VirTra Inc (VTSI)

[ByloCellhi]

Question????

What would happen if these obligations were converted to stock?

From the filing:
Notes Payable-Stockholders

Notes payable to stockholders consisted of the following at December 31, 2003:

Convertible notes payable to stockholders, principal and interest due on demand, accruing interest at 12% per year. These notes are collateralized by certain equipment and contain a provision to convert the note to common stock. $100,000


Note payable to a stockholder, principal and interest due on demand, interest accrues at 10% per year. This note is not collateralized. $194,031


Notes payable to stockholders, non-interest bearing with principal due on demand. These notes are not collateralized. $616,000


Total notes payable to stockholders $910,031


All notes due to stockholders were in default as of December 31, 2003. Convertible notes payable to stockholders in the amount of $100,000 were issued by the Company in increments of $10,000 having an original maturity date of May 10, 1998. The holder of each $10,000 of convertible note has a non-assignable option to purchase 7,500 shares of common stock at par value. Alternately, each holder has the right to convert their convertible note to equity in the form of 12,500 shares of restricted common stock. None of the notes have been converted.

Of the $616,000 of notes payable without interest described above, a $103,500 note provides for a per diem issuance of common stock as penalty for late payments. As of December 31, 2003, the per diem issuance would be in excess of 18,000,000 shares of the Company’s common stock. The Company has received an opinion from counsel that the penalty provisions are unenforceable as illegal usury under applicable Texas law. However, there has not been any litigation between the Company and the holder of the note as to this issue, and in the absence of a court decision directly applicable to the parties, there remains at least some risk that the opinion of counsel could be wrong. According to legal counsel there is no likelihood of a sustainable assessment of the per diem late penalty. Therefore, no provision for such charges has been provided.