FINANCIAL STATEMENTS AND


INDEPENDENT AUDITOR'S REPORT




HARBOR POINTE, L.P.




DECEMBER 31, 2010











HARBOR POINTE, L.P.


TABLE OF CONTENTS







PAGEINDEPENDENT AUDITOR'S REPORT
3FINANCIAL STATEMENTS:BALANCE SHEET
4STATEMENT OF OPERATIONS
5STATEMENT OF CHANGES IN PARTNERS' CAPITAL
6STATEMENT OF CASH FLOWS
7NOTES TO FINANCIAL STATEMENTS
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PAILET, MEUNIER andLeBLANC, L.L.P.


Certified Public Accountants


Management Consultants





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Partners


Harbor Pointe, LP.




We have audited the accompanying balance sheet of Harbor Pointe, L.P., as of December 31, 2010 and the related statements of operations, changes in partners' capital and cash flows for the year then ended. These financial statements are the responsibility of the partnership'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 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. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. 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 statements referred to above present fairly, in all material respects, the financial position of Harbor Pointe, L.P. as of December 31, 2010 and the results of its operations, changes in partners' capital and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.













Metairie, Louisiana


February 16, 2011





3421 N. Causeway Blvd., Suite 701 • Metairie, LA 70002 • Telephone (504) 837-0770 • Fax (504) 837-7102


201 St. Charles Ave., Ste. 2500 • New Orleans, LA 70170 • Telephone (504) 599-5905 • Fax (504) 837-7102


www.pmlcpa.com


Member of


Member Firms in Principal Cities • PCAOB - Public Company Accounting Oversight Board


AICPA: Center for Public Company Audit Firms (SEC) • Governmantal Audit Quality Center • Private Companies Practice Section (PCPS)




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HARBOR POINTE, L.P.




BALANCE SHEET




DECEMBER 31, 2010






ASSETSProperty and equipment, at cost Land

$
293,689Land improvements


533,292Building


3,259,695Equipment


226,1794,312,855Accumulated depreciation


(1,035,023
)Property and equipment, net


3,277,832Other assetsCash, operating


27,830Tax and insurance escrow


4,250Accounts receivable


1,312Tenant security deposits


11,067Prepaid expenses


581Required reserves


253,769Monitoring fee, net of accumulated amortization


13,347Total other assets


312,156Total assets


3,589,988LIABILITIES AND PARTNERS' CAPITALCurrent liabilitiesAccounts payable and accrued expenses

$
4,144Current portion mortgage payable


12,775Tenant security deposits


11,067Total current liabilities


27,986Other liabilitiesState Home mortgage, net of current portion


2,031,257Total liabilities


2,059,243Partners' equity


1,530,745Total Liabilities and Partners' Capital

$
3,589,988
 
 See auditors' report and accompanying notes
  4




HARBOR POINTE, L.P.




STATEMENT OF OPERATIONS




DECEMBER 31, 2010




Income from rental operationsGross rent potential

$
247,992Vacancies and rental concessions


(3,776
)Other rental income


1,176Total Revenue


245,392Operating expensesManagement fees


22,785Repairs and maintenance


32,158Salaries


47,581Utilities


15,248Real estate taxes


41,341Insurance


7,103Administrative


26,851Total Operating Expenses


193,067Net rental operating income


52,325Other income (expenses)Interest income


653Depreciation and amortization


(141,411
)Asset management fee


(1,145
)Interest


(21,117
)Total other income (expenses)


(163,020
)Net loss

$
(110,695
)





See auditors' report and accompanying notes




5




HARBOR POINTE, L.P.




STATEMENT OF CHANGES IN PARTNERS' CAPITAL




DECEMBER 31, 2010




General

Partner


Limited

Partners


Total

Partners'

CapitalBalance - January 1, 2010

$
(64
)

$
1,645,932


$
1,645,868Net Loss


(11
)


(110,684
)


(110,695
)Distributions to Members


(3,321
)


(1,107
)


(4,428
)Balance - December 31, 2010

$
0.3961


$
1.534141


$
1.530.745




6




HARBOR POINTE, L.P.




STATEMENT OF CASH FLOWS


DECEMBER 31, 2010




Cash flows from operating activities:Net Loss

$
(110,695
)Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization


141,411(Increase) decrease in accounts receivable


(1,312
)(Increase) decrease in prepaid expenses


(44
)Increase (decrease) in accounts payable and accrued expenses


3,944Increase (decrease) in security deposits payable


150Increase (decrease) in prepaid rent


(583
)Total adjustments


143,566Net cash provided (used) by operating activities


32,871Cash flows from investing activities:Investment in rental property


(954
)(Deposit) withdrawal tax and insurance escrow


5,639(Deposit) withdrawal required reserve


(18,165
)(Deposit) withdrawal security deposit account


(150
)Net cash provided (used) by investing activities


(13,630
)Cash flows from financing activities:Principal payments on State Home loan


(11,985
)Distributions


(4,428
)Net cash provided (used) by financing activities


(16,413
)Net increase (decrease) in cash and equivalents


2,828Cash and equivalents, beginning of year


25,002Cash and equivalents, end of year


27,830Supplemental disclosures of cash flow information:Cash paid during the year for:Interest Expense

$
21,117
 
 See auditors' report and accompanying notes
  7





HARBOR POINTE, L.P.





NOTES TO FINANCIAL STATEMENTS





DECEMBER 31, 2010




NOTE A - NATURE OF OPERATIONS




Harbor Pointe, L.P. (the "Partnership") was formed in 2001 under the laws of the State of Georgia for the purpose of constructing and operating a 56-unit apartment community, known as Harbor Pointe, and located in Tifton, Georgia.




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The following significant accounting policies have been followed in the preparation of the financial statements:




Accounting Standards Codification




The Financial Accounting Standards Board ("FASB ASC") became the sole authoritative source of generally accepted accounting principles in the United States of America for periods ending after September 15, 2009. The FASB ASC incorporates all authoritative literature previously issued by a standard setter. Adoption of the FASB ASC has no effect on the Partnership's financial position, results from operations, partners' equity, or cash flows. References to the authoritative accounting literature in the notes to the financial statements are to the FASB ASC.




Basis of accounting




The Partnership prepares its financial statements on the accrual basis of accounting consistent with accounting principles generally accepted in the United States of America.




Cash and cash equivalents




Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less at the acquisition date. Restricted cash is not considered cash equivalents.




Concentration of credit risk




The Partnership places its temporary cash investments with high credit quality financial institutions. At times, the account balances may exceed the institution's federally insured limits. The Partnership has not experienced any losses in such accounts.




Revenue recognition




Rental revenue attributable to residential leases is recorded when due from residents, generally upon the first day of each month. Rental payments received in advance are deferred until earned. All leases between the Partnership and tenants of the property are operating leases.




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HARBOR POINTE, L.P.




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Estimates




The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.




Fixed assets




Property and equipment are recorded at cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations using the straight-line method over their estimated service lives of 40 years for buildings, 5 to 10 years for equipment, and 15 years for land improvements. Depreciation expense for the year ended December 31, 2010 was $139,651. As of December 31, 2010, accumulated depredation was $1,035,023.




Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income.




Intangible assets




Compliance monitoring fees have been recorded at cost. Amortization has been provided for using the straight-line method over 15years. Amortization expense for the year ended December 31, 2010 was $1,760. As of December 31, 2010, accumulated amortization was $13,053.




Impairment of long-lived assets




The Partnership reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by a comparison of the carrying amount to the future net undiscounted cash flow expected to be generated and any estimated proceeds from the eventual disposition. If the long-lived asset is considered to be impaired, the impairment to be recognized is measured at the amount by which the carrying amount exceeds the fair value as determined from an appraisal, discounted cash flows analysis, or other valuation technique. There were no impairment losses recognized during 2010.




Tenant Rent Receivables




Management considers tenant rent receivables to be fully collectible; accordingly, no allowance for doubtful accounts is required.Uncollectible rent receivables are charged to operations upon management's determination that collection of the receivable is unlikely.




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HARBOR POINTE, L.P.




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)





Income Taxes




Incomes or loss of the Partnership is allocated 0.01% to the general partner and 99.99% to the limited partner. No income tax provision has been included in the financial statements since profit or loss of the Partnership is required to be reported by the respective partners on their income tax returns.




On January 1, 2009, the Partnership applied the guidance on accounting for uncertain tax provisions in FASB ASC 740, Income Taxes.The Partnership is no longer subject to income tax examinations for calendar years prior to 2006.




NOTE C - REQUIRED RESERVES




In accordance with the provisions of the mortgage agreement, certain reserves are required to be established to be used for property replacement, budgeted expense items and loan payments as follows:




Excess operating reserve

$
69,222Replacement reserve


78,471Operating deficit reserve


104,068Rent-up reserve


2,008Total


253,769





NOTE D - MORTGAGE PAYABLE




The Partnership has a mortgage note with the Georgia Department of Community Affairs (State Home Bank) in the original amount of $2,141,000 secured by a deed of trust on the rental property. The mortgage bears an interest rate of 1% per annum with monthly installments of $3,121 for 300 months, maturing December 1, 2024. The remaining principal balance at December 31, 2010, amounted to $2,044,032.




Aggregate annual maturities for the mortgage payable over each of the next five years are as follows:







December 31, 2011

$
12,7752012


12,9032013


13,0332014


12,6612015


7,229and thereafter


1,985,431Total

$
2,044,032




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HARBOR POINTE, L.P.




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE E - MANAGEMENT FEES




The Partnership is managed by Boyd Management, Inc., pursuant to an agreement effective December 2004 and renewed in September 2008. During the year ended December 31, 2010, Boyd Management, Inc. earned management fees of $22,785, and management fees payable amounted to $180 at December 31, 2010.




NOTE F - RELATED PARTY TRANSACTIONS





Development Fees




The developer, an affiliate of the general partner of the Partnership, received a developer's fee of $574,000 for its services during the development and construction of the Project. The fee was paid in installments as defined in the development agreement. During the year ended December 31, 2010, the remaining balance of $3,149 was paid. The developer's fee was capitalized into the building basis.




Asset Management Fee




The Partnership shall pay to the limited partner an asset management fee equal to $1,000. The fee shall be paid annually; provided however, that if in any year operating income is insufficient to pay the full $1,000, the unpaid portion thereof shall accrue and be payable on a cumulative basis in the first year in which there is sufficient net operating income. The Partnership incurred fees of $145 for these services for the year ended December 31, 2010. As of December 31, 2010, $0 remains payable.




Incentive Management Fee




The Partnership shall pay to the general partner an incentive management fee equal to $500. The fee shall be paid annually; provided however, that if in any year operating income is insufficient to pay the full $500, the unpaid portion shall not accrue for payment in subsequent years. The Partnership incurred fees of $500 for these services for the year ended December 31, 2010. As of December 31, 2010, $0 remains payable.




Tax Credit Compliance Fee




The Partnership shall pay to the general partner a tax credit compliance fee equal to $500. The fee shall be paid annually; provided however, that if in any year operating income is insufficient to pay the full $500, the unpaid portion shall not accrue for payment in subsequent years. The Partnership incurred fees of $500 for these services for the year ended December 31, 2010. As of December 31, 2010, $0 remains payable.




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HARBOR POINTE, L.P.




NOTES TO FINANCIAL STATEMENTS




DECEMBER 31, 2010




NOTE G - PARTNERSHIP PROFITS, LOSSES AND DISTRIBUTIONS




Operating profits and losses are allocated 99.99% to the limited partners and .01% to the general partner. Tax credits are to be allocated 99.99% to the limited partners and .01% to the general partner. Profit or loss and cash distributions from sales of property will be allocated as formulated in the partnership agreement.




NOTE H - COMMITMENTS AND CONTINGENCIES




As incentive for investment equity, the Partnership applied for and received an allocation certificate for housing tax credits established by the Tax Reform Act of 1986. To qualify for the tax credits, the Partnership must meet certain requirements, including attaining a qualified basis sufficient to support the credit allocation. In addition, tenant eligibility and rental charges are restricted in accordance with Internal Revenue Code Section 42. Management has certified that each tax credit unit has met these qualifications to allow the credits allocated to each unit to be claimed.




Compliance with these regulations must be maintained in each of the fifteen consecutive years of the compliance period. Failure to maintain compliance with occupant eligibility, unit gross rent, or to correct noncompliance within a reasonable time period could result in recapture of previously claimed tax credits plus interest.




NOTE I - SUBSEQUENT EVENTS




FASB ASC 855,Subsequent Events,addresses events which occur after the balance sheet date but before the issuance of financial statements. An entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that existed after the balance sheet date. Additionally, Topic 855 requires disclosure relative to the date through which subsequent events have been evaluated and whether that is the date on which the financial statements were issued or were available to be issued. Management evaluated the activity of Harbor Pointe, L.P. through February 16, 2011, the date the financial statements were issued, and concluded that no subsequent events have occurred that would require recognition in the Financial Statements or disclosure in the Notes to the Financial Statements.






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