Annual report pursuant to Section 13 and 15(d)

NOTE 8 - COMMITMENTS AND CONTINGENCIES

v2.4.0.6
NOTE 8 - COMMITMENTS AND CONTINGENCIES
12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
NOTE 8 - COMMITMENTS AND CONTINGENCIES

a. General Partner Obligations

 

The Company serves as general partner in several real estate development partnerships until 2005 when they reduced their position to one partnership (Canyon Shadows) of which they became a limited partner during the 2005 refinance of the project . The Company may still be held liable for certain liabilities, although because the amounts are minimal and the entities are limited liability companies, management does not feel that the potential liabilities will have a material impact on the Company.

 

b. Housing Grant

 

In April 1995, the Company acquired a 120-unit apartment complex using a $975,000 loan that was converted to a grant from the City of Riverside, California. The loan was a non-recourse and was secured by a second trust deed on the property. After the Company met certain requirements pertaining to the complex, which have been stipulated by the city, the loan was forgiven by the City of Riverside on January 31, 2005 before the refinance of the Canyon Shadows project.

 

a. Stock Escrow and Security Agreement

 

In 2004 and 2005, the Company entered into a Stock Escrow and Security Agreement with Angus Holdings, LLC ("Angus") and Douglas Morgan whereby the Company borrowed funds under the terms of a convertible promissory note. The Company still has $53,371 outstanding on its books as of December 31, 2009. Although the Company has not had request to convert these loans in many years and feels the statute of limitations has passed, they have kept the liabilities open in the event some settlement is eventually reached. Currently, there is no stock being held in escrow.

 

d. Litigation

 

At December 31, 2010, the Company was party to certain legal proceedings, resulting in judgments and settlements since the 2003 audited calendar year. The following is a summary of those payables:

 

During the year of 2003, Bank of Hemet received a legal judgment against the Company totaling $932,006. In 2000, however, the Company had negotiated a settlement in this case for $100,000, and booked this amount as a contingent liability at December 31, 2000. In 2001, the Company defaulted on this settlement. As a result, during 2001, the Company recorded the full amount of the judgment, less payments made by the Company to Bank of Hemet. On November 20, 2002, the Company negotiated another settlement on this amount totaling $280,000, payable from proceeds from the Canyon Shadows investment. During 2002, the contingency was recorded at this amount plus interest imputed at an annual rate of 8%. At December 31, 2002, this liability is recorded at $269,535. In 2003, this liability was transferred to an unrelated entity by the name of Jeager and Kodner, LP. ("JK"). The Company negotiated a new settlement with JK whereby JK became entitled to the Company's cash receipts from its Canyon Shadows investment (less 21% - see Note 4), until JK is paid in full. As of December 31, 2003, the Bank of Hemet/JK liability totaled $168,794. This liability was paid in full in cash during 2005 from the refinance of their Canyon Shadows Investment.

 

In 2000, a non-related individual filed suit against the Company. Later that year, management negotiated a settlement with this individual totaling $250,000, and the amount was recorded as a contingent liability at December 31, 2000. In 2001 the Company defaulted on the settlement agreement. As a result, during 2001, the Company recorded the full amount of the alleged damages, less payments made by the Company to the individual. On May 21, 2002, the Company negotiated another settlement with this individual totaling $125,000 payable in cash payments and a convertible debenture. Subsequent to May 2002, the Company defaulted on this settlement agreement. As a result, in the current year, the Company recorded the full amount of the alleged damages, less payments made by the Company to the individual, plus interest imputed at an annual rate of 8%. At December 31, 2002, this liability was recorded at $1,238,785. During the year ended December 31, 2003, this amount was settled in full for 20,000,000 shares of the Company's common stock.

 

In 2001, 1st Miracle Group, Inc. received a legal judgment against the Company totaling $100,000. Management was able to negotiate a settlement on this amount, totaling $20,000. At December 31, 2003, the liability is recorded at the settled amount, plus accrued interest imputed at 8% annually totaling $23,328. The balance has been eliminated from the books as of December 31, 2007.

 

In 2001, AMG Consulting brought legal action against the Company, seeking damages of $21,012. During 2003, this amount was settled in full for $6,000 in cash.

 

In 2002, a former employee received a legal judgment against the Company totaling $20,110. At December 31, 2003, this liability is recorded at the settled amount plus accrued interest imputed at 8%

annually for a total liability of $23,021. This amount was adjusted for another judgment which was then being recorded as accounts payable of December 31, 2004. During 2007, there was a partial payment of the settlement of the combined balance and $39,372 is still recorded as a judgment payable at December 31, 2009.