VirTra Inc

Previous wording

Results of operations for the three and six months ended June 30, 2024, and June 30, 2023

Current wording

Results of operations for the three and nine months ended September 30, 2024, and September 30, 2023

Previous wording

***Revenues.***Net sales were $6,075,040 for the three months ended June 30, 2024, compared to $10,336,903 for the same period in 2023, a decrease of $4,261,863 or 41%. Net sales were $14,169,438 for the six months ended June 30, 2024, compared to $20,363,838 for the same period in 2023, a decrease of $6,194,400 or 30%. The decrease in revenue can be attributed to the smaller amount of bookings in Q1 due to the temporary funding measures taken by the federal government that delayed many of our contracts.

Current wording

***Revenues.***Net sales were $7,484,269 for the three months ended September 30, 2024, compared to $7,561,582 for the same period in 2023, a decrease of $77,313 or 1%. Net sales were $21,653,707 for the nine months ended September 30, 2024, compared to $27,925,420 for the same period in 2023, a decrease of $6,271,713, or 22%. The decrease in revenue can be attributed to the smaller amount of bookings in the prior 3 quarters due to the temporary funding measures taken by the federal government that delayed many of our contracts as well as the time it takes for the rebuilding of our sales team.

Previous wording

***Cost of Sales.***Cost of sales were $550,424 for the three months ended June 30, 2024, compared to $4,416,202 for the same period in 2023, a decrease of $3,865,778 or 88%. Cost of sales were $3,182,681 for the six months ended June 30, 2024, compared to $7,494,199 or a 58% decrease. The dollar decrease correlates with the lower revenues for the current quarter and a reclassification of COGS labor related to our development projects. This expense will be reflected in the income statement when we have the corresponding matching revenue. In addition, 40% of our revenue is derived from STEP and Service contracts that have limited COGS.

Current wording

***Cost of Sales.***Cost of sales were $1,986,296 for the three months ended September 30, 2024, compared to $2,175,508 for the same period in 2023, a decrease of $189,212, or 9%. Cost of sales were $5,168,978 for the nine months ended September 30, 2024, compared to $9,669,708, or a 47% decrease. The dollar decrease for the three-month ending period correlates with the lower revenues for the current quarter compared to last year which equates to lower COGS. In addition, 31% of our 3-month ending September 30, 2024 revenue is derived from STEP and Service contracts that have limited COGS. For the nine-month ending lower dollars and percentage is related to a reclassification of COGS labor related to our development projects. This expense will be reflected in the income statement when we have the corresponding matching revenue.

Previous wording

***Gross Profit.***Gross profit was $5,524,616 for the three months ended June 30, 2024, compared to $5,920,701 for the same period in 2023, a decrease of $396,085, or 7%. Gross profit was $10,986,757 for the six months ended June 30, 2024, compared to $12,869,639 for the same period in 2023, a decrease of $1,882,882, or 15%. The gross profit margin for the three months ended June 30, 2024 and 2023 was 91% and 57%, respectively. The gross profit margin for the six months ended June 30, 2024 and 2023 was 78% and 63%, respectively. This is solely driven by the decrease in Cost of Sales as stated above.

Current wording

***Gross Profit.***Gross profit was $5,497,973 for the three months ended September 30, 2024, compared to $5,386,074 for the same period in 2023, an increase of $111,899, or 2%. Gross profit was $16,484,729 for the nine months ended September 30, 2024 compared to $18,255,712 for the same period in 2023, a decrease of $1,770,983, or 10%. The gross profit margin for the three months ended September 30, 2024, and 2023 was 73% and 71%, respectively. The gross profit margin was 76% for the nine months ended September 30, 2024, and 65% for the same period in 2023. This is solely driven by the decrease in Cost of Sales as stated above.

Previous wording

Operating Expenses. Net operating expense was $4,393,195 for the three months ended June 30, 2024, compared to $3,992,098 for the same period in 2023, an increase of $401,097, or 10%. Net operating expense was $8,456,997 for the six months ended June 30, 2024, compared to $7,469,731 for the same period in 2023, an increase of $987,266, or 13%. This increase comes from payroll and benefits as labor rates increase and as we bring on higher level staff to help build infrastructure for the future. Also, IT expenses increased to help prepare the organization for regulatory compliance and travel expenses increased as we seek to expand our footprint in our sales territories.

Current wording

***Operating Expenses.***Net operating expense was $4,742,341 for the three months ended September 30, 2024, compared to $3,716,463 for the same period in 2023, an increase of $1,025,878, or 28%. Net operating expense was $13,199,337 for the nine months ended September 30, 2024 compared to $11,186,189 for the same period in 2023, an increase of $2,013,148, or 18%. This increase for both the 3 month and 9 month ending periods come from payroll and benefits as labor rates increase and as we bring on higher level staff to help build infrastructure for the future. Along with the additional taxes associated with the RSU payments for both the Chairman of the board as well as the CEO in the third quarter. a major factor this year has been and increase in IT expenses to help prepare the organization for regulatory compliance. Travel expenses increased year-over-year as we seek to expand our footprint in our sales territories including the international market which requires additional travel.

Previous wording

***Other Income.***Other income net of other expense was $156,870 for the three months ended June 30, 2024, compared to net other income of $75,521 for the same period in 2023, an increase of $81,349, or 108%, primarily from an increase in interest and rental income year over year. Other income net of other expense was $486,141 for the six months ended June 30, 2024, compared to net other income of $191,935 for the same period in 2023, an increase of $294,206, or 153%, primarily from interest income and a gain on the sale of the older machine shop equipment.

Current wording

***Other Income.***Other income net of other expense was $35,469 for the three months ended September 30, 2024, compared to net other income of $209,495 for the same period in 2023, a decrease of $174,026, or 83%, primarily from the ending of the sub lease in Chandler Az. Other income net of other expense was $521,610 for the nine months ended September 30, 2024, compared to other income net of other expense of $401,431, an increase of $120,179, or 30%, primarily from interest income and a gain on the sale of the older machine shop equipment.

Previous wording

***Provision (Benefit) for Income Tax.***Provision for income tax was $87,564 for the three months ended June 30, 2024, compared to $977,489 for the same period in 2023, a decrease of $889,925, or 91%. Provision for income tax was $599,000 for the six months ended June 30, 2024, compared to $1,618,834 for the same period in 2023, a decrease of $1,019,834, or 63%. The provision for income tax is estimated quarterly applying both federal and state tax rates.

Current wording

***Provision (Benefit) for Income Tax.***Provision for income tax was $208,000 for the three months ended September 30, 2024, compared to $244,316 for the same period in 2023, a decrease of $36,316, or 15%. Provision for income tax was $807,000 for the nine months ended September 30, 2024, compared to $1,863,150 for the same period in 2023, a decrease of $1,056,150, or 57%. Provision for income tax is estimated quarterly applying both federal and state tax rates.

Previous wording

***Net Income.***Net income was $1,200,727 for the three months ended June 30, 2024, compared to $1,026,635 for the same period in 2023, an increase of $174,092 or 17%. Net income was $2,416,901 for the six months ended June 30, 2024, compared to $3,973,009 for the same period in 2023, a decrease of $1,556,108 or 39%. The fluctuations in net income relate to each respective section discussed above.

Current wording

***Net Income.***Net income was $583,101 for the three months ended September 30, 2024, compared to net income of $1,634,790 for the same period in 2023, a decrease of $1,051,689 or 64%. Net income was $3,000,002 for the nine months ended September 30, 2024, compared to $5,607,804 for the same period in 2023, a decrease of $2,607,802, or 47%. The fluctuations in net income relate to each respective section discussed above.

Previous wording

Liquidity is an enterprise’s ability to generate enough cash to meet its needs for cash requirements. The Company had $18,411,634 and $18,849,842 of cash and cash equivalents as of June 30, 2024, and December 31, 2023, respectively. Working capital was $34,803,126 and $33,240,516 as of June 30, 2024, and December 31, 2023, respectively.

Current wording

***Liquidity and Capital Resources.***Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had $19,668,455 and $18,849,842 of cash and cash equivalents as of September 30, 2024, and December 31, 2023, respectively. Working capital was $35,984,477 and $33,240,516 as of September 30, 2024, and December 31, 2023, respectively.

Previous wording

Net cash provided by operating activities was $1,268,224 and $313,470 for the six months ended June 30, 2024, and 2023, respectively. Net cash provided by operating activities resulted primarily from the net income for both periods and the decrease in AR as we have improved collection efforts.

Current wording

Net cash provided by operating activities was $2,669,269 and $4,365,751 for the nine months ended September 30, 2024, and 2023, respectively. Net cash provided by operating activities resulted primarily from for the change in contract terms to collect deposits and the decrease in AR as we have improved collection efforts.

Previous wording

Net cash used in investing activities was $1,608,798 for the six months ended June 30, 2024, compared to net cash used in investing activities of $345,640 for the comparable 2023 period. Investing activities in 2024 and 2023 consisted of purchases of property and equipment, specifically the new equipment in the machine shop.

Current wording

Net cash used in investing activities was $1,692,249 for the nine months ended September 30, 2024, compared to net cash used in investing activities of $512,249 for the nine months ended September 30, 2023. Investing activities in 2024 and 2023 consisted of purchases of property and equipment, specifically the new equipment in the machine shop.

Previous wording

Net cash used in financing activities was $97,634 for the six months ended June 30, 2024, compared to $108,453 used for the six months ended June 30, 2023. In both periods, cash was used primarily for principal payment of debt offset by the proceeds from the exercise of stock options.

Current wording

Net cash used in financing activities was $158,408 for the nine months ended September 30, 2024, compared to $93,194 used in the nine months ended September 30, 2023. In both periods, cash was used primarily for principal payment of debt offset by the proceeds from the issuance of RSUs.

Previous wording

***Bookings and Backlog.***The Company defines bookings as the total number of newly signed contracts and purchase orders received in a defined time period. The Company received bookings totaling $5.9 million for the six months ended June 30, 2024. The Company defines backlog as the accumulation of bookings that have not started or are uncompleted performance objectives and cannot be recognized as revenue until delivered in a future quarter. Backlog also includes extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of June 30, 2024, the Company’s backlog was $13.8 million. The breakout of this backlog includes $5.6 million in capital, $6 million in service and warranties, and $2.2 million in STEP contracts. Warranties/Service and STEP backlog calculated in this number is revenue that will be recognized on a straight-line basis over the next 7 years. In addition, there is $7 million in renewable STEP contracts over the next 5 years. Management estimates most of the new capital bookings received in the first six months of 2024, will be converted to revenue in 2024. Management estimates the conversion of backlog based on current contract delivery dates; however, contract terms and dates are subject to modification and are routinely changed at the request of the customer.

Current wording

The Company defines bookings as the total of newly signed contracts, awarded RFP’s and purchase orders received in a defined time period. The Company received bookings totaling $8.9 million in the three months ending September 30, 2024 and $17.7 million for the nine months ended September 30, 2024. The Company defines backlog as the accumulation of bookings that have not started or are uncompleted performance objectives and cannot be recognized as revenue until delivered in a future quarter. Backlog also includes extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of September 30, 2024, the Company’s backlog was $15.2 million. The breakout of this backlog includes $7 million in capital, $6.2 million in service and warranties, and $2 million in STEP contracts. Warranties/Service and STEP backlog calculated in this number is revenue that will be recognized on a straight-line basis over the next 7 years. In addition, there is an estimated potential of $5.8 million in renewable STEP contracts over the next 5 years. A note to the renewable STEP number as it will begin to come down as we are only writing 3-year agreements and any additional years with be subject to new negotiations we will no longer report the full 5 years as potentially renewable. This is no way an indication that those contracts would not extend past the three years we are only being cautious with our estimates. Management estimates the majority of the new capital bookings received in the first nine months of 2024 will be converted to revenue in 2024. Management estimates the conversion of backlog based on current contract delivery dates; however, contract terms and dates are subject to modification and are routinely changed at the request of the customer.

Previous wording

Our discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. Management believes there have been no changes in our critical accounting policies during the three months ended June 30, 2024.

Current wording

Our discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023. Management believes that there have been no changes in our critical accounting policies during the nine months ended September 30, 2024.

Previous wording

As of June 30, 2024, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a 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.

Current wording

As of September 30, 2024, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guaranteed contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.