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Guarantees
On September 19, 2006, we entered into a factoring arrangement intended to provide additional working capital through factoring of our accounts receivable. At the time, we were moving toward a merger with VirTra Merger Corporation, separate company that had been formed to acquire Chrysalis Manufacturing Corporation, (a/k/a Altatron EMS) and another company. Upon consummation of those acquisitions, VMC was to be acquired by VirTra Systems, Inc.
The lender did not regard either VirTra Systems, Inc. or VMC as sufficiently creditworthy to grant a credit line without guarantees. As a result, we entered into an arrangement whereby CapNet Securities Corporation would be the borrower under the factoring arrangement, would secure its borrowings by accounts receivable of VirTra Systems and VMC, and would relend the borrowed funds to us and to VMC. We, VMC and Daniel L. Ritz, Jr., , a principal of CapNet, jointly and severally guaranteed payment of amounts drawn under the credit arrangement up to $1,000,000.
We borrowed $100,000 under the arrangement described above, an amount which is still outstanding. We understand that VMC and/or another company associated with CapNet borrowed additional amounts under the arrangement, and that the total amount due the lender currently stands at approximately $500,000.
The expected merger with VMC did not occur. We do not intend to borrow any more money from Charter Capital/CapNet under the arrangement and VMC (now known as ComCon Manufacturing Services, Inc.) informs us that they also do not intend to borrow additional amounts under the arrangement. Charter Capital has been notified that the parties intend to discontinue the facility altogether.
Charter Capital has agreed in principle to a modification which would limit the amount of our guaranty to $200,000.
In addition to the $100,000 borrowed by the company under this arrangement, we also have unsecured advances $96,650 from other companies largely owned and/or controlled by Daniel L. Ritz, Jr. No further payments will be made on those advances until we have been released from our guaranty to Charter Capital.
On February 28, 2007 VirTra Systems, Inc. formalized the credit arrangement directly with Charter Capital for repayment over 90 days, at which time the company will be unconditionally released from the guarantee. Subsequent to June 30, 2007 the Company was allowed to change their payment terms under this agreement and at June 30, 2007 has a balance of approximately $54,000.
Note 8. Common Stock Transactions
During the six months ended June 30, 2007, we issued the following shares:
We issued 3,000,000 share s for services that were previously recorded and accrued during the calendar year ended December 31, 2006.
We issued 1,875,000 shares for cash as part of a private placement resulting in cash proceeds of $81,250.
We issued 650,000 shares for services valued at $46,651 based upon the closing price of the Company’s stock at the measurement date.
We issued 969,725 shares in connection with the forced conversion of accrued penalties associated with a debenture holder. These shares are valued at their fair market value of $33,941 in these financial statements. Of this amount $6,788 is included in general and administrative expenses and $27,152 was recorded as a retirement of a previously-accrued interest cost.
We issued 5,168,388 shares to members and ex-members of our board of directors as compensation for services. These shares were valued at their fair market values of $175,724.
Note 9. Accrued Liabilities
At June 30, 2007 we had $2,147,084 in accrued liabilities. The major items included in this amount are: accrued compensation to officers and directors of $249,153; accrued tax liens from the internal revenue service of $891,822; an accrual of $251,293 for the judgment against us in the Edward and Linda Strickland v. VirTra Systems, Inc. case and unpaid interest of $515,695 on the convertible debentures issued in 2005.
