10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

[  ] 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 of	(I.R.S. Employer
incorporation or organization)	Identification No.)

7970 S. Kyrene Rd. Tempe, AZ	85284
(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
N/A	N/A	N/A

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 [X] 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 [X] 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	[X]	Smaller reporting company	[X]
Emerging growth company	[X]

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 [X]

As of August 13, 2019, the registrant had 7,745,030 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
		Condensed Balance Sheets as of June 30, 2019 and December 31, 2018	F-1
		Condensed Statements of Operations for the Three and Six Months ended June 30, 2019 and 2018	F-2
		Condensed Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	F-3
		Condensed Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018	F-4
		Notes to the Unaudited Condensed 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	10
	SIGNATURES		11

2

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRTRA, INC.

CONDENSED BALANCE SHEETS

	June 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,393,701		$	2,500,381
Certificates of deposit		1,880,000			3,490,000
Accounts receivable, net		2,066,428			1,302,010
Interest receivable		24,295			21,385
That’s Eatertainment note receivable, net, related party		-			292,138
Trade note receivable, net		-			96,282
Inventory, net		2,513,878			1,612,002
Unbilled revenue		1,044,691			689,153
Prepaid expenses and other current assets		592,358			377,520
Total current assets		9,515,351			10,380,871
Long-term assets:
Property and equipment, net		844,027			678,245
Operating lease right-of-use asset		1,534,225			-
Intangible assets, net		156,296			-
That’s Eatertainment note receivable, long-term, related party		292,138			-
Trade note receivable, long term		-			6,843
Security deposits, long-term		19,712			339,756
Other assets, long-term		372,566			292,298
Deferred tax asset, net		2,729,000			2,400,000
Investment in That’s Eatertainment, related party		1,120,000			1,120,000
Total long-term assets		7,067,964			4,837,142
Total assets	$	16,583,315		$	15,218,013
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	814,518		$	429,949
Accrued compensation and related costs		544,249			613,691
Accrued expenses and other current liabilities		399,122			632,606
Note payable, current		11,250			11,250
Operating lease liability, short-term		278,628			-
Deferred revenue, short-term		2,687,110			1,924,307
Total current liabilities		4,734,877			3,611,803
Long-term liabilities:
Deferred revenue, long-term		1,188,196			962,356
Deferred rent liability		-			46,523
Operating lease liability, long-term		1,326,464			-
Total long-term liabilities		2,514,660			1,008,879
Total liabilities		7,249,537			4,620,682
Commitments and contingencies (See Note 10)
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; 7,739,255 shares issued and outstanding as of June 30, 2019 and 7,827,651 issued and 7,816,944 shares outstanding as of December 31, 2018		774			783
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		-			-
Treasury stock at cost; nil shares outstanding as of June 30, 2019 and 10,707 shares outstanding as of December 31, 2018		-			(37,308	)
Additional paid-in capital		13,918,615			14,272,834
Accumulated deficit		(4,585,611	)		(3,638,978	)
Total stockholders’ equity		9,333,778			10,597,331
Total liabilities and stockholders’ equity	$	16,583,315		$	15,218,013

See accompanying notes to unaudited condensed financial statements.

F-1

VIRTRA, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Revenues:
Net sales	$	3,002,381		$	8,278,579		$	6,014,082		$	11,521,402
That’s Eatertainment royalties/licensing fees, related party		32,795			427,433			72,432			473,401
Other royalties/licensing fees		19,137			2,180			19,137			2,180
Total revenue		3,054,313			8,708,192			6,105,651			11,996,983
Cost of sales		1,539,267			2,964,997			2,790,136			3,991,152
Gross profit		1,515,046			5,743,195			3,315,515			8,005,831
Operating expenses:
General and administrative		2,044,860			2,480,851			3,946,791			4,534,156
Research and development		353,665			305,738			709,306			673,282
Net operating expense		2,398,525			2,786,589			4,656,097			5,207,438
(Loss) income from operations		(883,479	)		2,956,606			(1,340,582	)		2,798,393
Other income (expense)
Other income		33,449			22,177			75,732			65,475
Other expense		(949	)		(905	)		(6,031	)		(971	)
Net other income		32,500			21,272			69,701			64,504
(Loss) income before provision for income taxes		(850,979	)		2,977,878			(1,270,881	)		2,862,897
(Benefit) provision for income taxes		(217,248	)		864,941			(324,248	)		835,747
Net (loss) income	$	(633,731	)	$	2,112,937		$	(946,633	)	$	2,027,150
Net (loss) income per common share:
Basic	$	(0.08	)	$	0.27		$	(0.12	)	$	0.26
Diluted	$	(0.08	)	$	0.26		$	(0.12	)	$	0.25
Weighted average shares outstanding:
Basic		7,735,303			7,907,390			7,750,370			7,905,849
Diluted		7,735,303			8,255,299			7,750,370			8,251,640

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 June 30, 2019
	Preferred Stock				Common Stock						Additional
	Shares		Amount		Shares			Amount			Paid-In Capital			Treasury Stock			Accumulated Deficit			Total
Balance at March 31, 2019		-	$	-		7,748,705		$	775		$	13,974,692		$	-		$	(3,951,880	)	$	10,023,587
Treasury stock		-		-		-			-			-			(57,362	)		-			(57,362	)
Treasury stock cancelled		-		-		(14,450	)		(2	)		(57,360	)		57,362			-			-
Stock options exercised		-		-		5,000			1			5,650			-			-			5,651
Stock options repurchased		-		-		-			-			(4,367	)		-			-			(4,367	)
Net loss		-		-		-			-			-			-			(633,731	)		(633,731	)
Balance at June 30, 2019		-	$	-		7,739,255		$	774		$	13,918,615		$	-		$	(4,585,611	)	$	9,333,778

	For the Six Months Ended June 30, 2019
	Preferred Stock				Common Stock						Additional
	Shares		Amount		Shares			Amount			Paid-In Capital			Treasury Stock			Accumulated Deficit			Total
Balance at December 31, 2018		-	$	-		7,827,651		$	783		$	14,272,834		$	(37,308	)	$	(3,638,978	)	$	10,597,331
Treasury stock		-		-		-			-			-			(318,204	)		-			(318,204	)
Treasury stock cancelled		-		-		(93,396	)		(10	)		(355,502	)		355,512			-			-
Stock options exercised		-		-		5,000			1			5,650			-			-			5,651
Stock options repurchased		-		-		-			-			(4,367	)		-			-			(4,367	)
Net loss		-		-		-			-			-			-			(946,633	)		(946,633	)
Balance at June 30, 2019		-	$	-		7,739,255		$	774		$	13,918,615		$	-		$	(4,585,611	)	$	9,333,778

	For the Three Months Ended June 30, 2018
	Preferred Stock				Common Stock				Additional
	Shares		Amount		Shares		Amount		Paid-In Capital			Treasury Stock			Accumulated Deficit			Total
Balance at March 31, 2018		-	$	-		7,927,774	$	793	$	14,954,563		$	(112,109	)	$	(4,542,857	)	$	10,300,390
Stock options exercised		-		-		7,500		1		10,499			-			-			10,500
Stock options repurchased		-		-		-		-		(32,000	)		-			-			(32,000	)
Stock based compensation		-		-		-		-		4,860			-			-			4,860
Net income		-		-		-		-		-			-			2,112,937			2,112,937
Balance at June 30, 2018		-	$	-		7,935,274	$	794	$	14,937,922		$	(112,109	)	$	(2,429,920	)	$	12,396,687

	For the Six Months Ended June 30, 2018
	Preferred Stock				Common Stock				Additional
	Shares		Amount		Shares		Amount		Paid-In Capital			Treasury Stock			Accumulated Deficit			Total
Balance at December 31, 2017		-	$	-		7,927,774	$	793	$	14,954,563		$	(112,109	)	$	(4,457,070	)	$	10,386,177
Stock options exercised		-		-		7,500		1		10,499			-			-			10,500
Stock options repurchased		-		-		-		-		(32,000	)		-			-			(32,000	)
Stock based compensation		-		-		-		-		4,860			-			-			4,860
Net income		-		-		-		-		-			-			2,027,150			2,027,150
Balance at June 30, 2018		-	$	-		7,935,274	$	794	$	14,937,922		$	(112,109	)	$	(2,429,920	)	$	12,396,687

See accompanying notes to unaudited condensed financial statements.

F-3

VIRTRA, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended
	June 30, 2019			June 30, 2018
Cash flows from operating activities:
Net (loss) income	$	(946,633	)	$	2,027,150
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization		285,844			143,206
Deferred taxes		(329,000	)		824,182
Impairment of Investment in That’s Eatertainment, related party		-			134,140
Stock compensation		-			4,860
Reserve for note receivable		102,474			-
Changes in operating assets and liabilities:
Accounts receivable, net		(764,418	)		(3,412,430	)
Trade note receivable, net		651			-
Interest receivable		(2,910	)		-
Inventory		(901,876	)		(80,650	)
Unbilled revenue		(355,538	)		922,730
Prepaid expenses and other current assets		(214,838	)		(141,378	)
Other assets		(80,268	)		-
Security deposits, long-term		320,044			-
Accounts payable and other accrued expenses		81,643			787,124
Payments on operating lease liability		(116,288	)		-
Deferred revenue		988,643			(1,081,018	)
Net cash (used in) provided by operating activities		(1,932,470	)		127,916
Cash flows from investing activities:
Purchase of certificates of deposit		(1,880,000	)		-
Redemption of certificates of deposit		3,490,000			-
Purchase of intangible asset		(160,000	)		-
Purchase of property and equipment		(309,921	)		(287,773	)
Proceeds from sale of property and equipment		2,631			-
Net cash provided by (used in) investing activities		1,142,710			(287,773	)
Cash flows from financing activities:
Repurchase of stock options		(4,367	)		(32,000	)
Stock options exercised		5,651			10,500
Purchase of treasury stock		(318,204	)		-
Net cash used in financing activities		(316,920	)		(21,500	)
Net decrease in cash		(1,106,680	)		(181,357	)
Cash, beginning of period		2,500,381			5,080,445
Cash, end of period	$	1,393,701		$	4,899,088
Supplemental disclosure of cash flow information:
Cash paid:
Taxes	$	4,752		$	96,574
Supplemental disclosure of non-cash investing and financing activities:
Conversion of accounts to note receivable		-			693,044
Conversion of That’s Eatertainment note receivable to long term, related party		292,138			-

See accompanying notes to unaudited condensed financial statements.

F-4

VIRTRA, INC.

NOTES TO CONDENSED 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 Tempe, 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.

Effective March 2, 2018, the Company effected a 1-for-2 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”). All references to shares of the Company’s common stock in this report refer to the number of shares of common stock after giving effect to the Reverse Stock Split.

Basis of Presentation

The condensed 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, 2018. 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 condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed 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 six months ended June 30, 2019 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 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.

Reclassifications

Certain reclassifications have been made to the 2018 financial statements to conform to the 2019 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

F-5

Revenue Recognition

The Company adopted 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. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable). 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
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.

F-6

	Three Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	1,550,317	$	132,098	$	1,682,415	$	6,950,268	$	399,473	$	7,349,741
Extended service-type warranties		498,194		50,437		548,631		481,451		52,700		534,151
Customized software & content		484,421		-		484,421		274,497		-		274,497
Installation and training		276,414		10,500		286,914		87,894		32,296		120,190
Licensing and royalties		51,932		-		51,932		429,613		-		429,613
Total Revenue	$	2,861,278	$	193,035	$	3,054,313	$	8,223,723	$	484,469	$	8,708,192

	Six Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	3,477,642	$	450,536	$	3,928,178	$	7,922,271	$	1,952,207	$	9,874,478
Extended service-type warranties		978,717		80,387		1,059,104		908,136		115,085		1,023,221
Customized software & content		660,484		-		660,484		388,444		11,940		400,384
Installation and training		355,816		10,500		366,316		140,804		82,515		223,319
Licensing and royalties		91,569		-		91,569		475,581		-		475,581
Total Revenue	$	5,564,228	$	541,423	$	6,105,651	$	9,835,236	$	2,161,747	$	11,996,983

Customer Deposits

Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled $827,475 and $186,450 as of June 30, 2019 and December 31, 2018, respectively. 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. Customer deposits are considered a deferred liability until completion of the customer’s contract performance obligations. When revenue is recognized, the deposit is applied to the customer’s receivable balance.

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 $1,726,415 and $1,604,637 as of June 30, 2019 and December 31, 2018, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $1,188,196 and $962,356 as of June 30, 2019 and December 31, 2018, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $185,017 and $200,505 as of June 30, 2019 and December 31, 2018, respectively. During the three months ended June 30, 2019 and 2018, the Company recognized revenue of $548,631 and $534,151, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. During the six months ended June 30, 2019 and 2018, the Company recognized revenue of $1,059,104 and $1,023,221, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. 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.

Customer Retainage

Customer retainage is recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $133,220 as of June 30, 2019 and December 31, 2018. Changes in deferred revenue amounts related to customer retainage will fluctuate from year to year based upon the customer’s contract completion date allowing the Company to invoice and be paid the retainage.

Licensing and Royalties with Related Party

As discussed further in Note 8. Collaboration Agreement with Related Party, the Company licenses intellectual property to Modern Round, LLC (“MR”), a wholly-owned subsidiary of That’s Eatertainment Corp. (“TEC”), a related party, in exchange for sales-based royalties. Revenues from this agreement are recognized in accordance with the terms of the contract as the sales occur. The Company receives additional immaterial sales-based royalties from strategic partners.

F-7

Adoption of New Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”). Topic 842 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases.

In July 2017, the FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)” Part I of ASU No. 2017-11 applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. ASU No. 2017-11 did not have a material impact on the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contract with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. ASU No. 2018-07 did not have a material impact on the Company’s financial statements.

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, notes and interest receivables, accounts payable, and accrued liabilities. The fair value of financial instruments, except for long-term notes receivable, approximates their carrying values, using level 3 inputs, at June 30, 2019 and December 31, 2018 due to their short maturities. The fair value of the long-term notes receivable approximates its carrying value, using level 3 inputs, at June 30, 2019 and December 31, 2018 based on borrowing rates currently available for loans with similar terms and maturities.

F-8

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 average maturities 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 Notes Receivable 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. As of June 30, 2019 and December 31, 2018, the Company maintained an allowance for doubtful accounts of $25,413 and $23,044, respectively.

Notes receivable are carried at their estimated collectible amounts. Interest income on notes receivable is recognized using the effective interest method. Notes receivable are periodically evaluated for collectability based on the credit history and the current financial condition of the counter party, and the known and inherent risks in the notes. Notes receivable are placed on nonaccrual status when they become 90 days past due and the customer has not made a payment in over 60 days. Upon suspension of the accrual of interest, interest income is subsequently recognized to the extent cash payments are received. Accrual of interest is resumed when notes are removed from non-accrual status. Notes receivable are charged against the allowance for credit losses when they are deemed to be uncollectible. As of June 30, 2019 and December 31, 2018, the allowance for uncollectible notes receivable was $369,286 and $266,813, 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. As of June 30, 2019 and December 31, 2018, inventory reserves were $105,031.

Investments in Other Companies

Minority investments in other companies are accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the other companies’ operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than-temporary declines in fair value and distribution of earnings. For investments in public companies that have readily determinable fair values, the Company classifies its investments as available-for-sale, and accordingly records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the statements of operations.

The adoption of ASU 2016-01 requires investments in other companies that do not have readily determinable fair value be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This standard was adopted on January 1, 2018, including all interim reporting periods within the fiscal year. The adoption of ASU 2016-01 did not have a material impact on the financial statements. Upon adoption, the Company has elected to utilize the cost minus impairment approach because the investment in TEC does not have a readily determinable fair value as of the reporting date. See Note 8. Collaboration Agreement with Related Party.

F-9

Management regularly evaluates the recoverability of its investment based on the investee company’s performance and financial position. During the three and six months ended June 30, 2019, the Company did not recognize any impairment loss. During the three and six months ended June 30, 2018, the Company recognized an impairment loss of $134,140. Management regularly assesses the classification of its investments.

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. 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, which are summarized as follows:

Computer equipment	3-5 years
Furniture and office equipment	5-7 years
Machinery and equipment	5-7 years
STEP equipment	5 years
Leasehold improvements	7 years

Intangible Assets

Intangible assets at June 30, 2019 are comprised of various patents. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful lives of 18 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 does not include depreciation of fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold.

Advertising Costs

Costs associated with advertising are expensed as incurred. Advertising expense was $150,977 and $160,643 for the three months ended June 30, 2019 and 2018, respectively. Advertising expense was $270,380 and $300,025 for the six months ended June 30, 2019 and 2018, respectively. These costs include domestic and international tradeshows, website, 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 costs were $353,665 and $305,738 for the three months ended June 30, 2019 and 2018, respectively. Research and development costs were $709,306 and $673,282 for the six months ended June 30, 2019 and 2018, respectively

Legal Costs

Legal costs relating to loss contingencies are expensed as incurred. See Note 10.

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, accounts receivable and notes 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 $1,119,590 and $2,014,987 as of June 30, 2019 and December 31, 2018, respectively.

F-10

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.

The Company’s notes receivable are due from one trade customer and one related party, both are unsecured. Management performs ongoing evaluations of the collectability of its notes receivable and maintains an allowance for estimated losses.

Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended June 30, 2019, two federal agencies comprised 32% of total net sales and one tribal government comprised 10% of total net sales. By comparison, for the three months ended June 30, 2018, one federal agency comprised 53% of total net sales. For the six months ended June 30, 2019, two federal agencies comprised 25% of total net sales. By comparison, for the six months ended June 30, 2018, one federal agency comprised 39% of total net sales and one commercial customer comprised 11% of total net sales.

As of June 30, 2019, three federal agencies comprised 55% of total accounts receivables and one state agency comprised 11% of total accounts receivables. By comparison, as of December 31, 2018, one federal agency comprised 26% of total accounts receivables and one state agency comprised 20% of total accounts receivables.

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 the 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 of its deferred tax asset and no valuation allowance was needed as of June 30, 2019 and December 31, 2018.

As of June 30, 2019 and December 31, 2018, the Company did not recognize any assets or liabilities relative to uncertain tax positions. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result 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 at June 30, 2019 and December 31, 2018.

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 2014 and 2019; 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.

F-11

Impairment of Long-Lived Assets and Intangible 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. 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. At June 30, 2019 and December 31, 2018, 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. There were no grants of stock-based awards during the three and six months ended June 30, 2019 and 2018.

The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, 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. As share-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. The Company has elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 and the subsequent amendments are effective for us on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is assessing what effect the provisions of 2016-13 and the subsequent amendments will have on the financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of 2018-18 on its financial statements.

Note 2. Notes Receivable

An unsecured promissory note was executed on March 23, 2018 by a customer converting its past-due trade receivable from the sale of goods and services in the amount of $400,906. This unsecured promissory note is due in full on or before February 2020. The note bears interest at the rate of ten percent (10%) per annum and requires installment payments of $20,000 principal and interest. Payments are due monthly and include late fees. The principal and accrued interest due as of June 30, 2019 and December 31, 2018 was $369,286 and $374,034, respectively. The note is currently in default, repayment has been demanded and the Company is pursuing legal remedy, see Note 10. Based on collection history, interest accrual has been suspended as of the last payment received in February 2019. At June 30, 2019 and December 31, 2018, the Company recorded an allowance against the note receivable balance in the amount of $369,286 and $266,813, respectively.

F-12

The Company accepted an unsecured convertible promissory note (the “Convertible Note”) from TEC, a related party, in the amount of $292,138 for a portion of their minimum royalty payment due as of May 31, 2018. The note bears interest at the rate of five percent (5%) per annum and contains a provision requiring remittance of not less than 20% of the net proceeds of any private or public offering of its securities in reduction of the Convertible Note. The note has a conversion right, at the sole discretion of the Company, to convert the outstanding balance of principal and accrued interest at any time for shares of common stock of TEC. Prior to the due date, the Company may elect to convert the Convertible Note for shares of common stock in TEC at a twenty-five percent (25%) discount to the price of shares sold to the public in a public offering in connection with a go-public transaction. The issuance of common stock upon conversion shall be made without charge to the Company. No fractional shares shall be issued upon conversion and in lieu of fractional shares, TEC will pay the Company the amount of any obligation that is not converted. Any unpaid balance of principal and accrued interest becomes due and collectible on the earlier of (i) August 1, 2019 (maturity date), or (ii) if declared due and payable in the event of Default. The note principal and accrued interest due as of June 30, 2019 and December 31, 2018 was $305,528 and $298,224, respectively. No reserve for collectability has been recorded as of June 30, 2019 and December 31, 2018. The notes maturity date was extended in July 2019, all other terms remain unchanged, see Note 8 and Note 12.

Note 3. Inventory

Inventory consisted of the following as of:

	June 30, 2019			December 31, 2018
Raw materials and work in process	$	2,618,909		$	1,717,033
Reserve		(105,031	)		(105,031	)
Total inventory, net	$	2,513,878		$	1,612,002

During 2018, the Company evaluated the useful life of its spare parts inventory. As a result of this evaluation, the Company classified $372,566 and $292,298 of spare parts as Other Assets, long-term on the Balance Sheet at June 30, 2019 and December 31, 2018, respectively.

Note 4. Property and Equipment

Property and equipment consisted of the following as of:

	June 30, 2019			December 31, 2018
Computer equipment	$	1,116,553		$	1,054,004
Furniture and office equipment		219,399			207,921
Machinery and equipment		1,091,228			1,021,188
STEP equipment		161,695			-
Leasehold improvements		324,313			324,313
Total property and equipment		2,913,188			2,607,426
Less: Accumulated depreciation		(2,069,161	)		(1,929,181	)
Property and equipment, net	$	844,027		$	678,245

Depreciation expense was $71,197 and $74,587 for the three months ended June 30, 2019 and 2018, respectively. Depreciation expense was $141,509 and $143,206 for the six months ended June 30, 2019 and 2018, respectively.

F-13

Note 5. Intangible Asset

Intangible asset consisted of the following as of:

	June 30, 2019			December 31, 2018
Patents	$	160,000		$	-
Total intangible asset		160,000			-
Less: Accumulated amortization		(3,704	)		-
Intangible asset, net	$	156,296		$	-

Amortization expense was $2,223 and $0 for the three months ended June 30, 2019 and 2018, respectively. Amortization expense was $3,704 and $0 for the six months ended June 30, 2019 and 2018, respectively.

Note 6. Leases

The Company leases approximately 37,729 rentable square feet of office and warehouse space from an unaffiliated third party for our 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. 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 condensed balance sheet.

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 leases do 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 are recognized on a straight-line basis over the lease term.

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.

F-14

The balance sheet classification of lease assets and liabilities was as follows:

Balance Sheet Classification	June 30, 2019
Assets
Operating lease right-of-use assets, January 1, 2019	$	1,674,857
Amortization for the six months ended June 30, 2019		(140,632	)
Total operating lease right-of-use asset, June 30, 2019	$	1,534,225
Liabilities
Current
Operating lease liability, short term	$	278,628
Non-current
Operating lease liability, long term		1,326,464
Total lease liabilities	$	1,605,092

Future minimum lease payments as of June 30, 2019 under non-cancelable operating leases are as follows:

2019	$	167,891
2020		357,452
2021		368,060
2022		379,097
2023		390,562
Thereafter		131,152
Total lease payments		1,794,214
Less: imputed interest		(189,122	)
Operating lease liability	$	1,605,092

The Company had a deferred rent liability of $0 and $46,523 as of June 30, 2019 and December 31, 2018, respectively, relative to the increasing future minimum lease payments. Rent expense for the three months ended June 30, 2019 and 2018 was $76,967 and $125,491, respectively. Rent expense for the six months ended June 30, 2019 and 2018 was $165,934 and $125,491, respectively.

Note 7. Accrued Expenses

Accrued compensation and related costs consisted of the following as of:

	June 30, 2019		December 31, 2018
Salaries and wages payable	$	146,787	$	147,677
401(k) contributions payable		3		8,232
Accrued paid time off		291,453		265,962
Profit sharing payable		106,006		191,820
Total accrued compensation and related costs	$	544,249	$	613,691

Accrued expenses and other current liabilities consisted of the following as of:

	June 30, 2019		December 31, 2018
Manufacturer’s warranties	$	185,017	$	200,505
Warranties-other		189,983		189,983
Loss contingencies		-		40,000
Taxes payable		24,122		202,118
Total accrued expenses and other current liabilities	$	399,122	$	632,606

F-15

Note 8. Collaboration Agreement with Related Party

On January 16, 2015, the Company entered into a Co-Venture Agreement (the “Co-Venture Agreement”) with MR, a wholly-owned subsidiary of TEC, a related party. The Co-Venture Agreement grants TEC an exclusive non-transferrable license to use the Company’s technology and certain equipment solely for use at locations to operate the concept, as defined in the Co-Venture Agreement. Throughout the duration of the Co-Venture Agreement, TEC will pay the Company a royalty based on gross revenue, as defined and subject to certain minimum royalties commencing with the first twelve-month period subsequent to the respective milestone date of June 1, 2017. Under the terms of the original agreement, if the total royalty payments for locations in the United States and Canada together do not total at least the minimum royalty amount specified in the agreement, TEC may pay to VirTra the difference between the amount of total royalty payments and the minimum specified in the agreement to maintain exclusivity.

On August 16, 2017, the Company entered into the first amendment to the Co-Venture Agreement to permit TEC to sublicense the VirTra technology to third party operators of stand-alone location-based entertainment companies. TEC agreed to pay the Company royalties for any such sublicenses in an amount equal to 10% of the revenue paid to TEC in cases where TEC pays for the cost of the equipment for such location or 14% of the revenue paid to TEC in cases where it does not pay for the cost of the equipment.

In April 2018, MR effected a 1-for-12,000 reverse stock split, followed by a 2,000-for-1 forward stock split completed in November 2018. As a result, the Company holds, as of June 30, 2019 and December 31, 2018, 560,000 shares of TEC common stock representing approximately 5.8% of the issued and outstanding common shares of TEC. The Company recorded its investment at cost minus impairment as of June 30, 2019 and December 31, 2018, at $1,120,000.

On July 23, 2018, the Company entered into the second amendment to the Co-Venture Agreement with TEC to (i) confirm the minimum royalty deficiency benefit due for the royalty period ended May 31, 2018; (ii) establish payment terms for the minimum royalty deficiency benefit due, to include both cash and promissory note payment; (iii) clarify the exclusivity provisions of the Co-Venture Agreement; and (iv) amend the minimum royalty calculations to only TEC branded facilities. For the three months ended June 30, 2019 and 2018, respectively, the Company recognized license fee income (royalties) from TEC of $32,795 and $35,580.

In addition, as of June 30, 2019, the Company holds a warrant to purchase 25,577 shares of TEC common stock, adjusted for the 1-for-12,000 reverse stock split and the 2,000-for-1 forward stock split, at an exercise price of $2.4436 per share, as adjusted. This warrant became exercisable on the date of grant of April 14, 2015 and expires on the tenth anniversary of the date of grant, if not earlier pursuant to the terms of the option.

Note 9. Related Party Transactions

Mr. Saltz, who is a member of our Board of Directors, is also Chairman of the Board of Directors of TEC, as well as a majority stockholder of TEC. The Company has entered into a Co-Venture Agreement with TEC as disclosed in Note 8. In addition, the Company owns 560,000 shares of TEC common stock representing approximately 5.8% of the issued and outstanding shares of TEC common stock. The Company recognized $32,795 and $427,433 for license fees (royalties) for the three months ended June 30, 2019 and 2018, respectively, pursuant to the terms of the Co-Venture Agreement. The Company recognized $72,432 and $473,401 for license fees (royalties) for the six months ended June 30, 2019 and 2018, respectively, pursuant to the terms of the Co-Venture Agreement. As of June 30, 2019 and December 31, 2018, TEC had accounts receivable balances outstanding of $22,464 and $16,743, respectively.

Mr. Richardson, who is a member of our Board of Directors, is also acting CEO of Natural Point, Inc. (“Natural Point”), a vendor of the Company. For the three months ended June 30, 2019 and 2018, the Company purchased specialized equipment from Natural Point in the amount of $17,733 and $34,865, respectively. For the six months ended June 30, 2019 and 2018, the Company purchased specialized equipment from Natural Point in the amount of $56,084 and $87193, respectively. As of June 30, 2019 and December 31, 2018, the Company had a prepaid balance outstanding with Natural Point of $1,020.

F-16

Note 10. Commitments and Contingencies

General or Threatened Litigation

From time to time, the Company is notified of threatened 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. In June 2018, the Company initiated a declaratory judgment action in the Superior Court of the State of Arizona. A former customer had raised allegations of breach of contract and breach of warranty and the Company seeks relief and clarification from the Superior Court regarding the allegations and the Company’s obligations under the contract with the former customer. In May 2019, the Company entered into settlement agreement of $76,250. The agreement does not constitute an admission of any unlawful conduct or wrongdoing. The Company had established a probable and estimated loss contingency of $40,000 as of December 31, 2018 and had accrued the full loss contingency of $76,250 as of March 31, 2019. The full amount of the settlement has been paid at June 30, 2019.

The Company evaluated its collection history related to its trade note receivable and determined the note was in default and in accordance with the terms of the note, accelerated its payment demand. The Company filed a verified complaint in the Superior Court of Arizona for the outstanding principal balance plus accrued interest, late fees and reasonable attorneys’ fees.

Employment Agreements

On April 2, 2012, the Company entered into three-year Employment Agreements with its Chief Executive Officer and Chief Operating Officer that call for base annual salaries of $195,000 and $175,000, respectively, subject to cost of living adjustments, and contain 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.

Profit Sharing

VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to active and eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata to employees in April and October of the following year after the completion of the annual financial audit. For the three and six months ended June 30, 2019, the amount charged to operations was $0 due to net loss in both periods. For the three and six months ended June 30, 2018, the amount charged to operations was $447,821 and $447,821, respectively. The profit-sharing estimate was revised in subsequent quarters during 2018 and was not paid until 2019.

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 (the “Common Stock”), 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 Class A or Class B Common Stock has 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 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.

F-17

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 $1,000,000 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 the 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.

Treasury Stock

During the three months ended June 30, 2019, the Company purchased 14,450 additional treasury shares at an average cost of $3.97 per share. During the six months ended June 30, 2019, the Company had purchased 82,689 treasury shares at an average cost of $3.85 per share. As of December 31, 2018, the Company held 10,707 treasury shares at an average cost of $3.48 per share. As of June 30, 2019, all treasury shares outstanding had been cancelled and returned to shares authorized.

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:

	June 30, 2019					June 30, 2018
	Number of			Weighted		Number of			Weighted
	Stock Options			Exercise Price		Stock Options			Exercise Price
Options outstanding, beginning of year		279,167		$	2.34		531,667		$	1.80
Granted		-			-		-			-
Redeemed		(3,750	)		1.40		(22,500	)		1.70
Exercised		(5,000	)		1.13		(7,500	)		1.40
Expired / terminated		-			-		(5,000	)		1.40
Options outstanding, end of quarter		270,417		$	2.38		496,667		$	1.82
Options exercisable, end of quarter		270,417		$	2.38		493,489		$	1.82

The Company did not have any non-vested stock options outstanding as of June 30, 2019. There were 3,178 non-vested stock options as of June 30, 2018 that vested in October 2018. The weighted average contractual term for options outstanding and exercisable at June 30, 2019 and 2018 was 7 years. The aggregate intrinsic value of the options outstanding and exercisable at June 30, 2019 and 2018 was $183,700 and $1,240,094, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2019 and 2018 was $6,050 and $30,750, respectively. For the three and six months ended June 30, 2019 and 2018, the Company received payments related to the exercise of options in the amount of $5,650 and $10,500, 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.

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 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-based or stock-based awards.

F-18

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 will increase 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.

As of June 30, 2019 and December 31, 2018, there were no options issued under the Equity Plan.

Note 12. Subsequent Events

In July 2019, the Company redeemed 3,750 previously awarded expiring stock options from a related party for cash totaling $6,413, of which $3,766 had previously been expensed in 2012, with the balance of $2,647 being recognized as additional compensation costs in July 2019. See Note 8 and Note 9.

In July 2019, the Company redeemed 9,225 previously awarded expiring stock options from an employee for cash totaling $13,930, of which $7,976 had previously been expensed in 2012, with the balance of $5,954 being recognized as additional compensation costs in July 2019. Additionally, in July, the employee exercised 5,775 expiring stock options at an exercise price of $1.00 per share.

In July 2019, the Company announced its annual meeting of stockholders to be held on Friday, September 6, 2019. Stockholders of record at the close of business on July 18, 2019 will be entitled to vote at and attend the meeting.

On July 31, 2019, the Company executed the First Amendment to Convertible Promissory Note with TEC to extend the note’s maturity date for one additional year to August 1, 2020 and to reaffirm TEC will remit a payment of 20% of its net proceeds from its recent public offering within ten (10) days of the note’s amendment date. All other terms and conditions of the Note remain unchanged.

F-19

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, 2018 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, 2018, filed with the Securities and Exchange Commission (the “SEC”) on April 1, 2019.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Quarterly Report on Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this Quarterly Report on Form 10-Q. You should carefully consider these risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

3

Business Overview

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and “our”) is a global provider of judgmental use of force training simulators, firearms training simulators and driving simulators for the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to save and improve lives worldwide through practical and highly-effective virtual reality and simulator technology.

The VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place on a daily basis without the need for a shooting range, protective equipment, role players, safety officers, or a scenario-based training site. We have developed a higher standard in simulation training including capabilities such as: multi-screen, video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented Threat-Fire™ shoot-back system, powerful gas-powered simulated recoil weapons, and more. The simulator also allows students to receive immediate feedback from the instructor without the potential for sustaining injuries by the instructor or the students. The instructor is able to teach and re-mediate critical issues, while placing realistic stress on the students due to the realism and safe training environment created by the VirTra simulator.

VirTra’s Driver Training Simulator is a vehicle-based simulator, complete with next-generation graphics, motion and a variety of other features. The system is designed to provide safe, reliable environment for efficient skill transfer for all law enforcement driver training. In addition, the driving rig adds realism with vibration and motion while the modern physics-based rendering engine provides not only photo-realistic realism but critical hazards such as dust storms, rain, and sun glare. VirTra’s Driver Training Simulator provides an extensive and realistic range of training environments that allow for initial driver familiarization and orientation to advanced concepts, high-risk pursuits and defensive driving drills.

We also are engaged in licensing our technology to That’s Eatertainment Corp. (“TEC”), a related party and a developer and operator of a combined dining and entertainment concept centered on an indoor shooting experience.

Business Strategy

We have four main customer groups, namely, law enforcement, military, educational (includes colleges and police academies) and civilian. These are very different markets and require different sales and marketing programs as well as personnel. Our focus is to expand the market share and scope of our training simulators sales to these identified customer groups by pursuing the following key growth strategies:

● Build Our Core Business. Our goal is to profitably grow our market share by continuing to develop, produce and market the most effective simulators possible. Through disciplined growth in our business, we have achieved a solid balance sheet by increasing our working capital and limiting our bank debt. We plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we increase our marketing and sales activities.

● Increase Total Addressable Market. We plan to increase the size of our total addressable market. This effort will focus on new marketing and new product and/or service offerings for the purpose of widening the number of types of customers who might consider our products or services uniquely compelling.

● Broaden Product Offerings. Since formation in 1993, our company has had a proud tradition of innovation in the field of simulation and virtual reality. We plan to release revolutionary new products and services as well as continue incremental improvements to existing product lines. In some cases, the company may enter a new market segment via the introduction of a new type of product or service.

● Partners and Acquisitions. We try to spend our time and funds wisely and not tackle tasks that can be done more efficiently with partners. For example, international distribution is often best accomplished through a local distributor or agent. We are also open to the potential of acquiring additional businesses or of being acquired ourselves, based on what is expected to be optimal for our long-term future and our stockholders.

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

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○

The V-300™ is the higher standard for decision-making simulation and tactical firearms training. Five screens and a 300-degree immersive training environment ensures that time in the simulator translates into real world survival skills. The system reconfigures to support 15 lanes of individual firing lanes.

○

A key feature of the V-300™ shows how quickly judgment decisions have to be made, and if they are not made immediately and quickly, it can lead to the possible loss of lives. This feature, among others, supports our value proposition to our customers that you cannot put a dollar value on being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters.

● V-180™ Simulator – a 180° screen with video capability is for smaller spaces or smaller budgets

○ The V-180™ is the higher standard for decision-making simulation and tactical firearms training. Three screens and a 180-degree immersive training environment ensures that time in the simulator translates into real world survival skills. The system reconfigures to support 9 lanes of individual firing lanes.

● V-100™ Simulator & V-100™ MIL – a single-screen based simulator systems

○ The V-100™ is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to 4 individual firing lanes at one time. The optional Threat-Fire™ device safely simulates enemy return fire with an electric impulse (or vibration version), reinforcing performance under pressure. We offer the industry’s only upgrade path, so a V-100™ firearms training and force options simulator can affordably grow into an advanced multi-screen trainer in upgraded products that we offer customers for future purchase.

○ The V-100™ MIL is sold to various military commands throughout the world and can support any local language. The system is extremely compact and can even share space with a standard classroom or squeeze into almost any existing facility. If a portable firearms simulator is needed, this model offers the most compact single-screen simulator on the market today – everything organized into one standard case. The V-100™ MIL is the higher standard among single-screen small arms training simulators. Military Engagement Skills mode supplies realistic scenario training taken from real world events.

○ The V-ST PRO™ a highly-realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments. The system’s flexibility supports a combination of marksmanship and use of force training on up to 5 screens from a single operator station. The V-ST PRO™ is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics.

● Virtra Driving Sim is a vehicle-based simulator, complete with next-generation graphics, motion and a variety of other features. The system is designed to provide safe, reliable environment for efficient skill transfer for all law enforcement driver training.

● Virtual Interactive Coursework Training Academy (V-VICTA)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators.

● Subscription Training Equipment Partnership (STEP)™ is a program that allows agencies to utilize VirTra’s simulator products, accessories, and V-VICTA interactive coursework on a subscription basis.

● V-Author™ Software allows users to create, edit, and train with content specific to agency’s objectives and environments. V-Author™ is an easy to use application capable of almost unlimited custom scenarios, skill drills, targeting exercises and firearms course-ware proven to be highly effective for users of VirTra simulation products.

● Simulated Recoil Kits - a wide range of highly realistic and reliable simulated recoil kits/weapons

● Return Fire Device – the patented Threat-Fire™ device which applies real-world stress on the trainees during simulation training

● TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training.

5

Results of operations for the three and six months ended June 30, 2019 and June 30, 2018

Revenues. Revenues were $3,054,313 for the three months ended June 30, 2019 compared to $8,708,192 for the same period in 2018, a decrease of $5,653,879, or 65%. For the six months ended June 30, 2019, revenues were $6,105,651, compared to $11,996,983 for the same period in 2018, a decrease of $5,891,332, or 49%. The decrease in revenues for the three- and six-months ended June 30, 2019 resulted from a reduction in the number of simulators and accessories completed, delivered and revenue recognized compared to the same period in 2018. The three- and six-months ended June 30, 2018 revenues includes a large federal 49-simulator and accessories order that was recognized for $4.2 million, in addition to other customer revenues.

Cost of Sales. Cost of sales were $1,539,267 for the three months ended June 30, 2019 compared to $2,964,997 for the same period in 2018, a decrease of $1,425,730, or 48%. For the six months ended June 30, 2019, cost of sales was $2,790,136, compared to $3,991,152 for the same period in 2018, a decrease of $1,201,016, or 30%. In each period, the decrease was primarily due to reduced direct material costs directly related to the type and quantity of simulator systems and accessories sold. The cost of sales on a dollar basis varies from quarter-to-quarter primarily due to sales volume and product mix but tends to remain consistent as a percentage of total revenue, when compared annually.

Gross Profit. Gross profit was $1,515,046 for the three months ended June 30, 2019 compared to $5,743,195 for the same period in 2018, a decrease of $4,228,149, or 74%. Gross profit was $3,315,515 for the six months ended June 30, 2019, compared to $8,005,831 for the same period in 2018, a decrease of $4,690,316, or 59%. The gross profit margin was 49.6% for the three months ended June 30, 2019 and 66.0% for the same period in 2018. The gross profit margin was 54.3% for the six months ended June 30, 2019 and 66.7% for the same period in 2018. In both periods, the decrease in gross profit was primarily due to differences in the product mix and the quantity of systems, accessories and services sold.

Operating Expenses. Net operating expense was $2,398,525 for the three months ended June 30, 2019 compared to $2,786,589 for the same period in 2018, a decrease of $388,064, or 14%. Operating expense was $4,656,097 for the six months ended June 30, 2019, compared to $5,207,438 for the same period in 2018, a decrease of $551,341, or 11%. In each period, the decrease was due to reduced selling, general and administrative costs for labor, benefits, professional services, and public company expense.

Operating (Loss) Income. Operating loss was $883,479 for the three months ended June 30, 2019 compared to operating income of $2,956,606 for the same period in 2018, a decrease of $3,840,085, or 130%. Operating loss was $1,340,582 for the six months ended June 30, 2019 compared to operating income of $2,798,393 for the same period in 2018, a decrease of $4,138,975, or 148%.

Provision for Income Tax. Provision for income tax benefit was $217,248 for the three months ended June 30, 2019 compared to an income tax expense of $864,941 for the same period in 2018, a decrease of $1,082,189, or 125%. Provision for income tax benefit was $324,248 for the six months ended June 30, 2019 compared to an income tax expense of $835,747 for the same period in 2018, a decrease of $1,159,995, or 139%. In each period, the decrease resulted from the federal tax rate being applied to the net operating loss, resulting in additional deferred tax asset.

Other Income. Other income net of other expense was $32,500 for the three months ended June 30, 2019 as compared to $21,272 for the same period in 2018, an increase of $11,228, or 53%. For the six months ending June 30, 2019, other income net of other expense was $69,701 compared to $64,504 for the same period in 2018, and increase of $5,197, or 8%. In each period, the increase resulted from non-recurring miscellaneous income or interest income.

Net (Loss) Income. Net loss was $633,731 for the three months ended June 30, 2019 compared to net income of $2,112,937 for the same period in 2018, a decrease of $2,746,668, or 130%. For the six months ended June 30, 2019, net loss was $946,633 compared to net income of $2,027,150 for the same period in 2018, a decrease of $2,973,783, or 147%. In each period, the fluctuations in net (loss) income relate to each respective section discussed above.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization. Explanation and Use of Non-GAAP Financial Measures:

6

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 U.S. 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 U.S. GAAP or as a measure of profitability or liquidity. A reconciliation of net income (loss) to adjusted EBITDA is provided in the following table:

	Three Months Ended											Six Months Ended
	June 30,			June 30,		Increase			%			June 30,			June 30,		Increase			%
	2019			2018		(Decrease)			Change			2019			2018		(Decrease)			Change
Net (Loss) Income	$	(633,731	)	$	2,112,937	$	(2,746,668	)		-130	%	$	(946,633	)	$	2,027,150	$	(2,973,783	)		-147	%
Adjustments:
Depreciation and amortization		144,061			74,587		69,474			93	%		285,844			143,206		142,638			100	%
Non-cash stock option expense		-			4,860		(4,860	)		-100	%		-			4,860		(4,860	)		-100	%
Impairment loss on That’s Eatertainment		-			134,140		(134,140	)		-100	%		-			134,140		(134,140	)		-100	%
Reserve for note receivable		102,473			-		102,473			100	%		102,473			-		102,473			100	%
(Benefit) provision for income taxes		(217,248	)		864,941		(1,082,189	)		-125	%		(324,248	)		835,747		(1,159,995	)		-139	%
Adjusted EBITDA	$	(604,445	)	$	3,191,465	$	(3,795,910	)		-119	%	$	(882,564	)	$	3,145,103	$	(4,027,667	)		-128	%

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 $1,393,701 and $2,500,381 cash and cash equivalents as of June 30, 2019 and December 31, 2018, respectively. The Company also held certificates of deposits with maturities of less than six months, which are recorded as short-term investments, totaling $1,880,000 and $3,490,000 as of June 30, 2019 and December 31, 2018, respectively. Working capital was $4,780,474 and $6,769,068 as of June 30, 2019 and December 31, 2018, respectively.

Net cash used by operating activities was $1,932,470 for the six months ended June 30, 2019 and net cash provided by operating activities was $127,916 for the six months ended June 30, 2018. Cash used resulted primarily from the net loss, inventory purchases and increased accounts receivables, partially offset by changes in other operating assets and liabilities.

Net cash provided by investing activities was 1,142,710 for the six months ended June 30, 2019 and net cash used in investing activities was $287,773 for the six months ended June 30, 2018. Investing activities in 2019 consisted of purchases and redemptions of certificates of deposits, purchase of intangible asset, purchases and sales of property and equipment, compared to investing activities in 2018 consisted entirely of purchases of property and equipment.

Net cash used in financing activities was $316,920 and $21,500 for the six months ended June 30, 2019 and 2018, respectively. Financing activities in 2019 consisted of repurchases of treasury stock and repurchase of stock options offset by stock options exercised. Financing activities in 2018 consisted of repurchases of stock options offset by stock options exercised.

Bookings and Backlog

The Company defines bookings as the total of newly signed contracts and purchase orders received in a defined time period. The Company received bookings totaling $4.1 million for the three months ended June 30, 2019. The Company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are 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 June 30, 2019, the Company’s backlog was $10.1 million.

Management estimates the majority of the new bookings received in the second quarter of 2019 will be converted to revenue in 2019. Management’s estimates for the conversion of backlog is 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.

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.

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Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based on our condensed financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed 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, 2018. Management believes that there have been no changes in our critical accounting policies during the six months ended June 30, 2019.

Recent Accounting Pronouncements

See Note 1 to our condensed financial statements, included in Part I, Item 1., Financial Information of this quarterly report on Form 10-Q.

Off-Balance Sheet Arrangements

As of June 30, 2019, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, 2019, 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, 2018, filed with the SEC on April 1, 2019.

8

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 June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 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

See Note 10 to our unaudited condensed financial statements, included in Part I, Item 1., Financial Information of this quarterly report on Form 10-Q, which information is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a)	None.
(b)	There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the filing with the SEC of the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2019.

9

ITEM 6. EXHIBITS

Exhibit No.	Exhibit Description
31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

10

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	VIRTRA, INC.
Date: August 13, 2019	By:	/s/ Robert D. Ferris
		Robert D. Ferris
		Chief Executive Officer and President
		(principal executive officer)
	By:	/s/ Judy A. Henry
		Judy A. Henry,
		Chief Financial Officer
		(principal financial and principal accounting officer)

11

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Robert D. Ferris, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2019 of VirTra, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2019	/s/ Robert D. Ferris
	Robert D. Ferris
	Chief Executive Officer and President (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Judy A. Henry, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2019 of VirTra, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 13, 2019	/s/ Judy A. Henry
	Judy A. Henry
	Chief Financial Officer (principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of VirTra, Inc. (the “Company”) for the quarter ended June 30, 2019 as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, Robert D. Ferris, Chief Executive Officer and President of the Company, and Judy A. Henry, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: August 13, 2019	/s/ Robert D. Ferris
	Robert D. Ferris, Chief Executive Officer and President (principal executive officer)

Date: August 13, 2019	/s/ Judy A. Henry
	Judy A. Henry, Chief Financial Officer (principal financial officer)

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 13, 2019
Document And Entity Information
Entity Registrant Name	VirTra, Inc
Entity Central Index Key	0001085243
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,745,030
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019

XML

Condensed Balance Sheets - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 1,393,701	$ 2,500,381
Certificates of deposit	1,880,000	3,490,000
Accounts receivable, net	2,066,428	1,302,010
Interest receivable	24,295	21,385
That's Eatertainment note receivable, net, related party		292,138
Trade note receivable, net		96,282
Inventory, net	2,513,878	1,612,002
Unbilled revenue	1,044,691	689,153
Prepaid expenses and other current assets	592,358	377,520
Total current assets	9,515,351	10,380,871
Long-term assets:
Property and equipment, net	844,027	678,245
Operating lease right-of-use asset	1,534,225
Intangible assets, net	156,296
That's Eatertainment note receivable, long-term, related party	292,138
Trade note receivable, long term		6,843
Security deposits, long-term	19,712	339,756
Other assets, long-term	372,566	292,298
Deferred tax asset, net	2,729,000	2,400,000
Investment in That's Eatertainment, related party	1,120,000	1,120,000
Total long-term assets	7,067,964	4,837,142
Total assets	16,583,315	15,218,013
Current liabilities:
Accounts payable	814,518	429,949
Accrued compensation and related costs	544,249	613,691
Accrued expenses and other current liabilities	399,122	632,606
Note payable, current	11,250	11,250
Operating lease liability, short-term	278,628
Deferred revenue, short-term	2,687,110	1,924,307
Total current liabilities	4,734,877	3,611,803
Long-term liabilities:
Deferred revenue, long-term	1,188,196	962,356
Deferred rent liability		46,523
Operating lease liability, long-term	1,326,464
Total long-term liabilities	2,514,660	1,008,879
Total liabilities	7,249,537	4,620,682
Commitments and contingencies (See Note 10)
Stockholders' equity:
Preferred stock $0.0001 par value; 2,500,000 authorized; no shares issued or outstanding
Common stock par value	774	783
Treasury stock at cost; nil shares outstanding as of June 30, 2019 and 10,707 shares outstanding as of December 31, 2018		(37,308)
Additional paid-in capital	13,918,615	14,272,834
Accumulated deficit	(4,585,611)	(3,638,978)
Total stockholders' equity	9,333,778	10,597,331
Total liabilities and stockholders' equity	16,583,315	15,218,013
Class A Common Stock [Member]
Stockholders' equity:
Common stock par value
Class B Common Stock [Member]
Stockholders' equity:
Common stock par value

XML

Condensed Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	2,500,000	2,500,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	7,739,255	7,827,651
Common stock, shares outstanding	7,739,255	7,816,944
Treasury stock, shares outstanding		10,707
Class A Common Stock [Member]
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	2,500,000	2,500,000
Common stock, shares issued
Common stock, shares outstanding
Class B Common Stock [Member]
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	7,500,000	7,500,000
Common stock, shares issued
Common stock, shares outstanding

XML

Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenues:
Total revenue	$ 3,054,313	$ 8,708,192	$ 6,105,651	$ 11,996,983
Cost of sales	1,539,267	2,964,997	2,790,136	3,991,152
Gross profit	1,515,046	5,743,195	3,315,515	8,005,831
Operating expenses:
General and administrative	2,044,860	2,480,851	3,946,791	4,534,156
Research and development	353,665	305,738	709,306	673,282
Net operating expense	2,398,525	2,786,589	4,656,097	5,207,438
(Loss) income from operations	(883,479)	2,956,606	(1,340,582)	2,798,393
Other income (expense)
Other income	33,449	22,177	75,732	65,475
Other expense	(949)	(905)	(6,031)	(971)
Net other income	32,500	21,272	69,701	64,504
(Loss) income before provision for income taxes	(850,979)	2,977,878	(1,270,881)	2,862,897
(Benefit) provision for income taxes	(217,248)	864,941	(324,248)	835,747
Net (loss) income	$ (633,731)	$ 2,112,937	$ (946,633)	$ 2,027,150
Net (loss) income per common share:
Basic	$ (0.08)	$ 0.27	$ (0.12)	$ 0.26
Diluted	$ (0.08)	$ 0.26	$ (0.12)	$ 0.25
Weighted average shares outstanding:
Basic	7,735,303	7,907,390	7,750,370	7,905,849
Diluted	7,735,303	8,255,299	7,750,370	8,251,640
Net Sales [Member]
Revenues:
Total revenue	$ 3,002,381	$ 8,278,579	$ 6,014,082	$ 11,521,402
That's Eatertainment Royalties/Licensing fees, Related Party [Member]
Revenues:
Total revenue	32,795	427,433	72,432	473,401
Other Royalties/Licensing Fees [Member]
Revenues:
Total revenue	$ 19,137	$ 2,180	$ 19,137	$ 2,180

XML

Condensed Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Treasury Stock [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2017		$ 793	$ 14,954,563	$ (112,109)	$ (4,457,070)	$ 10,386,177
Balance, shares at Dec. 31, 2017		7,927,774
Stock options exercised		$ 1	10,499			10,500
Stock options exercised, shares		7,500
Stock options repurchased			(32,000)			(32,000)
Stock based compensation			4,860			4,860
Net loss					2,027,150	2,027,150
Balance at Jun. 30, 2018		$ 794	14,937,922	(112,109)	(2,429,920)	12,396,687
Balance, shares at Jun. 30, 2018		7,935,274
Balance at Mar. 31, 2018		$ 793	14,954,563	(112,109)	(4,542,857)	10,300,390
Balance, shares at Mar. 31, 2018		7,927,774
Stock options exercised		$ 1	10,499			10,500
Stock options exercised, shares		7,500
Stock options repurchased			(32,000)			(32,000)
Stock based compensation			4,860			4,860
Net loss					2,112,937	2,112,937
Balance at Jun. 30, 2018		$ 794	14,937,922	(112,109)	(2,429,920)	12,396,687
Balance, shares at Jun. 30, 2018		7,935,274
Balance at Dec. 31, 2018		$ 783	14,272,834	(37,308)	(3,638,978)	10,597,331
Balance, shares at Dec. 31, 2018		7,827,651
Treasury stock				(318,204)		(318,204)
Treasury stock cancelled		$ (10)	(355,502)	355,512
Treasury stock cancelled, shares		(93,396)
Stock options exercised		$ 1	5,650			5,651
Stock options exercised, shares		5,000
Stock options repurchased			(4,367)			(4,367)
Net loss					(946,633)	(946,633)
Balance at Jun. 30, 2019		$ 774	13,918,615		(4,585,611)	9,333,778
Balance, shares at Jun. 30, 2019		7,739,255
Balance at Mar. 31, 2019		$ 775	13,974,692		(3,951,880)	10,023,587
Balance, shares at Mar. 31, 2019		7,748,705
Treasury stock				(57,362)		(57,362)
Treasury stock cancelled		$ (2)	(57,360)	57,362
Treasury stock cancelled, shares		(14,450)
Stock options exercised		$ 1	5,650			5,651
Stock options exercised, shares		5,000
Stock options repurchased			(4,367)			(4,367)
Net loss					(633,731)	(633,731)
Balance at Jun. 30, 2019		$ 774	$ 13,918,615		$ (4,585,611)	$ 9,333,778
Balance, shares at Jun. 30, 2019		7,739,255

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Cash flows from operating activities:
Net (loss) income	$ (633,731)	$ 2,112,937	$ (946,633)	$ 2,027,150
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Depreciation and amortization			285,844	143,206
Deferred taxes			(329,000)	824,182
Impairment of Investment in That's Eatertainment, related party				134,140
Stock compensation				4,860
Reserve for note receivable			102,474		$ 266,813
Changes in operating assets and liabilities:
Accounts receivable, net			(764,418)	(3,412,430)
Trade note receivable, net			651
Interest receivable			(2,910)
Inventory			(901,876)	(80,650)
Unbilled revenue			(355,538)	922,730
Prepaid expenses and other current assets			(214,838)	(141,378)
Other assets			(80,268)
Security deposits, long-term			320,044
Accounts payable and other accrued expenses			81,643	787,124
Payments on operating lease liability			(116,288)
Deferred revenue			988,643	(1,081,018)
Net cash (used in) provided by operating activities			(1,932,470)	127,916
Cash flows from investing activities:
Purchase of certificates of deposit			(1,880,000)
Redemption of certificates of deposit			3,490,000
Purchase of intangible asset			(160,000)
Purchase of property and equipment			(309,921)	(287,773)
Proceeds from sale of property and equipment			2,631
Net cash provided by (used in) investing activities			1,142,710	(287,773)
Cash flows from financing activities:
Repurchase of stock options			(4,367)	(32,000)
Stock options exercised	5,650	10,500	5,651	10,500
Purchase of treasury stock			(318,204)
Net cash used in financing activities			(316,920)	(21,500)
Net decrease in cash			(1,106,680)	(181,357)
Cash, beginning of period			2,500,381	5,080,445	5,080,445
Cash, end of period	$ 1,393,701	$ 4,899,088	1,393,701	4,899,088	$ 2,500,381
Supplemental disclosure of cash flow information:
Cash paid: Taxes			4,752	96,574
Supplemental disclosure of non-cash investing and financing activities:
Conversion of accounts to note receivable				693,044
Conversion of That's Eatertainment note receivable to long term, related party			$ 292,138

XML

Organization and Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Organization and Significant Accounting Policies

Note 1. Organization and Significant Accounting Policies

Organization and Business Operations

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” or “our”), located in Tempe, 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.

Effective March 2, 2018, the Company effected a 1-for-2 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”). All references to shares of the Company’s common stock in this report refer to the number of shares of common stock after giving effect to the Reverse Stock Split.

Basis of Presentation

The condensed 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, 2018. 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 condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed 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 six months ended June 30, 2019 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 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.

Reclassifications

Certain reclassifications have been made to the 2018 financial statements to conform to the 2019 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

Revenue Recognition

The Company adopted 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. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable). 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
Sales-based royalty exchanged for license of intellectual property	Recognized as the performance obligation is satisfied over time – which is as the sales occur.

The Company recognizes revenue upon transfer of control or upon completion of the services for the simulator and accessories; for the installation and training and customized software performance obligations as the customer has the right and ability to direct the use of these products and services and the customer obtains substantially all of the remaining benefit from these products and services at that time. Revenue from certain customized content contracts may be recognized over the period the services are performed based on the terms of the contract. For the sales-based royalty exchanged for license of intellectual property, the Company recognized revenue as the sales occur over time.

The Company recognizes revenue on a straight-line basis over the period of services being rendered for the extended service-type warranties as these warranties represent a performance obligation to “stand ready to perform” over the duration of the warranties. As such, the warranty service is performed continuously over the warranty period.

Each contract states the transaction price. The contracts do not include variable consideration, significant financing components or noncash consideration. The Company has elected to exclude sales and similar taxes from the measurement of the transaction price. The contract’s transaction price is allocated to the performance obligations based upon their stand-alone selling prices. Discounts to the stand-alone selling prices, if any, are allocated proportionately to each performance obligation.

Disaggregation of Revenue

Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors. The Company has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation.

	Three Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	1,550,317	$	132,098	$	1,682,415	$	6,950,268	$	399,473	$	7,349,741
Extended service-type warranties		498,194		50,437		548,631		481,451		52,700		534,151
Customized software & content		484,421		-		484,421		274,497		-		274,497
Installation and training		276,414		10,500		286,914		87,894		32,296		120,190
Licensing and royalties		51,932		-		51,932		429,613		-		429,613
Total Revenue	$	2,861,278	$	193,035	$	3,054,313	$	8,223,723	$	484,469	$	8,708,192

	Six Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	3,477,642	$	450,536	$	3,928,178	$	7,922,271	$	1,952,207	$	9,874,478
Extended service-type warranties		978,717		80,387		1,059,104		908,136		115,085		1,023,221
Customized software & content		660,484		-		660,484		388,444		11,940		400,384
Installation and training		355,816		10,500		366,316		140,804		82,515		223,319
Licensing and royalties		91,569		-		91,569		475,581		-		475,581
Total Revenue	$	5,564,228	$	541,423	$	6,105,651	$	9,835,236	$	2,161,747	$	11,996,983

Customer Deposits

Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled $827,475 and $186,450 as of June 30, 2019 and December 31, 2018, respectively. 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. Customer deposits are considered a deferred liability until completion of the customer’s contract performance obligations. When revenue is recognized, the deposit is applied to the customer’s receivable balance.

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 $1,726,415 and $1,604,637 as of June 30, 2019 and December 31, 2018, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $1,188,196 and $962,356 as of June 30, 2019 and December 31, 2018, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $185,017 and $200,505 as of June 30, 2019 and December 31, 2018, respectively. During the three months ended June 30, 2019 and 2018, the Company recognized revenue of $548,631 and $534,151, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. During the six months ended June 30, 2019 and 2018, the Company recognized revenue of $1,059,104 and $1,023,221, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. 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.

Customer Retainage

Customer retainage is recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $133,220 as of June 30, 2019 and December 31, 2018. Changes in deferred revenue amounts related to customer retainage will fluctuate from year to year based upon the customer’s contract completion date allowing the Company to invoice and be paid the retainage.

Licensing and Royalties with Related Party

As discussed further in Note 8. Collaboration Agreement with Related Party, the Company licenses intellectual property to Modern Round, LLC (“MR”), a wholly-owned subsidiary of That’s Eatertainment Corp. (“TEC”), a related party, in exchange for sales-based royalties. Revenues from this agreement are recognized in accordance with the terms of the contract as the sales occur. The Company receives additional immaterial sales-based royalties from strategic partners.

Adoption of New Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”). Topic 842 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases.

In July 2017, the FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)” Part I of ASU No. 2017-11 applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. ASU No. 2017-11 did not have a material impact on the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contract with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. ASU No. 2018-07 did not have a material impact on the Company’s financial statements.

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, notes and interest receivables, accounts payable, and accrued liabilities. The fair value of financial instruments, except for long-term notes receivable, approximates their carrying values, using level 3 inputs, at June 30, 2019 and December 31, 2018 due to their short maturities. The fair value of the long-term notes receivable approximates its carrying value, using level 3 inputs, at June 30, 2019 and December 31, 2018 based on borrowing rates currently available for loans with similar terms and maturities.

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 average maturities 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 Notes Receivable 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. As of June 30, 2019 and December 31, 2018, the Company maintained an allowance for doubtful accounts of $25,413 and $23,044, respectively.

Notes receivable are carried at their estimated collectible amounts. Interest income on notes receivable is recognized using the effective interest method. Notes receivable are periodically evaluated for collectability based on the credit history and the current financial condition of the counter party, and the known and inherent risks in the notes. Notes receivable are placed on nonaccrual status when they become 90 days past due and the customer has not made a payment in over 60 days. Upon suspension of the accrual of interest, interest income is subsequently recognized to the extent cash payments are received. Accrual of interest is resumed when notes are removed from non-accrual status. Notes receivable are charged against the allowance for credit losses when they are deemed to be uncollectible. As of June 30, 2019 and December 31, 2018, the allowance for uncollectible notes receivable was $369,286 and $266,813, 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. As of June 30, 2019 and December 31, 2018, inventory reserves were $105,031.

Investments in Other Companies

Minority investments in other companies are accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the other companies’ operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than-temporary declines in fair value and distribution of earnings. For investments in public companies that have readily determinable fair values, the Company classifies its investments as available-for-sale, and accordingly records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the statements of operations.

The adoption of ASU 2016-01 requires investments in other companies that do not have readily determinable fair value be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This standard was adopted on January 1, 2018, including all interim reporting periods within the fiscal year. The adoption of ASU 2016-01 did not have a material impact on the financial statements. Upon adoption, the Company has elected to utilize the cost minus impairment approach because the investment in TEC does not have a readily determinable fair value as of the reporting date. See Note 8. Collaboration Agreement with Related Party.

Management regularly evaluates the recoverability of its investment based on the investee company’s performance and financial position. During the three and six months ended June 30, 2019, the Company did not recognize any impairment loss. During the three and six months ended June 30, 2018, the Company recognized an impairment loss of $134,140. Management regularly assesses the classification of its investments.

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. 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, which are summarized as follows:

Computer equipment	3-5 years
Furniture and office equipment	5-7 years
Machinery and equipment	5-7 years
STEP equipment	5 years
Leasehold improvements	7 years

Intangible Assets

Intangible assets at June 30, 2019 are comprised of various patents. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful lives of 18 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 does not include depreciation of fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold.

Advertising Costs

Costs associated with advertising are expensed as incurred. Advertising expense was $150,977 and $160,643 for the three months ended June 30, 2019 and 2018, respectively. Advertising expense was $270,380 and $300,025 for the six months ended June 30, 2019 and 2018, respectively. These costs include domestic and international tradeshows, website, 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 costs were $353,665 and $305,738 for the three months ended June 30, 2019 and 2018, respectively. Research and development costs were $709,306 and $673,282 for the six months ended June 30, 2019 and 2018, respectively

Legal Costs

Legal costs relating to loss contingencies are expensed as incurred. See Note 10.

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, accounts receivable and notes 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 $1,119,590 and $2,014,987 as of June 30, 2019 and December 31, 2018, 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.

The Company’s notes receivable are due from one trade customer and one related party, both are unsecured. Management performs ongoing evaluations of the collectability of its notes receivable and maintains an allowance for estimated losses.

Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended June 30, 2019, two federal agencies comprised 32% of total net sales and one tribal government comprised 10% of total net sales. By comparison, for the three months ended June 30, 2018, one federal agency comprised 53% of total net sales. For the six months ended June 30, 2019, two federal agencies comprised 25% of total net sales. By comparison, for the six months ended June 30, 2018, one federal agency comprised 39% of total net sales and one commercial customer comprised 11% of total net sales.

As of June 30, 2019, three federal agencies comprised 55% of total accounts receivables and one state agency comprised 11% of total accounts receivables. By comparison, as of December 31, 2018, one federal agency comprised 26% of total accounts receivables and one state agency comprised 20% of total accounts receivables.

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 the 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 of its deferred tax asset and no valuation allowance was needed as of June 30, 2019 and December 31, 2018.

As of June 30, 2019 and December 31, 2018, the Company did not recognize any assets or liabilities relative to uncertain tax positions. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result 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 at June 30, 2019 and December 31, 2018.

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 2014 and 2019; 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 and Intangible 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. 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. At June 30, 2019 and December 31, 2018, 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. There were no grants of stock-based awards during the three and six months ended June 30, 2019 and 2018.

The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, 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. As share-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. The Company has elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 and the subsequent amendments are effective for us on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is assessing what effect the provisions of 2016-13 and the subsequent amendments will have on the financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of 2018-18 on its financial statements.

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Notes Receivable

6 Months Ended

Jun. 30, 2019

Receivables [Abstract]

Notes Receivable

Note 2. Notes Receivable

An unsecured promissory note was executed on March 23, 2018 by a customer converting its past-due trade receivable from the sale of goods and services in the amount of $400,906. This unsecured promissory note is due in full on or before February 2020. The note bears interest at the rate of ten percent (10%) per annum and requires installment payments of $20,000 principal and interest. Payments are due monthly and include late fees. The principal and accrued interest due as of June 30, 2019 and December 31, 2018 was $369,286 and $374,034, respectively. The note is currently in default, repayment has been demanded and the Company is pursuing legal remedy, see Note 10. Based on collection history, interest accrual has been suspended as of the last payment received in February 2019. At June 30, 2019 and December 31, 2018, the Company recorded an allowance against the note receivable balance in the amount of $369,286 and $266,813, respectively.

The Company accepted an unsecured convertible promissory note (the “Convertible Note”) from TEC, a related party, in the amount of $292,138 for a portion of their minimum royalty payment due as of May 31, 2018. The note bears interest at the rate of five percent (5%) per annum and contains a provision requiring remittance of not less than 20% of the net proceeds of any private or public offering of its securities in reduction of the Convertible Note. The note has a conversion right, at the sole discretion of the Company, to convert the outstanding balance of principal and accrued interest at any time for shares of common stock of TEC. Prior to the due date, the Company may elect to convert the Convertible Note for shares of common stock in TEC at a twenty-five percent (25%) discount to the price of shares sold to the public in a public offering in connection with a go-public transaction. The issuance of common stock upon conversion shall be made without charge to the Company. No fractional shares shall be issued upon conversion and in lieu of fractional shares, TEC will pay the Company the amount of any obligation that is not converted. Any unpaid balance of principal and accrued interest becomes due and collectible on the earlier of (i) August 1, 2019 (maturity date), or (ii) if declared due and payable in the event of Default. The note principal and accrued interest due as of June 30, 2019 and December 31, 2018 was $305,528 and $298,224, respectively. No reserve for collectability has been recorded as of June 30, 2019 and December 31, 2018. The notes maturity date was extended in July 2019, all other terms remain unchanged, see Note 8 and Note 12.

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Inventory

6 Months Ended

Jun. 30, 2019

Inventory Disclosure [Abstract]

Inventory

Note 3. Inventory

Inventory consisted of the following as of:

	June 30, 2019			December 31, 2018
Raw materials and work in process	$	2,618,909		$	1,717,033
Reserve		(105,031	)		(105,031	)
Total inventory, net	$	2,513,878		$	1,612,002

During 2018, the Company evaluated the useful life of its spare parts inventory. As a result of this evaluation, the Company classified $372,566 and $292,298 of spare parts as Other Assets, long-term on the Balance Sheet at June 30, 2019 and December 31, 2018, respectively.

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Property and Equipment

6 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Property and Equipment

Note 4. Property and Equipment

Property and equipment consisted of the following as of:

	June 30, 2019			December 31, 2018
Computer equipment	$	1,116,553		$	1,054,004
Furniture and office equipment		219,399			207,921
Machinery and equipment		1,091,228			1,021,188
STEP equipment		161,695			-
Leasehold improvements		324,313			324,313
Total property and equipment		2,913,188			2,607,426
Less: Accumulated depreciation		(2,069,161	)		(1,929,181	)
Property and equipment, net	$	844,027		$	678,245

Depreciation expense was $71,197 and $74,587 for the three months ended June 30, 2019 and 2018, respectively. Depreciation expense was $141,509 and $143,206 for the six months ended June 30, 2019 and 2018, respectively.

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Intangible Asset

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Asset

Note 5. Intangible Asset

Intangible asset consisted of the following as of:

	June 30, 2019			December 31, 2018
Patents	$	160,000		$	-
Total intangible asset		160,000			-
Less: Accumulated amortization		(3,704	)		-
Intangible asset, net	$	156,296		$	-

Amortization expense was $2,223 and $0 for the three months ended June 30, 2019 and 2018, respectively. Amortization expense was $3,704 and $0 for the six months ended June 30, 2019 and 2018, respectively.

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

Note 6. Leases

The Company leases approximately 37,729 rentable square feet of office and warehouse space from an unaffiliated third party for our 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. 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 condensed balance sheet.

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 leases do 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 are recognized on a straight-line basis over the lease term.

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.

The balance sheet classification of lease assets and liabilities was as follows:

Balance Sheet Classification	June 30, 2019
Assets
Operating lease right-of-use assets, January 1, 2019	$	1,674,857
Amortization for the six months ended June 30, 2019		(140,632	)
Total operating lease right-of-use asset, June 30, 2019	$	1,534,225
Liabilities
Current
Operating lease liability, short term	$	278,628
Non-current
Operating lease liability, long term		1,326,464
Total lease liabilities	$	1,605,092

Future minimum lease payments as of June 30, 2019 under non-cancelable operating leases are as follows:

2019	$	167,891
2020		357,452
2021		368,060
2022		379,097
2023		390,562
Thereafter		131,152
Total lease payments		1,794,214
Less: imputed interest		(189,122	)
Operating lease liability	$	1,605,092

The Company had a deferred rent liability of $0 and $46,523 as of June 30, 2019 and December 31, 2018, respectively, relative to the increasing future minimum lease payments. Rent expense for the three months ended June 30, 2019 and 2018 was $76,967 and $125,491, respectively. Rent expense for the six months ended June 30, 2019 and 2018 was $165,934 and $125,491, respectively.

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Accrued Expenses

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Accrued Expenses

Note 7. Accrued Expenses

Accrued compensation and related costs consisted of the following as of:

	June 30, 2019		December 31, 2018
Salaries and wages payable	$	146,787	$	147,677
401(k) contributions payable		3		8,232
Accrued paid time off		291,453		265,962
Profit sharing payable		106,006		191,820
Total accrued compensation and related costs	$	544,249	$	613,691

Accrued expenses and other current liabilities consisted of the following as of:

	June 30, 2019		December 31, 2018
Manufacturer’s warranties	$	185,017	$	200,505
Warranties-other		189,983		189,983
Loss contingencies		-		40,000
Taxes payable		24,122		202,118
Total accrued expenses and other current liabilities	$	399,122	$	632,606

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Collaboration Agreement with Related Party

6 Months Ended

Jun. 30, 2019

Collaboration Agreement With Related Party

Collaboration Agreement with Related Party

Note 8. Collaboration Agreement with Related Party

On January 16, 2015, the Company entered into a Co-Venture Agreement (the “Co-Venture Agreement”) with MR, a wholly-owned subsidiary of TEC, a related party. The Co-Venture Agreement grants TEC an exclusive non-transferrable license to use the Company’s technology and certain equipment solely for use at locations to operate the concept, as defined in the Co-Venture Agreement. Throughout the duration of the Co-Venture Agreement, TEC will pay the Company a royalty based on gross revenue, as defined and subject to certain minimum royalties commencing with the first twelve-month period subsequent to the respective milestone date of June 1, 2017. Under the terms of the original agreement, if the total royalty payments for locations in the United States and Canada together do not total at least the minimum royalty amount specified in the agreement, TEC may pay to VirTra the difference between the amount of total royalty payments and the minimum specified in the agreement to maintain exclusivity.

On August 16, 2017, the Company entered into the first amendment to the Co-Venture Agreement to permit TEC to sublicense the VirTra technology to third party operators of stand-alone location-based entertainment companies. TEC agreed to pay the Company royalties for any such sublicenses in an amount equal to 10% of the revenue paid to TEC in cases where TEC pays for the cost of the equipment for such location or 14% of the revenue paid to TEC in cases where it does not pay for the cost of the equipment.

In April 2018, MR effected a 1-for-12,000 reverse stock split, followed by a 2,000-for-1 forward stock split completed in November 2018. As a result, the Company holds, as of June 30, 2019 and December 31, 2018, 560,000 shares of TEC common stock representing approximately 5.8% of the issued and outstanding common shares of TEC. The Company recorded its investment at cost minus impairment as of June 30, 2019 and December 31, 2018, at $1,120,000.

On July 23, 2018, the Company entered into the second amendment to the Co-Venture Agreement with TEC to (i) confirm the minimum royalty deficiency benefit due for the royalty period ended May 31, 2018; (ii) establish payment terms for the minimum royalty deficiency benefit due, to include both cash and promissory note payment; (iii) clarify the exclusivity provisions of the Co-Venture Agreement; and (iv) amend the minimum royalty calculations to only TEC branded facilities. For the three months ended June 30, 2019 and 2018, respectively, the Company recognized license fee income (royalties) from TEC of $32,795 and $35,580.

In addition, as of June 30, 2019, the Company holds a warrant to purchase 25,577 shares of TEC common stock, adjusted for the 1-for-12,000 reverse stock split and the 2,000-for-1 forward stock split, at an exercise price of $2.4436 per share, as adjusted. This warrant became exercisable on the date of grant of April 14, 2015 and expires on the tenth anniversary of the date of grant, if not earlier pursuant to the terms of the option.

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Related Party Transactions

6 Months Ended

Jun. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Note 9. Related Party Transactions

Mr. Saltz, who is a member of our Board of Directors, is also Chairman of the Board of Directors of TEC, as well as a majority stockholder of TEC. The Company has entered into a Co-Venture Agreement with TEC as disclosed in Note 8. In addition, the Company owns 560,000 shares of TEC common stock representing approximately 5.8% of the issued and outstanding shares of TEC common stock. The Company recognized $32,795 and $427,433 for license fees (royalties) for the three months ended June 30, 2019 and 2018, respectively, pursuant to the terms of the Co-Venture Agreement. The Company recognized $72,432 and $473,401 for license fees (royalties) for the six months ended June 30, 2019 and 2018, respectively, pursuant to the terms of the Co-Venture Agreement. As of June 30, 2019 and December 31, 2018, TEC had accounts receivable balances outstanding of $22,464 and $16,743, respectively.

Mr. Richardson, who is a member of our Board of Directors, is also acting CEO of Natural Point, Inc. (“Natural Point”), a vendor of the Company. For the three months ended June 30, 2019 and 2018, the Company purchased specialized equipment from Natural Point in the amount of $17,733 and $34,865, respectively. For the six months ended June 30, 2019 and 2018, the Company purchased specialized equipment from Natural Point in the amount of $56,084 and $87193, respectively. As of June 30, 2019 and December 31, 2018, the Company had a prepaid balance outstanding with Natural Point of $1,020.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 10. Commitments and Contingencies

General or Threatened Litigation

From time to time, the Company is notified of threatened 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. In June 2018, the Company initiated a declaratory judgment action in the Superior Court of the State of Arizona. A former customer had raised allegations of breach of contract and breach of warranty and the Company seeks relief and clarification from the Superior Court regarding the allegations and the Company’s obligations under the contract with the former customer. In May 2019, the Company entered into settlement agreement of $76,250. The agreement does not constitute an admission of any unlawful conduct or wrongdoing. The Company had established a probable and estimated loss contingency of $40,000 as of December 31, 2018 and had accrued the full loss contingency of $76,250 as of March 31, 2019. The full amount of the settlement has been paid at June 30, 2019.

The Company evaluated its collection history related to its trade note receivable and determined the note was in default and in accordance with the terms of the note, accelerated its payment demand. The Company filed a verified complaint in the Superior Court of Arizona for the outstanding principal balance plus accrued interest, late fees and reasonable attorneys’ fees.

Employment Agreements

On April 2, 2012, the Company entered into three-year Employment Agreements with its Chief Executive Officer and Chief Operating Officer that call for base annual salaries of $195,000 and $175,000, respectively, subject to cost of living adjustments, and contain 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.

Profit Sharing

VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to active and eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata to employees in April and October of the following year after the completion of the annual financial audit. For the three and six months ended June 30, 2019, the amount charged to operations was $0 due to net loss in both periods. For the three and six months ended June 30, 2018, the amount charged to operations was $447,821 and $447,821, respectively. The profit sharing estimate was revised in subsequent quarters during 2018 and was not paid to eligible employees until 2019.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Stockholders' Equity

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 (the “Common Stock”), 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 Class A or Class B Common Stock has 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 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 $1,000,000 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 the 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.

Treasury Stock

During the three months ended June 30, 2019, the Company purchased 14,450 additional treasury shares at an average cost of $3.97 per share. During the six months ended June 30, 2019, the Company had purchased 82,689 treasury shares at an average cost of $3.85 per share. As of December 31, 2018, the Company held 10,707 treasury shares at an average cost of $3.48 per share. As of June 30, 2019, all treasury shares outstanding had been cancelled and returned to shares authorized.

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:

	June 30, 2019					June 30, 2018
	Number of			Weighted		Number of			Weighted
	Stock Options			Exercise Price		Stock Options			Exercise Price
Options outstanding, beginning of year		279,167		$	2.34		531,667		$	1.80
Granted		-			-		-			-
Redeemed		(3,750	)		1.40		(22,500	)		1.70
Exercised		(5,000	)		1.13		(7,500	)		1.40
Expired / terminated		-			-		(5,000	)		1.40
Options outstanding, end of quarter		270,417		$	2.38		496,667		$	1.82
Options exercisable, end of quarter		270,417		$	2.38		493,489		$	1.82

The Company did not have any non-vested stock options outstanding as of June 30, 2019. There were 3,178 non-vested stock options as of June 30, 2018 that vested in October 2018. The weighted average contractual term for options outstanding and exercisable at June 30, 2019 and 2018 was 7 years.

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 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-based 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 will increase 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.

As of June 30, 2019 and December 31, 2018, there were no options issued under the Equity Plan.

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Subsequent Events

6 Months Ended

Jun. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Note 12. Subsequent Events

In July 2019, the Company redeemed 3,750 previously awarded expiring stock options from a related party for cash totaling $6,413, of which $3,766 had previously been expensed in 2012, with the balance of $2,647 being recognized as additional compensation costs in July 2019. See Note 8 and Note 9.

In July 2019, the Company redeemed 9,225 previously awarded expiring stock options from an employee for cash totaling $13,930, of which $7,976 had previously been expensed in 2012, with the balance of $5,954 being recognized as additional compensation costs in July 2019. Additionally, in July, the employee exercised 5,775 expiring stock options at an exercise price of $1.00 per share.

In July 2019, the Company announced its annual meeting of stockholders to be held on Friday, September 6, 2019. Stockholders of record at the close of business on July 18, 2019 will be entitled to vote at and attend the meeting.

On July 31, 2019, the Company executed the First Amendment to Convertible Promissory Note with TEC to extend the note’s maturity date for one additional year to August 1, 2020 and to reaffirm TEC will remit a payment of 20% of its net proceeds from its recent public offering within ten (10) days of the note’s amendment date. All other terms and conditions of the Note remain unchanged.

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Organization and Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The condensed 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, 2018. 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 condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, 2019 and the results of our operations and cash flows for the periods presented. We derived the December 31, 2018 condensed 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 six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

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.

Reclassifications

Reclassifications

Certain reclassifications have been made to the 2018 financial statements to conform to the 2019 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

Revenue Recognition

Revenue Recognition

The Company adopted 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. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable). 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
Sales-based royalty exchanged for license of intellectual property	Recognized as the performance obligation is satisfied over time – which is as the sales occur.

The Company recognizes revenue upon transfer of control or upon completion of the services for the simulator and accessories; for the installation and training and customized software performance obligations as the customer has the right and ability to direct the use of these products and services and the customer obtains substantially all of the remaining benefit from these products and services at that time. Revenue from certain customized content contracts may be recognized over the period the services are performed based on the terms of the contract. For the sales-based royalty exchanged for license of intellectual property, the Company recognized revenue as the sales occur over time.

The Company recognizes revenue on a straight-line basis over the period of services being rendered for the extended service-type warranties as these warranties represent a performance obligation to “stand ready to perform” over the duration of the warranties. As such, the warranty service is performed continuously over the warranty period.

Each contract states the transaction price. The contracts do not include variable consideration, significant financing components or noncash consideration. The Company has elected to exclude sales and similar taxes from the measurement of the transaction price. The contract’s transaction price is allocated to the performance obligations based upon their stand-alone selling prices. Discounts to the stand-alone selling prices, if any, are allocated proportionately to each performance obligation.

Disaggregation of Revenue

Under ASC 606, disaggregated revenue from contracts with customers depicts the nature, amount, timing, and uncertainty of revenue and cash flows affected by economic factors. The Company has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation.

	Three Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	1,550,317	$	132,098	$	1,682,415	$	6,950,268	$	399,473	$	7,349,741
Extended service-type warranties		498,194		50,437		548,631		481,451		52,700		534,151
Customized software & content		484,421		-		484,421		274,497		-		274,497
Installation and training		276,414		10,500		286,914		87,894		32,296		120,190
Licensing and royalties		51,932		-		51,932		429,613		-		429,613
Total Revenue	$	2,861,278	$	193,035	$	3,054,313	$	8,223,723	$	484,469	$	8,708,192

	Six Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	3,477,642	$	450,536	$	3,928,178	$	7,922,271	$	1,952,207	$	9,874,478
Extended service-type warranties		978,717		80,387		1,059,104		908,136		115,085		1,023,221
Customized software & content		660,484		-		660,484		388,444		11,940		400,384
Installation and training		355,816		10,500		366,316		140,804		82,515		223,319
Licensing and royalties		91,569		-		91,569		475,581		-		475,581
Total Revenue	$	5,564,228	$	541,423	$	6,105,651	$	9,835,236	$	2,161,747	$	11,996,983

Customer Deposits

Customer Deposits

Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled $827,475 and $186,450 as of June 30, 2019 and December 31, 2018, respectively. 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. Customer deposits are considered a deferred liability until completion of the customer’s contract performance obligations. When revenue is recognized, the deposit is applied to the customer’s receivable balance.

Warranty

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 $1,726,415 and $1,604,637 as of June 30, 2019 and December 31, 2018, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $1,188,196 and $962,356 as of June 30, 2019 and December 31, 2018, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $185,017 and $200,505 as of June 30, 2019 and December 31, 2018, respectively. During the three months ended June 30, 2019 and 2018, the Company recognized revenue of $548,631 and $534,151, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. During the six months ended June 30, 2019 and 2018, the Company recognized revenue of $1,059,104 and $1,023,221, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. 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.

Customer Retainage

Customer Retainage

Customer retainage is recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $133,220 as of June 30, 2019 and December 31, 2018. Changes in deferred revenue amounts related to customer retainage will fluctuate from year to year based upon the customer’s contract completion date allowing the Company to invoice and be paid the retainage.

Licensing and Royalties with Related Party

Licensing and Royalties with Related Party

As discussed further in Note 8. Collaboration Agreement with Related Party, the Company licenses intellectual property to Modern Round, LLC (“MR”), a wholly-owned subsidiary of That’s Eatertainment Corp. (“TEC”), a related party, in exchange for sales-based royalties. Revenues from this agreement are recognized in accordance with the terms of the contract as the sales occur. The Company receives additional immaterial sales-based royalties from strategic partners.

Adoption of New Accounting Standards

Adoption of New Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”). Topic 842 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases.

In July 2017, the FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815)” Part I of ASU No. 2017-11 applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. ASU No. 2017-11 did not have a material impact on the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation–Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” to simplify the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contract with Customers. The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year, with early adoption permitted. ASU No. 2018-07 did not have a material impact on the Company’s financial statements.

Fair Value Measurements

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

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, certificates of deposit, accounts receivable, notes and interest receivables, accounts payable, and accrued liabilities. The fair value of financial instruments, except for long-term notes receivable, approximates their carrying values, using level 3 inputs, at June 30, 2019 and December 31, 2018 due to their short maturities. The fair value of the long-term notes receivable approximates its carrying value, using level 3 inputs, at June 30, 2019 and December 31, 2018 based on borrowing rates currently available for loans with similar terms and maturities.

Cash and Cash Equivalents

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

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 average maturities 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 Notes Receivable and Allowance for Doubtful Accounts

Accounts and Notes Receivable 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. As of June 30, 2019 and December 31, 2018, the Company maintained an allowance for doubtful accounts of $25,413 and $23,044, respectively.

Notes receivable are carried at their estimated collectible amounts. Interest income on notes receivable is recognized using the effective interest method. Notes receivable are periodically evaluated for collectability based on the credit history and the current financial condition of the counter party, and the known and inherent risks in the notes. Notes receivable are placed on nonaccrual status when they become 90 days past due and the customer has not made a payment in over 60 days. Upon suspension of the accrual of interest, interest income is subsequently recognized to the extent cash payments are received. Accrual of interest is resumed when notes are removed from non-accrual status. Notes receivable are charged against the allowance for credit losses when they are deemed to be uncollectible. As of June 30, 2019 and December 31, 2018, the allowance for uncollectible notes receivable was $369,286 and $266,813, respectively.

Inventory

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. As of June 30, 2019 and December 31, 2018, inventory reserves were $105,031.

Investments in Other Companies

Investments in Other Companies

Minority investments in other companies are accounted for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the other companies’ operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than-temporary declines in fair value and distribution of earnings. For investments in public companies that have readily determinable fair values, the Company classifies its investments as available-for-sale, and accordingly records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the statements of operations.

The adoption of ASU 2016-01 requires investments in other companies that do not have readily determinable fair value be accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This standard was adopted on January 1, 2018, including all interim reporting periods within the fiscal year. The adoption of ASU 2016-01 did not have a material impact on the financial statements. Upon adoption, the Company has elected to utilize the cost minus impairment approach because the investment in TEC does not have a readily determinable fair value as of the reporting date. See Note 8. Collaboration Agreement with Related Party.

Management regularly evaluates the recoverability of its investment based on the investee company’s performance and financial position. During the three and six months ended June 30, 2019, the Company did not recognize any impairment loss. During the three and six months ended June 30, 2018, the Company recognized an impairment loss of $134,140. Management regularly assesses the classification of its investments.

Property and Equipment

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. 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, which are summarized as follows:

Computer equipment	3-5 years
Furniture and office equipment	5-7 years
Machinery and equipment	5-7 years
STEP equipment	5 years
Leasehold improvements	7 years

Intangible Assets

Intangible Assets

Intangible assets at June 30, 2019 are comprised of various patents. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful lives of 18 years.

Cost of Products Sold

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 does not include depreciation of fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold.

Advertising Costs

Advertising Costs

Costs associated with advertising are expensed as incurred. Advertising expense was $150,977 and $160,643 for the three months ended June 30, 2019 and 2018, respectively. Advertising expense was $270,380 and $300,025 for the six months ended June 30, 2019 and 2018, respectively. These costs include domestic and international tradeshows, website, and sales promotional materials.

Research and Development Costs

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 costs were $353,665 and $305,738 for the three months ended June 30, 2019 and 2018, respectively. Research and development costs were $709,306 and $673,282 for the six months ended June 30, 2019 and 2018, respectively.

Legal Costs

Legal Costs

Legal costs relating to loss contingencies are expensed as incurred. See Note 10.

Concentration of Credit Risk and Major Customers and Suppliers

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, accounts receivable and notes 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 $1,119,590 and $2,014,987 as of June 30, 2019 and December 31, 2018, 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.

The Company’s notes receivable are due from one trade customer and one related party, both are unsecured. Management performs ongoing evaluations of the collectability of its notes receivable and maintains an allowance for estimated losses.

Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended June 30, 2019, two federal agencies comprised 32% of total net sales and one tribal government comprised 10% of total net sales. By comparison, for the three months ended June 30, 2018, one federal agency comprised 53% of total net sales. For the six months ended June 30, 2019, two federal agencies comprised 25% of total net sales. By comparison, for the six months ended June 30, 2018, one federal agency comprised 39% of total net sales and one commercial customer comprised 11% of total net sales.

As of June 30, 2019, three federal agencies comprised 55% of total accounts receivables and one state agency comprised 11% of total accounts receivables. By comparison, as of December 31, 2018, one federal agency comprised 26% of total accounts receivables and one state agency comprised 20% of total accounts receivables.

Income Taxes

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 the 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 of its deferred tax asset and no valuation allowance was needed as of June 30, 2019 and December 31, 2018.

As of June 30, 2019 and December 31, 2018, the Company did not recognize any assets or liabilities relative to uncertain tax positions. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result 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 at June 30, 2019 and December 31, 2018.

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 2014 and 2019; 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 and Intangible Assets

Impairment of Long-Lived Assets and Intangible 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. 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. At June 30, 2019 and December 31, 2018, 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

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. There were no grants of stock-based awards during the three and six months ended June 30, 2019 and 2018.

The expected term of the options is the estimated period of time until exercise and was determined using the SEC’s safe harbor rules, 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. As share-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. The Company has elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

New Accounting Pronouncements

New Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), and also issued subsequent amendments to the initial guidance under ASU 2018-19, ASU 2019-04 and ASU 2019-05 which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 and the subsequent amendments are effective for us on January 1, 2020, with early adoption permitted on January 1, 2019. The Company is assessing what effect the provisions of 2016-13 and the subsequent amendments will have on the financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of 2018-18 on its financial statements.

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Organization and Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Schedule of Disaggregation of Revenues

The Company has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation.

	Three Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	1,550,317	$	132,098	$	1,682,415	$	6,950,268	$	399,473	$	7,349,741
Extended service-type warranties		498,194		50,437		548,631		481,451		52,700		534,151
Customized software & content		484,421		-		484,421		274,497		-		274,497
Installation and training		276,414		10,500		286,914		87,894		32,296		120,190
Licensing and royalties		51,932		-		51,932		429,613		-		429,613
Total Revenue	$	2,861,278	$	193,035	$	3,054,313	$	8,223,723	$	484,469	$	8,708,192

	Six Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	3,477,642	$	450,536	$	3,928,178	$	7,922,271	$	1,952,207	$	9,874,478
Extended service-type warranties		978,717		80,387		1,059,104		908,136		115,085		1,023,221
Customized software & content		660,484		-		660,484		388,444		11,940		400,384
Installation and training		355,816		10,500		366,316		140,804		82,515		223,319
Licensing and royalties		91,569		-		91,569		475,581		-		475,581
Total Revenue	$	5,564,228	$	541,423	$	6,105,651	$	9,835,236	$	2,161,747	$	11,996,983

Schedule of Estimated Useful Life of Property and Equipment

Computer equipment	3-5 years
Furniture and office equipment	5-7 years
Machinery and equipment	5-7 years
STEP equipment	5 years
Leasehold improvements	7 years

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Inventory (Tables)

6 Months Ended

Jun. 30, 2019

Inventory Disclosure [Abstract]

Schedule of Inventory, Net

Inventory consisted of the following as of:

	June 30, 2019			December 31, 2018
Raw materials and work in process	$	2,618,909		$	1,717,033
Reserve		(105,031	)		(105,031	)
Total inventory, net	$	2,513,878		$	1,612,002

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2019

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment, Net

Property and equipment consisted of the following as of:

	June 30, 2019			December 31, 2018
Computer equipment	$	1,116,553		$	1,054,004
Furniture and office equipment		219,399			207,921
Machinery and equipment		1,091,228			1,021,188
STEP equipment		161,695			-
Leasehold improvements		324,313			324,313
Total property and equipment		2,913,188			2,607,426
Less: Accumulated depreciation		(2,069,161	)		(1,929,181	)
Property and equipment, net	$	844,027		$	678,245

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Intangible Asset (Tables)

6 Months Ended

Jun. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Asset

Intangible asset consisted of the following as of:

	June 30, 2019			December 31, 2018
Patents	$	160,000		$	-
Total intangible asset		160,000			-
Less: Accumulated amortization		(3,704	)		-
Intangible asset, net	$	156,296		$	-

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Lease (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Schedule of Balance Sheet Classification of Lease Assets and Liabilities

The balance sheet classification of lease assets and liabilities was as follows:

Balance Sheet Classification	June 30, 2019
Assets
Operating lease right-of-use assets, January 1, 2019	$	1,674,857
Amortization for the six months ended June 30, 2019		(140,632	)
Total operating lease right-of-use asset, June 30, 2019	$	1,534,225
Liabilities
Current
Operating lease liability, short term	$	278,628
Non-current
Operating lease liability, long term		1,326,464
Total lease liabilities	$	1,605,092

Schedule of Future Minimum Lease Payments

Future minimum lease payments as of June 30, 2019 under non-cancelable operating leases are as follows:

2019	$	167,891
2020		357,452
2021		368,060
2022		379,097
2023		390,562
Thereafter		131,152
Total lease payments		1,794,214
Less: imputed interest		(189,122	)
Operating lease liability	$	1,605,092

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Accrued Expenses (Tables)

6 Months Ended

Jun. 30, 2019

Payables and Accruals [Abstract]

Schedule of Accrued Compensation and Related Costs

Accrued compensation and related costs consisted of the following as of:

	June 30, 2019		December 31, 2018
Salaries and wages payable	$	146,787	$	147,677
401(k) contributions payable		3		8,232
Accrued paid time off		291,453		265,962
Profit sharing payable		106,006		191,820
Total accrued compensation and related costs	$	544,249	$	613,691

Schedule of Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of:

	June 30, 2019		December 31, 2018
Manufacturer’s warranties	$	185,017	$	200,505
Warranties-other		189,983		189,983
Loss contingencies		-		40,000
Taxes payable		24,122		202,118
Total accrued expenses and other current liabilities	$	399,122	$	632,606

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Schedule of Non-qualified Stock Options

The following table summarizes all non-qualified stock options as of:

	June 30, 2019					June 30, 2018
	Number of			Weighted		Number of			Weighted
	Stock Options			Exercise Price		Stock Options			Exercise Price
Options outstanding, beginning of year		279,167		$	2.34		531,667		$	1.80
Granted		-			-		-			-
Redeemed		(3,750	)		1.40		(22,500	)		1.70
Exercised		(5,000	)		1.13		(7,500	)		1.40
Expired / terminated		-			-		(5,000	)		1.40
Options outstanding, end of quarter		270,417		$	2.38		496,667		$	1.82
Options exercisable, end of quarter		270,417		$	2.38		493,489		$	1.82

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Organization and Significant Accounting Policies (Details Narrative) - USD ($)			3 Months Ended		6 Months Ended		12 Months Ended
	Apr. 02, 2018	Mar. 02, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Reverse stock split	MR effected a 1 for 12,000 reverse stock split, followed by a 2,000 for 1 forward stock split completed in November 2018.	1 for 2 reverse stock split
Deferred revenue liability current			$ 2,687,110		$ 2,687,110		$ 1,924,307
Extended warranties description					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.
Extended service-type warranties			548,631	$ 534,151	$ 1,059,104	$ 1,023,221
Customer Retainage			133,220		133,220		133,220
Allowance for doubtful accounts			25,413		$ 25,413		23,044
Liquid investment maturity description					The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents.
Allowance uncollectible notes receivables					$ 102,474		266,813
Inventory reserves			105,031		105,031		105,031
Impairment loss						134,140
Remaining useful life of intangible asset					18 years
Advertising expense			150,977	160,643	$ 270,380	300,025
Research and development			353,665	$ 305,738	709,306	$ 673,282
Deposit insurance coverage limit			250,000		250,000
Uninsured cash and cash equivalents			1,119,590		1,119,590		2,014,987
Accounts Receivables [Member]
Allowance for doubtful accounts			$ 369,286		$ 369,286		$ 266,813
Two Federal Agencies [Member] | Total Net Sales [Member]
Concentration of credit risk			32.00%		25.00%
One Tribal Government [Member] | Total Net Sales [Member]
Concentration of credit risk			10.00%
One Federal Agency [Member] | Total Net Sales [Member]
Concentration of credit risk				53.00%		39.00%
One Federal Agency [Member] | Accounts Receivables [Member]
Concentration of credit risk							26.00%
One Commercial Customer [Member] | Total Net Sales [Member]
Concentration of credit risk						11.00%
Three Federal Agencies [Member] | Accounts Receivables [Member]
Concentration of credit risk					55.00%
One State Agency [Member] | Accounts Receivables [Member]
Concentration of credit risk					11.00%		20.00%
Warrants [Member] | Less Than One Year [Member]
Extended warranties			$ 1,726,415		$ 1,726,415		$ 1,604,637
Warrants [Member] | Longer Than One Year [Member]
Extended warranties			1,188,196		1,188,196		962,356
Warrants [Member] | One Year [Member]
Extended warranties			185,017		185,017		200,505
Customer Deposits [Member]
Deferred revenue liability current			$ 827,475		$ 827,475		$ 186,450

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Organization and Significant Accounting Policies - Schedule of Disaggregation of Revenues (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Simulators and accessories	$ 1,682,415	$ 7,349,741	$ 3,928,178	$ 9,874,478
Extended service-type warranties	548,631	534,151	1,059,104	1,023,221
Customized software & content	484,421	274,497	660,484	400,384
Installation and training	286,914	120,190	366,316	223,319
Licensing and royalties	51,932	429,613	91,569	475,581
Total Revenue	3,054,313	8,708,192	6,105,651	11,996,983
Domestic [Member]
Simulators and accessories	1,550,317	6,950,268	3,477,642	7,922,271
Extended service-type warranties	498,194	481,451	978,717	908,136
Customized software & content	484,421	274,497	660,484	388,444
Installation and training	276,414	87,894	355,816	140,804
Licensing and royalties	51,932	429,613	91,569	475,581
Total Revenue	2,861,278	8,223,723	5,564,228	9,835,236
International [Member]
Simulators and accessories	132,098	399,473	450,536	1,952,207
Extended service-type warranties	50,437	52,700	80,387	115,085
Customized software & content				11,940
Installation and training	10,500	32,296	10,500	82,515
Licensing and royalties
Total Revenue	$ 193,035	$ 484,469	$ 541,423	$ 2,161,747

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Organization and Significant Accounting Policies - Schedule of Estimated Useful Life of Property and Equipment (Details)	6 Months Ended
	Jun. 30, 2019
Computer Equipment [Member] | Minimum [Member]
Estimated useful lives of assets	P3Y
Computer Equipment [Member] | Maximum [Member]
Estimated useful lives of assets	P5Y
Furniture and Office Equipment [Member] | Minimum [Member]
Estimated useful lives of assets	P5Y
Furniture and Office Equipment [Member] | Maximum [Member]
Estimated useful lives of assets	P7Y
Machinery and Equipment [Member] | Minimum [Member]
Estimated useful lives of assets	P5Y
Machinery and Equipment [Member] | Maximum [Member]
Estimated useful lives of assets	P7Y
STEP Equipment [Member]
Estimated useful lives of assets	P5Y
Leasehold Improvements [Member]
Estimated useful lives of assets	P7Y

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Notes Receivable (Details Narrative) - USD ($)		6 Months Ended		12 Months Ended
	Mar. 23, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Conversion of past due trade receivable	$ 400,906		$ 693,044
Interest rate		10.00%
Debt instrument, maturity date, description	This unsecured promissory note is due in full on or before February 2020.
Debt instrument principal and accrued interest	$ 20,000	$ 369,286		$ 374,034
Allowance for doubtful accounts		$ 25,413		23,044
TEC [Member]
Interest rate		5.00%
Debt instrument principal and accrued interest		$ 305,528		$ 298,224
Convertible promissory notes		292,138
Royalty payment, due date				May 31, 2018
Debt, description				The note bears interest at the rate of five percent (5%) per annum and contains a provision requiring remittance of not less than 20% of the net proceeds of any private or public offering of its securities in reduction of the Convertible Note. The note has a conversion right, at the sole discretion of the Company, to convert the outstanding balance of principal and accrued interest at any time for shares of common stock of TEC. Prior to the due date, the Company may elect to convert the Convertible Note for shares of common stock in TEC at a twenty-five percent (25%) discount to the price of shares sold to the public in a public offering in connection with a go-public transaction. The issuance of common stock upon conversion shall be made without charge to the Company. No fractional shares shall be issued upon conversion and in lieu of fractional shares, TEC will pay the Company the amount of any obligation that is not converted. Any unpaid balance of principal and accrued interest becomes due and collectible on the earlier of (i) August 1, 2019 (maturity date), or (ii) if declared due and payable in the event of Default.
Debt instrument, maturity date				Aug. 01, 2019
Accounts Receivables [Member]
Allowance for doubtful accounts		$ 369,286		$ 266,813

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Inventory (Details Narrative) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Spare parts as other assets, long-term	$ 372,566	$ 292,298

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Inventory - Schedule of Inventory, Net (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Raw materials and work in process	$ 2,618,909	$ 1,717,033
Reserve	(105,031)	(105,031)
Total inventory, net	$ 2,513,878	$ 1,612,002

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 71,197	$ 74,587	$ 141,509	$ 143,206

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Property and Equipment - Schedule of Property and Equipment, Net (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018
Total property and equipment	$ 2,913,188	$ 2,607,426
Less: Accumulated depreciation	(2,069,161)	(1,929,181)
Property and equipment, net	844,027	678,245
Computer Equipment [Member]
Total property and equipment	1,116,553	1,054,004
Furniture and Office Equipment [Member]
Total property and equipment	219,399	207,921
Machinery and Equipment [Member]
Total property and equipment	1,091,228	1,021,188
STEP Equipment [Member]
Total property and equipment	161,695
Leasehold Improvements [Member]
Total property and equipment	$ 324,313	$ 324,313

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Intangible Asset (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 2,223	$ 0	$ 3,704	$ 0

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Intangible Asset - Schedule of Intangible Asset (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Total intangible asset	$ 160,000
Less: Accumulated amortization	(3,704)
Intangible asset, net	156,296
Patents [Member]
Total intangible asset	$ 160,000

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Leases (Details Narrative)	3 Months Ended		6 Months Ended
	Jun. 30, 2019 USD ($) ft²	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($) ft²	Jun. 30, 2018 USD ($)	Jan. 02, 2019 USD ($)	Dec. 31, 2018 USD ($)
Incremental in borrowing rate			4.50%
Operating lease liability	$ 1,605,092		$ 1,605,092		$ 1,721,380
Deferred rent					46,523	$ 46,523
Operating lease right of use asset	1,534,225		1,534,225		$ 1,674,857
Rent expenses	$ 76,967	$ 125,491	$ 165,934	$ 125,491
Lease Amendment [Member]
Rentable square feet | ft²	5,131		5,131
Lease expires			Apr. 30, 2024
Office and Warehouse Space [Member] | Unaffiliated Third Party [Member]
Rentable square feet | ft²	37,729		37,729
Office and Industrial Space [Member] | Unaffiliated Third Party [Member]
Rentable square feet | ft²	4,529		4,529

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Leases - Schedule of Balance Sheet Classification of Lease Assets and Liabilities (Details) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jan. 02, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease right-of-use assets, beginning balance
Amortization for the six months ended June 30, 2019	(140,632)
Total operating lease right-of-use asset	1,534,225
Operating lease liability, short term, current	278,628
Operating lease liability, long term, non current	1,326,464
Total lease liabilities	$ 1,605,092	$ 1,721,380

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Leases - Schedule of Future Minimum Lease Payments (Details) - USD ($)	Jun. 30, 2019	Jan. 02, 2019
Leases [Abstract]
2019	$ 167,891
2020	357,452
2021	368,060
2022	379,097
2023	390,562
Thereafter	131,152
Total lease payments	1,794,214
Less: imputed interest	(189,122)
Operating lease liability	$ 1,605,092	$ 1,721,380

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Accrued Expenses - Schedule of Accrued Compensation and Related Costs (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Payables and Accruals [Abstract]
Salaries and wages payable	$ 146,787	$ 147,677
401(k) contributions payable	3	8,232
Accrued paid time off	291,453	265,962
Profit sharing payable	106,006	191,820
Total accrued compensation and related costs	$ 544,249	$ 613,691

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Accrued Expenses - Schedule of Accrued Expenses and Other Current Liabilities (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Payables and Accruals [Abstract]
Manufacturer's warranties	$ 185,017	$ 200,505
Warranties-other	189,983	189,983
Loss contingencies		40,000
Taxes payable	24,122	202,118
Total accrued expenses and other current liabilities	$ 399,122	$ 632,606

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Collaboration Agreement with Related Party (Details Narrative) - USD ($)				3 Months Ended		6 Months Ended		12 Months Ended
	Apr. 02, 2018	Mar. 02, 2018	Aug. 16, 2017	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Reverse stock split	MR effected a 1 for 12,000 reverse stock split, followed by a 2,000 for 1 forward stock split completed in November 2018.	1 for 2 reverse stock split
Royalties/license fee income						$ 32,795	$ 427,433
TEC [Member]
Number of common stock held				$ 560,000		$ 560,000		$ 560,000
Issued and outstanding percentage						5.80%		5.80%
Impairment loss						$ 1,120,000		$ 1,120,000
Royalties/license fee income				$ 32,795	$ 35,580
Number of warrants to purchase shares of common stock				25,577		25,577
Warrant exercise price per share				$ 2.4436		$ 2.4436
Warrant description						This warrant became exercisable on the date of grant of April 14, 2015 and expires on the tenth anniversary of the date of grant, if not earlier pursuant to the terms of the option.
TEC [Member] | Warrants [Member]
Reverse stock split						1 for 12,000 reverse stock split and the 2,000 for 1 forward stock split
Amendment To Co-Venture Agreement [Member]
Royalty percentage			10.00%
Percentage of revenue paid for cost of equipment			14.00%

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Related Party Transactions (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Royalties/license fee income			$ 32,795	$ 427,433
Revenue	$ 3,054,313	$ 8,708,192	6,105,651	11,996,983
Accounts receivable	22,464		22,464		$ 16,743
That's Eatertainment Royalties/Licensing fees, Related Party [Member]
Revenue	32,795	427,433	72,432	473,401
TEC [Member]
Number of common stock held	560,000		$ 560,000		$ 560,000
Issued and outstanding percentage			5.80%		5.80%
Royalties/license fee income	32,795	35,580
Natural Point, Inc [Member]
Purchased specialized equipment amount	17,733	$ 34,865	$ 56,084	$ 87,193
Prepaid credit balance	$ 1,020		$ 1,020		$ 1,020

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Commitments and Contingencies (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended		6 Months Ended
	Apr. 02, 2018	May 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2019	Dec. 31, 2018
Settlement amount		$ 76,250
Estimated loss contingency							$ 76,250	$ 40,000
Amount of net profit charged to operations			$ 0	$ 447,821	$ 0	$ 447,821
Chief Executive Officer [Member] | Three Year Employment Agreements [Member]
Annual salaries	$ 195,000
Chief Operating Officer [Member] | Three Year Employment Agreements [Member]
Annual salaries	$ 175,000

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Stockholders' Equity (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018	Aug. 23, 2017	Oct. 25, 2016
Common stock shares authorized	50,000,000		50,000,000		50,000,000
Common stock, par value	$ 0.0001		$ 0.0001		$ 0.0001
Preferred stock shares authorized	2,500,000		2,500,000		2,500,000
Preferred stock, par value	$ 0.0001		$ 0.0001		$ 0.0001
Additional treasury shares purchased	14,450		82,689
Average Price Paid per Share	$ 3.97		$ 3.85		$ 3.48
Treasury stock, shares outstanding					10,707
Non vested stock options, outstanding		3,178		3,178
Options term			7 years	7 years
Aggregate intrinsic value of options outstanding and exercisable	$ 183,700	$ 1,240,094	$ 183,700	$ 1,240,094
Total intrinsic value	6,050	30,750	6,050	30,750
Proceeds from exercise of stock options	$ 5,650	$ 10,500	$ 5,651	$ 10,500
Class A Common Stock [Member]
Common stock shares authorized	2,500,000		2,500,000		2,500,000
Common stock, par value	$ 0.0001		$ 0.0001		$ 0.0001
Common stock voting rights			Ten (10) votes for each share of Class A Common Stock held of record by such holde
Class B Common Stock [Member]
Common stock shares authorized	7,500,000		7,500,000		7,500,000
Common stock, par value	$ 0.0001		$ 0.0001		$ 0.0001
Preferred Stock [Member]
Preferred stock shares authorized	2,500,000		2,500,000
Preferred stock, par value	$ 0.0001		$ 0.0001
2017 Equity Incentive Plan [Member]
Number of common stock capital shares reserved for future issuance						1,187,500
Percentage of common stock shares issued and outstanding						3.00%
2017 Equity Incentive Plan [Member]
Options issued
Common Stock [Member]
Common stock shares authorized	60,000,000		60,000,000
Common stock, par value	$ 0.0001		$ 0.0001
Common stock voting rights			one (1) vote for each share of Common Stock held of record by such holder
Repurchased Shares Cancelled	(14,450)		(93,396)
Common Stock [Member]
Common stock shares authorized	50,000,000		50,000,000
Common stock, par value	$ 0.0001		$ 0.0001
Board of Directors [Member]
Common stock shares authorized to repurchase							1,000,000

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Stockholders' Equity - Schedule of Stock Options Activity (Details) - Non-Qualified Stock Option [Member] - $ / shares	6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Options outstanding, beginning of year	279,167	531,667	531,667
Number of options, granted
Number of options, redeemed	(3,750)	(22,500)
Number of options, exercised	(5,000)	(7,500)
Number of options, expired / terminated		(5,000)
Number of options outstanding, end of year	270,417	496,667	279,167
Number of options exercisable, end of year	270,417	493,489
Weighted exercise price outstanding, beginning of year	$ 2.34	$ 1.80	$ 1.80
Weighted average exercise price, granted
Weighted average exercise price, redeemed	1.40	1.70
Weighted average exercise price, exercised	1.13	1.40
Weighted average exercise price, expired / terminated		1.40
Weighted average exercise price outstanding, end of quarter	2.38	1.82	$ 2.34
Weighted average exercise price exercisable, end of quarter	$ 2.38	$ 1.82

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Subsequent Events (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Jul. 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2012
Number of shares redeemed, value		$ 4,367	$ 32,000	$ 4,367	$ 32,000
Stock based compensation					$ 4,860
Stock Options One [Member]
Stock based compensation						$ 3,766
Stock Options Two [Member]
Stock based compensation						$ 7,976
Subsequent Event [Member] | Extended Maturity [Member]
Debt instrument, maturity date	Aug. 01, 2020
Subsequent Event [Member] | Stock Options One [Member]
Number of shares redeemed	3,750
Number of shares redeemed, value	$ 6,413
Stock based compensation	$ 2,647
Subsequent Event [Member] | Stock Options Two [Member]
Number of shares redeemed	9,225
Number of shares redeemed, value	$ 13,930
Stock based compensation	$ 5,954
Subsequent Event [Member] | Stock Options [Member]
Stock options exercised, shares	5,775
Exercise price per share	$ 1.00
Amendment to debt instrument, description	On July 31, 2019, the Company executed the First Amendment to Convertible Promissory Note with TEC to extend the note's maturity date for one additional year to August 1, 2020 and to reaffirm TEC will remit a payment of 20% of its net proceeds from its recent public offering within ten (10) days of the note's amendment date.