**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K**





(Mark
      one)




x ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




**For
      the year ended December 31, 2006**




or


o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      transition period from ________________ to ________________





Commission
      File Number: **000-51794**





**POINT
      CENTER MORTGAGE FUND III, LLC**


(Exact
      name of registrant as specified in its charter)





**DELAWARE**
            
            **16-1704525**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)




**30900
      Rancho Viejo Road,**  **Suite
      100**


**San
      Juan Capistrano, California 92675**


(Address
      of principal executive offices) (Zip Code)





Registrant’s
      telephone number, including area code: **(949)
      661-7070**





Securities
      registered pursuant to Section 12(b) of the Act:


**Title
                  of Each Class**
              
              **Name
                  of Each Exchange on Which Registered****Units
                  of Membership Interest**
              
              **None**




Securities
      registered pursuant to Section 12(g) of the Act:


(Title
      of
      Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes
o
      No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.


Yes
o
      No x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes
x No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (Sec 229.405 of this chapter) is not contained herein, and will
      not be contained, to the best of the registrant’s knowledge, in definitive proxy
      or information statements incorporated by reference in Part III of this Form
      10-K or any amendment to this Form 10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filer o
            Accelerated
                filler o
            Non-accelerated
                filer x





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





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of the last
      business day of the registrant’s most recently completed second fiscal quarter.
      Not applicable.










**As
      of March 28, 2007 the Company had 18,346.71 units of membership interest
      outstanding.**




TABLE
      OF
      CONTENTS





PageSPECIAL
                NOTE REGARDING FORWARD-LOOKING STATEMENTS
            
            (i)PART
                IITEM
                1.
            
            
            BUSINESS
            
            
            1ITEM
                1A.
            
            
            RISK
                FACTORS
            
            
            11ITEM
                1B.
            
            
            UNRESOLVED
                STAFF COMMENTS
            
            
            23ITEM
                2.
            
            
            PROPERTIES
            
            
            23ITEM
                3.
            
            
            LEGAL
                PROCEEDINGS
            
            
            24ITEM
                4.
            
            
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            
            24PART
                IIITEM
                5.
            
            
            MARKET
                FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
                PURCHASES OF EQUITY SECURITIES
            
            
            24ITEM
                6.
            
            
            SELECTED
                FINANCIAL DATA
            
            
            24ITEM
                7.
            
            
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS
            
            
            25ITEM
                7A.
            
            
            QUANTITATIVE
                AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            
            34ITEM
                8.
            
            
            FINANCIAL
                STATEMENTSAND SUPPLEMENTARY DATA
            
            
            34ITEM
                9.
            
            
            CHANGES
                IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING AND
                FINANCIAL
                DISCLOSURE
            
            
            34ITEM
                9A.
            
            
            CONTROL
                AND PROCEDURES
            
            
            34ITEM
                9B.
            
            
            OTHER
                INFORMATION
            
            
            36PART
                IIIITEM
                10.
            
            
            DIRECTORS,
                EXECUTIVE OFFICERSAND
                CORPORATE GOVERNANCE
            
            
            36ITEM
                11.
            
            
            EXECUTIVE
                COMPENSATION
            
            
            37ITEM
                12.
            
            
            SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS
            
            
            37ITEM
                13.
            
            
            CERTAIN
                RELATIONSHIPS AND RELATED TRANSACTIONSAND DIRECTOR INDEPENDENCE
            
            
            38ITEM
                14.
            
            
            PRINCIPAL
                ACCOUNTING FEES AND SERVICES
            
            
            38PART
                IVITEM
                15.
            
            
            EXHIBITS
                AND FINANCIAL STATEMENT SCHEDULES
            
            
            39EXHIBIT
                  INDEX
            
            
            39SIGNATURES
            
            
            39INDEX
                  TO FINANCIAL STATEMENTS
            
            
            F-1REPREPORT
                OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
            
            
            F-2BALANCE
                SHEET
            
            
            F-4STATEMENT
                OF INCOME AND CHANGES IN MEMBERS' EQUITY
            
            
            F-5STATEMENT
                OF CASH FLOWS
            
            
            F-6NOTES
                TO FINANCIAL STATEMENTS
            
            
            F-7








**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





This
      Annual Report on Form 10-K contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1993 and Section 21E of the
      Securities Exchange Act of 1934 that relate to future events or our future
      financial performance. In addition, other statements we may make from time
      to
      time, such as Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
      prospectuses, prospectus supplements, press releases, oral statements made
      by
      our officials, and other reports that we file with the Securities and Exchange
      Commission, may also contain such forward-looking statements. Undue reliance
      should not be placed on these statements, which involve known and unknown risks,
      uncertainties and other factors, which may cause our actual results, performance
      or achievements to be materially different from any future results, performances
      or achievements expressed or implied by the forward-looking statements. In
      some
      cases, forward-looking statements can be identified by terminology such as
      “may”, “will”, “should”, “would”, “expect”, “plan,” “anticipate,” “intend,”
“believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of
      such terms or other comparable terminology.





The
      forward-looking statements are based on our beliefs, assumptions and
      expectations of our future performance, taking into account all information
      currently available to us. These beliefs, assumptions and expectations can
      change as a result of many possible events or factors, not all of which are
      known to us or are within our control. If a change occurs, our business,
      financial condition, liquidity and results of operations may vary materially
      from those expressed in our forward-looking statements. Forward-looking
      statements we make in this report are subject to various risks and uncertainties
      that could cause actual results to vary from our forward-looking statements,
      including:





·
            the
                factors described in this report, including those set forth under
                the
                sections captioned “Risk Factors,” “Business,” and “Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations.





·
            our
                future operating results;





·
            our
                business prospects;





·
            general
                volatility of the real estate markets in which we
                invest;





·
            changes
                in our business strategy or underwriting
                criteria;





·
            availability,
                terms and deployment of capital;





·
            availability
                of qualified personnel;





·
            changes
                in our industry, interest rates or the general
                economy;





·
            increased
                rates of loan defaults;





·
            increased
                prepayments of our loans;





·
            changes
                in governmental regulations, tax rates and similar
                matters;





·
            availability
                of lending opportunities;





·
            the
                degree and nature of our
                competition;





·
            the
                adequacy of our cash reserves and working capital;
                and





·
            the
                timing of cash flows, if any, from our
                investments.





Any
      or
      all of the forward-looking statements included in this report and in any other
      reports or public statements made by us may turn out to be inaccurate. This
      can
      occur as a result of incorrect assumptions or as a consequence of known or
      unknown risks and uncertainties. Many factors mentioned in this report or in
      other reports or public statements made by us, such as government regulation
      and
      the competitive environment, will be important in determining our future
      performance. Consequently, actual results may differ materially from those
      that
      might be anticipated from our forward-looking statements. Undue reliance should
      not be placed on any of these forward-looking statements because they are based
      on current expectations or beliefs regarding future events or circumstances,
      which involve known and unknown risks, uncertainties and other factors, which
      may cause our actual results, performance or achievements to be materially
      different from any future results, performances or achievements expressed or
      implied by these forward-looking statements.





(i)


Although
      we believe that our strategies, plans, objectives, goals, expectations and
      intentions reflected in, or suggested by these forward-looking statements are
      reasonable given current information available to us, we can give no assurance
      that any of them will be achieved.





These
      forward-looking statements should be considered in light of the information
      included in this report and our other filings with the Securities and Exchange
      Commission. The “ Management’s
      Discussion and Analysis of Financial Condition and Results of Operations”
section of this report should be read in conjunction with the financial
      statements and the related notes that appear elsewhere in this
      report.





We
      assume
      no, and hereby disclaim any, obligation to update any of the foregoing or any
      other forward-looking statements. We nonetheless reserve the right to make
      such
      updates from time to time by press release, periodic report or other method
      of
      public disclosure without the need for specific reference to this report or
      any
      other report filed by us. No such update shall be deemed to indicate that other
      statements not addressed by such update remain correct or create an obligation
      to provide any other updates.





(ii)


**PART
      I**





**ITEM
      1.**  **BUSINESS**





**General**





We
      were
      formed on July 14, 2004, and we commenced our business operations during June
      2006, when our first real estate loan was funded.  We are not a mutual fund
      or an investment company within the meaning of the Investment Company Act of
      1940, nor are we subject to any regulation thereunder. On February 3, 2006,
      our
      Registration Statement as filed with the Securities and Exchange Commission
      became effective for the initial public offering of up to $500,000,000 of units
      of membership interest, initially priced at $1,000 per unit with a minimum
      subscription of 25 units ($25,000). Our public offering of units will continue
      until February 3, 2008, unless we terminate it earlier. After our initial loan
      was funded, our Manager, Point Center Financial, Inc., sets a daily unit price
      for sales of additional units by adjusting the net book value of our assets
      to
      reflect the income and expenses accruing with respect to the loans we have
      funded. The adjusted net book value, divided by the number of units outstanding,
      determines the daily unit price. Our Manager owns computer software designed
      to
      perform this function. On March 28, 2007, the daily unit sales price was
      $1,009.75.





Our
      business is managed by Point Center Financial, Inc., a private California
      corporation, which is a mortgage broker licensed in the State of California
      and
      the State of Arizona, and which also performs mortgage banking services. Our
      Manager manages and controls our affairs and has responsibility and final
      authority in almost all matters affecting our business. We do not have any
      employees and we do not have an independent board of directors. Our Manager’s
      duties include dealings with members, accounting, tax and legal matters,
      communications and filings with regulatory agencies and all other needed
      management and operational duties.




As
      our
      only Manager, Point Center Financial, Inc., has complete authority and
      responsibility for:




·
            evaluating
                and choosing our real estate loans investments;




·
            deciding
                what agreements we will enter into and whether we will enter into
                joint
                ventures with other companies to invest in real estate loans;




·
            originating,
                servicing and managing our real estate loans; and




·
            managing
                all our other operations.




Assuming
      the sale of substantially all of the units being offered by us, we anticipate
      investing approximately 80% of our assets in secured first mortgages and 20%
      in
      second mortgage loans. Our second mortgage investments are riskier because
      our
      rights will be subject to the rights of the first mortgage lender.




Most
      of
      our loans have terms of 1 to 7 years. We anticipate investing approximately
      25%
      of our assets in construction loans and approximately 25% of our assets in
      unimproved land loans. In addition, we expect to invest approximately 20% of
      our
      assets in commercial property loans, 20% in acquisition and development loans
      and 10% in residential property loans.




We
      anticipate that approximately 90% of our loans will provide for payments of
      interest only with a “balloon payment” of principal payable in full at the end
      of the term. We also anticipate investing approximately 10% of our assets in
      bridge loans, which provide interim financing (generally up to 12 months) to
      enable borrowers to qualify for permanent refinancing. The “balloon payment”
loans and bridge loans in which we invest are riskier because they are
      non-investment grade loans made to borrowers whose ability to make repayment
      depends on their ability to refinance the loan or develop the property so they
      can refinance. We will review the appraisal of the value of the property and
      will generally invest in loans of up to 75% of that value and, in circumstances
      where borrowers are willing to pay a premium interest rate of 5% or more above
      market rate, our bridge loans may provide for interest to accrue and be payable
      together with the principal amount at maturity. However, there is no specific
      criteria that is used in evaluating the creditworthiness of balloon loan
      borrowers. Under circumstances where our Manager deems appropriate, we may
      acquire loans of the character described above, that are in default, are
      non-performing or are delinquent.




California,
      as well as many other real estate markets around the country, has continued
      to
      enjoy a steady rise in property values, and with the current interest rates
      being low, investments in real estate by both property owners and as mortgage
      lenders are very attractive. As interest rates rise our industry will be in
      competition with institutional lenders, because the margin between institutional
      cost of funds and our cost of funds will lessen. We act as an interim lender
      with maturities of from 1 to 7 years and the majority of our loans will have
      fixed rates of interest. Therefore, even in the event of a rise in institutional
      interest rates, we anticipate that our borrowers will still be able refinance
      or
      sell their property in a timely manner to facilitate the repayment of our loans.
      We also expect that the residential market will be most affected by a rise
      in
      interest rates and, since we are primarily commercial lenders, we will be less
      affected. In the early 1990’s when California experienced a dramatic drop in
      real estate values, we saw that most of the problems in our industry were with
      the junior loans. Since we primarily make first position loans with substantial
      equity requirements, in the event of a drop in real estate values, we believe
      that our loan-to-value ratios will be sufficient to minimize the number of
      problem loans we might experience.





1


**Investment
      Objectives and Policies**





*Genera**l*





W e
      anticipate investing approximately 80% of our assets in secured first mortgages
      and 20% in second mortgage loans. Our second mortgage investments are riskier
      because our rights will be subject to the rights of the first mortgage lender.
      Our Manager estimates that the size of our real estate loans will range from
      $500,000 to $25 million and that the average size of our loans will be
      $3 million to $10 million. Most of our loans will have terms of 1 to 7
      years. We anticipate investing approximately 25% of our assets in construction
      loans and approximately 25% of our assets in unimproved land loans. In addition,
      we expect to invest approximately 20% of our assets in commercial property
      loans, 20% in acquisition and development loans and 10% in residential property
      loans.




We
      anticipate that approximately 90% of our loans will provide for payments of
      interest only with a “balloon payment” of principal payable in full at the end
      of the term. We also anticipate investing approximately 10% of our assets in
      bridge loans, which provide interim financing (generally up to twelve months)
      to
      enable borrowers to qualify for permanent refinancing. The “balloon payment”
loans and bridge loans in which we invest are riskier because they are
      non-investment grade loans made to borrowers whose ability to make repayment
      depends on their ability to refinance the loan or develop the property so they
      can refinance. We will review the appraisal of the value of the property and
      will generally invest in loans of up to 75% of that value and, in circumstances
      where borrowers are willing to pay a premium interest rate of 5% or more above
      market rate, our bridge loans may provide for interest to accrue and be payable
      together with the principal amount at maturity. However, there is no specific
      criteria that is used in evaluating the creditworthiness of balloon loan
      borrowers. Under circumstances where our Manager deems appropriate, we may
      acquire loans of the character described above, that are in default, are
      non-performing or are delinquent. All of these loans are described in greater
      detail in the pages under the heading “Types of Loans We Intend to Invest
      In.”




We
      intend
      to invest in real estate loans throughout the areas in which our Manager has
      experience, specifically California, Nevada, Arizona, Utah, Colorado and Texas.
      Depending on the market and on our performance, we plan to expand our
      investments throughout the United States. The loans we make and the real estate
      we will invest in will be selected for us by our Manager from among loans
      originated by our Manager or non-affiliated mortgage brokers and real properties
      identified by or through our Manager. When our Manager or someone else
      originates a loan for us, that person obtains the borrower, processes the loan
      application, at which time we will then fund the loan. We believe our loans
      will
      be attractive to borrowers because of the expediency of our Manager's loan
      approval process, which takes about 10 to 20 days. Our Manager will obtain
      and negotiate each loan, after which we will fund the loan. We may also purchase
      existing loans from third parties or from our Manager, provided that our Manager
      sells us the loan at cost.





As
      a
      non-conventional lender, we are more willing to invest in real estate loans
      to
      borrowers that conventional lenders would not deem to be creditworthy. Because
      of our increased willingness to fund riskier loan types and borrowers, we expect
      that our borrowers will be willing to pay us an interest rate that is three
      (3)
      to six (6) points above the rates charged by conventional lenders. We intend
      to
      invest in a significant amount in loans in which the real property being
      developed is not generating any income to the borrower.




Set
      forth
      below are our lending policies, through which we will invest the proceeds from
      the sale of units. These policies may be changed by our Manager, and unit
      holders will be advised of any material changes. There are no limitations on
      the
      size of the loans we will make or on fixed versus floating interest rate
      loans.




*Acquisition
      and Investment Policies*




We
      will
      seek to invest substantially all of the proceeds from our public offering of
      units and distribution reinvestments in real estate loans, after paying
      applicable fees and expenses, if any. We anticipate that we will invest about
      97% of the offering proceeds, and the proceeds from distribution reinvestments,
      in real estate loans. Approximately 3% of these proceeds will be held as a
      working capital cash reserve.




2


We
      anticipate that the majority of our collateral on our loans will be the real
      property that the borrower is purchasing or developing with the funds that
      we
      make available. We sometimes refer to these real properties as the security
      properties. While we may invest in other types of loans, we believe that most
      of
      the loans in which we invest will have been made to real estate developers
      with
      a lesser proportion of loans involving land loans and bridge financing.





We
      will
      not give any rebates or enter into any reciprocal agreement with our Manager
      or
      any of its affiliates that enables our Manager or its affiliates to receive
      a
      rebate. We do not anticipate that our real estate loan investments will be
      insured or guaranteed by any government agency.




Our
      Manager will continuously evaluate prospective investments, select the real
      estate loans in which we invest and make all investment decisions on our behalf
      in its sole discretion, unless the provisions of our Operating Agreement
      provides otherwise. Unit holders are not entitled to act on any proposed
      investment. In evaluating prospective real estate loan investments, our Manager
      considers such factors as the following:




·
            the
                ratio of the amount of the investment to the value of the property
                by
                which it is secured;




·
            the
                potential for capital appreciation or depreciation of the property
                securing the investment;




·
            expected
                levels of rental and occupancy rates (if applicable);




·
            potential
                for rental increases (if applicable);




·
            current
                and projected revenues from the property;




·
            the
                status and condition of the record title of the property securing
                the
                investment;




·
            geographic
                location of the property securing the investment; and




·
            the
                financial condition of the borrowers, their principals, and any additional
                guarantors of the loans.




Our
      Manager may obtain our loans from affiliated and non-affiliated mortgage brokers
      and previous borrowers, and by solicitation of new borrowers in those states
      where permissible. We may purchase existing loans that were originated by
      third-party lenders and acquired by our Manager to facilitate our purchase
      of
      the loans. Our Manager will sell the loans to us for no greater than our
      Manager's cost, not including its service fees and compensation. There are
      no
      specific requirements or guidelines governing our Manager's discretion in
      determining which real estate loans it will place with us and which it will
      place with other funding sources.





*Purchase
      of Loans from our Manager and its Affiliates*




In
      addition to funding those loans our Manager selects for us, we may purchase
      loans that were originated by our Manager or other parties and first held for
      their own portfolio, as long as the loan is not in default and otherwise
      satisfies our investment objectives and lending policies described in this
      report. This requirement also applies to any loan originated by an affiliate
      of
      our Manager, such as Mr. Harkey or another principal of our
      Manager.




*Types
      of Loans We Intend to Invest In*





We
      primarily invest in real estate loans that will be secured by first or second
      mortgages on real property. Such loans fall into the following categories:
      raw
      and unimproved land, acquisition and development, construction, commercial,
      residential and bridge loans.




Raw
      and Unimproved Land Loans. Loans
      invested in by us may be loans made for the purchase or development of raw,
      unimproved land. Generally, we determine whether to invest in these loans based
      upon the 90-day quick sale value of the property and the borrower's actual
      capital investment in the property. The "90-day quick sale value" is the highest
      price for which the land could actually be sold within the next 90 days, as
      determined by local real estate brokers. We believe that this 90-day period
      approximates the time required for a foreclosure. The value is generally the
      same as the cost of the land to the borrower. Typically, we will invest in
      loans
      with a face value that is less than 60% of the "90-day quick sale value," and
      we
      usually require that the borrower have invested in the property actual capital
      expenditures of at least 20% of the property's value.




3


Acquisition
      and Development Loans. Loans
      invested in by us may be acquisition and development loans. These loans enable
      borrowers to complete the basic infrastructure and development of their property
      prior to the construction of buildings or structures. Such development may
      include installing utilities, sewers, water pipes, and/or streets. Generally,
      we
      will invest in loans with a face value of approximately 70% of the anticipated
      post-development appraised value of the property.




Construction
      Loans. Loans
      invested in by us may be construction loans. A construction loan provides funds
      for the construction of one or more structures on developed land. Funds under
      this type of loan will generally not be forwarded to the borrower until work
      in
      the previous phase of the project has been completed and an independent
      inspector has verified certain aspects of the construction and its costs. We
      will typically require material and labor lien releases by the borrower per
      completed phase of the project. We will review the appraisal of the value of
      the
      property and proposed improvements, and will generally arrange loans for up
      to
      70% of the anticipated post-development appraised value.




Staged
      Funding of Construction Loans. Construction
      loan borrowers may request that the loan be funded in part at the various stages
      of the construction process. If the loan is a construction loan to be funded
      in
      installments, we will require the borrower, among other things, to acknowledge
      and agree to close the entire loan transaction, even though a lesser amount
      is
      being funded at the initial stage. We will attempt to raise the unfunded portion
      of the construction loan through the continued sale of units in our public
      offering, borrowings by us and/or the reinvestment of proceeds from the
      repayment of other loans, in order to meet the draw down schedule that is set
      forth in the construction loan. However, we will not guarantee to the borrower
      that we will be successful in raising the unfunded portion.




If
      we are
      unsuccessful in raising the unfunded portion of a construction loan, there
      could
      be adverse consequences associated with the loan, including but not limited
      to:
      (a) a loss of the value of the property securing the loan if it is
      incomplete and the borrower is unable to raise funds to complete it from other
      sources; (b) a borrower claim against us for failure to perform under the
      loan documents; (c) increased costs to the borrower, which it may not have
      the ability to meet; (d) a bankruptcy filing by the borrower; and
      (e) abandonment by the borrower of the collateral for the loan.




Commercial
      Property Loans. Loans
      invested in by us may be commercial property loans. Commercial property loans
      provide funds to allow commercial borrowers to make improvements or renovations
      to the property in order to increase the net operating income of the property
      so
      that it may qualify for institutional refinancing. We will review the appraisal
      of the value of the property and will generally invest in loans for up to 70%
      of
      such appraised value.




Residential
      Loans. Loans
      invested in by us may be residential loans. Such loans facilitate the purchase
      or refinance of one to four family residential property units, provided the
      borrower uses one of the units on the property as such borrower's principal
      residence. Generally, we will invest in loans for up to 75% of value of the
      property.




Bridge
      Loans. Loans
      invested in by us may be bridge loans. Such loans provide interim financing
      (generally up to 12 months) to enable commercial borrowers to qualify for
      permanent refinancing. We will review the appraisal of the value of the property
      and will generally invest in loans of up to 75% of that value.




*Collateral*




The
      types
      of collateral that will secure the loans brokered by us include a first deed
      of
      trust, a second deed of trust or a leasehold interest.




First
      Deed of Trust. Loans
      invested in by us may be secured by a first deed of trust. Thus the applicable
      lender will have rights as a first mortgage lender of the collateralized
      property.




Second
      Deed of Trust. Loans
      invested in by us may be in second mortgage loans and in wraparound mortgage
      loans. In a second mortgage loan, the rights of the lender (such as the right
      to
      receive payment on foreclosure) will be subject to the rights of the first
      mortgage lender. In a wraparound loan, the lender's rights will be comparably
      subject to the rights of a first mortgage lender, but the aggregate indebtedness
      evidenced by the loan documentation will be the first mortgage loan plus the
      new
      funds the lender invests. The lender would receive all payments from the
      borrower and forward to the senior lender its portion of the payments the lender
      receives.




Leasehold
      Interest. Loans
      invested in by us may be in loans where the collateral is an interest in a
      lease.




*Prepayment
      Penalties and Exit Fees*




Based
      on
      our Manager's historical experience, we anticipate that approximately 50% of
      the
      loans we invest in will not contain prepayment penalties or exit fees. If our
      loans are at a high rate of interest in a market of falling interest rates,
      the
      failure to have a prepayment penalty provision or exit fee in the loan allows
      the borrower to refinance the loan at a lower rate of interest, thus providing
      a
      lower yield to us on the reinvestment of the prepayment proceeds. However,
      these
      loans will usually be written with relatively high minimum interest rates,
      which
      we would expect to minimize the risk of lower yields.




4


*Balloon
      Payment*




We
      anticipate that approximately 90% of the loans we invest in or purchase will
      require the borrower to make a "balloon payment" on the principal amount upon
      maturity of the loan. There are no specific criteria used in evaluating the
      credit quality of borrowers for mortgage loans requiring balloon payments.
      Furthermore, a substantial period of time may elapse between the review of
      the
      financial statements of the borrower and the date when the balloon payment
      is
      due. As a result, there is no assurance that a borrower will have sufficient
      resources to make a balloon payment when due. To the extent that a borrower
      has
      an obligation to pay mortgage loan principal in a large lump sum payment, its
      ability to repay the loan may be dependent upon its ability to sell the
      property, obtain suitable refinancing or otherwise raise a substantial amount
      of
      cash. As a result, these loans involve a higher risk of default than loans
      where
      the principal is paid at the same time as the interest payments.




*Repayment
      of Mortgages on Sales of Properties*




We
      may
      require a borrower to repay a mortgage loan upon the sale of the mortgaged
      property rather than allow the buyer to assume the existing loan. We will
      require repayment if we determine that repayment appears to be advantageous
      to
      us based upon then-current interest rates, the length of time that the loan
      has
      been held by us, the creditworthiness of the buyer and our objectives. When
      a
      loan is repaid, we will have full discretion to either invest the net proceeds
      in new mortgage loans, hold the net proceeds as cash, or distribute them to
      unit
      holders. These net proceeds will also include the principal of a loan deemed
      to
      be repaid for tax purposes as a result of the nature of a loan modification
      or
      loan extension. Capital transactions include payments of principal, foreclosures
      and prepayments of mortgages, to the extent classified as a return of capital
      under the Internal Revenue Code, and any other disposition of a mortgage or
      property.




*Adjustable
      Rate Loans*




Adjustable
      rate loans originated by our Manager may use as indices the one and ten year
      Treasury Constant Maturity Index, the Prime Rate Index, LIBOR, and the Monthly
      Weighted Average Cost of Funds Index for Eleventh District Savings Institutions
      (Federal Home Loan Bank Board). Our Manager may negotiate spreads over these
      indices of 3% to 8%, depending upon market conditions when the loan is made.




It
      is
      possible that the interest rate index used in an adjustable rate loan will
      rise
      (or fall) more slowly than the interest rate of other loan investments available
      to us. Our Manager attempts to minimize this interest rate differential by
      tying
      adjustable rate loans to indices that are sensitive to fluctuations in market
      rates. Additionally, most adjustable rate loans will contain provisions under
      which the interest rate cannot fall below the initial rate.





*Interest
      Rate Caps*




All
      our
      adjustable rate loans will have interest rate caps. We anticipate that the
      interest rate cap will be a ceiling that is 5-8% above the starting rate with
      a
      floor rate equal to the starting rate. For these loans there is the risk that
      the market rate may exceed the interest cap rate.




Adjustable
      rate loans of five to fifteen year maturities are not assumable without the
      prior consent of our Manager. We do not expect to invest in or purchase a
      significant amount of other assumable loans. To minimize our risk, any borrower
      assuming an existing mortgage loan will be subject to the same underwriting
      criteria as the original borrower.




*Escrow
      Conditions*




Our
      loans
      will often be funded by us through an escrow account held by a title insurance
      company, subject to the following conditions:




·
            Borrowers
                will obtain title insurance coverage for all loans, with the title
                insurance policy naming us as the insured and providing title insurance
                in
                an amount at least equal to the principal amount of the loan. Title
                insurance insures only the validity and priority of our deed of trust,
                and
                does not insure us against loss by other causes, such as diminution
                in the
                value of the security property.




·
            Borrowers
                will obtain fire and casualty insurance for all loans secured by
                improved
                real property, naming us as loss payee in an amount sufficient to
                cover
                the replacement cost of improvements.




5




·
            All
                insurance policies, notes, deeds of trust or mortgages, escrow agreements,
                and any other loan document for a particular transaction will name
                us as
                payee and beneficiary. Real estate loans will not be written in the
                name
                of our Manager or any other nominee.




*Borrowing*




Under
      circumstances deemed appropriate by our Manager, we may incur indebtedness.
      Once
      we begin acquiring our loan portfolio, we could borrow money:




·
            to
                finance our investments in real estate loans;




·
            to
                prevent a default under real estate loans that are senior to our
                real
                estate loans;




·
            to
                discharge senior mortgage loans if this becomes necessary to protect
                our
                investment in real estate loans; or




·
            to
                operate or develop a property that we acquired under a defaulted
                loan.




At
      no
      time will our indebtedness exceed 60% of the fair market value of our real
      estate loans. This indebtedness may be with recourse to our assets. In addition,
      we may enter into structured arrangements with lenders in order to provide
      them
      with a senior position in real estate loans that we might jointly fund. For
      example, we might establish a wholly-owned special purpose limited liability
      company which would borrow funds from an institutional lender under an
      arrangement where the resulting real estate loans would be assigned to a trust,
      and the trust would issue a senior certificate to the institutional lender
      and a
      junior certificate to the special purpose limited liability company. This would
      assure the institutional lender of repayment in full prior to our receipt of
      any
      repayment on the jointly funded real estate loans. We have no present commitment
      with respect to any potential borrowing. If we borrow additional funds for
      the
      purpose of making loans, we will use the proceeds from that borrowing to
      directly fund those loans. It is not our intention to match the maturities
      or
      the interest rates of any borrowings with the maturity or interest rate of
      the
      loans that they fund. In addition, we will not engage in securitizations and
      investments in subordinated mortgage backed securities.





*No
      Trust or Investment Company Activities*




We
      have
      not qualified as a real estate investment trust under the Internal Revenue
      Code,
      and therefore we are not subject to the restrictions on its activities that
      are
      imposed on real estate investment trusts. We intend to conduct our business
      so
      that we are not an "investment company" within the meaning of the Investment
      Company Act of 1940. Finally, we intend to conduct our business so that we
      are
      not to be deemed a "dealer" in mortgage loans for federal income tax purposes
      and are not deemed to be a "taxable mortgage pool" for federal income tax
      purposes.




*Various
      Other Policies and Procedures*




Without
      approval of a majority of the holders of outstanding units, we will not:




·
            issue
                securities that are senior to the units or issue any units or other
                securities for other than cash;




·
            invest
                our assets in the securities of other issuers for the purpose of
                exercising control, except when exercising our rights as a secured
                lender;




·
            underwrite
                securities of other issuers;




·
            discontinue
                providing our unit holders with the reports described in this
                report;




·
            offer
                units in exchange for property; or




·
            invest
                in any offering by our Manager of any of its
                affiliates.




*Competition
      and General Economic Conditions*




There
      are
      hundreds of commercial banks, insurance companies, mortgage brokers, pension
      funds and other institutional lenders competing to make the type of loans in
      which we invest. There is no dominant competitor in this sector. For the past
      few years, the institutional lenders have not been as active in the commercial
      mortgage market as in prior years. Recently, however, many major institutional
      lenders have re-entered the commercial mortgage market due to a stronger
      economy, stabilized or increased property values and leasing rates, and the
      decrease in demand for residential loans. As a result, we anticipate competition
      for investments in mortgages secured by commercial properties, which creates
      pressure on lenders to lower interest rates. Consequently, we may not be able
      to
      obtain as high interest rates on mortgage investments as we would otherwise
      obtain, which would affect our revenues and the distributions our unit holders
      receive.




6


*Regulation*




Our
      operations are conducted by our Manager. Our Manager's operations as a mortgage
      company are subject to extensive regulation by federal, state and local laws
      and
      governmental authorities. Our Manager conducts its real estate mortgage business
      under a license issued by the California Department of Real Estate and provides
      mortgage banking services. Under applicable California law, the division has
      broad discretionary authority over our Manager's activities, including the
      authority to conduct periodic regulatory audits of all aspects of our Manager's
      operations.




We
      and
      our Manager are also subject to the Equal Credit Opportunity Act of 1974, which
      prohibits creditors from discriminating against loan applicants on the basis
      of
      race, color, sex, age or marital status, and the Fair Credit Reporting Act
      of
      1970, which requires lenders to supply applicants with the name and address
      of
      the reporting agency if the applicant is denied credit. We are also subject
      to
      various other federal and state securities laws regulating the issuance and
      sale
      of securities, as well as ERISA.




Should
      we
      or our Manager not adhere to these regulations, we could face potential
      disciplinary or other civil action that could have a material adverse effect
      on
      our business.




**Loans**




*General*




Our
      loans
      will all be secured by deeds of trust and/or mortgages on real property,
      including but not limited to, mortgage and construction loans on single family
      homes, multiple unit residential property (such as apartment buildings),
      commercial property (such as stores, shops, warehouses, churches and offices),
      and unimproved land (including land with entitlements and without entitlements).
      In addition to deeds of trust and/or mortgages, other forms of collateral may
      also be used to secure loans, including but not limited to: cross-collateralized
      property (i.e. deeds of trust and/or mortgages securing multiple properties),
      personal guarantees, irrevocable letters of credit, assignments of certificates
      of deposit, assignments of stock or partnership interests, and UCC-1 Financing
      Statements encumbering personal property.




The
      use
      of loan proceeds by the borrower will not generally be restricted, though those
      loans for construction purposes will be limited to building, remodeling, and/or
      development to enhance the property securing the loan. If a loan is for
      construction, rehabilitation, or development of the subject property, the loan
      will be directly secured by a deed of trust encumbering the property being
      improved, rehabilitated, or developed.




*Portfolio
      of Real Estate Loans*




We
      anticipate investing approximately 80% of our assets in secured first mortgages
      and 20% in second mortgage loans. Our second mortgage investments are riskier
      because our rights will be subject to the rights of the first mortgage lender.




Our
      Manager estimates that the size of our real estate loans will range from
      $500,000 to $25 million and that the average size of our loans will be
      $3 million to $10 million. Most of our loans will have terms of one
      (1) to seven (7) years. We anticipate investing approximately 25% of our assets
      in construction loans and approximately 25% of our assets in unimproved land
      loans. In addition, we expect to invest approximately 20% of our assets in
      commercial property loans, 20% in acquisition and development loans and 10%
      in
      residential property loans.




We
      anticipate that approximately 90% of our loans will provide for payments of
      interest only with a “balloon payment" of principal payable in full at the end
      of the term. We also anticipate investing approximately 10% of our assets in
      bridge loans which provide interim financing (generally up to 12 months) to
      enable borrowers to qualify for permanent refinancing. The “balloon payment”
loans and bridge loans in which we invest are riskier because they are
      non-investment grade loans made to borrowers whose ability to make repayment
      depends on their ability to refinance the loan or develop the property so they
      can refinance. We will review the appraisal of the value of the property and
      will generally invest in loans of up to 75% of that value and, in circumstances
      where borrowers are willing to pay a premium interest rate of 5% or more above
      market rate, our bridge loans may provide for interest to accrue and be payable
      together with the principal amount at maturity. However, there is no specific
      criteria that is used in evaluating the creditworthiness of balloon loan
      borrowers. Under circumstances where our Manager deems appropriate, we may
      acquire loans of the character described above, that are in default, are
      non-performing or are delinquent.




7


In
      addition to those policies contained in this report and the Operating Agreement,
      our Manager may establish written policies on loans and borrowings. Our
      principal investment objectives are to:




·
            Produce
                revenues from the interest income on our real estate loans;·
            Provide
                monthly cash distributions to our unit holders from the net income
                earned
                on our real estate loans;·
            Preserve
                and return capital contributions to our unit holders; and·
            Reinvest
                to the extent permissible payments of principal and proceeds of
                prepayments, sales and insurance proceeds, net of expenses.




There
      can
      be no assurance that we will achieve these objectives or that our capital will
      not decrease. Our Manager may change the overall investment strategy, subject
      to
      the fiduciary obligations that it owes to all members. However, our Manager
      may
      not change the investment objectives above, except upon majority approval.
      Our
      Manager has no authority to do anything that would impair our ability to carry
      on our ordinary business in funding real estate loans. Investors in units will
      not be given copies of the documents associated with our loans for their review
      prior to or after making their investment in units.





*Priority
      of Mortgages*




We
      anticipate investing approximately 80% of our assets in secured first mortgages.
      Other mortgages that we invest in on the security property will not be junior
      to
      more than one other mortgage. The only subordinated mortgages we currently
      intend to invest in at this time are second mortgages, although in the future
      we
      may invest in wraparound, or all-inclusive, mortgages.




*Loan-to-Value
      Ratio*




We
      do not
      anticipate that the amount of our loan combined with the outstanding debt
      secured by a senior mortgage on a security property will exceed the following
      percentage of the appraised value of the security property:




**Type
                of Secured Property**
            
            **Loan-to-Value
                Ratio**Residential
                (homes, condominiums and apartment buildings)
            
            75%Improved
                Residential Lots
            
            65%Unimproved
                Land
            
            55%Commercial/Industrial/Churches
            
            70%Property
                Under Development/Construction Loan
            
            70%
              (of
                anticipated post-development value)Leasehold
                Interest
            
            60%
              (of
                value of leasehold interest)




Our
      Manager, in its discretion, may increase any of the above loan-to-value ratios
      if a given loan is supported by credit adequate to justify a higher
      loan-to-value ratio, including personal guarantees. Occasionally, our collateral
      may include personal property as well as real property. We do not have specific
      requirements with respect to the projected income or occupancy levels of a
      property securing our investment in a particular loan. These loan-to-value
      ratios will not apply to financing offered by us to the purchaser of any real
      estate acquired through foreclosure, or to refinance an existing loan that
      is in
      default when it matures. In those cases, our Manager, in its sole discretion,
      shall be free to accept any reasonable financing terms it deems to be in our
      best interest. Nevertheless, in no event will the loan-to-value ratio on any
      loan exceed 80% of the independently appraised completed  value
      of
      the property. The target loan-to-value ratio for our loan portfolio as a whole
      is approximately 65%.




We
      will
      receive an independent appraisal for each property that is to be security for
      our loans. Copies of these appraisals will be available for review by our unit
      holders at the offices of our Manager for a period of six (6) years. We
      will retain appraisers who will be licensed or qualified as independent
      appraisers and be certified by or hold designations from one or more of the
      following organizations: The Federal National Mortgage Association, the Federal
      Home Loan Mortgage Corporation, the National Association of Review Appraisers,
      the Appraisal Institute, the Society of Real Estate Appraisers, M.A.I.,
      Class IV Savings and Loan appraisers, or from among appraisers with other
      qualifications acceptable to our Manager. However, appraisals are only estimates
      of value and cannot be relied on as measures of realizable value. An employee
      or
      agent of our Manager will review each appraisal report and will conduct an
      exterior physical inspection for each property. An exterior physical inspection
      includes an assessment of the subject property, the adjacent properties and
      the
      neighborhood, but does not include entering any structures on the property.




8


*Construction
      Mortgage Loans*




We
      anticipate that we will invest in construction loans other than home improvement
      loans on residential property, subject to the following guidelines:




·
            We
                do not anticipate that the loan-to-value ratio on construction loans
                in
                which we invest will exceed 70% of the independently appraised, completed
                value of the security property.




*Terms
      of Mortgage Loans*




Most
      of
      our loans will be for 1 to 7 years. We anticipate that approximately 90% of
      our loans will provide for payments of interest only with a “balloon payment” of
      principal payable in full at the end of the term.




*Escrow
      Conditions*





Our
      loans
      will often be funded by us through an escrow account held by a title insurance
      company, subject to the following conditions:




·
            Borrowers
                will obtain title insurance coverage for all loans, with the title
                insurance policy naming us as the insured and providing title insurance
                in
                an amount at least equal to the principal amount of the loan. Title
                insurance insures only the validity and priority of our deed of trust,
                and
                does not insure us against loss by other causes, such as diminution
                in the
                value of the security property.·
            Borrowers
                will obtain fire and casualty insurance for all loans secured by
                improved
                real property, naming us as loss payee in an amount sufficient to
                cover
                the replacement cost of improvements.·
            All
                insurance policies, notes, deeds of trust or mortgages, escrow agreements,
                and any other loan document for a particular transaction will name
                us as
                payee and beneficiary. Real estate loans will not be written in the
                name
                of our Manager or any other nominee.




*Assignment
      of Mortgage Investments from Affiliates*




Our
      affiliates, including our Manager, may assign real estate loans to us for a
      price not in excess of the par value of the loan or its fair market value,
      whichever is lower, plus allowable fees and expenses, but without the allowance
      of any other compensation for the loans. Except for the compensation paid to
      our
      Manager described elsewhere in this report, any affiliate from which we receive
      real estate loans will remit to us all income earned on the real estate loan
      subsequent to its assignment.




*Purchase
      of Promissory Notes/Note Hypothecation*





We
      may
      also acquire real estate loans secured by assignments of secured promissory
      notes. These real estate loans must satisfy our stated investment standards,
      including our loan-to-value ratios, and also may not exceed 80% of the principal
      amount of the assigned note. For example, if the property securing a note we
      acquire is commercial property, the loan must not exceed 75% of the appraised
      value of the property, and the loan will not exceed 80% of the principal amount
      of the assigned note. For real estate loans secured by promissory notes, we
      will
      rely on the appraised value of the underlying property, as determined by an
      independent written appraisal, which was conducted within the then-preceding
      12
      months. If an appraisal was not conducted within that period, then we will
      arrange for a new appraisal to be prepared for the property.




9


*Participation
      With Other Lenders Including Affiliates*




We
      may
      also participate in loans with other lenders, including affiliates, by providing
      funds for or purchasing an undivided interest in a loan meeting our investment
      guidelines described above. We would be more likely to participate in loans
      if,
      for example:




·
            we
                did not have sufficient funds to invest in an entire
                loan;·
            we
                received offering proceeds that were insufficient to adequately diversify
                our portfolio; or·
            Our
                Manager originated a loan that fit within our investment guidelines,
                but
                it would constitute more than 20% of our anticipated capital contribution
                or otherwise be disproportionately large given our then-existing
                portfolio.




We
      will
      participate in loans with non-affiliates if we acquire a controlling interest,
      alone or with any of our affiliates meeting the requirements below, in such
      participation. A controlling interest would enable us to direct or cause the
      direction of the management and policies of such participation, which would
      include the authority to:




·
            review
                all material contracts;·
            cause
                a sale of the mortgage or our interest therein subject in certain
                cases to
                limitations imposed by the participation agreement between the parties;·
            approve
                budgets and major capital expenditures, subject to a stated minimum
                amount;·
            veto
                any sale of a mortgage, or alternatively, to receive a specified
                preference on sale or proceeds; and·
            exercise
                a right of first refusal on any desired sale by a participant of
                its
                interest in a loan, except for transfer to its
                affiliate.




In
      the
      event of participation with a publicly registered affiliate, the investment
      objectives of the participants shall be substantially identical. There shall
      be
      no duplicate fees. The compensation to the sponsors must be substantially
      identical, and the investment of each participant must be on substantially
      the
      same terms and conditions. Each participant shall have a right of first refusal
      to buy the other's interest if the co-participant decides to sell its interest.
      We will not give our Manager or any of their affiliates any consideration
      similar to rebates or give-backs or enter into reciprocal arrangements with
      our
      Manager or its affiliates that might be entered into in lieu of participations.




*Reserve
      Fund*




We
      will
      establish contingency working capital reserves of approximately 3% of the gross
      proceeds from the sale of units in our public offering to cover our unexpected
      cash needs.




*Credit
      Evaluations*




Before
      making a loan, our Manager must first determine that a borrower has sufficient
      equity in the security property to meet the loan-to-value ratios described
      above. Our Manager may also consider the income level and creditworthiness
      of a
      borrower to determine its ability to repay the loan.




*Sale
      of Mortgage Investments*




Although
      our Manager has no plan to do so, our Manager may sell our real estate loans
      or
      interests in our loans to either affiliates or non-affiliated parties when
      our
      Manager believes that it is advantageous to us to do so. However, as noted
      elsewhere in this report, we do not expect that the loans will be marketable
      or
      that a secondary market will ever develop for them.





**Employees**





We
      do not
      have any employees. As of December 31, 2006, our Manager, Point Center
      Financial, Inc., employed 60 personnel. Of these employees, 13 were employed
      to
      identify, arrange, and service loans and 47 performed general and administrative
      as well as information technology and marketing functions.





10


**Available
      Information**





Our
      Internet website address is http://www.pcmortgagefund.com .
      We make
      available free of charge Annual Reports on Form 10-K, Quarterly Reports on
      Form
      10-Q, Current Reports on Form 8-K and all amendments to those reports, as soon
      as reasonably practicable, after such material is electronically filed or
      furnished to the United States Securities and Exchange Commission.




**ITEM
      1A.**  **RISK****FACTORS**





Our
      business is subject to numerous factors affecting our operating results. The
      following summary describes factors we believe are material risks that apply
      to
      our business. In addition to the risks described below, our business, financial
      condition and operating results could be harmed by other risks, including risks
      we have not yet identified or that we may believe are immaterial or
      unlikely.





**Risks****to the Holders of Our Units**




*We
      have a limited operating history and no past performance for
      review.*




We
      were
      organized on July 14, 2004, but did not commence operations until June 28,
      2006. Accordingly, we have only a limited operating history. We have no external
      source of financing and are relying on capital contributions received through
      our public offering of units of membership interest. Our unit holders are not
      able to review our past performance to determine the likelihood of our achieving
      our investment objectives.




*Our
      units lack liquidity and marketability.*




There
      will be no public trading market for our units, and they cannot be freely sold
      or transferred or used as collateral for a loan. Our Operating Agreement
      restricts the transfer of units so that we may avoid being classified as a
      "publicly traded partnership" under Section 7704 of the Internal Revenue
      Code. Because classification as a publicly traded partnership would
      significantly decrease the value of the units of all our members, our Manager
      must consent to any sale or assignment of our units. Our Manager will withhold
      its consent to the extent necessary to prohibit transfers that could cause
      us to
      be classified as a publicly traded partnership. Further, the resale of the
      units
      may be restricted by state securities laws. Consequently, unit holders may
      not
      be able to obtain cash for their units in a timely manner and should anticipate
      holding the units for at least two (2) years and possibly much longer.




*The
      offering price is subject to adjustment based on book value, not market value,
      which may result in dilution to existing investors.*




As
      of
      March 28, 2007, the offering price per unit was $1,009.75; however, our Manager
      sets a daily unit price for additional sales of units by adjusting the net
      book
      value of our assets to reflect accrued income and expenses of the assets. The
      adjusted net book value, divided by the number of units outstanding will
      determine the daily unit price. Our Manager owns computer software designed
      to
      perform this function. However, the adjusted price that will be paid by
      subsequent investors will not be based on the market value of our assets and
      will not reflect changes in value resulting from general market conditions
      or
      changes in credit quality or performance of our assets. Therefore, our existing
      investors may experience dilution to the extent the market value of our assets
      has appreciated and such appreciation is not reflected in our book value
      calculation of the adjusted unit offering price.




*Units
      have only a limited ability to be redeemed.*




There
      is
      only a limited ability of unit holders to have their units redeemed by us.
      If a
      holder of units determines to have all or part of its units redeemed, the holder
      must deliver written notice requesting redemption to our Manager at least
      61 days prior to the redemption. The significant limitations on the ability
      of holders of units to have their units redeemed are the following:




·
            Unit
                holders can only have their units redeemed after holding them for
                two
                (2) years.




·
            Redemption
                payments will be made at a price for the units that is determined
                on the
                redemption date by adjusting our net book value of the assets to
                reflect
                our accrued income and expenses. The adjusted net book value, divided
                by
                the number of units outstanding will determine the redemption price
                per
                unit. Our Manager owns computer software designed to perform this
                function.




11




·
            There
                is no reserve fund for redemptions.




·
            Payments
                are made only to the extent we have available cash from proceeds
                of
                repayments of principal and capital contributions and the redemption
                would
                not impair our capital or operations.




·
            The
                total number of units redeemed during any calendar year cannot exceed
                10%
                of the outstanding units.




·
            We
                will only make redemption payments once a month.




·
            If
                units are redeemed, selling unit holders will be paid within 61 to
                91 days after our unit holders deliver written notice of withdrawal
                to our Manager and the redemption price for the units will be determined
                on the redemption date.




Because
      a
      substantial portion of our loans are made on an "interest only" basis, we will
      not receive net proceeds as frequently as we would with loans where the
      principal is repaid in periodic installments. To help permit redemptions, we
      will not refinance or invest in new loans using payments of loan principal
      by
      borrowers or new invested capital of members unless we have sufficient funds
      to
      cover requested redemptions.




*The
      amount raised through the sale of units may be insufficient to adequately
      diversify our real estate loan portfolio.*




If
      we do
      not adequately diversify our real estate portfolio, our performance will be
      closely tied to the performance of each loan in which we invest. This would
      result in a higher risk that a default by any single borrower will significantly
      reduce the amount available for distribution to unit investors. We estimate
      that
      the size of our loans will range from $500,000 to $25 million, with average
      loans of between $3 million and $10 million.




Initially
      we intend to invest in real estate loans throughout the areas in which our
      Manager has experience, specifically California, Nevada, Arizona, Utah, Colorado
      and Texas. Depending on the market and on our performance, we plan to expand
      our
      investments throughout the United States. However, our Manager has limited
      experience outside of the Western states. Real estate markets vary greatly
      from
      location to location and the rights of secured real estate lenders vary
      considerably from state to state. Our Manager's limited experience in most
      U.S.
      real estate markets may impact its ability to make prudent investment decisions
      on our behalf. Accordingly, where our Manager deems it necessary, it plans
      to
      utilize independent real estate advisors and local legal counsel located in
      markets where our Manager lacks experience for consultation prior to making
      investment decisions. Unit holders do not have an opportunity to evaluate the
      qualifications of such advisors and no assurance can be given that they will
      render prudent advice to our Manager.




*We
      must rely on our Manager to manage our operations and select our loans for
      investment.*




Our
      ability to achieve our investment objectives and to pay distributions to unit
      holders depends upon our Manager's performance in obtaining, processing, making
      and brokering real estate loans for us to invest in and determining the
      financing arrangements for borrowers. Unit holders do not have an opportunity
      to
      evaluate the financial information or creditworthiness of borrowers, or other
      economic or financial data concerning our loans. Unit holders rely entirely
      on
      the judgment of our Manager in selecting our loans. We do not have an
      independent board of directors.




*We
      depend on key personnel of our Manager.*




We
      do not
      have any directors, officers or employees. Our success depends upon the
      continued contributions of certain key personnel of our Manager, including
      Dan
      J. Harkey and M. Gwen Melanson, each of whom would be difficult to replace
      because of their extensive experience in the field, extensive market contacts
      and familiarity with our Manager's activities. If any of these key employees
      were to cease employment, our operating results could suffer. Our future success
      also depends in large part upon our Manager's ability to hire and retain
      additional highly skilled managerial, operational and marketing personnel.
      Our
      Manager may require additional operations and marketing people who are
      experienced in obtaining, processing, making and brokering loans, and who also
      have contacts in the market. The size of our real estate loan portfolio may
      require our Manager to hire and retain additional financial and accounting
      personnel to assist Ms. Melanson in managing our Manager's financial and
      accounting services. Competition for financial and accounting personnel is
      intense, and there can be no assurance that our Manager will be successful
      in
      attracting and retaining skilled personnel. Should our Manager be unable to
      attract and retain key personnel, the ability of our Manager to make prudent
      investment decisions on our behalf may be impaired.




*There
      may be a delay before distributions begin.*




There
      will be a period of time before our Manager fully invests the proceeds of our
      public offering and begins to make distributions of interest, profits and
      principal on the loans that are funded by investors in our units. Although
      this
      period is difficult to predict, we anticipate that investors who subscribe
      for
      units might have to wait up to one (1) month. Our Manager will attempt to invest
      the proceeds as quickly as prudence and circumstances permit; however, no
      assurance can be given as to how quickly the proceeds will be invested.
      Consequently, the distributions unit holders receive on their investment may
      be
      reduced pending the investment of our public offering proceeds in real estate
      loans. Interest rate fluctuations may reduce or eliminate net income from our
      investments, which would otherwise be available for distribution.


12


*Any
      borrowing by us will increase risk and may reduce the amount we have available
      to distribute to unit holders.*




We
      anticipate that we may borrow funds to expand our capacity to invest in real
      estate loans; however, we have no present lending commitment for any borrowings.
      We may borrow up to 60% of the fair market value of our outstanding real estate
      loans at any time. Any such borrowings will require us to carefully manage
      our
      cost of funds. No assurance can be given that we will be successful in this
      effort. Should we be unable to repay the indebtedness and make the interest
      payments on the loans, the lender will likely declare us in default and require
      that we repay all amounts owing under the loan facility. Even if we are repaying
      the indebtedness in a timely manner, interest payments owing on the borrowed
      funds may reduce our income and the distributions our unit holders
      receive.




We
      may
      borrow funds from several sources, and the terms of any indebtedness we incur
      may vary. However, some lenders may require as a condition of making a loan
      to
      us that the lender will receive a priority on mortgage repayments received
      by
      us. As a result, if we do not collect 100% on our investments, the first dollars
      may go to our lenders and we may incur a loss which will result in a decrease
      of
      the amount available for distribution to our unit holders.




*Any
      indemnification of our Manager by us will decrease the amount available for
      distribution to unit holders.*




Pursuant
      to our Operating Agreement, we may be required to indemnify our Manager or
      any
      of its affiliates, agents, or attorneys from any action, claim or liability
      arising from any act or omission made in good faith and in performance of its
      duties under the Operating Agreement. The availability of such indemnification
      may reduce the amount of funds we have available to distribute to our unit
      holders.





*Our
      unit holders’*  *right
      to vote is limited and they are bound by majority vote.*




Our
      unit
      holders cannot exercise control over our daily business affairs and implement
      changes in our policy. Our Manager, subject to the provisions in our Operating
      Agreement, may modify our investment strategies without our unit holders’
consent. Moreover, our Manager may amend the Operating Agreement without the
      consent of a majority in interest of the unit holders to:




·
            remedy
                any ambiguity or inconsistency within the Operating Agreement and
                make
                provisions for matters arising under the Operating Agreement that
                are not
                inconsistent with the provisions of the Operating Agreement;




·
            conform
                the Operating Agreement to applicable laws and regulations;





·
            make
                any other changes to the Operating Agreement that, in the reasonable
                judgment of our Manager, does not adversely affect the rights of
                the unit
                holders; and




·
            revise
                or update the exhibits to the Operating Agreement.




Our
      unit
      holders may vote only in a limited number of specific instances. A majority
      in
      interest of the unit holders (not to include our Manager), can take action
      and
      bind all of the unit holders. These situations would include the right of a
      majority to vote to:




·
            extend
                the term of our existence;




·
            dissolve
                before the expiration of our term;




·
            change
                the nature of our business;




13




·
            amend
                the Operating Agreement (in certain cases) with respect to the units;




·
            approve
                the withdrawal of our Manager;




·
            admit
                a person as a substitute manager;




·
            remove
                and replace our Manager;




·
            approve
                a merger or other reorganization by us, with such vote requiring
                the
                approval of a majority in interest of the outstanding units; or




·
            approve
                a sale of all or substantially all of our assets.




Although
      our Manager may not change the nature of our business without majority approval,
      our Manager may change the investment policies consistent with the fiduciary
      duties it owes to all of the unit holders. While our unit holders will not
      have
      any vote on these investment policies, our unit holders retain the right to
      vote
      to remove and replace our Manager.





**Risks
      of Our Business**





*Defaults
      on our real estate loans will decrease our revenues and distributions
      to**our
      unit holders*.




We
      are in
      the business of making real estate loans and, as such, we risk defaults by
      borrowers. Any failure of a borrower to repay loans or interest on loans will
      reduce our revenues and distributions our unit holders receive, the value of
      our
      units, and our unit holders interest in our limited liability company as a
      whole.




*Risks
      for the types of loans we will make.*




·
            We
                depend upon our real estate security to protect us on the loans that
                we
                make. We depend upon the skill of independent appraisers to value
                the
                security underlying our loans. However, notwithstanding the experience
                of
                the appraisers selected by our Manager, they may make mistakes, or
                the
                value of the real estate may decrease due to subsequent events. As
                a
                result, there may be less security than anticipated at the time the
                loan
                was originally made. If there is less security and a default occurs,
                we
                may not recover the full amount of our loan, thus reducing the amount
                of
                funds available to distribute to our unit holders.




·
            We
                may invest in loans to purchase or develop raw, unimproved land.
                These
                loans are riskier because the property is not capable of generating
                any
                income, as compared to a commercial property, and because there is
                no
                assurance that we will be able to sell the property in a timely manner
                or
                at a price equal to or greater than the amount of the loan. We determine
                whether to invest in these loans based upon the "90-day quick sale
                value"
                of the property and the borrower's actual capital investment in the
                property. The "90-day quick sale value" is the highest price for
                which the
                land could actually be sold within the next 90 days, as determined by
                local real estate brokers and others. We believe that this 90-day
                period
                approximates the time required for a foreclosure.




·
            We
                may invest in acquisition and development loans. These loans enable
                borrowers to complete the basic infrastructure and development of
                their
                property prior to the construction of buildings or structures. Such
                development may include installing utilities, sewers, water pipes,
                and/or
                streets. These loans are riskier because the property is not capable
                of
                generating any income, as compared to a commercial property, and
                because
                there is no assurance that we will be able to sell the property on
                a
                timely basis or at a price that is equal to or greater than the amount
                of
                the loan. Our targeted loan-to-value ratio of 70% will be based on
                the
                anticipated post-development value of the property and, therefore,
                a
                greater risk exists for us on any foreclosure, because the value
                of the
                property at the time of foreclosure may not equal the amount of our
                loan.





·
            We
                may invest in construction mortgage loans. These are loans generally
                made
                to real estate developers to fund the construction of one or more
                buildings on real property. These loans are riskier than loans secured
                by
                income producing properties because during construction the borrower
                does
                not receive income from the property to make payments on the loan.
                Our
                targeted loan-to-value ratio of 70% will be based on the anticipated
                post-development value of the property and, therefore, a greater
                risk
                exists for us on any foreclosure, because the value of the property
                at the
                time of foreclosure may not equal the amount of our
                loan.




14




·
            We
                may invest in commercial property loans. These loans provide necessary
                funds to allow commercial borrowers to improve or renovate property
                to
                increase the net operating income of the property so that it may
                qualify
                for institutional refinancing. These loans are riskier because there
                is no
                assurance that the commercial borrower will qualify for the refinancing
                or
                that the improvements will yield the anticipated increase in value
                and
                income.




·
            We
                may invest in residential loans. Such loans facilitate the purchase
                or
                refinance of one to four family residential property units, provided
                the
                borrower used one of the units on the property as such borrower's
                principal residence. These loans are riskier than loans secured by
                income
                producing properties because the borrower does not receive income
                from the
                property to make payments on the
                loan.




·
            We
                may invest in bridge loans. These loans provide interim financing
                (generally up to 12 months) to enable commercial borrowers to qualify
                for permanent refinancing. These loans are riskier because there
                is no
                assurance that the developer will qualify for the refinancing. In
                circumstances where the borrower would be willing to pay a premium
                interest rate of 5% or more above the market rate, we would invest
                in a
                bridge loan where interest would accrue and be payable with the principal
                amount of the loan at maturity.




We
                may invest in second mortgage loans and, in rare instances, wraparound,
                or
                all-inclusive, mortgage loans. In a second mortgage loan, our rights
                as a
                lender, including our rights to receive payment on foreclosure, will
                be
                subject to the rights of the first mortgage lender. In a wraparound
                mortgage loan, our rights will be similarly subject to the rights
                of a
                first mortgage lender, but the aggregate indebtedness evidenced by
                our
                loan documentation will be the first mortgage loan plus the new funds
                we
                invest. We would receive all payments from the borrower and forward
                to the
                senior lender its portion of the payments we receive. Because both
                of
                these types of loans are subject to the first mortgage lender's right
                to
                payment on foreclosure, we incur a greater risk when we invest in
                each of
                these types of loans.





·
            We
                anticipate that approximately 90% of our loans will have "balloon
                payments." A balloon payment is a large principal balance that is
                payable
                after a period of time during which the borrower has repaid none
                or only a
                small portion of the principal balance. Loans with balloon payments
                are
                riskier than loans with even payments of principal over an extended
                time
                period such as 15 or 30 years because the borrower's repayment
                depends on its ability to refinance the loan or sell the property
                profitably when the loan comes due. There are no specific criteria
                used in
                evaluating the credit quality of borrowers for real estate loans
                requiring
                balloon payments because we believe that no such criteria are feasible.
                Furthermore, a substantial period of time may elapse between the
                review of
                the financial statements of the borrower and the date when the balloon
                payment is due. As a result, there is no assurance that a borrower
                will
                have sufficient resources to make a balloon payment when due.




·
            We
                will generally invest in loans that range between $500,000 and
                $25 million, with an estimated average range of between
                $3 million and $10 million. However, we may invest in a smaller
                or larger loan depending on such factors as our performance and the
                value
                of the collateral. These larger loans are risky to unit investors,
                because
                they may reduce our ability to diversify our loan portfolio.




·
            We
                may invest in loans where the collateral is an interest in a lease.
                These
                loans are riskier because the only rights we will have is to assume
                the
                borrower's obligations under the lease and to use the property for
                the
                length of time and in the limited manner permitted under the lease.




·
            We
                may invest in interest carry loans. In some cases, such as a construction
                loan, we will finance either a portion or 100% of the interest payments
                due for the loan from the gross loan proceeds and create an impound
                or
                reserve account with such funds so we can make the interest payments
                as
                they become due. Usually these types of loans are for a period of
                one
                year, however they may be for two years or longer. It is typical
                for
                construction loans to have the interest payments built into the loan,
                because the property does not create cash flow during the construction
                period from which the borrower/developer could otherwise make the
                monthly
                interest payments. We do not increase our Loan-to-Value ratio requirements
                when financing interest reserves on an “interest carry loan.” While the
                risk of monetary default for failure to pay interest is lessened
                at the
                outset because the reserve for these payments has been impounded,
                the risk
                of a payment default will exist if the interest reserve has been
                depleted
                prior to the balloon loan payment coming due at
                maturity.




*Risks
      of underwriting standards and procedures.*




Our
      underwriting standards and procedures are more lenient than conventional lenders
      in that we will invest in loans to borrowers who may not be required to meet
      the
      credit standards of conventional mortgage lenders, which may create additional
      risks.




15


We
      approve real estate loans more quickly than other mortgage lenders. Generally,
      we will not spend more than 20 days assessing the character and credit
      history of our borrowers. Due to the nature of loan approvals, there is a risk
      that the credit inquiry we perform will not reveal all material facts pertaining
      to the borrower and the security. There may be a greater risk of default by
      our
      borrowers which may impair our ability to make timely distributions to our
      unit
      holders and which may reduce the amount we have available to distribute to
      our
      unit holders.




*Our
      loans are not guaranteed by any government agency and we will rely on the
      foreclosure value of the real estate if a loan goes into
      default.*




Our
      real
      estate loans will not be insured or guaranteed by a federally owned or
      guaranteed mortgage agency. Consequently, our recourse if there is a default
      may
      only be to foreclose upon the mortgaged real property. The value of the
      foreclosed property may have decreased and may not be equal to the amount
      outstanding under the corresponding loan, resulting in a decrease of the amount
      available to distribute to our unit holders.




Our
      real
      estate loans will not be marketable and we expect no secondary market to
      develop. We do not expect our real estate loans to be marketable and we do
      not
      expect a secondary market to develop for them. As a result, we will generally
      bear all the risk of our investment until the loans mature and are paid in
      full.
      This will limit our ability to hedge our risk in changing real estate markets
      and may result in reduced returns to our investors.




*We
      may not have sufficient capital to meet our staged funding
      commitments.*




We
      will
      attempt to raise the unfunded portion of our staged funding construction loans
      through the continued sale of units in our public offering, borrowings by us
      and/or the reinvestment of proceeds from the repayment of other loans, in order
      to meet the draw down schedule that is set forth in the construction loans.
      However, we will not guarantee to the borrower that we will be successful in
      raising the unfunded portion.




If
      we are
      unsuccessful in raising the unfunded portion of a construction loan, there
      could
      be adverse consequences associated with the loan, including but not limited
      to:




·
            a
                loss of the value of the property securing the loan if it is incomplete
                and the borrower is unable to raise funds to complete it from other
                sources;·
            a
                borrower claim against the us for failure to perform under the loan
                documents;·
            increased
                costs to the borrower, which it may not have the ability to meet;·
            a
                bankruptcy filing by the borrower; and·
            abandonment
                by the borrower of the collateral for the
                loan.




*We
      may have difficulty protecting our rights as a secured
      lender.*




We
      believe that our loan documents will enable us to enforce rights against
      borrowers. However, the rights of borrowers and other secured lenders may limit
      our practical realization of those benefits. For example:




·
            Judicial
                foreclosure is subject to the delays of protracted litigation. Although
                we
                expect non-judicial foreclosure to be quicker, our collateral may
                deteriorate and decrease in value during any delay in foreclosing
                on it.




·
            The
                borrower's right of redemption during foreclosure proceedings can
                deter
                the sale of our collateral and can for practical purposes require
                us to
                manage the property.




·
            Unforeseen
                environmental hazards may subject us to unexpected liability and
                procedural delays in exercising our rights.




16




·
            The
                rights of senior or junior secured parties in the same property can
                create
                procedural hurdles for us when we foreclose on collateral.




·
            We
                may not be able to pursue deficiency judgments after we foreclose
                on
                collateral.




·
            State
                and federal bankruptcy laws can prevent us from pursuing any actions,
                regardless of the progress in any of these suits or proceedings.




*By
      becoming the owner of property, we may become liable for unforeseen
      environmental obligations.*




We
      intend
      to own real property only if we foreclose on a defaulted loan and purchase
      the
      property at the foreclosure sale. Under applicable environmental laws, however,
      any owner of real property may be fully liable for the costs involved in
      cleaning up any contamination by materials hazardous to the environment. Even
      though we might be entitled to indemnification from the person that caused
      the
      contamination, there is no assurance that the responsible person would be able
      to indemnify us to the full extent of our liability. Furthermore, we would
      still
      have court and administrative expenses for which we may not be entitled to
      indemnification.




*Our
      results are subject to fluctuations in interest rates and other economic
      conditions.*




·
            Based
                on our Manager's historical experience, approximately 50% of our
                loans
                will not have a prepayment penalty. Should interest rates decrease,
                our
                borrowers may prepay their outstanding loans with us in order to
                receive a
                more favorable rate. This may reduce the amount of funds we have
                available
                to distribute to our unit holders.





·
            Our
                results of operations will vary with changes in interest rates and
                with
                the performance of the relevant real estate markets. If the economy
                is
                healthy, we expect that more people will be borrowing money to acquire,
                develop or renovate real property. However, if the economy grows
                too fast,
                interest rates may increase too much and the cost of borrowing may
                become
                too expensive. Alternatively, if the economy enters a recession,
                real
                estate development may slow. A slowdown in real estate lending may
                mean we
                will have fewer loans to acquire, thus reducing our revenues and
                the
                distributions our unit holders receive.




·
            Our
                results will also reflect other economic conditions, such as a particular
                industry migrating to or from one of the states into which we make
                loans.
                Moreover, any significant decline in economic activity could adversely
                impact the ability of our borrowers to complete their projects and
                obtain
                take out financing. This in turn could increase the level of defaults
                we
                may experience.





*We
      face competition for real estate loans that may reduce available yields and
      fees
      available.*




We
      consider our competitors for borrowers to be the providers of non-conventional
      mortgage loans, that is, lenders who offer short-term, equity-based loans on
      an
      expedited basis for higher fees and rates than those charged by conventional
      lenders and mortgage loans investors, such as commercial banks, thrifts, conduit
      lenders, insurance companies, mortgage brokers, pension funds and other
      financial institutions that offer conventional mortgage loans. Many of the
      companies against which we will compete have substantially greater financial,
      technical and other resources. Competition in our market niche depends upon
      a
      number of factors, including price and interest rates of the loan, speed of
      loan
      processing, cost of capital, reliability, quality of service and support
      services. Additionally, if our competition decreases interest rates on their
      loans or makes funds more easily accessible, competition for borrowers could
      increase, yields on our loans could decrease, and the costs associated with
      making loans could increase, all of which would reduce our revenues and the
      distributions our unit holders receive.




*If
      we
      fail to maintain effective systems of internal control over financial reporting
      and disclosure controls and procedures, we may not be able to accurately report
      our financial results or prevent fraud, which could cause current and potential
      unit holders to lose confidence in our financial reporting, adversely affect
      the
      trading price of our securities or harm our operating results.*





Effective
      internal control over financial reporting and disclosure controls and procedures
      are necessary for us to provide reliable financial reports and effectively
      prevent fraud and operate successfully as a public company. Any failure to
      develop or maintain effective internal control over financial reporting and
      disclosure controls and procedures could harm our reputation or operating
      results, or cause us to fail to meet our reporting obligations. We cannot be
      certain that our efforts to improve our internal control over financial
      reporting and disclosure controls and procedures will be successful or that
      we
      will be able to maintain adequate controls over our financial processes and
      reporting in the future. Any failure to develop or maintain effective controls
      or difficulties encountered in their implementation or other effective
      improvement of our internal control over financial reporting and disclosure
      controls and procedures could harm our operating results, or cause us to fail
      to
      meet our reporting obligations. If we are unable to adequately establish our
      internal control over financial reporting, our external auditors will not be
      able to issue an unqualified opinion on the effectiveness of our internal
      control over financial reporting.





17


Ineffective
      internal control over financial reporting and disclosure controls and procedures
      could cause investors to lose confidence in our reported financial information,
      which could have a negative effect on our ability to access the capital markets
      and could result in regulatory proceedings against us by, among others, the
      Securities and Exchange Commission. In addition, a material weakness in internal
      control over financial reporting, which may lead to deficiencies in the
      preparation of financial statements, could lead to litigation claims against
      us.
      The defense of any such claims may cause the diversion of management's attention
      and resources, and we may be required to pay damages if any such claims or
      proceedings are not resolved in our favor. Any litigation, even if resolved
      in
      our favor, could cause us to incur significant legal and other expenses. Such
      events could harm our business, affect our ability to raise capital and
      adversely affect the trading price of our securities.





*If
      we
      are unable to generate sufficient liquidity we may be unable to conduct our
      operations as planned* .





If
      we
      cannot generate sufficient liquidity, we may be unable to continue to grow
      our
      operations, grow our asset base and make distributions to our unit holders.
      Our
      current source of liquidity is the proceeds from our ongoing public offering
      of
      units. Additionally, we may arrange for credit facilities or other forms of
      indebtedness.





We
      cannot
      assure you that the public offering will continue to sell in a manner that
      meets
      our liquidity requirements, or that any form of debt financing will be available
      to us, or if available, that we will be able to negotiate favorable terms.
      Any
      decision by our lenders and/or investors to make additional funds available
      to
      us in the future will depend upon a number of factors, such as our financial
      performance, industry and market trends in our business, the lenders' and/or
      investors' own resources and policies concerning loans and investments, and
      the
      relative attractiveness of alternative investment or lending opportunities.
      If
      we cannot raise cash by selling debt or equity securities, we may be forced
      to
      sell our assets at unfavorable prices or discontinue various business
      activities. Our inability to access the capital markets could have a negative
      impact on our ability to make cash distributions to our unit holders





Recently,
      the subprime sector of the mortgage industry has been experiencing difficulties
      with greater credit and mortgage losses resulting from a decline in real estate
      value and rising interest rates. As a result, certain subprime lenders have
      been
      unable to obtain further financing and may not be able to satisfy outstanding
      debt obligations. The decline in the subprime mortgage industry and the failure
      of subprime mortgage lenders may also affect delinquencies and the ability
      to
      obtain further financing. This may result in a reduction of our mortgage
      originations and acquisitions and reduce or eliminate the liquidity currently
      available to us to fund our operations.





*A
      prolonged economic downturn or recession would likely result in a reduction
      of
      our mortgage origination activity which could adversely affect our financial
      results.*





The
      United States economy has undergone in the past and may in the future, undergo,
      a period of economic slowdown, which some observers view as a recession. An
      economic downturn or a recession may have a significant adverse impact on our
      operations and our financial condition. For example, a reduction in new
      mortgages may adversely affect our ability to maintain or expand our long-term
      mortgage portfolio, our principal means of generating earnings. A decline in
      mortgage activity may result in fewer mortgages that meet our underwriting
      criteria, thus resulting in a reduction in interest income. We may also
      experience larger than previously reported losses on our long-term mortgage
      portfolio due to a higher level of defaults or foreclosures or higher loss
      rates
      on our mortgages.





*Lending
      to non-conforming borrowers may expose us to a higher risk of delinquencies,
      foreclosures and losses.*





Our
      market is based on borrowers who may be unable to obtain mortgage financing
      from
      conventional mortgage sources. Mortgages made to such borrowers generally entail
      a higher risk of delinquency and higher losses than mortgages made to borrowers
      who utilize conventional mortgage sources. Delinquency, foreclosures and losses
      generally increase during economic slowdowns or recessions. The actual risk
      of
      delinquencies, foreclosures and losses on mortgages made to our borrowers could
      be higher under current economic conditions than those in the past.





Further,
      any material decline in real estate values increases the loan to value ratios
      of
      mortgages previously made by us, thereby weakening collateral coverage and
      increasing the possibility of a loss in the event of a borrower default. Any
      sustained period of increased delinquencies, foreclosures or losses after the
      mortgages are sold could adversely affect the pricing of our future loan sales
      and our ability to sell or securitize our mortgages in the future. In the past,
      certain of these factors have caused revenues and net earnings of many
      participants in the mortgage industry to fluctuate from quarter to quarter.





18


*We
      are subject to risks of operational failure that are beyond our control.*





All
      of
      our operations are located in southern Orange County, California. Our systems
      and operations are vulnerable to damage and interruption from fire, flood,
      telecommunications failure, break-ins, earthquake and similar events. Our
      operations may also be interrupted by power disruptions, including rolling
      black-outs implemented in California due to power shortages. We do not have
      alternative power sources in all of our locations. Furthermore, our security
      mechanisms may be inadequate to prevent security breaches to our computer
      systems, including from computer viruses, electronic break-ins and similar
      disruptions. Such security breaches or operational failures could expose us
      to
      liability, impair our operations, result in losses, and harm our reputation.





*Violation
      of various federal, state and local laws may result in losses on our loans.*





Applicable
      state and local laws generally regulate interest rates and other charges,
      require certain disclosure, and require licensing of the mortgage broker, lender
      and purchaser. In addition, other state and local laws, public policy and
      general principles of equity relating to the protection of consumers, unfair
      and
      deceptive practices and debt collection practices may apply to the origination,
      servicing and collection of our loans. Mortgage loans are also subject to
      federal laws, including:




·
            the
                Federal Truth-in-Lending Act and Regulation Z promulgated there under,
                which require certain disclosures to the borrowers regarding the
                terms of
                the loans;





·
            the
                Equal Credit Opportunity Act and Regulation B promulgated there under,
                which prohibit discrimination on the basis of age, race, color, sex,
                religion, marital status, national origin, receipt of public assistance
                or
                the exercise of any right under the Consumer Credit Protection Act,
                in the
                extension of credit;





·
            the
                Fair Housing Act, which prohibits discrimination in housing on the
                basis
                of race, color, national origin, religion, sex, familial status,
                or
                handicap, in housing-related transactions;





·
            the
                Fair Credit Reporting Act, which regulates the use and reporting
                of
                information related to the borrower's credit experience;





·
            the
                Fair and Accurate Credit Transaction Act, which regulates credit
                reporting
                and use of credit information in making unsolicited offers of credit;





·
            the
                Gramm-Leach-Bliley Act, which imposes requirements on all lenders
                with
                respect to their collection and use of nonpublic financial information
                and
                requires them to maintain the security of that information;





·
            the
                Real Estate Settlement Procedures Act, which requires that consumers
                receive disclosures at various times and outlaws kickbacks that increase
                the cost of settlement services;





·
            the
                Home Mortgage Disclosure Act, which requires the reporting of public
                loan
                data;





·
            the
                Telephone Consumer Protection Act and the Can Spam Act, which regulate
                commercial solicitations via telephone, fax, and the Internet;





·
            the
                Depository Institutions Deregulation and Monetary Control Act of
                1980,
                which preempts certain state usury laws; and





·
            the
                Alternative Mortgage Transaction Parity Act of 1982, which preempts
                certain state lending laws which regulate alternative mortgage
                transactions.




Violations
      of certain provisions of these federal and state laws may limit our ability
      to
      collect all or part of the principal of or interest on the loans and in addition
      could subject us to damages and could result in the mortgagors rescinding the
      loans whether held by us or subsequent holders of the loans. In addition, such
      violations may cause us to be in default under our credit and repurchase
      facilities and could result in the loss of licenses held by us.





19


Similarly,
      it is possible borrowers may assert that the loan forms we use or acquire,
      including forms for "interest-only" loans for which there is little
      standardization or uniformity, fail to properly describe the transactions they
      intended, or that our forms fail to comply with applicable consumer protection
      statutes or other federal and state laws. This could result in liability for
      violations of certain provisions of federal and state consumer protection laws
      and our inability to sell the loans and our obligation to repurchase the loans
      or indemnify the purchasers.





*New
      regulatory laws affecting the mortgage industry may increase our costs and
      decrease our mortgage origination and acquisition.*





The
      regulatory environments in which we operate have an impact on the activities
      in
      which we may engage, how the activities may be carried out, and the
      profitability of those activities. Therefore, changes to laws, regulations
      or
      regulatory policies can affect whether and to what extent we are able to operate
      profitably. For example, recently enacted and proposed local, state and federal
      legislation targeted at predatory lending could have the unintended consequence
      of raising the cost or otherwise reducing the availability of mortgage credit
      for those potential borrowers with less than prime-quality credit histories,
      thereby resulting in a reduction of otherwise legitimate subprime lending
      opportunities. Similarly, recently enacted and proposed local, state and federal
      privacy laws and laws prohibiting or limiting marketing by telephone, facsimile,
      email and the Internet may limit our ability to market and our ability to access
      potential loan applicants. For example, the Can Spam Act of 2003 establishes
      the
      first national standards for the sending of commercial email allowing, among
      other things, unsolicited commercial email provided it contains certain
      information and an opt-out mechanism. We cannot provide any assurance that
      the
      proposed laws, rules and regulations, or other similar laws, rules or
      regulations, will not be adopted in the future. Adoption of these laws and
      regulations could have a material adverse impact on our business by
      substantially increasing the costs of compliance with a variety of inconsistent
      federal, state and local rules, or by restricting our ability to charge rates
      and fees adequate to compensate us for the risk associated with certain loans.





Some
      states and local governments and the Federal government have enacted, or may
      enact, laws or regulations that prohibit inclusion of some provisions in
      mortgage loans that have mortgage rates or origination costs in excess of
      prescribed levels, and require that borrowers be given certain disclosures
      prior
      to the consummation of such mortgage loans. Our failure to comply with these
      laws could subject us to monetary penalties and could result in the borrowers
      rescinding the mortgage loans, whether held by us or subsequent holders.
      Lawsuits have been brought in various states making claims against assignees
      of
      these loans for violations of state law. Compliance with some of these
      restrictions requires lenders to make subjective judgments, such as whether
      a
      loan will provide a "net tangible benefit" to the borrower. These restrictions
      expose a lender to risks of litigation and regulatory sanction no matter how
      carefully a loan is underwritten and impact the way in which a loan is
      underwritten. The remedies for violations of these laws are not based solely
      on
      actual harm to the consumer and can result in damages that exceed the loan
      balance.





Furthermore,
      various federal and state laws impose significant privacy or customer
      information security obligations which may subject us to additional costs and
      legal risks and we cannot assure you that we will not be subject to lawsuits
      or
      compliance actions under such requirements. Similarly various state and federal
      laws have been enacted to restrict unsolicited advertising using telephones,
      facsimile machines and electronic means of transmission. These laws and
      regulations could have a material adverse impact on our business by
      substantially increasing the costs of compliance or by subjecting us to lawsuits
      or compliance actions.





In
      addition to changes to legal requirements contained in statutes, regulations,
      case law, and other sources of law, changes in the investigation or enforcement
      policies of federal and state regulatory agencies could impact the activities
      in
      which we may engage, how the activities may be carried out, and the
      profitability of those activities. For example, various state and federal
      agencies have initiated regulatory enforcement proceedings against mortgage
      companies for engaging in business practices that were not specifically or
      clearly proscribed by law, but which in the judgment of the regulatory agencies
      were unfair or deceptive to consumers. Federal and state regulatory agencies
      might also determine in the future that certain of our business practices not
      presently proscribed by any law and not the subject of previous enforcement
      actions are unfair or deceptive to consumers. If this happens, it could impact
      the activities in which we may engage, how we carry out those activities, and
      our profitability. We might also be required to pay fines, make reimbursements,
      and make other payments to third parties for past business practices.
      Additionally, if an administrative enforcement proceeding were to result in
      us
      having to discontinue or alter certain business practices, then we might be
      placed at a competitive disadvantage vis-à-vis competitors who are not required
      to make comparable changes to their business practices. This competitive
      disadvantage could be most acute if the business practices that we are required
      to discontinue or change are not clearly proscribed by any federal or state
      law
      of general applicability.





*We
      may be subject to fines or other penalties based upon the conduct of our
      independent brokers or correspondents.*





The
      mortgage brokers and correspondents from which we obtain mortgages have parallel
      and separate legal obligations to which they are subject. While these laws
      may
      not explicitly hold the originating lenders or an acquirer of the loan
      responsible for the legal violations of mortgage bankers and brokers,
      increasingly federal and state agencies have sought to impose such liability.
      Previously, for example, the United States Federal Trade Commission, or "FTC,"
      entered into a settlement agreement with a mortgage lender where the FTC
      characterized a broker that had placed all of its loan production with a single
      lender as the "agent" of the lender; the FTC imposed a fine on the lender in
      part because, as "principal," the lender was legally responsible for the
      mortgage broker's unfair and deceptive acts and practices. The United States
      Justice Department, various state attorney generals, and other state officials
      have sought to hold subprime mortgage lenders responsible for the pricing
      practices of their mortgage bankers and brokers, alleging that the mortgage
      lender was directly responsible for the total fees and charges paid by the
      borrower under the Fair Housing Act even if the lender neither dictated what
      the
      mortgage banker could charge nor kept the money for its own account.
      Accordingly, we may be subject to fines or other penalties based upon the
      conduct of our independent mortgage bankers, brokers or correspondents.





20


*Our
      operations may be adversely affected if we are subject to the Investment Company
      Act* .





We
      intend
      to conduct our business at all times so as not to become regulated as an
      investment company under the Investment Company Act. The Investment Company
      Act
      exempts entities that are primarily engaged in the business of purchasing or
      otherwise acquiring mortgages and other liens on and interests in real estate.





In
      order
      to qualify for this exemption we must maintain at least 55% of our assets
      directly in mortgages, qualifying pass-through certificates and certain other
      qualifying interests in real estate. Our ownership of certain mortgage assets
      may be limited by the provisions of the Investment Company Act, should we ever
      be subject to the Act. If the Securities and Exchange Commission adopts a
      contrary interpretation with respect to these securities or otherwise believes
      we do not satisfy the above exception, we could be required to restructure
      our
      activities or sell certain of our assets. To insure that we continue to qualify
      for the exemption we may be required at times to adopt less efficient methods
      of
      financing certain of our mortgage assets and we may be precluded from acquiring
      certain types of higher-yielding mortgage assets. The net effect of these
      factors will be to lower our net interest income. If we fail to qualify for
      exemption from registration as an investment company, our ability to use
      leverage would be substantially reduced, and we would not be able to conduct
      our
      business as described. Our business will be materially and adversely affected
      if
      we fail to qualify for this exemption.





*New
      regulatory actions affecting the mortgage industry may increase our costs and
      decrease our mortgage acquisition.*





In
      addition to changes to legal requirements contained in statutes, regulations,
      case law, and other sources of law, changes in the investigation or enforcement
      policies of federal and state regulatory agencies could impact the activities
      in
      which we may engage, how the activities may be carried out, and the
      profitability of those activities. For example, state and federal agencies
      have
      initiated regulatory enforcement proceedings against mortgage companies for
      engaging in business practices that were not specifically or clearly proscribed
      by law, but which in the judgment of the regulatory agencies were unfair or
      deceptive to consumers. For example, state attorneys general and other state
      officials representing various states entered into a Settlement Agreement with
      a
      large subprime mortgage company. The subject company agreed to pay a substantial
      amount in restitution to consumers and reimbursement to the states. The subject
      company also agreed to make changes to certain business practices, including
      the
      company's underwriting criteria and pricing policies. Many of the practices
      and
      policies are not specifically prohibited by any federal or state laws but were
      alleged to be deceptive or unfair to consumers. The terms of this Settlement
      Agreement do not apply directly to us; however, federal and state regulatory
      agencies and private parties might nevertheless expect mortgage companies
      including us, to make our business practices consistent with the provisions
      of
      the Agreement. If this happens, it could impact the activities in which we
      may
      engage, how we carry out those activities, our acquisition practices and our
      profitability. We might also be required to pay fines, make reimbursements,
      and
      make other payments to third parties for our business practices. Additionally,
      if an administrative enforcement proceeding were to result in us having to
      discontinue or alter certain business practices, then we might be placed at
      a
      competitive disadvantage vis-à-vis competitors who are not required to make
      comparable changes to their business practices.





*The
      success and growth of our business will depend upon our Manager’s ability to
      adapt to and implement technological changes.*





Our
      Manager’s mortgage loan origination business is currently dependent upon its
      ability to effectively interface with our brokers, borrowers and other third
      parties and to efficiently process mortgage loan applications and closings.
      The
      origination process is becoming more dependent upon technological advancement,
      such as the ability to process applications over the Internet, accept electronic
      signatures and provide process status updates instantly and other
      customer-expected conveniences that are cost-efficient to our process. Becoming
      proficient with the new mortgage loan origination systems and other new
      technology will require significant financial and personnel resources. There
      is
      no guarantee that the implementation of a new mortgage loan origination system
      or other new technology will be successful. To the extent that our Manager
      becomes reliant on any particular technology or technological solution, we
      may
      be harmed to the extent that such technology or technological solution (i)
      becomes non-compliant with existing industry standards, (ii) fails to meet
      or
      exceed the capabilities of our competitors’ equivalent technologies or
      technological solutions, (iii) becomes increasingly expensive to service, retain
      and update, or (iv) becomes subject to third-party claims of copyright or patent
      infringement. Any failure by our Manager to acquire technologies or
      technological solutions when necessary could limit our ability to remain
      competitive in our industry and could also limit our ability to increase the
      cost-efficiencies of our operating model, which would harm our results of
      operations, financial condition and business prospects.





*We
      are exposed to risk of environmental liabilities with respect to properties
      to
      which we take title.*





In
      the
      course of our business, we may foreclose and take title to residential
      properties and could be subject to environmental liabilities with respect to
      these properties. We may be held liable to a governmental entity or to third
      parties for property damage, personal injury, investigation, and cleanup costs
      incurred by these parties in connection with environmental contamination, or
      may
      be required to investigate or clean up hazardous or toxic substances, or
      chemical releases at a property. The costs associated with investigation or
      remediation activities could be substantial. In addition, as the owner or former
      owner of a contaminated site, we may be subject to common law claims by third
      parties based on damages and costs resulting from environmental contamination
      emanating from the property. If we ever become subject to significant
      environmental liabilities, our cash flow, results of operations, financial
      condition and business prospects could be harmed.





21


**Conflicts
      of Interest Risks**




*Our
      Manager will face conflicts of interest concerning the allocation of its
      personnel's time and the management of other investment
      programs.*




Our
      Manager is the manager of four (4) other programs that invest
      in the same types of loans that we will invest in. As of December 31, 2006
      these programs had assets in excess of $473 million. Our Manager and
      Mr. Harkey, who owns 100% of the stock of our Manager, anticipate that they
      will also sponsor other real estate programs having investment objectives
      similar to ours and engage in the business activities described in the
      "Conflicts of Interest" section in this report. Concurrently with this Offering,
      our Manager may conduct other public or private offerings for different funds
      that would use the proceeds from those offerings to make real estate loans,
      which might otherwise have been available for investment by us. As a result,
      our
      Manager and Mr. Harkey may have conflicts of interest in allocating their
      time and resources between our business and those other activities. During
      times
      of intense activity in other programs and ventures, our Manager and its key
      people, Mr. Harkey and Ms. Melanson, will likely devote less time and
      resources to our business than they ordinarily would. The Operating Agreement
      does not specify a minimum amount of time and attention that our Manager and
      its
      key people are required to devote to us. Therefore, our Manager may not spend
      sufficient time managing our operations, which could result in our not meeting
      our investment objectives.




*Our
      Manager will face conflicts of interest arising from the fees we pay and those
      paid by borrowers.*




Our
      Manager will receive substantial loan origination fees from borrowers for
      transactions involving real estate loans. Our Manager's compensation is based
      on
      the volume and size of the mortgages selected for us. Our interests may diverge
      from those of our Manager and Mr. Harkey to the extent that our Manager
      benefits from fees that are not shared with us. Our Manager will be
      receiving fees from borrowers that would otherwise increase our returns. Because
      our Manager receives all of these fees, our interests will diverge from those
      of
      our Manager and Mr. Harkey when our Manager decides whether we should
      charge the borrower higher interest rates or our Manager should receive higher
      fees from the borrower.




*Our
      Manager will face conflicts of interest in selecting loans for us and other
      investment programs.*




We
      expect
      to invest in real estate loans when one or more other companies or programs
      managed by our Manager are also investing similarly. There is a risk that our
      Manager may select for us a real estate loan investment that provides lower
      returns than a real estate loan investment purchased by our Manager or another
      program or entity. Our Manager also serves as a manager of the other
      programs that invest in the same types of loans that we will invest in. Our
      Manager may form new funds or raise money on its own behalf, the proceeds from
      which would be used to make real estate loans that might otherwise have been
      available for investment by us. There are no restrictions or guidelines on
      how
      our Manager will determine which loans are appropriate for us and which are
      appropriate for itself, these other funds, or any other company that our Manager
      manages or might manage in the future.




*We
      may have a lack of control over loans made jointly with other
      lenders.*




We
      will
      consider investing in or purchasing loans jointly with other lenders, including
      our Manager or affiliates of our Manager. All loans with non-affiliates shall
      be
      structured to provide us with a controlling interest. Although it is not our
      intention to lose control, there is a risk that we will be unable to remain
      as
      the lead lender in the loans in which we participate in the future. In the
      event
      of participation with a publicly registered affiliate, the investment objectives
      of the participants shall be substantially identical. There shall be no
      duplicate fees. The compensation to the sponsors must be substantially
      identical, and the investment of each participant must be on substantially
      the
      same terms and conditions. Each participant shall have a right of first refusal
      to buy the other's interest if the co-participant decides to sell its interest.
      If our co-participant affiliate determines to sell its interest in the loan,
      there is no guarantee that we will have the resources to purchase such interest
      and we will have no control over a sale to a third-party purchaser.




22


**Federal
      Income Tax Risks**




*Cash
      flow and distributions will be reduced if we are taxed as a
      corporation.*




If
      we do
      not qualify as a partnership for any taxable year, we would then be subject
      to
      federal income tax on any taxable income in that taxable year at regular
      corporate rates. Our unit holders could not then take tax deductions for our
      unit holders’ share of our deductions or credits that might otherwise be
      available if we qualified as a partnership. Our unit holders would be subject
      to
      tax on distributions at rates applicable to dividends to the extent we make
      distributions out of our current or accumulated earnings and profits, and any
      other distributions in excess of the cost of the units would be taxed as capital
      gains. If we were taxed as a corporation, cash flow, distributions and the
      value
      of our units would be significantly reduced.




*The
      deductibility of our expense items may be limited.*




The
      Internal Revenue Code and the Treasury Regulations contain various limitations
      that may adversely affect the deductibility of our unit holders’ share of our
      expenses. In addition, the Internal Revenue Service could contest our tax
      treatment of certain income or expense items, which could reduce the after-tax
      rate of return from an investment in the units.




*An
      IRS audit of our books and records could result in an audit of**unit
      holder**tax
      returns.*




If
      we are
      audited by the IRS and it makes determinations adverse to us, including the
      disallowance of deductions we have taken, the IRS may decide to audit our unit
      holders’ income tax returns. Any such audit could result in adjustments to our
      unit holders’ tax return for items of income, deductions or credits, and the
      imposition of penalties and interest for the adjustments and additional expenses
      for filing amended income tax returns.





**Retirement
      Plan Risks**




*An
      investment in our units may not qualify as an appropriate investment under
      all
      retirement plans.*




There
      are
      special considerations that apply to pension, profit sharing, 401(k) or Keogh
      plans or trusts, IRAs, or other retirement or employee benefit plans or
      arrangements investing in units. If our unit holders are investing the assets
      of
      a retirement or other employee benefit plan or trust (whether or not
      tax-qualified) or the assets of an IRA in our units, unit holders should consult
      with our unit holders’ financial and/or tax advisor, because they could incur
      liability under ERISA or Section 4975 of the Internal Revenue Code or
      subject the IRA or the plan to taxation if:





·
            their
                investment is not consistent with our unit holders’ fiduciary obligations
                under ERISA;





·
            Their
                investment constitutes or results in a non-exempt prohibited transaction
                under Section 406 of ERISA or Section 4975 of the Internal
                Revenue Code;





·
            their
                investment is not made in accordance with the documents and instruments
                governing our unit holders’ plan or IRA, including our unit holders’
                plan's investment policy;





·
            their
                investment does not satisfy the prudence and diversification requirements
                of Sections 40(a)(1)(B) and 404(A)(1)(C) of ERISA;





·
            their
                investment impairs the liquidity of the plan;





·
            their
                investment produces "unrelated business taxable income" for the plan
                or
                IRA; or





·
            they
                will not be able to value the assets of the plan annually in accordance
                with ERISA requirements.





**ITEM
      1B.** **UNRESOLVED****STAFF
      COMMENTS**





None.





**ITEM
      2.** **PROPERTIES**




Our
      Manager, Point Center Financial, Inc., operates from its executive offices
      at
      30900 Rancho Viejo Road, Suite 100, San Juan Capistrano, California 92675.
      We do
      not have any separate offices.





23


**ITEM
      3.** **LEGAL****PROCEEDINGS**




None.





**ITEM
      4.** **SUBMISSION****OF
      MATTERS TO A VOTE OF SECURITY HOLDERS**


None.
  **PART****II**





**ITEM
      5.** **MARKET****FOR
      REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
      EQUITY SECURITIES**





**Market
      Information**





There
      is
      no established public trading market for the trading of units.





**Holders**





As
      of
      December 31, 2006, 141 unit holders held 11,866 units of membership
      interest.





**Dividend
      Policy**





We
      generally distribute to members on a monthly basis most of our Net Income
      Available for Distribution (as defined in our Operating Agreement). Net Income
      Available for Distribution is based upon cash flow from operations, less certain
      reserves, and may exceed net income as calculated in accordance with U. S.
      generally accepted accounting principles. Our Operating Agreement also permits
      distributions in excess of Net Income Available for Distribution. We made
      distributions of $296,030 (prior to reinvested distributions) during the year
      ended December 31, 2006, of which $46,996 represented distributions in excess of
      Net Income Available for Distribution. It is our intention to continue to
      distribute most of our Net Income Available for Distribution to our unit
      holders.





**Recent
      Sales of Unregistered Securities**





None.





**Equity
      Compensation Plan Information**





None.




**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers**





None.




**ITEM** **6.** **SELECTED****FINANCIAL
      DATA**





**December
                  31, 2006**
              
              **December
                  31, 2005**
              
              **December
                  31, 2004****Balance
                  Sheet Data:**Cash,
                  Cash Equivalents, Certificates of Deposits and Short-term
                  Investments
              
              $
              6,325,010
              
              $
              25,000
              
              $
              25,000Interest
                  and Other Receivables
              
              
              103,698
              
              
              -0-
              
              
              -0-Investments
                  in Real Estate Loans (Net of Allowance)
              
              
              5,475,090
              
              
              -0-
              
              
              -0-Capitalized
                  Loan Fees (Net of Allowance)
              
              
              -0-
              
              
              -0-
              
              
              -0-Assets
                  Under Secured Borrowing
              
              
              -0-
              
              
              -0-
              
              
              -0-Total
                  Assets
              
              $
              11,903,798
              
              $
              25,000
              
              $
              25,000Liabilities
              
              
              41,569
              
              
              -0-
              
              
              -0-Members’
                  Equity
              
              
              11,862,229
              
              
              25,000
              
              
              25,000Total
                  Liabilities and Members’ Equity
              
              $
              11,903,798
              
              $
              25,000
              
              $
              25,000
  24
  **For
                    the Year Ended December 31, 2006**
              
              **For
                  the Year Ended December 31, 2005**
              
              **For
                  the Period From July 14, 2004 (Inception) to December 31,
                  2004****Income
                  Statement Data:**Revenues
              
              $
              361,306
              
              $
              -0-
              
              $
              -0-Expenses
              
              $
              112,272
              
              $
              -0-
              
              $
              -0-Net
                  Income (Loss)
              
              $
              249,034
              
              $
              -0-
              
              $
              -0-Net
                  Income (Loss) Allocated to Members
              
              $
              249,034
              
              $
              -0-
              
              $
              -0-Net
                  Income Allocated to Members per Weighted Average Membership
                  Units
              
              $
              38
              
              $
              -0-
              
              $
              -0-Cash
                  Distributions
              
              $
              296,030
              
              $
              -0-
              
              $
              -0-Cash
                  Distributions per Weighted Average Membership Units
              
              $
              45
              
              $
              -0-
              
              $
              -0-Weighted
                  Average Membership Units
              
              
              6,589
              
              
              -0-
              
              
              -0-





The
      information in this table should be read in conjunction with the accompanying
      audited financial statements and notes to financial statements included
      elsewhere in this document.





**ITEM
      7.** **MANAGEMENT’S****DISCUSSION
      AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





**Overview
      of Point Center Mortgage Fund I, LLC**





We
      were
      formed on July 14, 2004, and we commenced our business operations during June,
      2006. On February 3, 2006, our Registration Statement as filed with the
      Securities and Exchange Commission became effective for the initial public
      offering of up to $500,000,000 units of membership interest. Following the
      funding of our initial loan, our Manager, Point Center Financial, Inc., now
      sets
      a daily unit price for sales of additional units by adjusting the net book
      value
      of our assets to reflect the income and expenses accruing with respect to the
      loans we have funded. The adjusted net book value, divided by the number of
      units outstanding, shall determine the daily unit price. Our Manager owns
      computer software designed to perform this function. As of March 28, 2007,
      the
      daily unit price was $1,009.75.





Our
      business is managed by our Manager, which is a private California corporation
      that is a mortgage broker licensed in the State of California and which also
      performs mortgage banking services. Our Manager manages and controls our affairs
      and has responsibility and final authority in almost all matters affecting
      our
      business. We do not have any employees and we do not have an independent board
      of directors. Our Manager’s duties include dealings with members, accounting,
      tax and legal matters, communications and filings with regulatory agencies
      and
      all other needed management and operational duties.





As
      our
      only Manager, Point Center Financial, Inc., has complete authority and
      responsibility for:


·
              evaluating
                  and choosing our real estate loans
                  investments;
 
 ·
              deciding
                  what agreements we will enter into and whether we will enter into
                  joint
                  ventures with other companies
                  to invest in real estate
                  loans;
  25
  ·
              originating,
                  servicing and managing our real estate loans;
                  and
 
 ·
              managing
                  all our other operations.
  **General**





Assuming
      the sale of substantially all of the units being offered by us, we anticipate
      investing  approximately
      80% of our assets in secured first mortgages and 20% in second mortgage loans.
      Our second mortgage investments are riskier because our rights will be subject
      to the rights of the first mortgage lender.





Most
      of
      our loans will have terms of one to seven years. We currently anticipate
      investing approximately 25% of our assets in construction loans and
      approximately 25% of our assets in unimproved land loans. In addition, we expect
      to invest approximately 20% of our assets in commercial property loans, 20%
      in
      acquisition and development loans and 10% in residential property
      loans.





We
      anticipate that approximately 90% of our loans will provide for payments of
      interest only with a “balloon payment” of principal payable in full at the end
      of the term. We also anticipate investing approximately 10% of our assets in
      bridge loans, which provide interim financing (generally up to 12 months) to
      enable borrowers to qualify for permanent refinancing. The balloon payment
      loans
      and bridge loans in which we invest are riskier because they are non-investment
      grade loans made to borrowers whose ability to make repayment depends on their
      ability to refinance the loan or develop the property so they can refinance.
      We
      will review the appraisal of the value of the property and will generally invest
      in loans of up to 75% of that value and, in circumstances where borrowers are
      willing to pay a premium interest rate of 5% or more above market rate, our
      bridge loans may provide for interest to accrue and be payable together with
      the
      principal amount at maturity. However, there is no specific criteria that is
      used in evaluating the creditworthiness of balloon loan borrowers. Under
      circumstances where our Manager deems appropriate, we may acquire loans of
      the
      character described above, that are in default, are non-performing or are
      delinquent.





California,
      as well as many other real estate markets around the country, has continued
      to
      enjoy a steady rise in property values, and with the current interest rates
      being low, investments in real estate by both property owners and as mortgage
      lenders are very attractive. As interest rates rise our industry will be in
      competition with institutional lenders, because the margin between institutional
      cost of funds and our cost of funds will lessen. We act as an interim lender
      with maturities of from one to seven years and the majority of our loans will
      have fixed rates of interest. Therefore, even in the event of a rise in
      institutional interest rates, we anticipate that our borrowers will still be
      able refinance or sell their property in a timely manner to facilitate the
      repayment of our loans. We also expect that the residential market will be
      most
      affected by a rise in interest rates and, since we are primarily commercial
      lenders, we will be less affected. In the early 1990’s when California
      experienced a dramatic drop in real estate values, we saw that most of the
      problems in our industry were with the junior loans. Since we will primarily
      make first position loans with substantial equity requirements, in the event
      of
      a drop in real estate values, we believe that our loan-to-value ratios will
      be
      sufficient to minimize the number of problem loans we might
      experience.





**Twelve
      Month Plan of Operation**





During
      the next 12 months, assuming the continued sale of units to non-affiliates
      in
      our public offering, we plan to invest in real estate loans where our collateral
      is real property located throughout the United States. Upon the sale of these
      units, our Manager will select real estate loans for us and will also assist
      us
      by obtaining, processing and managing these loans for us. The number of loans
      in
      which we invest will depend upon the gross proceeds raised in our public
      offering. To sufficiently diversify our loan portfolio, our Manager anticipates
      that we need to raise between $30 million and $100 million from investors.
      If we
      sell the maximum number of units, we anticipate investing in a combination
      of
      several hundred real estate loans. We believe that we will have an adequate
      number of opportunities to invest in real estate loans nationwide.





We
      believe that our expectations with respect to raising $500,000,000 in proceeds
      from the offering are reasonable based upon our Manager’s history of raising
      private capital, originating loans and its recent investments in company
      infra-structure, including but not limited to staffing, technology, printing
      equipment, and marketing. We anticipate that our increased marketing through
      our
      public offering will result in substantial opportunities for prospective
      investors to purchase our units. Currently, our Manager’s capital for making
      loans through the four investment programs that it manages is limited to
      investors who are residents of the State of California under private intra-state
      securities offerings. None of our Manager’s investors have been solicited
      through third party underwriters or dealers. Because our Manager has experienced
      substantial success with its existing marketing program for the solicitation
      of
      investors, we believe that we can duplicate this success in California and
      in
      other states through our public offering.





26


We
      do not
      anticipate hiring any employees, acquiring any fixed assets like office
      equipment or furniture, or incurring material office expenses during the next
      12
      months because we will be utilizing our Manager’s personnel and office
      equipment. We will pay our Manager a flat, annual management fee of up to 1%
      of
      our aggregate capital contributions and a loan administration fee of 1.5% of
      the
      loan balance of our portfolio.





We
      may
      also establish a line of credit for future use and may enter into financing
      arrangements with institutional lenders to expand our portfolio of real estate
      loans.





Most
      of
      our assets will be fixed and adjustable rate secured real estate loans. We
      will
      not engage in hedging transactions or acquire derivative instruments in an
      effort to mitigate risks of interest rate changes. While we believe such hedging
      transactions are not necessary in light of the short-term nature of our
      investments, failure to engage in hedging transactions may expose us to losses
      if there are significant changes in prevailing interest rates.





Our
      future operating results will depend upon our ability to promptly identify
      and
      invest in mortgage loans, which generate interest income. To the extent that
      we
      are unable to identify and make such investments or are delayed in making such
      investments, our operating results will suffer. In addition, defaults by
      borrowers or unexpected expenses would adversely effect our income and reduce
      the funds we have available to distribute to our members.





Our
      sole
      business, making loans secured by real estate, is particularly vulnerable to
      changes in macroeconomic conditions. Any significant decline in economic
      activity, particularly in the geographical markets in which we concentrate
      our
      loans, could result in a decline in real estate values and a decline in the
      demand for real estate development loans. In addition, a general decline in
      the
      economy could result in an increase in loan defaults.





Any
      such
      measures could reduce our cash flow and the funds we have available to
      distribute. In order to stay fully invested during a period of declining demand
      for real estate loans, we may be required to make loans on terms less favorable
      to us or to make loans involving greater risk to us. Declines in economic
      activity are often accompanied by a decline in prevailing interest rates.
      Although our lending rates are not directly tied to the Federal Reserve Board’s
      discount rate, a sustained and widespread decline in interest rates will impact
      the interest we are able to earn on our loans. In the case of our loans that
      do
      not have prepayment penalties, declining interest rates may also cause our
      borrowers to prepay their loans and we may not be able to reinvest the amounts
      prepaid in loans generating a comparable yield. Moreover, any significant
      decline in economic activity could adversely impact the ability of our borrowers
      to complete their projects and obtain takeout financing. This in turn could
      increase the level of defaults we may experience.





Our
      operating results will be affected primarily by: (i) the amount of capital
      we
      have to invest in mortgage loans, (ii) the level of real estate lending activity
      in the markets we service, (iii) our ability to identify and work with suitable
      borrowers, (iv) the interest rates we are able to charge on our loans, and
      (v)
      the level of foreclosures and related loan losses we may experience. These
      funds, subject to a 3% working capital reserve, will constitute the bulk of
      the
      funds we have available for investment in mortgage loans. While we may borrow
      up
      to 60% of the value of our loan portfolio to make additional loans, we do not
      have any current commitment or arrangement in place to obtain such
      borrowing.





The
      lower
      interest rates would diminish the interest rates we can charge on our loans.
      In
      addition, our operating results would be adversely affected by loans that go
      into default and become non-performing assets. A weakening economy or a wrong
      credit decision by our Manager may result in non-performing assets. If the
      economy weakens and our borrowers who develop and sell real estate projects
      are
      unable to complete their projects or obtain takeout financing or are otherwise
      adversely impacted, we may experience an increase in loan defaults that may
      reduce the amount of funds we have for distribution to our members. Such
      conditions may also require us to restructure loans in order to enhance their
      collectibility.





We
      will
      generally be using appraisals prepared on an as-if developed basis in connection
      with construction, development and bridge loans, and we hope to retain
      sufficient cushion in the underlying equity position to protect the value of
      our
      loans in the event of a default. Nevertheless, no assurances can be given that
      a
      marked increase in loan defaults accompanied by a rapid decline in real estate
      values will not have a material adverse effect upon our financial condition
      and
      operating results.





Historically,
      our Manager has focused its operations on California and certain Western states.
      Because our Manager has a significant degree of knowledge with respect to the
      real estate markets in such states, it is likely most of our loans will be
      concentrated in such states. Such geographical concentration creates greater
      risk that any downturn in such local real estate markets could have a
      significant adverse effect upon our results of operations.





27


**Results
      of Operations**





**Summary
      of Financial Results**


**For
                  the Year Ended December 31, 2006**
              
              **For
                  the Year Ended December 31, 2005**
              
              **For
                  the Period From July 14, 2004 (Inception) to December 31,
                  2004**Total
                  revenues
              
              $
              361,306
              
              $
              -0-
              
              $
              -0-Total
                  expenses
              
              
              112,272
              
              
              -0-
              
              
              -0-Net
                  income (loss)
              
              $
              249,034
              
              $
              -0-
              
              $
              -0-Net
                  income allocated to members per Weighted average membership
                  units
              
              $
              38
              
              $
              -0-
              
              $
              -0-Annualized
                  rate of return to members (a)
              
              
              7.4
              %
              
              -0-
              
              
              -0-Cash
                  distributions
              
              $
              296,030
              
              $
              -0-
              
              $
              -0-Cash
                  distributions per weighted average membership unit
              
              $
              45
              
              $
              -0-
              
              $
              -0-Weighted
                  average membership units
              
              $
              6,589
              
              
              -0-
              
              
              -0-Weighted
                  average term of outstanding loans
              
              
              23
                  months
              
              
              -0-
              
              
              -0-




(a)
            The
                annualized rate of return to members is calculated based upon the
                GAAP net
                income allocated to members per weighted average units as of December
                31,
                2006, divided by the number of days during the period and multiplied
                by
                three hundred and sixty five (365) days, then divided by the average
                cost
                per unit during the applicable
                period.





As
      of
      December 31, 2006, we had sold $11,909,226 of units and admitted 141 members.
      Our aggregate loan fundings as of December 31, 2006, was $12,025,784 and details
      about the loans we have funded are set forth below.





*Total
      Revenue*




As
      of
      December 31, 2006, we had annual revenues of $361,306 from interest income
      and
      late charge income on our real estate loans. While there has been a general
      increase in interest rates in the U.S., such increases have not yet affected
      our
      operating results and it is not clear when, if ever, higher interest rates
      might
      impact our revenues.





*Total
      Expenses*





As
      of
      December 31, 2006, total annual expenses were $112,272.





*Distributions
      to Members*





The
      following is a schedule of distributions made to members for the year ended
      December 31, 2006. We did not commence operations until June of 2006; therefore,
      no distributions were made to members during any prior periods.


**For
                  the Year Ended December 31, 2006**Distributions
                  of Net Income Available for Distribution
              
              $
              249,034Distributions
                  in Excess of Net Income Available for Distribution Generated During
                  the
                  Period
              
              
              46,996Total
                  Distributions
              
              $
              296,030




28


Net
      Income Available for Distributions is a non-GAAP financial measure that is
      defined in our Operating Agreement as cash flows from operations, less certain
      reserves, and may exceed net income as calculated in accordance with GAAP.
      We
      have presented net income available for distribution because management believes
      this financial measure is useful and important to members. Although we generally
      do not plan to make distributions in excess of net income available for
      distribution, we may do so from time to time. Any such distribution will be
      treated as a return of capital for income tax purposes. In addition, cash flows
      from operations, which are the significant component of net income available
      for
      distribution, affect the capital available for investment in new loans. This
      non-GAAP financial measure should not be considered in isolation or as a
      substitute for measures of performance prepared in accordance with GAAP or
      as an
      alternative to cash flows from operating activities as a measure of our
      liquidity. We compensate for these limitations by relying primarily on our
      GAAP
      results and using net income available for distribution only
      supplementally.





The
      most
      directly comparable GAAP measure to net income available for distribution is
      cash flows from operating activities. The following table reconciles net income
      available for distribution to cash flows from operating activities and presents
      the two other major categories of our statement of cash flows:




**For
                  the Year Ended December 31, 2006**Distribution
                  of Net Income Available for Distribution
              
              $
              249,034Addition
                  to Working Capital Reserves (Amount not Distributed)
              
              
              -0-Change
                  in Operating Assets and Liabilities:
              
              
              11,878,798Deferred
                  Rent Receivable
              
              
              N/AInterest
                  Receivable
              
              
              103,698Capitalized
                  Loan Fees
              
              
              N/AAccounts
                  Payable
              
              
              18,700Due
                  to Manager
              
              
              22,869Net
                  Cash Provided by Operating Activities
              
              $
              290,603Net
                  Cash (Used) by Investing Activities
              
              $
              (11,860,055
              )Net
                  Cash Provided in Financing Activities
              
              $
              11,588,195
 
 *Redemption*
 
 In
        order
        to comply with our Operating Agreement and Internal Revenue Code, we may
        redeem
        no more than 10% of the aggregate members’ capital in any calendar year;
        however, no redemptions can be made during our public offering of units.
        Therefore, no redemptions were made during the past year.
  *Annualized
        Rate of Return to Members*
 
 For
        the
        year ended December 31, 2006, annualized rate of return to members as calculated
        based on GAAP net income was 7.4% based upon the net income allocated to
        members
        per the weighted average membership units.  It is important to note that
        expenses such as audit fees and tax preparation fees for the year 2006 were
        absorbed over the seven month period of operation, as opposed to a full
        year.  This results in a lower annualized rate of return for the period
        ending December 31, 2006, than is anticipated in future years when the
        operations will run a full 12-month period.
  *Investments
        in Mortgage Loans*
  As
        of
        December 31, 2006, we had
        investments in nineteen (19) mortgage loans secured by real estate totaling
        $11,756,357, with a weighted average contractual interest rate of 11.89%.
        These
        mortgage loans have contractual maturities ranging from 2006 through
        2011.
  29
  Investments
        in mortgage loans as of December 31, 2006, are as follows:
  **Loan
                  Type**
              
              **Number
                  of Loans**
              
              **Balance**
              
              **Weighted
                  Average Interest Rate**
              
              **Portfolio
                  Percentage**
              
              **Weighted
                  Loan-to-Value ***Land
              
              
              8
              
              $
              5,064,018
              
              
              12.47
              %
              
              43.08
              %
              
              54.05
              %Commercial
              
              
              6
              
              $
              3,412,087
              
              
              11.10
              %
              
              29.02
              %
              
              46.74
              %Construction
              
              
              4
              
              $
              2,940,393
              
              
              11.81
              %
              
              25.01
              %
              
              59.48
              %Residential
              
              
              1
              
              $
              339,859
              
              
              12.00
              %
              
              2.89
              %
              
              56.51
              %Acquisition
                  and Development
              
              
              -0-
              
              $
              -0-
              
              
              -0-
              %
              
              -0-
              %
              
              -0-
              %Bridge
              
              
              -0-
              
              $
              -0-
              
              
              -0-
              %
              
              -0-
              %
              
              -0-
              %Totals:
              
              
              19
              
              $
              11,756,357
              
              
              11.89
              %
              
              100.00
              %
              
              52.92
              %
 
 *
              Loan-to-Value
                  ratios are based on appraisals obtained at the time of loan origination
                  and may not reflect subsequent changes in value estimates. Such
                  appraisals, which may be commissioned by the borrower, are generally
                  dated
                  no greater than 12 months prior to the date of loan origination. The
                  appraisals may be for the current estimate of the “as-if developed” value
                  of the property, which approximates the post-construction value
                  of the
                  collateralized property, assuming that such property is developed.
                  As-if
                  developed values on raw land loans or acquisition and development
                  loans
                  often dramatically exceed the immediate sales value and may include
                  anticipated zoning changes, selection by a purchaser against multiple
                  alternatives, and successful development by the purchaser, upon
                  which
                  development is dependent on availability of financing. As most
                  of the
                  appraisals will be prepared on an as-if developed basis, if a loan
                  goes
                  into default prior to any development of a project, the market
                  value of
                  the property may be substantially less than the appraised value.
                  As a
                  result, there may be less security than anticipated at the time
                  the loan
                  was originally made. If there is less security and a default occurs,
                  the
                  Company may not recover the full amount of the loan.
 
  The
        following is a schedule of investments in mortgage loans by lien position.
        Up to
        20% of our loans are currently expected to be secured by second deeds of
        trust
        based upon the total offering of $500 million. From time to time, until the
        offering is complete, the percentage of second mortgages we invest in may
        exceed
        20%.
  **Loan
                  Type**
              
              **December
                  31, 2006**
              
              **Portfolio
                  Percentage**First
                  Mortgages
              
              $
              11,756,357
              
              
              100
              %Second
                  Mortgages
              
              
              -0-
              
              
              -0-
              %Portfolio
                  Total:
              
              $
              11,756,357
              
              
              100
              %
 
 The
        following is a schedule of contractual maturities of investments in mortgage
        loans as of December 31, 2006:
 
 2007
              
              $
              6,281,2672008
              
              $
              2,908,5762009
              
              $
              388,9552010
              
              $
              15,3012011
              
              $
              2,162,258Total:
              
              $
              11,756,357
  30
  The
        following is a schedule by geographic location of investments in mortgage
        loans
        as of December 31, 2006:
  **State**
              
              **December
                  31, 2006**
                **Balance**
              
              **Portfolio**
                **Percentage**Arizona
              
              $
              1,664,291
              
              
              14.16
              %California
              
              
              3,030,053
              
              
              25.77
              %Florida
              
              
              375,200
              
              
              3.19
              %Georgia
              
              
              1,600,868
              
              
              13.62
              %Michigan
              
              
              319,812
              
              
              2.72
              %New
                  York
              
              
              1,113,103
              
              
              9.47
              %Tennessee
              
              
              501,929
              
              
              4.27
              %Texas
              
              
              1,650,220
              
              
              14.04
              %Utah
              
              
              752,258
              
              
              6.40
              %Virginia
              
              
              748,623
              
              
              6.36
              %Total:
              
              $
              11,756,357
              
              
              100.00
              %
  We
        have
        six mortgage loan products consisting of bridge, commercial, construction,
        acquisition and development, land, and residential loans. The effective interest
        rates on all product categories range from 9.95% to 13.0%. Revenue by product
        will fluctuate based upon relative balances during the period.
  Our
        Manager has evaluated the collectibility of the loans in our portfolio in
        light
        of the types and dollar amounts of loans in the portfolio, adverse situations
        that may affect the borrower’s ability to repay, prevailing economic conditions
        and the underlying collateral securing the loan. We do not currently have
        any
        non-performing loans. No allowances for loan losses were deemed necessary
        as of
        December 31, 2006.
 
 Decisions
        regarding an allowance for loan losses require management’s judgment. As a
        result, there is an inherent risk that such judgment will prove incorrect.
        In
        such event, actual losses may exceed (or be less than) the amount of any
        allowance. To the extent that we experience losses greater than the amount
        of
        the allowance, we may incur a charge to earnings that will adversely affect
        our
        operating results and the amount of any cash available for distribution.
 
 The
        following table reconciles the balance of the loan portfolio to the amount
        shown
        on the accompanying Balance Sheet.
 
 **December
                  31, 2006 Balance**Balance
                  Per Loan Portfolio
              
              $
              11,756,357Less:Allowance
                  for Loan Losses
              
              
              -0-Balance
                  per Balance Sheet
              
              $
              11,756,357
 
 Our
        Manager has evaluated the collectibility of the loans in our portfolio in
        light
        of the types and dollar amounts of loans in the portfolio, adverse situations
        that may affect the borrower’s ability to repay, prevailing economic conditions
        and the underlying collateral securing the loan. We do not currently have
        any
        non-performing loans. Our Manager believes a general allowance for loan losses
        totaling $0.00 included in the accompanying balance sheet as of December
        31,
        2006, is adequate to address estimated credit losses in our investment in
        real
        estate loan portfolio as of that date. No specific allowances were deemed
        necessary.
 
 Decisions
        regarding an allowance for loan losses require management’s judgment. As a
        result, there is an inherent risk that such judgment will prove incorrect.
        In
        such event, actual losses may exceed (or be less than) the amount of any
        allowance. To the extent that we experience losses greater than the amount
        of
        the allowance, we may incur a charge to earnings that will adversely affect
        our
        operating results and the amount of any cash available for
        distribution.
 
 Our
        Manager often grants extensions on loans pursuant to the terms of the original
        loan agreements, which permit extensions by mutual consent. Such extensions
        are
        generally provided on loans where the original term was 12 months or less
        and
        where a borrower requires additional time to complete a construction project
        or
        negotiate take out financing. However, our Manager only grants extensions
        when a
        borrower is in full compliance with the terms of the loan, including but
        not
        limited to, the borrower’s obligation to make interest payments on the loan. As
        of December 31, 2006, we had one investment in a loan that had been extended.
        The aggregate amount due from borrowers whose loans had been extended as
        of
        December 31, 2006, was $758,441. Our Manager concluded that no allowance
        for
        loan loss was necessary with respect to these loans as of December 31,
        2006.
 
 31
 *Asset
        Quality and Loan Reserves*
 
 Losses
        may occur from investing in real estate loans. The amounts of losses will
        vary
        as the loan portfolio is affected by changing economic conditions and the
        financial condition of borrowers.
 
 The
        conclusion that a real estate loan is uncollectible or that collectibility
        is
        doubtful is a matter of judgment. On a quarterly basis, the Manager evaluates
        our real estate loan portfolio for impairment. The fact that a loan is
        temporarily past due does not necessarily mean that the loan is impaired.
        Rather, all relevant circumstances are considered by our Manager to determine
        impairment and the need for specific reserves. Such evaluation, which includes
        a
        review of all loans on which full collectibility may not be reasonably assured,
        considers among other matters:
 
 ·
              Prevailing
                  economic conditions;
 
 ·
              Historical
                  experience;
 
 ·
              The
                  nature and volume of the loan
                  portfolio;
 
 ·
              The
                  borrowers’ financial condition and adverse situations that may affect the
                  borrowers’ ability to pay;
 
 ·
              Evaluation
                  of industry trends; and
 
 ·
              Estimated
                  net realizable value of any underlying collateral in relation to
                  the real
                  estate loan amount.
 
 Based
        upon this evaluation, a determination is made as to whether the allowance
        for
        loan losses is adequate to cover any potential losses. Additions to the
        allowance for loan losses are made by charges to the provision for loan losses.
        Recoveries of previously charged-off amounts would be credited to the provision
        for loan losses or included in income. At December 31, 2006, all of our loans
        were performing. Our Manager had determined the general allowance for loan
        losses of $0.00 is sufficient to cover any inherent losses in our loan
        portfolio.
 
 We
        made
        no general allowance for loan losses for the year ended December 31,
        2006.
 
 **Capital
        and Liquidity**
 
 Other
        than an approximately 3% working capital reserve, we will use most of our
        available funds to invest in real estate loans. Liquidity is the ability
        to meet
        potential cash requirements, including lending commitments and general operating
        expenses.
 
 Net
        income generated from our loans is paid out to our members unless they have
        elected to reinvest their distributions in additional units. Our Manager
        will
        pay and will not be reimbursed for all of our general or administrative overhead
        expenses; such as, labor, rent, supplies, etc., in connection with managing
        our
        operations. Therefore, we do not anticipate hiring any employees, acquiring
        fixed assets such as office equipment or furniture, or incurring material
        office
        expenses during the next 12 months.
 
 Because
        we will distribute most or all of our net income, our sources of liquidity
        include: proceeds from the continuing sale of units in our public offering,
        repayments of outstanding loans, distribution reinvestments by our members,
        portfolio leveraging, and arrangements with third parties to participate
        in our
        loans.
 
 We
        rely
        primarily upon repayment of outstanding loans and raising new capital to
        provide
        capital for investment in new loans. Any significant level of defaults on
        outstanding loans could reduce the funds we have available for investment
        in new
        loans. Resulting foreclosure proceedings may not generate full repayment
        of our
        loans and may result in significant delays in the return of invested funds.
        This
        would diminish our capital resources and would impair our ability to invest
        in
        new loans. Additionally, if there is a downturn in the economies in which
        we
        invest in real estate, the level of rents we can charge to lease our properties
        can diminish our capital resources and would diminish our ability to invest
        in
        new properties or service any related debt.
 
 32
 **Off-Balance
        Sheet Transactions**
 
 We
        do not
        currently have any interest in special purpose entities, which are not reflected
        on our balance sheet, nor do we have any commitments or obligations that
        are not
        reflected on our balance sheet. We do not have any interest in derivative
        contracts.
 
 **Contractual
        Obligations**
 
 As
        of
        December 31, 2006, we did not have any contractual obligations.
 
 **Critical
        Accounting Policies**
 
 *Interest
        Income*
  Interest
        income on loans is accrued by the effective interest method. Generally, interest
        and payments are due monthly on the first day of each month. Interest is
        generally prorated to the first day of the month following the closing of
        the
        loan escrow. We do not recognize interest income from loans once they are
        determined to be impaired.
 
 A
        loan is
        impaired when, based on current information and events, it is probable that
        we
        will be unable to collect all amounts due according to the contractual terms
        of
        the loan agreement or when the loan has been foreclosed upon and we become
        the
        owner of the property that secured the loan.
 
 *Investments
        in Mortgage Loans*
 
 Investments
        in mortgage loans are secured by trust deeds and mortgages. Generally, all
        of
        our mortgage loans require interest-only payments with a balloon payment
        of the
        principal at maturity. We have both the intent and ability to hold mortgage
        loans until maturity and, therefore, mortgage loans are classified and accounted
        for as held for investment and are carried at amortized cost. Loan-to-value
        ratios are based on appraisals obtained at the time of loan origination and
        may
        not reflect subsequent changes in value estimates. The appraisals may be
        for the
        current estimate of the “as-if developed” value of the property, which
        approximates the post-construction value of the collateralized property,
        assuming that such property is developed. As-if developed values on raw land
        loans or acquisition and development loans often dramatically exceed the
        immediate sales value and may include anticipated zoning changes and timely
        successful development by the purchaser. As most of the appraisals will be
        prepared on an as-if developed basis, if a loan goes into default prior to
        any
        development of a project, the market value of the property may be substantially
        less than the appraised value. As a result, there may be less security than
        anticipated at the time the loan was originally made. If there is less security
        and a default occurs, we may not recover the full amount of the
        loan.
 
 *Real
        Estate Held for Sale*
 
 Real
        estate held for sale includes real estate acquired through foreclosure and
        is
        carried at the lower of cost or the property’s estimated fair value, less
        estimated costs to sell. We seek to sell properties acquired through foreclosure
        as quickly as circumstances permit. The carrying values of real estate held
        for
        sale are assessed on a regular basis from updated appraisals, comparable
        sales
        values or purchase offers.
 
 *Allowance
        for Losses on Trust Deed Notes Receivable*
 
 For
        trust
        deed notes receivable, an allowance for loan losses is established based
        on our
        estimate of losses inherent and probable as of the balance sheet date. We
        evaluate the adequacy of the allowance giving consideration to factors such
        as
        the value of the underlying collateral, current performance of the loans,
        extent
        and nature of delinquencies, credit characteristics of the portfolio, and
        the
        general economic environment. Using historical experience and taking into
        consideration the factors above, we estimate an allowance for loan losses,
        which
        is believed to be adequate for known and inherent losses in the portfolio
        of
        trust deed notes receivable. Provision for losses is charged to the statement
        of
        operations. Losses incurred on trust deeds are charged to the
        allowance.
 
 *Use
        of Estimates*
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles accepted in the United States of America requires us
        to
        make certain estimates and assumptions that affect the reported amounts of
        assets and liabilities and contingencies at the date of the financial statements
        and the reported amounts of revenues and expenses during the reported period.
        Actual results could differ from those estimates.
 
 33
 *Related
        Party Transactions*
  Our
        Manager has borne the costs of our organizational and offering fees, which
        included legal expenses, printing costs, selling expenses, and the filing
        fees
        paid to the Securities Exchange Commission and the various states. Our Manager
        realizes the following types of compensation and cost:
 
 ·
              Loan
                  brokerage commissions and loan origination
                  fees;
 
 ·
              Real
                  estate commissions paid to our Manager upon resale of any property
                  acquired through foreclosure; and
 
 ·
              Loan
                  servicing fees paid to our Manager to service the loan portfolio,
                  to
                  protect our interest in and enforce their rights under the secured
                  notes,
                  deeds of trust and any other loan document and, if necessary, to
                  manage,
                  refinance or sell the property.
 
 We
        will
        bear the following costs:
 ·
                Annual
                    tax preparation fee;
 
 ·
                Accounting
                    and auditing fees;
 
 ·
                Legal
                    fees; and
 ·
                  Other
                      reports required by agencies governing our business
                      activities.
 
 **ITEM
        7A.** **QUANTITATIVE****AND
        QUALITATIVE DISCLOSURES ABOUT MARKET RISK**
 
 We
        make
        investments in mortgage loans and make distributions from interest income
        to our
        members, therefore, we will be exposed to market risk related primarily to
        changes in interest rates. We will not have any assets or liabilities
        denominated in foreign currencies nor do we own any options, futures or other
        derivative instruments.
 
 Most
        of
        our assets will consist of mortgage loans. All of the mortgage loans are
        expected to be held for investment purposes until their maturity date. Some
        of
        our mortgage loans may contain prepayment penalties. We anticipate that up
        to 3%
        of our assets will be held as cash reserves.
 
 **ITEM
        8.** **FINANCIAL****STATEMENTS
        AND SUPPLEMENTARY DATA**
 
 The
        financial statements are indexed in Item 15 of this report.
 
 **ITEM
        9.** **CHANGES****IN
        AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 None.
 
 **ITEM
        9A.** **CONTROL****AND
        PROCEDURES**
 
 **Conclusion
        Regarding the Effectiveness of Disclosure Controls and
        Procedures**
 
 No
        matter
        how well a control system is conceived and operated, it can provide only
        reasonable, not absolute, assurance that the objectives of the control system
        are met. In addition, the design of a control system must reflect the fact
        that
        there are resource constraints and the benefits of controls must be considered
        relative to costs. Therefore, no cost-effective control systems and no
        evaluation of controls can provide absolute assurance that all control issues
        and instances of misstatements due to error or fraud, if any, within our
        company
        have been detected.
 
 **Evaluation
        of Disclosure Controls and Procedures**
 
 Our
        Manager’s Chief Executive Officer and Chief Financial Officer, with the
        assistance of other employees, evaluated the effectiveness of our disclosure
        controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
        the
        Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end
        of the period covered by this report (the “Evaluation Date”). Based on that
        evaluation, our Manager’s Chief Executive Officer and Chief Financial Officer
        concluded that, as of the Evaluation Date, our disclosure controls and
        procedures were effective to ensure that information required to be disclosed
        in
        our reports under the Exchange Act is recorded, processed, summarized and
        reported within the time periods specified in the Securities Exchange
        Commission’s rules and forms, and that such information is accumulated and
        communicated to management, including our Chief Executive Officer and Chief
        Financial Officer, as appropriate to allow timely decisions regarding required
        disclosure.
 
 34
 **Disclosure
        Controls and Procedures**
 
 Our
        Manager’s Chief Executive Officer and Chief Financial Officer have reviewed and
        evaluated the effectiveness of the design and operation of our Company’s
        disclosure controls and procedures (as defined in the Securities Exchange
        Act of
        1934 Rules 13a-15(e) and 15d-15(e) as of December 31, 2005.
 
 Our
        Manager’s Chief Executive Officer and Chief Financial Officer concluded that our
        Company’s disclosure controls and procedures as of the end of the period covered
        by this report were not effective as a result of material weaknesses in internal
        controls as of December 31, 2006, as discussed below.
 
 **Management’s
        Report on Internal Control Over Financial Reporting**
 
 Management
        is responsible for establishing and maintaining adequate internal control
        over
        financial reporting of our Company. Internal control over financial reporting
        is
        a process designed to provide reasonable assurance regarding the reliability
        of
        financial reporting and the preparation of financial statements for external
        purposes in accordance with accounting principles generally accepted in the
        United States of America.
 
 Our
        Company’s internal control over financial reporting includes those policies and
        procedures that (i) pertain to the maintenance of records that, in reasonable
        detail, accurately and fairly reflect the transactions and dispositions of
        the
        assets of the Company; (ii) provide reasonable assurance that transactions
        are
        recorded as necessary to permit preparation of financial statements in
        accordance with accounting principles generally accepted in the United States
        of
        America, and that receipts and expenditures of our Company are being made
        only
        in accordance with authorizations of Management and Directors of our Company;
        and (iii) provide reasonable assurance regarding prevention or timely detection
        of unauthorized acquisition, use or disposition of our Company’s assets that
        could have a material effect on the financial statements.
 
 As
        defined by the Public Company Accounting Oversight Board’s Auditing Standard No.
        2, a material weakness is defined as a significant deficiency or combination
        of
        significant deficiencies, that results in more than a remote likelihood that
        a
        material misstatement of the annual or interim financial statements will
        not be
        prevented or detected. Management’s preliminary assessment concluded that we did
        not maintain effective internal control over financial reporting as of December
        31, 2006. As a result of the assessment, we identified the following material
        weaknesses:
 
 ·
              The
                  first material weakness identified insufficient resources of technical
                  accounting and reporting expertise. This weakness relates to the
                  oversight
                  and review of financial transactions, which affects our ability
                  to prepare
                  and properly review financial statements and accompanying footnote
                  disclosures in accordance with United States generally accepted
                  accounting
                  principles and the rules and regulations of the
                  SEC.
 
 ·
              As
                  a result of the foregoing material weakness, there has been ineffective
                  oversight of documentation of authorizations to ensure that procedures
                  are
                  properly executed. Specifically, we did not have backup documentation
                  for
                  some authorized payments made by our
                  Company.
 
 The
        foregoing material weaknesses resulted in revisions to the draft financial
        statement disclosures, but we believe our final financial statements and
        related
        disclosures were accurate in all material respects. In addition, our Manager
        and
        independent auditors together have determined that the identified material
        weaknesses did not result in inadequate or deficient financial reporting
        for
        prior periods and will not result in a restatement of any of our prior financial
        statements.
 
 **Changes
        in Internal Controls**
 
 There
        have been no significant changes in our internal control over financial
        reporting during the year ended December 31, 2006, that have materially
        affected, or are reasonably likely to materially affect, our internal control
        over financial reporting.
 
 35
 We
        believe that, for the reasons described above, we are continuing to improve
        our
        disclosure controls and procedures and remedy the identified material
        weaknesses. 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, will be or have been detected. These inherent
        limitations include the realities that judgments in decision-making can be
        faulty, and that breakdowns can occur because of simple error or mistake.
        Additionally, controls can be circumvented by the individual acts of some
        persons, by collusion of two or more people, or by management override of
        the
        control. The design of any system of controls also is based in part upon
        certain
        assumptions about the likelihood of future conditions; over time, control
        may
        become inadequate because of changes in conditions, or the degree of compliance
        with the policies or procedures may deteriorate. Because of the inherent
        limitation in a cost-effective control system, misstatements due to error
        or
        fraud may occur and not be detected.
 
 **ITEM
        9B.** **OTHER****INFORMATION**
 
 None.
  **PART****III**
 
 **ITEM
        10.** **DIRECTORS,****EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**
 
 **General**
 
 We
        do not
        have any directors or officers. We are managed by Point Center Financial,
        Inc.,
        which is a privately held company and which has no audit committee and no
        requirement of independence at this time.
 
 The
        directors, executive officers and key employees of our Manager are listed
        below:
  **Name**
              
              **Age**
              
              **Title**Dan
                  J. Harkey
              
              60
              
              President,
                  Chief Executive Officer and Sole DirectorM.
                  Gwen Melanson
              
              44
              
              Chief
                  Operating/Financial Officer and SecretarySteve
                  Livingston
              
              61
              
              Senior
                  Underwriter and Senior Vice PresidentAlan
                  Bergfeld
              
              48
              
              General
                  Counsel and Senior Vice PresidentSteve
                  Ward
              
              49
              
              Vice
                  President of OperationsSusan
                  Cobb
              
              42
              
              Loan
                  Processing Manager and Executive Assistant
 
 The
        principal occupation and business experience for each of our officers and
        directors and key employees, for at least the last five years, are as follows:
  Dan J.
        Harkey has been in the real estate and financial services industry since
        1972,
        and has been the President and Chief Executive Officer of our Manager since
        1979. Mr. Harkey is a past President of Commercial Real Estate Finance
        Forum, a national trade organization representing commercial mortgage bankers
        and brokers. Mr. Harkey is a licensed real estate broker with the California
        Department of Real Estate and is a member of the California Association of
        Mortgage Brokers and the National Association of Mortgage Brokers.
        Mr. Harkey holds a Bachelor of Arts degree in Economics from California
        State University, Long Beach. Mr. Harkey is the Chairman of our Manager’s
        Loan Committee, which will review all loans made by us.
  M.
        Gwen
        Melanson has been employed by our Manager since 1988 and been the Chief
        Financial Officer and Secretary for the Manager since 1990 and Chief Operating
        Officer since December, 2006. Ms. Melanson's responsibilities include
        overseeing the financial activities of the Manager, including all general
        accounting functions, tax preparation, and payroll. Additionally,
        Ms. Melanson oversees the loan processing and loan servicing departments,
        and is a member of the Loan Committee.
  Steve
        Livingston has served as a Senior Underwriter for our Manager since 1999
        and is
        a member of the Loan Committee, and has been a Senior Vice President since
        January, 2007. Prior to joining our Manager, he was a Vice President and
        Senior
        Special Assets Account Officer for Bank of America. Mr. Livingston earned
        his Bachelor of Arts degree from Biola University in California and completed
        further studies in finance at Golden Gate University, San Francisco. He has
        over
        30 years of experience as a loan underwriter and served as a vice president
        for Bank of America prior to working for our Manager. Mr. Livingston holds
        a brokers license with the California Department of Real Estate.
  36
  V.
        Alan
        Bergfeld has served as General Counsel for our Manager since 2005 and has
        been a
        Senior Vice President since March, 2007.  Mr. Bergfeld was admitted to the
        California Bar in 1983, and his practice has included both litigation and
        transactional matters.  Prior to joining our Manager, Mr. Bergfeld served
        as Vice President and Senior Counsel at Downey Savings and Loan Association
        for
        13 years, where he specialized in real estate lending.   Mr. Bergfeld
        received a B.A. degree in economics and psychology from the University of
        California at Davis in 1980, and a J.D. degree from the University of Southern
        California Law School in 1983.
  Steven
        M.
        Ward has been Vice President of Operations for our Manager since February,
        2007.   Mr. Ward has over 25 years of progressive technology,
        operations and financial experience.  Prior to joining our Manager, he was
        employed as Director of Information Services for Bally Total Fitness Corporation
        and as a Manager in the Management Consulting Group of Arthur Young &
Company.  Mr. Ward holds a Certified Public Accountant’s license in
        California, a B.S. degree in Accounting from California State Polytechnic
        University and a M.B.A. degree from the University of Southern
        California.
  Susan
        Cobb has served as
        Loan
        Servicing Manager from January, 2003 to May, 2005. In May, 2005, Ms. Cobb
        became
        Executive Assistant to Ms. Melanson. Additionally, in December of 2006, Ms.
        Cobb
        took on the roll as Loan Processing Manager and continues to perform in that
        capacity today.Ms.
        Cobb
        has over 19years of
        loan service experience in collections, foreclosure, bankruptcy, loss mitigation
        and client relations.  Prior to joining the Manager, she was an officer in
        the loan service department at First Federal Bank of California, as well
        as
        project coordinator in the information technology department.  Ms. Cobb
        earned herBachelor
        of Arts degreefrom the
        University of California at Santa Barbara with emphasis in
        economics.
 
 **Audit
        Committee**
 
 We
        do not
        have any directors and, therefore, we have no audit committee.
  **Code
        of Ethics**
 
 As
        we do
        not have any executive officers we have not adopted a Code of Ethics.
 
 **ITEM
        11.** **EXECUTIVE****COMPENSATION**
 
 Not
        Applicable.
  **ITEM
        12.** **SECURITY****OWNERSHIP
        OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
        MATTERS**
 
 As
        of
        December 31, 2006, no person was known to us to be the beneficial owner of
        more
        than 5% our voting securities. Beneficial ownership is determined in accordance
        with the rules of the Securities and Exchange Commission.
 
 **ITEM
        13.** **CERTAIN****RELATIONSHIPS
        AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**
 
 **Related
        Party Transactions** **
 
 From
        time
        to time we may acquire or sell investments in real estate loans from/to our
        Manager or other related parties pursuant to the terms of our Operating
        Agreement, provided the price does not exceed the original cost. No gain
        or loss
        is recorded on these transactions, as it is not our intent to make a profit
        on
        the purchase or sale of such investments. The purpose is generally to diversify
        our portfolio by syndicating loans, thereby providing us with additional
        capital
        to make additional loans. We do not have any directors.
 
 *Transactions
        with the Manager*
 
 We
        pay a
        loan servicing fee to our Manager who services the loans we make, to protect
        our
        interest in and enforce its rights under the loans, deeds of trust and any
        other
        loan documents and, if necessary, to manage, refinance or sell the real property
        that secures our loans. The monthly servicing fee is 0.125% (1.5% annually)
        of
        the outstanding principal amount of all loans being serviced, and is withheld
        from the monthly borrower payments. For the year ended December 31, 2006,
        we
        recorded fees to our Manager of $44,046.
 
 37
 Our
        Manager will receive 50% of any late charges, penalty interest and prepayment
        premiums on our loans. For the year ended December 31, 2006, we recorded
        late
        fee income to our Manager of $340.
 
 We
        will
        also pay our Manager a conditional annual program management fee of 1% of
        the
        aggregate annual capital contributions we receive from the sale of units
        in our
        public offering. This fee will be paid monthly to the Manager out of available
        cash flow from our loan portfolio. This fee will accrue, without interest,
        and
        be payable only at such times as available cash exists. Until July 1, 2006,
        our
        Manager agreed to waive this fee. Management fees of $27,695 were paid to
        our
        Manager as of December 31, 2006, and management fees of $9,925 had been accrued
        as of that date.
 
 In
        addition, our Manager will receive a brokerage fee of up to 3% of proceeds
        received upon the resale of any property acquired through loan foreclosures
        where our Manager substantially contributes to the sale. As of December 31,
        2006, none of these fees were accrued or paid.
 
 *Transactions
        with Other Programs and Other Related Parties*
 
 As
        of
        December 31, 2006, 17 of the 19 loans in our portfolio represent purchases
        of
        undivided interests in loans where our Manager also invested directly; invested
        funds from other programs controlled or managed by our Manager; and/or invested
        funds from other private parties under a permitted fractional note offering
        for
        California residents or entities where their primary place of business is
        California. The remaining 2 loans were invested in solely by us.
 
 *Director
        Independence*
 
 We
        do not
        have any directors or officers. All of our business and operations are
        controlled by our Manager which is a private California
        corporation.
 
 **ITEM
        14.** **PRINCIPAL****ACCOUNTING
        FEES AND SERVICES**
 
 During
        the fiscal year ended December 31, 2006 and 2005, audit, audit related and
        non-audit services rendered to us were as follows:
 
 **December
                  31, 2006**
              
              **December
                  31, 2005**Audit
                  Fees
              
              $
              20,000
              
              $
              2,000Audit
                  Related Fees
              
              $
              -
              
              $
              -0-Tax
                  Fees
              
              $
              1,700
              
              $
              800All
                  Other Fees
              
              $
              7,000
              
              $
              -0-
 
 During
        the year ending December 31, 2006, $13,448 was absorbed by our Manager as
        part
        of the expenses relating to the registration and offering costs of the
        Company.
 
 We
        have
        no audit committee and, therefore, there are no pre-approval policies or
        procedures with regard to the engagement of our auditor.
 
 **PART
        IV**
  **ITEM** **15****.
        EXHIBITS, FINANCIAL STATEMENT SCHEDULES**
  (a)
        1.  Financial
        Statements
  The
        financial statements are contained on Pages F-2 through F-11 on this Annual
        Report on Form 10-K, and the list of the financial statements contained herein
        is set forth on Page F-1, which is hereby incorporated by
        reference.
 
 38
  (a)
        2.  Financial
        Statement Schedules
 
 **EXHIBIT** **INDEX**
 **Exhibit
                    No.**
                
                **Description
                    of Exhibits**3.1
                
                Articles
                    of Organization (1)3.3
                
                Operating
                    Agreement (included as Exhibit A to the Prospectus)
                    (2)4
                
                Distribution
                    Reinvestment Plan (included as Exhibit C to the Prospectus)
                    (2)31.1
                
                Section 302
                    Certification of Dan J. Harkey,as
                    Chief Executive Officer of Point Center Financial, Inc., the
                    sole Manager
                    (the “Manager” of Point Center Mortgage Fund I, LLC (the
                    “Registrant”)31.2
                
                Section
                    302 Certification of M. Gwen Melanson, as Chief Financial Officer
                    of Point
                    Center Financial, Inc., the sole Manager of Registrant32
                
                Certification
                    Pursuant to U.S.C. 18 Section 1350(1)
                
                Incorporated
                    herein by reference to Exhibit 3 of our Registration Statement
                    on Form
                    S-11 filed on September 8, 2004, File No. 333-118871.(2)
                
                Incorporated
                    herein by reference to our Prospectus dated October 4, 2006 and
                    filed
                    pursuant to Rule 424(b)(3) on October 16,
                    2006.
  39
 
 **SIGNATURES**
 
 Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly caused this report to be signed on its behalf
        by
        the undersigned thereunto duly authorized.
 **POINT
                  CENTER MORTGAGE FUND I, LLC**By:
              Point
                  Center Financial, Inc.,
                Its
                  sole managerDate:
                  March 30, 2007
              
              By:
                  /s/ M. GWEN MELANSONM.
                  Gwen Melanson
                  Chief
                    Financial Officer
  40
  **INDEX
        TO FINANCIAL STATEMENTS**
 
 **Page****POINT
                  CENTER MORTGAGE FUND I, LLC:**REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              
              
              F-2FINANCIAL
                  STATEMENTSBalance
                  Sheet
              
              
              F-4Statement
                  of Income and Changes in Members’ Equity
              
              
              F-5Statements
                  of Cash Flows
              
              
              F-6Notes
                  to Financial Statements
              
              
              F-7
 
 F-1
 
 **DAVID
                  ALLEN DUNER****Certified
                  Public Accountant****www.DunerCPA.com**Telephone
                  (949) 263-0030
              18952
                  Mac Arthur Blvd.FAX
                  (949) 263-0037
              Suite
                  400E-MailDavid@DunerCPA.COM
              Irvine,
                  California 92612MEMBER
                  OFAMERICAN
                  INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTSCALIFORNIA
                  SOCIETY OF CERTIFIED PUBLIC
                  ACCOUNTANTS
  **REPORT
        OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT**
 
 Managing
        Member
 Point
        Center Mortgage Fund I, LLC
 
 We
        have
        audited the accompanying balance sheet of Point Center Mortgage Fund I, LLC
        (the
“Fund”) (a Delaware limited liability company) as of December 31, 2006 and the
        related statements of income and changes in members’ equity, and cash flows for
        the year then ended. These financial statements are the responsibility of
        the
        Fund’s management. Our responsibility is to express an opinion on these
        financial statements based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statement referred to above presents fairly, in all
        material respects, the financial position of Point Center Mortgage Fund I,
        LLC
        as of December 31, 2006, in conformity with accounting principles generally
        accepted in the United States of America.
  David
        Allen Duner, CPA
 Irvine,
        California
 February
        6, 2007
  F-2
 
 **JAMES
                  J. FUCHS****Certified
                  Public Accountant**Telephone:
                  (714) 549-9544
              1520
                  Nutmeg PlaceFAX:
                  (714) 549-2768
              Suite
                  105E-Mail:jjfuchs@earthlink.com
              Costa
                  Mesa, California 92626
  **REPORT
        OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT**
 
 Managing
        Member
 Point
        Center Mortgage Fund I, LLC
 
 We
        have
        audited the accompanying balance sheet of Point Center Mortgage Fund I, LLC
        (the
“Fund”) (a Delaware limited liability company) as of December 31, 2005. This
        balance sheet is the responsibility of the Fund’s management. Our responsibility
        is to express an opinion on this balance sheet based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the financial statement referred to above presents fairly, in all
        material respects, the financial position of Point Center Mortgage Fund I,
        LLC
        as of December 31, 2005, in conformity with accounting principles generally
        accepted in the United States of America.
 
 James
        J.
        Fuchs, CPA
 Costa
        Mesa, California
 February
        24, 2006
  F-3
  **FINANCIAL
        STATEMENTS AND NOTES**
 
 **POINT
                  CENTER MORTGAGE FUND I, LLC****BALANCE
                  SHEET**
  **December
                  31,****2006**
              
              **2005****ASSETS****CURRENT
                  ASSETS**Cash
                  in bank
              
              $
              43,743
              
              $
              25,000Interest
                  receivable
              
              
              103,698
              
              
              -Trust
                  deed notes receivable
              
              
              6,281,267
              
              
              -**TOTAL
                  CURRENT ASSETS**
              
              
              6,428,708
              
              
              25,000**OTHER
                  ASSET**Trust
                  deed notes receivable
              
              
              5,475,090
              
              
              -**TOTAL
                  ASSETS**
              
              $
              11,903,798
              
              $
              25,000**LIABILITIES
                  AND MEMBERS' EQUITY****CURRENT
                  LIABILITES**Accrued
                  expenses
              
              $
              17,000
              
              
              -Taxes
                  payable
              
              
              1,700
              
              
              -Loan
                  servicing fees payable
              
              
              12,945
              
              
              -Management
                  fees payable
              
              
              9,924
              
              
              -**TOTAL
                  CURRENT LIABILITIES**
              
              
              41,569
              
              
              -**MEMBERS'
                  EQUITY - PER ACCOMPANYING STATEMENT**
              
              
              11,862,229
              
              
              25,000**TOTAL
                  LIABILITES AND MEMBERS' EQUITY**
              
              $
              11,903,798
              
              $
              25,000
  **THE
        ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL
        STATEMENTS**
 **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-4
 
 **POINT
                  CENTER MORTGAGE FUND I, LLC****STATEMENT
                  OF INCOME AND CHANGES IN MEMBERS' EQUITY**
  **Years
                  Ended December 31,****2006**
              
              **2005****REVENUE**Interest
                  income
              
              $
              360,966
              
              $
              -Late
                  fee income
              
              
              340
              
              
              -**TOTAL
                  REVENUE**
              
              
              361,306
              
              
              -**OPERATING
                  EXPENSES**Loan
                  servicing fees
              
              
              44,046
              
              
              -Management
                  fees
              
              
              37,620
              
              
              -Professional
                  fees
              
              
              27,000
              
              
              -California
                  LLC gross receipts fee
              
              
              900
              
              
              -California
                  LLC franchise tax
              
              
              800
              
              
              -Bank
                  charges
              
              
              1,510
              
              
              -Compliance
                  cost
              
              
              396
              
              
              -**TOTAL
                  OPERATING EXPENSES**
              
              
              112,272
              
              
              -**NET
                  INCOME**
              
              
              249,034
              
              
              -**MEMBERS'
                  EQUITY**Members'
                  equity - January 1,
              
              
              25,000
              
              
              25,000Capital
                  contributions received
              
              
              11,728,140
              
              
              -Capital
                  liquidation distributions
              
              
              -
              
              
              -Distributions
                  declared
              
              
              (296,030
              )
              
              -Distributions
                  reinvested
              
              
              156,085
              
              
              -**MEMBERS'
                  EQUITY - DECEMBER 31,**
              
              $
              11,862,229
              
              $
              25,000
 
 **THE
        ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL
        STATEMENTS**
 **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-5
 
 **POINT
                  CENTER MORTGAGE FUND I, LLC****STATEMENT
                  OF CASH FLOWS**
  **Years
                  Ended December 31,****2006**
              
              **2005****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income
              
              $
              249,034
              
              $
              -Adjustments
                  to reconcile net income to net cash provided by operating activities:Change
                  in operating assets and liabilities:Increase
                  in accrued expenses
              
              
              17,000
              
              
              -Increase
                  in taxes payable
              
              
              1,700
              
              
              -Increase
                  in loan servicing fee payable
              
              
              12,945
              
              
              -Increase
                  in management fees payable
              
              
              9,924
              
              
              -**NET
                  CASH PROVIDED BY OPERATING ACTIVITIES**
              
              
              290,603
              
              
              -**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Increase
                  in accrued interest receivable
              
              
              (103,698
              )
              
              -Trust
                  deed notes receivable - funded
              
              
              (12,025,784
              )
              
              -Trust
                  deed notes receivable - principal received
              
              
              269,427
              
              
              -**NET
                  CASH USED IN INVESTING ACTIVITIES**
              
              
              (11,860,055
              )
              
              -**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Capital
                  contributions received from members'
              
              
              11,728,140
              
              
              -Capital
                  liquidation distributions to members'
              
              
              -
              
              
              -Monthly
                  distribution payments to members'
              
              
              (139,945
              )
              
              -**NET
                  CASH PROVIDED BY FINANCING ACTIVITIES**
              
              
              11,588,195
              
              
              -**NET
                  INCREASE IN CASH**
              
              
              18,743
              
              
              -**CASH
                  BALANCE - JANUARY 1,**
              
              
              25,000
              
              
              25,000**CASH
                  BALANCE - DECEMBER 31,**
              
              $
              43,743
              
              $
              25,000
 
 **THE
        ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL
        STATEMENTS**
 **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-6
  **POINT
        CENTER MORTGAGE FUND I, LLC**
 **NOTES
        TO FINANCIAL STATEMENT**
 **DECEMBER
        31, 2006 AND 2005**
  **NOTE
        1 - ORGANIZATION**
 
 Point
        Center Mortgage Fund I, LLC (the “Fund”) was formed on July 14, 2004. The Fund
        was granted approval by the Securities and Exchange Commission to sell
        membership interests on February 3, 2006, and began operations on June 28,
        2006.
 
 The
        Fund
        was organized to engage in the business of raising funds from investors and
        investing those funds primarily in both commercial and residential loans.
        The
        loans are secured by deeds of trust on real property located throughout the
        United States of America. The investors become members of the LLC. The managing
        member of the Fund is Point Center Financial, Inc., a California corporation.
 
 Term
        of
        the Fund - The term of the Fund will end on December 31, 2029, unless the
        members vote to extend the term.
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 **Management
        Estimates -** The
        preparation of financial statements in conformity with generally accepted
        accounting principles accepted in the United States of America requires
        management to make certain estimates and assumptions that affect the reported
        amounts of assets and liabilities and contingencies at the date of the financial
        statements and the reported amounts of revenues and expenses during the reported
        period. Actual results could differ from those estimates.
 
 **Cash
        and Cash Equivalents -** For
        purposes of the statement of cash flows, cash includes all checking and savings
        accounts. The Fund’s cash balances often exceed federally-insured limits.
        However, the Fund has not experienced any losses and believes it is not exposed
        to any significant credit risk on its cash balances.
 
 **Investment
        in Trust Deed Notes Receivable** - This
        account represents investments that are secured by trust deeds. Generally,
        loans
        require interest only payments with a balloon payment of the principal at
        maturity. The Fund has both the intent and ability to hold trust deeds until
        maturity and therefore, loans are classified and accounted for as held for
        investment and are carried at the principal balance due (see note
        4).
 
 **Reserve
        for Loan Losses -** The
        Fund’s loan portfolio and the related accrued interest are analyzed on a
        continuous basis for recoverability. A reserve for loan losses is established
        based on management’s estimate of losses inherent and probable as of the balance
        sheet date. Management evaluates the adequacy of the reserve giving
        consideration to factors such as the value of the underlying collateral,
        current
        performance of the loans, extent and nature of delinquencies, credit
        characteristics of the portfolio, and the general economic
        environment.
 
 Using
        historical experience and taking into consideration the factors above, the
        Manager estimates a reserve for loan losses, which is believed to be adequate
        for known and inherent losses in the portfolio of trust deed notes receivable.
        Provision for losses is charged to the statement of operations. Losses incurred
        on trust deeds are charged to the reserve (see note 5). Since its inception,
        the
        Fund has not written off any loans.
 
 **Interest
        Income -** Interest
        income on loans is accrued by the effective interest method. Generally, interest
        and payments are due monthly, on the first day of each month. Interest is
        generally prorated to the first day of the month following the closing of
        the
        loan escrow. Interest income due and not received as of the balance sheet
        date
        is accrued.
 
 **Late
        Fee Income -** Late
        fees
        are charged to borrowers when a payment is 10 days past its due date. Late
        fees
        are generally 10% of the payment due by the borrower. Late fee charges due
        and
        not received as of the balance sheet date is accrued.
  **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-7
  **POINT
        CENTER MORTGAGE FUND I, LLC**
 **NOTES
        TO FINANCIAL STATEMENT**
 **DECEMBER
        31, 2006 AND 2005**
 
 **NOTE
        2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** **(CONTINUED)**
 
 **Real
        estate held for sale -** In
        the
        event a trust deed note receivable goes into default, the Manager will commence
        foreclosure proceedings on behalf of and for the benefit of the Fund. If
        the
        collateral real estate is not acquired at a foreclosure sale by an outside
        purchaser, the real estate becomes the property of the Fund. This real estate
        will be considered held for sale and is stated at the lower of the recorded
        investment in the loan including foreclosure costs and expenses, accrued
        interest and late charges as of the date of the foreclosure sale (i.e. the
        acquisition date) or at the property’s estimated fair value. The Fund had no
        real estate held for sale at December 31, 2006.
 
 **Income
        Taxes -** The Fund
        is a limited liability company for federal and state income tax purposes.
        Under
        the laws pertaining to income taxation of limited liability companies, no
        income
        tax is paid by the Fund as an entity. Each individual member reports on their
        income tax returns their distributive share of the Fund’s income, gains, losses,
        deductions and credits, whether or not any actual distribution is made to
        such
        member during a taxable year. Accordingly, no provision for income taxes
        besides
        the California $800 minimum state franchise tax and the California LLC gross
        receipts fee is reflected in the accompanying financial statements.
  **NOTE
        3 - FUND PROVISIONS**
 
 The
        Fund
        is a Delaware limited liability company. The rights, duties and powers of
        the
        members of the Fund are governed by the offering circular and the Delaware
        Limited Liability Company Act. The following description of the Fund’s offering
        circular provides only selected information. Members should refer to the
        Fund’s
        offering circular for a more complete description of the various
        provisions.
 
 The
        Manager is in complete control of the Fund business, subject to the voting
        rights of the members on specified matters. The Manager has the power and
        authority to act for and bind the Fund.
 
 Profits
        and Losses - Profits and losses accrued during any calendar month are allocated
        to the members in proportion to their capital accounts maintained throughout
        the
        month. Investors who become members of the Fund other than on the first day
        of a
        calendar month shall be allocated a proportionate share of the Fund’s profits or
        losses for that month reflecting the days during the month that the investor
        was
        a member.
 
 Each
        month the Manager will distribute the Fund’s accrued net profits to the Members,
        to the extent that there is cash available and provided that the monthly
        distribution will not impact the continuing operation of the Fund.
 
 Investors
        may elect to receive monthly cash distributions from the Fund in the amount
        of
        that Member’s share of cash available for distribution, or allow his or her
        distributions to be reinvested by purchasing additional Shares.
 
 Member
        Withdrawal - The Fund will use its best efforts to redeem shares from Members
        that have (i) held said Shares for a period of at least twenty four months
        and
        (ii) have requested, in writing by certified mail two to three months prior
        to
        the Shares being redeemed. Any obligation of the Fund to repurchase Shares
        shall
        be subject to availability of cash for such purpose. In no event shall the
        Fund
        be obligated to sell any of its assets to raise cash to pay any portion of
        the
        repurchase price.
 
 The
        amount that a withdrawing member will receive from the Fund is based on the
        withdrawing Member’s capital account as of the date of the
        withdrawal.
 
 **NOTE
        4 - TRUST DEED NOTES RECEIVABLE**
 
 These
        consist of investments in primarily first trust deeds by the Fund. These
        trust
        deeds are secured by real estate and carry various interest rates ranging
        from
        9.95% to 13.0%, with maturity dates ranging from one to five years.
  **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-8
  **POINT
        CENTER MORTGAGE FUND I, LLC**
 **NOTES
        TO FINANCIAL STATEMENT**
 **DECEMBER
        31, 2006 AND 2005**
 
 **NOTE
        4 - TRUST DEED NOTES RECEIVABLE (CONTINUED)**
 
 The
        following is a schedule of the annual contractual maturity of the trust deed
        notes receivable as of December 31, 2006.
  Period
                  ended December 31,2007
              
              $
              6,281,2672008
              
              
              2,908,5762009
              
              
              388,9552010
              
              
              15,3012011
              
              
              2,162,258$
              11,756,357
  It
        is the
        Fund’s experience that often times trust deed notes receivable are either
        extended or repaid before contractual maturity dates, refinanced at maturity
        or
        may go into default and not be repaid by the contractual maturity
        dates.
  **NOTE
        5 - RESERVE FOR LOSSES ON TRUST DEED NOTES RECEIVABLE**
 
 An
        analysis of the recoverability of specific loans in the Fund’s loan portfolio as
        of December 31, 2006 is as follows:
 
 The
        following loan was in default status as of December 31, 2006:
 Loan
                    # 205119 - DCP, LLCMaturity
                    Date - November 1, 2006Last
                    payment received - December 4, 2006Principal
                    balance due
                
                $
                752,258Interest
                    receivable
                
                
                6,183Total
                    Due at December 31, 2006
                
                $
                758,441Fair
                    market value of collateral real estate
                
                $
                1,557,470Loan
                    to value percentage
                
                
                48.70
                %
 
 On
        October 19, 2006 the Manager entered into a forbearance agreement on behalf
        of
        the Fund with the borrower, and has agreed to temporarily forbear from
        commencing foreclosure proceedings until January 1, 2007. The borrower paid
        off
        the balance of the loan on January 8, 2007.
 
 Based
        on
        review of the above factors management has determined that no specific reserve
        for loan loss on trust deed notes receivable is warranted at December 31,
        2006.
  **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-9
  **POINT
        CENTER MORTGAGE FUND I, LLC**
 **NOTES
        TO FINANCIAL STATEMENT**
 **DECEMBER
        31, 2006 AND 2005**
 
 **NOTE
        6 - RELATED PARTY TRANSACTIONS**
 
 Point
        Center Financial, Inc., a California corporation is the Manager of the Fund.
        Point Center Financial, Inc. has the following related party transactions
        with
        Point Center Mortgage Fund I, LLC.
 
 Point
        Center Financial, Inc. realizes the following types of compensation from
        the
        Fund:
 
 Loan
        Servicing Fee - Represents servicing fees paid by the Fund to service the
        note,
        to protect the Company’s interest in and enforce its rights under the secured
        note, deed of trust and any other loan document and if necessary, to manage,
        refinance or sell the property. The monthly servicing fee is 0.125% (1.5%
        annually) of the outstanding principal amount of all loans being serviced,
        and
        is withheld from the monthly borrower payments. As of December 31, 2006,
        $44,046
        of this fee has been incurred.
 
 The
        Manager is entitled to receive 50% of any late charges, prepayment penalties
        and
        exit fees. During the year ended December 31, 2006 the Manager received $340
        in
        late fee income from the borrowers.
 
 Conditional
        Annual Program Management Fee - An annual fee of 1% of the aggregate capital
        contributions will be paid monthly to the Manager out of available cash flow
        from the loan portfolio. This fee will accrue, without interest, and be payable
        only at such times as available cash exists. The Manager has agreed to waive
        this fee for the period ended June 30, 2006, however starting the month of
        July
        2006 through the year ended December 31, 2006, $37,620 has been
        incurred.
 
 A
        brokerage fee of up to 3% of proceeds received upon the resale of any property
        acquired through foreclosure will be paid to the Manager where it substantially
        contributes to the sale.
 
 The
        Manager will pay and will not be reimbursed by the Fund for any general or
        administrative overhead expenses, such as labor, rent, supplies, etc. it
        incurs
        in connection with managing the operations of the Fund.
 
 Loan
        Extension Fees and Forbearance Agreement Fees - Where the Manager in its
        best
        judgment, enters into an agreement with the borrower to extend the maturity
        date
        of a loan or forebear foreclosure on a loan, the Manager is paid a fee by
        the
        borrower. The Manager retains 100% of all loan extension fees and forbearance
        fees received from borrowers.
 
 The
        Fund
        will bear the following costs:
 
 California
        franchise tax and the California limited liability company gross receipts
        fee.
 
 Legal,
        accounting, and tax preparation fees.
 
 Annual
        bond fee for the California Financial Lender License.
 
 Organizational
        and offering costs have been paid by the Manager of the Fund. The Manager
        waives
        its rights to recover such expenses at a later time. As of December 31, 2006
        the
        Manager has paid $263,376 for organization costs, and $734,257 for offering
        costs.
 
 Point
        Center Financial, Inc., the Manager, had .2181% ownership interest in the
        Fund
        as of December 31, 2006.
  **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-10
  **POINT
        CENTER MORTGAGE FUND I, LLC**
 **NOTES
        TO FINANCIAL STATEMENT**
 **DECEMBER
        31, 2006 AND 2005**
 
 **NOTE
        7 - LOAN CONCENTRATIONS AND CHARACTERISTICS**
 
 At
        December 31, 2006, there were 19 secured loans outstanding with the following
        characteristics:
  Number
                  of secured loans outstanding
              
              19Total
                  secured loans outstanding
              
              $11,756,357Largest
                  secured loan outstanding
              
              $973,384Largest
                  secured loan as a percent of the total
              
              8%U.S.
                  state collateral real estate is located in
              
              
              Arizona
                California
                Florida
                Georgia
                Michigan
              
              
              New
                  York
                Tennessee
                Texas
                Utah
                Virginia
  The
                  following categories of secured loans were held at December 31,
                  2006:First
                  trust deeds
              
              $
              11,756,357Second
                  trust deeds
              
              
              0
 
 The
                  following types of loans were held at December 31, 2006:Vacant
                  Land
              
              $
              5,064,018Commercial
              
              
              3,412,087Construction
              
              
              2,940,393Residential
              
              
              339,859
  **SEE
        INDEPENDENT AUDITOR’S REPORT**
  F-11