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East Street Limited Partnership <br /> Notes to Financial Statements <br /> December 31, 2012 and 2011 <br /> Insurance Escrow <br /> Pursuant to the terms of the mortgage,the Partnership is required to establish an insurance escrow account and <br /> contribute monthly to the account 1/12 of the yearly insurance premiums. <br /> Shortfall Reserve <br /> Pursuant to the terms of the loan agreement with US Bank(Note 6),the Partnership is required to establish a <br /> shortfall reserve if certain financial ratios are not met. <br /> Operating Reserve <br /> Pursuant to the partnership agreement and the terms of the mortgage,the Partnership is required to fund and <br /> maintain an operating reserve at an amount that equals six months of debt service. As of December 31,2012 and <br /> 2011,this reserve was fully funded. <br /> Note 3 - Property and Equipment <br /> 2012 2011 <br /> Land $ 84,990 $ 84,990 <br /> Building and improvements • 3,079,182 3,079,182 <br /> 3,164,172 3,164,172 <br /> Accumulated depreciation (1,351,444) (1,239,490) <br /> $ 1,812,728 $ 1,924,682 <br /> Note 4- Accrued Interest <br /> ' 2012 2011 <br /> Accrued interest-U.S. Bank $ - $ 6,796 <br /> Accrued interest-LHA 70,862 64,919 <br /> $ 70,862 $ 71,715 <br /> Note 5 - Developer Fees <br /> Developer fees of$225,000 to BCHA, have been capitalized as part of the building costs. As of December 31, <br /> 2012 and 2011,the Partnership owed BCHA$195,176 for deferred developer fees. Pursuant to the partnership <br /> agreement, remaining deferred developer fees are to be paid from available net cash flow. <br /> 8 <br />