Notes
to Financial Statements
Note
1. Organization and Significant Accounting Policies
Organization
and Business Operations
VirTra,
Inc. (the “Company,” “VirTra,” “we,” “us” or “our”), located in Chandler,
Arizona, is a global provider of judgmental use of force training simulators, firearms training simulators and driving simulators for
the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios
provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations.
VirTra’s mission is to save and improve lives worldwide through practical and highly effective virtual reality and simulator technology.
The Company sells its products worldwide through a direct sales force and international distribution partners. The original business
started in 1993 as Ferris Productions, Inc. In September 2001, Ferris Productions, Inc. merged with GameCom, Inc. to ultimately become
VirTra, Inc., a Nevada corporation.
Basis
of Presentation
The
Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”).
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Significant
accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts
and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets,
income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance
obligations in our contracts with customers.
Revenue
Recognition
The
Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”)
606, Revenue from Contracts with Customer (Topic 606) (“ASC 606”) on January 1, 2018, and the Company elected to use the
modified retrospective transition method which requires application of ASC 606 to uncompleted contracts at the date of adoption. The
adoption of ASC 606 did not have a material impact on the financial statements.
Under
ASC 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the
transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as)
the Company satisfies a performance obligation. Significant judgment is necessary when making these determinations.
The
Company’s primary sources of revenue are derived from simulator and accessories sales, training and installation, the sale of customizable
software, the sale of customized content scenarios, and the sale of extended service-type warranties. Sales discounts are presented in
the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable
and unbilled revenue). Prepaid deposits received at the time of sale and extended warranties purchased are recorded as current and long-term
liabilities (deferred revenue) until earned. The following briefly summarizes the nature of our performance obligations and method of
revenue recognition:
Performance
Obligation |
|
Method
of Recognition |
|
|
|
Simulator
and accessories |
|
Upon
transfer of control |
|
|
|
Installation
and training |
|
Upon
completion or over the period of services being rendered |
|
|
|
Extended
service-type warranty |
|
Deferred
and recognized over the life of the extended warranty |
|
|
|
Customized
software and content |
|
Upon
transfer of control or over the period services are performed depending on the terms of the contract |
|
|
|
Customized
content scenario |
|
As
performance obligation is transferred over time (input method using time and materials expended) |
|
|
|
Sales-based
royalty exchanged for license of intellectual property |
|
Recognized
as the performance obligation is satisfied over time – which is as the sales occur |
The
Company recognizes revenue upon transfer of control or upon completion of the services for the simulator and accessories; for the installation
and training and customized software performance obligations as the customer has the right and ability to direct the use of these products
and services and the customer obtains substantially all of the remaining benefit from these products and services at that time. Revenue
from certain customized content contracts may be recognized over the period the services are performed based on the terms of the contract.
For the sales-based royalty exchanged for license of intellectual property, the Company recognized revenue as the sales occur over time.
The
Company recognizes revenue on a straight-line basis over the period of services being rendered for the extended service-type warranties
as these warranties represent a performance obligation to “stand ready to perform” over the duration of the warranties. As
such, the warranty service is performed continuously over the warranty period.
Each
contract states the transaction price. The contracts do not include variable consideration, significant financing components or noncash
consideration. The Company has elected to exclude sales and similar taxes from the measurement of the transaction price. The contract’s
transaction price is allocated to the performance obligations based upon their stand-alone selling prices. Discounts to the stand-alone
selling prices, if any, are allocated proportionately to each performance obligation.
Disaggregation
of Revenue
Under
ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash
flows affected by economic factors. The Company has evaluated revenues recognized and the following table illustrates the disaggregation
disclosure by customer’s location and performance obligation.
Schedule of Disaggregation of Revenue
| |
Commercial | | |
Government | | |
International | | |
Total | | |
Commercial | | |
Government | | |
International | | |
Total | |
| |
Year
ended December 31, | |
| |
2022 | | |
2021 | |
| |
Commercial | | |
Government | | |
International | | |
Total | | |
Commercial | | |
Government | | |
International | | |
Total | |
Simulators
and accessories | |
$ | 1,542,752 | | |
$ | 18,241,100 | | |
$ | 3,747,746 | | |
$ | 23,531,598 | | |
$ | 2,890,848 | | |
$ | 12,302,223 | | |
$ | 4,073,008 | | |
$ | 19,266,079 | |
Extended
service-type warranties | |
| 117,984 | | |
| 2,647,908 | | |
| 75,895 | | |
| 2,841,787 | | |
| 107,289 | | |
| 2,716,436 | | |
| 101,111 | | |
| 2,924,836 | |
Customized
software and content | |
| - | | |
| 776,930 | | |
| 231,555 | | |
| 1,008,485 | | |
| 57,200 | | |
| 1,139,841 | | |
| 112,869 | | |
| 1,309,910 | |
Installation
and training | |
| 101,280 | | |
| 706,021 | | |
| 104,407 | | |
| 911,708 | | |
| 102,882 | | |
| 677,930 | | |
| 143,587 | | |
| 924,399 | |
Licensing
and royalties | |
| 8,666 | | |
| - | | |
| - | | |
| 8,666 | | |
| 8,832 | | |
| - | | |
| - | | |
| 8,832 | |
Total
Revenue | |
$ | 1,770,682 | | |
$ | 22,371,959 | | |
$ | 4,159,603 | | |
$ | 28,302,244 | | |
$ | 3,167,051 | | |
$ | 16,836,430 | | |
$ | 4,430,575 | | |
$ | 24,434,056 | |
Commercial
customers include selling through prime contractors for military or law enforcement contracts, domestically. Government customers are
defined as directly selling to government agencies. For the year ended December 31, 2022, governmental customers comprised $22,371,959,
or 79% of total net sales, commercial customers comprised $1,770,682 or 6% of total net sales and international customers comprised $4,159,603,
or 15% of total net sales. By comparison, for the year ended December 31, 2021, governmental customers comprised $16,836,430, or 79%
of total net sales, commercial customers comprised $1,770,682 or 13% of total net sales and international customers comprised $4,430,575,
or 15% of total net sales. For the years ended December 31, 2022 and 2021, the Company recorded $1,963,562 and $1,963,562, respectively,
in STEP revenue, or 8.0% and 4.2%, respectively, of total net sales.
Customer
Deposits
Customer
deposits consist of prepaid deposits received for equipment purchase orders and for Subscription Training Equipment Partnership (“STEP”)
operating agreements that expire annually. Customer deposits are considered a deferred liability until the completion of the customer’s
contract performance obligation. When revenue is recognized, the deposit is applied to the customer’s receivable balance. Customer
deposits are recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $2,719,108 and $2,371,531
on December 31, 2022 and 2021 respectively. During the years ended December 31, 2022 and 2021, the Company recognized revenue of $1,962,782
and $1,550,333, respectively, related to customer deposits that were included in deferred revenue, long-term, at the beginning of each
period. Changes in deferred revenue amounts related to customer deposits will fluctuate from year to year based upon the mix of customers
required to prepay deposits under the Company’s credit policy.
Warranty
The
Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, but also sells
separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty.
During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship,
the Company will fix or replace the defective product. Deferred revenue for separately priced extended warranties one year or less totaled
$1,583,384, and $1,764,034 on December 31, 2022 and 2021, respectively. Deferred revenue for separately priced extended
warranties longer than one year totaled $1,601,472 and $1,815,871 on December 31, 2022 and 2021, respectively. The accrual for the one-year
manufacturer’s warranty liability totaled $358,000 and $384,000 on December 31, 2022 and 2021, respectively. During the years ended
December 31, 2022 and 2021, the Company recognized revenue of $2,841,788 and $2,924,836, respectively, related to the extended service-type
warranties that was amortized from the deferred revenue balance at the beginning of each period. Changes in deferred revenue amounts
related to extended service-type warranties will fluctuate from year to year based upon the average remaining life of the warranties
at the beginning of the period and new extended service-type warranties sold during the period.
STEP
Revenue
The
Company’s STEP operations consist principally of renting its simulator products under operating agreements expiring in one year.
At the commencement of a STEP agreement, any rental payments received are deferred and no income is recognized. Subsequently, payments
are amortized and recognized as revenue on a straight-line basis over the term of the agreement. The agreements are generally for a period
of 12 months and can be renewed for an additional 12-month period. Agreements may be terminated by either party upon written notice of
termination at least sixty days prior to the end of the 12-month period. The payments are generally fixed for the first year of the agreement,
with increases in payments in subsequent years to be mutually agreed upon. The agreements do not include variable lease payments or free
rent periods. In addition, the agreements do not provide for the underlying assets to be purchased at their fair market values at interim
periods or at maturity. Each STEP agreement comes with full customer support and stand-ready advance replacement parts to maintain each
system for the duration of the lease. The amount that the Company expects to derive from the STEP equipment following the end of the
agreement term is dependent upon the number of agreement terms renewed. The agreements do not include a residual value guarantee. Management
notes with 4-year history of providing this service and additional revenue stream the company has only had cancellation of a total of
5 STEP agreements before the 5-year end date of the contract this equates to less than 5% of all agreements
Fair
Value Measurements
ASC
Topic 820, Fair Value Measurements, defines fair value as the price that would be received in the sale of an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value
hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to measure fair value as follows:
Level
1: Quoted prices in active markets for identical assets or liabilities;
Level
2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term
of the assets or liabilities; and
Level
3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable
assumptions reflect our own estimate of assumptions that market participants would use in pricing the asset or liability.
Fair
Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents,
certificates of deposit, accounts receivable, accounts payable, notes payable and accrued liabilities. The carrying amount of cash and
cash equivalents, receivable, payables and accruals approximates fair value die to the short-term nature of these items. The notes payables
also approximates fair value based on evaluations of market interest notes.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents.
Certificates
of Deposit and Mutual Funds
The
Company invests its excess cash in certificates of deposit and money market mutual funds issued by financial institutions with high credit
ratings. The certificates of deposit generally have an average maturity of approximately six months and are subject to penalties for
early withdrawal. The money market mutual funds are open-ended and can be withdrawn at any time without penalty.
Accounts
and Allowance for Doubtful Accounts
The
Company recognizes an allowance for losses on accounts receivable based on an analysis of historical bad debt experience, current receivables
aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible.
Accounts receivable do not bear interest and are charged off after all reasonable collection efforts have been taken. The Company maintained
an allowance for doubtful accounts of $35,039 and $35,432 at December 31, 2022 and 2021, respectively.
Inventory
Inventory
is stated at the lower of cost or net realizable value with cost being determined on the average cost method. Work in progress and finished
goods inventory includes an allocation for capitalized labor and overhead. The Company routinely evaluates the carrying value of inventory
for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated
net realizable value. Inventory reserves were $302,431 and $214,712 on December 31, 2022 and 2021, respectively.
Property
and Equipment
Property
and equipment are carried at cost, net of depreciation. Gains or losses related to retirements or disposition of fixed assets are recognized
in operations in the period incurred. Costs of normal repairs and maintenance are charged to expense as incurred, while betterments or
renewals are capitalized. Depreciation commences at the time the assets are placed in service or for STEP equipment under agreements,
when the equipment is made available for use by the customer. Depreciation is provided using the straight-line method over the estimated
economic lives of the assets or for leasehold improvements, over the shorter of the estimated useful life or the remaining lease term.
For STEP equipment under agreements, depreciation is provided using the straight-line method over the sixty-month maximum useful life
instead of the remaining agreement term. Estimated useful lives are summarized as follows:
Schedule
of Property and Equipment Estimated Useful Lives
Computer
equipment |
|
3-5
years |
Furniture
and office equipment |
|
5-7
years |
Leased
STEP equipment |
|
5
years |
Leasehold
improvements |
|
7
years |
Building |
|
39.5
years |
Building
Improvements |
|
7
years |
Intangible
Assets
Intangible
assets on December 31, 2022 and 2021 are comprised of various patents. We compute amortization expense on the patents using the straight-line
method over the estimated remaining useful lives of 16 years. We compute amortization expense on media content using the straight-line
method over the weighted average remaining period which is 15 years.
Cost
of Products Sold
Cost
of products sold represents manufacturing costs, consisting of materials, labor and overhead related to finished goods and components.
Cost of products sold includes depreciation of STEP contract fixed assets. Shipping costs incurred related to product delivery are included
in the cost of products sold.
Advertising
Costs
Costs
associated with advertising are expensed as incurred. Advertising expenses were $710,011 and $422,831 for the years ended December
31, 2022 and 2021, respectively. These costs include domestic and international trade shows, websites, and sales promotional materials.
Research
and Development Costs
Research
and development costs are expensed as incurred. Research and development costs primarily include expenses, including labor, directly
related to research and development support. Research and development expenses were $2,606,840 and $1,865,880 for the years ended December
31, 2022 and 2021, respectively.
Legal
Costs
Legal
costs relating to loss contingencies are expensed as incurred. See Note 9. Commitments and Contingencies.
Concentration
of Credit Risk and Major Customers and Suppliers
Financial
instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, certificates
of deposit and accounts receivable.
The
Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings
and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the
accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category.
The Company had uninsured cash and cash equivalents of $12,983,597 and $19,207,786 at December 31, 2022 and 2021, respectively.
Sales
are typically made on credit and the Company generally does not require collateral. Management performs ongoing credit evaluations of
its customers’ financial condition and maintains an allowance for estimated losses. Historically, the Company has experienced minimal
charges relative to doubtful accounts.
As
of December 31, 2022 and 2021, the Company did not have any customer that accounted for more than 10% of total accounts
receivable.
Income
Taxes
Deferred
tax assets and liabilities are recorded based on the difference between the financial statement and the tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for
income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the
temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences
of events that have been recognized in financial statements or tax returns, judgment and interpretation of statutes are required.
In
assessing realizable deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable
income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established.
The Company adjusts the valuation allowance in the period management determines it is more likely than not that net deferred tax assets
will or will not be realized. After review of the deferred tax asset and valuation allowance in accordance with ASC 740, management determined
that it is more likely than not that the Company will fully realize all its deferred tax asset and no valuation allowance was recorded
on December 31, 2022 and 2021.
The
Company did not recognize any assets or liabilities relative to uncertain tax positions on December 31, 2022 and 2021. Interest or penalties,
if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits because of tax positions taken,
there are no accrued penalties or interest. Tax positions are positions taken in a previously filed tax return or positions expected
to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in
the financial statements.
The
Company reflects tax benefits, only if it is more likely than not that the Company will be able to sustain the tax return position, based
on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit
that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions on
December 31, 2022 or 2021.
The
Company is potentially subject to tax audits for its United States federal and various state income and excise tax returns for tax years
between 2016 and 2022; however, earlier years may be subject to audit under certain circumstances. Tax audits by their very nature are
often complex and can require several years to complete.
Impairment
of Long-Lived Assets
Long
lived assets, such as equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying
amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount
of the asset exceeds the fair value of the asset. Fair value is determined based on discounted cash flows or appraised values, depending
on the nature of the asset. On December 31, 2022 and 2021, the Company concluded that there has been no indication of impairment to the
carrying value of its long-lived assets. As such, no impairment has been recorded.
Stock
Based Compensation
The
Company measures the cost of awards of equity instruments based on the grant date fair value of the awards. The Company calculates
the fair value of stock-based awards using the Black-Scholes-Merton option pricing valuation model, which incorporates various
assumptions including volatility, expected term and risk-free interest rates. See Note 9. Commitments and Contingencies and Note 11.
Stockholders’ Equity regarding stock-based awards made during the year ended December 31, 2022 and 2021.
The
expected term of the options is the estimated period of time until exercise and was determined using an average of vesting and contractual
terms, as we did not have sufficient historical experience of similar awards. The risk-free interest rate is based on the implied yield
available on United States Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past
and does not plan to pay any dividends in the near future. The estimated fair value of stock-based compensation awards and other options
is amortized to expense on a straight-line basis over the relevant vesting period. The Company has elected to recognize forfeitures as
they occur rather than estimating them at the time of grant.
Net
Income (Loss)per Common Share
The
net income per common share is computed by dividing net income by the weighted average of common shares outstanding. Diluted net income
per share reflects the potential dilution, using the treasury stock method, that would occur if outstanding stock options and warrants
were exercised. Earnings per share computations are as follows:
Schedule
of Earnings Per Share
| |
2022 | | |
2021 | |
| |
Twelve
Months Ended December 31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Net Income (loss) | |
$ | 1,955,898 | | |
$ | 2,540,089 | |
Weighted average common stock outstanding | |
| 10,863,680 | | |
| 10,007,386 | |
Incremental shares from
stock options | |
| 9,918 | | |
| 53,362 | |
Weighted average common
stock outstanding, diluted | |
| 10,873,606 | | |
| 10,060,748 | |
| |
| | | |
| | |
Net income (loss) per common share and common
equivalent share | |
| | | |
| | |
Basic | |
$ | 0.18 | | |
$ | 0.25 | |
Diluted | |
$ | 0.18 | | |
$ | 0.25 | |
The
Company has potentially dilutive securities outstanding that are not included in the diluted earnings per share calculation for the years
ended December 31, 2022 and 2021 because their effect would be anti-dilutive. These potentially dilutive securities, comprised entirely
of the Company’s stock options, totaled 11,250 and 0 for the years ended December 31, 2022 and 2021, respectively.
Note
2. Inventory
Inventory
consisted of the following as of:
Schedule of Inventory
| |
December 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Raw materials and work in process | |
$ | 9,894,759 | | |
$ | 5,229,636 | |
Reserve | |
| (302,431 | ) | |
| (214,712 | ) |
| |
| | | |
| | |
Total inventory | |
$ | 9,592,328 | | |
$ | 5,014,924 | |
During 2022, the Company evaluated some of the items included in inventory
and determined that they were truly assets of the Company, including items used in its demonstration rooms. As such, we reclassified $294,016
as fixed assets on the Balance Sheet at December 31, 2022. During
2021, the Company evaluated the useful life of its spare parts inventory. As a result of this evaluation, the Company classified $136,241
of spare replacement parts as Other Assets, long-term on the Balance Sheet on December 31, 2021. In addition, during 2021, the Company
transferred $334,637 from inventory to property and equipment.
Note
3. Property and Equipment
Property
and equipment consisted of the following as of:
Schedule of Property and Equipment
| |
December
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Land | |
$ | 1,778,987 | | |
$ | 1,778,987 | |
Building
& Building Improvements | |
| 9,129,364 | | |
| 9,005,205 | |
Computer
equipment | |
| 1,210,021 | | |
| 1,171,319 | |
Furniture
and office equipment | |
| 289,379 | | |
| 262,814 | |
Machinery
and equipment | |
| 2,788,803 | | |
| 1,970,007 | |
STEP
equipment | |
| 1,954,430 | | |
| 1,496,252 | |
Leasehold
improvements | |
| 347,384 | | |
| 334,934 | |
Construction
in Progress | |
| 1,749,332 | | |
| 7,000 | |
| |
| | | |
| | |
Total
property and equipment | |
| 19,247,700 | | |
| 16,026,518 | |
Less:
Accumulated depreciation and amortization | |
| (3,980,567 | ) | |
| (3,161,752 | ) |
| |
| | | |
| | |
Property
and equipment, net | |
$ | 15,267,133 | | |
$ | 12,864,766 | |
Depreciation
expenses, including STEP depreciation, were $818,816 and $585,279 for the years ended December 31, 2022 and 2021, respectively.
On
August 25, 2021, the Company completed the purchase of real property located in Chandler, Arizona (the “Property”) for $10,800,000,
paid with cash and proceeds from a mortgage loan from Arizona Bank & Trust in the amount of $8,600,000 (Note 7). The Property consists
of approximately 4.3 acres and an industrial building of approximately 76,650 square feet. The Company intends to move all of its operations
and headquarters to the Property during 2022. Approximately 15,000 square feet of the building is dedicated to two pre-existing tenants
with multi-year rent agreements.
Under
the provision of ASC 805, the Company determined this acquisition was an asset acquisition. This determination was based on substantially
all of the fair value of the gross assets acquired was concentrated in the similarly identifiable assets of the Property. The fair value
was allocated to the land, building, and acquired leases based upon their relative fair values at the date of acquisition in accordance
with ASC 805-50-30-3.
The
fair value of the in-place leases is the estimated cost to replace the leases (including loss of rent, estimated commissions and legal
fees paid in similar leases). The capitalized in-place leases are amortized over the remaining term of the leases as amortization expense.
The fair value of the above or below market lease is the present value of the difference between the contractual amount to be paid pursuant
to the in-place lease and the estimated current market lease rate expected over the remaining non-cancelable life of the lease. The capitalized
above or below market lease values are amortized as a decrease or increase to the rental income over the remaining term of the lease.
Upon
closing, the Company assumed interest in two in-place leases. The first tenant took occupancy in November 2006 and is paying the annual
Triple Net rate of $ per square foot. The rate increased to $ per square foot on November 1, 2021, increasing to $ on
November 1, 2022, the tenant was given notice in December 2022 and the lease will now expire on May 1, 2023. The second tenant took occupancy
in November 2016 and is paying the annual rate of $ per square foot. The lease expires October 31, 2024. This tenant has the option
to extend the lease for 5 years through October 31, 2029, with a 5% increase to the rental rate for the first 3 years. The Company properly
served notice to this tenant on December 31, 2021, that its lease was terminated on September 30, 2022.
Schedule of Purchase Price Allocation
| |
December
31, 2021 | |
| |
| |
Land | |
$ | 1,778,987 | |
Building
and building improvements | |
$ | 8,937,050 | |
Acquired
Lease Intangible Assets | |
$ | 83,963 | |
| |
| | |
Total
Purchase Price | |
$ | 10,800,000 | |
Note
4. Intangible Assets
Intangible
assets consisted of the following as of:
Schedule of Intangible Asset
| |
December
31, 2022 | | |
December
31, 2021 | |
Patents | |
$ | 160,000 | | |
$ | 160,000 | |
Capitalized
media content | |
| 451,244 | | |
| 331,228 | |
Acquired
lease intangible assets | |
| 83,963 | | |
| 83,963 | |
| |
| | | |
| | |
Total
intangible assets | |
| 695,207 | | |
| 575,191 | |
Less
accumulated amortization | |
| (107,430 | ) | |
| (40,112 | ) |
| |
| | | |
| | |
Intangible
assets, net | |
$ | 587,777 | | |
$ | 535,079 | |
Amortization
expense was $67,318 and $23,075 for the years ended December 31, 2022 and 2021, respectively. The weighted average remaining period is
10.6 years.
Note
5. Leases
The
Company leases approximately 37,729 rentable square feet of office and warehouse space from an unaffiliated third party for our former
corporate office, manufacturing, assembly, warehouse and shipping facility located at 7970 South Kyrene Road, Tempe, Arizona 85284. From
2016 through March 2019, the Company leased approximately 4,529 rentable square feet of office and industrial space from an unaffiliated
third party for our machine shop at 2169 East 5th St., Tempe, Arizona 85284. In April 2019, the Company relocated the machine shop from
the Fifth St. location to 7910 South Kyrene Road, located within the same business complex as our main office. The Company executed a
lease amendment to add an additional 5,131 rentable square feet for the machine shop and extended its existing office lease through April
2024. On June 1, 2022, we entered into a new lease of approximately 9,350 square
feet located at 12301 Challenger Parkway, Orlando, Florida, from an unaffiliate third party through May 2027.
The Company’s lease agreements do not contain any residual value guarantees, restrictive covenants or variable lease payments.
The Company has not entered 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 $840,855. Effective
January 1, 2019, the Company obtained a right-of-use asset in exchange for a new operating lease liability in the amount of $1,721,380
and derecognized $46,523 deferred rent for an adjusted operating lease right-of-use asset in the net amount of $1,674,857.
Schedule of Balance Sheet Classification of Lease Assets and Liabilities
Balance
Sheet Classification | |
December
31, 2022 | | |
December
31, 2021 | |
Assets | |
| | | |
| | |
Operating lease right-of-use assets,
beginning of period | |
$ | 784,306 | | |
$ | 1,094,527 | |
Additional property in Orlando | |
| 840,843 | | |
| - | |
Amortization for the
year ended | |
| (412,335 | ) | |
| (310,221 | ) |
Total operating lease
right-of-use asset | |
$ | 1,212,814 | | |
$ | 784,306 | |
Liabilities | |
| | | |
| | |
Current | |
| | | |
| | |
Operating lease liability,
short-term | |
$ | 557,683 | | |
$ | 347,772 | |
Non-current | |
| | | |
| | |
Operating
lease liability, long-term | |
| 720,023 | | |
| 505,383 | |
Total lease liabilities | |
$ | 1,277,706 | | |
$ | 853,155 | |
Future
minimum lease payments as of December 31, 2022, under non-cancelable operating leases are as follows:
Schedule
of Future Minimum Lease Payments
| |
| | |
2023 | |
$ | 572,793 | |
2024 | |
| 317,938 | |
2025 | |
| 191,478 | |
2026 | |
| 196,311 | |
2027 | |
| 99,381 | |
| |
| | |
Total lease payments | |
| 1,377,901 | |
Less: imputed interest | |
| (100,195 | ) |
Operating lease liability | |
$ | 1,277,706 | |
The
Company had a deferred rent liability of $0 on December 31, 2022 and 2021, relative to the increasing future minimum lease payments.
Rent expenses for the years ended December 31, 2022 and 2021 were $559,084 and $356,555, respectively.
Note
6. Accrued Expenses
Accrued
compensation and related costs consisted of the following as of:
Schedule
of Accrued Compensation and Related Costs
| |
December
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Salaries
and wages payable | |
$ | 502,940 | | |
$ | 422,562 | |
Employee
benefits payable | |
| 31,618 | | |
| 16,523 | |
Accrued
paid time off (PTO) | |
| 590,491 | | |
| 483,311 | |
Profit
sharing payable | |
| 369,841 | | |
| 139,682 | |
| |
| | | |
| | |
Total
accrued compensation and related costs | |
$ | 1,494,890 | | |
$ | 1,062,078 | |
Accrued
expenses and other current liabilities consisted of the following as of:
Schedule
of Accrued Expenses and Other Current Liabilities
| |
December 31, 2022 | | |
December 31, 2021 | |
| |
| | |
| |
Manufacturer’s warranties | |
$ | 358,000 | | |
$ | 384,000 | |
Warranties-other | |
| - | | |
| - | |
Loss contingencies | |
| - | | |
| - | |
Taxes payable | |
| 1,294,110 | | |
| 113,921 | |
Miscellaneous payable | |
| 265,812 | | |
| 493,823 | |
| |
| | | |
| | |
Total accrued expenses and other current liabilities | |
$ | 1,917,922 | | |
$ | 991,744 | |
Note
7. Note Payable
On
May 8, 2020, VirTra received a Promissory Note (the “PPP Note”) in the amount of $1,320,714 under the PPP from Wells Fargo
Bank, N.A (the “Lender”). The PPP Loan was payable over two years at a fixed interest rate of 1%. The PPP, established as
part of the CARES Act, provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses
of the qualifying business. Under the terms of the PPP loan, up to the entire amount of principal and accrued interest may be forgiven
to the extent PPP loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued
by the U.S. Small Business Administration (the “SBA”) for the PPP loan. The Company used its entire PPP Loan amount for designated
qualifying expenses and on June 16, 2021, applied for forgiveness in accordance with the PPP Loan terms.
On
July 20, 2021, the Company received notification from the Lender that the SBA had approved the Company’s PPP Loan forgiveness application
for the entire amount of the PPP Loan. The forgiveness of the PPP Loan is recognized in Other Income in the accompanying statement of
income.
On
August 25, 2021, the Company completed the purchase of real property located in Chandler, Arizona (the “Property”) for $10,800,000,
paid with cash and proceeds from a mortgage loan from Arizona Bank & Trust in the amount of $8,600,000. The loan terms include interest
to be accrued at a fixed rate of 3% per year, 119 regular monthly payments of $40,978, and one irregular payment of $5,956,538 due on
the maturity date of August 23, 2031. The Company began making monthly payments on September 23, 2021. The payment and performance of
the loan is secured by a security interest in the property acquired.
The
note payable amounts consist of the following:
Schedule
of Notes Payable
| |
December
31, 2022 | | |
December
31, 2021 | |
| |
| | |
| |
Short-term
liabilities: | |
| | | |
| | |
Note
payable, principal | |
$ | 227,324 | | |
$ | 231,871 | |
Accrued
interest on note | |
| 5,213 | | |
| 4,420 | |
| |
| | | |
| | |
Note
payable, short-term | |
$ | 232,537 | | |
$ | 236,291 | |
| |
| | | |
| | |
Long-term
liabilities: | |
| | | |
| | |
Note
payable, principal | |
$ | 8,050,116 | | |
$ | 8,280,395 | |
| |
| | | |
| | |
Note
payable, long term | |
$ | 8,050,116 | | |
$ | 8,280,395 | |
Note
8. Related Party Transactions
During
the years ended December 31, 2022 and 2021, the Company redeemed 27,500 and 35,000 previously awarded options reaching expiration from
related parties, including the Company’s CEO, COO, an employee, a Board Director and other executive officers. These redemptions
canceled the stock options and resulted in a total of $74,368 and $168,575 in additional compensation expense in 2022 and 2021, respectively.
During
the years ended December 31, 2022 and 2021, related parties exercised 17,500 and 7,500 previously awarded options for the exercise price
of $40,855 and $11,320, respectively, resulting in issuance of common stock to the CEO and one member of the Board of Directors.
Mr.
Richardson, who is a member of our Board of Directors until December 2022, was acting CEO of Natural Point, Inc. until May 14, 2021,
a vendor of the Company. In 2021, the Company purchased specialized equipment from Natural Point in the amount of $33,840. On December
31, 2022, the Company had an outstanding balance payable to Natural Point of $0.
Mr.
Givens was a member of our Board of Directors and is currently co-CEO of VirTra, Inc. He was President of Bohemia Interactive Simulations,
Inc. until April 2022. In 2021, VirTra purchased gaming simulation software (VBS3) licenses from Bohemia for the amount of $11,950. On
December 31, 2022, the Company had no outstanding balance payable to Bohemia.
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.
Employment
Agreements
On
April 2, 2012, the Company entered into three-year Employment Agreements with its Chief Executive Officer and Chief Operating Officer
that called for base annual salaries of $195,000 and $175,000, respectively, subject to cost-of-living adjustments, and containing automatic
one-year extension provisions. These contracts have been renewed annually and have been adjusted based on the same percentage increase
approved for Company-wide cost-of-living adjustments. As of December 31, 2022, the Chief Executive Officer’s base annual salary
was $349,860.
On
August 26, 2021, the Compensation Committee of the Board of Directors (the “Compensation Committee”), relying upon third-party
studies and recommendations, took several actions to bring the compensation of the Company’s Chief Executive officer (CEO) and
Chief Operating Officer (COO) up to industry standards and provide meaningful incentive for future performance. The Committee (1) approved
grants of 224,133 and 168,090 performance-based restricted stock units pursuant to the Company’s 2017 Equity Incentive Plan (the
“Plan”) to the Company’s CEO and COO, respectively, with fair value on the grant date of August 26, 2021, of $1,559,966
and $1,169,906, respectively; (2) approved grants of 14,057 and 10,543 restricted shares with a fair value of $97,837 and $73,379, respectively,
to the CEO and COO, respectively, based on the Company’s performance for the twelve months ended June 30, 2021; and (3) increased
the annual base salaries effective August 15, 2021 to $349,860 and $251,140 for the CEO and COO, respectively. While their salaries have
been annually increased with Company-wide cost-of-living adjustments, this was the first comprehensive review and adjustment undertaken
since 2012.
On
May 2, 2022, VirTra, Inc. announced the appointment of John F. Givens II as its co-Chief Executive Officer, effective April 11, 2022.
Mr. Givens has been serving as a director of VirTra since November 2020. VirTra agreed to pay Mr. Givens an initial annual base salary
of $298,990, subject to annual review. VirTra issued Mr. Givens a signing bonus of 64,815 shares of common stock 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 granted 288,889 Restricted Stock Units, to be awarded based on achievement of certain performance goals
over the next three years.
During
August 2022, 168,090 Restricted Stock Units were forfeited upon the departure of the Chief Operating Officer.
Beginning
on the last business day of August 2022, a tranche of restricted stock units may vest if the Company has achieved net profit (net income
under GAAP) for the twelve months ending June 30, 2022, of at least $2,500,000. For every $500,000 earned more than $2,500,000 another
tranche will vest. If the maximum net profits (net income under GAAP) of $7,000,000 is achieved, ten tranches would vest. Similarly,
on the last business day of August 2023, a tranche of restricted stock units may vest if the Company has achieved a net profit (net income
under GAAP) of at least $3,000,000, with the potential to have additional tranches vest up to a maximum of $9,000,000 in net profit (net
income under GAAP). This vesting arrangement continues with the last business day of August 2024, with the minimum net profit (net income
under GAAP) threshold being $3,500,000 and the maximum net profit (net income under GAAP) being $11,000,000.
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, of $2,500,000 was probable, and recorded an expense for the period
ending December 31, 2021 of $52,498.
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 $2,720,015 and therefore awarded 5,747 (prior to deduction of 1,840 shares to pay the tax withholding liability) and
7,407 shares of common stock to its Co-Chief Executive Officers. 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, 2023, of $3,000,000 is probable and recorded an expense
of $105,405 related to the RSUs for the period ending December 31, 2022.
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 only
to active employees. For the years ended December 31, 2022, and 2021, the amount expensed to operations was $294,705 and $139,682, respectively.
Note
10. Income Taxes
The
Company accounts for its deferred tax assets and liabilities, including excess tax benefits of share-based payments, based on the tax
ordering of deductions to be used on its tax returns. The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities for the years ended December 31 is as follows:
Schedule of Deferred Tax Assets and Liabilities
| |
2022 | | |
2021 | |
| |
Years
ending December 31, | |
| |
2022 | | |
2021 | |
Deferred Tax Assets: | |
| | | |
| | |
Net Operating
Loss Carry Forwards | |
$ | - | | |
$ | 84,303 | |
Tax Credits | |
| 471,186 | | |
| 1,050,595 | |
Deferred Revenue | |
| 759,304 | | |
| 253,319 | |
Stock Compensation | |
| 291,279 | | |
| 183,953 | |
Investment in TEC | |
| - | | |
| 83,277 | |
Reserves, Accruals, and
Other | |
| 299,358 | | |
| 295,444 | |
Intangibles | |
| 986,534 | | |
| 252,716 | |
Capital
Loss Carryforward | |
| 70,423 | | |
| - | |
| |
| | | |
| | |
Total
Deferred Tax Assets | |
$ | 2,878,084 | | |
$ | 2,203,607 | |
| |
| | | |
| | |
Deferred Tax Liabilities: | |
| | | |
| | |
Fixed
Assets | |
$ | (639,322 | ) | |
$ | (529,373 | ) |
| |
| | | |
| | |
Total Deferred Tax Liabilities | |
$ | (639,322 | ) | |
$ | (529,373 | ) |
| |
| | | |
| | |
Valuation Allowance | |
| - | | |
| - | |
| |
| | | |
| | |
Net Deferred Taxes | |
$ | 2,238,762 | | |
$ | 1674,234 | |
Internal
Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three-year period.
The Company does not believe that such a limitation of the net operating losses has occurred.
Significant
components of the provision (benefit) for income tax for the years ended December 31 as follows:
Schedule of Significant Components of Income Tax Provision
| |
2022 | | |
2021 | |
| |
2022 | | |
2021 | |
Current | |
$ | 1,136,170 | | |
$ | 28,283 | |
Deferred | |
| (564,528 | ) | |
| 217,767 | |
Change in valuation
allowance | |
| - | | |
| - | |
| |
| | | |
| | |
Provision (benefit)
for income taxes | |
$ | 571,642 | | |
$ | 246,050 | |
The
Company is subject to federal and state taxes. Reconciliations of the Company’s effective income tax rate to the federal statutory
rate for the years ended December 31 are as follows:
Schedule of Reconciliation of Income Tax Rate
| |
2022 | | |
2021 | |
| |
2022 | | |
2021 | |
Federal income tax expense at the
statutory rate | |
| 21.0 | % | |
| 21.0 | % |
State income taxes, net of federal benefit | |
| 1.4 | % | |
| 3.1 | % |
Research credits | |
| -1.0 | % | |
| -5.5 | % |
Permanent differences | |
| 0.7 | % | |
| 0.2 | % |
PPP Loan Forgiveness | |
| 0.0 | % | |
| -9.9 | % |
Other | |
| 0.5 | % | |
| 0.0 | % |
Change in valuation
allowance | |
| 0.0 | % | |
| 0.0 | % |
| |
| | | |
| | |
Provision (benefit)
for income taxes | |
| 22.6 | % | |
| 8.9 | % |
Note
11. Stockholders’ Equity
Authorized
Capital
Common
Stock.
Authorized
Shares. The Company is authorized to issue 60,000,000 shares of common stock, par value $0.0001 per share, of which (a) 50,000,000
shares shall be common stock, par value $0.0001, (b) 2,500,000 shares shall be Class A common stock, par value $0.0001 per share (the
“Class A Common Stock”), and (c) 7,500,000 shares shall be Class B common stock, par value $0.0001 per share (the “Class
B Common Stock”). No shares of Class A Common Stock or Class B Common Stock have been issued.
Rights
and Preferences. Voting Rights. Except as otherwise required by the Nevada Revised Statues or as provided by or pursuant to the provisions
of the Company’s articles of incorporation:
(i)
Each holder of common stock shall be entitled to one (1) vote for each share of common stock held of record by such holder. The holders
of shares of common stock shall not have cumulative voting rights.
(ii)
Each holder of Class A Common Stock shall be entitled to ten (10) votes for each share of Class A Common Stock held of record by such
holder. The holders of shares of Class A Common Stock shall not have cumulative voting rights.
(iii)
The holders of common stock and Class A Common Stock shall vote together as a single class on all matters on which stockholders are generally
entitled to vote.
(iv)
The holders of Class B Common Stock shall not be entitled to vote on any matter, except that the holders of Class B Common Stock shall
be entitled to vote separately as a class with respect to amendments to the Articles of Incorporation that increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers,
preferences, or special rights of the shares of such class so as to affect them adversely.
Preferred
Stock
Authorized
Shares. The Company is authorized to issue 2,500,000 shares of preferred stock, par value $0.0001 per share (the “Preferred
Stock”).
Rights
and Preferences. The Board of Directors is authorized at any time, and from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series, and to determine the designations, preferences, limitations and relative or other rights of the
Preferred Stock or any series thereof.
Stock
Repurchase
On
October 25, 2016, the Company’s Board of Directors authorized the repurchase of up to $1 million of its common stock under Rule
10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Purchases made pursuant to this authorization will be made
in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule
10b-18. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject
to economic and market conditions, stock price, applicable legal requirements and other factors. On January 9, 2019, VirTra’s Board
of Directors authorized an additional $1 million be allocated for the repurchase of VirTra’s stock under the existing 10b-18 plan.
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 until the PPP loan was forgiven on July 20, 2021, and has continued
to remain in effect.
Treasury
Stock
During
the years ended December 31, 2022 and 2021, the Company purchased no treasury shares.
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:
Schedule of Non-qualified Stock Options
| |
December
31, 2022 | | |
December
31, 2021 | |
| |
Number of | | |
Weighted | | |
Number of | | |
Weighted | |
| |
Stock
Options | | |
Exercise
Price | | |
Stock
Options | | |
Exercise
Price | |
Options outstanding, beginning
of year | |
| 112,500 | | |
$ | 3.51 | | |
| 164,167 | | |
$ | 3.13 | |
Granted | |
| - | | |
| - | | |
| - | | |
| - | |
Redeemed | |
| (27,500 | ) | |
| 2.44 | | |
| (35,000 | ) | |
| 1.85 | |
Exercised | |
| (17,500 | ) | |
| 2.33 | | |
| (7,500 | ) | |
| 1.51 | |
Expired / terminated | |
| (22,500 | ) | |
| 4.05 | | |
| (9,167 | ) | |
| 4.59 | |
Options outstanding,
end of year | |
| 45,000 | | |
$ | 4.26 | | |
| 112,500 | | |
$ | 3.51 | |
Options exercisable,
end of year | |
| 45,000 | | |
$ | 4.26 | | |
| 112,500 | | |
$ | 3.51 | |
The
Company did not have any non-vested stock options outstanding as of December 31, 2022. The weighted average contractual term for options
outstanding and exercisable on December 31, 2022, and 2021 was 7 years. The aggregate intrinsic value of the options outstanding and
exercisable on December 31, 2022, and 2021 was $82,800 and $392,065, respectively. The total intrinsic value of options exercised during
the years ended December 31, 2022, and 2021 was $31,800 and $252,635, respectively. The aggregate intrinsic value is calculated as the
difference between the exercise price of the underlying options and the fair value of the Company’s common stock for those stock
options that have an exercise price lower than the fair value of the Company’s common stock. Options with an exercise price above
the fair value of the Company’s common stock are considered to have no intrinsic value. For the years ended December 31, 2022,
and 2021, the Company received payments related to the exercise of options in the amount of $40,845 and $11,320, respectively. The total
fair value of shares vested during the years ended December 31, 2022 and 2021 is $0.
The
following table summarizes information about stock options outstanding and exercisable as of December 31, 2022:
Schedule of Stock Options Outstanding and Exercisable
Range of
Exercise Price | |
Number
of Options Outstanding | | |
Weighted
Average Exercise Price | | |
Number
of Options Exercisable | | |
Weighted
Average Exercise Price | |
| |
| | |
| | |
| | |
| |
$1.00 - $1.99 | |
| 0 | | |
$ | - | | |
| 0 | | |
$ | - | |
$2.00 - $2.99 | |
| 7,500 | | |
$ | 2.23 | | |
| 7,500 | | |
$ | 2.23 | |
$3.00 - $3.99 | |
| 7,500 | | |
$ | 3.76 | | |
| 7,500 | | |
$ | 3.76 | |
$4.00 - $4.99 | |
| 15,000 | | |
$ | 4.24 | | |
| 15,000 | | |
$ | 4.24 | |
$5.00 - $5.99 | |
| 15,000 | | |
$ | 5.54 | | |
| 15,000 | | |
$ | 5.54 | |
| |
| 45,000 | | |
$ | 4.26 | | |
| 45,000 | | |
$ | 4.26 | |
The
following table summarizes information about stock options outstanding and exercisable as of December 31, 2021:
Range of
Exercise Price | |
Number
of Options Outstanding | | |
Weighted
Average Exercise Price | | |
Number
of Options Exercisable | | |
Weighted
Average Exercise Price | |
| |
| | |
| | |
| | |
| |
$1.00 - $1.99 | |
| 22,500 | | |
$ | 1.80 | | |
| 22,500 | | |
$ | 1.80 | |
$2.00 - $2.99 | |
| 22,500 | | |
$ | 2.51 | | |
| 22.500 | | |
$ | 2.51 | |
$3.00 - $3.99 | |
| 22,500 | | |
$ | 3.47 | | |
| 22,500 | | |
$ | 3.47 | |
$4.00 - $4.99 | |
| 22,500 | | |
$ | 4.24 | | |
| 22,500 | | |
$ | 4.24 | |
$5.00 - $5.99 | |
| 22,500 | | |
$ | 5.54 | | |
| 22,500 | | |
$ | 5.54 | |
| |
| 112,500 | | |
$ | 3.51 | | |
| 112,500 | | |
$ | 3.51 | |
2017
Equity Incentive Plan
On
August 23, 2017, our Board approved, subject to stockholder approval at the annual meeting of stockholders on October 6, 2017, the VirTra,
Inc. 2017 Equity Incentive Plan (the “Equity Plan”). The Equity Plan is intended to make available incentives that will assist
us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through
the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other
cash or stock -based awards.
A
total of 1,187,500 shares of our common stock was initially authorized and reserved for issuance under the Equity Plan. This reserve
automatically increased on January 1, 2019, and each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3%
of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined
by the Board.
Awards
may be granted under the Equity Plan to our employees, including officers, directors or consultants or those of any present or future
parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder
of the award and may include any of the following: stock options, stock appreciation rights, restricted stock, restricted stock units,
performance shares and performance units and cash-based awards and other stock-based awards.
Through
December 31, 2022, 224,133 and 168,090 restricted stock awards and 14,057 and 10,543 restricted shares have been granted under the Equity
Plan to the Company’s CEO and COO, respectively (see Note 9). For the years ended December 31, 2021, and 2020, there were no options
issued under the Equity Plan.
Common
stock activity
On April 11, 2022 the Compensation
Committee of the Board of Directors approved a sign on bonus of 64,815 restricted shares to the Co-CEO.
On September 23,2022 the Compensation Committee of the Board of Directors
awarded 5,747 (prior to deduction of 1,840 shares to pay the tax withholding liability) and 7,407 shares of common stock to its Co-Chief
Executive Officers in settlement of RSUs, based on the Company’s performance for the twelve months ended June 30, 2022.
On
August 26, 2021, the Compensation Committee of the Board of Directors approved grants of 14,057 and 10,543 restricted shares to the CEO
and COO, respectively, based on the Company’s performance for the twelve months ended June 30, 2021 (see Note 9).
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 3,000,000 shares
(the “RDO Shares”) of the Company’s Common Stock at a price of $6.00 per share in a registered direct 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 June
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 6.5% of the gross proceeds received by the Company from the sale of the securities
in the transaction. The Company also agreed to pay Roth reimbursement for legal fees and expenses in an amount not to exceed $35,000.
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 $18.0 million, before deducting the placement
agents’ fees and other estimated Offering expenses which totaled $1,205,000.
Note
12. Subsequent Events
The
Board of Directors appointed Jim McDonnell as an independent member to the Board effective January 1, 2023. Non-employee directors receive
cash compensation of $24,000 annually. In addition, Mr. McDonnell has been granted 10,684 restricted shares of the Company’s common
stock which are subject to vesting requirements and 42,735 restricted stock units which vest only upon the sale of the Company.