Notes
To CONDENSED Financial Statements
(
Unaudited
)
NOTE
1.
ORGANIZATION, BUSINESS OPERATIONS and significant accounting policies
VirTra,
Inc. (the “Company” or “VirTra”), located in Tempe, Arizona, 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 and related 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 Systems, Inc., a Texas corporation.
Effective
as of October 1, 2016 (the “Effective Date”), the Company completed a conversion from a Texas corporation to a Nevada
corporation pursuant to a Redomestication Plan of Conversion (the “Plan of Conversion”) that was approved by the Company’s
Board of Directors on June 23, 2016 and by its shareholders on September 16, 2016. On the Effective Date, 7,927,774 shares
of common stock of VirTra Systems, Inc., a Texas corporation, were converted into 7,927,774 shares of common stock of VirTra Systems,
Inc., a Nevada corporation. No shareholders exercised appraisal rights or dissenters’ rights for such shares in accordance
with the Texas Business Organization Code.
As
part of the Plan of Conversion, the Company filed Articles of Incorporation in Nevada whereby it changed its name from VirTra
Systems, Inc. to VirTra, Inc. and revised its capitalization. The Company’s Articles of Incorporation filed in Nevada authorized
the Company to issue 62,500,000 shares, of which (1) 60,000,000 shares are common stock, par value $0.0001 per share (the “common
stock”), of which (a) 50,000,000 shares are common stock, par value $0.0001, (b) 2,500,000 shares are Class A common stock,
par value $0.0001 per share (the “Class A common stock”), and (c) 7,500,000 shares are Class B common stock, par value
$0.0001 per share (the “Class B common stock”) and (2) 2,500,000 shares are preferred stock, par value $0.0001 per
share, which may, at the sole discretion of the Board of Directors, be issued in one or more series (the “Preferred Stock”).
The Company also adopted new bylaws as part of the Plan of Conversion.
Effective
October 20, 2016, the Company effected a 1-for-10 reverse stock split of its issued and outstanding common stock and effective
February 12, 2018, the Company effected a 1-for-2 reverse stock split of its issued and outstanding common stock (together, the
“Reverse Stock Splits”). 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 Splits.
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”) for interim financial information. Certain information and note disclosures
normally included in complete annual financial statements prepared in accordance with GAAP have been condensed or omitted. However,
the Company believes that the disclosures included in these unaudited condensed financial statements are adequate to make the
information presented not misleading. In the opinion of management, the accompanying unaudited condensed financial statements
reflect all adjustments, which include normal recurring adjustments, considered necessary for a fair presentation of such interim
results. The results for the three months ended March 31, 2018 are not necessarily indicative of the results for any subsequent
period. These unaudited condensed financial statements should be read in conjunction with the audited financial statements and
notes for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2017, as filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2018.
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 at the date of the financial statements and reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications
Certain
reclassifications have been made to the 2017 financial statements to conform to the 2018 financial statement presentation. These
reclassifications had no effect on net earnings or cash flows as previously reported.
Significant
Accounting Policies
Aside from the adoption of ASU Topic 606,
as described below, there have been no other material changes to the significant accounting policies or recent accounting
pronouncements previously disclosed in the annual financial statements in the Company’s Form 10-K for the fiscal year ended
December 31, 2017.
Revenue
Recognition
The Company records revenue from contract with customers in accordance with Accounting Standards Codification
(ASU) Topic 606, “Revenue from Contracts with Customers.” Un
der
ASU 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.
The Company’s primary sources of revenue
are derived from simulator and accessories sales, training and installation, the sale of customized software and sale of
extended warranties. Sales discounts and bad debt allowance are presented in the Financial Statements as reductions in determining
net revenues. Credit sales are recorded as current assets. Prepaid deposits received at the time of sale and extended warranties
purchased are recorded as current liabilities until earned. The following briefly summarizes the nature of our significant provisions:
Performance obligation
|
|
Method of Recognition
|
|
|
|
Simulator and accessories
|
|
Upon transfer of control
|
|
|
|
Installation and training
|
|
Upon completion or over period of services being rendered
|
|
|
|
Extended service-type warranty
|
|
Deferred and recognized over life of extended warranty
|
|
|
|
Customized software
|
|
Upon transfer of control
|
Disaggregation
of Revenue
Under ASU 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, contract assets and liabilities associated with the revenue recognized and the following table illustrates the disaggregation
disclosure by customer’s location and performance obligation.
|
|
Three months ended March 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
|
Domestic
|
|
|
International
|
|
|
Total
|
|
Simulators and accessories
|
|
$
|
894,229
|
|
|
$
|
1,552,394
|
|
|
$
|
2,446,623
|
|
|
$
|
3,295,463
|
|
|
$
|
287,170
|
|
|
$
|
3,582,633
|
|
Warranties
|
|
|
426,685
|
|
|
|
62,386
|
|
|
|
489,071
|
|
|
|
396,878
|
|
|
|
14,195
|
|
|
|
411,073
|
|
Customized software
|
|
|
132,418
|
|
|
|
11,940
|
|
|
|
144,358
|
|
|
|
38,150
|
|
|
|
-
|
|
|
|
38,150
|
|
Installation and training
|
|
|
67,950
|
|
|
|
50,220
|
|
|
|
118,170
|
|
|
|
136,620
|
|
|
|
(3,000
|
)
|
|
|
133,620
|
|
Licensing and royalties
|
|
|
45,968
|
|
|
|
-
|
|
|
|
45,968
|
|
|
|
43,812
|
|
|
|
-
|
|
|
|
43,812
|
|
Total Revenue
|
|
$
|
1,567,250
|
|
|
$
|
1,676,940
|
|
|
$
|
3,244,190
|
|
|
$
|
3,910,923
|
|
|
$
|
298,365
|
|
|
$
|
4,209,288
|
|
Adoption
of New Accounting Standards
Between
May 2014 and December 2016, the Financial Accounting Standards Board (the “FASB”) issued several Accounting Standards
Updates (each, an “ASU” and collectively, “ASUs”) on Revenue from Contracts with Customers (Topic 606).
These ASUs supersede nearly all existing revenue recognition guidance under current GAAP and requires an entity to recognize revenues
when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects
to be entitled for those goods or services. The standards are effective for annual periods beginning after December 15, 2017,
and interim periods therein, and permit the use of either the full retrospective or modified retrospective transition method.
This standard was adopted on January 1, 2018 and the Company elected to use the modified retrospective transition method which
requires application of ASU 2014-09 to uncompleted contracts at the date of adoption. The adoption of
the ASUs under 2014-09 did not have a material impact on financial statements.
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those accounted
for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent
changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily
determinable fair values 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. ASU 2016-01 also impacts the presentation and disclosure
requirements for financial instruments. The Company wrote-down its Investment in Modern Round to fair value in 2017, the adoption
of ASU 2016-01 did not have a material impact on its financial statements. Upon adoption, the Company has elected to utilize the
cost minus impairment approach as the investment in Modern Round does not have a readily determinable fair value as of the reporting
date.
In
November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the
FASB Emerging Issues Task Force),” to provide guidance on the presentation of restricted cash or restricted cash equivalents
in the statement of cash flow. The amendments should be applied using a retrospective transition method, and are effective for
fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this statement
did not have a material impact on the Company’s financial statement presentation.
In
February 2017, the FASB issued ASU No. 2017-05, “Other Income—Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial
Assets,” to clarify the scope of Subtopic 610-20, “Other Income—Gains and Losses from the Derecognition of Nonfinancial
Assets,” and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as
a part of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” provides guidance for recognizing
gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The amendments are effective for fiscal
years beginning after December 15, 2017, including interim periods within those fiscal years, which is the same time as the amendments
in ASU No. 2014-09, and early adoption is permitted. The adoption did not have a material impact on the financial statements.
In
May 2017, the FASB issued ASU No. 2017-09, “Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting,”
to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718,
“Compensation—Stock Compensation,” to a change to the terms or conditions of a share-based payment award. The
ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Accounting Standards Codification (“ASC”) 718. The amendments are effective for fiscal
years beginning after December 15, 2017 and should be applied prospectively to an award modified on or after the adoption date.
The Company does not expect this amendment to have a material impact on its financial statements.
Recent
Accounting
Pronouncements
In
February 2016, the FASB issued ASU No. 2016-02 – “Leases (Topic 842)”, which requires lessees to put most leases
on their balance sheets by recognizing lease assets and lease liabilities for those leases classified as operating leases under
previous guidance. This ASU will be effective for the Company on January 1, 2019, with early adoption permitted. The Company is
currently in the process of assessing the impact of this ASU on its financial statements.
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. Accounting for Certain Financial Instruments with Down Round Features
and II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I 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. The Company does not expect
this amendment to have a material impact on its financial statements.
NOTE
2. NOTE RECEIVABLE
An
unsecured promissory note was executed on March 23, 2018 by a customer converting their past-due trade receivable from the sale
of goods and services in the amount of $400,906. The note bears interest at the rate of ten percent (10%) per annum and requires
installment payments of principal and interest due monthly, including late fees. The current portion of the note receivable is
collectible in one year or less with the remainder of the note separately classified as long-term. No allowances for doubtful
accounts has been recorded as of March 31, 2018.
NOTE
3. INVENTORY
Inventory
consisted of the following as of:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
2,187,385
|
|
|
$
|
1,825,469
|
|
Reserve
|
|
|
(105,031
|
)
|
|
|
(105,031
|
)
|
|
|
|
|
|
|
|
|
|
Total inventory
|
|
$
|
2,082,354
|
|
|
$
|
1,720,438
|
|
NOTE
4.
Property and Equipment
Property
and equipment consisted of the following as of:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Computer equipment
|
|
$
|
1,029,415
|
|
|
$
|
861,924
|
|
Furniture and office equipment
|
|
|
202,867
|
|
|
|
202,867
|
|
Machinery and equipment
|
|
|
925,495
|
|
|
|
925,495
|
|
Leasehold improvements
|
|
|
324,313
|
|
|
|
324,313
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment
|
|
|
2,482,090
|
|
|
|
2,314,599
|
|
Less: Accumulated depreciation
|
|
|
(1,705,945
|
)
|
|
|
(1,637,326
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
776,145
|
|
|
$
|
677,273
|
|
Depreciation
expense was $68,619 and $68,385 for the three months ended March 31, 2018 and 2017, respectively.
NOTE
5.
Accrued Expenses
Accrued
compensation and related costs consisted of the following as of:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Salaries and wages payable
|
|
$
|
337,456
|
|
|
$
|
115,481
|
|
401(k) contributions payable
|
|
|
13,533
|
|
|
|
30,532
|
|
Accrued Paid Time Off
|
|
|
246,405
|
|
|
|
257,751
|
|
Profit sharing payable
|
|
|
189,727
|
|
|
|
189,727
|
|
|
|
|
|
|
|
|
|
|
Total accrued compensation and related costs
|
|
$
|
787,121
|
|
|
$
|
593,491
|
|
Accrued
expenses and other current liabilities consisted of the following as of:
|
|
March 31, 2018
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Manufacturer’s warranties
|
|
$
|
135,000
|
|
|
$
|
135,000
|
|
Taxes payable
|
|
|
126,293
|
|
|
|
108,573
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities
|
|
$
|
261,293
|
|
|
$
|
243,573
|
|
NOTE
6.
Collaboration Agreement
On
January 16, 2015, the Company entered into a Co-Venture Agreement (the “Co-Venture Agreement”) with Modern Round,
LLC (“Modern Round”), a wholly owned subsidiary of Modern Round Entertainment Corporation (“MREC”), a
related party. MREC is a restaurant and entertainment concept centered on its indoor virtual reality shooting experience. The
Co-Venture Agreement provides Modern Round access to certain software and equipment relating to the Company’s products in
exchange for royalties.
The
Company received 1,365,789 units, representing a 5% ownership interest in Modern Round on the date of the Co-Venture Agreement.
The Company recorded the investment at the estimated fair value of the units and which were valued at $0.10 per unit based on
Modern Round’s other membership unit sales.
The Co-Venture Agreement also provides
the Company with conditional warrants to purchase an additional 5% of Modern Round as of the date of that agreement, at an exercise
price of $0.25.
On
April 14, 2015, Modern Round issued the Company an option to purchase 125,000 units of Modern Round. The option fully vested and
became exercisable on the date of grant at an exercise price equal to $0.50 per unit and terminates on the tenth anniversary of
the date of grant, if not earlier pursuant to the terms of the option.
On
December 31, 2015, Modern Round merged with a subsidiary of MREC pursuant to a Plan of Merger (the “Merger Agreement”)
and
each unit of Modern Round issued and outstanding as of the effective time of the merger
automatically converted into the right to receive approximately 1.2277 shares of MREC common stock. As a result of the Merger
Agreement, the Company held 1,676,748 shares of MREC common stock, options to purchase 153,459 shares of MREC common stock at
an exercise price of $0.41 per share, and conditional warrants to purchase 1,676,747 shares of MREC common stock at an exercise
price of $0.20 per share.
On
October 25, 2016, the Company exercised the conditional warrant and purchased 1,676,747 shares of MREC common stock for $335,349,
resulting in the Company’s aggregate holdings of MREC increasing to
3,353,495
common shares representing approximately 8.9% of the issued and outstanding common shares of MREC
.
The MREC equity securities have been recorded as a cost method investment as the Company does not have the ability to exercise
significant influence over MREC.
As
part of the Co-Venture Agreement, the Company granted 459,691 conditional warrants to affiliates of MREC to purchase 5% of the
Company’s capital stock on a fully diluted basis as of the date of the Co-Venture Agreement. The conditional warrants are
exercisable commencing at the earlier of the first anniversary of MREC opening its first range facility utilizing VirTra technology
or after MREC opening its first range facility utilizing VirTra technology and the payment to the Company of all required U.S./Canada
minimum royalty payments during the first 12-month period. MREC opened its first location on June 1, 2016.
The
Company also granted 459,691 of additional conditional warrants to affiliates of MREC to purchase another 5% of the Company’s
capital stock on a fully diluted basis as of the Agreement date. These conditional warrants are exercisable any time subsequent
to MREC’s payment of $2.0 million in cumulative license fees (royalty). Both conditional warrant issuances are for a period
of five years with an exercise price of $2.72.
These
conditional warrants were considered contingent consideration for the equity investment as they did not meet the definition of
a derivative under ASC 815. Thus, the contingent consideration was not included in the cost of the equity investment until the
contingency was resolved and the warrant became exercisable.
On June 1, 2017, the warrants related to the
opening of the facility vested and became exercisable at an exercise price equal to $2.72 per unit. On June 1, 2017, these warrants
were recorded at the Black-Scholes Merton fair value using annual volatility of 91.5%, an annual risk-free rate of 1.76%, expected
term of five years and a fair value of $4.28 a share for a fair value of $1,516,246 as an additional investment in MREC. As of
June 1, 2017, the total investment in MREC approximated $1,988,800. During the year ended December 31, 2017, the Company recognized
an impairment loss of $613,241 and is accounting for the investment utilizing the cost minus impairment approach.
On
July 28, 2017, the Company received Notices of Exercise for all 459,691 warrants then exercisable (the “Tranche 1 Warrants”)
from all the MREC affiliate holders electing to purchase warrants pursuant to the terms of the net exercise provision set forth
in the Warrant Agreement. Mr. Saltz (a member of our Board of Directors who is also Chairman of the Board of Directors of MREC,
as well as a majority stockholder of MREC) held 398,122 of the Tranche 1 Warrants prior to the assignment of the warrants to MREC
on August 11, 2017. Under the net exercise provision, in lieu of exercising the warrant for cash, the holder may elect to receive
shares equal to the value of the warrant (or the portion thereof being exercised) by surrender of the warrant and the Company
issuing to holder the number of computed shares. Using the July 28, 2017 OTCQX closing price at $4.36 as fair value and the $2.72
warrant exercise price, upon conversion the 459,691 warrants entitled the holders to receive 172,912 shares of the Company’s
Common Stock without payment of any additional consideration pursuant to the net exercise terms of the Tranche 1 Warrants that
are currently exercisable.
Effective
August 16, 2017, the Company and the MREC affiliate holders entered into an agreement (the “Warrant Buyout Agreement”)
whereby the Company acknowledged that the affiliates of MREC had assigned the Tranche 1 Warrants to MREC and the Company agreed
to repurchase them at a price of $3.924 per share of Common Stock issuable by the Company pursuant to the net exercise terms of
the Warrants for a total of $678,505.
In
addition, the Company agreed to repurchase from MREC an additional 459,691 warrants held by MREC that are not currently exercisable
(the “Tranche 2 Warrants”). Mr. Saltz held 364,122 of the Tranche 2 Warrants prior to their assignment to MREC on
August 11, 2017. The Warrant Buyout Agreement amended the Tranche 2 Warrants to provide for the immediate exercise on a net exercise
basis of 24,208 shares of the Company’s Common Stock. The aggregate purchase price for the Tranche 2 Warrants is $94,990
based on a price of $3.924 per share of Common Stock issuable on a net exercise basis and based on 24,208 shares of the Company’s
Common Stock. The aggregate purchase price of the Tranche 1 Warrants and the Tranche 2 Warrants was $773,495.
In
addition, on August 16, 2017, we entered into an amendment to the Co-Venture Agreement to permit MREC to sublicense the VirTra
Technology to third party operators of stand-alone location-based entertainment companies. MREC agreed to pay us royalties for
any such sublicenses in an amount equal to 10% of the revenue paid to MREC in cases where MREC pays for the cost of the equipment
for such location or 14% of the revenue paid to MREC in cases where it does not pay for the cost of the equipment.
The
Co-Venture Agreement grants MREC an exclusive non-transferrable license to use the Company’s technology solely for use at
locations to operate the concept, as defined in the Co-Venture Agreement. The license would become non-exclusive if the first
U.S. location is not opened within 24 months of the effective date and at least one location is opened outside the U.S. and Canada
within five years of the Co-Venture Agreement date, the respective milestone dates. Throughout the duration of the Co-Venture
Agreement, MREC 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. 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,
MREC may pay to VirTra the difference between the amount of total royalty payments and the minimum specified in the agreement
to maintain exclusivity. The Company recognized $45,968 and $43,812 for license fee income (royalties) for the three months ended
March 31, 2018 and 2017, respectively.
Note
7. Related Party Transactions
During
the three months ended March 31 2017, the Company issued 13,750 stock options to the CEO, COO and members of the Board of Directors
to purchase shares of common stock at a weighted average purchase price of $5.03. All options are exercisable within seven years
of grant date. No stock options were granted during the three months ended March 31, 2018.
During
the three months ended March 31, 2017, the Company redeemed stock options from the CEO and COO that had previously been awarded.
No such redemptions occurred during the three months ended March 31, 2018. The Company recorded additional compensation expense
as follows:
|
|
Three Months Ending March 31,
|
|
|
|
2018
|
|
|
2017
|
|
Number of stock options redeemed
|
|
|
-
|
|
|
|
12,500
|
|
Redemption value
|
|
$
|
-
|
|
|
$
|
48,500
|
|
Amount previously expensed (2011 and 2010)
|
|
|
-
|
|
|
|
(17,500
|
)
|
|
|
|
|
|
|
|
|
|
Additional compensation expense
|
|
$
|
-
|
|
|
$
|
31,000
|
|
Mr.
Mitch Saltz, a member of the Company’s Board of Directors, is also Chairman of the Board of Directors and a majority stockholder
of MREC. The Company entered into the Co-Venture Agreement with MREC as disclosed in Note 5. Through the terms of that agreement,
the Company owns 3,353,495 shares of MREC common stock representing approximately 9.3% of the issued and outstanding shares of
MREC common stock. Mr. Saltz has a beneficial ownership in the Company of less than 1% and MREC has 0% ownership in the Company.
Note
8. Commitments and Contingencies
The
Company’s operating lease obligations relate to the leasing of the Company’s corporate office space located at 7970
South Kyrene Road, Tempe, Arizona 85284, which expires in April 2019, unless renewed and the leasing of the machine shop building
located at 2169 East Fifth St., Tempe, Arizona 85284, which expires in September 2018, unless renewed.
Future
minimum lease payments under non-cancelable operating leases are as follows:
Building Lease Schedule
|
|
|
|
|
|
2018
|
|
|
260,702
|
|
2019
|
|
|
105,542
|
|
|
|
|
|
|
Total
|
|
$
|
366,244
|
|
The
Company has a deferred rent liability of $63,028 and $75,444 as of March 31, 2018 and December 31, 2017, respectively, relative
to the increasing future minimum lease payments. Rent expense was $87,345 and $97,391 for the three months ended March 31,
2018 and 2017, respectively.
General
or Threatened Litigation
From
time to time, the Company is notified of threatened litigation or that a claim is being made against it. As of the financial statement
issuance date, there were no claims or pending litigation.
Note
9. Stockholders’ Equity
Stock
Options
The
Company periodically issues non-qualified incentive stock options to key employees, officers and directors under a Stock Option
Compensation plan approved by the Board of Directors in 2009. Terms of the option grants are at the discretion of the Board of
Directors but historically have been seven years. During the three months ended March 31, 2017, the Company issued 13,750 stock
options, with a weighted average exercise price of $5.20 per share. No stock options were granted during the three months ended
March 31, 2018.
2017
Equity Incentive Plan
On
August 23, 2017 and October 6, 2017, respectively, the board of directors and shareholders approved 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
will automatically increase on January 1, 2018 and each subsequent anniversary through 2027, by an amount equal to the smaller
of (a) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount
determined by the board. On January 1, 2018, the amount authorized and reserved increased to 1,424,630 shares.
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. To date,
there have been no awards under this plan.
The
assumptions used for the periods ended March 31, 2018 and 2017, and the resulting estimates of weighted-average fair value per
share of options granted during those periods, are as follows:
|
|
Three Months March 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
-
|
|
|
99% to 101%
|
|
Risk-free interest rate
|
|
|
-
|
|
|
1-2%
|
|
Expected term
|
|
|
-
|
|
|
7 years
|
|
The
following table summarizes all compensation plan stock options as of March 31:
|
|
March 31, 2018
|
|
|
March 31, 2017
|
|
|
|
Number of Stock
|
|
|
Weighted
Exercise
|
|
|
Number of Stock
|
|
|
Weighted Exercise
|
|
|
|
Options
|
|
|
Price
|
|
|
Options
|
|
|
Price
|
|
Options outstanding, beginning of year
|
|
|
531,667
|
|
|
$
|
1.80
|
|
|
|
557,917
|
|
|
$
|
1.55
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
13,750
|
|
|
|
5.20
|
|
Redeemed
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,500
|
)
|
|
|
1.40
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired / terminated
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options outstanding, end of quarter
|
|
|
531,667
|
|
|
$
|
1.80
|
|
|
|
559,167
|
|
|
$
|
1.64
|
|
Options exercisable, end of quarter
|
|
|
521,667
|
|
|
$
|
1.82
|
|
|
|
539,167
|
|
|
$
|
1.68
|
|
Stock
compensation expense was $69,163 for the three months ended March 31, 2017. No such expense occurred during the three months ended
March 31, 2018. There are 10,000 non-vested stock options as of March 31, 2018 that will vest in October 2018.