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, 2005
----------------------

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

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

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

(714) 502-3780
-------------------------
(Issuer's telephone number)

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(Former name, former address and former fiscal year,
if changed since last report.)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]

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

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

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 7, 2005, the issuer
had 563,926 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, 2005

PART I - FINANCIAL INFORMATION PAGE

Item 1 Consolidated Financial Statements

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

Consolidated Balance Sheets as of September 30, 2005 (unaudited) and
December 31, 2004 (audited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Consolidated Statements of Operations for the quarters and nine months ended
September 30, 2005 and 2004 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 3

Consolidated Statements of Members' Equity for the nine months ended
September 30, 2005 (unaudited) and the year ended December 31, 2004 (audited) . . . . . . 4

Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and
2004 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

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

Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations . . 15

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

PART II - OTHER INFORMATION

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

SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

[MOORE STEPHENS WURTH FRAZER AND TORBET, LLP LETTERHEAD]

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have reviewed the accompanying consolidated balance sheet of Performance
Capital Management, LLC, as of September 30, 2005, and the related consolidated
statements of operations for the quarters and nine months ended September 30,
2005 and 2004, and statements of members' equity and cash flows for the nine
months ended September 30, 2005 and 2004. All information included in these
consolidated financial statements is the representation of the management of
Performance Capital Management, LLC.

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

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

We have previously audited, in accordance with auditing standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Performance Capital Management, LLC as of December 31, 2004, and the
related consolidated statements of operations, members' equity and cash flows
for the year ended December 31, 2004 (not presented herein); and in our report
dated March 9, 2005, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying balance sheet as of December 31, 2004, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

/s/ Moore Stephens Wurth Frazer And Torbet, LLP

October 26, 2005
Orange, California

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2005 AND DECEMBER 31, 2004

September 30, December 31,
2005 2004
(unaudited) (audited)
--------------- --------------

ASSETS
------

Cash and cash equivalents $ 2,007,180 $ 1,920,155
Restricted cash 514,124 122,205
Other receivables 36,840 31,494
Purchased loan portfolios, net 4,262,537 2,991,642
Property and equipment, net 159,582 254,808
Deposits 57,746 56,588
Prepaid expenses and other assets 69,173 86,063
--------------- --------------

Total assets $ 7,107,182 $ 5,462,955
=============== ==============

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

LIABILITIES:
Accounts payable $ 50,355 $ 59,275
Accrued liabilities 405,841 373,924
Accrued interest 35,123 8,075
Notes payable 3,512,342 1,417,043
Income taxes payable 21,790 18,290
--------------- --------------
Total liabilities 4,025,451 1,876,607

COMMITMENTS AND CONTINGENCIES - -

MEMBERS' EQUITY 3,081,731 3,586,348
--------------- --------------

Total liabilities and members' equity $ 7,107,182 $ 5,462,955
=============== ==============

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

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

For the For the For the nine For the nine
quarter ended quarter ended months ended months ended
September 30, September 30, September 30, September 30,
2005 2004 2005 2004
(unaudited) (unaudited) (unaudited) (unaudited)
--------------- --------------- --------------- ---------------

REVENUES:
Portfolio collections $ 3,384,709 $ 2,432,108 $ 9,993,896 $ 7,157,195
Portfolio sales 66,133 1,376,171 572,142 4,133,628
--------------- --------------- --------------- ---------------
Total revenues 3,450,842 3,808,279 10,566,038 11,290,823
Less portfolio basis recovery 1,457,947 2,040,747 4,729,367 5,269,375
--------------- --------------- --------------- ---------------

NET REVENUES 1,992,895 1,767,532 5,836,671 6,021,448
--------------- --------------- --------------- ---------------

OPERATING COSTS AND EXPENSES:
Salaries and benefits 1,020,669 947,196 3,171,233 3,037,398
General and administrative 704,041 637,094 2,258,360 1,855,045
Depreciation 38,263 43,438 123,256 132,796
--------------- --------------- --------------- ---------------
Total operating costs and expenses 1,762,973 1,627,728 5,552,849 5,025,239
--------------- --------------- --------------- ---------------

INCOME FROM OPERATIONS 229,922 139,804 283,822 996,209
--------------- --------------- --------------- ---------------

OTHER INCOME (EXPENSE):
Reorganization costs - (17,575) (440) (52,578)
Interest income 4,553 2,892 9,544 8,475
Other income 3,301 9,064 5,415 38,278
Interest expense (113,637) (7,896) (285,230) (7,896)
--------------- --------------- --------------- ---------------
Total other expense, net (105,783) (13,515) (270,711) (13,721)
--------------- --------------- --------------- ---------------

INCOME BEFORE INCOME TAX PROVISION 124,139 126,289 13,111 982,488

INCOME TAX PROVISION 5,790 800 23,390 18,190
--------------- --------------- --------------- ---------------

NET INCOME (LOSS) $ 118,349 $ 125,489 $ (10,279) $ 964,298
=============== =============== =============== ===============

NET INCOME (LOSS) PER MEMBER
UNIT - BASIC AND DILUTED $ .21 $ .22 $ (.02) $ 1.69
=============== =============== =============== ===============

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

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY

Total
Member Unreturned Abandoned Accumulated Members'
Units Capital Capital Deficit Equity
------------ ------------- ------------- ------------- -------------

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

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

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

Balance, September 30, 2004 570,916 25,123,479 31,926 (21,362,847) 3,792,558

Distributions to investors (184,074) (184,074)

Distributions forfeited 151,555 151,555

Cancellation of investor units (7,055) (457,318) 457,318 -

Net loss (173,691) (173,691)
------------ ------------- ------------- ------------- -------------

Balance, December 31, 2004 563,861 24,633,642 489,244 (21,536,538) 3,586,348

Reinstatement of Units to Investors 65 3,503 (3,503) -

Distributions to investors (494,338) (494,338)

Net loss (10,279) (10,279)
------------ ------------- ------------- ------------- -------------

Balance, September 30, 2005 563,926 $ 24,142,807 $ 485,741 $(21,546,817) $ 3,081,731
============ ============= ============= ============= =============

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

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine For the nine
months ended months ended
September 30, September 30,
2005 2004
(unaudited) (unaudited)
--------------- ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (10,279) $ 964,298
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 123,256 132,796
(Increase) decrease in assets:
Other receivables (5,346) (13,032)
Prepaid expenses and other assets 15,732 67,535
Loan portfolios (1,270,895) (864,937)
Increase (decrease) in liabilities:
Accounts payable (8,920) (19,874)
Accrued liabilities 31,917 32,494
Accrued interest 27,048 7,896
Income taxes payable 3,500 -
--------------- ---------------
Net cash provided by (used in) operating activities ( 1,093,987) 307,176
--------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (28,030) (20,478)
--------------- ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Loan proceeds from borrowing 3,975,022 764,111
Repayment of loans (1,879,723) -
Distributions to investors (494,338) (489,498)
--------------- ---------------
Net cash provided by financing activities 1,600,961 274,613
--------------- ---------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 478,944 561,311

CASH AND CASH EQUIVALENTS, beginning of period 2,042,360 1,029,397
--------------- ---------------

CASH AND CASH EQUIVALENTS, end of period $ 2,521,304 $ 1,590,708
=============== ===============

SUPPLEMENTAL DISCLOSURE FOR CASH FLOW INFORMATION:

Income taxes paid $ 19,890 $ 18,190
=============== ===============

Interest paid $ 258,182 $ -
=============== ===============

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

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

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

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

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

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

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

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

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

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

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

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

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

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

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

Original Number of Number of Percentage
Fund's Name Unit Holders PCM LLC Units Interest in PCM LLC
----------- ------------ ------------- -------------------

PAM 370 52,050 9
PAMII 459 76,700 13
PAMIII 595 99,900 18
PAMIV 1553 285,950 50
PAMV 327 56,950 10
------------- -------------------
Totals 571,550 100
============= ===================

The following is a summary of the ownership interest of PCM LLC as of September
30, 2005:

Original Number of Percentage
Fund's Name PCM LLC Units Interest In PCM LLC
----------- ------------- -------------------

PAM 51,565 9
PAMII 76,101 14
PAMIII 97,759 17
PAMIV 281,980 50
PAMV 56,521 10
------------- -------------------
Totals 563,926 100
============= ===================

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.

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

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 (472)

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

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

2004 Distributions to Investors (674)

Net Income For The Year
Ended December 31, 2004 790

Distributions forfeited 152
---------

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

2005 Distributions to Investors (494)

Net Loss For The Period
Ended September 30, 2005 (10)

Members' Equity PCM, LLC ---------
at September 30, 2005 $ 3,082
=========

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED)

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

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

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

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

NOTE 2 - BASIS OF PRESENTATION

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

These interim condensed consolidated financial statements have been prepared
using generally accepted accounting principles in the United States. The interim
consolidated 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 consolidated
financial statements have been prepared consistent with the accounting policies
described in the Company's annual audited consolidated financial statements.
Reference should be made to those statements included with the Company's annual
report filed on Form 10-KSB.

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

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

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

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

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Significant estimates have been made by management with respect to the timing
and amount of collection of future cash flows from non-performing credit card
loan portfolios. Among other things, the estimated future cash flows of the
portfolios are used to recognize impairment in the purchased loan portfolios.
Management reviews the estimate of future collections, and it is reasonably
possible that these estimates may change based on actual results and other
factors. A change could be material to the financial statements.

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

Purchased loan portfolios consisted primarily of non-performing credit card
accounts. For substantially all the Company's acquired portfolios, future cash
flows cannot be reasonably estimated in order to record an accretable yield
consistently. Therefore, the Company utilizes the cost recovery method as
required by AICPA Practice Bulletin 6. Application of the cost recovery method
requires that any amounts received be applied first against the recorded amount
of the portfolios; when that amount has been reduced to zero, any additional
amounts received are recognized as net revenue. Acquired portfolios are
initially recorded at their respective costs, and no accretable yield is
recorded on the accompanying balance sheets.

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

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

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

The Company defines cash equivalents as cash, money market investments, and
overnight deposits with original maturities of less than three months. Cash
equivalents are valued at cost, which approximates market. The Company maintains
cash balances, which exceeded federally insured limits by approximately $2.3
million as of September 30, 2005. The Company has not experienced any losses in
such accounts. Management believes it is not exposed to any significant risks on
cash in bank accounts.

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

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

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

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

Members' equity includes voting LLC units held by members and non-voting LLC
units held by one economic interest owner. As of September 30, 2005, PCM LLC had
540,204 voting LLC units (540,139 LLC units as of December 31, 2004) and 23,722
non-voting LLC units (23,722 LLC units as of December 31, 2004). Abandoned
capital represents LLC units that are either voluntarily returned to the Company
by a member or LLC units that are redeemed and cancelled following a procedure
authorized by PCM LLC's plan of reorganization to eliminate the interests of
members the Company has not been able to locate. At December 31, 2004, the
Company cancelled 7,055 member units and took back approximately $152,000 of
related unclaimed distributions under the procedure authorized in the
reorganization plan. The $152,000 of unclaimed distributions was treated as an
addition to Members' Equity. The total amount of abandoned unreturned capital
relating to the 7,055 member units was $457,318. During the first quarter of
2005, a member with 65 units was reinstated. These 65 units had been considered
returned voluntarily with the 634 member units surrendered in 2003. It was
determined that this was done in error.

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, 2005
and December 31, 2004 are as follows. The carrying amount of cash and cash
equivalents, restricted cash and liabilities approximate their fair values. The
fair value of purchased loan portfolios was determined based on both market
pricing and discounted expected cash flows. The discount rate is based on an
acceptable rate of return adjusted for the risk inherent in the loan portfolios.
The expected cash flows used to determine fair value exclude any residual
interest in collections that may be due to a third party. The discount rate
utilized at September 30, 2005 and December 31, 2004 was 20%. The estimated fair
value of loan portfolios was $22.8 million and $19.2 million at September 30,
2005 and December 31, 2004, 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, 2005 and December 31, 2004 totaled
approximately $682 million and $641 million, respectively.

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

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - PURCHASED LOAN PORTFOLIOS (CONTINUED)

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

As of As of
September 30, 2005 December 31, 2004
-------------------- -------------------

Unrecovered cost balance,
beginning of period $ 3,003,642 $ 7,619,515
Valuation allowance,
beginning of period (12,000) (5,538,019)
-------------------- -------------------
Net balance, beginning of period 2,991,642 2,081,496
Net portfolio activity 1,270,895 910,146
-------------------- -------------------
Net balance, end of period $ 4,262,537 $ 2,991,642
==================== ===================

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

Quarter Quarter Nine Months Nine Months
Ended Ended Ended Ended
Sept. 30, 2005 Sept. 30, 2004 Sept. 30, 2005 Sept. 30, 2004
---------------- ---------------- ---------------- ----------------

Purchased loan portfolios- net $ 247,597 $ 3,512,860 $ 6,000,262 $ 6,134,311
Collections on loan portfolios (3,384,709) (2,432,108) (9,993,896) (7,157,195)
Sales of loan portfolios (66,133) (1,376,171) (572,142) (4,133,628)
Revenue recognized on collections 1,926,762 1,734,691 5,500,154 5,035,217
Revenue recognized on sales 66,133 32,841 382,858 986,232
Increase in valuation allowance
due to portfolio impairment - - (46,341) -
---------------- ---------------- ---------------- ----------------
Net portfolio activity $ (1,210,350) $ 1,472,113 $ 1,270,895 $ 864,937
================ ================ ================ ================

The valuation allowance related to the loan portfolios had a balance of $58,341
at September 30, 2005 and $12,000 at December 31, 2004.

NOTE 6 - OTHER RECEIVABLES

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

NOTE 7 - PROPERTY AND EQUIPMENT

Property and equipment is as follows:

As of As of
Sept. 30 , 2005 Dec. 31, 2004
---------------- --------------

Office furniture and equipment $ 285,744 $ 284,171
Computer equipment 520,679 494,223
Leasehold improvements 36,982 36,982
---------------- --------------
Totals 843,405 815,376
Less accumulated depreciation 683,823 560,568
---------------- --------------
Property and equipment, net $ 159,582 $ 254,808
================ ==============

Depreciation expense for the quarters ended September 30, 2005 and 2004 amounted
to $38,263 and $43,438, respectively.

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - NOTES PAYABLE

The Company has entered into an agreement for a credit facility with Varde that
provides for up to $25 million of capital (counting each dollar loaned on a
cumulative basis) over a five-year term ending in July 2009. At September 30,
2005, PCM LLC's wholly-owned subsidiary Matterhorn owed approximately $3.5
million under the facility in connection with its purchase of certain
charged-off loan portfolios. The total amount borrowed through September 30,
2005 is approximately $5.7 million. Each advance has minimum payment threshold
points; all such thresholds for all outstanding advances must be satisfied on an
aggregate basis. Each advance has a term of two years and bears interest at the
rate of 12% per annum. These obligations are scheduled to be paid in full on
dates ranging from August 2006 to April 2007, with the approximate following
principal payments due:

Year Ending
September 30,
-------------

2006 $1.2 million
2007 $2.3 million

Once all funds (including those invested by the Company) invested in a portfolio
financed by Varde have been repaid (with interest) and all servicing costs have
been paid, Varde will begin to receive a residual interest in collections of
that portfolio. Depending on the performance of the portfolio, these residual
interests may never be paid, they may begin being paid a significant time later
than Varde's loan is repaid (i.e., after the funds invested by the Company are
repaid with interest), or, in circumstances where the portfolio performs
extremely well, the loan could be repaid early and Varde could conceivably begin
to receive its residual interest on or before the date that the loan obligation
was originally scheduled to be paid in full. Varde has a first priority security
interest in all the assets of Matterhorn, securing repayment of its loans and
payment of its residual interest. PCM LLC, our parent operating company, has
guarantied certain of Matterhorn's operational obligations under the loan
documents. The amount of remaining available credit under the facility at
September 30, 2005 was approximately $19.3 million. The assets of Matterhorn
that provide security for Varde's loan were carried at a cost of approximately
$3.5 million at September 30, 2005.

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, 2005 are as follows:

Year ending
September 30,
-------------

2006 $320,000
2007 $ 53,000
Thereafter -

Rental expense for the three months ended September 30, 2005 and 2004 amounted
to $81,857 and $79,638 respectively. Rent expense for the nine months ended
September 30, 2005 and 2004 amounted to $245,431 and $238,508 respectively.
The Company is obligated under a five year equipment lease, expiring in 2009,
for minimum payments of $4,800 per year.

NOTE 10 - EARNINGS PER MEMBER UNIT

Basic and diluted earnings per member unit are calculated based on the weighted
average number of member units issued and outstanding, 563,926 for the nine
months ended September 30, 2005 and 570,916 for the nine months ended September
30, 2004.

See Review Report of Independent Registered Public Accounting Firm.

PERFORMANCE CAPITAL MANAGEMENT, LLC AND SUBSIDIARY

CONDENSED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - EMPLOYEE BENEFIT PLANS

The Company has a defined contribution plan covering all eligible full-time
employees of Performance Capital Management (the Plan Sponsor) who are currently
employed by the Company and have completed six months of service from the time
of enrollment. The Plan was established by the Plan Sponsor to provide
retirement income for its employees and is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended (ERISA).

The Plan is a contributory plan whereby participants may contribute a percentage
of pre-tax annual compensation as outlined in the Plan agreement and as limited
by Federal statute. Participants may also contribute amounts representing
distributions from other qualified defined benefit or contribution plans. The
Plan Sponsor does not make matching contributions.

See Review Report of Independent Registered Public Accounting Firm.

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

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

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited financial statements
and accompanying notes and the other financial information appearing elsewhere
in this report and with the financial information contained in our Form 10-KSB
filed with the Securities and Exchange Commission on March 31, 2005.

OVERVIEW

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

Before purchasing a portfolio, we conduct due diligence to assess the value of
the portfolio. We try to purchase portfolios at a substantial discount to the
actual amount of money that they will ultimately produce, so that we can recover
the cost we pay for portfolios, repay funds borrowed to purchase portfolios, pay
our collection and operating costs and still have a profit. We record our
portfolios at cost based on the purchase price. We reduce the cost bases of our
portfolios on a portfolio-by-portfolio basis based on collections, sales of some
or all of the portfolio and impairment of net realizable value.

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

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

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

depending on the number and magnitude of portfolios (or portions) we decide to
sell and the market values of the sold portfolios (or portions) relative to
their cost bases.

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

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

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

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

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

BASIS OF PRESENTATION

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

CRITICAL ACCOUNTING ESTIMATES

We present investments in portfolios on our balance sheet at the lower of cost,
market, or estimated net realizable value. As discussed above, we reduce the
cost basis of a portfolio on a proportionate basis when we sell a portion of the
portfolio, and we treat amounts collected on a portfolio as a reduction to the
carrying basis of the portfolio on an individual portfolio basis. When we
present financial statements we assess the estimated net realizable value of our
portfolios on a portfolio-by-portfolio basis, and we reduce the value of any
portfolio that has suffered impairment because its cost basis exceeds its
estimated net realizable value. Estimated net realizable value represents
management's estimates, based upon present plans and intentions, of the
discounted present value of future collections. We must make assumptions to
determine estimated net realizable value, the most significant of which are the
magnitude and timing of future collections and the discount rate used to
determine present value. Once we write down a particular portfolio, we do not
increase it in subsequent periods if our plans and intentions or our assumptions
change.

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

When we collect an account in a portfolio, we reduce the cost basis of the
portfolio dollar-for-dollar until we have completely recovered the cost basis of
the portfolio. We believe this method of accounting for the amortization of the
purchase price of our portfolios is conservative and minimizes the effect of
estimation on our results of operations. This policy has the effect of
"front-loading" expenses, however, and may result in a portfolio initially
showing no net revenue for a period of time and then showing only net revenue
once we have recovered its entire cost basis. We believe a policy grounded in
conservatism is preferable to a policy of attempting to match portfolio cost
basis to revenue on a proportionate basis over the life of the portfolio, due to
the distressed nature of the portfolio assets and the lack of assurance that
projected collections will actually occur.

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

As discussed in greater detail below, our credit facility with Varde provides
for up to $25 million of capital (counting each dollar loaned on a cumulative
basis) over a five-year term ending in July 2009. The facility provides for
Varde to receive a residual interest in portfolio collections after all funds
invested in the portfolio have been repaid (with interest) and all servicing
costs have been paid. We do not record a liability for contingent future
payments of residual interests due to the distressed nature of the portfolio
assets and the lack of assurance that collections sufficient to result in a
liability to Varde will actually occur. When such payments actually occur, we
will reflect them in our statement of operations.

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

OPERATING RESULTS

COMPARISON OF RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2005 AND 2004

The following discussion compares our results for the quarter ended September
30, 2005, to the quarter ended September 30, 2004. Our net income decreased to
$118,000 for the quarter ended September 30, 2005, from $125,000 for the quarter
ended September 30, 2004. Our operating activities generated cash of $1.4
million for the quarter ended September 30, 2005, as compared to using cash of
$1.3 million for the quarter ended September 30, 2004. Our

portfolio purchasing patterns were the primary reason for this fluctuation, as
our purchases of $2.2 million (net of portions we promptly resold) for the
quarter ended September 30, 2004, decreased to $248,000 for the quarter ended
September 30, 2005.

Revenue
- -------

Our net revenues increased to $2.0 million for the quarter ended September 30,
2005, from $1.8 million for the quarter ended September 30, 2004. The following
table presents a comparison of the components of our revenues for the quarters
ended September 30, 2005 and 2004, as well as presenting net revenue as a
percentage of the corresponding total revenue (approximate amounts due to
rounding):

Total Collections Sales
---------------------------- ---------------------------- ----------------------------
For the Quarter Ended For the Quarter Ended For the Quarter Ended
September 30, September 30, September 30,
2005 2004 2005 2004 2005 2004
------------- ------------- ------------- ------------- ------------- -------------
($ in millions) ($ in millions) ($ in millions)

Total revenues $ 3.5 $ 3.8 $ 3.4 $ 2.4 $ 0.1 $ 1.4
Less basis recovery (1.5) (2.0) (1.5) (0.7) (0.0) (1.3)
------------- ------------- ------------- ------------- ------------- -------------
Net revenues $ 2.0 $ 1.8 $ 1.9 $ 1.7 $ 0.1 $ 0.0
============= ============= ============= ============= ============= =============

Net Revenue Percentage 57.8% 46.4% 56.9% 71.3% 100.0% 2.4%

Portfolio collections continue to provide most of our total revenues. Our total
revenues from portfolio collections increased by $1.0 million, substantially due
to collections from recently purchased portfolios and increased efficiency in
collection procedures for both recently purchased and older portfolios. The
increase in the volume of accounts available for collection has facilitated an
increase in collection efficiency as measured by the dollar volume of
collections per collector. We have also increased our use of third-party
collectors on some portfolios. Our net revenues from portfolio collections
increased by $192,000, but the percentage of net revenues to total revenues
declined significantly. These results reflect the fact that recently purchased
portfolios (which provide no net revenues because of front-loaded cost basis
recovery) provided a substantial portion of our increased total collection
revenues. During the nine months ended September 30, 2005, we acquired $6.0
million of new portfolios (net of returns). During the year 2004, we acquired
$5.3 million of new portfolios (net of portions of portfolios we promptly
resold). We expect to continue to have strong total collection revenue as we
collect these recent portfolio purchases. The cost basis recovery associated
with collecting recently purchased 2004 portfolios, combined with the portfolios
that we have already acquired in 2005 and additional portfolios we may acquire
in 2005, could continue to offset the increase in net revenue percentage we
would otherwise expect our older portfolios (whose cost bases we have completely
recovered) to generate and actually result in a further decline in our net
revenue percentage.

Our total revenues from portfolio sales decreased to $66,000 for the quarter
ended September 30, 2005, from $1.4 million for the quarter ended September 30,
2004, while net sales revenue increased to $66,000 from $33,000. During the
third quarter of 2005, our portfolio sales revenues consisted of an adjustment
to a reserve account relating to a portfolio sale we made during the second
quarter. The portfolio sales from the third quarter of 2004 included a
substantial volume of resales of portions of newly acquired portfolios, from
which we do not generate substantial net revenues.

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

Our total operating costs and expenses increased to $1.8 million for the quarter
ended September 30, 2005, from $1.6 million for the quarter ended September 30,
2004, due primarily to the increase in collection costs associated with our
increase in collection revenue. Our ratio of operating costs and expenses to
total revenues from collections (i.e., excluding the effect of portfolio sales),
a measure of collection efficiency, decreased to 52.1% for the quarter ended
September 30, 2005, from 66.9% for the quarter ended September 30, 2004. We
accomplished this efficiency improvement through a three-part strategy: (1)
increasing total collection revenues by capitalizing on the increased volume of
accounts we have available to collect; (2) using our existing infrastructure to
collect a greater dollar volume

of accounts; and (3) continuing to reduce variable costs required to collect
each dollar of revenue. We believe that our agreement with Varde, discussed in
greater detail below, has played a significant role in enabling us to increase
the volume of accounts we have available to collect. The increased revenues that
result from collecting a greater volume of accounts have outpaced increased
variable and other collection costs. We plan to continue improving this
efficiency measure, both by continuing to increase total revenues (while holding
infrastructure costs down) and by continuing to reduce variable costs required
to collect each dollar of revenue. We intend to continue monitoring the
magnitude of the change in the margin by which our total collection revenues
exceed our operating costs and expenses relative to the principal and interest
we pay to Varde under the credit facility to ensure that the Varde facility
provides additional liquidity to us and does not result in loan payments that
will deplete our cash balances.

Our general and administrative expenses increased to $704,000 for the quarter
ended September 30, 2005, from approximately $637,000 for the quarter ended
September 30, 2004, due principally to collection expenses associated with the
increase in collection revenues. Our salaries and benefits expenses increased by
$73,000 due principally to increases in administrative payroll and incentive pay
for collectors. Incentive pay has increased because our collectors have reached
collection targets that have resulted in the increases in total collection
revenues we discussed above. Our operating expenses may continue to increase in
the coming months as we increase the volume of accounts we collect, but we
expect increases in total revenues to continue to outpace any material increases
in costs associated with our collection efforts. Our ability to sustain revenue
increases that outpace cost increases depends on our ability to continue to
identify and make large dollar-volume purchases of portfolios at prices we
believe are reasonable.

COMPARISON OF RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

The following discussion compares our results for the nine months ended
September 30, 2005, to the nine months ended September 30, 2004. We incurred a
net loss of $10,000 for the nine months ended September 30, 2005, compared to
net income of $964,000 for the nine months ended September 30, 2004. Our
operating activities used cash of $1.1 million for the nine months ended
September 30, 2005, as compared to providing cash of $307,000 for the same
period in 2004.

Revenue
- -------

Our net revenues decreased to $5.8 million for the nine months ended September
30, 2005, from $6.0 million for the nine months ended September 30, 2005. The
following table presents a comparison of the components of our revenues for the
nine months ended September 30, 2005 and 2004, as well as presenting net revenue
as a percentage of the corresponding total revenue (approximate amounts due to
rounding):

Total Collections Sales
---------------------------- ---------------------------- ----------------------------
For the Nine Months For the Nine Months For the Nine Months
Ended September 30, Ended September 30, Ended September 30,
2005 2004 2005 2004 2005 2004
------------- ------------- ------------- ------------- ------------- -------------
($ in millions) ($ in millions) ($ in millions)

Total revenues $ 10.6 $ 11.3 $ 10.0 $ 7.2 $ 0.6 $ 4.1
Less basis recovery (4.7) (5.3) (4.5) (2.2) (0.2) (3.1)
------------- ------------- ------------- ------------- ------------- -------------
Net revenues $ 5.8 $ 6.0 $ 5.5 $ 5.0 $ 0.4 $ 1.0
============= ============= ============= ============= ============= =============

Net Revenue Percentage 55.2% 53.3% 54.6% 70.4% 66.9% 23.9%

Portfolio collections provided 94.5% of our total revenues for the nine months
ended September 30, 2005, and 63.4% for the same period in 2004. Our total
revenues from portfolio collections increased by $2.8 million substantially due
to collections from recently purchased portfolios and increased efficiency in
collection procedures for both recently purchased and older portfolios. The
increase in the volume of accounts available for collection has facilitated an
increase in collection efficiency as measured by the dollar volume of
collections per collector. Our net revenues from portfolio collections increased
by $419,000, but the percentage of net collection revenues to total collection
revenues declined significantly. These results reflect the fact that recently
purchased portfolios (which provide no net revenues because of front-loaded cost
basis recovery) provided a substantial portion of our increased total collection
revenues.

During the nine months ended September 30, 2005, we acquired $6.0 million of new
portfolios (net of returns). During the year 2004, we acquired $5.3 million of
new portfolios (net of portions of portfolios we promptly resold). We expect to
continue to have strong total collection revenue as we collect these recent
portfolio purchases. The cost basis recovery associated with collecting recently
purchased 2004 portfolios, combined with the portfolios that we have already
acquired in 2005 and additional portfolios we plan to acquire in 2005, could
continue to offset the increase in net revenue percentage we would otherwise
expect our older portfolios (whose cost bases we have completely recovered) to
generate and actually result in a further decline in our net revenue percentage.

Both our total and net revenues from portfolio sales showed dramatic decreases.
As part of our program to emphasize efforts to continue to collect some of our
older portfolios, we identified a substantial number of older portfolios whose
collection lives, from our perspective, have run their course. We identified
these portfolios as candidates for sale and were able to sell a number of them
in the first six months of 2004 on terms we considered acceptable. We engaged in
further sales of such portfolios in the second quarter of 2005, but not nearly
at the magnitude of the sales during the first six months of 2004. We may engage
in further sales of such portfolios if we believe market conditions are
acceptable, but we do not believe any such sales would approach the magnitude of
sales from 2004. We continue collection efforts for certain accounts in these
portfolios right up until the point of sale. During the nine months ended
September 30, 2004, the prompt resale of portions of portfolios we purchased
provided approximately $2.4 million of our $4.1 million of total revenues from
portfolio sales. The prompt resale of portions of portfolios we purchased during
the first nine months of 2005 did not provide material total or net revenues. 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 $5.6 million for the nine
months ended September 30, 2005, from $5.0 million for the nine months ended
September 30, 2004, due primarily to the increase in collection costs associated
with our increase in collection revenue. Our ratio of operating costs and
expenses to revenues from collections (i.e., excluding the effect of portfolio
sales), a measure of collection efficiency, decreased to 55.6% for the nine
months ended September 30, 2005, from 70.2% for the nine months ended September
30, 2004. As discussed in more detail in the quarter-to-quarter analysis above,
our three-part strategy - increased collections, infrastructure leveraging and
variable cost reduction - helped us accomplish this efficiency improvement. We
plan to continue improving this efficiency measure, both by continuing to
increase total revenues (while holding infrastructure costs down) and by
continuing to reduce variable costs required to collect each dollar of revenue.
We believe that our agreement with Varde has played, and will continue to play,
a significant role in enabling us to increase the volume of accounts we have
available to collect. We intend to continue monitoring the magnitude of the
change in the margin by which our total collection revenues exceed our operating
costs and expenses relative to the principal and interest we pay to Varde under
the credit facility to ensure that the Varde facility provides additional
liquidity to us and does not result in loan payments that will deplete our cash
balances.

Our general and administrative expenses increased to $2.3 million for the nine
months ended September 30, 2005, from $1.9 million for the nine months ended
September 30, 2004, due principally to collection expenses associated with the
increase in collection revenues. Our salaries and benefits expenses increased
to approximately $3.2 million for the nine months ended September 30, 2005, from
approximately $3.0 million for the nine months ended September 30, 2004, due
principally to increases in administrative payroll and incentive pay for
collectors. Incentive pay has increased because our collectors have reached
collection targets that have resulted in the increases in total collection
revenues we discussed above. Our operating expenses may continue to increase
somewhat in 2005 as we increase the volume of accounts we collect, but we expect
increases in total revenues to continue to outpace any material increases in
costs associated with our collection efforts. Our ability to sustain revenue
increases that outpace cost increases depends on our ability to continue to
identify and make large dollar-volume purchases of portfolios at prices we
believe are reasonable.

LIQUIDITY AND CAPITAL RESOURCES

Our cash and cash equivalents increased $479,000 in the first nine months of
2005 to a balance of $2.5 million at September 30, 2005. During the nine months
ended September 30, 2005, our portfolio collections and sales generated

$10.6 million of cash, we borrowed $4.0 million and we used $5.7 million for
operating and other activities, $6.0 million to purchase new portfolios, $1.9
million to repay loans and $494,000 for distributions to unit holders.

The large cost basis recovery associated with the recent rapid growth in our
portfolios has made it difficult to achieve results consistent with our business
plan. During the nine months ended September 30, 2005, we made progress toward,
but did not achieve results consistent with, our business plan: to recover the
cost we pay for our portfolios, repay funds borrowed to purchase portfolios, pay
our collecting and operating costs and still have a profit. Excluding the
results from portfolio sales in the first nine months of 2005, our cost basis
recovery of $4.5 million plus our operating, interest and other expenses of $5.8
million exceeded our total revenues from collections of $10.0 million by
$393,000.

During 2004 and the beginning of 2005, we believe we have 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, continue to show results. We have used
our dialer to ensure that our collectors continue to focus on portfolios other
than those we have most recently acquired. By monitoring the results of calls
originated through our dialer, we identified portfolios that required more cost
to collect than others. Particularly where we had worked to collect these
portfolios over an extended period of time, we determined that some of our
portfolios' collection lives had run their course from our perspective. We sold
a substantial number of older portfolios identified by this process in 2004 and
a lesser number of such portfolios in the second quarter of 2005. We believe
this process of constantly evaluating portfolio returns against costs of
collection should continue to improve the balance between our new and old
portfolios. Current plans for 2005 do not call for the sale of a large number of
older portfolios, but we may engage in further sales if we believe market
conditions are acceptable.

During 2004, we simultaneously addressed two objectives: (1) to increase the
volume of portfolios available for collection in order to capitalize on
infrastructure capacity and (2) to improve cash liquidity. Of the $7.4 million
of portfolios we purchased in 2004, we retained $5.3 million to collect (we
promptly resold the other $2.1 million). During the first nine months of 2005,
we purchased $6.0 million of portfolios (net of returns). These purchases
enabled us to reverse a trend in 2003 of steadily declining portfolio cost
basis, which had resulted from our difficulty in finding portfolios available
for purchase at prices we considered reasonable. Because of the improvement in
the volume of portfolios available for collection, during the second half of
2004 we added collection personnel to capitalize on our infrastructure capacity,
with increased total revenues from collections outpacing increased costs
associated with added headcount and increased collection activity. We have not
continued to acquire portfolios in the third quarter of 2005 at the pace of the
first six months of the year. Although we intend to continue making larger
dollar-volume purchases of portfolios, our future portfolio purchases will
depend on our assessment of market conditions, as well as the amount of liquid
cash and other financial resources available to us.

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, 2005, increased
$3.6 million to $22.8 million from $19.2 million at December 31, 2004. At the
same time, the cost basis of our portfolios increased to $4.3 million at
September 30, 2005, from $3.0 million at December 31, 2004.

Our estimate of fair value and our portfolio cost basis increased due in part to
the large portfolio purchases we made in 2004 and 2005, and fair value also
increased 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. Whether the fair
value and cost basis of our portfolios will continue to increase in the near
term will depend on our ability to find portfolios at a reasonable price in a
very competitive market. If we can find reasonably priced portfolios, we believe
our portfolio cost basis will increase in the near term because we can use the
Varde credit facility as well as reinvest some cash proceeds from collections to
purchase new portfolios. Long-term growth in portfolio cost basis will depend on
whether market conditions continue to permit us to purchase portfolios at
reasonable prices and on our financial resources.

We used a discount rate of 20% to determine the estimates of fair value of our
portfolios at September 30, 2005, and December 31, 2004. 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, 2005 December 31, 2004
------------------- ------------------

Higher collection risk (25% discount rate) $ 21.3 million $ 17.9 million
Assumed collection risk (20% discount rate) $ 22.8 million $ 19.2 million
Lower collection risk (15% discount rate) $ 24.6 million $ 20.8 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.

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

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

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

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

In the near term we plan to use some of our cash collections representing cost
basis recovery to make distributions to our members and interest holders.
Ultimately we plan to generate cash in excess of our collection and operating
costs and our cost basis recovery and to use some of the excess cash to make
distributions to our members and interest holders. Beginning in April 2003, we
began making quarterly distributions. During 2004, we made distributions
totaling $674,000. We made distributions of $165,000 in each of January 2005,
April 2005, July 2005, and October 2005 relating to quarters ended December 31,
2004, March 31, 2005, June 30, 2005, and September 30, 2005 respectively.

Our agreement with Varde provides us with a source of capital to purchase new
portfolios. The agreement provides up to $25 million of capital (counting each
dollar loaned on a cumulative basis) over a five-year term. It is unlikely that
we will ever have outstanding indebtedness approaching the full $25 million at
any one time, due to the cumulative nature of the facility. At September 30,
2005, Matterhorn owed $3.5 million under the facility in connection with
purchases of certain charged-off loan portfolios. Under the credit facility,
Varde has a first priority security interest in Matterhorn's assets. The assets
of Matterhorn that provide security for Varde's loan were carried at a cost of
$3.5 million at September 30, 2005. The loan advances have minimum payment
threshold points with terms of two years and bear interest at the rate of 12%
per annum. These obligations are scheduled to be paid in full on dates ranging
from August 2006 to April 2007. Once all funds (including those invested by us)
invested in a portfolio financed by Varde have been repaid (with interest) and
all servicing costs have been paid, Varde will begin to receive a residual
interest in

collections of that portfolio. Depending on the performance of the portfolio,
these residual interests may never be paid, they may begin being paid a
significant time later than Varde's loan is repaid (i.e., after the funds
invested by us are repaid with interest), or, in circumstances where the
portfolio performs extremely well, the loan could be repaid early and Varde
could conceivably begin to receive its residual interest on or before the date
that the loan obligation was originally scheduled to be paid in full.

The amount of remaining available credit under the facility at September 30,
2005 was $19.3 million. Matterhorn has borrowed a total of $5.7 million, with
$3.5 million outstanding at September 30, 2005. There can be no assurance that
Varde will advance any new money under the facility, because in each instance
Varde must approve of the portfolio(s) we propose to acquire and the terms of
the acquisition. We do not have any plans to raise equity capital. Based on our
cash position and current financial resources, and assuming our operating
results continue to increase at projected levels, we believe we have adequate
capital resources to continue our business as presently conducted for the
foreseeable future. We plan to continue to use the Varde credit facility to
maximize the return on our infrastructure and to continue to reduce variable
costs required to collect each dollar of revenue. We will continue to consider
other alternatives to increase the volume of accounts we service, however, if
the economic returns to us seem reasonable.

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

ITEM 3. CONTROLS AND PROCEDURES

In accordance with the Exchange Act, we carried out an evaluation, under the
supervision and with the participation of management, including our Chief
Operations Officer and our Accounting Manager, of the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
report. In designing and evaluating disclosure controls and procedures,
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving the
desired control objectives. Further, the design of a control system must reflect
the fact that there are resource constraints. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, may
be detected. Based on this evaluation, our Chief Operations Officer and our
Accounting Manager concluded that our disclosure controls and procedures were
effective as of September 30, 2005, to provide reasonable assurance that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
As noted below, however, we previously identified a weakness in our disclosure
controls and procedures that existed during the period ended September 30, 2004.

During the process of evaluating and testing the effectiveness of our disclosure
controls and procedures for the period ended September 30, 2004, management
identified a potential deficiency involving the Company's failure to timely
disclose an event that was reportable under new Form 8-K Item 2.03. Disclosure
of this event was included in our Form 10-QSB for the quarter ended September
30, 2004, under Part II, Item 5. Since identifying this potential deficiency,
management has begun to monitor this potential deficiency in order to determine
whether any further mitigating controls are necessary. We filed a current report
on Form 8-K Item 2.03 one day late during the fourth quarter, on December 29,
2004, for a closing under the Varde credit facility that occurred on December
21, 2004. Our most recent closings under the Varde credit facility occurred on
February 25, 2005 and April 28, 2005, and we timely filed current reports on
Form 8-K Item 2.03 on March 2, 2005 and April 29, 2005, respectively. We intend
to continue monitoring the reporting of closings under the Varde credit facility
to ensure that related filings are made on a timely basis.

There has been no change in our internal controls over financial reporting that
occurred during the third quarter of 2005 that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.

PART II - OTHER INFORMATION

ITEM 6. 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 (1)

2.2 First Amended Disclosure Statement Describing Joint Chapter 11 Plan Proposed by Chapter 11
Trustee and the Official Committee of Equity Security Holders approved on October 12, 2001 (1)

3.1 Performance Capital Management, LLC Articles of Organization (1)

3.2 Operating Agreement for Performance Capital Management, LLC (1)

3.3 First Amendment to Operating Agreement for Performance Capital Management, LLC (1)

3.4 Second Amendment to Operating Agreement for Performance Capital Management, LLC (2)

4.1 Specimen Performance Capital Management, LLC Unit Certificate (1)

4.2 Specimen Performance Capital Management, LLC Economic Interest Unit Certificate (1)

4.3 Provisions in the Operating Agreement for Performance Capital Management, LLC pertaining to the
rights of LLC Unit holders (see Exhibits 3.2 and 3.3) (1)

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 *

* The certifications filed under Exhibit 32.1 are not deemed "filed" for
purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be
incorporated by reference into any filing of Performance Capital Management, LLC
under the Securities Exchange Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date hereof
irrespective of any general incorporation by reference language contained in any
such filing, except to the extent that Performance Capital Management, LLC
specifically incorporates it by reference.

(1) Filed on April 2, 2003 as an exhibit to our report on Form 8-K dated
February 4, 2002 and incorporated herein by reference.

(2) Filed on November 14, 2003 as an exhibit to our report on Form 10-QSB for
the period ended September 30, 2003 and incorporated herein by reference.

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 10, 2005 By: /s/ David J. Caldwell
- ----------------------- ------------------------------------
(Date) Name: David J. Caldwell
Its: Chief Operations Officer

EXHIBIT INDEX