UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

☐	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: 001-38420

VIRTRA, INC.

(Exact name of registrant as specified in its charter)

Nevada		93-1207631
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

295 E. Corporate Place, Chandler, AZ		85225
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (480) 968-1488

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
Common Stock, $0.0001 par value		VTSI		Nasdaq Capital Market

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. Yes ☒ No ☐

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). Yes ☒ No ☐

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	☐
Non-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 August 11, 2022, the registrant had 10,876,945 shares of common stock outstanding.

VIRTRA, INC.

FORM 10-Q

TABLE OF CONTENTS

			PAGE NO.
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	F-1
		Balance Sheets as of June 30, 2022 and December 31, 2021	F-1
		Statements of Operations for the Three and Six Months ended June 30, 2022 and 2021	F-2
		Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2022 and 2021	F-3
		Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	F-4
		Notes to the Unaudited Financial Statements	F-5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8

	Item 4.	Controls and Procedures	8

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	9

	Item 1A.	Risk Factors	9

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9

	Item 3.	Defaults Upon Senior Securities	9

	Item 4.	Mine Safety Disclosures	9

	Item 5.	Other Information	9

	Item 6.	Exhibits	9

	SIGNATURES		10

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRTRA, INC.

BALANCE SHEETS


	June 30, 2022		December 31, 2021
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	15,016,233	$	19,708,565
Accounts receivable, net		6,388,087		3,896,739
Inventory, net		8,831,786		5,014,924
Unbilled revenue		4,820,051		3,946,446
Prepaid expenses and other current assets		848,759		940,887
Total current assets		35,904,916		33,507,561

Long-term assets:
Property and equipment, net		14,185,424		12,864,766
Operating lease right-of-use asset, net		623,648		784,306
Intangible assets, net		579,963		535,079
Security deposits, long-term		35,691		19,712
Other assets, long-term		376,461		189,734
Deferred tax asset, net		1,418,723		1,674,234
Total long-term assets		17,219,910		16,067,831

Total assets	$	53,124,826	$	49,575,392

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,458,968	$	789,394
Accrued compensation and related costs		1,229,404		1,062,078
Accrued expenses and other current liabilities		1,270,086		991,744
Note payable, current		233,673		236,291
Operating lease liability, short-term		361,403		347,772
Deferred revenue, short-term		4,373,173		4,135,565
Total current liabilities		8,926,707		7,562,844

Long-term liabilities:
Deferred revenue, long-term		2,679,248		1,992,625
Note payable, long-term		8,165,838		8,280,395
Operating lease liability, long-term		321,217		505,383
Other long-term liabilities		5,436		5,436
Total long-term liabilities		11,171,739		10,783,839

Total liabilities		20,098,446		18,346,683

Commitments and contingencies (See Note 9)		-

Stockholders’ equity:
Preferred stock $0.0001 par value; 2,500,000 authorized; no shares issued or outstanding		-		-

Common stock $0.0001 par value; 50,000,000 shares authorized; 10,876,945 shares issued and outstanding as of June 30, 2022 and 10,807,130 shares issued and outstanding as of December 31, 2021		1,087		1,081
Class A common stock $0.0001 par value; 2,500,000 shares authorized; no shares issued or outstanding		-		-
Class B common stock $0.0001 par value; 7,500,000 shares authorized; no shares issued or outstanding		-		-
Common stock, value		1,087		1,081
Additional paid-in capital		31,356,608		30,923,391
Retained earnings		1,668,685		304,237

Total stockholders’ equity		33,026,380		31,228,709

Total liabilities and stockholders’ equity	$	53,124,826	$	49,575,392

See accompanying notes to unaudited financial statements.

F-1

VIRTRA, INC.

STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Six Months Ended
	June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021

Revenues:
Net sales	$	7,997,383		$	5,255,192		$	14,750,611		$	9,697,101
Total revenue		7,997,383			5,255,192			14,750,611			9,697,101

Cost of sales		3,253,651			2,120,492			6,319,789			3,993,896

Gross profit		4,743,732			3,134,700			8,430,822			5,703,205

Operating expenses:
General and administrative		3,085,051			2,002,612			5,381,443			3,712,845
Research and development		617,058			311,320			1,296,453			605,537

Net operating expense		3,702,109			2,313,932			6,677,896			4,318,382

Income from operations		1,041,623			820,768			1,752,926			1,384,823

Other income (expense):
Other income		57,056			34,379			111,379			50,758
Other expense		(64,621	)		(32,608	)		(129,173	)		(35,042	)

Net other income (expense)		(7,565	)		1,771			(17,794	)		15,716

Income before provision for income taxes		1,034,058			822,539			1,735,132			1,400,539

Provision for income taxes		246,684			293,180			370,684			216,017

Net income	$	787,374		$	529,359		$	1,364,448		$	1,184,522

Net income per common share:
Basic	$	0.07		$	0.05		$	0.13		$	0.13
Diluted	$	0.07		$	0.05		$	0.13		$	0.13

Weighted average shares outstanding:
Basic		10,866,775			10,644,363			10,837,186			9,209,808
Diluted		10,892,302			10,693,238			10,867,667			9,209,509

See accompanying notes to unaudited financial statements.

F-2

VIRTRA, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)


	For the Three Months Ended June 30, 2022
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total

Balance at March 31, 2022		-	$	-		10,809,630	$	1,081	$	30,957,616	$	-	$	881,311	$	31,840,008
Stock options exercised		-		-		2,500		-		4,750		-		-		4,750
Stock issued for services		-		-		64,815		6		349,995		-		-		350,001
Stock reserved for future services		-		-		-		-		44,247		-		-		44,247
Net income		-		-		-		-		-		-		787,374		787,374
Balance at June 30, 2022		-	$	-		10,876,945	$	1,087	$	31,356,608	$	-	$	1,668,685	$	33,026,380

	For the Six Months Ended June 30, 2022
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total

Balance at December 31, 2021		-	$	-		10,807,130	$	1,081	$	30,923,391	$	-	$	304,237	$	31,228,709
Stock options exercised		-		-		5,000		-		12,725		-		-		12,725
Stock issued for services		-		-		64,815		6		349,995		-		-		350,001
Stock reserved for future services		-		-		-		-		70,497		-		-		70,497
Net income		-		-		-		-		-		-		1,364,448		1,364,448
Balance at June 30, 2022		-	$	-		10,876,945	$	1,087	$	31,356,608	$	-	$	1,668,685	$	33,026,380

	For the Three Months Ended June 30, 2021
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Deficit			Total

Balance at March 31, 2021		-	$	-		7,777,530	$	778	$	13,897,280	$	-	$	(1,580,689	)	$	12,317,369
Stock options exercised		-		-		2,500		-		2,450		-		-			2,450
Stock issued for cash in offering, net		-		-		3,000,000		300		16,794,700		-		-			16,795,000
Net income		-		-		-		-		-		-		529,359			529,359
Balance at June 30, 2021		-	$	-		10,780,030	$	1,078	$	30,694,430	$	-	$	(1,051,330	)	$	29,644,178

	For the Six Months Ended June 30, 2021
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Deficit			Total

Balance at December 31, 2020		-	$	-		7,775,030	$	778	$	13,893,660	$	-	$	(2,235,852	)	$	11,658,586
Stock options exercised		-		-		5,000		-		6,070		-		-			6,070
Stock issued for cash in offering, net		-		-		3,000,000		300		16,794,700		-		-			16,795,000
Net loss		-		-		-		-		-		-		1,184,522			1,184,522
Net income (loss)		-		-		-		-		-		-		1,184,522			1,184,522
Balance at June 30, 2021		-	$	-		10,780,030	$	1,078	$	30,694,430	$	-	$	(1,051,330	)	$	29,644,178

See accompanying notes to unaudited financial statements.

F-3

VIRTRA, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2022			2021

Cash flows from operating activities:
Net income	$	1,364,448		$	1,184,522
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		446,688			201,156
Right of use amortization		160,658			153,299
Employee stock compensation		70,497			-
Stock issued for service		350,001			-
Changes in operating assets and liabilities:
Accounts receivable, net		(2,491,348	)		(4,136,335	)
Inventory, net		(3,816,862	)		(1,693,598	)
Deferred taxes		255,511			294,113
Unbilled revenue		(873,605	)		1,374,667
Prepaid expenses and other current assets		92,128			(353,765	)
Other assets		(186,727	)		21,148
Security deposits, long-term		(15,979	)		66,788
Accounts payable and other accrued expenses		1,115,242			933,840
Payments on operating lease liability		(170,535	)		(157,713	)
Deferred revenue		921,613			3,049,784

Net cash provided by (used in) operating activities		(2,778,270	)		937,906

Cash flows from investing activities:
Purchase of intangible assets		(86,012	)		(92,886	)
Purchase of property and equipment		(1,725,726	)		(602,009	)
Net cash used in investing activities		(1,811,738	)		(694,895	)

Cash flows from financing activities:
Principal payments of debt		(115,049	)		-
Stock issued for cash in offering, net		-			16,795,000
Stock options exercised		12,725			6,070
Net cash provided by (used in) financing activities		(102,324	)		16,801,070

Net increase (decrease) in cash and restricted cash		(4,692,332	)		17,044,081
Cash and cash equivalents, beginning of period		19,708,565			6,841,984
Cash and cash equivalents, end of period	$	15,016,233		$	23,886,065

Supplemental disclosure of cash flow information:
Cash (refunded) paid:
Income taxes paid (refunded)	$	99,035		$	(78,096	)
Interest paid		128,507			5,763

Supplemental disclosure of non-cash investing and financing activities:
Conversion of inventory to property and equipment	$	294,016		$	-

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 rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S., accelerating during half of March and April as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. On March 30, 2020, the Governor for the State of Arizona issued a stay-at-home order which expired on May 15, 2020, upon which Arizona entered Phase I of reopening. The Company carefully reviewed all rules and regulations of the government orders and determined it met the requirements of an essential business to remain open. The Company had the majority of its staff begin working remotely in mid-March, with only essential personnel continue working at the manufacturing and production facilities and currently remains in Arizona’s Phase I of reopening. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time. To date, the COVID-19 restrictions have resulted in reduced customer shipments and customer system installations. These recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur. To date, there have been no order cancellations; rather, there have only been delays in when orders ship or installations occur and all delayed orders remain in backlog. Any future impact cannot be reasonably estimated at this time. The Company is no longer investing in Certificates of Deposits as a precautionary measure to increase its liquid cash position and preserve financial flexibility considering uncertainty in the U.S. and global markets resulting from COVID-19. Additionally, the Company’s stock repurchase program was suspended as a result of interim rulings for public-company recipients of a PPP loan under the CARES Act. The stock repurchase suspension remained in effect for the duration of the outstanding PPP loan and continues to remain in effect even though the PPP loan has been forgiven and is no longer outstanding.

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 June 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 six months ended June 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.

Disaggregation of Revenue

Schedule of Disaggregation of Revenues

	Three Months ended June 30,
	2022								2021
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	3,521,100	$	1,422,233	$	1,737,301	$	6,680,634	$	543,890	$	3,503,592	$	106,933	$	4,154,415
Extended service-type warranties		30,546		747,878		27,646		806,070		25,547		673,970		28,965		728,482
Customized software and content		-		60,392		126,000		186,392		-		146,543		21,170		167,713
Installation and training		35,343		249,847		39,097		324,287		15,043		186,909		-		201,952
Licensing and royalties		-		-		-		-		2,630		-		-		2,630
Total Revenue	$	3,586,989	$	2,480,350	$	1,930,044	$	7,997,383	$	587,110	$	4,511,014	$	157,068	$	5,255,192

F-6

	Six Months ended June 30,
	2022								2021
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	5,101,292	$	4,646,791	$	2,643,938	$	12,392,021	$	815,528	$	5,181,515	$	1,184,118	$	7,181,161
Extended service-type warranties		62,033		1,478,238		45,308		1,585,579		47,621		1,344,554		49,015		1,441,190
Customized software and content		-		2,106		209,000		211,106		-		613,956		73,443		687,399
Installation and training		47,208		407,400		107,297		561,905		49,864		306,707		26,350		382,921
Licensing and royalties		-		-		-		-		4,430		-		-		4,430
Total Revenue	$	5,210,533	$	6,534,535	$	3,005,543	$	14,750,611	$	917,443	$	7,446,732	$	1,332,926	$	9,697,101

For the six months ended June 30, 2022, governmental customers comprised $6,534,535, or 44% of total net sales, commercial customers comprised $5,210,533, or

SEC Form 10-Q filed by VirTra Inc.