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 and firearms training 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. The Russian-Ukraine conflict is a global concern. The Company does not have any significant direct exposure to Russia or Ukraine through its operations, employee base, investments, or sanctions. We have no basis to evaluate the possible risks of this conflict. 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, 2022 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 31, 2023. 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 on September 30, 2023, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2022, 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 nine months ended September 30, 2023, 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, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets, income tax valuation allowances, 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. VIRTRA, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 a 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 on the stand-alone selling prices, if any, are allocated proportionately to each performance obligation. VIRTRA, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 Three Months ended September 30, 2023 2022 Commercial Government International Total Commercial Government International Total Simulators and accessories $ 8,948 $ 3,025,601 $ 162,641 $ 3,197,190 $ 198,886 $ 2,641,214 $ 369,906 $ 3,210,006 Extended Service-type warranties 16,994 1,187,333 15,883 1,220,210 29,798 650,839 14,368 695,005 Customized software and content 451,500 - 451,500 - 794,857 3,437 798,294 Installation and training 18,911 185,552 - 204,463 8,992 192,380 (5,860 ) 195,512 Licensing and royalties - - - - 4,580 - - 4,580 Design & Prototyping - 2,488,219 - 2,488,219 - - - - Total Revenue $ 44,853 $ 7,338,205 $ 178,524 $ 7,561,582 $ 242,256 $ 4,279,290 $ 381,851 $ 4,903,397 Commercial Government International Total Commercial Government International Total Nine Months Ended September 30, 2023 2023 2022 Commercial Government International Total Commercial Government International Total Simulators and accessories $ 571,856 $ 15,772,770 $ 3,677,678 $ 20,022,304 $ 1,412,539 $ 11,175,641 $ 3,013,844 $ 15,602,024 Extended Service-type warranties 61,705 2,325,931 51,563 2,439,199 91,836 2,129,077 59,675 2,280,588 Customized software and content 24,300 736,251 65,994 826,545 - 796,962 212,437 1,009,399 Installation and training 59,175 589,386 261,829 910,390 56,200 599,780 101,437 757,417 Licensing and royalties - - - - 4,580 - - 4,580 Design & Prototyping - 3,726,982 - 3,726,982 - - - - Total Revenue $ 717,036 $ 23,151,320 $ 4,057,064 $ 27,925,420 $ 1,565,155 $ 14,701,460 $ 3,387,393 $ 19,654,008 For the nine months ended September 30, 2023, governmental customers comprised $ 23,151,320 83 717,036 3 4,057,064 14 14,701,460 75 1,565,155 8 3,387,393 17 VIRTRA, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 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 $ 7,025,496 2,719,108 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 844,186 1,583,384 3,315,291 1,601,472 445,000 358,000 1,383,583 1,364,519 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 16,701,178 12,983,597 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. Historically, the Company primarily sells its products to U.S. federal and state agencies. As of September 30, 2023, the Company had one customer that accounted for 16 VIRTRA, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) Net Income 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 2023 2022 Three Months Ended September 30, 2023 2022 Net Income (Loss) $ 1,634,790 $ (802,881 ) Weighted average common stock outstanding 10,934,962 10,867,745 Incremental shares from stock options 7,547 - Weighted average common stock outstanding, diluted 10,942,509 10,867,745 Net income per common share and common equivalent share Basic $ 0.15 $ (0.07 ) Diluted $ 0.15 $ (0.07 ) 2023 2022 Nine Months Ended September 30, 2023 2022 Net Income $ 5,607,804 $ 561,567 Weighted average common stock outstanding 10,924,486 10,850,912 Incremental shares from stock options 4,669 19,930 Weighted average common stock outstanding, diluted 10,929,155 10,870,842 Net income per common share and common equivalent share Basic $ 0.51 $ 0.05 Diluted $ 0.51 $ 0.05 |