Document and Entity Information
Document and Entity Information - shares | 3 Months Ended | |
Mar. 31, 2019 | May 13, 2019 | |
Document And Entity Information | ||
Entity Registrant Name | VirTra, Inc | |
Entity Central Index Key | 0001085243 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business Flag | true | |
Entity Emerging Growth Company | true | |
Entity Ex Transition Period | false | |
Entity Common Stock, Shares Outstanding | 7,734,255 | |
Trading Symbol | VTSI | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2019 |
Condensed Balance Sheets
Condensed Balance Sheets - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Current assets: | ||
Cash and cash equivalents | $ 1,286,578 | $ 2,500,381 |
Certificates of deposit | 3,290,000 | 3,490,000 |
Accounts receivable, net | 1,339,245 | 1,302,010 |
Interest receivable | 22,412 | 21,385 |
That's Eatertainment note receivable, net, related party | 301,876 | 292,138 |
Trade note receivable, net | 30,860 | 96,282 |
Inventory, net | 1,708,671 | 1,612,002 |
Unbilled revenue | 1,130,438 | 689,153 |
Prepaid expenses and other current assets | 812,204 | 377,520 |
Total current assets | 9,922,284 | 10,380,871 |
Long-term assets: | ||
Property and equipment, net | 700,296 | 678,245 |
Operating lease right-of-use asset | 1,604,867 | |
Intangible asset, net | 158,519 | |
Trade note receivable, long-term | 61,875 | 6,843 |
Security deposits, long-term | 339,756 | 339,756 |
Other assets, long-term | 348,461 | 292,298 |
Deferred tax asset, net | 2,507,000 | 2,400,000 |
Investment in That's Eatertainment, related party | 1,120,000 | 1,120,000 |
Total long-term assets | 6,840,774 | 4,837,142 |
Total assets | 16,763,058 | 15,218,013 |
Current liabilities: | ||
Accounts payable | 616,254 | 429,949 |
Accrued compensation and related costs | 728,183 | 613,691 |
Accrued expenses and other current liabilities | 665,997 | 632,606 |
Note payable, current | 11,250 | 11,250 |
Operating lease liability, short-term | 262,575 | |
Deferred revenue, short-term | 2,091,206 | 1,924,307 |
Total current liabilities | 4,375,465 | 3,611,803 |
Long-term liabilities: | ||
Deferred revenue, long-term | 963,019 | 962,356 |
Deferred rent liability | 46,523 | |
Operating lease liability, long-term | 1,400,987 | |
Total long-term liabilities | 2,364,006 | 1,008,879 |
Total liabilities | 6,739,471 | 4,620,682 |
Commitments and contingencies (See Note 10) | ||
Stockholders' equity: | ||
Preferred stock $0.0001 par value; 2,500,000 authorized; no shares issued or outstanding | ||
Common stock, value | 775 | 783 |
Treasury stock at cost; nil shares outstanding as of March 31, 2019 and 10,707 shares outstanding as of December 31, 2018. | (37,308) | |
Additional paid-in capital | 13,974,692 | 14,272,834 |
Accumulated deficit | (3,951,880) | (3,638,978) |
Total stockholders' equity | 10,023,587 | 10,597,331 |
Total liabilities and stockholders' equity | 16,763,058 | 15,218,013 |
Class A Common Stock [Member] | ||
Stockholders' equity: | ||
Common stock, value | ||
Class B Common Stock [Member] | ||
Stockholders' equity: | ||
Common stock, value |
Condensed Balance Sheets (Paren
Condensed Balance Sheets (Parenthetical) - $ / shares | Mar. 31, 2019 | Dec. 31, 2018 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, shares authorized | 2,500,000 | 2,500,000 |
Preferred stock, shares issued | ||
Preferred stock, shares outstanding | ||
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 50,000,000 | 50,000,000 |
Common stock, shares issued | 7,748,705 | 7,827,651 |
Common stock, shares outstanding | 7,748,705 | 7,816,944 |
Treasury stock, shares outstanding | 10,707 | |
Class A Common Stock [Member] | ||
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 2,500,000 | 2,500,000 |
Common stock, shares issued | ||
Common stock, shares outstanding | ||
Class B Common Stock [Member] | ||
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 7,500,000 | 7,500,000 |
Common stock, shares issued | ||
Common stock, shares outstanding |
Condensed Statements of Operati
Condensed Statements of Operations (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Revenues: | ||
Total revenue | $ 3,051,338 | $ 3,288,792 |
Cost of sales | 1,250,869 | 1,026,156 |
Gross profit | 1,800,469 | 2,262,636 |
Operating expenses: | ||
General and administrative | 1,901,931 | 2,053,305 |
Research and development | 355,641 | 367,544 |
Total operating expense | 2,257,572 | 2,420,849 |
Loss from operations | (457,103) | (158,213) |
Other income (expenses): | ||
Other income | 42,282 | 43,298 |
Other expense | (5,081) | (66) |
Net other income | 37,201 | 43,232 |
Loss before provision for income taxes | (419,902) | (114,981) |
Provision (benefit) for income taxes | (107,000) | (29,194) |
Net loss | $ (312,902) | $ (85,787) |
Net loss per common share: | ||
Basic | $ (0.04) | $ (0.01) |
Diluted | $ (0.04) | $ (0.01) |
Weighted average shares outstanding: | ||
Basic | 7,765,624 | 7,904,307 |
Diluted | 7,765,624 | 7,904,307 |
Net Sales [Member] | ||
Revenues: | ||
Total revenue | $ 3,011,701 | $ 3,242,824 |
That's Eatertainment Royalties/Licensing fees, Related Party [Member] | ||
Revenues: | ||
Total revenue | 39,637 | 43,788 |
Other Royalties/Licensing Fees [Member] | ||
Revenues: | ||
Total revenue | $ 2,180 |
Condensed Statements of Changes
Condensed Statements of Changes in Stockholders' Equity (Unaudited) - USD ($) | Preferred Stock [Member] | Common Stock [Member] | Additional Paid-In Capital [Member] | Treasury Stock [Member] | Accumulated Deficit [Member] | Total |
Balance at Dec. 31, 2017 | $ 793 | $ 14,954,563 | $ (112,109) | $ (4,457,070) | $ 10,386,177 | |
Balance, shares at Dec. 31, 2017 | 7,927,774 | |||||
Treasury stock | ||||||
Treasury stock cancelled | ||||||
Treasury stock cancelled, shares | ||||||
Net loss | (85,787) | (85,787) | ||||
Balance at Mar. 31, 2018 | $ 793 | 14,954,563 | (112,109) | (4,542,857) | 10,300,390 | |
Balance, shares at Mar. 31, 2018 | 7,927,774 | |||||
Balance at Dec. 31, 2018 | $ 783 | 14,272,834 | (37,308) | (3,638,978) | 10,597,331 | |
Balance, shares at Dec. 31, 2018 | 7,827,651 | |||||
Treasury stock | (260,842) | (260,842) | ||||
Treasury stock cancelled | $ (8) | (298,142) | 298,150 | |||
Treasury stock cancelled, shares | (78,946) | |||||
Net loss | (312,902) | (312,902) | ||||
Balance at Mar. 31, 2019 | $ 775 | $ 13,974,692 | $ (3,951,880) | $ 10,023,587 | ||
Balance, shares at Mar. 31, 2019 | 7,748,705 |
Condensed Statements of Cash Fl
Condensed Statements of Cash Flows (Unaudited) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Cash flows from operating activities: | ||
Net loss | $ (312,902) | $ (85,787) |
Adjustments to reconcile net loss to net cash used by operating activities | ||
Depreciation and amortization | 141,783 | 68,619 |
Deferred taxes | (107,000) | (29,818) |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (37,235) | (194,502) |
That's Eatertainment note receivable, net, related party | (3,652) | |
Trade note receivable, net | 4,304 | |
Interest receivable | (1,027) | |
Inventory | (96,669) | (361,916) |
Unbilled revenue | (441,285) | 743,966 |
Prepaid expenses and other current assets | (434,684) | (143,341) |
Other assets | (56,163) | |
Accounts payable and other accrued expenses | 334,188 | 461,062 |
Payments on operating lease liability | (57,818) | |
Deferred revenue | 167,562 | (853,618) |
Net cash used by operating activities | (900,598) | (395,335) |
Cash flows from investing activities: | ||
Purchase of certificates of deposit | (1,880,000) | |
Redemption of certificates of deposit | 2,080,000 | |
Purchase of intangible asset | (160,000) | |
Purchase of property and equipment | (94,994) | (167,490) |
Proceeds from sale of property and equipment | 2,631 | |
Net cash used in investing activities | (52,363) | (167,490) |
Cash flows from financing activities: | ||
Purchase of treasury stock | (260,842) | |
Net cash used in financing activities | (260,842) | |
Net decrease in cash | (1,213,803) | (562,825) |
Cash, beginning of period | 2,500,381 | 5,080,445 |
Cash, end of period | 1,286,578 | 4,517,620 |
Supplemental disclosure of cash flow information: | ||
Cash paid: Taxes | 21,698 | |
Supplemental disclosure of non-cash investing and financing activities: | ||
Conversion of accounts to notes receivable | $ 400,906 |
Organization and Significant Ac
Organization and Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Organization and Significant Accounting Policies | Note 1. Organization and Significant Accounting Policies Organization and Business Operations VirTra, Inc. (the “Company” or “VirTra”), located in Tempe, Arizona, is engaged in the sale and development of judgmental use of force training simulators and firearms training simulators for law enforcement, military and commercial uses. The Company sells simulators and related products worldwide through a direct sales force and international distribution partners. The original business started in 1993 as Ferris Productions, Inc. In September 2001, Ferris Productions, Inc. merged with GameCom, Inc. to ultimately become VirTra, Inc., a Nevada Corporation. Effective March 2, 2018, the Company effected a 1 for 2 reverse stock split of its issued and outstanding Common Stock (the “Reverse Stock Split”). All references to shares of the Company’s common stock in this report refer to the number of shares of common stock after giving effect to the Reverse Stock Split. Basis of Presentation The condensed financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements for the year ended December 31, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP. Interim results are subject to seasonal variations, and the results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. Reclassifications Certain reclassifications have been made to the 2018 financial statements to conform to the 2019 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. Revenue Recognition The Company adopted Accounting Standards Codification 606, Revenue from Contract with Customer (Topic 606) (“ASC 606”) on January 1, 2018 and the Company elected to use the modified retrospective transition which requires application of ASC 606 to uncompleted contracts at the date of adoption. The adoption of ASC 606 did not have a material impact on the financial statements. Under ASC 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant judgment is necessary when making these determinations. The Company’s primary sources of revenue are derived from simulator and accessories sales, training and installation, the sale of customizable software and the sale of extended service-type warranties. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable). Prepaid deposits received at the time of sale and extended warranties purchased are recorded as current and long-term liabilities (deferred revenue) until earned. The following briefly summarizes the nature of our performance obligations and method of revenue recognition: Performance Obligation Method of Recognition Simulator and accessories Upon transfer of control Installation and training Upon completion or over the period of services being rendered Extended service-type warranty Deferred and recognized over the life of the extended warranty Customized software Upon transfer of control Sales-based royalty exchanged for license of intellectual property Recognized as the performance obligation is satisfied over time – which is as the sales occur. The Company recognizes revenue upon transfer of control or upon completion of the services for the simulator and accessories; for the installation and training and customized software performance obligations as the customer has the right and ability to direct the use of these products and services and the customer obtains substantially all of the remaining benefit from these products and services at that time. For the sales-based royalty exchanged for license of intellectual property, the Company recognized revenue as the sales occur over time. The Company recognizes revenue on a straight-line basis over the period of services being rendered for the extended service-type warranties as these warranties represent a performance obligation to “stand ready to perform” over the duration of the warranties. As such, the warranty service is performed continuously over the warranty period. Each contract states the transaction price. The contracts do not include variable consideration, significant financing components or noncash consideration. The Company has elected to exclude sales and similar taxes from the measurement of the transaction price. The contract’s transaction price is allocated to the performance obligations based upon their stand-alone selling prices. Discounts to the stand-alone selling prices, if any, are allocated proportionately to each performance obligation. Disaggregation of Revenue Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors. The Company has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation. Three Months Ended March 31, 2019 March 31, 2018 Domestic International Total Domestic International Total Simulators and accessories $ 1,932,659 $ 318,438 $ 2,251,097 $ 936,692 $ 1,552,733 $ 2,489,425 Extended service-type warranties 480,524 29,950 510,474 424,123 62,386 486,509 Customized software 178,770 - 178,770 137,273 11,940 149,213 Installation and training 71,360 - 71,360 67,457 50,220 117,677 Licensing and royalties 39,637 - 39,637 45,968 - 45,968 Total Revenue $ 2,702,950 $ 348,388 $ 3,051,338 $ 1,611,513 $ 1,677,279 $ 3,288,792 Customer Deposits Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled $312,354 and $186,450 as of March 31, 2019 and December 31, 2018, respectively. Changes in deferred revenue amounts related to customer deposits will fluctuate from year to year based upon the mix of customers for the year and the Company’s backlog of open contracts. Customer deposits are considered a deferred liability until completion of the customer’s contract performance obligations. When revenue is recognized, the deposit is applied to the customer’s receivable balance. Warranty The Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, and also sells separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty. During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will fix or replace the defective product. Deferred revenue for separately priced extended warranties one year or less totaled $1,645,632 and $1,604,637 as of March 31, 2019 and December 31, 2018, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $963,019 and $962,356 as of March 31, 2019 and December 31, 2018, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $200,505 as of March 31, 2019 and December 31, 2018. During the three months ended March 31, 2019 and 2018, the Company recognized revenue of $510,474 and $486,509, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. Changes in deferred revenue amounts related to extended service-type warranties will fluctuate from year to year based upon the average remaining life of the warranties at the beginning of the period and new extended service-type warranties sold during the period. Customer Retainage Customer retainage is recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $133,220 as of March 31, 2019 and December 31, 2018. Changes in deferred revenue amounts related to customer retainage will fluctuate from year to year based upon the customer’s contract completion date allowing the Company to invoice and recover the retainage. Licensing and Royalties with Related Party As discussed further in Note 8. Collaboration Agreement with Related Party, the Company licenses intellectual property to Modern Round, LLC (“MR”), a wholly-owned subsidiary of That’s Eatertainment Corp. (“TEC”), a related party, in exchange for sales-based royalties. Revenues from this agreement are recognized in accordance with the terms of the contract as the sales occur. The Company receives additional immaterial sales-based royalties from strategic partners. Adoption of New Accounting Standards In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). ASU 2016-02 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases. In July 2017, the FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)” Part I of ASU No. 2017-11 applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within Accounting Standards Codification (ASC) Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. ASU No. 2017-11 did not have a material impact on the Company’s financial statements. In June 2018, the FASB issued ASU No. 2018-07, “Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contract with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. ASU No. 2018-07 did not have a material impact on the Company’s financial statements. Fair Value Measurements ASC Topic 820, Fair Value Measurements Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimate of assumptions that market participants would use in pricing the asset or liability. Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, certificates of deposit, accounts receivable, notes and interest receivables, accounts payable, and accrued liabilities. The fair value of financial instruments, except for long-term notes receivable, approximates their carrying values, using level 3 inputs, at March 31, 2019 and December 31, 2018 due to their short maturities. The fair value of the long-term notes receivable approximates its carrying value, using level 3 inputs, at March 31, 2019 and December 31, 2018 based on borrowing rates currently available for loans with similar terms and maturities. Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. Certificates of Deposit and Mutual Funds The Company invests its excess cash in certificates of deposit and money market mutual funds issued by financial institutions with high credit ratings. The certificates of deposit generally have average maturities of approximately six months and are subject to penalties for early withdrawal. The money market mutual funds are open ended and can be withdrawn at any time without penalty. Accounts and Notes Receivable and Allowance for Doubtful Accounts The Company recognizes an allowance for losses on accounts receivable based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. Accounts receivable do not bear interest and are charged off after all reasonable collection efforts have been taken. As of March 31, 2019 and December 31, 2018, the Company maintained an allowance for doubtful accounts of $24,511 and $23,044, respectively. Notes receivable are carried at their estimated collectible amounts. Interest income on notes receivable is recognized using the effective interest method. Notes receivable are periodically evaluated for collectability based on the credit history and the current financial condition of the counter party, and the known and inherent risks in the notes. Notes receivable are placed on nonaccrual status when they become 90 days past due and the customer has not made a payment in over 60 days. Upon suspension of the accrual of interest, interest income is subsequently recognized to the extent cash payments are received. Accrual of interest is resumed when notes are removed from non-accrual status. Notes receivable are charged against the allowance for credit losses when they are deemed to be uncollectible. As of March 31, 2019 and December 31, 2018, the allowance for uncollectible notes receivable was $266,813. Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on the average cost method. Work in progress and finished goods inventory includes an allocation for capitalized labor and overhead. The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value. As of March 31, 2019 and December 31, 2018, inventory reserves were $105,031. Investments in Other Companies Minority investments in other companies are accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the other companies’ operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than-temporary declines in fair value and distribution of earnings. For investments in public companies that have readily determinable fair values, the Company classifies its investments as available-for-sale, and accordingly records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the statements of operations. The adoption of ASU 2016-01 requires investments in other companies that do not have readily determinable fair value be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This standard was adopted on January 1, 2018, including all interim reporting periods within the fiscal year. The adoption of ASU 2016-01 did not have a material impact on the financial statements. Upon adoption, the Company has elected to utilize the cost minus impairment approach because the investment in TEC does not have a readily determinable fair value as of the reporting date. See Note 8. Collaboration Agreement with Related Party. Management regularly evaluates the recoverability of its investment based on the investee company’s performance and financial position. During the three months ended March 31, 2019 and 2018, the Company did not recognize any impairment loss. Management regularly assesses the classification of its investments. Property and Equipment Property and equipment are carried at cost, net of depreciation. Gains or losses related to retirements or disposition of fixed assets are recognized in operations in the period incurred. Costs of normal repairs and maintenance are charged to expense as incurred, while betterments or renewals are capitalized. Depreciation commences at the time the assets are placed in service. Depreciation is provided using the straight-line method over the estimated economic lives of the assets or for leasehold improvements, over the shorter of the estimated useful life or the remaining lease term, which are summarized as follows: Computer equipment 3-5 years Furniture and office equipment 5-7 years Machinery and equipment 5-7 years Leasehold improvements 7 years Intangible assets Intangible assets at March 31, 2019 are comprised of various patents. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful lives of 18 years. Cost of Products Sold Cost of products sold represents manufacturing costs, consisting of materials, labor and overhead related to finished goods and components. Cost of products sold does not include depreciation of fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold. Advertising Costs Costs associated with advertising are expensed as incurred. Advertising expense was $119,403 and $139,381 for the three months ended March 31, 2019 and 2018, respectively. These costs include domestic and international tradeshows, website, and sales promotional materials. Research and Development Costs Research and development costs are expensed as incurred. Research and development costs primarily include expenses, including labor, directly related to research and development support. Research and development costs were $355,641 and $367,544 for the three months ended March 31, 2019 and 2018, respectively. Legal Costs Legal costs relating to loss contingencies are expensed as incurred. See Note 10. Concentration of Credit Risk and Major Customers and Suppliers Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, certificates of deposit, accounts receivable and notes receivable. The Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of $1,138,137 and $2,014,987 as of March 31, 2019 and December 31, 2018, respectively. Sales are typically made on credit and the Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for estimated losses. Historically, the Company has experienced minimal charges relative to doubtful accounts. The Company’s notes receivable are due from two counter parties and are unsecured. Management performs ongoing evaluations of the collectability of its notes receivable and maintains an allowance for estimated losses. Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended March 31, 2019, one federal agency comprised 12% of total net sales. By comparison, for the three months ended March 31, 2018, one federal agency comprised 15%, and one commercial customer comprised 41% of total net sales, respectively. As of March 31, 2019, one federal agency comprised 40% and one state agency comprised 14% of total accounts receivables. By comparison, as of December 31, 2018, one federal agency comprised 26% and one state agency comprised 20% of total accounts receivables. Income Taxes Deferred tax assets and liabilities are recorded based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes are required. In assessing realizable deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. The Company adjusts the valuation allowance in the period management determines it is more likely than not that net deferred tax assets will or will not be realized. After review of the deferred tax asset and valuation allowance in accordance with ASC 740, management determined that it is more likely than not that the Company will fully realize all of its deferred tax asset and no valuation allowance was needed as of March 31, 2019 and December 31, 2018. As of March 31, 2019 and December 31, 2018, the Company did not recognize any assets or liabilities relative to uncertain tax positions. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. The Company reflects tax benefits, only if it is more likely than not that the Company will be able to sustain the tax return position, based on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions at March 31, 2019 and December 31, 2018. The Company is potentially subject to tax audits for its United States federal and Arizona, California, Florida, Georgia, Hawaii, Illinois, Massachusetts, Maryland, Michigan, North Dakota, New Hampshire, New Jersey, New York, Ohio, Idaho, South Carolina, Tennessee, Texas, Virginia, Washington, and West Virginia state income and excise tax returns for tax years between 2014 and 2019; however, earlier years may be subject to audit under certain circumstances. Tax audits by their very nature are often complex and can require several years to complete. Impairment of Long-Lived Assets and Intangible Assets Long lived assets, such as equipment, and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the asset. At March 31, 2019 and December 31, 2018, the Company concluded that there has been no indication of impairment to the carrying value of its long-lived assets. As such, no impairment has been recorded. Stock Based Compensation The Company measures the cost of awards of equity instruments based on the grant date fair value of the awards. The Company calculates the fair value of stock-based awards using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected term and risk-free interest rates. There were no grants of stock-based awards during the three months ended March 31, 2019 and 2018. The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, using an average of vesting and contractual terms, as we did not have sufficient historical experience of similar awards. The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. The estimated fair value of stock-based compensation awards and other options is amortized to expense on a straight-line basis over the relevant vesting period. As share-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. The Company has elected to recognize forfeitures as they occur rather than estimating them at the time of grant. New Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for us on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is assessing what effect the provisions of 2016-13 will have on the financial statements. In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of 2018-18 on its financial statements. |
Notes Receivable
Notes Receivable | 3 Months Ended |
Mar. 31, 2019 | |
Receivables [Abstract] | |
Notes Receivable | Note 2. Notes Receivable An unsecured promissory note was executed on March 23, 2018 by a customer converting its past-due trade receivable from the sale of goods and services in the amount of $400,906. This unsecured promissory note is due in full on or before February 2020. The note bears interest at the rate of ten percent (10%) per annum and requires installment payments of $20,000 principal and interest. Payments are due monthly and include late fees. The principal and accrued interest due as of March 31, 2019 and December 31, 2018 was $369,286 and $374,034, respectively. At March 31, 2019 and December 31, 2018, the Company recorded an allowance against the note receivable balance in the amount of $266,813. The current portion of the remaining note receivable, net of allowance, collectible in one year or less was $40,598. The remaining portion of the note, classified as long-term was $61,875. The Company accepted an unsecured convertible promissory note (the “Convertible Note”) from TEC, a related party, in the amount of $292,138 for a portion of their minimum royalty payment due as of May 31, 2018. The note bears interest at the rate of five percent (5%) per annum and contains a provision requiring remittance of not less than 20% of the net proceeds of any private or public offering of its securities in reduction of the Convertible Note. The note has a conversion right, at the sole discretion of the Company, to convert the outstanding balance of principal and accrued interest at any time for shares of common stock of TEC. Prior to the due date, the Company may elect to convert the Convertible Note for shares of common stock in TEC at a twenty-five percent (25%) discount to the price of shares sold to the public in a public offering in connection with a go-public transaction. The issuance of common stock upon conversion shall be made without charge to the Company. No fractional shares shall be issued upon conversion and in lieu of fractional shares, TEC will pay the Company the amount of any obligation that is not converted. Any unpaid balance of principal and accrued interest becomes due and collectible on the earlier of (i) August 1, 2019 (maturity date), or (ii) if declared due and payable in the event of Default. The note principal and accrued interest due as of March 31, 2019 and December 31, 2018 was $301,876 and $298,224, respectively. No reserve for collectability has been recorded as of March 31, 2019 and December 31, 2018. See Note 8. |
Inventory
Inventory | 3 Months Ended |
Mar. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Inventory | Note 3. Inventory Inventory consisted of the following as of: March 31, 2019 December 31, 2018 Raw materials and work in process $ 1,813,702 $ 1,717,033 Reserve (105,031 ) (105,031 ) Total inventory, net $ 1,708,671 $ 1,612,002 During 2018, the Company evaluated the useful life of its spare parts inventory. As a result of this evaluation, the Company classified $348,461 and $292,298 of spare parts as Other Assets, long-term on the Balance Sheet at March 31, 2019 and December 31, 2018, respectively. |
Property and Equipment
Property and Equipment | 3 Months Ended |
Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Property and Equipment | Note 4. Property and Equipment Property and equipment consisted of the following as of: March 31, 2019 December 31, 2018 Computer equipment $ 1,070,372 $ 1,054,004 Furniture and office equipment 212,347 207,921 Machinery and equipment 1,091,228 1,021,188 Leasehold improvements 324,313 324,313 Total property and equipment 2,698,260 2,607,426 Less: Accumulated depreciation (1,997,964 ) (1,929,181 ) Property and equipment, net $ 700,296 $ 678,245 Depreciation expense was $70,312 and $68,619 for the three months ended March 31, 2019 and 2018, respectively. |
Intangible Asset
Intangible Asset | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Asset | Note 5. Intangible Asset Intangible asset consisted of the following as of: March 31, 2019 December 31, 2018 Patents $ 160,000 $ - Total intangible asset 160,000 - Less: Accumulated amortization (1,481 ) - Intangible asset, net $ 158,519 $ - Amortization expense was $1,481 and $0 for the three months ended March 31, 2019 and 2018, respectively. |
Leases
Leases | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Leases | Note 6. Leases We lease approximately 37,729 rentable square feet of office and warehouse space from an unaffiliated third party for our corporate office, manufacturing, assembly, warehouse and shipping facility located at 7970 South Kyrene Road, Tempe, Arizona 85284. In addition, we lease approximately 4,529 rentable square feet of office and industrial space from an unaffiliated third party for our machine shop at 2169 East 5th St., Tempe, Arizona 85284 through March 2019. In April 2019 the Company relocated the machine shop from the Fifth St. location to 7910 South Kyrene Road, within the same business complex as our main office. The Company executed a lease amendment to add an additional 5,131 rentable square feet for the machine shop and extended its existing office lease through April 2024. The Company’s lease agreements do not contain any residual value guarantees, restrictive covenants or variable lease payments. The Company has not entered into any financing leases. In addition to base rent, the Company’s lease generally provides for additional payments for other charges, such as rental tax. The lease includes fixed rent escalations. The Company’s lease does not include an option to renew. The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease right of use assets, net, operating lease liability – short term, and operating lease liability – long-term on its condensed balance sheet. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 4.5%. Significant judgement is required when determining the Company’s incremental borrowing rate. The Company uses the implicit rate when readily determinable. Lease expense for lease payments are recognized on a straight-line basis over the lease term. Effective January 1, 2019, the Company obtained a right-of-use asset in exchange for a new operating lease liability in the amount of $1,721,380 and derecognized $46,523 deferred rent for an adjusted operating lease right-of-use asset in the net amount of $1,674,857. The balance sheet classification of lease assets and liabilities was as follows: Balance Sheet Classification March 31, 2019 Assets Operating lease right-of-use assets, beginning balance $ 1,674,857 Current period amortization (69,990 ) Total operating lease right-of-use asset $ 1,604,867 Liabilities Current Operating lease liability, short term $ 262,575 Non-current Operating lease liability, long term 1,400,987 Total lease liabilities $ 1,663,562 Future minimum lease payments as of March 31, 2019 under non-cancelable operating leases are as follows: 2019 $ 244,858 2020 357,452 2021 398,955 2022 411,849 2023 359,703 Thereafter 98,364 Total lease payments 1,871,181 Less: imputed interest (207,619 ) Operating lease liability $ 1,663,562 The Company had a deferred rent liability of $0 and $46,523 as of March 31, 2019 and December 31, 2018, respectively, relative to the increasing future minimum lease payments. Rent expense for the three months ended March 31, 2019 and 2018 was $89,139 and $87,345, respectively. |
Accrued Expenses
Accrued Expenses | 3 Months Ended |
Mar. 31, 2019 | |
Payables and Accruals [Abstract] | |
Accrued Expenses | Note 7. Accrued Expenses Accrued compensation and related costs consisted of the following as of: March 31, 2019 December 31, 2018 Salaries and wages payable $ 357,651 $ 147,677 401(k) contributions payable 15,635 8,232 Accrued paid time off 248,891 265,962 Profit sharing payable 106,006 191,820 Total accrued compensation and related costs $ 728,183 $ 613,691 Accrued expenses and other current liabilities consisted of the following as of: March 31, 2019 December 31, 2018 Manufacturer’s warranties $ 200,505 $ 200,505 Warranties-other 189,983 189,983 Loss contingencies 76,250 40,000 Taxes payable 199,259 202,118 Total accrued expenses and other current liabilities $ 665,997 $ 632,606 |
Collaboration Agreement with Re
Collaboration Agreement with Related Party | 3 Months Ended |
Mar. 31, 2019 | |
Collaboration Agreement With Related Party | |
Collaboration Agreement with Related Party | Note 8. Collaboration Agreement with Related Party On January 16, 2015, the Company entered into a Co-Venture Agreement (the “Co-Venture Agreement”) with Modern Round, LLC (“MR”), a wholly-owned subsidiary of TEC, a related party. The Co-Venture Agreement grants TEC an exclusive non-transferrable license to use the Company’s technology and certain equipment solely for use at locations to operate the concept, as defined in the Co-Venture Agreement. Throughout the duration of the Co-Venture Agreement, TEC will pay the Company a royalty based on gross revenue, as defined and subject to certain minimum royalties commencing with the first twelve-month period subsequent to the respective milestone date of June 1, 2017. Under the terms of the original agreement, if the total royalty payments for locations in the United States and Canada together do not total at least the minimum royalty amount specified in the agreement, TEC may pay to VirTra the difference between the amount of total royalty payments and the minimum specified in the agreement to maintain exclusivity. On August 16, 2017, the Company entered into the first amendment to the Co-Venture Agreement to permit TEC to sublicense the VirTra Technology to third party operators of stand-alone location-based entertainment companies. TEC agreed to pay the Company royalties for any such sublicenses in an amount equal to 10% of the revenue paid to TEC in cases where TEC pays for the cost of the equipment for such location or 14% of the revenue paid to TEC in cases where it does not pay for the cost of the equipment. In April 2018, Modern Round effected a 1 for 12,000 reverse stock split, followed by a 2,000 for 1 forward stock split completed in November 2018. As a result, the Company holds, as of March 31, 2019 and December 31, 2018, 560,000 shares of TEC common stock representing approximately 5.9% of the issued and outstanding common shares of TEC. The Company recorded its investment at cost minus impairment as of March 31, 2019 and December 31, 2018, at $1,120,000. On July 23, 2018, the Company entered into the second amendment to the Co-Venture Agreement with TEC to (i) confirm the minimum royalty deficiency benefit due for the royalty period ended May 31, 2018; (ii) establish payment terms for the minimum royalty deficiency benefit due, to include both cash and promissory note payment; (iii) clarify the exclusivity provisions of the Agreement; and (iv) amend the minimum royalty calculations to only TEC branded facilities. For the three months ended March 31, 2019 and 2018, respectively, the Company recognized license fee income (royalties) from TEC of $39,637 and $43,788. In addition, at March 31, 2019, the Company holds a warrant to purchase 25,577 shares of TEC common stock, adjusted for the 1 for 12,000 reverse stock split and the 2,000 for 1 forward stock split, at an exercise price of $2.4436 per share, as adjusted. This warrant became exercisable on the date of grant of April 14, 2015 and expires on the tenth anniversary of the date of grant, if not earlier pursuant to the terms of the option. |
Related Party Transactions
Related Party Transactions | 3 Months Ended |
Mar. 31, 2019 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | Note 9. Related Party Transactions Mr. Saltz, who is a member of our Board of Directors, is also Chairman of the Board of Directors of TEC, as well as, a majority stockholder of TEC. The Company has entered into a Co-venture Agreement with TEC as disclosed in Note 8. In addition, the Company owns 560,000 shares of TEC common stock representing approximately 5.9% of the issued and outstanding shares of TEC common stock. The Company recognized $39,637 and $43,788 for license fees (royalties) for the three months ended March 31, 2019 and 2018, respectively, pursuant to the terms of the Co-Venture Agreement. As of March 31, 2019 and December 31, 2018, TEC had accounts receivable balances outstanding of $14,190 and $16,743, respectively. Mr. Richardson, who is a member of our Board of Directors, is also acting CEO of Natural Point, Inc., a vendor of the Company. For the three months ended March 31, 2019 and 2018, the Company purchased specialized equipment from Natural Point in the amount of $38,352 and $52,328, respectively. As of March 31, 2019, the Company had accounts payable balance outstanding with Natural Point of $2,467, and as of December 31, 2018, the Company had a prepaid balance outstanding with Natural Point of $1,020. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 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 has initiated a declaratory judgment action in the Superior Court of the State of Arizona. A former customer has 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. Management believes that the declaratory judgment action will not have a material adverse effect on our results of operations and the Company will vigorously defend against any allegations raised by the former customer. The Company has established a probable and estimated loss contingency of $76,250 and $40,000 as of March 31, 2019 and December 31, 2018, respectively (also see Note 12 Subsequent Events). 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 months ended March 31, 2019 and 2018, the amount charged to operations was $0 due to net loss in the respective periods. |
Stockholders' Equity
Stockholders' Equity | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Stockholders' Equity | Note 11. Stockholders’ Equity Authorized Capital Common Stock. Authorized Shares Rights and Preferences (i) Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held of record by such holder. The holders of shares of Common Stock shall not have cumulative voting rights. (ii) Each holder of Class A Common Stock shall be entitled to ten (10) votes for each share of Class A Common Stock held of record by such holder. The holders of shares of Class A Common Stock shall not have cumulative voting rights. (iii) The holders of Common Stock and Class A Common Stock shall vote together as a single class on all matters on which stockholders are generally entitled to vote. (iv) The holders of Class B Common Stock shall not be entitled to vote on any matter, except that the holders of Class B Common Stock shall be entitled to vote separately as a class with respect to amendments to the Articles of Incorporation that increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely. Preferred Stock Authorized Shares Rights and Preferences Stock Repurchase On October 25, 2016 the Company’s Board of Directors authorized the repurchase of up to $1,000,000 of its common stock under the U.S. Securities and Exchange Commission (“SEC”) rule 10b-18. Purchases made pursuant to this authorization will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with the Rule 10b-18. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. On January 9, 2019, VirTra’s Board of Directors authorized an additional $1 million be allocated for the repurchase of VirTra’s stock under the existing 10b-18 plan. Treasury Stock During the three months ended March 31, 2019, the Company purchased 68,239 additional treasury shares at an average cost of $3.82 per share. As of December 31, 2018, the Company held 10,707 treasury shares at an average cost of $3.48 per share. As of March 31, 2019, all 78,946 treasury shares outstanding had been cancelled and returned to shares authorized. Non-qualified Stock Options The Company has periodically issued non-qualified stock options to key employees, officers and directors under a stock option compensation plan approved by the Board of Directors in 2009. Terms of option grants are at the discretion of the Board of Directors and are generally seven years. Upon the exercise of these options, the Company expects to issue new authorized shares of its common stock. The following table summarizes all non-qualified stock options as of: March 31, 2019 March 31, 2018 Number of Weighted Number of Weighted Stock Options Exercise Price Stock Options Exercise Price Options outstanding, beginning of year 279,167 $ 2.34 531,667 $ 1.80 Granted - - - - Redeemed - - - - Exercised - - - - Expired / terminated - - - - Options outstanding, end of quarter 279,167 $ 2.34 531,667 $ 1.80 Options exercisable, end of quarter 279,167 $ 2.34 521,667 $ 1.82 The Company did not have any non-vested stock options outstanding as of March 31, 2019. There were 10,000 non-vested stock options as of March 31, 2018 that vested in October 2018. The weighted average contractual term for options outstanding and exercisable at March 31, 2019 and 2018 was 7 years. 2017 Equity Incentive Plan On August 23, 2017, our board approved, subject to stockholder approval at the annual meeting of stockholders on October 6, 2017, the 2017 Equity Incentive Plan (the “Equity Plan”). The Equity Plan is intended to make available incentives that will assist us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards. A total of 1,187,500 shares of our common stock was initially authorized and reserved for issuance under the Equity Plan. This reserve automatically increased on January 1, 2018, and will increase each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board. Awards may be granted under the Equity Plan to our employees, including officers, directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder of the award and may include any of the following: stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units and cash-based awards and other stock-based awards. As of March 31, 2019 and December 31, 2018, there were no options issued under this plan. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Mar. 31, 2019 | |
Subsequent Events [Abstract] | |
Subsequent Events | Note 12. Subsequent Events In April, 2019, the Company entered into settlement discussions with a former customer pertaining to ongoing legal proceedings (see Note 10 General or Threatened Litigation). On April 30, 2019 the Company’s settlement offer of $76,250 was verbally accepted and a formal settlement agreement is in process. 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. The Company accrued the full amount of the settlement liability as of March 31, 2019. In April, 2019, the Company purchased 14,450 shares of treasury stock at an average cost of $3.97 per share. |
Organization and Significant _2
Organization and Significant Accounting Policies (Policies) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation The condensed financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements for the year ended December 31, 2018. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading. The accompanying condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at March 31, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP. Interim results are subject to seasonal variations, and the results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the full year. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. |
Reclassifications | Reclassifications Certain reclassifications have been made to the 2018 financial statements to conform to the 2019 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported. |
Revenue Recognition | Revenue Recognition The Company adopted Accounting Standards Codification 606, Revenue from Contract with Customer (Topic 606) (“ASC 606”) on January 1, 2018 and the Company elected to use the modified retrospective transition which requires application of ASC 606 to uncompleted contracts at the date of adoption. The adoption of ASC 606 did not have a material impact on the financial statements. Under ASC 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant judgment is necessary when making these determinations. The Company’s primary sources of revenue are derived from simulator and accessories sales, training and installation, the sale of customizable software and the sale of extended service-type warranties. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable). Prepaid deposits received at the time of sale and extended warranties purchased are recorded as current and long-term liabilities (deferred revenue) until earned. The following briefly summarizes the nature of our performance obligations and method of revenue recognition: Performance Obligation Method of Recognition Simulator and accessories Upon transfer of control Installation and training Upon completion or over the period of services being rendered Extended service-type warranty Deferred and recognized over the life of the extended warranty Customized software Upon transfer of control Sales-based royalty exchanged for license of intellectual property Recognized as the performance obligation is satisfied over time – which is as the sales occur. The Company recognizes revenue upon transfer of control or upon completion of the services for the simulator and accessories; for the installation and training and customized software performance obligations as the customer has the right and ability to direct the use of these products and services and the customer obtains substantially all of the remaining benefit from these products and services at that time. For the sales-based royalty exchanged for license of intellectual property, the Company recognized revenue as the sales occur over time. The Company recognizes revenue on a straight-line basis over the period of services being rendered for the extended service-type warranties as these warranties represent a performance obligation to “stand ready to perform” over the duration of the warranties. As such, the warranty service is performed continuously over the warranty period. Each contract states the transaction price. The contracts do not include variable consideration, significant financing components or noncash consideration. The Company has elected to exclude sales and similar taxes from the measurement of the transaction price. The contract’s transaction price is allocated to the performance obligations based upon their stand-alone selling prices. Discounts to the stand-alone selling prices, if any, are allocated proportionately to each performance obligation. Disaggregation of Revenue Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors. The Company has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation. Three Months Ended March 31, 2019 March 31, 2018 Domestic International Total Domestic International Total Simulators and accessories $ 1,932,659 $ 318,438 $ 2,251,097 $ 936,692 $ 1,552,733 $ 2,489,425 Extended service-type warranties 480,524 29,950 510,474 424,123 62,386 486,509 Customized software 178,770 - 178,770 137,273 11,940 149,213 Installation and training 71,360 - 71,360 67,457 50,220 117,677 Licensing and royalties 39,637 - 39,637 45,968 - 45,968 Total Revenue $ 2,702,950 $ 348,388 $ 3,051,338 $ 1,611,513 $ 1,677,279 $ 3,288,792 |
Customer Deposits | Customer Deposits Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled $312,354 and $186,450 as of March 31, 2019 and December 31, 2018, respectively. Changes in deferred revenue amounts related to customer deposits will fluctuate from year to year based upon the mix of customers for the year and the Company’s backlog of open contracts. Customer deposits are considered a deferred liability until completion of the customer’s contract performance obligations. When revenue is recognized, the deposit is applied to the customer’s receivable balance. |
Warranty | Warranty The Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, and also sells separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty. During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will fix or replace the defective product. Deferred revenue for separately priced extended warranties one year or less totaled $1,645,633 and $1,604,637 as of March 31, 2019 and December 31, 2018, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $963,019 and $962,356 as of March 31, 2019 and December 31, 2018, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $200,505 as of March 31, 2019 and December 31, 2018. During the three months ended March 31, 2019 and 2018, the Company recognized revenue of $510,474 and $486,509, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. Changes in deferred revenue amounts related to extended service-type warranties will fluctuate from year to year based upon the average remaining life of the warranties at the beginning of the period and new extended service-type warranties sold during the period. |
Customer Retainage | Customer Retainage Customer retainage is recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $133,220 as of March 31, 2019 and December 31, 2018. Changes in deferred revenue amounts related to customer retainage will fluctuate from year to year based upon the customer’s contract completion date allowing the Company to invoice and recover the retainage. |
Licensing and Royalties with Related Party | Licensing and Royalties with Related Party As discussed further in Note 8. Collaboration Agreement with Related Party, the Company licenses intellectual property to Modern Round, LLC (“MR”), a wholly-owned subsidiary of That’s Eatertainment Corp. (“TEC”), a related party, in exchange for sales-based royalties. Revenues from this agreement are recognized in accordance with the terms of the contract as the sales occur. The Company receives additional immaterial sales-based royalties from strategic partners. |
Adoption of New Accounting Standards | Adoption of New Accounting Standards In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). ASU 2016-02 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases. In July 2017, the FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)” Part I of ASU No. 2017-11 applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within Accounting Standards Codification (ASC) Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. ASU No. 2017-11 did not have a material impact on the Company’s financial statements. In June 2018, the FASB issued ASU No. 2018-07, “Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation-Stock Compensation, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contract with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. ASU No. 2018-07 did not have a material impact on the Company’s financial statements. |
Fair Value Measurements | Fair Value Measurements ASC Topic 820, Fair Value Measurements Level 1: Quoted prices in active markets for identical assets or liabilities; Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimate of assumptions that market participants would use in pricing the asset or liability. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The Company’s financial instruments consist of cash and cash equivalents, certificates of deposit, accounts receivable, notes and interest receivables, accounts payable, and accrued liabilities. The fair value of financial instruments, except for long-term notes receivable, approximates their carrying values, using level 3 inputs, at March 31, 2019 and December 31, 2018 due to their short maturities. The fair value of the long-term notes receivable approximates its carrying value, using level 3 inputs, at March 31, 2019 and December 31, 2018 based on borrowing rates currently available for loans with similar terms and maturities. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. |
Certificates of Deposit and Mutual Funds | Certificates of Deposit and Mutual Funds The Company invests its excess cash in certificates of deposit and money market mutual funds issued by financial institutions with high credit ratings. The certificates of deposit generally have average maturities of approximately six months and are subject to penalties for early withdrawal. The money market mutual funds are open ended and can be withdrawn at any time without penalty. |
Accounts and Notes Receivable and Allowance for Doubtful Accounts | Accounts and Notes Receivable and Allowance for Doubtful Accounts The Company recognizes an allowance for losses on accounts receivable based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. Accounts receivable do not bear interest and are charged off after all reasonable collection efforts have been taken. As of March 31, 2019 and December 31, 2018, the Company maintained an allowance for doubtful accounts of $24,511 and $23,044, respectively. Notes receivable are carried at their estimated collectible amounts. Interest income on notes receivable is recognized using the effective interest method. Notes receivable are periodically evaluated for collectability based on the credit history and the current financial condition of the counter party, and the known and inherent risks in the notes. Notes receivable are placed on nonaccrual status when they become 90 days past due and the customer has not made a payment in over 60 days. Upon suspension of the accrual of interest, interest income is subsequently recognized to the extent cash payments are received. Accrual of interest is resumed when notes are removed from non-accrual status. Notes receivable are charged against the allowance for credit losses when they are deemed to be uncollectible. As of March 31, 2019 and December 31, 2018, the allowance for uncollectible notes receivable was $266,813. |
Inventory | Inventory Inventory is stated at the lower of cost or net realizable value with cost being determined on the average cost method. Work in progress and finished goods inventory includes an allocation for capitalized labor and overhead. The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value. As of March 31, 2019 and December 31, 2018, inventory reserves were $105,031. |
Investments in Other Companies | Investments in Other Companies Minority investments in other companies are accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the other companies’ operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than- temporary declines in fair value and distribution of earnings. For investments in public companies that have readily determinable fair values, the Company classifies its investments as available-for-sale, and accordingly records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the statements of operations. The adoption of ASU 2016-01 requires investments in other companies that do not have readily determinable fair value be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This standard was adopted on January 1, 2018, including all interim reporting periods within the fiscal year. The adoption of ASU 2016-01 did not have a material impact on the financial statements. Upon adoption, the Company has elected to utilize the cost minus impairment approach because the investment in TEC does not have a readily determinable fair value as of the reporting date. See Note 8. Collaboration Agreement with Related Party. Management regularly evaluates the recoverability of its investment based on the investee company’s performance and financial position. During the three months ended March 31, 2019 and 2018, the Company did not recognize any impairment loss. Management regularly assesses the classification of its investments. |
Property and Equipment | Property and Equipment Property and equipment are carried at cost, net of depreciation. Gains or losses related to retirements or disposition of fixed assets are recognized in operations in the period incurred. Costs of normal repairs and maintenance are charged to expense as incurred, while betterments or renewals are capitalized. Depreciation commences at the time the assets are placed in service. Depreciation is provided using the straight-line method over the estimated economic lives of the assets or for leasehold improvements, over the shorter of the estimated useful life or the remaining lease term, which are summarized as follows: Computer equipment 3-5 years Furniture and office equipment 5-7 years Machinery and equipment 5-7 years Leasehold improvements 7 years |
Intangible Assets | Intangible assets Intangible assets at March 31, 2019 are comprised of various patents. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful lives of 18 years. |
Cost of Products Sold | Cost of Products Sold Cost of products sold represents manufacturing costs, consisting of materials, labor and overhead related to finished goods and components. Cost of products sold does not include depreciation of fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold. |
Advertising Costs | Advertising Costs Costs associated with advertising are expensed as incurred. Advertising expense was $119,403 and $139,381 for the three months ended March 31, 2019 and 2018, respectively. These costs include domestic and international tradeshows, website, and sales promotional materials. |
Research and Development Costs | Research and Development Costs Research and development costs are expensed as incurred. Research and development costs primarily include expenses, including labor, directly related to research and development support. Research and development costs were $355,641 and $367,544 for the three months ended March 31, 2019 and 2018, respectively. |
Legal Costs | Legal Costs Legal costs relating to loss contingencies are expensed as incurred. See Note 10. |
Concentration of Credit Risk and Major Customers and Suppliers | Concentration of Credit Risk and Major Customers and Suppliers Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, certificates of deposit, accounts receivable and notes receivable. The Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of $1,138,137 and $2,014,987 as of March 31, 2019 and December 31, 2018, respectively. Sales are typically made on credit and the Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for estimated losses. Historically, the Company has experienced minimal charges relative to doubtful accounts. The Company’s notes receivable are due from two counter parties and are unsecured. Management performs ongoing evaluations of the collectability of its notes receivable and maintains an allowance for estimated losses. Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended March 31, 2019, one federal agency comprised 12% of total net sales. By comparison, for the three months ended March 31, 2018, one federal agency comprised 15%, and one commercial customer comprised 41% of total net sales, respectively. As of March 31, 2019, one federal agency comprised 40% and one state agency comprised 14% of total accounts receivables. By comparison, as of December 31, 2018, one federal agency comprised 26% and one state agency comprised 20% of total accounts receivables. |
Income Taxes | Income Taxes Deferred tax assets and liabilities are recorded based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes are required. In assessing realizable deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. The Company adjusts the valuation allowance in the period management determines it is more likely than not that net deferred tax assets will or will not be realized. After review of the deferred tax asset and valuation allowance in accordance with ASC 740, management determined that it is more likely than not that the Company will fully realize all of its deferred tax asset and no valuation allowance was needed as of March 31, 2019 and December 31, 2018. As of March 31, 2019 and December 31, 2018, the Company did not recognize any assets or liabilities relative to uncertain tax positions. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements. The Company reflects tax benefits, only if it is more likely than not that the Company will be able to sustain the tax return position, based on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions at March 31, 2019 and December 31, 2018. The Company is potentially subject to tax audits for its United States federal and Arizona, California, Florida, Georgia, Hawaii, Illinois, Massachusetts, Maryland, Michigan, North Dakota, New Hampshire, New Jersey, New York, Ohio, Idaho, South Carolina, Tennessee, Texas, Virginia, Washington, and West Virginia state income and excise tax returns for tax years between 2014 and 2019; however, earlier years may be subject to audit under certain circumstances. Tax audits by their very nature are often complex and can require several years to complete. |
Impairment of Long-Lived Assets and Intangible Assets | Impairment of Long-Lived Assets and Intangible Assets Long lived assets, such as equipment, and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the asset. At March 31, 2019 and December 31, 2018, the Company concluded that there has been no indication of impairment to the carrying value of its long-lived assets. As such, no impairment has been recorded. |
Stock Based Compensation | Stock Based Compensation The Company measures the cost of awards of equity instruments based on the grant date fair value of the awards. The Company calculates the fair value of stock-based awards using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected term and risk-free interest rates. There were no grants of stock-based awards during the three months ended March 31, 2019 and 2018. The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, using an average of vesting and contractual terms, as we did not have sufficient historical experience of similar awards. The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. The estimated fair value of stock-based compensation awards and other options is amortized to expense on a straight-line basis over the relevant vesting period. As share-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. The Company has elected to recognize forfeitures as they occur rather than estimating them at the time of grant. |
New Accounting Pronouncements | New Accounting Pronouncements In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for us on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is assessing what effect the provisions of 2016-13 will have on the financial statements. In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of 2018-18 on its financial statements. |
Organization and Significant _3
Organization and Significant Accounting Policies (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Accounting Policies [Abstract] | |
Schedule of Disaggregation of Revenues | The Company has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation. Three Months Ended March 31, 2019 March 31, 2018 Domestic International Total Domestic International Total Simulators and accessories $ 1,932,659 $ 318,438 $ 2,251,097 $ 936,692 $ 1,552,733 $ 2,489,425 Extended service-type warranties 480,524 29,950 510,474 424,123 62,386 486,509 Customized software 178,770 - 178,770 137,273 11,940 149,213 Installation and training 71,360 - 71,360 67,457 50,220 117,677 Licensing and royalties 39,637 - 39,637 45,968 - 45,968 Total Revenue $ 2,702,950 $ 348,388 $ 3,051,338 $ 1,611,513 $ 1,677,279 $ 3,288,792 |
Schedule of Estimated Useful Life of Property and Equipment | Computer equipment 3-5 years Furniture and office equipment 5-7 years Machinery and equipment 5-7 years Leasehold improvements 7 years |
Inventory (Tables)
Inventory (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Inventory Disclosure [Abstract] | |
Schedule of Inventory, Net | Inventory consisted of the following as of: March 31, 2019 December 31, 2018 Raw materials and work in process $ 1,813,702 $ 1,717,033 Reserve (105,031 ) (105,031 ) Total inventory, net $ 1,708,671 $ 1,612,002 |
Property and Equipment (Tables)
Property and Equipment (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Property, Plant and Equipment [Abstract] | |
Schedule of Property and Equipment, Net | Property and equipment consisted of the following as of: March 31, 2019 December 31, 2018 Computer equipment $ 1,070,372 $ 1,054,004 Furniture and office equipment 212,347 207,921 Machinery and equipment 1,091,228 1,021,188 Leasehold improvements 324,313 324,313 Total property and equipment 2,698,260 2,607,426 Less: Accumulated depreciation (1,997,964 ) (1,929,181 ) Property and equipment, net $ 700,296 $ 678,245 |
Intangible Asset (Tables)
Intangible Asset (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Schedule of Intangible Asset | Intangible asset consisted of the following as of: March 31, 2019 December 31, 2018 Patents $ 160,000 $ - Total intangible asset 160,000 - Less: Accumulated amortization (1,481 ) - Intangible asset, net $ 158,519 $ - |
Lease (Tables)
Lease (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Leases [Abstract] | |
Schedule of Balance Sheet Classification of Lease Assets and Liabilities | The balance sheet classification of lease assets and liabilities was as follows: Balance Sheet Classification March 31, 2019 Assets Operating lease right-of-use assets, beginning balance $ 1,674,857 Current period amortization (69,990 ) Total operating lease right-of-use asset $ 1,604,867 Liabilities Current Operating lease liability, short term $ 262,575 Non-current Operating lease liability, long term 1,400,987 Total lease liabilities $ 1,663,562 |
Schedule of Future Minimum Lease Payments | Future minimum lease payments as of March 31, 2019 under non-cancelable operating leases are as follows: 2019 $ 244,858 2020 357,452 2021 398,955 2022 411,849 2023 359,703 Thereafter 98,364 Total lease payments 1,871,181 Less: imputed interest (207,619 ) Operating lease liability $ 1,663,562 |
Accrued Expenses (Tables)
Accrued Expenses (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Payables and Accruals [Abstract] | |
Schedule of Accrued Compensation and Related Costs | Accrued compensation and related costs consisted of the following as of: March 31, 2019 December 31, 2018 Salaries and wages payable $ 357,651 $ 147,677 401(k) contributions payable 15,635 8,232 Accrued paid time off 248,891 265,962 Profit sharing payable 106,006 191,820 Total accrued compensation and related costs $ 728,183 $ 613,691 |
Schedule of Accrued Expenses and Other Current Liabilities | Accrued expenses and other current liabilities consisted of the following as of: March 31, 2019 December 31, 2018 Manufacturer’s warranties $ 200,505 $ 200,505 Warranties-other 189,983 189,983 Loss contingencies 76,250 40,000 Taxes payable 199,259 202,118 Total accrued expenses and other current liabilities $ 665,997 $ 632,606 |
Stockholders' Equity (Tables)
Stockholders' Equity (Tables) | 3 Months Ended |
Mar. 31, 2019 | |
Equity [Abstract] | |
Schedule of Non-qualified Stock Options | The following table summarizes all non-qualified stock options as of: March 31, 2019 March 31, 2018 Number of Weighted Number of Weighted Stock Options Exercise Price Stock Options Exercise Price Options outstanding, beginning of year 279,167 $ 2.34 531,667 $ 1.80 Granted - - - - Redeemed - - - - Exercised - - - - Expired / terminated - - - - Options outstanding, end of quarter 279,167 $ 2.34 531,667 $ 1.80 Options exercisable, end of quarter 279,167 $ 2.34 521,667 $ 1.82 |
Organization and Significant _4
Organization and Significant Accounting Policies (Details Narrative) - USD ($) | Apr. 01, 2018 | Mar. 02, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 |
Reverse stock split | Modern Round effected a 1 for 12,000 reverse stock split, followed by a 2,000 for 1 forward stock split completed in November 2018. | 1 for 2 reverse stock split | |||
Deferred revenue liability current | $ 2,091,206 | $ 1,924,307 | |||
Extended warranties description | The Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, and also sells separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty. During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will fix or replace the defective product. | ||||
Recognized revenue | $ 510,474 | $ 486,509 | |||
Customer Retainage | $ 133,220 | 126,286 | |||
Allowance for doubtful accounts | 23,044 | ||||
Liquid investment maturity description | The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. | ||||
Allowance uncollectible notes receivables | $ 266,813 | 266,813 | |||
Inventory reserves | $ 105,031 | 105,031 | |||
Remaining useful life of intangible asset | 18 years | ||||
Advertising expense | $ 119,403 | 139,381 | |||
Research and development | 355,641 | $ 367,544 | |||
Deposit insurance coverage limit | 250,000 | ||||
Uninsured cash and cash equivalents | 1,138,137 | 2,014,987 | |||
Total Net Sales [Member] | One Commercial Customer [Member] | |||||
Concentration of credit risk | 41.00% | ||||
Accounts Receivables [Member] | |||||
Allowance for doubtful accounts | $ 266,813 | $ 266,813 | |||
One Federal Agency [Member] | Total Net Sales [Member] | |||||
Concentration of credit risk | 12.00% | 15.00% | |||
One Federal Agency [Member] | Accounts Receivables [Member] | |||||
Concentration of credit risk | 40.00% | 26.00% | |||
One State Agency [Member] | Accounts Receivables [Member] | |||||
Concentration of credit risk | 14.00% | 20.00% | |||
Warrants [Member] | Less Than One Year [Member] | |||||
Extended warranties | $ 1,645,632 | $ 1,604,637 | |||
Warrants [Member] | Longer Than One Year [Member] | |||||
Extended warranties | 963,019 | 962,356 | |||
Warrants [Member] | One Year [Member] | |||||
Extended warranties | 200,505 | 200,505 | |||
Customer Deposits [Member] | |||||
Deferred revenue liability current | $ 312,354 | $ 186,450 |
Organization and Significant _5
Organization and Significant Accounting Policies - Schedule of Disaggregation of Revenues (Details) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Simulators and accessories | $ 2,251,097 | $ 2,489,425 |
Extended service-type warranties | 510,474 | 486,509 |
Customized software | 178,770 | 149,213 |
Installation and training | 71,360 | 117,677 |
Licensing and royalties | 39,637 | 45,968 |
Total Revenue | 3,051,338 | 3,288,792 |
Domestic [Member] | ||
Simulators and accessories | 1,932,659 | 936,692 |
Extended service-type warranties | 480,524 | 424,123 |
Customized software | 178,770 | 137,273 |
Installation and training | 71,360 | 67,457 |
Licensing and royalties | 39,637 | 45,968 |
Total Revenue | 2,702,950 | 1,611,513 |
International [Member] | ||
Simulators and accessories | 318,438 | 1,552,733 |
Extended service-type warranties | 29,950 | 62,386 |
Customized software | 11,940 | |
Installation and training | 50,220 | |
Licensing and royalties | ||
Total Revenue | $ 348,388 | $ 1,677,279 |
Organization and Significant _6
Organization and Significant Accounting Policies - Schedule of Estimated Useful Life of Property and Equipment (Details) | 3 Months Ended |
Mar. 31, 2019 | |
Computer Equipment [Member] | Minimum [Member] | |
Estimated useful lives of assets | P3Y |
Computer Equipment [Member] | Maximum [Member] | |
Estimated useful lives of assets | P5Y |
Furniture and Office Equipment [Member] | Minimum [Member] | |
Estimated useful lives of assets | P5Y |
Furniture and Office Equipment [Member] | Maximum [Member] | |
Estimated useful lives of assets | P7Y |
Machinery and Equipment [Member] | Minimum [Member] | |
Estimated useful lives of assets | P5Y |
Machinery and Equipment [Member] | Maximum [Member] | |
Estimated useful lives of assets | P7Y |
Leasehold Improvements [Member] | |
Estimated useful lives of assets | P7Y |
Notes Receivable (Details Narra
Notes Receivable (Details Narrative) - USD ($) | Mar. 23, 2018 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 |
Conversion of past due trade receivable | $ 400,906 | $ 400,906 | ||
Interest rate | 10.00% | |||
Debt instrument, maturity date, description | This unsecured promissory note is due in full on or before February 2020. | |||
Debt instrument principal and accrued interest | $ 20,000 | $ 369,286 | $ 374,034 | |
Allowance for doubtful accounts | 23,044 | |||
Notes receivable noncurrent | $ 61,875 | |||
TEC [Member] | ||||
Interest rate | 5.00% | |||
Debt instrument principal and accrued interest | $ 301,876 | $ 298,224 | ||
Convertible promissory notes | 292,138 | |||
Royalty payment, due date | May 31, 2018 | |||
Debt, description | The note bears interest at the rate of five percent (5%) per annum and contains a provision requiring remittance of not less than 20% of the net proceeds of any private or public offering of its securities in reduction of the Convertible Note. The note has a conversion right, at the sole discretion of the Company, to convert the outstanding balance of principal and accrued interest at any time for shares of common stock of TEC. Prior to the due date, the Company may elect to convert the Convertible Note for shares of common stock in TEC at a twenty-five percent (25%) discount to the price of shares sold to the public in a public offering in connection with a go-public transaction. The issuance of common stock upon conversion shall be made without charge to the Company. No fractional shares shall be issued upon conversion and in lieu of fractional shares, TEC will pay the Company the amount of any obligation that is not converted. Any unpaid balance of principal and accrued interest becomes due and collectible on the earlier of (i) August 1, 2019 (maturity date), or (ii) if declared due and payable in the event of Default. | |||
Debt instrument, maturity date | Aug. 1, 2019 | |||
Less Than One Year [Member] | ||||
Remaining note receivable net of allowance | 40,598 | |||
Notes Receivable [Member] | ||||
Allowance for doubtful accounts | $ 266,813 | $ 266,813 |
Inventory (Details Narrative)
Inventory (Details Narrative) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Spare parts as other assets, long-term | $ 348,461 | $ 292,298 |
Inventory - Schedule of Invento
Inventory - Schedule of Inventory, Net (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Inventory Disclosure [Abstract] | ||
Raw materials and work in process | $ 1,813,702 | $ 1,717,033 |
Reserve | (105,031) | (105,031) |
Total inventory, net | $ 1,708,671 | $ 1,612,002 |
Property and Equipment (Details
Property and Equipment (Details Narrative) - USD ($) | 3 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 70,312 | $ 68,619 |
Property and Equipment - Schedu
Property and Equipment - Schedule of Property and Equipment, Net (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Total property and equipment | $ 2,698,260 | $ 2,607,426 |
Less: Accumulated depreciation | (1,997,964) | (1,929,181) |
Property and equipment, net | 700,296 | 678,245 |
Computer Equipment [Member] | ||
Total property and equipment | 1,070,372 | 1,054,004 |
Furniture and Office Equipment [Member] | ||
Total property and equipment | 212,347 | 207,921 |
Machinery and Equipment [Member] | ||
Total property and equipment | 1,091,228 | 1,021,188 |
Leasehold Improvements [Member] | ||
Total property and equipment | $ 324,313 | $ 324,313 |
Intangible Asset (Details Narra
Intangible Asset (Details Narrative) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 | Mar. 31, 2018 |
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Amortization expense | $ 1,481 |
Intangible Asset - Schedule of
Intangible Asset - Schedule of Intangible Asset (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 | Mar. 31, 2018 |
Total intangible asset | $ 160,000 | ||
Less: Accumulated amortization | (1,481) | ||
Intangible asset, net | 158,519 | ||
Patents [Member] | |||
Total intangible asset | $ 160,000 |
Leases (Details Narrative)
Leases (Details Narrative) | 3 Months Ended | |||
Mar. 31, 2019USD ($)ft² | Mar. 31, 2018USD ($) | Jan. 02, 2019USD ($) | Dec. 31, 2018USD ($) | |
Incremetal in borrowing rate | 4.50% | |||
Operating lease liability | $ 1,663,562 | $ 1,721,380 | ||
Deferred rent | 46,523 | $ 46,523 | ||
Operating lease right of use asset | 1,604,867 | $ 1,674,857 | ||
Rent expenses | $ 89,139 | $ 87,345 | ||
Lease Amendment [Member] | ||||
Rentable square feet | ft² | 5,131 | |||
Lease expires | Apr. 30, 2024 | |||
Office and Warehouse Space [Member] | Unaffiliated Third Party [Member] | ||||
Rentable square feet | ft² | 37,729 | |||
Office and Industrial Space [Member] | Unaffiliated Third Party [Member] | ||||
Rentable square feet | ft² | 4,529 | |||
Lease expires | Mar. 31, 2019 |
Leases - Schedule of Balance Sh
Leases - Schedule of Balance Sheet Classification of Lease Assets and Liabilities (Details) - USD ($) | 3 Months Ended | ||
Mar. 31, 2019 | Jan. 02, 2019 | Dec. 31, 2018 | |
Leases [Abstract] | |||
Operating lease right-of-use assets, beginning balance | |||
Current period amortization | (69,990) | ||
Total operating lease right-of-use asset | 1,604,867 | ||
Operating lease liability, short term, current | 262,575 | ||
Operating lease liability, long term, non current | 1,400,987 | ||
Total lease liabilities | $ 1,663,562 | $ 1,721,380 |
Leases - Schedule of Future Min
Leases - Schedule of Future Minimum Lease Payments (Details) - USD ($) | Mar. 31, 2019 | Jan. 02, 2019 |
Leases [Abstract] | ||
2019 | $ 244,858 | |
2020 | 357,452 | |
2021 | 398,955 | |
2022 | 411,849 | |
2023 | 359,703 | |
Thereafter | 98,364 | |
Total lease payments | 1,871,181 | |
Less: imputed interest | (207,619) | |
Operating lease liability | $ 1,663,562 | $ 1,721,380 |
Accrued Expenses - Schedule of
Accrued Expenses - Schedule of Accrued Compensation and Related Costs (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Payables and Accruals [Abstract] | ||
Salaries and wages payable | $ 357,651 | $ 147,677 |
401(k) contributions payable | 15,635 | 8,232 |
Accrued paid time off | 248,891 | 265,962 |
Profit sharing payable | 106,006 | 191,820 |
Total accrued compensation and related costs | $ 728,183 | $ 613,691 |
Accrued Expenses - Schedule o_2
Accrued Expenses - Schedule of Accrued Expenses and Other Current Liabilities (Details) - USD ($) | Mar. 31, 2019 | Dec. 31, 2018 |
Payables and Accruals [Abstract] | ||
Manufacturer's warranties | $ 200,505 | $ 200,505 |
Warranties-other | 189,983 | 189,983 |
Loss contingencies | 76,250 | 40,000 |
Taxes payable | 199,259 | 202,118 |
Total accrued expenses and other current liabilities | $ 665,997 | $ 632,606 |
Collaboration Agreement with _2
Collaboration Agreement with Related Party (Details Narrative) - USD ($) | Apr. 01, 2018 | Mar. 02, 2018 | Aug. 16, 2017 | Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 |
Reverse stock split | Modern Round effected a 1 for 12,000 reverse stock split, followed by a 2,000 for 1 forward stock split completed in November 2018. | 1 for 2 reverse stock split | ||||
Royalties/license fee income | $ 39,637 | $ 43,788 | ||||
TEC [Member] | ||||||
Number of common stock held | $ 560,000 | $ 56,000 | ||||
Issued and outstanding percentage | 5.90% | 5.90% | ||||
Impairment loss | $ 1,120,000 | $ 1,120,000 | ||||
Royalties/license fee income | $ 39,637 | $ 43,788 | ||||
Number of warrants to purchase shares of common stock | 25,577 | |||||
Warrant exercise price per share | $ 2.4436 | |||||
Warrant description | This warrant became exercisable on the date of grant of April 14, 2015 and expires on the tenth anniversary of the date of grant, if not earlier pursuant to the terms of the option. | |||||
TEC [Member] | Warrants [Member] | ||||||
Reverse stock split | 1 for 12,000 reverse stock split and the 2,000 for 1 forward stock split | |||||
Amendment To Co-Venture Agreement [Member] | ||||||
Royalty percentage | 10.00% | |||||
Percentage of revenue paid for cost of equipment | 14.00% |
Related Party Transactions (Det
Related Party Transactions (Details Narrative) - USD ($) | 3 Months Ended | ||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Royalties/license fee income | $ 39,637 | $ 43,788 | |
Accounts receivable | 14,190 | $ 16,743 | |
TEC [Member] | |||
Number of common stock held | 560,000 | 56,000 | |
Royalties/license fee income | 39,637 | 43,788 | |
Natural Point, Inc [Member] | |||
Purchased specialized equipment amount | 38,352 | $ 52,328 | |
Prepaid credit balance | $ 2,467 | $ 1,020 |
Commitments and Contingencies (
Commitments and Contingencies (Details Narrative) - USD ($) | Apr. 02, 2018 | Mar. 31, 2019 | Dec. 31, 2018 |
Estimated loss contingency | $ 76,250 | $ 40,000 | |
Amount of net profit charged to operations | $ 0 | $ 0 | |
Chief Executive Officer [Member] | Three Year Employment Agreements [Member] | |||
Annual salaries | $ 195,000 | ||
Chief Operating Officer [Member] | Three Year Employment Agreements [Member] | |||
Annual salaries | $ 175,000 |
Stockholders' Equity (Details N
Stockholders' Equity (Details Narrative) - $ / shares | 3 Months Ended | 12 Months Ended | |||
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | Aug. 23, 2017 | Oct. 25, 2016 | |
Common stock shares authorized | 50,000,000 | 50,000,000 | |||
Common stock, par value | $ 0.0001 | $ 0.0001 | |||
Preferred stock shares authorized | 2,500,000 | 2,500,000 | |||
Preferred stock, par value | $ 0.0001 | $ 0.0001 | |||
Additional treasury shares purchased | 68,239 | ||||
Average Price Paid per Share | $ 3.82 | ||||
Total Number of Shares Repurchased | 10,707 | ||||
Non vested stock options, outstanding | 10,000 | ||||
Options term | 7 years | 7 years | |||
Class A Common Stock [Member] | |||||
Common stock shares authorized | 2,500,000 | 2,500,000 | |||
Common stock, par value | $ 0.0001 | $ 0.0001 | |||
Common stock voting rights | Ten (10) votes for each share of Class A Common Stock held of record by such holde | ||||
Class B Common Stock [Member] | |||||
Common stock shares authorized | 7,500,000 | 7,500,000 | |||
Common stock, par value | $ 0.0001 | $ 0.0001 | |||
Preferred Stock [Member] | |||||
Preferred stock shares authorized | 2,500,000 | ||||
Preferred stock, par value | $ 0.0001 | ||||
2017 Equity Incentive Plan [Member] | |||||
Number of common stock capital shares reserved for future issuance | 1,187,500 | ||||
Percentage of common stock shares issued and outstanding | 3.00% | ||||
2017 Equity Incentive Plan [Member] | |||||
Options issued | |||||
Common Stock [Member] | |||||
Common stock shares authorized | 60,000,000 | ||||
Common stock, par value | $ 0.0001 | ||||
Common stock voting rights | one (1) vote for each share of Common Stock held of record by such holder | ||||
Repurchased Shares Cancelled | (78,946) | ||||
Common Stock [Member] | |||||
Common stock shares authorized | 50,000,000 | ||||
Common stock, par value | $ 0.0001 | ||||
Treasury Shares Cancelled and Returned to Shares Authorized [Member] | |||||
Repurchased Shares Cancelled | 78,946 | ||||
Board of Directors [Member] | |||||
Common stock shares authorized to repurchase | 1,000,000 |
Stockholders' Equity - Schedule
Stockholders' Equity - Schedule of Stock Options Activity (Details) - Non-Qualified Stock Option [Member] - $ / shares | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2019 | Mar. 31, 2018 | Dec. 31, 2018 | |
Options outstanding, beginning of year | 279,167 | 531,667 | 531,667 |
Number of options, granted | |||
Number of options, redeemed | |||
Number of options, exercised | |||
Number of options, expired / terminated | |||
Number of options outstanding, end of year | 279,167 | 531,667 | 279,167 |
Number of options exercisable, end of year | 279,167 | 521,667 | |
Weighted exercise price outstanding, beginning of year | $ 2.34 | $ 1.80 | $ 1.80 |
Weighted average exercise price, granted | |||
Weighted average exercise price, redeemed | |||
Weighted average exercise price, exercised | |||
Weighted average exercise price, expired / terminated | |||
Weighted average exercise price outstanding, end of quarter | 2.34 | 1.80 | $ 2.34 |
Weighted average exercise price exercisable, end of quarter | $ 2.34 | $ 1.82 |
Subsequent Events (Details Narr
Subsequent Events (Details Narrative) - USD ($) | Dec. 31, 2018 | Apr. 30, 2019 | Mar. 31, 2019 |
Loss contingency | $ 40,000 | ||
Additional treasury shares purchased | 68,239 | ||
Average Price Paid per Share | $ 3.82 | ||
Subsequent Event [Member] | |||
Settlement offer, description | On April 30, 2019 the Company's settlement offer of $76,250 was verbally accepted and a formal settlement agreement is in process. | ||
Additional treasury shares purchased | 14,450 | ||
Average Price Paid per Share | $ 3.97 |