| 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 Chandler,
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. Basis
of Presentation The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”). 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, the sale of customized content scenarios, 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
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 expended)
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. Schedule of Disaggregation of Revenue
Commercial Government International Total Commercial Government International Total
Year
ended December 31,
2022 2021
Commercial Government International Total Commercial Government International Total
Simulators
and accessories $ 1,542,752 $ 18,241,100 $ 3,747,746 $ 23,531,598 $ 2,890,848 $ 12,302,223 $ 4,073,008 $ 19,266,079
Extended
service-type warranties 117,984 2,647,908 75,895 2,841,787 107,289 2,716,436 101,111 2,924,836
Customized
software and content - 776,930 231,555 1,008,485 57,200 1,139,841 112,869 1,309,910
Installation
and training 101,280 706,021 104,407 911,708 102,882 677,930 143,587 924,399
Licensing
and royalties 8,666 - - 8,666 8,832 - - 8,832
Total
Revenue $ 1,770,682 $ 22,371,959 $ 4,159,603 $ 28,302,244 $ 3,167,051 $ 16,836,430 $ 4,430,575 $ 24,434,056 Commercial
customers include selling through prime contractors for military or law enforcement contracts, domestically. Government customers are
defined as directly selling to government agencies. For the year ended December 31, 2022, governmental customers comprised $ 22,371,959 79 1,770,682 6 $4,159,603 15 16,836,430 79 1,770,682 13 4,430,575 15 1,963,562 1,963,562 8.0 4.2 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 the customer’s receivable balance. Customer
deposits are recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $ 2,719,108 2,371,531 1,962,782 1,550,333 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
$ 1,583,384 , 1,764,034 1,601,472 1,815,871 358,000 384,000 2,841,788 2,924,836 STEP
Revenue The
Company’s STEP operations consist principally of renting its simulator products under operating agreements expiring in one year.
At the commencement of a STEP agreement, any rental payments received are deferred and no income is recognized. Subsequently, payments
are amortized and recognized as revenue on a straight-line basis over the term of the agreement. The agreements are generally for a period
of 12 months and can be renewed for an additional 12-month period. Agreements may be terminated by either party upon written notice of
termination at least sixty days prior to the end of the 12-month period. The payments are generally fixed for the first year of the agreement,
with increases in payments in subsequent years to be mutually agreed upon. The agreements do not include variable lease payments or free
rent periods. In addition, the agreements do not provide for the underlying assets to be purchased at their fair market values at interim
periods or at maturity. Each STEP agreement comes with full customer support and stand-ready advance replacement parts to maintain each
system for the duration of the lease. The amount that the Company expects to derive from the STEP equipment following the end of the
agreement term is dependent upon the number of agreement terms renewed. The agreements do not include a residual value guarantee. Management
notes with 4-year history of providing this service and additional revenue stream the company has only had cancellation of a total of
5 STEP agreements before the 5-year end date of the contract this equates to less than 5% of all agreements 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, accounts payable, notes payable and accrued liabilities. The carrying amount of cash and
cash equivalents, receivable, payables and accruals approximates fair value die to the short-term nature of these items. The notes payables
also approximates fair value based on evaluations of market interest notes. 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 an average maturity 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 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. The Company maintained
an allowance for doubtful accounts of $ 35,039 35,432 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. Inventory reserves were $ 302,431 214,712 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 or for STEP equipment under agreements,
when the equipment is made available for use by the customer. 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.
For STEP equipment under agreements, depreciation is provided using the straight-line method over the sixty-month maximum useful life
instead of the remaining agreement term. Estimated useful lives are summarized as follows: Schedule
of Property and Equipment Estimated Useful Lives
Computer
equipment 3 5
Furniture
and office equipment 5 7
Leased
STEP equipment 5
Leasehold
improvements 7
Building 39.5
Building
Improvements 7 Intangible
Assets Intangible
assets on December 31, 2022 and 2021 are comprised of various patents. We compute amortization expense on the patents using the straight-line
method over the estimated remaining useful lives of 16 15 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 includes depreciation of STEP contract fixed assets. Shipping costs incurred related to product delivery are included
in the cost of products sold. Advertising
Costs Costs
associated with advertising are expensed as incurred. Advertising expenses were $ 710,011 422,831 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 expenses were $ 2,606,840 1,865,880 Legal
Costs Legal
costs relating to loss contingencies are expensed as incurred. See Note 9. Commitments and Contingencies. 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 and accounts 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 12,983,597 19,207,786 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. As
of December 31, 2022 and 2021, the Company did not have any customer that accounted for more than 10% of total accounts
receivable. 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 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 its deferred tax asset and no valuation allowance was recorded
on December 31, 2022 and 2021. The
Company did not recognize any assets or liabilities relative to uncertain tax positions on December 31, 2022 and 2021. Interest or penalties,
if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits because 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 on
December 31, 2022 or 2021. The
Company is potentially subject to tax audits for its United States federal and various state income and excise tax returns for tax years
between 2016 and 2022; 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 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. The 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. On December 31, 2022 and 2021, 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. See Note 9. Commitments and Contingencies and Note 11.
Stockholders’ Equity regarding stock-based awards made during the year ended December 31, 2022 and 2021. The
expected term of the options is the estimated period of time until exercise and was determined 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. The Company has elected to recognize forfeitures as
they occur rather than estimating them at the time of grant. Net
Income (Loss)per Common Share The
net income per common share is computed by dividing net income by the weighted average of common shares outstanding. Diluted net income
per share reflects the potential dilution, using the treasury stock method, that would occur if outstanding stock options and warrants
were exercised. Earnings per share computations are as follows: Schedule
of Earnings Per Share
2022 2021
Twelve
Months Ended December 31,
2022 2021
Net Income (loss) $ 1,955,898 $ 2,540,089
Weighted average common stock outstanding 10,863,680 10,007,386
Incremental shares from
stock options 9,918 53,362
Weighted average common
stock outstanding, diluted 10,873,606 10,060,748
Net income (loss) per common share and common
equivalent share
Basic $ 0.18 $ 0.25
Diluted $ 0.18 $ 0.25 The
Company has potentially dilutive securities outstanding that are not included in the diluted earnings per share calculation for the years
ended December 31, 2022 and 2021 because their effect would be anti-dilutive. These potentially dilutive securities, comprised entirely
of the Company’s stock options, totaled 11,250 0 |
