Organization and Significant Accounting Policies | Note 1. Organization and Significant Accounting Policies Organization and Business Operations VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” or “our”), located in Tempe, Arizona, is a global provider of judgmental use of force training simulators, firearms training simulators and driving simulators for the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to save and improve lives worldwide through practical and highly-effective virtual reality and simulator technology. The Company sells its 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. During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S., accelerating during half of March and April as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. On March 30, 2020, the Governor for the State of Arizona issued a stay-at-home order which expired on May 15, 2020, upon which Arizona entered Phase I of reopening. The Company carefully reviewed all rules and regulations of the government orders and determined it met the requirements of an essential business to remain open. The Company had the majority of its staff begin working remotely in mid-March, with only essential personnel continue working at the manufacturing and production facilities and currently remains in Arizona’s Phase I of reopening. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time. To date, the COVID-19 restrictions have resulted in reduced customer shipments and customer system installations. These recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur. To date, there have been no order cancellations; rather, there have only been delays in when orders ship or installations occur and all delayed orders remain in backlog. Any future impact cannot be reasonably estimated at this time. The Company is no longer investing in Certificates of Deposits as a precautionary measure to increase its liquid cash position and preserve financial flexibility considering uncertainty in the U.S. and global markets resulting from COVID-19. Additionally, the Company’s stock repurchase program was suspended as a result of interim rulings for public-company recipients of a PPP loan under the CARES Act. The stock repurchase suspension will remain in effect for the duration of the outstanding PPP loan. Basis of Presentation The unaudited 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, 2020 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on March 29, 2021. 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 unaudited financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2021 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2020 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 six months ended June 30, 2021 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. Revenue Recognition The Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customer (Topic 606) (“ASC 606”) on January 1, 2018 and the Company elected to use the modified retrospective transition method 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. The Company’s policy is to typically invoice upon completion of installation and/or training until such time the performance obligations that have been satisfied are included in unbilled. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable and unbilled revenue). 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 and content Upon transfer of control or over the period services are performed depending on the terms of the contract Customized content scenario As performance obligation is transferred over time (input method using time and materials expanded) 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. Revenue from certain customized content contracts may be recognized over the period the services are performed based on the terms of the contract. 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. Disaggregation of Revenue Schedule of Disaggregation of Revenues Three Months Ended June 30, 2021 June 30, 2020 Commercial Government International Total Commercial Government International Total Simulators and accessories $ 543,890 $ 3,503,592 $ 106,933 $ 4,154,415 $ 251,584 $ 1,352,196 $ 12,383 $ 1,616,163 Extended service-type warranties 25,547 673,970 28,965 728,482 16,917 589,048 41,548 647,513 Customized software and content - 146,543 21,170 167,713 - 424,605 - 424,605 Installation and training 15,043 186,909 - 201,952 6,775 61,681 - 68,456 Licensing and royalties 2,630 - - 2,630 13,042 - - 13,042 Total Revenue $ 587,110 $ 4,511,014 $ 157,068 $ 5,255,192 $ 288,318 $ 2,427,530 $ 53,931 $ 2,769,779 Six Months ended June 30, 2021 June 30, 2020 Commercial Government International Total Commercial Government International Total Simulators and accessories $ 815,528 $ 5,181,515 $ 1,184,118 $ 7,181,161 $ 266,710 $ 3,333,343 $ 291,940 $ 3,891,993 Extended service-type warranties 47,621 1,344,554 49,015 1,441,190 35,358 1,157,126 104,148 1,296,632 Customized software and content - 613,956 73,443 687,399 17,957 650,369 - 668,326 Installation and training 49,864 306,707 26,350 382,921 9,451 205,384 4,964 219,799 Licensing and royalties 4,430 - - 4,430 31,192 - - 31,192 Total Revenue $ 917,443 $ 7,446,732 $ 1,332,926 $ 9,697,101 $ 360,668 $ 5,346,222 $ 401,052 $ 6,107,942 For the six months ended June 30, 2021, governmental customers comprised $ 7,446,732 77 917,443 9 1,332,926 14 5,346,222 87 360,668 6 401,052 7 Customer Deposits Customer deposits consist of prepaid deposits received for equipment purchase orders and for Subscription Training Equipment Partnership (“STEP”) operating agreements that expire annually. Customer deposits are considered a deferred liability until the completion of the customer’s contract performance obligation. When revenue is recognized, the deposit is applied to customer’s receivable balance. Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $ 5,217,146 2,517,175 Warranty The Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, but 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 $ 1,464,867 2,191,400 1,803,416 1,920,346 352,000 352,000 682,842 647,513 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 23,283,606 6,338,896 Most sales are to governments that 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. 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 six months ended June 30, 2021, one foreign agency comprised 10 16 11 As of June 30, 2021, two federal agencies comprised 18.7 17.6 8.5 31 |