(Former name, former address and former fiscal year, if changed since last report)

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.

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 November ~~10, 2020,~~12, 2021, the registrant had ~~7,767,530~~10,807,130 shares of common stock outstanding.

	September 30, 2020			December 31, 2019			September 30, 2021		December 31, 2020
	(Unaudited)						(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	4,097,484		$	1,415,091		$	21,545,843	$	6,841,984
Certificates of deposit		-			1,915,000
Accounts receivable, net		2,523,131			2,307,972			4,890,424		1,378,270
Interest receivable		-			7,340
Inventory, net		3,441,764			1,949,414			5,933,586		3,515,997
Unbilled revenue		3,689,442			3,579,942			4,346,282		5,408,598
Prepaid expenses and other current assets		461,612			353,975			624,767		382,445

Total current assets		14,213,433			11,528,734			37,340,902		17,527,294

Long-term assets:
Property and equipment, net		1,089,385			1,028,198			12,438,061		1,381,744
Operating lease right-of-use asset, net		1,169,876			1,390,873			863,227		1,094,527
Intangible assets, net		266,843			217,930			882,604		271,048
That’s Eatertainment note receivable, long-term, net, related party		285,288			291,110
Security deposits, long-term		19,712			19,712			19,712		86,500
Other assets, long-term		332,990			351,236			533,264		500,114
Deferred tax asset, net		1,712,000			1,792,000			1,482,107		1,892,000
Investment in That’s Eatertainment, related party		434,000			840,000

Total long-term assets		5,310,094			5,931,059			16,218,975		5,225,933

Total assets	$	19,523,527		$	17,459,793		$	53,559,877	$	22,753,227

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	649,293		$	621,127		$	1,087,736	$	345,573
Accrued compensation and related costs		995,946			611,487			1,287,063		843,101
Accrued expenses and other current liabilities		557,891			334,751			493,643		772,884
Note payable, current		601,696			-			233,047		266,037
Operating lease liability, short-term		315,476			297,244			341,124		321,727
Deferred revenue, short-term		3,369,569			2,490,845			8,058,613		4,708,575

Total current liabilities		6,489,871			4,355,454			11,501,226		7,257,897

Long-term liabilities:
Deferred revenue, long-term		1,321,857			1,748,257			1,958,110		1,920,346
Note payable, long-term		724,265			-			8,336,991		1,063,243
Operating lease liability, long-term		935,622			1,174,882			594,499		853,155
Other long term liabilities								5,435		-

Total long-term liabilities		2,981,744			2,923,139			10,895,035		3,836,744

Total liabilities		9,471,615			7,278,593			22,396,261		11,094,641

Commitments and contingencies (See Note 11)
Commitments and contingencies (See Note 9)

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; 7,767,530 shares issued and outstanding as of September 30, 2020 and 7,745,030 shares issued and outstanding as of December 31, 2019, respectively		778			775
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		-			-
Preferred stock $0.0001 par value; 2,500,000 authorized; 0 shares issued or outstanding								-		-
Common stock $0.0001 par value; 50,000,000 shares authorized; 10,807,130 shares issued and outstanding as of September 30, 2021 and 7,775,030 shares issued and outstanding as of December 31, 2020								1,081		778
Class A common stock $0.0001 par value; 2,500,000 shares authorized; 0 shares issued or outstanding								-		-
Class B common stock $0.0001 par value; 7,500,000 shares authorized; 0 shares issued or outstanding								-		-
Common stock								1,081		778
Additional paid-in capital		13,887,975			13,894,680			30,870,893		13,893,660
Accumulated deficit		(3,836,841	)		(3,714,255	)
Retained earnings (Accumulated deficit)								291,642		(2,235,852	)

Total stockholders’ equity		10,051,912			10,181,200			31,163,616		11,658,586

Total liabilities and stockholders’ equity	$	19,523,527		$	17,459,793		$	53,559,877	$	22,753,227


												Three Months Ended						Nine Months Ended
	Three Months Ended					Nine Months Ended						September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020
	September 30, 2020			September 30, 2019		September 30, 2020			September 30, 2019
Revenues:
Net sales	$	6,395,356		$	6,682,728	$	12,472,106		$	12,696,810		$	6,093,263		$	6,395,356		$	15,790,364		$	12,472,106
That’s Eatertainment royalties/licensing fees, related party		16,005			28,561		45,247			100,993
That’s Eatertainment royalties/licensing fees, former related party													-			16,005			-			45,247
Other royalties/licensing fees		2,360			2,120		4,310			21,257			-			2,360			-			4,310
Total revenue		6,413,721			6,713,409		12,521,663			12,819,060			6,093,263			6,413,721			15,790,364			12,521,663

Cost of sales		2,446,455			2,957,865		5,381,403			5,748,001			3,217,911			2,446,455			7,211,807			5,381,403

Gross profit		3,967,266			3,755,544		7,140,260			7,071,059			2,875,352			3,967,266			8,578,557			7,140,260

Operating expenses:
General and administrative		2,250,348			2,127,422		6,050,798			6,074,213			1,958,038			2,250,348			5,670,883			6,050,798
Research and development		497,645			381,654		1,204,011			1,090,960			651,734			497,645			1,257,271			1,204,011

Net operating expense		2,747,993			2,509,076		7,254,809			7,165,173			2,609,772			2,747,993			6,928,154			7,254,809

Income (loss) from operations		1,219,273			1,246,468		(114,549	)		(94,114	)		265,580			1,219,273			1,650,403			(114,549	)

Other income (expense)
Other income (expense):
Other income		7,067			38,426		45,359			114,158			(11,981	)		7,067			38,777			45,359
Other expense		(3,315	)		-		(12,929	)		(6,031	)
Gain on forgiveness of note payable													1,320,714			-			1,320,714			-
Other (expense) income													21,948			(3,315	)		(13,094	)		(12,929	)

Net other income		3,752			38,426		32,430			108,127
Net other income (expense)													1,330,681			3,752			1,346,397			32,430

Income (loss) before provision for income taxes		1,223,025			1,284,894		(82,119	)		14,013
Income (Loss) before provision for income taxes													1,596,261			1,223,025			2,996,800			(82,119	)

Provision for income taxes		354,941			347,787		40,467			23,539
Provision (Benefit) for income taxes													253,289			354,941			469,306			40,467

Net income (loss)	$	868,084		$	937,107	$	(122,586	)	$	(9,526	)	$	1,342,972		$	868,084		$	2,527,494		$	(122,586	)

Net income (loss) per common share:
Basic	$	0.11		$	0.12	$	(0.02	)	$	(0.00	)	$	0.12		$	0.11		$	0.26		$	(0.02	)
Diluted	$	0.11		$	0.12	$	(0.02	)	$	(0.00	)	$	0.12		$	0.11		$	0.25		$	(0.02	)

Weighted average shares outstanding:
Basic		7,760,799			7,745,030		7,753,034			7,748,543			10,792,520			7,760,799			9,745,091			7,753,034
Diluted		7,842,475			7,721,574		7,753,034			7,748,543			11,031,922			7,842,475			10,111,458			7,753,034


	Nine Months Ended						Nine Months Ended September 30,
	September 30, 2020			September 30, 2019			2021			2020

Cash flows from operating activities:
Net loss	$	(122,586	)	$	(9,526	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Net income (loss)							$	2,527,494		$	(122,586	)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		274,866			434,405			367,253			274,866
Right of use amortization		220,997			-			231,300			220,997
Reserve for note receivable		16,738			102,473			-			16,738
Deferred taxes		80,000			17,000			409,893			80,000
Impairment of investment in That’s Eatertainment, related party		406,000			-
Impairment of investment in That’s Eatertainment, former related party								-			406,000
Gain on forgiveness of note payable								(1,329,280	)		-
Employee stock compensation								171,216			-
Changes in operating assets and liabilities:
Accounts receivable, net		(215,159	)		(129,398	)		(3,512,154	)		(215,159	)
That’s Eatertainment note receivable, net, related party		(10,916	)		-			-			(10,916	)
Trade note receivable, net		-			652
Interest receivable		7,340			3,923			-			7,340
Inventory, net		(1,492,350	)		(1,206,098	)		(2,417,589	)		(1,492,350	)
Unbilled revenue		(109,500	)		(1,422,221	)		1,062,316			(109,500	)
Prepaid expenses and other current assets		(107,637	)		(120,642	)		(242,322	)		(107,637	)
Other assets		18,246			(48,140	)		(33,150	)		18,246
Security deposits, long-term		-			320,044			66,788			-
Accounts payable and other accrued expenses		635,765			799,915			912,318			635,765
Payments on operating lease liability		(221,028	)		(178,909	)		(239,259	)		(221,028	)
Deferred revenue		452,324			1,719,878			3,387,802			452,324

Net cash (used in) provided by operating activities		(166,900	)		283,356
Net cash provided by (used in) operating activities								1,362,626			(166,900	)

Cash flows from investing activities:
Purchase of certificates of deposit		-			(3,560,000	)

Redemption of certificates of deposit		1,915,000			5,135,000			-			1,915,000
Purchase of intangible asset		(55,580	)		(160,000	)
Purchase of intangible assets								(627,765	)		(55,580	)
Purchase of property and equipment		(329,386	)		(489,518	)		(11,407,278	)		(329,386	)
Proceeds from sale of property and equipment		-			2,631

Net cash provided by investing activities		1,530,034			928,113
Net cash provided by (used in) investing activities								(12,035,043	)		1,530,034

Cash flows from financing activities:
Repurchase of stock options		(26,667	)		(16,110	)		-			(26,667	)
Note Payable- Profiles		-			(11,250	)
Principal payments of debt								(20,195	)		-
Net proceeds from long term debt								8,590,151			-
Stock issued for cash in offering, net								16,795,000			-
Stock options exercised		19,965			11,426			11,320			19,965
Purchase of treasury stock		-			(318,204	)
Note payable-PPP Loan		1,325,961			-			-			1,325,961

Net cash provided by (used in) financing activities		1,319,259			(334,138	)		25,376,276			1,319,259

Net increase in cash		2,682,393			877,331
Cash, beginning of period		1,415,091			2,500,381

Cash, end of period	$	4,097,484		$	3,377,712
Net increase (decrease) in cash and restricted cash								14,703,859			2,682,393
Cash and restricted cash, beginning of period								6,841,984			1,415,091
Cash and restricted cash, end of period							$	21,545,843		$	4,097,484

Supplemental disclosure of cash flow information:
Cash (refunded) paid:
Taxes (refunded) paid	$	(39,533	)	$	6,539
Taxes refunded							$	78,096		$	(39,533	)
Interest paid		5,247			-			20,783			5,247

Supplemental disclosure of non-cash investing and financing activities:
Conversion of That’s Eatertainment note receivable to long term, related party	$	-		$	292,138

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~~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.

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S., accelerating during half of March and April as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. On March 30, 2020, the Governor for the State of Arizona issued a stay-at-home order which expired on May 15, 2020, upon which Arizona entered Phase I of reopening. The Company carefully reviewed all rules and regulations of the government orders and determined it met the requirements of an essential business to remain open. The Company had the majority of its staff begin working remotely in mid-March, with only essential personnel continue working at the manufacturing and production facilities and currently remains in Arizona’s Phase I of reopening. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time. To date, the COVID-19 restrictions have resulted in reduced customer shipments and customer system installations. These recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur. To date, there have been no order cancellations; rather, there have only been delays in when orders ship or installations occur and all delayed orders remain in backlog. Although not a material component of our company, a significant adverse change in the business climate could continue to affect the value of the Company’s long-term investment in TEC, including the long-term note receivable from TEC. Any future impact cannot be reasonably estimated at this time. The Company is no longer investing in Certificates of Deposits as a precautionary measure to increase its liquid cash position and preserve financial flexibility considering uncertainty in the U.S. and global markets resulting from COVID-19. Additionally, the Company’s stock repurchase program was suspended as a result of interim rulings for public-company recipients of a PPP loan under the CARES Act. The stock repurchase suspension ~~will remain~~remained in effect for the duration of the outstanding PPP loan. See Note 7 for information about the PPP Loan.

The ~~condensed~~unaudited 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, ~~2019~~2020 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019~~2020 filed with the SEC on March ~~23, 2020.~~29, 2021. 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~~unaudited financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at September 30, ~~2020~~2021 and the results of our operations and cash flows for the periods presented. We derived the December 31, ~~2019 condensed~~2020 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~~ nine months ended September 30, ~~2020~~2021 are not necessarily indicative of the results to be expected for the full year.

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.

Certain reclassifications have been made to the 2019 financial statements to conform to the 2020 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

The Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customer (Topic 606) (“ASC 606”) on January 1, 2018 and the Company elected to use the modified retrospective transition method which requires application of ASC 606 to uncompleted contracts at the date of adoption. The adoption of ASC 606 did not have a material impact on the financial statements.

Under ASC 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies a performance obligation. Significant judgment is necessary when making these determinations.

The Company’s primary sources of revenue are derived from simulator and accessories sales, training and installation, the sale of customizable software and the sale of extended service-type warranties. The Company’s policy is to typically invoice upon completion of installation and/or training until such time the performance obligations that have been satisfied are included in unbilled. Sales discounts are presented in the financial statements as reductions in determining net revenues. Credit sales are recorded as current assets (accounts receivable and unbilled revenue). Prepaid deposits received at the time of sale and extended warranties purchased are recorded as current and long-term liabilities (deferred revenue) until earned. The following briefly summarizes the nature of our performance obligations and method of revenue recognition:

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.

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.

For the three months ended September 30, 2021, governmental customers comprised $3,783,109, or 62%, of total net revenue, commercial customers comprised $1,449,730 or 24%, of total net revenue, and international customers comprised $860,424, or 14%, of total net revenue. By comparison, for the three months ended September 30, 2020, governmental customers comprised ~~$6,152,044,~~$6,152,044, or ~~96%~~96%, of total net ~~sales,~~revenue, commercial customers comprised ~~$249,783~~$249,783, or 4%4%, of total net ~~sales,~~revenue, and international customers comprised ~~$11,894,~~$11,894, or ~~< 1%,~~less than 1% of total net ~~sales. By comparison, for~~revenue. For the three months ended September 30, ~~2019,~~2021, and 2020, the Company recorded $490,059 and $233,981, respectively, in STEP revenue, or 8.0% and 3.6%, respectively, of total net revenue.

	Nine Months Ended
	September 30, 2021								September 30, 2020
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	2,183,769	$	7,828,503	$	1,907,588	$	11,919,860	$	477,874	$	7,969,907	$	291,939	$	8,739,720
Extended service-type warranties		79,531		2,001,423		74,196		2,155,150		51,700		1,769,908		116,042		1,937,650
Customized software and content		-		905,204		125,716		1,030,920		18,566		1,388,121		-		1,406,687
Installation and training		93,501		496,251		85,850		675,602		11,059		372,026		4,964		388,049
Licensing and royalities		8,832		-		-		8,832		49,557		-		-		49,557

Total Revenue	$	2,365,633	$	11,231,381	$	2,193,350	$	15,790,364	$	608,756	$	11,499,962	$	412,945	$	12,521,663

For the nine months ended September 30, 2021, governmental customers comprised ~~$5,460,761,~~$11,231,381, or ~~81%,~~71% of total net ~~sales,~~revenue, commercial ~~customer~~customers comprised ~~$431,035,~~$2,365,633, or ~~6%,~~15% of total net ~~sales,~~revenue, and international customers comprised ~~$821,613,~~$2,193,350, or ~~12%~~14% of total net ~~sales.~~

~~For~~revenue. By comparison, for the nine months ended September 30, 2020, governmental customers comprised ~~$11,499,962,~~$11,499,962, or ~~92%,~~92% of total net ~~sales,~~revenue, commercial customers comprised ~~$608,756~~$608,756, or ~~5%,~~5% of total net ~~sales,~~revenue, and international customers comprised ~~$412,945,~~$412,945, or ~~3%,~~3% of total net ~~sales. By comparison, for~~revenue. For the nine months ended September 30, ~~2019, governmental customers comprised $10,802,401,~~2021, and 2020, the Company recorded $1,349,677 and $558,462, respectively, in STEP revenue, or ~~84%~~8.5% and 4.4%, respectively of total net ~~sales, commercial customer comprised $653,623, or 5%,~~revenue.

Customer deposits consist of ~~total net sales,~~prepaid deposits received for equipment purchase orders and ~~international customers comprised $1,363,036, or 11%~~for Subscription Training Equipment Partnership (“STEP”) operating agreements that expire annually. Customer deposits are considered a deferred liability until the completion of ~~total net sales.~~

the customer’s contract performance obligation. When revenue is recognized, the deposit is applied to customer’s receivable balance. Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance ~~sheets~~sheet and totaled ~~$1,031,020~~$6,440,194 and ~~$651,073 as of~~$2,517,175 at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, 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.

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 ~~$2,327,829~~$1,618,419 and ~~$1,829,052~~$2,191,400 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled ~~$1,321,857~~$1,958,110 and ~~$1,748,257~~$1,920,346 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The accrual for the one-year manufacturer’s warranty liability totaled ~~$316,000~~$304,000 and ~~$331,176~~$352,000 as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. During the three months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the Company recognized revenue of ~~$641,018~~ $713,960 and $602,802, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. During the nine months ended September 30, 2020 and 2019, the Company recognized revenue of $1,937,651 and $1,661,907,$641,018, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance at the beginning of each period. During the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $2,155,150 and $1,937,650, respectively. 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 is recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled $10,720 as of September 30, 2020 and December 31, 2019. 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.

As discussed further in Note 9. 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.

The Company’s ~~Subscription Training Equipment Partnership (STEP~~^TM)STEP operations consist principally of renting its simulator products under operating agreements expiring in one year. At the commencement of a STEP agreement, any rental payments received are deferred and no income is recognized. Subsequently, payments are amortized and recognized as revenue on a straight-line basis over the term of the agreement. The agreements are generally for a period of 12 months and can be renewed for additional 12-month periods. Agreements may be terminated by either party upon written notice of termination at ~~lease~~least sixty days prior to the end of the 12-month period. The payments are generally fixed for the first year of the agreement, with increases in payments in subsequent years to be mutually agreed upon. The agreements do not include variable lease payments or free rent periods. In addition, the agreements do not provide for the underlying assets to be purchased at its fair market values at interim periods or at maturity. Each STEP agreement comes with full customer support and stand-ready advance replacement parts to maintain each system for the duration of the lease. The ~~amount~~amounts that the Company expects to derive from the STEP equipment following the end of the agreement term is dependent upon the ~~duration~~number of ~~the~~ agreement ~~term and the remaining useful life of the equipment.~~terms renewed. The agreements do not include a residual value guarantee.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which together with subsequent amendments 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 related amendments are effective for us on January 1, 2020, the adoption of ASU 2016-13 did not have a material impact on the Company’s 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 adoption did not have a material impact on the Company’s financial statements.

~~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.

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 September 30, 2020 and December 31, 2019 due to their short maturities. The fair value of the note receivable approximates its’ carrying value, using level 3 inputs, at September 30, 2020 and December 31, 2019.

~~The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents.~~

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.

The Company recognizes an allowance for losses on accounts receivable based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. Accounts receivable do not bear interest and are charged off after all reasonable collection efforts have been taken. The Company maintained an allowance for doubtful accounts of $34,165 and $34,177 at September 30, 2020 and December 31, 2019, 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. The allowance for uncollectible notes receivable was $22,439 and $5,701 at September 30, 2020 and December 31, 2019, respectively.

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 September 30, 2020 and December 31, 2019, inventory reserves were $120,652.

The Company categorized leases with contractual terms longer than twelve months as either operating or finance leases. Finance leases are generally those leases that allow the Company to substantially utilize or pay for the entire asset over its estimated life. All other leases are categorized as operating leases. As of September 30, 2020, the Company had no finance leases. Certain lease contracts include obligations to pay for other services, such as maintenance. The Company elected to account for these other services as a component of the lease (i.e. the Company elected the practical expedient not to separate lease and non-lease components). Lease liabilities are recognized as the present value of the fixed lease payments using a discount rate based on the Company’s current borrowing rate at the lease commencement date, adjusted for various factors including level of collateralization and term (the “incremental borrowing rate”), unless the rate implicit in the lease is readily determinable. The current portion of lease liabilities is included in “Current liabilities” and the noncurrent portion included in “Long-term liabilities.” Lease assets are recognized based on the initial present value of the fixed lease payments, plus any direct costs from executing the lease or lease prepayments reclassified. Lease assets are presented as “Operating lease right-of-use asset” as a long-term asset. Leasehold improvements are capitalized at cost and amortized over the lesser of their expected useful life or the lease term. Costs associated with operating lease assets are recognized on a straight-line basis within operating expenses over the term of the lease.

The Company accounts for investments in other companies that do not have readily determinable fair value 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. 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 9. 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 nine months ended September 30, 2020, the Company recognize impairment loss of $266,000 and $406,000, respectively. The Company did not recognize impairment losses during the three and nine months ended September 30, 2019. Management regularly assesses the classification of its investments.

Property and equipment are carried at cost, net of depreciation. Gains or losses related to retirements or disposition of fixed assets are recognized in operations in the period incurred. Costs of normal repairs and maintenance are charged to expense as incurred, while betterments or renewals are capitalized. Depreciation commences at the time the assets are placed in service or for STEP equipment under rental agreements, when the equipment is made available for use by the customer. Depreciation is provided using the straight-line method over the estimated economic lives of the assets or for leasehold improvements, over the shorter of the estimated useful life or the remaining lease term. For STEP equipment under rental agreements, depreciation is provided using the straight-line method over the shorter of the useful life or 5-year maximum term of the agreement. Estimated useful lives are summarized as follows:

Intangible assets at September 30, 2020 and December 31, 2019 are comprised of various patents and capitalized media content costs. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful lives.

Cost of products sold represents manufacturing costs, consisting of materials, labor and overhead related to finished goods and components. Cost of products sold includes depreciation of STEP contract fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold.

Costs associated with advertising are expensed as incurred. Advertising expense was $86,824 and $257,454 for the three months ended September 30, 2020 and 2019, respectively. Advertising expense was $350,255 and $527,834 for the nine months ended September 30, 2020 and 2019, respectively. These costs include domestic and international tradeshows, website, and sales promotional materials.

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 $497,645 and $381,654 for the three months ended September 30, 2020 and 2019, respectively. Research and development costs were $1,204,011 and $1,090,960 for the nine months ended September 30, 2020 and 2019, respectively.

~~Legal costs relating to loss contingencies are expensed as incurred. See Note 11. Commitments and Contingencies.~~

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~~$250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of ~~$3,593,831~~$21,043,538 and ~~$1,069,887~~ $6,338,896 as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively.

Most sales are to governments that 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.

Management performs ongoing evaluations of the collectability of its notes receivable and maintains an allowance for estimated losses. The Company’s remaining note receivable is due from one related party and is unsecured but the note can be converted to equity at the Company’s discretions (See Note 2. Notes Receivable and Note 9. Collaboration Agreement with Related Party.)

Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended September 30, ~~2020,~~2021, one ~~federal~~commercial agency comprised ~~22% of total net sales and another federal agency comprised 20%~~20% of total net sales. By comparison, for the three months ended September 30, ~~2019,~~2020, one federal agency comprised ~~34%~~22% of total net sales and another federal agency comprised20% of total net sales. For the nine months ended September 30, ~~2020, one federal agency comprised 19%~~2021, 0 single customer had a significant percentage of total ~~net sales and another federal agency comprised 14% of total net sales.~~revenue. By comparison, for the nine months ended September 30, ~~2019,~~2020, one federal agency comprised ~~24% of total net sales~~19% and another federal agency comprised ~~10%~~14% of total net ~~sales.~~revenue.

As of September 30, ~~2020, one federal agency comprised 45% and one state agency comprised 18%~~2021, no single customer had a significant percentage of total accounts ~~receivable outstanding.~~receivable. By comparison, as of December 31, ~~2019,~~2020, one federal agency comprised ~~30%~~8.5% and one ~~international customer~~state agency comprised ~~of 20%~~31% of total accounts ~~receivable outstanding.~~receivable.

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 recorded as of September 30, 2020 and December 31, 2019.

The Company did not recognize any assets or liabilities relative to uncertain tax positions at September 30, 2020 and December 31, 2019. 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 September 30, 2020 and December 31, 2019.

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 2015 and 2020; 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.

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 September 30, 2020 and December 31, 2019, 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.

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 nine months ended September 30, 2020 and 2019.

The expected term of the options is the estimated period of time until exercise and was determined using an average of vesting and contractual terms, as we did not have sufficient historical experience of similar awards. The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with an equivalent remaining term. The Company has not paid dividends in the past and does not plan to pay any dividends in the near future. The estimated fair value of stock-based compensation awards and other options is amortized to expense on a straight-line basis over the relevant vesting period. The Company has elected to recognize forfeitures as they occur rather than estimating them at the time of grant.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. ASU 2019-12 also simplifies aspects of accounting for franchise taxes and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim financial statement periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2019-12 on its financial statements.

The Company accepted an unsecured convertible promissory note (the “Convertible Note”) from TEC, a related party (see Note 9), 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 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 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. In July 2019, the Convertible Note’s maturity date was extended to August 2020, all other promissory note terms remain unchanged. In July 2020, due to the impacts of Coronavirus COVID-19, the Note’s maturity date was further extended to August 2023, all other note terms remain unchanged. Under the terms of the Convertible Note, TEC remitted a payment of $16,000, of which $14,972 was applied to accrued interest and $1,028 to principal. The Convertible Note’s principal and accrued interest due as of September 30, 2020 and December 31, 2019 were $307,728 and $296,811, respectively. Because the Convertible Note is from a related party and has a history of being extended, the asset may not be converted to cash within one year and is therefore classified as long-term asset. Additionally, a reserve for collectability has been recorded as of September 30, 2020 and December 31, 2019 totaling $22,440 and $5,701, respectively. See Note 9-Collaboration Agreement with Related Party.

							September 30, 2021			December 31, 2020
	September 30, 2020			December 31, 2019
Raw materials and work in process	$	3,562,416		$	2,070,066		$	6,616,616		$	3,636,649
Reserve		(120,652	)		(120,652	)		(683,030	)		(120,652	)

Total inventory, net	$	3,441,764		$	1,949,414
Total inventory							$	5,933,586		$	3,515,997

The Company regularly evaluates the useful life of its spare parts inventory and as a result, the Company classified ~~$332,990~~$479,771 and ~~$351,236~~$500,114 of spare parts as Other Assets, long-term on the Balance Sheet at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020

Land							$	1,778,987		$	-
Building & Building Improvements								8,606,224			-
Computer equipment	$	1,115,326		$	1,115,326			1,162,369			1,115,326
Furniture and office equipment		223,925			223,925			256,425			223,925
Machinery and equipment		1,096,898			1,096,898			1,743,487			1,096,898
STEP equipment		811,332			481,946			1,502,694			1,206,757
Leasehold improvements		334,934			334,934			334,933			334,934

Total property and equipment		3,582,415			3,253,029			15,385,119			3,977,840
Less: Accumulated depreciation		(2,493,030	)		(2,224,831	)
Less: Accumulated depreciation and amortization								(2,947,058	)		(2,596,096	)

Property and equipment, net	$	1,089,385		$	1,028,198		$	12,438,061		$	1,381,744

Depreciation expense, including STEP depreciation, was ~~$93,037~~$350,963 and ~~$78,678~~$268,200 for the nine months ended September 30, 2021, and 2020, respectively. Depreciation expense, including STEP depreciation, was $154,252 and $93,037 for the three months ended September 30, 2021, and 2020, respectively.

On August 25, 2021, the Company completed the purchase of real property located in Chandler, Arizona (the “Property”) for $10,800,000, paid with cash and ~~2019, respectively. Depreciation expense, including STEP depreciation,~~proceeds from a mortgage loan from Arizona Bank & Trust in the amount of $8,600,000 (Note 7). The Property consists of approximately 4.3 acres and an industrial building of approximately 76,650 square feet. The Company intends to move all of its’ operations and headquarters to the Property during 2022. Approximately 15,000 square feet of the building is dedicated to two pre-existing tenants with multi-year rent agreements.

Under the provision of ASC 805, the Company determined this acquisition was ~~$268,200~~an asset acquisition. This determination was based on substantially all of the fair value of the gross assets acquired was concentrated in the similarly identifiable assets of the Property. The fair value was allocated to the land, building, and ~~$220,186~~acquired leases based upon their relative fair values at the date of acquisition in accordance with ASC 805-50-30-3.

The fair value of the in-place leases is the estimated cost to replace the leases (including loss of rent, estimated commissions and legal fees paid in similar leases). The capitalized in-place leases are amortized over the remaining term of the leases as amortization expense. The fair value of the above or below market lease is the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and the estimated current market lease rate expected over the remaining non-cancelable life of the lease. The capitalized above or below market lease values are amortized as a decrease or increase to the rental income over the remaining term of the lease.

Upon closing, the Company assumed interest in two in-place leases. The first tenant took occupancy in November 2006 and is paying the annual Triple Net rate of $11.34 per square foot. The rate increased to $11.68 per square foot on November 1, 2021, increasing to $12.03 on November 1, 2022, and expiring on October 31, 2023. The second tenant took occupancy in November 2016 and is paying the annual rate of $9.00 per square foot. The lease expires October 31, 2024. This tenant has the option to extend the lease for 5 years thru October 31, 2029 with 5% increases to the rental rate for the ~~nine months ended September 30, 2020 and 2019, respectively.~~first 3 years.

							September 30, 2021			December 31, 2020
	September 30, 2020			December 31, 2019
Patents	$	160,000		$	160,000		$	160,000		$	160,000
Capitalized media content		121,658			66,078			301,329			128,085
Acquired lease intangible assets								454,521			-

Total intangible asset		281,658			226,078			915,850			288,085
Less: Accumulated amortization		(14,815	)		(8,148	)
Less Accumulated amortization								(33,246	)		(17,037	)

Intangible asset, net	$	266,843		$	217,930		$	882,604		$	271,048

Amortization expense was ~~$2,222~~$16,209 and ~~$2,222~~$6,667 for the nine months ended September 30, 2021, and 2020, respectively. Amortization expense was $11,765 and $2,222 for the three months ended September 30, 2021, and 2020, ~~and 2019,~~ respectively. ~~Amortization expense was $6,667 and $5,926 for the nine months ended September 30, 2020 and 2019, respectively.~~

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,~~In addition, the Company ~~leased~~leases approximately ~~4,529~~5,131 rentable square feet of ~~office and industrial~~ space ~~from an unaffiliated third party~~ for our machine shop located 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~~extending its existing office lease through April ~~2024.~~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 lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was ~~4.5%~~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~~is 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~~$1,721,380 and derecognized ~~$46,523~~$46,523 deferred rent for an adjusted operating lease right-of-use asset in the net amount of ~~$1,674,857.~~$1,674,857.

The balance sheet classification of lease assets and liabilities as of September 30, 2021 was as follows:

Balance Sheet Classification	September 30, 2020			September 30, 2021
Assets
Operating lease right-of-use assets, January 1, 2020	$	1,390,873
Amortization for the nine months ended September 30, 2020		(220,997	)
Total operating lease right-of-use asset, September 30, 2020	$	1,169,876
Operating lease right-of-use assets, January 1, 2021				$	1,094,527
Amortization for the nine months ended September 30, 2021					(231,300	)
Total operating lease right-of-use asset, September 30, 2021				$	863,227
Liabilities
Current
Operating lease liability, short-term	$	315,476		$	341,124
Non-current
Operating lease liability, long-term		935,622			594,499
Total lease liabilities	$	1,251,098		$	935,623

Future minimum lease payments as of September 30, ~~2020~~2021 under non-cancelable operating leases are as follows:

2020	$	90,005

2021		368,060		$	92,685
2022		379,097			379,097
2023		390,562			390,562
2024		131,152			131,152

Total lease payments		1,358,876			993,496
Less: imputed interest		(107,778	)		(57,873	)
Operating lease liability	$	1,251,098		$	935,623

The balance sheet classification of lease assets and liabilities as of December 31, ~~2019~~2020 was as follows:

Balance Sheet Classification	December 31, 2020
Assets
Operating lease right-of-use assets, January 1, 2020	$	1,390,873
Amortization for the year ended December 31, 2020		(296,346	)
Total operating lease right-of-use asset, December 31, 2020	$	1,094,527
Liabilities
Current
Operating lease liability, short-term	$	321,727
Non-current
Operating lease liability, long-term		853,155
Total lease liabilities	$	1,174,882

Future minimum lease payments as of December 31, ~~2019~~2020 under non-cancelable operating leases are as follows:

Rent expense for the three months ended September 30, 2021 and 2020 was $146,497and ~~2019 was $139,933 and $124,303,~~$139,933, respectively. Rent expense for the nine months ended September 30, 2021 and 2020 was $436,750and ~~2019 was $412,315 and $368,170,~~$412,315, respectively.

	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020

Salaries and wages payable	$	583,155	$	192,161	$	580,610	$	278,331
Employee benefits payable		18,451		11,259		32,288		634
Accrued paid time off		338,283		287,846
Accrued paid time off (PTO)						449,165		366,827
Profit sharing payable		56,057		120,221		225,000		197,309

Total accrued compensation and related costs	$	995,946	$	611,487	$	1,287,063	$	843,101

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

September 30, 2020 December 31, 2019

Manufacturer’s warranties $ 316,000 $ 257,000
Warranties-other - 74,176
Miscellaneous payable 760 1,193
Taxes payable 241,131 2,382

Total accrued expenses and other current liabilities $ 557,891 $ 334,751

On May 8, 2020, VirTra received a ~~Promissory Note~~loan (the “PPP ~~Note”~~Loan”) in the amount of ~~$1,320,714~~$1,320,714 under the Paycheck Protection Program (“PPP”) from Wells Fargo Bank, ~~N.A~~N.A. (the “Lender”). The ~~Paycheck Protection Program (“PPP”),~~PPP Loan was payable over two years at a fixed interest rate of 1%. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. Under the terms of the PPP ~~loan,~~Loan, up to the entire amount of principal and accrued interest may be forgiven to the extent PPP ~~loan~~Loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration for the PPP ~~loan.~~Loan. The Company ~~intends to use~~used its entire PPP ~~Note~~Loan amount for designated qualifying expenses and ~~to apply~~on June 16, 2021, applied for forgiveness in accordance with the PPP ~~loan~~Loan terms. ~~No assurance can be given~~

On July 20, 2021, the Company received notification from the Lender that the ~~Company will obtain~~SBA had approved the Company’s PPP Loan forgiveness application for the entire amount of the PPP Loan. The forgiveness of the PPP ~~Note~~Loan is recognized in ~~whole or~~Other Income in ~~part. With respect to any portion~~the accompanying statement of the PPP Note that is not forgiven, the PPP Note will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the PPP Note and cross-defaults on any other loan with the Lender or other creditors.income.

~~Under this approach,~~On August 25, 2021, the Company ~~will initially account~~completed the purchase of real property located in Chandler, Arizona (the “Property”) for ~~the PPP Note as~~$10,800,000, paid with cash and proceeds from a debt instrument and apply the interest method considering the six-month payment deferral allowed for the loan. The PPP Note is payable over two years at a fixed interest rate of 1%. The payments due and payable monthly aremortgage loan from Arizona Bank & Trust in the amount of ~~$55,604 commencing November 6, 2020~~$8,600,000. The loan terms include interest to be accrued at a fixed rate of 3% per year, 119 regular monthly payments of $40,978, and ~~continuing~~one irregular payment of $5,956,538 due on the ~~8th day~~maturity date of ~~each month thereafter until maturity~~August 23, 2031, The Company began making monthly payments on ~~May 8, 2022. Under conventional terms at~~September 23, 2021. The payment and performance of the loan ~~maturity~~is secured by a security interest in the total repayment could total $1,320,714 principal and $18,720 of interest over the two-year period, for a combined repayment of $1,339,434. Any portion not forgiven, can be prepaid at any time prior to maturity with no prepayment penalties.property acquired.

The entire PPP Note amount is be recorded as a financial liability on the entity’s balance sheet with the next twelve months of principal plus accrued interest recorded as short-term liabilities and the remaining principal note balance recorded as a long-term liability. The note payable amounts consist of the following:

	September 30, 2020		December 31, 2019		September 30, 2021		December 31, 2020
Short-term liabilities:
Note payable, principal	$	596,449	$	-	$	233,047	$	257,471
Accrued interest on note		5,247		-		-		8,566

Note payable, short-term	$	601,696	$	-	$	233,047	$	266,037

Long-term liabilities:						8,336,991

Note payable, long term	$	724,265	$	-	$	8,336,991	$	1,063,243

Schedule Of Minimum Note ~~9. Collaboration Agreement with Related Party~~Payments

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. Additionally, under the terms of the Co-Venture Agreement, equity representing 5% of MR’s ownership interest, on a fully-diluted basis, was issued to the Company. 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 12-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.

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.

On July 31, 2019, the Company executed the First Amendment to Convertible Promissory Note with TEC to extend the Convertible Note’s maturity date for one additional year to August 1, 2020 and TEC remitted a payment of 20% of its net proceeds from its recent public offering totaling $16,000. All other terms and conditions of the Convertible Note remain unchanged.

On July 28, 2020, the Company signed the Second Amendment to Convertible Promissory Note with TEC, to extend the maturity date from August 1, 2020 to August 1, 2023 and reconfirm the payment provision that 20% of net proceeds of any private placement or public offering of TEC’s securities during the note’s term shall be paid to VirTra in reduction of the note’s principal and accrued interest until paid in full.

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 September 30, 2020 and December 31, 2019, 560,000 shares of TEC common stock representing approximately 4.8% of the issued and outstanding common shares of TEC. The Company has elected to utilize the cost minus impairment approach to record the investment in TEC because the investment does not have a readily determinable fair value as of the reporting date. Management regularly assesses the financial statements and other key financial factors related to the classification of its investment in TEC, such as the recent impact of COVID-19. The Company recorded its investment at cost minus impairment as of September 30, 2020 and December 31, 2019, at $434,000 and $840,000, respectively.

In addition, as of September 30, 2020, 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.

During the ~~three~~nine months ended September 30, 2021, the Company redeemed 26,250 previously awarded stock options nearing expiration from related parties consisting of the Company’s CEO and COO. The redemption eliminated the stock options and resulted in a total of $116,718 in additional compensation expense. During the nine months ended September 30, 2021, the Company issued 7,500 shares of common stock, $0.0001 par value per share (the “Common Stock”) to one member of the Board of Directors, upon exercise of a previously awarded stock option in exchange for payment of an exercise price of $11,320.

During the nine months ended September 30, 2020, ~~and 2019,~~ the Company redeemed ~~3,750 and 3,750~~11,250 previously awarded stock options ~~reaching~~nearing expiration from the Company’s COO. The redemption eliminated the stock options and resulted in a total of ~~$2,778 and $2,168~~$8,857 in additional compensation ~~expense for the three months ended September 30, 2020 and 2019, respectively.~~expense. During the nine months ended September 30, 2020, and 2019, the Company redeemed 11,250 and 3,750 previously awarded options reaching expiration from the Company’s COO. The redemption eliminated the stock options and resulted in a total of $8,857 and $9,747 in additional compensation expense for the nine months ended September 30, 2020 and 2019, respectively.

~~During the three months ended September 30, 2020 and 2019,~~ the Company issued ~~7,500 and 5,000~~22,500 shares of ~~common stock~~Common Stock to ~~related parties consisting of~~ the CEO and one board member upon exercise of ~~the Board of Directors, to exercise~~ previously awarded stock options in exchange for ~~$6,750 and $5,650 cash paid at an~~payment of the exercise price of $0.90 and $1.13 per share, respectively. During the nine months ended September 30, 2020 and 2019, the Company issued 22,500 and 5,000 shares of common stock to related parties consisting of the CEO and one member of the Board of Directors, to exercise previously awarded stock options for $19,965 and $5,650 cash paid at a weighted average exercise price of $0.887 and $1.13 per share, respectively.$19,965.

Mr. Saltz, who is a former 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 (See Note 9. Collaboration Agreement with Related Party.) The Company owns 560,000 shares of TEC common stock representing approximately 4.8% of the issued and outstanding shares of TEC common stock. The Company recognized $16,005 and $28,561 for license fees (royalties) for the three months ended September 30, 2020 and 2019, respectively, pursuant to the terms of the Co-Venture Agreement. The Company recognized $45,247 and $100,993 for license fees (royalties) for the nine months ended September 30, 2020 and 2019, respectively, pursuant to the terms of the Co-Venture Agreement. As of September 30, 2020, and December 31, 2019, the Company had accounts receivable balances outstanding from TEC of $37,234 and $8,251, 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 September 30, 2020 and 2019, the Company purchased specialized equipment from Natural Point in the amount of $151,511 and $75,803, respectively. For the nine months ended September 30, 2020 and 2019, the Company purchased specialized equipment from Natural Point in the amount of $198,927 and $131,887, respectively. As of September 30, 2020 and December 31, 2019, the Company had $5,000 and $17,433 accounts payable balance outstanding, respectively.

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. There is no threatened litigation at this time.

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

On August 26, 2021, the Compensation Committee of the Board of Directors (the “Compensation Committee”) of VirTra, Inc. (the “Company”), relying upon third-party studies and recommendations, took several actions to bring the compensation of the Company’s Chief Executive officer (CEO) and Chief Operating Officer (COO) up to industry standards and provide meaningful incentive for future performance. The Committee (1) approved grants of 224,133 and 168,090 performance-based restricted stock units pursuant to the Company’s 2017 Equity Incentive Plan (the “Plan”) to the Company’s CEO and COO, respectively, with fair value on the grant date of August 26, 2021, of $1,559,966 and $1,169,906, respectively; (2) approved grants of 14,057 and 10,543 restricted shares with a fair value of $97,837 and $73,379, respectively, to the CEO and COO, respectively, based on the Company’s performance for the twelve months ended June 30, 2021; and (3) increased the annual base salaries effective August 15, 2021 to $349,860 and $251,140 for the CEO and COO, respectively. While their salaries have been annually increased with Company-wide cost-of-living adjustments, this was the first comprehensive review and adjustment undertaken since 2012.

Beginning on the last business day of August 2022, a tranche of restricted stock units may vest if the Company has achieved net profit (net income under GAAP) for the twelve months ending June 30, 2022, of at least $2,500,000. For every $500,000 earned in excess of $2,500,000 another tranche will vest. If the maximum net profits (net income under GAAP) of $7,000,000 is achieved, ten tranches would vest. Similarly, on the last business day of August 2023, a tranche of restricted stock units may vest if the Company has achieved a net profit (net income under GAAP) of at least $3,000,000, with the potential to have additional tranches vest up to a maximum of $9,000,000 in net profit (net income under GAAP). This vesting arrangement continues with the last business day of August 2024, with the minimum net profit (net income under GAAP) threshold being $3,500,000 and the maximum net profit (net income under GAAP) being $11,000,000.

It is the Company’s policy to estimate the fair value of the RSU’s on the date of the grant and evaluate the probability of achieving the net profit (net income under GAAP) tranches quarterly. If the target is deemed probable, the expense is amortized on a straight-line basis over the remaining time period. The Company determined based on the vesting terms described above that the net profit (net income under GAAP) for the twelve months ending June 30, 2022, of $2,500,000 is probable, the expense for the period ending September 30, 2021, is considered to be nominal.

VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata in April and October of the following year to only active employees. For the ~~three and~~nine months ended September 30, 2021, $225,000 was accrued for profit sharing. For the nine months ended September 30, 2020, ~~$56,057~~$56,057 was accrued for profit ~~sharing in both periods.~~sharing. The ~~2020 profit-sharing~~2021 profit sharing estimate is revised quarterly and will be finalized after the year-end financial audit.

Authorized Shares. The Company is authorized to issue 60,000,000 shares of common stock, of which (a) 50,000,000 shares ~~shall be~~is Common Stock, (b) 2,500,000 shares ~~shall be~~is Class A common stock, par value ~~$0.0001~~$0.0001 per share (the “Class A Common Stock”), and (c) 7,500,000 shares ~~shall be~~is Class B common stock, par value ~~$0.0001~~$0.0001 per share (the “Class B Common Stock”). NoTo date, no Class A Common Stock 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~~is 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~~do not have cumulative voting rights.

(ii) Each holder of Class A Common Stock ~~shall be~~is 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~~do 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~~are not be entitled to vote on any matter, except that the holders of Class B Common Stock ~~shall be~~are 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.

Authorized Shares. The Company is authorized to issue 2,500,000 shares of preferred stock, par value ~~$0.0001~~$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.

On October 25, 2016, the Company’s Board of Directors authorized the repurchase of up to $1$1 million of its ~~common stock~~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$1 million be allocated for the repurchase of VirTra’s stock under the existing 10b-18 plan. ~~On May 11, 2020, the Company suspended its~~The stock repurchase program ~~in accordance with the~~was suspended as a result of interim rulings ~~and FAQ guidance provided by the U.S. Small Business Administration~~ for ~~public company~~public-company recipients of a PPP loan ~~recipients. The stock repurchase suspension will remain in effect for~~under the ~~duration of the outstanding PPP loan.~~CARES Act. See Note 1.

~~During the three months ended September 30, 2020 and 2019, the Company purchased nil and 14,450 additional treasury shares at an average cost of nil and $3.97 per share.~~ During the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, the Company purchased ~~nil and 82,689~~no additional treasury ~~shares at an average cost of nil and $3.85 per share.~~shares. As of September 30, ~~2020 and 2019,~~2021, all treasury shares previously purchased had been cancelled and returned to shares authorized.

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.~~Common Stock. The following table summarizes all non-qualified stock options as of:

	September 30, 2020					September 30, 2019					September 30, 2021					September 30, 2020
	Number of			Weighted		Number of			Weighted		Number of Stock			Weighted Exercise		Number of Stock			Weighted Exercise
	Stock Options			Exercise Price		Stock Options			Exercise Price		Options			Price		Options			Price
Options outstanding, beginning of year		234,167		$	2.47		279,167		$	2.34		164,167		$	3.13		234,167		$	2.47
Granted		-			-		-			-		-			-		-			-
Redeemed		(36,250	)		0.83		(25,475	)		1.19		(26,250	)		1.51		(36,250	)		0.83
Exercised		(22,500	)		0.89		(10,775	)		1.06		(7,500	)		1.51		(22,500	)		0.89
Expired / terminated		-			-		-			-		-			-		-			-
Options outstanding, end of quarter		175,417		$	3.01		242,917		$	2.52
Options exercisable, end of quarter		175,417		$	3.01		242,917		$	2.52
Options outstanding, end of period												130,417		$	3.55		175,417		$	3.01
Options exercisable, end of period												130,417		$	3.55		175,417		$	3.01

For the three months ended September 30, 2020 and 2019, the Company received cash payments related to the exercise of options in the amount of $6,750 and $5,775, respectively. For the nine months ended September 30, 2020 and 2019, the Company received cash payments related to the exercise of options in the amount of $19,966 and $11,426, respectively.

The Company did not have any non-vested stock options outstanding as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. The weighted average contractual term for options outstanding and exercisable at September 30, 2021 and 2020 ~~and 2019~~ was 7 years. The aggregate intrinsic value of the options outstanding and exercisable at September 30, 2021 and 2020 was $859,675 and ~~2019 was $204,037 and $263,610,~~$204,037, respectively. The total intrinsic value of options exercised and redeemed during the ~~three~~nine months ended September 30, ~~2020~~2021, was $117,647, and ~~2019 was $20,275 and $8,720, respectively. The~~the total intrinsic value of options exercised during the nine months ended September 30, 2020, was $50,362. For the three months ended September 30, 2021, and ~~2019 was $50,362~~ 2020, the Company received payments related to the exercise of options in the amount of $5,250and ~~$14,770,~~$6,750, respectively. For the nine months ended September 30, 2021, and 2020, the Company received payments related to the exercise of options in the amount of $11,320and $19,965, 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~~Common Stock for those stock options that have an exercise price lower than the fair value of the Company’s ~~common stock.~~Common Stock. Options with an exercise price above the fair value of the Company’s ~~common stock~~Common Stock are considered to have no intrinsic value.

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~~Common Stock was initially authorized and reserved for issuance under the Equity Plan. This reserve automatically increased on January 1, 2020, and will increase each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3%3% of the number of shares of ~~common stock~~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.

AtThrough September 30, ~~2020~~2021, 224,133 and ~~2019, there were no options issued~~168,090 awards have been granted under the Equity ~~Plan.~~Plan to the Company’s CEO and COO, respectively (see Note 9).

On August 26, 2021, the Compensation Committee of the Board of Directors approved grants of 14,057 and 10,543 restricted shares to the CEO and COO, respectively, based on the Company’s performance for the twelve months ended June 30, 2021 (see Note 9).

On March 31, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to which the Company agreed to sell to the Purchasers an aggregate of 3,000,000 shares (the “RDO Shares”) of the Company’s Common Stock at a price of $6.00 per share in a registered direct offering (the “Offering”). The RDO Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-238624), which was filed by the Company with the SEC on May 22, 2020, and subsequently declared effective on June 2, 2020, and a related prospectus.

The Company also entered into a placement agent agreement (the “Placement Agency Agreement”) on March 31, 2021, with Roth Capital Partners, LLC (“Roth”), pursuant to which Roth agreed to serve as placement agent for the issuance and sale of the RDO Shares. The Company agreed to pay Roth an aggregate fee equal to 6.5% of the gross proceeds received by the Company from the sale of the securities in the transaction. The Company also agreed to pay Roth a reimbursement for legal fees and expenses in an amount not to exceed $35,000.

Roth acted as the lead placement agent in the Offering. Lake Street Capital Markets acted as co-placement agent for the Offering. Maxim Group LLC acted as a financial advisor to the Company in connection with the Offering.

A prospectus supplement and the accompanying prospectus relating to and describing the terms of the Offering, dated March 31, 2021, was filed with the SEC on April 2, 2021.

On April 5, 2021, the Company closed the Offering. The total gross proceeds of the Offering were $18.0 million, before deducting the placement agents’ fees and other estimated Offering expenses which totaled $1,205,000.

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, ~~2019~~2020 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, ~~2019,~~2020, filed with the Securities and Exchange Commission (the ~~“SEC”~~“SEC”) on March ~~23, 2020.~~29, 2021.

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 ~~risks~~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.

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, drop-in recoil kits, software, scenarios, and ~~scenarios~~accessories 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~~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 drop-in 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.

~~We have four~~Our main ~~customer groups, namely,~~business is selling to law enforcement ~~military, educational~~ (includes colleges and police academies) and ~~civilian.~~the military. 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:

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S., accelerating during half of March and April as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. On March 30, 2020, the Governor for the State of Arizona issued a stay-at-home order, ~~which expired on~~in effect until May 15, ~~2020, upon which Arizona entered Phase I of reopening.~~2020. The Company carefully reviewed all rules and regulations of the government orders and determined it met the requirements of an essential business to remain open. The Company had the majority of its staff begin working remotely in mid-March, with only essential personnel continue working at the manufacturing and production ~~facilities and currently remains in Arizona’s Phase I of reopening.~~facilities. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time. To date, the COVID-19 restrictions have resulted in reduced customer shipments and customer system installations. These recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur. To date, there have been no order ~~cancellations; rather, there have~~cancellations only ~~been~~ delays in when orders ship or installations occur and all delayed orders remain in backlog. Although not a material component of our company, a significant adverse change in the business climate could ~~continue to~~ affect the value of the Company’s long-term investment in TEC, ~~including the long-term note receivable from TEC. Any~~currently there has not been a negative impact and any future impact cannot be reasonably estimated at this time. The Company is no longer investing in Certificates of Deposits as a precautionary measure to increase its liquid cash position and preserve financial flexibility considering uncertainty in the U.S. and global markets resulting from COVID-19. Additionally, the Company’s stock repurchase program was suspended as a result of interim rulings for public-company recipients of a PPP loan under the CARES Act. The stock repurchase suspension remained in effect until July 20, 2021, when the PPP loan was forgiven (see Note 7).

Results of operations for the three and nine months ended September 30, ~~2020~~2021 and September 30, ~~2019~~2020

Revenues. Revenues were ~~$6,413,721~~$6,093,263 for the three months ended September 30, ~~2020~~2021, compared to ~~$6,713,409~~$6,413,721 for the same period in ~~2019,~~2020, a decrease of ~~$229,688,~~$302,093, or 4%5%. ~~For~~Revenues were $15,790,364 for the nine months ended September 30, ~~2020, revenues were $12,521,663,~~2021, compared to ~~$12,819,060~~$12,521,663 for the same period in ~~2019, a decrease~~2020, an increase of ~~$297,397,~~$3,318,258, or 2%27%. The ~~decrease~~increase in revenues for the ~~three-months~~nine months ended September 30, ~~2020 were a result of reduced equipment installations due to COVID-19 travel restrictions. The decrease~~2021 resulted from an increase in the ~~nine-months ended September 30, 2020 was also due~~number of simulators and accessories completed, delivered and revenue recognized compared to ~~COVID-19 travel restrictions.~~the same period in 2020.

Cost of Sales. Cost of sales were ~~$2,446,455~~$3,217,911 for the three months ended September 30, ~~2020~~2021, compared to ~~$2,957,865~~$2,446,455 for the same period in ~~2019, a decrease~~2020, an increase of ~~$511,410,~~$771,456, or ~~17%~~32%. ~~For~~Cost of sales were $7,211,807 for the nine months ended September 30, ~~2020, cost of sales was $5,381,403,~~2021, compared to ~~$5,748,001~~$5,381,403 for the same period in ~~2019, a decrease~~2020, an increase of ~~$366,598,~~$1,830,404, or 6%34%. ~~In the three months ended September 30, 2020, the decrease~~The increase was ~~primarily~~ due to ~~reduced direct~~additional material costs due to higher quantities of simulator systems and ~~reduced travel costs resulting from reduced sales. In the nine months ended September 30, 2020, the~~accessories sold, and an increase in reserve for inventory due to increased scale of operations. The cost of sales on a dollar basis varies from quarter-to-quarter ~~primarily due to~~as a result of sales volume and product ~~mix but tends to remain fairly consistent as a percentage of total revenue, when compared annually.~~mix.

Gross Profit. Gross profit was ~~$3,967,266~~$2,875,352 for the three months ended September 30, ~~2020~~2021, compared to ~~$3,755,544~~$3,967,266 for the same period in ~~2019, an increase~~2020, a decrease of ~~$211,722,~~$1,091,914, or 6%28%. Gross profit was ~~$7,140,260~~$8,578,557 for the nine months ended September 30, ~~2020,~~2021, compared to ~~$7,071,059~~$7,140,260 for the same period in ~~2019,~~2020, an increase of ~~$69,201,~~$1,438,297, or 1%20%. The gross profit margin ~~was 61.9%~~ for the three months ended September 30, 2021, and 2020 was 47% and ~~55.9% for the same period in 2019.~~62%, respectively. The gross profit margin was ~~57.0%~~54% for the nine months ended September 30, ~~2020~~2021, and ~~55.2%~~57% for the same period in ~~2019.~~2020. The decrease in gross profit was due to a one-time impact from an increase in reserve for inventory as our operations scale.

Operating Expenses. ~~Operating~~Net operating expense was ~~$2,747,993~~$2,609,772 for the three months ended September 30, ~~2020~~2021, compared to ~~$2,509,076~~$2,747,993 for the same period in ~~2019, an increase~~2020, a decrease of ~~$238,917,~~$138,221, or ~~10%~~5%. ~~Operating~~Net operating expense was ~~$7,254,809~~$6,928,154 for the nine months ended September 30, ~~2020,~~2021, compared to ~~$7,165,173~~$7,254,809 for the same period in ~~2019, an increase~~2020, a decrease of ~~$89,636,~~$326,655, or 1%5%. ~~For the three months ended September 30, 2020, the increase~~The decrease was ~~mainly~~primarily due to ~~a $266,000~~the impairment write down in ~~the investment in TEC recorded as operating expense. For the nine months ended September 30,~~ 2020 ~~the increase was due to an $406,000 impairment in the investment of TEC recorded as operating expense,~~ offset by ~~reduced selling, general~~the transition to a Company-wide ERP system which included software fees, consulting, and ~~administrative costs from COVID-19 restrictions on travel and tradeshows.~~time invested by Company staff in 2021.

Operating Income (Loss). ~~Operating income~~Income from operations was ~~$1,219,273~~$265,580 for the three months ended September 30, ~~2020~~2021, compared to ~~an operating income of $1,246,468~~$1,219,273 for the same period in ~~2019,~~2020, a decrease of ~~$27,195,~~$953,693 or 2%78%. Operating ~~loss~~income was ~~$114,549~~$1,650,403 for the nine months ended September 30, ~~2020~~2021, compared to an operating loss of ~~$94,114~~$114,549 for the same period in ~~2019,~~2020, an increase of ~~$20,435,~~$1,764,952, or ~~22%~~1541%.

Other Income. Other income net of other expense was ~~$3,752~~$1,330,681 for the three months ended September 30, ~~2020~~2021, compared to ~~$38,426~~other income net of other expense of $3,752 for the same period in ~~2019, a decrease~~2020, an increase of ~~$34,674,~~$1,326,929, or ~~90%~~35366%, primarily resulting from the forgiveness of the PPP Loan (see Note 1). ~~For~~Other income net of other expense was $1,346,397 for the nine months ended September 30, ~~2020, other income net of other expense was $32,430~~2021, compared to ~~$108,127~~$32,430 for the same period in ~~2019, and a decrease~~2020, an increase of ~~$75,697,~~$1,313,967, or ~~70%~~4052%. ~~In each period, the decrease resulted primarily from a reduction of interest income from investments due to maintaining higher levels of cash during the COVID-19 pandemic.~~

Provision for Income ~~Taxes.~~Tax Expense. ~~Provision for income taxes~~Income tax expense was ~~$354,941~~$253,289 for the three months ended September 30, ~~2020~~2021, compared to ~~provision for income taxes of $347,787~~$354,941 for the same period in ~~2019, an increase~~2020, a decrease of ~~$7,154,~~$101,652, or 2%29%. ~~Provision for income taxes~~Income tax expense was ~~$40,467~~$469,306 for the nine months ended September 30, ~~2020~~2021, compared to ~~provision for income taxes of $23,539~~$40,467 for the same period in ~~2019,~~2020, an increase of ~~$16,928,~~$428,839, or ~~72%~~1060%. ~~The increase for the three and nine months ended September 30,2020 resulted from the federal tax rate being applied to the net operating loss, adjusted for deferred tax assets and liabilities.~~ Provision ~~and/or (benefit)~~ for income ~~taxes are~~tax is estimated quarterly applying both federal and state tax rates.

Net Income (Loss). Net ~~Income~~income was ~~$868,084~~$1,342,972 for the three months ended September 30, ~~2020~~2021, compared to ~~net income of $937,107~~$868,084 for the same period in ~~2019, a decrease~~2020, an increase of ~~$69,023,~~$474,888, or 7%55%. ~~For~~Net income was $2,527,494 for the nine months ended September 30, ~~2020, net loss was $122,586~~2021, compared to a net loss of ~~$9,526~~$122,586 for the same period in ~~2019,~~2020, an increase of ~~$113,060,~~$2,650,080, or ~~1187%~~2162%. ~~In each period, the~~The fluctuations in net income (loss) ~~income relate~~relates to each respective section discussed above.

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

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 accounting principles generally accepted in the United States of America (“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 GAAP or as a measure of profitability or liquidity. A reconciliation of net loss to adjusted EBITDA is provided in the following table:

	Three Months Ended										Nine Months Ended												For the Three Months Ended											For the Nine Months Ended
	September 30,		September 30,		Increase			%			September 30,			September 30,			Increase			%			September 30,			September 30,		Increase			%			September 30,			September 30,			Increase			%
	2020		2019		(Decrease)			Change			2020			2019			(Decrease)			Change			2021			2020		(Decrease)			Change			2021			2020			(Decrease)			Change

Net Income (Loss)	$	868,084	$	937,107	$	(69,023	)		-7	%	$	(122,586	)	$	(9,526	)	$	(113,060	)		1187	%	$	1,342,972		$	868,084	$	474,888			55	%	$	2,527,494		$	(122,586	)	$	2,650,080			2162	%

Adjustments:
Provision for income taxes		354,941		347,787		7,154			2	%		40,467			23,539			16,928			72	%		253,289			354,941		(101,652	)		-29	%		469,306			40,467			428,839			1060	%
Depreciation and amortization		95,259		77,259		18,000			23	%		274,866			222,471			52,395			24	%		166,098			95,259		70,839			74	%		367,253			274,866			92,387			34	%
EBITDA	$	1,318,284	$	1,362,153	$	(43,869	)		-3	%	$	192,747		$	236,484		$	(43,737	)		-18	%	$	1,762,359		$	1,318,284	$	444,075			34	%	$	3,364,053		$	192,747		$	3,171,306			1645	%
Impairment loss on That’s Eatertainment, related party		266,000		-		266,000			100	%		406,000			-			406,000			100	%
Impairment loss on That’s Eatertainment, former related party																								-			266,000		(266,000	)		-100	%		-			406,000			(406,000	)		-100	%
Right of use amortization																								78,001			-		78,001			100	%		231,300			-			231,300			100	%
Reserve for note receivable		9,461		-		9,461			100	%		16,738			102,473			(85,735	)		-84	%		-			9,461		(9,461	)		-100	%		-			16,738			(16,738	)		-100	%
Gain on forgiveness of note																								(1,320,714	)		-		(1,320,714	)		100	%		(1,320,714	)		-			(1,320,714	)		100	%

Adjusted EBITDA	$	1,593,745	$	1,362,153	$	231,592			17	%	$	615,485		$	338,957		$	276,528			82	%	$	519,646		$	1,593,745	$	(1,074,099	)		-67	%	$	2,274,639		$	615,485		$	1,659,154			232	%

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 ~~$4,097,484~~$21,545,843 and ~~$1,415,091~~$6,841,984 of cash and cash equivalents as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively. ~~The Company also held certificates of deposits with maturities of less than 12-months, which are recorded as short-term investments, totaling $nil~~Working capital was $25,839,676 and ~~$1,915,000~~$10,269,397 as of September 30, ~~2020~~2021, and December 31, ~~2019,~~2020, respectively. ~~Working capital~~

Net cash provided by operating activities was ~~$7,723,562 and $7,173,280 as of~~$1,362,626 for the nine months ended September 30, ~~2020~~2021, and ~~December 31, 2019, respectively.~~

~~Net~~net cash used in operating activities was $166,900 for the nine months ended September 30, ~~2020 and net~~2020. Net cash provided by operating activities ~~was $283,356 for the nine months ended September 30, 2019. Net cash used in operating activities~~ resulted primarily from ~~increased~~decreases in accounts receivable, inventory, and ~~increased~~prepaid expenses, offset by increases in trade accounts ~~receivable,~~payable, accrued compensation, unbilled revenues, and deferred revenues, as well as other changes in operating assets and liabilities.

Net cash used in investing activities was $12,035,043 for the nine months ended September 30, 2021, and net cash provided by investing activities was $1,530,034 for the nine months ended September 30, ~~2020 and $928,113 for the nine months ended September 30, 2019.~~2020. Investing activities ~~in 2020~~in 2021 consisted of ~~redemptions of certificates of deposits, purchase~~purchases of intangible assets, ~~purchases of~~manufacturing equipment, and property ~~and equipment,~~(see Note 3) compared to investing activities in ~~2019~~2020 that consisted of ~~purchases and~~ redemptions of certificates of deposits, purchases of intangible assets and purchases of property and equipment.

Net cash provided by financing activities was $25,376,276 and $1,319,259 for the nine months ended September 30, 2021, and 2020, ~~and net cash used in financing activities was $334,138 for the nine months ended September 30, 2019.~~respectively. Financing activities in ~~2020~~2021 consisted ~~primarily~~ of the issuance of additional common stock for cash and stock options exercised and redeemed, and proceeds ~~received~~ from long debt, offset by the forgiveness of the PPP ~~Promissory Note. Financing~~loan (see Note 1), compared to financing activities in ~~2019~~2020 which consisted ~~primarily~~ of ~~the purchase of treasury stock.~~stock options exercised and redeemed, and PPP loan proceeds.

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 ~~$6.5~~$11.0 million for the three months ended September 30, ~~2020.~~

2021, and $24.4 million for the nine months ended September 30, 2021. 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, ~~2020,~~2021, the Company’s backlog was ~~$14.4~~$21.7 million. Management estimates the majority of the ~~$6.5 million~~new bookings received in the ~~third quarter~~first nine months of ~~2020~~2021 will be converted to revenue in ~~2020.~~2021 and early 2022. 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.

Additionally, due to the impact of COVID-19, management’s estimates will change in accordance with federal and state guidelines. To date, the COVID-19 restrictions have resulted in reduced customer shipments and customer system installations. These recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur. To date, there have been no order cancellations, only delays in when orders ship or installations occur and all delayed orders remain in backlog.

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, ~~to position ourselves for future acquisitions~~ 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.~~growth.

Our discussion and analysis of our financial condition and results of operations are based on our unaudited ~~condensed~~ financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited ~~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, ~~2019.~~2020. Management believes that there have been no changes in our critical accounting policies during the ~~nine~~three months ended September 30, ~~2020.~~2021.

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

As of September 30, ~~2020,~~2021, 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.

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 September 30, ~~2020,~~2021, 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, ~~2019,~~2020, filed with the SEC on March ~~23, 2020.~~29, 2021.

There has been no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, ~~2020~~2021 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.

See Note 119 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.

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.

Nevada		93-1207631
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

7970 S. S. Kyrene ~~Rd.~~Rd. Tempe, ~~Tempe,~~ AZ		85284
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Large accelerated filer	~~[ ]~~☐	Accelerated filer	~~[ ]~~☐
Non-accelerated filer	~~[X]~~☒	Smaller reporting company	~~[X]~~☒
Emerging growth company	~~[X]~~☒

			PAGE NO.
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	F-1
		~~Condensed~~ Balance Sheets as of September 30, ~~2020~~2021 and December 31, ~~2019~~2020	F-1
		~~Condensed~~ Statements of Operations for the Three and Nine ~~Months~~months ended September 30, ~~2020~~2021 and ~~2019~~2020	F-2
		~~Condensed~~ Statements of Changes in Stockholders’ Equity for the Three and Nine ~~Months~~months Ended September 30, ~~2020~~2021 and ~~2019~~2020	F-3
		~~Condensed~~ Statements of Cash Flows for the Nine ~~Months~~months Ended September 30, ~~2020~~2021 and ~~2019~~2020	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	98

	Item 4.	Controls and Procedures	98

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	109

	Item 1A.	Risk Factors	109

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	109

	Item 3.	Defaults Upon Senior Securities	109

	Item 4.	Mine Safety Disclosures	109

	Item 5.	Other Information	109

	Item 6.	Exhibits	1110

	SIGNATURES		12 11


	For the Three Months Ended September 30, 2021
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated Earnings
	Shares		Amount		Shares		Amount		Capital		Stock		(deficit)			Total

Balance at June 30, 2021		-	$	-		10,780,030	$	1,078	$	30,694,430	$	-	$	(1,051,330	)	$	29,644,178
Stock options exercised		-		-		2,500		-		5,250		-		-			5,250
Stock issued for cash in offering, net
Stock issued for cash in offering, net, shares
Stock issued for services		-		-		24,600		3	$	171,213	$	-		-			171,216
Stock options repurchased
Net income		-		-		-		-		-		-		1,342,972			1,342,972
Balance at September 30, 2021		-	$	-		10,807,130	$	1,081	$	30,870,893	$	-	$	291,642		$	31,163,616

Performance Obligation		Method of Recognition

Simulator and accessories		Upon transfer of control

Installation and training		Upon completion or over the period of services being rendered

Extended service-type warranty		Deferred and recognized over the life of the extended warranty

Customized software and content		Upon transfer of control or over the period services are performed depending on the terms of the contract

Customized content scenario		As performance obligation is transferred over time (input method using time and materials expanded)

Sales-based royalty exchanged for license of intellectual property		Recognized as the performance obligation is satisfied over time – which is as the sales occur.

~~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~~

2020	$	357,452
2021		368,060
2022		379,097
2023		390,562
2024		131,152
Total lease payments		1,626,323
Less: imputed interest		(154,197	)
Operating lease liability	$	1,472,126

	September 30, 2021		December 31, 2020

Manufacturer’s warranties	$	304,000	$	352,000
Taxes payable		90,171		316,076
Miscellaneous payable		99,472		104,808

Total accrued expenses and other current liabilities	$	493,643	$	772,884


2021	$	122,934
2022		491,737
2023		491,737
2024		491,737
2025		491,737
Thereafter		6,480,156

Total	$	8,570,038

	●	*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 invest in potential growth.

	●	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.

	○	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 individual firing lanes.

	○	~~A key feature~~The realism 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.

	○	The V-100® is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to 4four (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 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.

	●	Virtual Interactive Coursework Training Academy ~~(V-VICTA®)~~(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™)~~(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~~Drop-In Recoil Kits - a wide range of ~~highly~~powerfully realistic and reliable simulated recoil ~~kits/weapons~~kits that can fit into a live fire weapon and provide similar form, fit and function to a real firearm while avoiding the cost and dangers of blank fire rounds.

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

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

	Three Months Ended
	September 30, 2021								September 30, 2020
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	1,370,466	$	2,645,312	$	723,471	$	4,739,249	$	212,030	$	4,635,562	$	-	$	4,847,592
Extended service-type warranties		31,910		656,870		25,180		713,960		18,037		611,087		11,894		641,018
Customized software and content		-		290,829		52,273		343,102		-		738,291		-		738,291
Installation and training		42,952		190,098		59,500		292,550		1,351		167,104		-		168,455
Licensing and royalties		4,402		-		-		4,402		18,365		-		-		18,365

Total Revenue	$	1,449,730	$	3,783,109	$	860,424	$	6,093,263	$	249,783	$	6,152,044	$	11,894	$	6,413,721

	(a)	~~None.~~None
	~~(b)~~
	(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~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30,~~December 31, 2020.

Exhibit No.	Exhibit Description~~No.~~	~~Exhibit Description~~

~~31.1~~10.1	Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2021).

10.2	Placement Agency Agreement (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on March 31, 2021).

10.3	Promissory Note dated August 25, 2021 (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2021).

10.4	Deed of Trust dated August 25, 2021 (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2021).

10.5	Assignment and Assumption of Leases dated August 25, 2021 (incorporated by reference to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on August 30, 2021).

10.6	Restricted Stock Unit Agreement – Robert D. Ferris (incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on August 27, 2021).

10.7	Restricted Stock Unit Agreement – Matthew D. Burlend (incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC on August 27, 2021).

31.1	Certification of ~~the~~ Principal Executive Officer pursuant to Section ~~302~~906 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	Inline XBRL Instance Document

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

	VIRTRA, INC.

Date: November ~~10, 2020~~15, 2021	By:	/s/ Robert D. Ferris
		Robert D. Ferris
		Chief Executive Officer and President
		(principal executive officer)

	By:	/s/ ~~Judy A. Henry~~Marsha J. Foxx
		~~Judy A. Henry,~~Marsha J. Foxx,
		Chief ~~Financial~~Accounting Officer
		(principal financial and principal accounting officer)