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LEFT HAND DITCH COMPANY <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2011 and 2010 <br />NOTE 6 - INCOME TAXES <br />The Company is not subject to income taxes pursuant to I.R.C. Section 501(c)(12) <br />covering mutual ditch companies whose member assessment income exceeds 85% of total <br />income. No unrelated business income in excess of the allowed annual exclusion amount has <br />been collected that would be subject to income taxes. <br />NOTE 7 - LONG -TERM NOTE PAYABLE <br />During July 1994, the Company applied for a state - funded loan through the Colorado <br />Water Conservation Board (CWCB) to pay for a portion of the spillway project. A $560,000, <br />30 -year loan at 4.375% interest was approved on January 12, 1998, by CWCB. <br />All the Company's assets are pledged as security on this note. Scheduled annual <br />payments of principal and interest on the note are $33,875 per year for 30 years beginning in <br />2000. <br />Principal payments due on the note for the next five years are as follows: <br />2012 <br />15,673 <br />2013 <br />16,359 <br />2014 <br />17,074 <br />2015 <br />17,821 <br />2016 <br />18,601 <br />Thereafter <br />330,531 <br />$ 416,059 <br />Accrued interest totaled $11,384 and $11,793 at December 31, 2011 and 2010, <br />respectively. <br />The terms of the CWCB loan require 10 annual deposits of 10 percent of the annual loan <br />payments into a debt service reserve account. The Company opened this account in <br />December 1998 with a deposit of $3,387. The balance in the reserve account at <br />December 31, 2011 was $13,983, and at December 31, 2010 was $13,976. The terms of the <br />loan require the Company to levy assessments in an amount sufficient to pay the annual <br />amounts due on the loan and to place these assessment revenues pledged to make annual loan <br />payments into a separate account. <br />Page 7 <br />