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
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
As of November 5, 2024, the registrant had shares of common stock outstanding.
TABLE OF CONTENTS
| 2 |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIRTRA, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (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 | ||||||||
| Notes payable, current | ||||||||
| Operating lease liability, short-term | ||||||||
| Deferred revenue, short-term | ||||||||
| Total current liabilities | ||||||||
| Long-term liabilities: | ||||||||
| Deferred revenue, long-term | ||||||||
| Notes payable, long-term | ||||||||
| Operating lease liability, long-term | ||||||||
| Total long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (See Note 11) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred
stock $ par value; authorized; shares issued or outstanding |
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| Common
stock $ par value; shares authorized; shares issued and outstanding as of September 30, 2024, and shares issued and outstanding as of December 31, 2023 |
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| Class
A common stock $ par value; shares authorized; shares issued or outstanding |
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| Class
B common stock $ par value; shares authorized; shares issued or outstanding |
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| Additional paid-in capital | ||||||||
| Accumulated income | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed financial statements.
| F-1 |
VIRTRA, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenues: | ||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Net operating expense | ||||||||||||||||
| Income from operations | ||||||||||||||||
| Other income (expense): | ||||||||||||||||
| Other income | ||||||||||||||||
| Other expense | ( | ) | ( | ) | ||||||||||||
| Net other income | ||||||||||||||||
| Income before provision for income taxes | ||||||||||||||||
| Provision for income taxes | ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Net income per common share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to unaudited condensed financial statements.
| F-2 |
VIRTRA, INC.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
| For the Three Months Ended Sept 30, 2023 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-In Capital | Stock | Earnings | Total | |||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | | ||||||||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock options repurchased | - | - | ||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Stock reserved for future services | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at Sept 30, 2023 | $ | |||||||||||||||||||||||||||||||
| For the Nine Months Ended Sept 30, 2023 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-In Capital | Stock | Earnings | Total | |||||||||||||||||||||||||
| Balance at Dec 31, 2022 | $ | $ | $ | | $ | $ | $ | |||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock options repurchased | - | - | ||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Stock reserved for future services | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at Sept 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| For the Three Months Ended Sept 30, 2024 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-In Capital | Stock | Earnings | Total | |||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | | $ | $ | ||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Stock reserved for future services | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at Sept 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| For the Nine Months Ended Sept 30, 2024 | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional | Treasury | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Paid-In Capital | Stock | Earnings | Total | |||||||||||||||||||||||||
| Balance at Dec 31, 2023 | $ | $ | $ | | $ | $ | ||||||||||||||||||||||||||
| Stock options exercised | - | |||||||||||||||||||||||||||||||
| Stock issued for services | - | |||||||||||||||||||||||||||||||
| Stock reserved for future services | - | - | ||||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||||||
| Balance at Sept 30, 2024 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
See accompanying notes to unaudited condensed financial statements.
| F-3 |
VIRTRA, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Nine Months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Right of use amortization | ||||||||
| Reserve for RSU | ||||||||
| Stock issued for service | ||||||||
| Bad Debt Expense | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | ( | ) | ||||||
| Inventory, net | ( | ) | ( | ) | ||||
| Deferred taxes | ( | ) | ||||||
| Unbilled revenue | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Other assets | ||||||||
| Accounts payable and other accrued expenses | ( | ) | ||||||
| Lease liability | ( | ) | ( | ) | ||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of intangible assets | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash (used in) investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Principal payments of debt | ( | ) | ( | ) | ||||
| RSU issued | ||||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase in cash | ||||||||
| Cash and restricted cash, beginning of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest Paid | $ | $ | ||||||
| Taxes Paid | ||||||||
See accompanying notes to unaudited condensed 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 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.
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, 2023 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 1, 2024. 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, 2024, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2023, balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP.
Interim results are subject to seasonal variations, and the results of operations for the three and nine months ended September 30, 2024, 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.
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.
| F-5 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 | |
| STEP Program | Deferred and recognized over the life of the contract | |
| 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) | |
| Design and prototyping | Recognized at the completion of each agreed upon milestone | |
| 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 non-cash 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.
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.
| F-6 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
| Three Months Ended September 30 | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||
| Design & Prototyping | ||||||||||||||||||||||||||||||||
| STEP | ||||||||||||||||||||||||||||||||
| Total Revenue | ||||||||||||||||||||||||||||||||
| Nine Months Ended September 30 | ||||||||||||||||||||||||||||||||
| 2024 | 2023 | |||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||||||||||||||||
| Design & Prototyping | ||||||||||||||||||||||||||||||||
| STEP | ||||||||||||||||||||||||||||||||
| Total Revenue | ||||||||||||||||||||||||||||||||
| F-7 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Commercial
customers include selling through prime contractors for military or law enforcement contracts domestically and until it becomes a larger
portion of the revenue will include any healthcare sales. Government customers are defined as directly selling to government agencies.
For the three months ended September 30, 2024, 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 the 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-8 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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, 2024, the Company had three customers that accounted for
As
of September 30, 2024, the Company had two suppliers that accounted for
For
the three months ended September 30, 2024, and 2023, the Company had a customer that accounted for
| Three Months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| 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 | $ | $ | ||||||
| Nine Months Ended September 30 | ||||||||
| 2024 | 2023 | |||||||
| 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-9 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 2. Inventory
Inventory consisted of the following as of:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials, WIP, finished goods and Materials being inspected | ||||||||
| Reserve | ( | ) | ( | ) | ||||
| Total Inventory | ||||||||
The Company regularly evaluates the useful life of its spare parts inventory but did not have any cause to reclassify any this quarter.
Note 3. Property and Equipment
Property and equipment consisted of the following as of:
| September 30, 2024 | December 31, 2023 | |||||||
| 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
expenses, including STEP depreciation, were $
| F-10 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 4. Intangible Assets
Intangible asset consisted of the following as of:
| September 30, 2024 | December 31, 2023 | |||||||
| Patents | ||||||||
| Capitalized media content | ||||||||
| Acquired lease intangible assets | ||||||||
| Total intangible assets | ||||||||
| Less accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | ||||||||
Amortization
expense was $
Note 5. Leases
The
Company leases approximately
The Company’s lease agreements do not contain any residual value guarantees, restrictive covenants, or variable lease payments. The Company has not entered into any financing leases.
In addition to base rent, the Company’s lease generally provides for additional payments for other charges, such as rental tax. The lease includes fixed rent escalations. The Company’s lease does not include an option to renew.
The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease right of use assets, net, operating lease liability – short-term, and operating lease liability – long-term on its balance sheets.
Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 4.5%. Significant judgement is required when determining the Company’s incremental borrowing rate. The Company uses the implicit rate when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Effective
June 1, 2022, the Company obtained a right-of-use asset in exchange for a new operating lease liability in the amount of $
| F-11 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Based on the requirements to move and leave the building in compliance with the company’s lease term, VirTra chose to use the holdover option in the lease agreement for the period of one additional month. The cost of this was split with the subtenant, this extended the lease through May 31, 2024, at which time VirTra entirely vacated the property.
The balance sheet classification of lease assets and liabilities as of September 30, 2024 are as follows:
| Balance Sheet Classification | September 30, 2024 | December 31, 2023 | ||||||
| Assets | ||||||||
| Operating lease right-of-use assets, December 31, 2023 | $ | $ | ||||||
| Amortization for the nine months ended September 30, 2024 and Year ending 2023 | $ | ( | ) | $ | ( | ) | ||
| Total operating lease right-of-use asset, September 30, 2024 | $ | $ | ||||||
| Liabilities | ||||||||
| Current | ||||||||
| Operating lease liability, short-term | $ | $ | ||||||
| Non-current | ||||||||
| Operating lease liability, long-term | $ | $ | ||||||
| Total lease liabilities | $ | $ | ||||||
NON-Cancelable operating leases
| 2024 | $ | |||
| 2025 | $ | |||
| 2026 | $ | |||
| 2027 | $ | |||
| Total Lease Payments | $ | |||
| Less: imputed interest | $ | ( | ) | |
| Operating Lease Liability | $ |
Rent
expenses for the nine months ended September 30, 2024, and 2023 were $
Note 6. Accrued Expenses
Accrued compensation and related costs consist of the following as of:
| September 30, 2024 | December 31, 2023 | |||||||
| 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, 2024 | December 31, 2023 | |||||||
| Manufacturer’s warranties | ||||||||
| Taxes payable | $ | |||||||
| Miscellaneous payable | ||||||||
| Total accrued expenses and other current liabilities | ||||||||
| F-12 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 7. Notes Payable
On
August 25, 2021, the Company completed the purchase of real property located in Chandler, Arizona (the “Property”) for $
| September 30, 2024 | December 31, 2023 | |||||||
| Short-term liabilities | ||||||||
| Notes payable, principal | ||||||||
| Accrued interest to date | ||||||||
| Notes Payable, short-term | ||||||||
| Long-term liabilities | ||||||||
| Notes payable, principal | ||||||||
| Notes payable, long term | ||||||||
Note 8. Related Party Transactions
During
the nine months ended September 30, 2024, one Board member purchased shares of common stock, $ par value per share (the “Common
Stock”), pursuant to the exercise of previously awarded stock options at the exercise price of $
During
the nine months ended September 30, 2024, the Company redeemed previously awarded stock options nearing expiration, which resulted
in $
During
the nine months ended September 30, 2023, one Board member and the Company’s Executive Chairman (then Co-CEO) purchased a total
of shares of Common Stock, pursuant to the exercise of previously awarded stock options at the exercise price of $
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 granted a total of , and Restricted Stock Units (RSUs), 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, RSUs were forfeited upon the departure of the Chief Operating Officer. During July 2024, RSUs were forfeited upon the departure of the Executive Chairman (formerly one of the co-Chief Executive Officers).
| F-13 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
On December 1, 2022, the Company granted a total of RSUs to its Chief Financial Officer, which can be awarded based on achievement of performance goals over the next three years. On August 29, 2024 the board of Directors increased the numbers of share eligible for the CFO to receive from this year to on the CFO’s vesting on the CFO’s anniversary date of December 1, 2024 On January 1, 2023, the Company issued RSUs to a new member of the Board of Directors which can be awarded only upon a sale of the Company.
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 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, 2024, 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, 2024, and 2023, $ 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 30,2024 | December 31, 2023 | |||||||||||||||
| Number
of Stock Options | Weighted Exercise Price | Number
of Stock Options | Weighted Exercise Price | |||||||||||||
| Options outstanding, beginning of year | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Redeemed | ( | ) | ( | ) | ||||||||||||
| Exercised | ( | ) | ( | ) | ||||||||||||
| Expired / terminated | ||||||||||||||||
| Options outstanding, end of period | $ | $ | ||||||||||||||
| Options exercisable, end of period | $ | $ | ||||||||||||||
| F-14 |
VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
The
Company did not have any non-vested stock options outstanding as of September 30, 2024, and December 31, 2023. The weighted average contractual
term for options outstanding and exercisable on September 30, 2024, and 2023 was years. The aggregate intrinsic value of the options
outstanding and exercisable on September 30, 2024, and 2023 was $-- and $ respectively. For the three months ended September 30,
2024, and 2023, the Company received payments related to the exercise of options in the amount of $-
2017 Equity Incentive Plan
Through September 30, 2024, and restricted stock units (RSUs) have been granted under the Equity Plan to the Company’s former Executive Chairman and CEO, respectively, of which and shares were issued in settlement of such RSUs. Also, and restricted shares were issued to the Company’s former COO and former Executive Chairman.
Common stock activity
During
the three months ended September 30, 2024, the Company settled performance-based restricted stock
units that had been granted to its CEO by issuing him shares (shares withheld for
taxes), net of tax withholding liability, valued at $
Note 11. Subsequent Events
In October 2024, two directors were issued an aggregate of shares of Common Stock for their services as directors during the previous twelve months.
| F-15 |
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, 2023 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, 2023, filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2024.
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 numerous 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 people acting on our behalf are expressly qualified in their entirety by this cautionary statement.
Business Overview
VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and “our”) is a global provider of judgmental use of force training simulator 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 VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place daily 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 can 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 quite 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:
| 3 |
| ● | 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 its 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. |
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 immersive 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. | |
| ○ | A key feature of the V-300™ shows how quickly judgment decisions must be made, and, sometimes, if they are not made immediately and accurately, it can lead to the possible loss of lives. This feature, among others, supports our value proposition to our customers is that best practices is 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° three-screen with video scenarios and marksmanship capabilities |
| ○ | The V-180™ is the higher standard for immersive decision-making simulation and tactical firearms training. Three screens and a 180-degree immersive training environment ensure 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 a single-screen firearms training simulator and has a portable version. Firearms training mode supports up to 4 individual firing lanes at one time. With hundreds of scenarios and skill drills, this training solution provides fast set-up and training on the go and in almost any location. |
| ○ | 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 fits 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. Military Engagement Skills mode supplies realistic scenario training taken from real world events. | |
| ○ | The V-ST PRO™ is a robust, highly realistic single-screen firearms shooting and skills training simulator that can scale by connecting up to 5 V-ST PROs. Its flexibility supports a combination of marksmanship and use of force training capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics. |
| 4 |
| ● | 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® proprietary software allows users to create, edit, and train with content specific to the 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 courses of fire. It also allows panoramic photos of any local location so users can train in their actual reality. | |
| ● | Simulated Recoil Kits - a wide range of highly realistic and reliable simulated recoil kits/weapons made in the USA. VirTra’s True-Fire® recoil kits do not allow for faulty extra shots. Recoil kits use either CO2 or HPA greatly reducing the need for costly ammunition. | |
| ● | Return Fire Device – the patented Threat-Fire® device applies real-world stress on the trainees during simulation training. Stress inoculation is a key component of training exercises. VirTra holds a patent for electronic simulation in simulation making the pairing of the device and the simulators a sourced item. | |
| ● | VirTra has installed a volumetric video capture studio in order to create training scenarios that could work in either screen-based simulators or in headset-based simulators. Volumetric video realism far exceeds that of computer-generated avatars which likely gives VirTra a strategic advantage for highly desired de-escalation training, especially when simulating human interaction is required. | |
| ● | TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training. | |
| ● | V-XR is an extended reality headset-based training solution. It comes ready to use out of the box with two headsets, a trainer tablet, charging stations, a router, a casting device, and cables in a portable hard case, with a 3-year manufacturer’s warranty. |
Results of operations for the three and nine months ended September 30, 2024, and September 30, 2023
Revenues. Net sales were $7,484,269 for the three months ended September 30, 2024, compared to $7,561,582 for the same period in 2023, a decrease of $77,313 or 1%. Net sales were $21,653,707 for the nine months ended September 30, 2024, compared to $27,925,420 for the same period in 2023, a decrease of $6,271,713, or 22%. The decrease in revenue can be attributed to the smaller amount of bookings in the prior 3 quarters due to the temporary funding measures taken by the federal government that delayed many of our contracts as well as the time it takes for the rebuilding of our sales team.
Cost of Sales. Cost of sales were $1,986,296 for the three months ended September 30, 2024, compared to $2,175,508 for the same period in 2023, a decrease of $189,212, or 9%. Cost of sales were $5,168,978 for the nine months ended September 30, 2024, compared to $9,669,708, or a 47% decrease. The dollar decrease for the three-month ending period correlates with the lower revenues for the current quarter compared to last year which equates to lower COGS. In addition, 31% of our 3-month ending September 30, 2024 revenue is derived from STEP and Service contracts that have limited COGS. For the nine-month ending lower dollars and percentage is related to a reclassification of COGS labor related to our development projects. This expense will be reflected in the income statement when we have the corresponding matching revenue.
| 5 |
Gross Profit. Gross profit was $5,497,973 for the three months ended September 30, 2024, compared to $5,386,074 for the same period in 2023, an increase of $111,899, or 2%. Gross profit was $16,484,729 for the nine months ended September 30, 2024 compared to $18,255,712 for the same period in 2023, a decrease of $1,770,983, or 10%. The gross profit margin for the three months ended September 30, 2024, and 2023 was 73% and 71%, respectively. The gross profit margin was 76% for the nine months ended September 30, 2024, and 65% for the same period in 2023. This is solely driven by the decrease in Cost of Sales as stated above.
Operating Expenses. Net operating expense was $4,742,341 for the three months ended September 30, 2024, compared to $3,716,463 for the same period in 2023, an increase of $1,025,878, or 28%. Net operating expense was $13,199,337 for the nine months ended September 30, 2024 compared to $11,186,189 for the same period in 2023, an increase of $2,013,148, or 18%. This increase for both the 3 month and 9 month ending periods come from payroll and benefits as labor rates increase and as we bring on higher level staff to help build infrastructure for the future. Along with the additional taxes associated with the RSU payments for both the Chairman of the board as well as the CEO in the third quarter. a major factor this year has been and increase in IT expenses to help prepare the organization for regulatory compliance. Travel expenses increased year-over-year as we seek to expand our footprint in our sales territories including the international market which requires additional travel.
Operating Income. Operating income was $755,632 for the three months ended September 30, 2024, compared to operating income of $1,669,611 for the same period in 2023, a decrease of $913,979 or 55%. Operating income was $3,285,392 for the nine months ended September 30, 2024, compared to $7,069,523 for the same period in 2023, a decrease of $3,784,131, or 54%.
Other Income. Other income net of other expense was $35,469 for the three months ended September 30, 2024, compared to net other income of $209,495 for the same period in 2023, a decrease of $174,026, or 83%, primarily from the ending of the sub lease in Chandler Az. Other income net of other expense was $521,610 for the nine months ended September 30, 2024, compared to other income net of other expense of $401,431, an increase of $120,179, or 30%, primarily from interest income and a gain on the sale of the older machine shop equipment.
Provision (Benefit) for Income Tax. Provision for income tax was $208,000 for the three months ended September 30, 2024, compared to $244,316 for the same period in 2023, a decrease of $36,316, or 15%. Provision for income tax was $807,000 for the nine months ended September 30, 2024, compared to $1,863,150 for the same period in 2023, a decrease of $1,056,150, or 57%. Provision for income tax is estimated quarterly applying both federal and state tax rates.
Net Income. Net income was $583,101 for the three months ended September 30, 2024, compared to net income of $1,634,790 for the same period in 2023, a decrease of $1,051,689 or 64%. Net income was $3,000,002 for the nine months ended September 30, 2024, compared to $5,607,804 for the same period in 2023, a decrease of $2,607,802, or 47%. The fluctuations in net income relate to each respective section discussed above.
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:
| 6 |
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||
| Sept 30, | Sept 30, | Increase | % | Sept 30, | Sept 30, | Increase | % | |||||||||||||||||||||||||
| 2024 | 2023 | (Decrease) | Change | 2024 | 2023 | (Decrease) | Change | |||||||||||||||||||||||||
| Net Income (Loss) | $ | 583,101 | $ | 1,634,790 | $ | (1,051,689 | ) | -64 | % | $ | 3,000,002 | $ | 5,607,804 | $ | (2,607,802 | ) | -47 | % | ||||||||||||||
| Adjustments: | ||||||||||||||||||||||||||||||||
| Provision for income taxes | 208,000 | 244,316 | (36,316 | ) | -15 | % | 807,000 | 1,863,150 | (1,056,150 | ) | -57 | % | ||||||||||||||||||||
| Depreciation and amortization | 308,924 | 121,054 | 187,870 | 155 | % | 834,494 | 602,535 | 231,959 | 38 | % | ||||||||||||||||||||||
| Interest (net) | (55,919 | ) | 23,957 | (79,876 | ) | -333 | % | (144,876 | ) | 133,377 | (278,253 | ) | -209 | % | ||||||||||||||||||
| EBITDA | $ | 1,044,106 | $ | 2,024,117 | (980,011 | ) | -48 | % | $ | 4,496,620 | $ | 8,206,866 | (3,710,246 | ) | -45 | % | ||||||||||||||||
| Right of use amortization | 38,720 | 843,042 | (804,322 | ) | 238,213 | 1,209,397 | (971,184 | ) | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 1,082,826 | $ | 2,867,159 | $ | (1,784,333 | ) | -62 | % | $ | 4,734,833 | $ | 9,416,263 | $ | (4,681,430 | ) | -50 | % | ||||||||||||||
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 $19,668,455 and $18,849,842 of cash and cash equivalents as of September 30, 2024, and December 31, 2023, respectively. Working capital was $35,984,477 and $33,240,516 as of September 30, 2024, and December 31, 2023, respectively.
Net cash provided by operating activities was $2,669,269 and $4,365,751 for the nine months ended September 30, 2024, and 2023, respectively. Net cash provided by operating activities resulted primarily from for the change in contract terms to collect deposits and the decrease in AR as we have improved collection efforts.
Net cash used in investing activities was $1,692,249 for the nine months ended September 30, 2024, compared to net cash used in investing activities of $512,249 for the nine months ended September 30, 2023. Investing activities in 2024 and 2023 consisted of purchases of property and equipment, specifically the new equipment in the machine shop.
Net cash used in financing activities was $158,408 for the nine months ended September 30, 2024, compared to $93,194 used in the nine months ended September 30, 2023. In both periods, cash was used primarily for principal payment of debt offset by the proceeds from the issuance of RSUs.
Bookings and Backlog
The Company defines bookings as the total of newly signed contracts, awarded RFP’s and purchase orders received in a defined time period. The Company received bookings totaling $8.9 million in the three months ending September 30, 2024 and $17.7 million for the nine months ended September 30, 2024. 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, 2024, the Company’s backlog was $15.2 million. The breakout of this backlog includes $7 million in capital, $6.2 million in service and warranties, and $2 million in STEP contracts. Warranties/Service and STEP backlog calculated in this number is revenue that will be recognized on a straight-line basis over the next 7 years. In addition, there is an estimated potential of $5.8 million in renewable STEP contracts over the next 5 years. A note to the renewable STEP number as it will begin to come down as we are only writing 3-year agreements and any additional years with be subject to new negotiations we will no longer report the full 5 years as potentially renewable. This is no way an indication that those contracts would not extend past the three years we are only being cautious with our estimates. Management estimates the majority of the new capital bookings received in the first nine months of 2024 will be converted to revenue in 2024. 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.
| 7 |
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.
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, 2023. Management believes that there have been no changes in our critical accounting policies during the nine months ended September 30, 2024.
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, 2024, 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 guaranteed 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.
| 8 |
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 officers and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officers 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 officers and principal financial officer concluded that as of September 30, 2024, 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, 2023, filed with the SEC on April 1, 2024.
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, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, during the quarter ended September 30, 2024, and continuing into 2025, 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.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we are a party or of which any of our property is the subject.
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, 2023. |
(c) |
None |
| 9 |
ITEM 6. EXHIBITS
Exhibit No. |
Exhibit Description | |
| 31.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 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) |
| 10 |
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 12, 2024 | By: | /s/ John F. Givens II |
| John F. Givens II | ||
| Chief Executive Officer | ||
| (principal executive officer) | ||
| By: | /s/ Alanna Boudreau | |
| Chief Financial Officer | ||
| (principal financial officer) | ||
| 11 |