VirTra Systems, Inc.
[Pages:18]VirTra Systems, Inc.
FINANCIAL STATEMENTS
For the years ended December 31, 2012 and 2011
TABLE OF CONTENTS Report of Independent Registered Public Accounting Firm ............................................................................................... 2 Balance Sheets ...................................................................................................................................................................... 3 Statements of Operations...................................................................................................................................................... 4 Statements of Stockholders' Deficit..................................................................................................................................... 5 Statements of Cash Flows .................................................................................................................................................... 6 Notes to Financial Statements .............................................................................................................................................. 7
1
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders VirTra Systems, Inc.
We have audited the accompanying balance sheets of VirTra Systems, Inc. as of December 31, 2012 and 2011 and the related statements of operations, stockholders' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of VirTra Systems, Inc. at December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Certified Public Accountants Phoenix, Arizona March 28, 2013
2
VIRTRA SYSTEMS, INC. BALANCE SHEETS
as of DECEMBER 31, 2012 and 2011
2012
2011
Assets
Current assets:
Cash and cash equivalents........................................................................$ ......37...2,...11...9 ......$......1...44...,0...51.....................
Accounts receivable, net..............................................................................4...62...,9...42...............36...5,...72...0 ..................
Inventory................................................................................................3...70...,0...19...............80...4,...54...8 .....................
Prepaid expenses and other current assets............................................................65...,5...58...............1...57...,18...0 .....................
Total current assets.................................................................................1...,2...70...,6...38............1...,47...1,...49...9 .................
Property and equipment, net..............................................................................6...12...,3...80...............79...9,...18...9 ..................
Total assets.............................................................................................$ ...1,...88...3,...01...8 ......$......2,2...70...,6...88.....................
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable................................................................................$.........22...7,3...31.........$......2...71...,73...4.....................
Accounts payable - related party.............................................................................- ..................35...,0...48.....................
Accrued compensation and related costs...........................................................3...35...,8...79...............2...92...,02...8.....................
Accrued expenses and other current liabilities......................................................1...18...,08...1 ...............13...1,4...37.....................
Term loan - short-term.................................................................................8...0,...49.9
-
Deferred revenue......................................................................................1,...17...3,4...49............1...,9...87...,16...2.....................
Total current liabilities..............................................................................1...,93...5,...23...9 ............2,7...17...,4...09
Long-term liabilities:
Term loan - long-term.................................................................................1...43...,63...6.........
-
Accrued rent liability - long-term.....................................................................13...1,3...5...8 ............1...14...,0...23.....................
Total liabilities.............................................................................................2,2...10...,2...33............2...,83...1,...43...2 .....................
Commitments and contingencies
Stockholders' deficit: Preferred stock $0.005 par value; 2,000,000 shares authorized; no shares issued or outstanding as of December 31, 2012 and 2011.................................-........................- ........................ Common stock $0.005 par value; 500,000,000 shares authorized; 158,328,245 shares issued and 158,285,045 shares outstanding as of December 31, 2012 and 2011 respectively.........................................................79...1...,64...1 ...............79...1,6...41..................... Additional paid-in capital...........................................................................1...3,...03...2,4...9...8 .........1...2,9...12...,3...65..................... Treasury stock at cost, 43,200 common shares as of December 31, 2012 and 2011 respectively............................................................(2...,98...1)...............(...2,9...81...) .................. Accumulated deficit.................................................................................(...14...,14...8,...37...3).........(1...4,2...6...1,7...69...) ..................
Total stockholders' deficit..............................................................................(3...27...,2...15...) .........(...56...0,...74...4)..................
Total liabilities and stockholders' deficit.........................................................$......1,8...83...,0...18.........$ ...2...,27...0,...68...8 .....
The accompanying notes are an integral part of the financial statements. 3
VIRTRA SYSTEMS, INC. STATEMENTS OF OPERATIONS For the Years Ended DECEMBER 31, 2012 and 2011
2012
2011
Net revenues..........................................................................................$...8...,82...9...,55...5 ......$......7,...86...1,7...80..............
Cost of products sold....................................................................................3,...28...0,2...11............3...,7...97...,3...77........................
Gross margin.............................................................................................5...,54...9,...34...4 ............4,064,403
General and administrative expenses..................................................................5,...41...1,...33...3 ..........4,754,593
Income/(loss) from operations...........................................................................13...8,...01...1 ............(6...9...0,1...90...) .........
Other income/(expense): Other income................................................................................................2,...20...3 ...............17...,2...49
Other expense...........................................................................................(2...6,...81...8)........ (19,820)
Net other income/(expense)..............................................................................(2...4...,61...5)...............(...2,5...71...) .......
Income/(loss) before income taxes.................................................................... 113,396
(692,761)
Income tax expense/(benefit)......................................................................
-
-
Net income/(loss)....................................................................................$......11...3,...39...6 ......$......(6...9...2,7.61)
Weighted average of common and common equivalent shares outstanding: -Basic.............................................................................................1...58,285,045 -Diluted.............................................................................................16...1,637,802
Net income/(loss) per common and common equivalent share: -Basic.............................................................................................$... 0.00 -Diluted..........................................................................................$...... 0.00
158,285,045 158,285,045
$
(0.00)
$
(0.00)
The accompanying notes are an integral part of the financial statements. 4
VIRTRA SYSTEMS, INC. STATEMENTS OF STOCKHOLDERS' DEFICIT For the Years Ended December 31, 2012 and 2011
Common stock
Shares
Amount
Additional Treasury Accumulated
paid in capital Stock
Defi ci t
Total
Balance at January 1, 2011,...............1...58. ,328,245 Net Loss......................................... Stock-based compensation..................... Purchase of Common stock................. (43,200)
$ 791,641 -
$ 12,796,853 -
115,512 -
$ -
(2,981)
$ (13,569,008) (692,761) -
$ 19,486 (692,761) 115,512 (2,981)
Balance at December 31, 2011............15...8...,28...5,...04...5 .........79...1,...64...1 .........1...2,9...1...2,3...65............(2...,98...1).........(...14.,.261,769)
(560,744)
Net Income......................................... Stock-based compensation..................... -
-
-
-
113,396
113,396
-
120,133
-
-
120,133
Balance at December 31, 2012............15...8...,28...5,...04...5 ......$...79...1,...64...1 ......$...1...3,0...3...2,4...98.........$...(2...,98...1).........$ (...14.,.148,373) $ (327,215)
The accompanying notes are an integral part of the financial statements. 5
VIRTRA SYSTEMS, INC. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2012 and 2011
2012
2011
Cash flows from operating activities: Net income/(loss).......................................................................................$ ......11...3,3...96.........$......(...69...2,...76...1)..................
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: Depreciation and amortization........................................................................2...27...,49...2 ...............2...02...,6...86.................. Stock-based compensation...........................................................................1...20...,1...33..................11...5,5...1...2 ..................
Changes in operating assets and liabilities: Accounts receivable.......................................................................................(9...7,...22...2)...............(...51...,65...4...) . Inventory...................................................................................................4...34...,5...29...............1. 97,073 Prepaid expenses and other assets........................................................................9...1,6...22..................(9...7,...22...7).................. Accounts payable and other accrued expenses............................................................3,...42...7 ..................94...,31...3.......... Deferred revenue..........................................................................................(8...13...,71...3)...............1...31...,2...95................ Due to related parties.......................................................................................(35...,0...48...) ..................(1...1...8) ..................
Net cash provided by/(used in) operating activities.........................................................4...4,...61...6 ...............(1...00...,88...1)..................
Cash flows from investing activities: Purchase of property and equipment........................................................................(4...0,6...83...) ............(...29...2,...995)
Net cash used in investing activities...........................................................................(4...0,6...83...) ............(...29...2,995)
Cash flows from financing activities: Draws on line of credit....................................................................................1,...65...5,0...0...0 ...............75...0...,00...0 .................. Repayments of line of credit...........................................................................(...1,6...55...,0...00...) ............(...75...0,...00...0).................. Proceeds from term loan....................................................................................25...0,...00...0 .....................-..................... Payments on term loan.......................................................................................(2...5,...86...5).....................- ..................... Purchase of common stock.......................................................................................- .....................(2...,9...81...) ...............
Net cash provided by/(used in) financing activities.........................................................22...4,...13...5 ..................(2...,98...1)..................
Increase/(decrease) in cash and cash equivalents............................................................22...8,0...68..................(39...6,...85...7)...... Cash and cash equivalents, beginning of period............................................................1...44...,0...51..................54...0,9...08
Cash and cash equivalents, end of period...............................................................$......37...2,...11...9 ......$ 144,051
Cash paid during the period for:
Interest......................................................................................................$......2...4,.429 $
Taxes.........................................................................................................$ ....... -
$
3,200 -
The accompanying notes are an integral part of the financial statements. 6
VIRTRA SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
Organization and Business Operations
VirTra Systems, Inc. (the "Company" or "VirTra") is engaged in the sale and development of judgmental use of force training simulators and firearms training simulators for law enforcement, military and commercial uses. The Company sells simulators 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 Systems, Inc., a Texas Corporation. The corporate office is located in Tempe, Arizona. All transactions are denominated in US dollars.
Basis of Presentation and Use of Estimates
The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions 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. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets, income tax valuation allowances and capitalization of labor and overhead to inventory for work in progress. Actual results could differ significantly from those estimates.
Fair Value of Financial Instruments
The fair value of financial instruments approximates their carrying values at December 31, 2012 and 2011 due to their short maturities or for long-term debt based on borrowing rates currently available to the Company for loans with similar terms and maturities. These financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and debt.
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.
Accounts 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 are charged off after all reasonable collection efforts have been exhausted. As of December 31, 2012 and 2011, management has determined all receivable balances to be fully collectible and accordingly, no allowance was recognized at such time. Accounts receivable are non-interest bearing and are generally unsecured.
Inventories
Inventories are stated at the lower of cost or market with cost being determined on the first-in, first-out method. Work in progress and finished goods inventory includes an allocation for capitalized labor and overhead. Capitalized labor and overhead included in inventory at December 31, 2012 and 2011 are $2,299 and $98,965, respectively. The Company routinely evaluates the carrying value of inventory and provides reserves when appropriate to reduce inventory to the lower of cost or market to reflect estimated net realizable value. As of December 31, 2012 and 2011, management has determined all inventory is salable at prices greater than cost and accordingly, no reserve has been recognized at December 31, 2012 or 2011.
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