12. Contingent Liabilities and Commitments

12 Months Ended

Aug. 31, 2016

Notes

12. Contingent Liabilities and Commitments

12.          CONTINGENT LIABILITIES AND COMMITMENTS

a)            A subsidiary was a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al., Case No. 05-02553 (Multnomah County Circuit Court). 

During fiscal 2002 the Company entered into a purchase agreement to acquire inventory over a 15 month period with an initial estimated value of $7,000,000 from Greenwood Forest Products, Inc.  During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition.  As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased.  The Company believes it overpaid the obligation by approximately $820,000.  The holder counterclaimed for approximately $2,400,000.

Litigation was completed on March 5, 2007, with the court’s general judgment and money award.  The net effect was money judgment in favor of Greenwood Forest Products, Inc. for $242,604.  The Company accrued reserves to cover the money judgment related to this dispute.  Both parties filed appeals for review of the court’s opinion.

A series of rulings and appeals between the years ended August 31, 2011 to August 31, 2015, resulted in the Company recognizing aggregate litigation income of $272,695, and aggregate interest expense of $363,366 to August 31, 2015, totaling a net loss of $90,671.

During the year ended August 31, 2016, the Company and Greenwood Forest Products, Inc., settled all litigation between the two companies. The Company made a cash payment of $200,000 to Greenwood Forest Products, Inc., as full settlement and termination of the litigation (the “Settlement Payment”). The litigation expense of $115,990 represents the difference between the Settlement Payment, and the litigation reserve balance on the date of settlement of $84,010 which is net of interest income recognized for the period. As a result, to the date of settlement during the year ended August 31, 2016, the Company has recognized aggregate litigation income, and aggregate interest expense of $156,705, and $363,366 respectively, resulting in an aggregate loss of $206,661.

A summary of the litigation reserve is as follows:

	August 31, 2016	August 31,                 2015
Litigation settlement (1)	$     (84,010)	$                  -
Litigation reserve	84,010	117,387
Interest expense	-	-
Interest income	-	(26,716)
Total	$                -	$        90,671

(1)           The litigation reserve was reversed in full upon the settlement reached during the year ended August 31, 2016.

b)            At August 31, 2016 and August 31, 2015 the Company had an un-utilized line-of-credit of $3,000,000 (Note 7).  The line-of-credit has certain financial covenants. The Company is in compliance with these covenants.