UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to ______________
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
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As of November 7, 2022, the registrant had shares of common stock outstanding.
VIRTRA, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIRTRA, INC.
BALANCE SHEETS
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Unbilled revenue | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Long-term assets: | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Intangible assets, net | ||||||||
| Security deposits, long-term | ||||||||
| Other assets, long-term | ||||||||
| Deferred tax asset, net | ||||||||
| Total long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation and related costs | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Note payable, current | ||||||||
| Operating lease liability, short-term | ||||||||
| Deferred revenue, short-term | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Deferred revenue, long-term | ||||||||
| Note payable, long-term | ||||||||
| Operating lease liability, long-term | ||||||||
| Other long term liabilities | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock $ par value; authorized; shares issued or outstanding | ||||||||
| Common stock $ par value; shares authorized; shares issued and outstanding as of September 30, 2022 and shares issued and outstanding as of December 31, 2021 | ||||||||
| Class A common stock $ par value; shares authorized; shares issued or outstanding | ||||||||
| Class B common stock $ par value; shares authorized; shares issued or outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings (Accumulated deficit) | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited financial statements.
| F-1 |
VIRTRA, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Net operating expense | ||||||||||||||||
| Income (loss) from operations | ( | ) | ||||||||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ( | ) | ||||||||||||||
| Gain on forgiveness of note payable | ||||||||||||||||
| Other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Net other income (expense) | ||||||||||||||||
| Income (Loss) before provision for income taxes | ( | ) | ||||||||||||||
| Provision (Benefit) for income taxes | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | $ | ||||||||||
| Net income (loss) per common share: | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to unaudited financial statements.
| F-2 |
VIRTRA, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Earnings | Total | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock issued for cash in offering, net | - | - | ||||||||||||||||||||||||||||||
| Stock options repurchased | - | - | ||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Stock reserved for future services | - | - | ||||||||||||||||||||||||||||||
| Treasury stock | - | - | ||||||||||||||||||||||||||||||
| Treasury stock cancelled | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Earnings | Total | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock issued for cash in offering, net | - | - | ||||||||||||||||||||||||||||||
| Stock options repurchased | - | - | ||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Stock reserved for future services | - | - | ||||||||||||||||||||||||||||||
| Treasury stock | - | - | ||||||||||||||||||||||||||||||
| Treasury stock cancelled | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| For the Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Net loss | - | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| For the Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-In | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock issued for cash in offering, net | - | |||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
See accompanying notes to unaudited financial statements.
| F-3 |
VIRTRA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Right of use amortization | ||||||||
| Gain on forgiveness of note payable | ( | ) | ||||||
| Employee stock compensation | ||||||||
| Stock issued for service | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventory, net | ( | ) | ( | ) | ||||
| Deferred taxes | ||||||||
| Unbilled revenue | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Security deposits, long-term | ( | ) | ||||||
| Accounts payable and other accrued expenses | ||||||||
| Payments on operating lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by (used in) operating activities | $ | ( | ) | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of certificates of deposit | ||||||||
| Redemption of certificates of deposit | ||||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Repurchase of stock options | ||||||||
| Principal payments of debt | ( | ) | ( | ) | ||||
| Net proceeds from long term debt | ||||||||
| Stock issued for cash in offering, net | ||||||||
| Stock options exercised | ||||||||
| Purchase of treasury stock | ||||||||
| Note payable-PPP Loan | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net increase (decrease) in cash and restricted cash | ( | ) | ||||||
| Cash and restricted cash, beginning of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash (refunded) paid: | ||||||||
| Income taxes paid (refunded) | $ | $ | ||||||
| Interest paid | ||||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Addition of new lease and corresponding ROU asset and lease liability | $ | |||||||
| Conversion of inventory to property and equipment | ||||||||
See accompanying notes to unaudited financial statements.
| F-4 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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.
During March 2020, a global pandemic was declared by the World Health Organization related to the outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S. 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 resulted in reduced customer shipments and customer system installations. These developments have resulted in lower recognized revenue and possibly lower gross margin. To date, there have been minimal order cancellations; rather, due to disruption in the supply chain 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 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, 2021 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on August 2, 2022. 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 September 30, 2022 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2021 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, 2022 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.
| F-5 |
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.
| Three Months ended September 30, | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Commercial | Government | International | Total | Commercial | Government | International | Total | |||||||||||||||||||||||||
| Simulators and accessories | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Extended service-type warranties | ||||||||||||||||||||||||||||||||
| Customized software and content | ||||||||||||||||||||||||||||||||
| Installation and training | ( | ) | ||||||||||||||||||||||||||||||
| Licensing and royalties | ||||||||||||||||||||||||||||||||
| Total Sales Revenue | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
For
the three months ended September 30, 2022, governmental customers comprised $
| F-6 |
Disaggregation of Revenue
| Nine Months ended September 30, | ||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||
| Commercial | Government | International | Total | Commercial | Government | International | Total | |||||||||||||||||||||||||
| Simulators and accessories | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Extended service-type warranties | ||||||||||||||||||||||||||||||||
| Customized software and content | ||||||||||||||||||||||||||||||||
| Installation and training | ||||||||||||||||||||||||||||||||
| Licensing and royalties | ||||||||||||||||||||||||||||||||
| Total Revenue | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
For
the nine months ended September 30, 2022, governmental customers comprised $
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 $
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
$
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 $
| F-7 |
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.
Historically,
the Company primarily sells its products to United States federal and state agencies. For the nine months ended September 30, 2022, one
federal agency comprised
As
of September 30, 2022, one federal agency comprised
Schedule of Earnings Per Share
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net Income (loss) | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average common stock outstanding | ||||||||||||||||
| Incremental shares from stock options | ||||||||||||||||
| Weighted average common stock outstanding, diluted | ||||||||||||||||
| Net income (loss) per common share and common equivalent share | ||||||||||||||||
| Basic | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted | $ | ( | ) | $ | $ | $ | ||||||||||
| F-8 |
Note 2. Inventory
Inventory consisted of the following as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Raw materials and work in process | $ | $ | ||||||
| Reserve | ( | ) | ( | ) | ||||
| Total inventory | $ | $ | ||||||
The
Company regularly evaluates the useful life of its spare parts inventory and as a result, the Company classified $
Note 3. Property and Equipment
Property and equipment consisted of the following as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Land | $ | $ | ||||||
| Building & Building Improvements | ||||||||
| Computer equipment | ||||||||
| Furniture and office equipment | ||||||||
| Machinery and equipment | ||||||||
| STEP equipment | ||||||||
| Leasehold improvements | ||||||||
| Construction in Progress | ||||||||
| Total property and equipment | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense, including STEP depreciation, was $
| F-9 |
Note 4. Intangible Assets
Intangible assets consisted of the following as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Patents | $ | $ | ||||||
| Capitalized media content | ||||||||
| Acquired lease intangible assets | ||||||||
| Total intangible assets | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense was $
Note 5. Leases
On May 12, 2022, the Company entered into a lease agreement for office and manufacturing space in Orlando, FL. The new lease is classified as an operating lease, with a term of 61 months beginning June 1, 2022 and ending June, 30, 2027, with the first month rent free.
The balance sheet classification of lease assets and liabilities as of September 30, 2022 was as follows:
| Balance Sheet Classification | September 30, 2022 | |||
| Assets | ||||
| Operating lease right-of-use assets, December 31, 2021 | $ | |||
| Addition of lease right-of-use asset in 2022 | ||||
| Amortization for the Nine months ended September 30, 2022 | ( | ) | ||
| Total operating lease right-of-use asset, September 30, 2022 | $ | |||
| Liabilities | ||||
| Current | ||||
| Operating lease liability, short-term | $ | |||
| Non-current | ||||
| Operating lease liability, long-term | ||||
| Total lease liabilities | $ | |||
Future minimum lease payments as of September 30, 2022 under non-cancelable operating leases are as follows:
| Future Minimum Lease Payments | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Operating lease liability | $ | |||
The balance sheet classification of lease assets and liabilities as of December 31, 2021 was as follows:
| Balance Sheet Classification | December 31, 2021 | |||
| Assets | ||||
| Operating lease right-of-use assets, December 31, 2020 | $ | |||
| Amortization for the year ended December 31, 2021 | ( | ) | ||
| Total operating lease right-of-use asset, December 31, 2021 | $ | |||
| Liabilities | ||||
| Current | ||||
| Operating lease liability, short-term | $ | |||
| Non-current | ||||
| Operating lease liability, long-term | ||||
| Total lease liabilities | $ | |||
Future minimum lease payments as of December 31, 2021 under non-cancelable operating leases are as follows:
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Operating lease liability | $ |
Rent
expense for the three months ended September 30, 2022 and 2021 was $
| F-10 |
Note 6. Accrued Expenses
Accrued compensation and related costs consisted of the following as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Salaries and wages payable | $ | $ | ||||||
| Employee benefits payable | ||||||||
| Accrued paid time off (PTO) | ||||||||
| Profit sharing payable | ||||||||
| Total accrued compensation and related costs | $ | $ | ||||||
Accrued expenses and other current liabilities consisted of the following as of:
| September 30, 2022 | December 31, 2021 | |||||||
| Manufacturer’s warranties | $ | $ | ||||||
| Warranties-other | ||||||||
| Loss contingencies | ||||||||
| Taxes payable | ||||||||
| Miscellaneous payable | ||||||||
| Total accrued expenses and other current liabilities | $ | $ | ||||||
| F-11 |
Note 7. Note Payable
On
August 25, 2021, the Company completed the purchase of real property located in Chandler, Arizona (the “Property”) for $
The note payable amounts consist of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Short-term liabilities: | ||||||||
| Note payable, principal | $ | $ | ||||||
| Accrued interest on note | ||||||||
| Note payable, short-term | $ | $ | ||||||
| Long-term liabilities: | ||||||||
| Note payable, principal | $ | $ | ||||||
| Note payable, long term | $ | $ | ||||||
Note 8. Related Party Transactions
During
the nine months ended September 30, 2022, the Company redeemed previously awarded stock options nearing expiration from related
parties consisting of the Company’s Co-CEO and former COO. The redemptions eliminated the stock options and resulted in a total
of $ in additional compensation expense. During the nine months ended September 30, 2022, one Board member and the Company’s
former COO purchased shares of common stock, $ par value per share (the “Common Stock”), pursuant to the exercise
of previously awarded stock options at their respective exercise prices, for a total of $
During
the nine months ended September 30, 2021, the Company redeemed previously awarded stock options nearing expiration from related
parties consisting of the Company’s Co-CEO and former COO. The redemption eliminated the stock options and resulted in a total
of $ in additional compensation expense. During the nine months ended September 30, 2021, one Board member purchased shares
of Common Stock, pursuant to the exercise of previously awarded stock options at their respective exercise prices, for a total of $
| F-12 |
Note 9. Commitments and Contingencies
Litigation
From time to time, the Company is notified of 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. There is no pending litigation at this time.
Restricted Stock Unit Grants
On August 26, 2021 and April 11, 2022, the Compensation Committee of the Board of Directors issued a total of , and Restricted Stock Units respectively, pursuant to Section 9 of the 2017 Equity Incentive Plan to the co-Chief Executive Officers and the Chief Operating Officer, to be awarded based on achievement of certain performance goals over the next three years. During August 2022, Restricted Stock Units were forfeited upon the departure of the Chief Operating Officer.
It
is the Company’s policy to estimate the fair value of the RSU’s on the date of the grant and evaluate the probability of
achieving the net profit (net income under GAAP) tranches quarterly. If the target is deemed probable, the expense is amortized on a
straight-line basis over the remaining time period. The Company determined based on the vesting terms described above that the net
profit (net income under GAAP) for the twelve months ending June 30, 2022, was $
Profit Sharing
VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata in April and October of the following year to only active employees. For the nine months ended September 30, 2022 and 2021, $ and $ was expensed to operations for profit sharing.
Note 10. Stockholders’ Equity
Stock Repurchase
On
October 25, 2016, the Company’s Board of Directors authorized the repurchase of up to $
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:
| September 30, 2022 | September 30, 2021 | |||||||||||||||
| Number of Stock | Weighted Exercise | Number of Stock | Weighted Exercise | |||||||||||||
| Options | Price | Options | Price | |||||||||||||
| Options outstanding, beginning of year | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Redeemed | ( | ) | ( | ) | ||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Expired / terminated | ||||||||||||||||
| Options outstanding, end of period | $ | $ | ||||||||||||||
| Options exercisable, end of period | $ | $ | ||||||||||||||
| F-13 |
The
Company did not have any non-vested stock options outstanding as of September 30, 2022 and December 31, 2021. The weighted average contractual
term for options outstanding and exercisable at September 30, 2022 and 2021 was years. The aggregate intrinsic value of the options
outstanding and exercisable at September 30, 2022 and 2021 was $ and $, respectively. For the three months ended September
30, 2022 and 2021, the Company received payments related to the exercise of options in the amount of $
2017 Equity Incentive Plan
Through September 30, 2022, and restricted stock awards and , and restricted shares have been granted under the Equity Plan to the Company’s Co-CEO’s and former COO, respectively.
Common stock activity
On
September 1, 2022, the Company settled performance-based restricted stock units that had been granted to its co-CEOs by issuing them
an aggregate of
shares ( shares less shares withheld for taxes), net of tax withholding liability, valued at $
On April 11, 2022, the Company issued Mr. Givens a signing bonus of shares of common stock, valued at $350,001, which are restricted from transfer until the earlier of: i) 12 months of employment having lapsed or ii) the Company terminating employment with Mr. Givens without cause.
Mr. Givens was also granted performance-based restricted stock units pursuant to VirTra’s 2017 Equity Incentive Plan. .
The vesting schedule notwithstanding, the Compensation Committee shall have the discretion to declare the vesting of any number of restricted stock units should the Company experience unusual results of operations, such as falling below the net profit threshold one year and exceeding the maximum net profit the following year, so long as the total number of restricted stock units declared to be vested does not exceed the amount awarded. Additionally, while a maximum net profit per year has been set for allocation of the available shares at this time, it is very possible that the Company will exceed these levels during the next 3 years and if such performance occurs, the Compensation Committee will meet to determine if additional compensation is in the best interests of the Company at that time.
On March 31, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers an aggregate of shares (the “RDO Shares”) of the Company’s common stock, $ par value per share, at a price of $ per share in a registered director offering (the “Offering”). The RDO Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-238624), which was filed by the Company with the SEC on May 22, 2020 and subsequently declared effective on September 2, 2020, and a related prospectus.
The
Company also entered into a placement agent agreement (the “Placement Agency Agreement”) on March 31, 2021 with Roth Capital
Partners, LLC (“Roth”), pursuant to which Roth agreed to serve as placement agent for the issuance and sale of the RDO Shares.
The Company agreed to pay Roth an aggregate fee equal to
Roth acted as the lead placement agent in the Offering. Lake Street Capital Markets acted as co-placement agent for the Offering. Maxim Group LLC acted as a financial advisor to the Company in connection with the Offering.
A prospectus supplement and the accompanying prospectus relating to and describing the terms of the Offering, dated March 31, 2021, was filed with the SEC on April 2, 2021.
On
April 5, 2021, the Company closed the Offering. The total gross proceeds of the Offering were $
Note 11. Subsequent Events
None.
| F-14 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on August 2, 2022.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Quarterly Report on Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Quarterly Report on Form 10-Q. You should carefully consider these risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.
| 3 |
Business Overview
VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and “our”) 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 VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place on a daily basis without the need for a shooting range, protective equipment, role players, safety officers, or a scenario-based training site. We have developed a higher standard in simulation training including capabilities such as: multi-screen, video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented Threat-Fire® shoot-back system, powerful gas-powered simulated recoil weapons, and more. The simulator also allows students to receive immediate feedback from the instructor without the potential for sustaining injuries by the instructor or the students. The instructor is able to teach and re-mediate critical issues, while placing realistic stress on the students due to the realism and safe training environment created by the VirTra simulator.
Business Strategy
We have two main customer groups, namely, law enforcement and military. These are very different markets and require different sales and marketing programs as well as personnel. Our focus is to expand the market share and scope of our training simulators sales to these identified customer groups by pursuing the following key growth strategies:
| ● | Build Our Core Business. Our goal is to profitably grow our market share by continuing to develop, produce and market the most effective simulators possible. Through disciplined growth in our business, we have achieved a solid balance sheet by increasing our working capital and limiting our bank debt. We plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we increase our marketing and sales activities. | |
| ● | Increase Total Addressable Market. We plan to increase the size of our total addressable market. This effort will focus on new marketing and new product and/or service offerings for the purpose of widening the number of types of customers who might consider our products or services uniquely compelling. | |
| ● | Broaden Product Offerings. Since formation in 1993, our company has had a proud tradition of innovation in the field of simulation and virtual reality. We plan to release revolutionary new products and services as well as continue incremental improvements to existing product lines. In some cases, the company may enter a new market segment via the introduction of a new type of product or service. | |
| ● | Partners and Acquisitions. We try to spend our time and funds wisely and not tackle tasks that can be done more efficiently with partners. For example, international distribution is often best accomplished through a local distributor or agent. We are also open to the potential of acquiring additional businesses or of being acquired ourselves, based on what is expected to be optimal for our long-term future and our stockholders. |
| 4 |
Product Offerings
Our simulator products include the following:
| ● | V-300® Simulator – a 300° wrap-around screen with video capability is the higher standard for simulation training |
| ○ | The V-300® is the higher standard for decision-making simulation and tactical firearms training. Five screens and a 300-degree immersive training environment ensures that time in the simulator translates into real world survival skills. The system reconfigures to support 15 individual firing lanes. | |
| ○ | A key feature of the V-300®shows how quickly judgment decisions have to be made, and if they are not made immediately and quickly, it can lead to the possible loss of lives. This feature, among others, supports our value proposition to our customers that you cannot put a dollar value on being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters. |
| ● | V-180®Simulator – a 180° screen with video capability is for smaller spaces or smaller budgets |
| ○ | The V-180®is the higher standard for decision-making simulation and tactical firearms training. Three screens and a 180-degree immersive training environment ensures that time in the simulator translates into real world survival skills. |
| ● | V-100®Simulator & V-100® MIL – a single-screen based simulator systems |
| ○ | The V-100® is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to four (4) individual firing lanes at one time. The optional Threat-Fire® device safely simulates enemy return fire with an electric impulse (or vibration version), reinforcing performance under pressure. We offer the industry’s only upgrade path, so a V-100® firearms training and force options simulator can affordably grow into an advanced multi-screen trainer in upgraded products that we offer customers for future purchase. | |
| ○ | The V-100® MIL is sold to various military commands throughout the world and can support any local language. The system is extremely compact and can even share space with a standard classroom or squeeze into almost any existing facility. If a portable firearms simulator is needed, this model offers the most compact single-screen simulator on the market today – everything organized into one standard case. The V-100® MIL is the higher standard among single-screen small arms training simulators. Military Engagement Skills mode supplies realistic scenario training taken from real world events. | |
| ○ | The V-ST PRO® a highly-realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments. The system’s flexibility supports a combination of marksmanship and use of force training on up to 5 screens from a single operator station. The V-ST PRO® is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics. |
| ● | Virtual Interactive Coursework Training Academy (V-VICTA)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators. | |
| ● | Subscription Training Equipment Partnership (STEP)™ is a program that allows agencies to utilize VirTra’s simulator products, accessories, and V-VICTA™ interactive coursework on a subscription basis. | |
| ● | V-Author® Software allows users to create, edit, and train with content specific to agency’s objectives and environments. V-Author® is an easy to use application capable of almost unlimited custom scenarios, skill drills, targeting exercises and firearms course-ware proven to be highly effective for users of VirTra simulation products. | |
| ● | Simulated Recoil Kits - a wide range of highly realistic and reliable simulated recoil kits/weapons. These drop-in conversion kits fit into real weapons but safely simulate the most powerful recoil on the market and even lock-back when out-of-ammunition or simulating a dud. | |
| ● | Return Fire Device – the patented Threat-Fire® device which applies real-world stress on the trainees during simulation training. | |
| ● | TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training. |
| 5 |
Results of operations for the three and nine months ended September 30, 2022 and September 30, 2021
Revenues. Net sales were $4,903,397 for the three months ended September 30, 2022 compared to $6,093,263 for the same period in 2021, a decrease of $1,189,866, or 19.5%. Net sales were $19,654,008 for the nine months ended September 30, 2022 compared to $15,790,364 for the same period in 2021, an increase of $3,863,644, or 24.5%. The decrease in revenues for the three months ended September 30, 2022 as compared to the same period in the prior year is due to unbilled sales not yet being recognized. The increase in sales for the nine months ended September 30, 2022 resulted from an increase in the number of simulators and accessories completed, delivered and revenue recognized compared to the same periods in 2021. It should be noted that there were unbilled revenue of $4,105,351 on the balance sheets as of September 30, 2022 that the Company expects to recognize as revenue in the coming quarters.
Cost of Sales. Cost of sales were $2,387,307 for the three months ended September 30, 2022 compared to $3,217,911 for the same period in 2021, a decrease of $830,604, or 25.8%. Cost of sales were $8,707,096 for the nine months ended September 30, 2022 compared to $7,211,807 for the same period in 2021, an increase of $1,495,289, or 20.7%. The increase was due to additional material costs due to higher quantities of simulator systems and accessories sold. The cost of sales on a dollar basis varies from quarter-to-quarter as a result of sales volume and product mix.
Gross Profit. Gross profit was $2,516,090 for the three months ended September 30, 2022 compared to $2,875,352 for the same period in 2021, a decrease of $359,262, or 12.5%. Gross profit was $10,946,912 for the nine months ended September 30, 2022 compared to $8,578,557 for the same period in 2021, an increase of $2,368,355, or 27.6%. The gross profit margin for the three months ended September 30, 2022 and 2021 was 51% and 47%, respectively. The gross profit margin was 56% for the nine months ended September 30, 2022 and 54% for the same period in 2021. The increase in gross profit was due to the product mix of systems, accessories and services sold.
Operating Expenses. Net operating expense was $3,587,990 for the three months ended September 30, 2022 compared to $2,609,772 for the same period in 2021, an increase of $978,218, or 37.5%. Net operating expense was $10,265,886 for the nine months ended September 30, 2022 compared to $6,928,154 for the same period in 2021, an increase of $3,337,732, or 48.2%. The increase was primarily due to expenses related to the move into the new building, Orlando location, and increased payroll costs.
Operating Income (Loss). Loss from operations was $1,071,900 for the three months ended September 30, 2022 compared to income of $265,580 for the same period in 2021, a decrease of $1,337,480 or 503.6%. Operating income was $681,026 for the nine months ended September 30, 2022 compared to $1,650,403 for the same period in 2021, a decrease of $969,377, or 58.7%.
Other Income (Expense). Other income net of other expense was $46,336 for the three months ended September 30, 2022 compared to other income net of other expense of $1,330,681 for the same period in 2021, a decrease of $1,284,345, or 96.5%, primarily from the forgiveness of the PPP Loan of $1,320,714. Other income net of other expense was $28,542 for the nine months ended September 30, 2022 compared to other income net of other expense of $1,346,397 for the same period in 2021, a decrease of $1,317,855, or 97.9%.
Provision (Benefit) for Income Tax. Income tax benefit was $222,683 for the three months ended September 30, 2022 compared to an income tax expense of $253,289 for the same period in 2021, a decrease of $475,972, or 187.9%. Income tax expense was $148,001 for the nine months ended September 30, 2022 compared to an income tax expense of $469,306 for the same period in 2021, a decrease of $321,305, or 68.5%. Provision (benefit) for income tax is estimated quarterly applying both federal and state tax rates.
Net Income (Loss). Net loss was $802,881 for the three months ended September 30, 2022, compared to net income of $1,342,972 for the same period in 2021, a decrease of $2,145,852, or 159.8%. Net income was $561,567 for the nine months ended September 30, 2022 compared to $2,527,494 for the same period in 2021, a decrease of $1,965,927, or 77.8%. The fluctuations in net income (loss) relate to each respective section discussed above.
| 6 |
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization. Explanation and Use of Non-GAAP Financial Measures:
Earnings before interest, income taxes, depreciation and amortization and before other non-operating costs and income (“EBITDA”) and adjusted EBITDA are non-GAAP measures. Adjusted EBITDA also includes non-cash stock option expense. Other companies may calculate adjusted EBITDA differently. The Company calculates its adjusted EBITDA to eliminate the impact of certain items it does not consider to be indicative of its performance and its ongoing operations. Adjusted EBITDA is presented herein because management believes the presentation of adjusted EBITDA provides useful information to the Company’s investors regarding the Company’s financial condition and results of operations and because adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry, several of which present EBITDA and a form of adjusted EBITDA when reporting their results. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under accounting principles generally accepted in the United States of America (“GAAP”). Adjusted EBITDA should not be considered as an alternative for net income (loss), cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. A reconciliation of net loss to adjusted EBITDA is provided in the following table:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| September 30, | September 30, | Increase | % | September 30, | September 30, | Increase | % | |||||||||||||||||||||||||
| 2022 | 2021 | (Decrease) | Change | 2022 | 2021 | (Decrease) | Change | |||||||||||||||||||||||||
| Net Income (Loss) | $ | (802,881 | ) | $ | 1,342,972 | $ | (2,145,853 | ) | -160 | % | $ | 561,567 | $ | 2,527,494 | $ | (1,965,927 | ) | 78 | % | |||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||
| Provision for income taxes | (222,683 | ) | 253,289 | (475,972 | ) | -188 | % | 148,001 | 469,306 | (321,305 | ) | -68 | % | |||||||||||||||||||
| Depreciation and amortization | 423,069 | 166,098 | 256,971 | 155 | % | 659,775 | 367,253 | 292,522 | 80 | % | ||||||||||||||||||||||
| EBITDA | $ | (602,495 | ) | $ | 1,762,359 | $ | (2,364,854 | ) | -134 | % | $ | 1,369,343 | $ | 3,364,053 | $ | (1,994,710 | ) | -59 | % | |||||||||||||
| Right of use amortization | 131,221 | 78,001 | 53,220 | 68 | % | 291,879 | 231,300 | 60,579 | 26 | % | ||||||||||||||||||||||
| Gain on forgiveness of note | - | (1,320,714 | ) | 1,320,714 | -100 | % | - | (1,320,714 | ) | 1,320,714 | -100 | % | ||||||||||||||||||||
| Adjusted EBITDA | $ | (471,274 | ) | $ | 519,646 | $ | (990,920 | ) | -191 | % | $ | 1,661,222 | $ | 2,274,639 | $ | (613,147 | ) | -27 | % | |||||||||||||
Liquidity and Capital Resources. Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had $15,673,154 and $19,708,565 of cash and cash equivalents as of September 30, 2022 and December 31, 2021, respectively. Working capital was $25,726,256 and $25,944,717 as of September 30, 2022 and December 31, 2021, respectively.
Net cash used in operating activities was $1,452,599 for the nine months ended September 30, 2022 and net cash provided by operating activities was $1,362,626 for the nine months ended September 30, 2021. Net cash used in operating activities resulted primarily from an increase in inventory, offset by a decrease in accounts receivable, as well as other changes in operating assets and liabilities.
Net cash used in investing activities was $2,444,074 for the nine months ended September 30, 2022, compared to net cash used in investing activities of $12,035,043 for the nine months ended September 30, 2021. Investing activities in 2022 and 2021 consisted of purchases of intangible assets, manufacturing equipment, and purchases of property and equipment (see Note 3).
Net cash used in financing activities was $138,738 for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $25,376,276 for the nine months ended September 30, 2021. In 2022, cash was used primarily for principal payments of debt, offset by proceeds from the exercise of stock options, compared to financing activities in 2021 which consisted of stock options exercised, stock issued for service, and proceeds from long-term debt, offset by the forgiveness of the PPP loan, and principal payments on note payable.
Bookings and Backlog
The Company defines bookings as the total of newly signed contracts and purchase orders received in a defined time period. The Company received bookings totaling $26,631,879 for the nine months ended September 30, 2022. The Company defines backlog as the accumulation of bookings that have not started or are uncompleted performance objectives and cannot be recognized as revenue until delivered in a future quarter. Backlog also includes extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of September 30, 2022, the Company’s backlog was $28,300,000. Management estimates the majority of the new bookings received in the first nine months of 2022 will be converted to revenue in 2022 and early 2023. Management estimates the conversion of backlog based on current contract delivery dates; however, contract terms and dates are subject to modification and are routinely changed at the request of the customer. Additionally, due to the impact of COVID-19, management’s estimates will change in accordance with federal and state guidelines. To date, the COVID-19 restrictions and/or supply chain/staffing challenges have resulted in reduced customer shipments and customer system installations. These developments are expected to result in lower recognized revenue, possible order cancellations and possibly lower gross margin when they occur. To date, there have been minimal order cancellations and some delays. Delayed orders remain in backlog.
Cash Requirements
Our management believes that our current capital resources will be adequate to continue operating the company and maintaining our current business strategy for more than 12 months from the filing of this Quarterly Report. We are, however, open to raising additional funds from the capital markets, at a fair valuation, to expand our product and services offered, to enhance our sales and marketing efforts and effectiveness, and to aggressively take advantage of market opportunities. There can be no assurance, however, that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down our plans for expanded marketing and sales efforts.
| 7 |
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. 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, 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. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Management believes that there have been no changes in our critical accounting policies during the nine months ended September 30, 2022.
Recent Accounting Pronouncements
See Note 1 to our financial statements, included in Part I, Item 1., Financial Information of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of disclosure controls and procedures
We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2022, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified in our report on internal control over financial reporting contained in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on August 2, 2022.
Change in internal control over financial reporting
There has been no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Subsequent to September 30, 2022, we are implementing more formal review and documentation of workflow processes, and increased our ERP training for our staff. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
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PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 9 to our unaudited financial statements, included in Part I, Item 1., Financial Information of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.
ITEM 1A. RISK FACTORS
Not required for smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
| (a) | None | |
| (b) | There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the filing with the SEC of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. |
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ITEM 6. EXHIBITS
Exhibit No. |
Exhibit Description | |
| 10.1 | Restricted Stock Unit Agreement - John F. Givens II (incorporated by reference to Exhibit 10.14 to the registrant’s annual report on Form 10-K (File No. 001-38420) filed August 2, 2022) | |
| 31.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 |
| |
| 32.1 | Certification of the Principal Executive Officers and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VIRTRA, INC. | ||
| Date: November 14, 2022 | By: | /s/ Robert D. Ferris |
| Robert D. Ferris | ||
| Co-Chief Executive Officer and President | ||
| (principal executive officer) | ||
| By: | /s/ John F. Givens II | |
| John F. Givens II | ||
| Co-Chief Executive Officer | ||
(principal executive officer and interim principal accounting officer) | ||
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