    )Balance  June 30,
2006
    
    $
    1,000,000
    
    
    
    200.0
    
    
    $
    1,818,685
    
    
    
    1,818,685
    
    
    $
    (8,402,254
    )
    
    
    1,000.0
    
    
    $
    (185,805
    )
    
    $
    (5,769,374
    )
    
    $
    (4,483,268
    )
    
    $
    (10,252,642
    )
 
 *
    
    Does not include Class C Preferred Units issued to the VIE (Notes 2 and 5).  -3-




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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months EndedJune 30,2006
    
    
    2005OPERATING ACTIVITIESNet loss attributable to controlling interest
    
    $
    (1,225,461
    )
    
    $
    (419,775
    )Adjustments to reconcile net loss attributable to controlling interest to net
cash used by operating activities:Net loss attributable to noncontrolling interest
    
    
    (273,149
    )
    
    
    (222,174
    )Depreciation
    
    
    90,364
    
    
    
    47,050Amortization
    
    
    14,309
    
    
    
    1,303Debt forgiveness income
    
    
    (5,175
    )
    
    
    (121,483
    )Loss on disposal of equipment and furnishings
    
    
    
    
    
    
    2,382Changes in operating assets and liabilities:Inventories  residential property
    
    
    (369,899
    )
    
    
    1,233,084Rental property  net
    
    
    395,219
    
    
    
    (1,206,511
    )Other assets
    
    
    16,133
    
    
    
    38,470Accounts payable and accrued liabilities
    
    
    1,224,350
    
    
    
    311,117Buyer deposits
    
    
    9,770
    
    
    
    17,667Net Cash Used by Operating Activities
    
    
    (123,539
    )
    
    
    (318,870
    )INVESTING ACTIVITYPurchases of equipment and furnishings
    
    
    
    
    
    
    (3,007
    )FINANCING ACTIVITIESBorrowings on note, mortgages, and other obligations payable
    
    
    4,192,894
    
    
    
    5,903,850Principal payments on notes, mortgages, and other obligations payable
    
    
    (4,603,442
    )
    
    
    (5,726,208
    )Loan costs
    
    
    (16,375
    )
    
    
    Restricted cash on deposit to collateralize mortgage obligations
    
    
    253,419
    
    
    
    (23,708
    )Capital contributions
    
    
    2,030
    
    
    
    239,267Distributions to members and owners
    
    
    (18,138
    )
    
    
    (238,939
    )Borrowings from owners and officers
    
    
    275,600
    
    
    
    63,208Net Cash Provided by Financing Activities
    
    
    85,988
    
    
    
    217,470NET DECREASE IN CASH
    
    
    (37,551
    )
    
    
    (104,407
    )CASHBeginning of
period
    
    
    51,017
    
    
    
    142,611End of period
    
    $
    13,466
    
    
    $
    38,204
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PERFORMANCE HOME BUYERS, LLC AND AFFILIATES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1  DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principals generally accepted in the United States of America for
interim financial information. The December 31, 2005 condensed consolidated balance sheet was
derived from the audited consolidated financial statements of Performance Home Buyers, LLC and
affiliates. The condensed consolidated financial statements 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 and six month periods ended June 30, 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
 Inventories  Residential Property
 Rental Property
 -5-




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Restricted Cash
 Equipment and Furnishings
 Income Taxes
  Recently Issued Accounting Pronouncements
 NOTE 2  VARIABLE INTEREST ENTITIES
       -6-




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Group 1 Entities
      Group 2 Entities
     Group 3 Entities
  -7-




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Group 4 Entities
      -8-




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CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 2006
 PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedINVENTORIES  RESIDENTIAL PROPERTY
    
    $
    11,002,646
    
    
    $
    1,614,310
    
    
    $
    (157,167
    )
    
    $
    12,459,789RENTAL PROPERTY  NET
    
    
    3,596,486
    
    
    
    159,673
    
    
    
    (26,638
    )
    
    
    3,727,521OTHER ASSETSCash
    
    
    272
    
    
    
    13,194
    
    
    
    
    
    
    
    13,466Other assets
    
    
    97,379
    
    
    
    20,208
    
    
    
    (6,664
    )
    
    
    110,923Restricted cash
    
    
    922,178
    
    
    
    4,000
    
    
    
    
    
    
    
    926,178Equipment and furnishings  net
    
    
    47,386
    
    
    
    
    
    
    
    
    
    
    
    47,386Loan costs  net
    
    
    61,988
    
    
    
    32,160
    
    
    
    
    
    
    
    94,1481,129,203
    
    
    
    69,562
    
    
    
    (6,664
    )
    
    
    1,192,101TOTAL ASSETS
    
    $
    15,728,35
    
    
    $
    1,843,545
    
    
    $
    (192,469
    )
    
    $
    17,379,411LIABILITIES AND DEFICITNOTES, MORTGAGES AND OTHER OBLIGATIONS
PAYABLE
    
    $
    18,025,066
    
    
    $
    5,555,895
    
    
    $
    
    
    
    $
    23,580,961OTHER LIABILITIESAccounts payable and accrued liabilities
    
    
    2,538,762
    
    
    
    678,814
    
    
    
    (6,664
    )
    
    
    3,210,912Due to owners and officers
    
    
    385,600
    
    
    
    34,586
    
    
    
    
    
    
    
    420,186Buyer deposits
    
    
    362,476
    
    
    
    57,518
    
    
    
    
    
    
    
    419,9943,286,838
    
    
    
    770,918
    
    
    
    (6,664
    )
    
    
    4,051,092TOTAL LIABILITIES
    
    
    21,311,904
    
    
    
    6,326,813
    
    
    
    (6,664
    )
    
    
    27,632,053DEFICIT
    
    
    (5,583,569
    )
    
    
    (4,483,268
    )
    
    
    (185,805
    )
    
    
    (10,252,642
    )TOTAL LIABILITIES AND DEFICIT
    
    $
    15,728,335
    
    
    $
    1,843,545
    
    
    $
    (192,469
    )
    
    $
    17,379,411
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CONDENSED 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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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Three Months Ended June 30, 2006PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedNET SALES OF RESIDENTIAL PROPERTY
    
    $
    1,301,578
    
    
    $
    66,733
    
    
    $
    
    
    
    $
    1,368,311NET SALES OF RENTAL PROPERTY
    
    
    5,516
    
    
    
    50,749
    
    
    
    
    
    
    
    56,265RENTAL INCOME
    
    
    121,558
    
    
    
    3,800
    
    
    
    
    
    
    
    125,358OTHER OPERATING INCOME
    
    
    45,170
    
    
    
    3,891
    
    
    
    
    
    
    
    49,0611,473,822
    
    
    
    125,173
    
    
    
    
    
    
    
    1,598,995COST OF RESIDENTIAL PROPERTY SOLD
    
    
    1,035,513
    
    
    
    73,069
    
    
    
    
    
    
    
    1,108,582COST OF RENTAL PROPERTY SOLD
    
    
    
    
    
    
    54,356
    
    
    
    
    
    
    
    54,356COST OF RENTAL OPERATIONS
    
    
    91,044
    
    
    
    9,693
    
    
    
    
    
    
    
    100,7371,126,557
    
    
    
    137,118
    
    
    
    
    
    
    
    1,263,675GROSS PROFIT (LOSS)
    
    
    347,265
    
    
    
    (11,945
    )
    
    
    
    
    
    
    335,320SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    585,666
    
    
    
    280,846
    
    
    
    (150,976
    )
    
    
    715,536LOSS FROM OPERATIONS
    
    
    (238,401
    )
    
    
    (292,791
    )
    
    
    150,976
    
    
    
    (380,216
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (426,230
    )
    
    
    (91,136
    )
    
    
    
    
    
    
    (517,366
    )Interest expense on subordinated preferred member obligations
    
    
    (36,000
    )
    
    
    
    
    
    
    
    
    
    
    (36,000
    )Interest income
    
    
    184,711
    
    
    
    44,427
    
    
    
    
    
    
    
    229,138Miscellaneous
    
    
    (15,232
    )
    
    
    127,005
    
    
    
    (128,900
    )
    
    
    (17,127
    )(292,751
    )
    
    
    80,296
    
    
    
    (128,900
    )
    
    
    (341,355
    )NET LOSS
    
    $
    (531,152
    )
    
    $
    (212,495
    )
    
    $
    22,076
    
    
    $
    (721,571
    )
 Three Months Ended June 30, 2005PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedNET SALES OF RESIDENTIAL PROPERTY
    
    $
    2,741,680
    
    
    $
    178,998
    
    
    $
    
    
    
    $
    2,920,678RENTAL INCOME
    
    
    18,429
    
    
    
    40,329
    
    
    
    
    
    
    
    58,7582,760,109
    
    
    
    219,327
    
    
    
    
    
    
    
    2,979,436COST OF RESIDENTIAL PROPERTY SOLD
    
    
    2,020,011
    
    
    
    200,420
    
    
    
    (15,362
    )
    
    
    2,205,069COST OF RENTAL OPERATIONS
    
    
    18,783
    
    
    
    42,471
    
    
    
    
    
    
    
    61,2542,038,794
    
    
    
    242,891
    
    
    
    (15,362
    )
    
    
    2,266,323GROSS PROFIT (LOSS)
    
    
    721,315
    
    
    
    (23,564
    )
    
    
    15,362
    
    
    
    713,113SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    415,863
    
    
    
    247,195
    
    
    
    (182,636
    )
    
    
    480,422INCOME (LOSS) FROM OPERATIONS
    
    
    305,452
    
    
    
    (270,759
    )
    
    
    197,998
    
    
    
    232,691OTHER INCOME (EXPENSE)Interest expense
    
    
    (526,583
    )
    
    
    (151,779
    )
    
    
    
    
    
    
    (678,362
    )Interest expense on subordinated preferred member obligations
    
    
    (36,000
    )
    
    
    
    
    
    
    
    
    
    
    (36,000
    )Interest income
    
    
    261,346
    
    
    
    21,652
    
    
    
    
    
    
    
    282,998Debt forgiveness income
    
    
    
    
    
    
    121,483
    
    
    
    
    
    
    
    121,483Miscellaneous
    
    
    (24,800
    )
    
    
    211,450
    
    
    
    (210,000
    )
    
    
    (23,350
    )(326,037
    )
    
    
    202,806
    
    
    
    (210,000
    )
    
    
    (333,231
    )NET LOSS
    
    $
    (20,585
    )
    
    $
    (67,953
    )
    
    $
    (12,002
    )
    
    $
    (100,540
    )
 -11-




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##### Table of Contents



CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 Six Months Ended June 30, 2006PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedNET SALES OF RESIDENTIAL PROPERTY
    
    $
    1,807,740
    
    
    $
    300,023
    
    
    $
    
    
    
    $
    2,107,763NET SALES OF RENTAL PROPERTY
    
    
    133,942
    
    
    
    50,749
    
    
    
    
    
    
    
    184,691RENTAL INCOME
    
    
    250,552
    
    
    
    10,850
    
    
    
    
    
    
    
    261,402OTHER OPERATING INCOME
    
    
    67,006
    
    
    
    3,891
    
    
    
    
    
    
    
    70,8972,259,240
    
    
    
    365,513
    
    
    
    
    
    
    
    2,624,753COST OF RESIDENTIAL PROPERTY SOLD
    
    
    1,518,716
    
    
    
    298,971
    
    
    
    (1,833
    )
    
    
    1,815,854COST OF RENTAL PROPERTY SOLD
    
    
    100,216
    
    
    
    54,356
    
    
    
    (458
    )
    
    
    154,114COST OF RENTAL OPERATIONS
    
    
    208,428
    
    
    
    17,942
    
    
    
    
    
    
    
    226,3701,827,360
    
    
    
    371,269
    
    
    
    (2,291
    )
    
    
    2,196,338GROSS PROFIT (LOSS)
    
    
    431,880
    
    
    
    (5,756
    )
    
    
    2,291
    
    
    
    428,415SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    1,078,074
    
    
    
    487,215
    
    
    
    (294,900
    )
    
    
    1,270,389LOSS FROM OPERATIONS
    
    
    (646,194
    )
    
    
    (492,971
    )
    
    
    297,191
    
    
    
    (841,974
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (849,313
    )
    
    
    (170,790
    )
    
    
    
    
    
    
    (1,020,103
    )Interest expense on subordinated preferred member obligations
    
    
    (72,000
    )
    
    
    
    
    
    
    
    
    
    
    (72,000
    )Interest income
    
    
    339,755
    
    
    
    89,241
    
    
    
    
    
    
    
    428,996Debt forgiveness income
    
    
    
    
    
    
    5,175
    
    
    
    
    
    
    
    5,175Miscellaneous
    
    
    
    
    
    
    296,196
    
    
    
    (294,900
    )
    
    
    1,296(581,558
    )
    
    
    219,822
    
    
    
    (294,900
    )
    
    
    (656,636
    )NET LOSS
    
    $
    (1,227,752
    )
    
    $
    (273,149
    )
    
    $
    2,291
    
    
    $
    (1,498,610
    )
 Six Months Ended June 30, 2005PHB, LLC
    
    
    VIE
    
    
    Eliminations
    
    
    ConsolidatedNET SALES OF RESIDENTIAL PROPERTY
    
    $
    3,972,221
    
    
    $
    237,154
    
    
    $
    
    
    
    $
    4,209,375RENTAL INCOME
    
    
    24,277
    
    
    
    87,232
    
    
    
    
    
    
    
    111,509OTHER OPERATING INCOME
    
    
    43,958
    
    
    
    
    
    
    
    
    
    
    
    43,9584,040,456
    
    
    
    324,386
    
    
    
    
    
    
    
    4,364,842COST OF RESIDENTIAL PROPERTY SOLD
    
    
    2,980,662
    
    
    
    250,998
    
    
    
    (20,866
    )
    
    
    3,210,794COST OF RENTAL OPERATIONS
    
    
    43,152
    
    
    
    74,848
    
    
    
    
    
    
    
    118,0003,023,814
    
    
    
    325,846
    
    
    
    (20,866
    )
    
    
    3,328,794GROSS PROFIT (LOSS)
    
    
    1,016,642
    
    
    
    (1,460
    )
    
    
    20,866
    
    
    
    1,036,048SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    
    
    830,346
    
    
    
    467,430
    
    
    
    (364,204
    )
    
    
    933,572INCOME (LOSS) FROM OPERATIONS
    
    
    186,296
    
    
    
    (468,890
    )
    
    
    385,070
    
    
    
    102,476OTHER INCOME (EXPENSE)Interest expense
    
    
    (1,018,979
    )
    
    
    (349,584
    )
    
    
    
    
    
    
    (1,368,563
    )Interest expense on subordinated preferred member obligations
    
    
    (72,000
    )
    
    
    
    
    
    
    
    
    
    
    (72,000
    )Interest income
    
    
    542,681
    
    
    
    45,777
    
    
    
    
    
    
    
    588,458Debt forgiveness income
    
    
    
    
    
    
    121,483
    
    
    
    
    
    
    
    121,483Miscellaneous
    
    
    (23,843
    )
    
    
    429,040
    
    
    
    (419,000
    )
    
    
    (13,803
    )(572,141
    )
    
    
    246,716
    
    
    
    (419,000
    )
    
    
    (744,425
    )NET LOSS
    
    $
    (385,845
    )
    
    $
    (222,174
    )
    
    $
    (33,930
    )
    
    $
    (641,949
    )
 -12-




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##### Table of Contents



NOTE 3  NOTES, MORTGAGES AND OTHER OBLIGATIONS PAYABLE
   NOTE 4  DUE TO OWNERS AND OFFICERS
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)Unsecured, due May 2010, including interest at 5.0%
    
    $
    50,000
    
    
    $
    50,000Unsecured, due May 2010, including interest at 18.35%
    
    
    60,000
    
    
    
    60,000Unsecured advances, due on demand, non interest bearing
    
    
    55,600
    
    
    
    Unsecured, due May 2011, including interest at 6.0%
    
    
    170,000
    
    
    
    Collateralized by second mortgages, due January 2007, including interest at 20%
    
    
    50,000
    
    
    
    Due on demand, including interest at 10.00%
    
    
    34,586
    
    
    
    34,586$
    420,186
    
    
    $
    144,586
  NOTE 5  CONTINGENCIES
  Employee Allegation
  Delinquent Notes  Threatened Litigation
  Delinquent VIE Notes
   -13-




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Ohio Division of Securities
   Delinquent Tax Obligations
  NOTE 6  GOING CONCERN
    -14-




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##### Table of Contents



NOTE 7  SUPPLEMENTAL CASH FLOW INFORMATION
 Six Months Ended June 30,2006
    
    2005Cash paid for interest
    
    $
    335,034
    
    
    $
    1,153,589Cash paid for interest on subordinated preferred member obligations
    
    
    6,000
    
    
    
    72,000Noncash transactions:Basis of rental properties transferred to residential real property
    
    
    85,962
    
    
    
    1,206,511Subordinated debt obligations converted to Class C Preferred units
    
    
    
    
    
    
    1,824,187Deconsolidation of PHBIII deficit
    
    
    25,747
    
    
    
    Accrued distributions to members and owners
    
    
    204,679
    
    
    
    
 
 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
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##### Table of Contents



Critical Accounting Policies
 Principals of
Consolidation.
 Revenue Recognition.
 Estimates.
 Inventories  Residential Property.
 Rental Property.
 Financial Operations Overview
 Three Months Ended June 30, 2006 Compared with the Three Months Ended June 30, 2005.
 Net Sales, Rental Income and Other Operating Income.
  Percentage2006
    
    
    2005
    
    
    Increase/(Decrease)
    
    
    Increase/(Decrease)Net sales of residential property
    
    $
    1,368,311
    
    
    $
    2,920,678
    
    
    $
    (1,552,367
    )
    
    
    (53.2
    )%Net sales of rental property
    
    
    56,265
    
    
    
    
    
    
    
    56,265
    
    
    
    
    %Rental income
    
    
    125,358
    
    
    
    58,758
    
    
    
    66,600
    
    
    
    113.3
    %Other operating income
    
    
    49,061
    
    
    
    
    
    
    
    49,061
    
    
    
    
    %$
    1,598,995
    
    
    $
    2,979,436
    
    
    $
    (1,380,441
    )
    
    
    (46.3
    )%
  -16-




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##### Table of Contents



Gross Profit:
  Percentage2006
    
    
    2005
    
    
    Increase/(Decrease)
    
    
    Increase/(Decrease)Gross profit on sales of residential property
    
    $
    259,729
    
    
    $
    715,609
    
    
    $
    (455,880
    )
    
    
    (63.7
    )%Gross profit on sales of rental property
    
    
    1,909
    
    
    
    
    
    
    
    1,909
    
    
    
    
    %Gross profit (loss) on rental operations
    
    
    24,621
    
    
    
    (2,496
    )
    
    
    27,117
    
    
    
    
    %Other operating income
    
    
    49,061
    
    
    
    
    
    
    
    49,061
    
    
    
    
    %$
    335,320
    
    
    $
    713,113
    
    
    $
    (377,793
    )
    
    
    (53.0
    )%
  Selling, General and Administrative Expenses.
  PercentageIncrease/
    
    
    Increase/2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)Salaries and benefits
    
    $
    224,815
    
    
    $
    242,278
    
    
    $
    (17,463
    )
    
    
    (7.2
    )%Legal and accounting
    
    
    399,812
    
    
    
    137,286
    
    
    
    262,526
    
    
    
    191.2
    %Insurance
    
    
    12,788
    
    
    
    10,241
    
    
    
    2,547
    
    
    
    24.9
    %Depreciation and amortization
    
    
    14,570
    
    
    
    26,724
    
    
    
    (12,154
    )
    
    
    (45.5
    )%Advertising
    
    
    13,041
    
    
    
    4,337
    
    
    
    8,704
    
    
    
    200.7
    %Rent
    
    
    7,222
    
    
    
    8,160
    
    
    
    (938
    )
    
    
    (11.5
    )%Telephone
    
    
    7,013
    
    
    
    9,843
    
    
    
    (2,830
    )
    
    
    (28.8
    )%Other general and administrative
    
    
    36,275
    
    
    
    41,553
    
    
    
    (5,278
    )
    
    
    (12.7
    )%$
    715,536
    
    
    $
    480,422
    
    
    $
    235,114
    
    
    
    48.9
    %
  -17-




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##### Table of Contents



Loss From Operations and Other Income (Expense).
  Six Months Ended June 30, 2006 Compared with the Six Months Ended June 30, 2005.
 Net Sales, Rental Income and Other Operating Income.
  Percentage2006
    
    
    2005
    
    
    Increase/(Decrease)
    
    
    Increase/(Decrease)Net sales of residential property
    
    $
    2,107,763
    
    
    $
    4,209,375
    
    
    $
    (2,101,612
    )
    
    
    (49.9
    )%Net sales of rental property
    
    
    184,691
    
    
    
    
    
    
    
    184,691
    
    
    
    
    %Rental income
    
    
    261,402
    
    
    
    111,509
    
    
    
    149,893
    
    
    
    134.4
    %Other operating income
    
    
    70,897
    
    
    
    43,958
    
    
    
    26,939
    
    
    
    61.3
    %$
    2,624,753
    
    
    $
    4,364,842
    
    
    $
    (1,740,089
    )
    
    
    (39.9
    )%
    Gross Profit:
 -18-




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##### Table of Contents



Percentage2006
    
    
    2005
    
    
    Increase/(Decrease)
    
    
    Increase/(Decrease)Gross profit on sales of residential property
    
    $
    291,909
    
    
    $
    998,581
    
    
    $
    (706,672
    )
    
    
    (70.8
    )%Gross profit on sales of rental property
    
    
    30,577
    
    
    
    
    
    
    
    30,577
    
    
    
    
    %Gross profit (loss) on rental operations
    
    
    35,032
    
    
    
    (6,491
    )
    
    
    41,523
    
    
    
    
    %Other operating income
    
    
    70,897
    
    
    
    43,958
    
    
    
    26,939
    
    
    
    61.3
    %$
    428,415
    
    
    $
    1,036,048
    
    
    $
    (607,633
    )
    
    
    (58.6
    )%
  Selling, General and Administrative Expenses.
  PercentageIncrease/
    
    
    Increase/2006
    
    
    2005
    
    
    (Decrease)
    
    
    (Decrease)Salaries and benefits
    
    $
    480,192
    
    
    $
    458,340
    
    
    $
    21,852
    
    
    
    4.8
    %Legal and accounting
    
    
    618,507
    
    
    
    301,582
    
    
    
    316,925
    
    
    
    105.1
    %Insurance
    
    
    18,744
    
    
    
    16,215
    
    
    
    2,529
    
    
    
    15.6
    %Depreciation and amortization
    
    
    28,292
    
    
    
    41,773
    
    
    
    (13,481
    )
    
    
    (32.3
    )%Advertising
    
    
    19,648
    
    
    
    13,675
    
    
    
    5,973
    
    
    
    43.7
    %Rent
    
    
    14,444
    
    
    
    16,319
    
    
    
    (1,875
    )
    
    
    (11.5
    )%Telephone
    
    
    10,449
    
    
    
    21,175
    
    
    
    (10,726
    )
    
    
    (50.7
    )%Other general and administrative
    
    
    80,113
    
    
    
    64,493
    
    
    
    15,620
    
    
    
    24.2
    %$
    1,270,389
    
    
    $
    933,572
    
    
    $
    336,817
    
    
    
    36.1
    %
  Loss From Operations and Other Income (Expense).
 -19-




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##### Table of Contents



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
    
    Retiring our Class A preferred units, Class B preferred units, and 18.35%
subordinated debt units, all of which are high interest rate obligations
  -20-




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##### Table of Contents



Item 3. Controls and Procedures
         -21-




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits
  -22-




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##### Table of Contents



SIGNATURES
  Performance Home Buyers, LLC(Registrant)Date: August 14, 2006
    
    By:
    
    /s/ Peter E. Julian

Peter E. JulianChief Executive Officer(Principal Executive Officer)
 -23-




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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description of Exhibit
    
    Page10.1
    
    Exchange Agreement between Performance Home Buyers, LLC and Kenneth O. Huntingdon
dated July 1, 2006.10.2
    
    $275,451.22 Promissory Note payable to Kenneth O. Huntingdon dated July 1, 200610.3
    
    $357,312.23 Promissory Note payable to Kenneth O. Huntingdon dated July 1, 200610.4
    
    $278,000.00 Promissory Note payable to Kenneth O. Huntingdon dated July 1, 200631.1
    
    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).