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

FORM 10-QSB

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

For the quarterly period ended September 30, 2003
----------------------

[ ] 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 [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of September 30, 2003, the issuer
had 570,916 LLC Units issued and outstanding.

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

PERFORMANCE CAPITAL MANAGEMENT, LLC

INDEX TO
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2003

PART I - FINANCIAL INFORMATION PAGE

Item 1 Financial Statements

Independent Accountants' Review Report. . . . . . . . . . . . . . . .1

Balance Sheets as of September 30, 2003 (unaudited)
and December 31, 2002 (audited) . . . . . . . . . . . . . . . . . . .2

Statements of Operations for the three months ended
September 30, 2003 and 2002, the nine months ended
September 30, 2003, and the period from February 4,
2002 (Inception) to September 30, 2002 (unaudited). . . . . . . . . .3

Statements of Members' Equity for the nine months ended
September 30, 2003 (unaudited) and the year ended December
31, 2002 (audited). . . . . . . . . . . . . . . . . . . . . . . . . .4

Statements of Cash Flows for the nine months ended September
30, 2003, and the period from February 4, 2002 (Inception)
to September 30, 2002 (unaudited) . . . . . . . . . . . . . . . . . .5

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

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

Item 3 Controls and Procedures . . . . . . . . . . . . . . . . . . . . . 20

PART II - OTHER INFORMATION

Item 5 Other Information. . . . . . . . . . . . . . . . . . . . . . . . . 21

Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 21

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

[MOORE STEPHENS WURTH FRAZER AND TORBET, LLP LETTERHEAD]

Independent Accountants' Review Report

To the Board of Directors
Performance Capital Management, LLC
Anaheim, California

We have reviewed the accompanying balance sheet of Performance Capital
Management, LLC, as of September 30, 2003, and the related statements of
operations for the three and nine months ended September 30, 2003, the three
months ended September 30, 2002 and the period from inception (February 4, 2002)
through September 30, 2002 and the related statements of members' equity and
cash flows for the nine months ended September 30, 2003 and the period from
inception (February 4, 2002) through September 30, 2002, in accordance with
Statements on Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants. All information included in
these financial statements is the representation of the management of
Performance Capital Management, LLC.

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 in
accordance with generally accepted auditing standards, 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 financial statements referred to above for them to
be in conformity with accounting principles generally accepted in the United
States of America.

We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the balance sheet of Performance
Capital Management, LLC as of December 31, 2002, and the related statements of
operations, members' equity and cash flows for the period from inception
(February 4, 2002) through December 31, 2002 (not presented herein); and in our
report dated March 20, 2003, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 2002, is fairly stated, in all
material respects, in relation to the balance sheet from which it has been
derived.

/s/ Moore Stephens Wurth Frazer And Torbet, LLP

November 5, 2003
City of Industry, California

PERFORMANCE CAPITAL MANAGEMENT, LLC

BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(See Independent Accountants' Review Report)
--------------------------------------------

September 30, December 31,
2003 2002
(unaudited) (audited)
--------------- -------------

ASSETS
------

Cash and cash equivalents $ 1,728,372 $ 850,139
Restricted cash 21,408 21,395
Other receivables 9,460 47,615
Purchased loan portfolios, net 1,860,823 4,044,194
Property and equipment, net 430,254 578,963
Deposits 56,588 56,588
Prepaid expenses and other assets 102,056 69,187
--------------- -------------

Total assets $ 4,208,961 $ 5,668,081
=============== =============

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

LIABILITIES:
Accounts payable $ 39,593 $ 130,421
Pre-petition claims 20,000 139,737
Accrued liabilities 317,933 502,279
Income taxes payable 8,843 16,590
--------------- -------------
Total liabilities 386,369 789,027

COMMITMENTS AND CONTINGENCIES -

MEMBERS' EQUITY 3,822,592 4,879,054
--------------- -------------

Total liabilities and members' equity $ 4,208,961 $ 5,668,081
=============== =============

The accompanying notes are an integral part of this statement.

PERFORMANCE CAPITAL MANAGEMENT, LLC

STATEMENTS OF OPERATIONS
(See Independent Accountants' Review Report)
--------------------------------------------

For the three For the three For the nine From February 4,
months ended months ended months ended 2002 (inception) to
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
(unaudited) (unaudited) (unaudited) (unaudited)
--------------- --------------- ----------------- ------------------

REVENUES:
Portfolio collections $ 2,351,314 $ 2,153,598 $ 7,358,415 $ 5,234,995
Portfolio sales - 43,857 505,724 969,469
--------------- --------------- ----------------- ------------------
Total revenues 2,351,314 2,197,446 7,864,139 6,204,464
Less portfolio basis recovery 894,837 1,534,613 3,598,251 3,812,056
--------------- --------------- ----------------- ------------------

NET REVENUES 1,456,477 662,833 4,265,888 2,392,408
--------------- --------------- ----------------- ------------------

OPERATING COSTS AND EXPENSES:
Salaries and benefits 1,050,518 1,022,365 3,231,198 2,859,697
General and administrative 497,399 486,932 1,573,330 1,338,810
Depreciation 50,930 52,979 154,108 140,268
--------------- --------------- ----------------- ------------------
Total operating costs and expenses 1,598,847 1,562,276 4,958,636 4,338,775
--------------- --------------- ----------------- ------------------

LOSS FROM OPERATIONS (142,370) (899,443) (692,748) (1,946,367)
--------------- --------------- ----------------- ------------------

OTHER INCOME (EXPENSE):
Reorganization costs (17,364) (22,026) (65,384) (106,487)
Interest income 3,205 7,801 9,056 42,096
Other income (expense) 8,634 18,315 9,914 39,483
--------------- --------------- ----------------- ------------------
Total other expense, net (5,525) 4,090 (46,414) (24,908)
--------------- --------------- ----------------- ------------------

LOSS BEFORE INCOME TAX PROVISION (147,895) (895,353) (739,162) (1,971,275)

INCOME TAX PROVISION 2,355 5,990 9,852 9,690
--------------- --------------- ----------------- ------------------

NET LOSS $ (150,250) $ (901,343) $ (749,014) $ (1,980,965)
=============== =============== ================= ==================

NET LOSS PER MEMBER
UNIT - BASIC AND DILUTED $ (0.26) $ (1.58) $ (1.31) $ (3.47)
=============== =============== ================= ==================

The accompanying notes are an integral part of this statement.

PERFORMANCE CAPITAL MANAGEMENT, LLC

STATEMENTS OF MEMBERS' EQUITY
(See Independent Accountants' Review Report)
--------------------------------------------

Total
Unreturned Accumulated Members'
Member Capital Deficit Equity
Units (unaudited) (unaudited) (unaudited)
-------- ------------- ------------- -------------

Balance, February 4, 2002 (audited) 571,550 $ 38,116,880 $(18,239,185) $ 19,877,695

Distribution to investors (12,000,000) - (12,000,000)

Net loss - (1,980,965) (1,980,965)
-------- ------------- ------------- -------------

Balance, September 30, 2002 571,550 26,116,880 (20,220,150) 5,896,730

Net loss - (1,017,676) (1,017,676)
-------- ------------- ------------- -------------

Balance, December 31, 2002 (audited) 571,550 26,116,880 (21,237,826) 4,879,054

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

Member units returned by investors (634)

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

Balance, September 30, 2003 570,916 $ 25,809,432 $(21,986,840) $ 3,822,592
======== ============= ============= =============

The accompanying notes are an integral part of this statement.

PERFORMANCE CAPITAL MANAGEMENT, LLC

STATEMENTS OF CASH FLOWS
(See Independent Accountants' Review Report)
--------------------------------------------

For the nine From February 4,
months ended 2002 (inception)
September 30, to September 30,
2003 2002
(unaudited) (unaudited)
------------------ ------------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (749,014) $ (1,980,965)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 154,108 140,268
Decrease in other receivables 38,155 56,507
Increase in prepaid expenses and other assets (32,869) (59,237)
Decrease in loan portfolios 2,183,371 871,528
Decrease in deposits - 22,167
Decrease in accounts payable (90,828) (144,324)
Decrease in pre-petition claims (119,737) (672,022)
(Decrease) increase in accrued liabilities (184,346) 95,871
(Decrease) increase in income taxes payable (7,747) 8,843
------------------ ------------------
Net cash provided by (used in) operating activities 1,191,093 (1,661,364)

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,399) (12,135)

CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to investors (307,448) (12,000,000)
------------------ ------------------

NET CHANGE IN CASH AND CASH EQUIVALENTS 878,246 (13,673,499)

CASH AND CASH EQUIVALENTS, beginning of period 871,534 15,529,574
------------------ ------------------

CASH AND CASH EQUIVALENTS, end of period $ 1,749,780 $ 1,856,075
================== ==================

SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:

Income taxes paid $ 18,190 $ 12,000
================== ==================

Interest paid $ - $ -
================== ==================

The accompanying notes are an integral part of this statement.

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

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

Reorganization Under Bankruptcy
- ---------------------------------

PCM LLC was formed under a Chapter 11 Bankruptcy Reorganization Plan and
operating agreement. The plan called for the consolidation of five California
limited partnerships and a California Corporation into the new California
Limited Liability Company. The five California limited partnerships were formed
for the purpose of acquiring investments in or direct ownership of
non-performing credit card loan portfolios from financial institutions and other
sources. The assets of the five limited partnerships consisted primarily of
non-performing credit card loans, as well as cash. PCM LLC was formed on January
14, 2002 and commenced operations upon the confirmation of its Bankruptcy
Reorganization Plan ("Reorganization Plan") on February 4, 2002. The entities
that were consolidated under the Reorganization Plan are as follows:

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

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

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

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

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

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

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

Pre-Petition Operations
- ------------------------

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

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

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

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

Member's Number of Number of Percentage
Name Investors PCM LLC Units Interest in PCM LLC
- -------- --------- ------------- -------------------

PAM 370 52,050 9
PAMII 459 76,700 14
PAMIII 595 99,900 17
PAMIV 1153 285,950 50
PAMV 327 56,950 10
------------- -------------------
Totals 571,550 100
============= ===================

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

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

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

PAM PAMII PAMIII PAMIV PAMV PCM INC Total
-----------------------------------------------------------------------

Sale of Limited
Partnership Units $ 5,205 $ 7,670 $ 9,990 $28,595 $ 5,965 $ - $ 57,425

Distributions
to Investors (3,704) (4,137) (3,719) (6,920) (829) - (19,309)
-----------------------------------------------------------------------

Unreturned Capital 1,501 3,533 6,271 21,675 5,136 - 38,116

Accumulated Deficit (288) (1,333) (2,424) (9,330) (2,561) (2,302) (18,238)
-----------------------------------------------------------------------

Cash and Net Assets
Transferred to PCM LLC $ 1,213 $ 2,200 $ 3,847 $12,345 $ 2,575 $ (2,302) 19,878
============================================================

2002 Distribution to Investors (12,000)

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

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

2003 Distributions to Investors (307)

Net Loss For The Nine Months
Ended September 30, 2003 (749)
---------

Members' Equity PCM, LLC
at September 30, 2003 $ 3,823
=========

Performance Asset Management Fund III, Ltd. and Performance Asset Management
Fund IV, Ltd., were reporting entities under the Securities Exchange Act of
1934. PAM, PAMII, PAMV, and PCM INC were not reporting entities. It has been
determined that Performance Capital Management, LLC is a "successor company"
under rule 12g-3 under 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.

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 2 - BASIS OF PRESENTATION

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

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

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

The Company is a successor entity of six companies emerging from bankruptcy (see
Note 1). The accompanying balance sheets, statements of operations, members'
equity, and cash flows include balances and transactions since the emergence
from bankruptcy.

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 sheet.

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

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Purchased Loan Portfolios (continued)
- ----------------------------------------

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. Adjustments to the valuation
allowance are recorded in the statement of operations as a provision for losses
on loan portfolios.

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

PCM LLC defines cash equivalents as cash, money market investments, and
overnight deposits with original maturities of less than three months. Cash
equivalents are valued at cost, which approximates market. The Company
maintains cash balances which exceeded federally insured limits by approximately
$1,895,000 as of September 30, 2003. The Company has not experienced any losses
in such accounts. Management believes it is not exposed to any significant
risks on cash in bank accounts.

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

Revenue is accounted for using the cost recovery method of accounting in
accordance with Practice Bulletin No. 6, "Amortization of Discounts on Certain
Acquired Loans". Under the cost recovery method of accounting, all cash
receipts relating to individual loan portfolios are applied first to recover the
cost of the portfolios, prior to recognizing any net 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. Portfolios sold typically do not meet PCM LLC's
targeted collection characteristics or are located in geographic areas where PCM
LLC is not licensed to collect. Loan portfolios sold are valued at the lower of
cost or market.

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

NOTE 4 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair value and the methods and assumptions used to estimate the
fair values of the financial instruments of the Company as of September 30, 2003
and 2002 are as follows. The carrying amount of cash and cash equivalents,
restricted cash and liabilities approximate the fair value. The fair value of
purchased loan portfolios was determined based on both market pricing and
discounted expected cash flows. The discount rate is based on an acceptable
rate of return adjusted for the risk inherent in the loan portfolios. The
discount rate utilized at September 30, 2003 and December 31, 2002 was 20%. The
estimated fair value of loan portfolios was $15,900,000 and $15,000,000 at
September 30, 2003 and December 31, 2002, respectively.

NOTE 5 - PURCHASED LOAN PORTFOLIOS

The Company acquires portfolios of non-performing credit card loans from federal
and state banks and other sources. These loans are acquired at a substantial
discount from the actual outstanding balance. The aggregate outstanding
contractual loan balances at September 30, 2003 and December 31, 2002 totaled
approximately $1.1 billion.

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

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 5 - PURCHASED LOAN PORTFOLIOS (CONTINUED)

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

As of As of
September 30, 2003 December 31, 2002
-------------------- -------------------

Unrecovered cost balance,
beginning of period $ 9,517,146 $ 10,236,158
Valuation allowance,
beginning of period (5,472,952) (5,472,952)
-------------------- -------------------
Net balance, beginning of period 4,044,194 4,763,206
Net portfolio activity (2,183,371) (719,012)
-------------------- -------------------
Net balance, end of period $ 1,860,823 $ 4,044,194
==================== ===================

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

Three months Three months Nine months From February 4,
ended ended ended 2002 (Inception) to
Sept. 30, 2003 Sept. 30, 2002 Sept. 30, 2003 Sept. 30, 2002
--------------- --------------- -------------------- -----------------

Purchased loan portfolios $ 515,039 $ 1,748,354 $ 1,414,880 $ 2,940,528
Collections on loan portfolios (2,351,314) (2,153,589) (7,358,415) (5,234,995)
Sales of loan portfolios - (43,857) (505,724) (969,469)
Revenue recognized on collections 1,456,477 648,747 4,200,748 1,522,529
Revenue recognized on sales - 14,086 65,140 869,879
--------------- --------------- -------------------- -----------------
Net portfolio activity $ (379,798) $ 213,741 $ (2,183,371) $ (871,528)
=============== =============== ==================== =================

The valuation allowance related to the loan portfolios had a balance of
$5,472,952 at September 30, 2003 and December 31, 2002.

NOTE 6 - OTHER RECEIVABLES

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

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment is as follows:

As of As of
September 30, 2003 December 31, 2002
------------------- -------------------

Office furniture and equipment $ 273,835 $ 269,685
Computer equipment 467,242 465,994
Leasehold improvements 36,982 36,981
------------------- -------------------
Totals 778,059 772,660
Less accumulated depreciation 347,805 193,697
------------------- -------------------
Property and equipment, net $ 430,254 $ 578,963
=================== ===================

Depreciation expense for the three months ended September 30, 2003 and 2002
amounted to $50,930 and $52,979 respectively. Depreciation expense for the nine
months ended September 30, 2003 and the period from February 4, 2002 (Inception)
to September 30, 2002 amounted to $154,108 and $140,268 respectively.

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

NOTE 8 - PRE-PETITION CLAIMS

Under the Reorganization Plan PCM LLC was required to pay certain allowed
pre-petition claims and professional fees totaling to approximately $1,400,000
of which $884,274 remained outstanding at inception (February 4, 2002). At
September 30, 2003 all of these claims had been paid or settled except for
approximately $20,000 which was related primarily to operating expenses. At
September 30, 2003, the Company has approximately $20,000 accrued to cover the
pre-petition claims and related expenses.

NOTE 9 - COMMITMENTS AND CONTINGENCIES

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

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

Future minimum lease commitments as of September 30, 2003 are as follows:

Year ending
September 30,
-------------
2004 $ 303,000
2005 313,000
2006 320,000
2007 54,000
Thereafter -

Rental expense for the three months ended September 30, 2003 and 2002 amounted
to $77,460 and $76,154 respectively. Rental expense for the nine months ended
September 30, 2003 and the period from February 4, 2002 (Inception) to September
30, 2002 amounted to $232,490 and $274,104 respectively.

Consent Decree - Fair Credit Reporting Act
- ------------------------------------------

In February 2001, a Consent Decree was entered in United States District Court
in an action United States of America v. Performance Capital Management, Inc.
(One of the entities that formed Performance Capital Management, LLC, see Note
1). Under the terms of the Consent Decree, PCM, INC had a civil penalty
pursuant to Section 621 (a) of the Fair Credit Reporting Act, 15 U.S.C. 1681s(a)
of $2,000,000 waived. The Consent Decree basically had PCM INC and its
successors agree to follow the provisions of the Fair Credit Reporting Act. The
Consent Decree ordered, among other specifics, that PCM INC and its successors,
officers, employees, et al, are: 1.) enjoined from failing to report correct
delinquency dates to consumer reporting agencies; 2.) enjoined from failing to
properly investigate consumer disputes and verify, correct or delete the
reporting of such information to consumer reporting agencies within the time set
forth in the Fair Credit Reporting Act; 3.) enjoined from failing to report
accounts as "disputed" to consumer reporting agencies when consumers dispute
accounts either in writing, orally, or by electronic means; and 4) enjoined from
failing to comply in any other respect with the Fair Credit Reporting Act.

The Consent Decree provides for access to the business for a period of three
years, including all computerized databases, right to inspect and copy all
relevant documents and the right to interview officers and employees.

Claims
- ------

PCM LLC is involved in various legal actions primarily arising from PCM INC and
the partnerships' Chapter 11 filing. As of September 30, 2003, most of these
issues have been resolved by settlement agreements. PCM LLC management has
actively resolved these actions. The Company has accrued approximately $20,000
as of September 30, 2003 to cover the remaining pre-petition claims and related
expenses.

PERFORMANCE CAPITAL MANAGEMENT, LLC

CONDENSED NOTES TO THE FINANCIAL STATEMENTS
(See Independent Accountants' Review Report)
--------------------------------------------

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 (571,550 for the nine
months ended September 30, 2003 and the period from February 4, 2002 (Inception)
to September 30, 2002.

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

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

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited financial statements
and accompanying notes and the other financial information appearing elsewhere
in this report and with the financial information contained in our Form 10-KSB
filed with the Securities and Exchange Commission on April 28, 2003.

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, but we have also purchased
other forms of indebtedness, including automobile deficiencies and defaulted
judgments. These assets are typically purchased and sold as portfolios.

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 the portfolio, pay our collection and operating costs and
still have a profit. 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, such as accounts
from particular states where we do not collect, and then collect the balance of
the 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 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.

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

of the portfolio. When we sell a portfolio or a portion of it, to the extent of
remaining cost basis for the portfolio, we reduce the cost basis of the
portfolio by a percentage of the original portfolio cost.

Our net revenues from portfolio collections may vary from quarter to quarter
because the number and magnitude of portfolios where we are still recovering
costs may vary, and because the return rates of portfolios whose costs we have
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.

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 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. As discussed in more detail in Note 2 to our
audited financial statements contained in our annual report for 2002 on Form
10-KSB, we do not present comparative financial information for the predecessor
entities in bankruptcy because we believe it would be prohibitively expensive,
if not impossible, to reconstruct accurate accrual-based consolidated financial
information for the six entities that were in bankruptcy, and any financial
statements developed for prior bankrupt periods would not provide meaningful
information sufficient to justify the cost.

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

When we sell a portfolio or a portion of it, to the extent of remaining cost
basis for the portfolio, we reduce the cost basis of the portfolio by a
percentage of the original portfolio cost. Our policy does not take into account
whether the portion of the portfolio we are selling may be more or less valuable
than the remaining accounts that comprise the portfolio. We believe our policy,
which is grounded in this objective measure for cost basis recovery, is
preferable to a policy that would attempt to estimate whether a portion of a
portfolio being sold is more or less valuable than the remaining accounts that
comprise the portfolio, because our policy minimizes the effect of estimation on
our results of operations.

OPERATING RESULTS

COMPARISON OF RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2003, AND 2002

The following discussion compares our results for the quarter ended September
30, 2003, to the quarter ended September 30, 2002. Our net loss decreased to
approximately $150,000 for the quarter ended September 30, 2003, from
approximately $901,000 for the quarter ended September 30, 2002.

Revenue
- -------

Our net revenues increased to approximately $1.5 million for the quarter ended
September 30, 2003, from approximately $663,000 for the quarter ended September
30, 2002. The following table presents a comparison of the components of our
revenues for the quarter ended September 30, 2003, to the quarter ended
September 30, 2002, as well as presenting net revenue as a percentage of the
corresponding total revenue (approximate amounts due to rounding):

Total Collections Sales
----- ----------- -----
9/30/03 9/30/02 9/30/03 9/30/02 9/30/03 9/30/02
--------- --------- --------- --------- --------- ---------
($ in millions) ($ in millions) ($ in millions)

Total revenues $ 2.4 $ 2.2 $ 2.4 $ 2.2 $ -- $ --
Less basis recovery (0.9) (1.5) (0.9) (1.5) -- --
--------- --------- --------- --------- --------- ---------
Net revenues $ 1.5 $ 0.7 $ 1.5 $ 0.7 $ -- $ --
========= ========= ========= ========= ========= =========

Net revenue percentage 61.9% 30.2% 61.9% 30.1% 0.0% 32.1%

Portfolio collections continue to provide most of our total revenues. We showed
substantial improvements in both total revenues and net revenues from portfolio
collections. Our total revenues from portfolio collections increased principally
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 (as well as the corresponding percentage
of net revenues to total revenues) increased principally due to maintaining
collection trends on our older portfolios with low or fully-amortized cost bases
while simultaneously exploiting portfolios purchased during the second half of
2002. We have almost completely recovered the cost basis of a number of these
recently purchased portfolios, and we expect them to begin generating net
revenues over the next three to nine months.

We had no revenues from portfolio sales for the quarter ended September 30,
2003, and our total and net revenues from portfolio sales for the quarter ended
September 30, 2002, were not particularly significant. We anticipate continuing
to sell portions of newly acquired portfolios from time to time, but we do not
expect to generate substantial net revenues from these sales.

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

Our total operating costs and expenses increased slightly for the quarter ended
September 30, 2003, although total operating costs and expenses were
approximately $1.6 million for each of the quarters ended September 30, 2003 and
2002. The increase was due principally to the increase in our salaries and
benefits expenses. Our ratio of operating costs and expenses to total revenues
decreased to 67.9% for the quarter ended September 30, 2003, from approximately

71.1% for the quarter ended September 30, 2002. Our ratio improved due
principally to improved collection performance. Our salaries and benefits
expenses increased to approximately $1.1 million for the quarter ended September
30, 2003, an increase of approximately $28,000 from the quarter ended September
30, 2002. Although our headcount has decreased, expenses associated with bonuses
due to increased productivity and an increase in medical benefits resulted in a
slight increase in our salaries and benefits expense. Our operating expenses may
increase somewhat in the coming year, but at this time we do not expect these
increases to be substantial.

COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003, TO THE
PERIOD FROM FEBRUARY 4, 2002, TO SEPTEMBER 30, 2002

The following discussion compares our results from the nine months ended
September 30, 2003, to the period from February 4, 2002, to September 30, 2002.
We generally refer to the approximately eight-month period from February to
September of 2002 as the comparable period for the prior year. The comparable
period from 2002 is not a full nine months because we present our financial
statements based on our February 4, 2002, emergence from bankruptcy being
treated as the inception of our business. As you read the following discussion,
please keep in mind that the comparable period for the prior year covers a time
period of just under eight months, about one month less than the nine-month
period ended September 30, 2003.

Our net loss decreased to approximately $749,000 for the nine months ended
September 30, 2003, from approximately $2.0 million for the comparable period
for the prior year. Our operating activities provided cash of approximately $1.2
million for the nine months ended September 30, 2003, as compared to using cash
of approximately $1.7 million for the comparable period for the prior year.

Revenue
- -------

Our net revenues increased to approximately $4.3 million for the nine months
ended September 30, 2003, from approximately $2.4 million for the comparable
period for the prior year. The following table presents a comparison of the
components of our revenues for the nine months ended September 30, 2003, to the
comparable period for the prior year, as well as presenting net revenue as a
percentage of the corresponding total revenue (approximate amounts due to
rounding):

Total revenues $ 7.9 $ 6.2 $ 7.4 $ 5.2 $ 0.5 $ 1.0
Less basis recovery (3.6) (3.8) (3.2) (3.7) (0.4) (0.1)
--------- --------- --------- --------- --------- ---------
Net revenues $ 4.3 $ 2.4 $ 4.2 $ 1.5 $ 0.1 $ 0.9
========= ========= ========= ========= ========= =========

Net revenue percentage 54.2% 38.6% 57.1% 29.1% 12.9% 89.7%

Although our total revenues from portfolio sales declined somewhat, our net
revenues from portfolio sales declined dramatically. During the quarter ended
June 30, 2002, we sold a substantial number of old portfolios, some of whose
collection lives, from our perspective, had run their course, and some to
capitalize on market conditions. These old portfolio sales generated substantial
net revenues because almost all of these portfolios had low or fully-amortized
cost bases due to prior collection activities. These old portfolio sales
resulted in unusually high net revenues for portfolio

sales, principally during the quarter ended June 30, 2002. Net revenues from
portfolio sales were not as large in the nine months ended September 30, 2003,
because these sales consisted principally of portions of newly acquired
portfolios, which generally have high cost bases that must be recovered against
sale proceeds. We anticipate continuing to sell portions of newly acquired
portfolios from time to time, but we do not expect to generate substantial net
revenues from these sales.

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

Our total operating costs and expenses increased to approximately $5.0 million
for the nine months ended September 30, 2003, from approximately $4.3 million
for the comparable period for the prior year. Taking into account the shorter
time period in the comparable period for the prior year, our total operating
costs and expenses remained roughly the same. Our ratio of operating costs and
expenses to total revenues decreased to 63.0% for the nine months ended
September 30, 2003, from approximately 69.9% for the comparable period for the
prior year. The ratio for the comparable period for the prior year is somewhat
skewed by the significant net revenues from sales of old portfolios, which we do
not expect to recur at those levels. Otherwise, the improvement in 2003 from
2002 was due principally to improved collection performance. Our general and
administration expenses increased to approximately $1.6 million for the nine
months ended September 30, 2003, from approximately $1.3 million for the
comparable period for the prior year. Our general and administrative expenses
for the nine months ended September 30, 2003, include annual meeting costs that
were not present in the comparable period for the prior year, and we experienced
increased costs sending privacy notices required by the Gramm-Leach-Bliley Act.
Our salaries and benefits expenses increased to approximately $3.2 million for
the nine months ended September 30, 2003, from approximately $2.9 million for
the comparable period for the prior year. Although our headcount has decreased,
expenses associated with bonuses due to increased productivity and with employee
turnover resulted in a slight increase in our salaries and benefits expense. Our
operating expenses may increase somewhat in the coming year, but at this time we
do not expect these increases to be substantial.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents increased approximately $878,000 during the nine
months ended September 30, 2003, to a balance of approximately $1.7 million at
September 30, 2003. During the nine months ended September 30, 2003, our
portfolio collections and sales generated approximately $7.9 million of cash,
and we used approximately $5.3 million for operating and other activities,
approximately $1.4 to purchase new portfolios and approximately $300,000 for
distributions to unit holders.

During the nine-month period ended September 30, 2003, we continued making
progress toward, but did not achieve results consistent with, our business plan:
to recover the cost we pay for our portfolios, pay our collecting and operating
costs and still have a profit. Our cost basis recovery of approximately $3.6
million plus our operating and other expenses of approximately $5.0 million
exceeded our total revenues from collections and sales of approximately $7.9
million by approximately $749,000. On a cash basis, our collections and sales of
approximately $7.9 million exceeded the sum of our new portfolio acquisitions of
approximately $1.4 million plus our cash operating and other costs of
approximately $5.3 million plus distributions of $300,000. This cash increase of
approximately $878,000 was principally due to our decision to build cash at this
time rather than aggressively acquire new portfolios. We acquired a substantial
amount of new portfolios during the second half of 2002, and in the first nine
months of 2003 we focused on improving our liquidity following those
acquisitions so that we can sustain distributions to our unit holders while
simultaneously acquiring portfolios that we believe are available on good
economic terms. Our portfolio acquisition strategy for the coming year will
depend principally on market conditions.

During the nine months ended September 30, 2003, we believe we continued to
improve the balance between our new and old portfolios. In addition, we believe
that our procedures to ensure that our collectors continue to focus collection
efforts on older portfolios that still have returns to yield, rather than
focusing just on the most recently acquired portfolios, have begun to show
results. We had a successful first nine months from a cash flow standpoint, and
we made substantial progress toward achieving results consistent with our
business plan.

Our portfolios provide our principal long-term source of liquidity. Over time,
we expect to convert our portfolios to cash in an amount that equals or exceeds
the cost basis of our portfolios. In addition, some portfolios whose cost bases
we have completely recovered will continue to return collections to us. Our
estimate of the fair value of our portfolios at September 30, 2003, increased
$900,000 to $15.9 million from $15.0 million at December 31, 2002. At the same

time, the cost basis of our portfolios decreased to approximately $1.9 million
at September 30, 2003, from approximately $4.0 million at December 31, 2002. Our
estimate of fair value increased despite this decline in cost basis because we
believe recently purchased portfolios will provide better collection ratios than
some of the older portfolios we inherited from our PAM Fund predecessors,
because newly acquired portfolios generally provide an increase in fair value
substantially greater than the increase in cost basis recorded on our balance
sheet and because improved collection procedures have extended the collection
lives of some of our older portfolios. We believe portfolio cost basis will
continue to decline in the near term because we do not expect the magnitude of
new portfolio acquisitions to be as large in 2003 as it was in 2002. Due to
factors such as the fair value of a new portfolio being greater than its
purchase price, the availability of new portfolios, market pricing conditions
for new portfolios and the timing of distributions to our members, we believe it
is difficult to assess whether the fair value of our portfolios will also
decrease.

We used a discount rate of 20% to determine the fair values of our portfolios at
September 30, 2003, and December 31, 2002. The following table sets forth
alternative estimates of fair value if we assessed collection risk as higher
(using a discount rate of 25%) or lower (using a discount rate of 15%).

September 30, 2003 December 31, 2002
------------------- ------------------

Higher collection risk (25% discount rate) $ 14.8 million $ 14.2 million
Assumed collection risk (20% discount rate) $ 15.9 million $ 15.0 million
Lower collection risk (15% discount rate) $ 17.1 million $ 15.9 million

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 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, pay our collection and
operating costs, and still have excess cash.

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

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

- 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 and the timing of distributions to our members, we
may not achieve increases in fair value each quarter. The fair value of our
portfolios declined from $16.6 million at March 31, 2003, to $15.9 million at
June 30, 2003, and September 30, 2003, due principally to collections outpacing
new portfolio acquisitions.

In general, we expect increases in portfolio fair value to result in a
corresponding increase in the cost basis of our portfolios presented on our
balance sheet. 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.

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. We have made the following distributions (not counting the initial $12
million distribution made shortly after emergence from bankruptcy) based on
results through the specified quarters:

For the Approximate Timing Gross Amount of
Quarter Ended of Payment Distribution Paid
------------------ ------------------ ------------------

September 30, 2003 October 2003 $ 165,000
June 30, 2003 July 2003 $ 165,000
March 31, 2003 April 2003 $ 135,000

We do not have any lines of credit or other debt financing available to us at
this time. We do not have any plans to raise equity capital. Based on our cash
position and current financial resources, and assuming our operating results
continue to increase at projected levels, we believe we have adequate capital
resources to continue our business as presently conducted for the foreseeable
future. To maximize the return on our infrastructure, we are also considering
whether there might be ways to increase the volume of accounts we service other
than through new portfolio acquisitions.

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.

ITEM 3. CONTROLS AND PROCEDURES

The company's management, with the participation of the company's Chief
Operations Officer and Accounting Manager, has evaluated the effectiveness of
the company's disclosure controls and procedures as of September 30, 2003. Based
on this evaluation, the company's Chief Operations Officer and Accounting
Manager concluded that the company's disclosure controls and procedures are
effective for gathering, analyzing and disclosing the information the company is
required to disclose in the reports it files under the Securities Exchange Act
of 1934, within the time periods specified in the SEC's rules and forms. Such
evaluation did not identify any change in the company's internal control over
financial reporting that occurred during the quarter ended September 30, 2003
that has materially affected, or is reasonably likely to materially affect, the
company's internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 5. OTHER INFORMATION

Our Board of Directors recently became aware of a letter from Sierra Liquidity
Fund, LLC, dated September 23, 2003, offering to purchase units from Performance
Capital Management, LLC, Unit Holders for $2.00 per unit (the "Offer"). We are
not aware that the Offer was published in any medium, and we did not receive a
copy of it from Sierra. The terms of the Offer are ambiguous concerning how many
units Sierra seeks to purchase, and we do not know how widely Sierra may have
disseminated its Offer. We believe that Sierra's Offer may be a "mini-tender
offer" subject to SEC regulation and, if the size is large enough, Sierra's
Offer could be a tender offer requiring Sierra to make filings with the SEC. As
a result, we have not been able to determine definitively that we should file a
Solicitation/Recommendation Statement on Schedule 14D-9. Instead, we have
prepared a Solicitation/Recommendation Statement based on the content required
by Schedule 14D-9, and filed it with the SEC on October 22, 2003 as an exhibit
to a current report on Form 8-K dated October 21, 2003. On November 11, 2003, we
provided Sierra with a copy of an SEC release setting forth the Commission's
guidance on the disclosure that should accompany a "mini-tender offer."

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

EXHIBIT |
NUMBER | DESCRIPTION
- --------|--------------------------------------------------------------------------------------------------

2.1 | Joint Chapter 11 Plan of Reorganization Proposed by Chapter 11 Trustee and the Official
| Committee of Equity Security Holders effective February 4, 2002 *
|
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 *
|
3.1 | Performance Capital Management, LLC Articles of Organization *
|
3.2 | Operating Agreement for Performance Capital Management, LLC *
|
3.3 | First Amendment to Operating Agreement for Performance Capital Management, LLC *
|
3.4 | Second Amendment to Operating Agreement for Performance Capital Management, LLC
|
4.1 | Specimen Performance Capital Management, LLC Unit Certificate *
|
4.2 | Specimen Performance Capital Management, LLC Economic Interest Unit Certificate *
|
4.3 | Provisions in the Operating Agreement for Performance Capital Management, LLC pertaining to
| the rights of LLC Unit holders (see Exhibit 3.2 and 3.3) *
|
20.1 | Form of letter to Unit Holders communicating the recommendation of the Board **
|
20.2 | Solicitation/Recommendation Statement dated October 21, 2003 **
|
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)
|
31.2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)
|
32.1 | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C.
| Sec. 1350 ***

<FN>

* Filed on April 2, 2003, as an exhibit to Performance Capital Management, LLC's report on Form 8-K dated
February 4, 2002, and incorporated herein by reference.

** Filed on October 22, 2003, as an exhibit to Performance Capital Management, LLC's report on Form 8-K
dated October 21, 2003, and incorporated herein by reference.

*** 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.

(b) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the three months ended September 30,
2003.

SIGNATURES

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

PERFORMANCE CAPITAL MANAGEMENT, LLC

November 12, 2003 By: /s/ David J. Caldwell
- ---------------------------- --------------------------------------
(Date) Name: David J. Caldwell
Its: Chief Operations Officer

EXHIBIT INDEX

EXHIBIT |
NUMBER | DESCRIPTION
- --------|---------------------------------------------------------------------------------------------------

* Filed on April 2, 2003, as an exhibit to Performance Capital Management, LLC's report on Form 8-K dated
February 4, 2002, and incorporated herein by reference.

** Filed on October 22, 2003, as an exhibit to Performance Capital Management, LLC's report on Form 8-K
dated October 21, 2003, and incorporated herein by reference.