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Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 10. Commitments and Contingencies

 

General or Threatened Litigation

 

From time to time, the Company is notified of threatened litigation or that a claim is being made against it. The Company evaluates contingencies on an on-going basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. In June 2018, the Company initiated a declaratory judgment action in the Superior Court of the State of Arizona. A former customer had raised allegations of breach of contract and breach of warranty and the Company seeks relief and clarification from the Superior Court regarding the allegations and the Company’s obligations under the contract with the former customer. In May 2019, the Company entered into settlement agreement of $76,250. The agreement does not constitute an admission of any unlawful conduct or wrongdoing. The Company had established a probable and estimated loss contingency of $40,000 as of December 31, 2018 and had accrued the full loss contingency of $76,250 as of March 31, 2019. The full amount of the settlement has been paid at June 30, 2019.

 

The Company evaluated its collection history related to its trade note receivable and determined the note was in default and in accordance with the terms of the note, accelerated its payment demand. The Company filed a verified complaint in the Superior Court of Arizona for the outstanding principal balance plus accrued interest, late fees and reasonable attorneys’ fees.

 

Employment Agreements

 

On April 2, 2012, the Company entered into three-year Employment Agreements with its Chief Executive Officer and Chief Operating Officer that call for base annual salaries of $195,000 and $175,000, respectively, subject to cost of living adjustments, and contain automatic one-year extension provisions. These contracts have been renewed annually and have been adjusted based on the same percentage increase approved for Company-wide cost-of-living adjustments.

 

Profit Sharing

 

VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to active and eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata to employees in April and October of the following year after the completion of the annual financial audit. For the three and six months ended June 30, 2019, the amount charged to operations was $0 due to net loss in both periods. For the three and six months ended June 30, 2018, the amount charged to operations was $447,821 and $447,821, respectively. The profit sharing estimate was revised in subsequent quarters during 2018 and was not paid to eligible employees until 2019.