UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ______________

Commission file number: 001-38420

VIRTRA, INC.

(Exact name of registrant as specified in its charter)

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

~~7970 S~~295 E. Corporate Place., ~~Kyrene Rd~~. ~~Tempe~~Chandler, AZ		~~85284~~85225
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (480) 968-1488

N/A

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
~~N/A~~Common Stock, $0.0001 par value		~~N/A~~VTSI		~~N/A~~Nasdaq Capital Market

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 ☒ 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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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 ☒

As of ~~November 12, 2021,~~August 11, 2022, the registrant had ~~10,807,130~~10,876,945 shares of common stock outstanding.

VIRTRA, INC.

FORM 10-Q

TABLE OF CONTENTS

			PAGE NO.
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	F-1
		Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021	F-1
		Statements of Operations for the Three and ~~Nine months~~Six Months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	F-2
		Statements of Changes in Stockholders’ Equity for the Three and ~~Nine months~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	F-3
		Statements of Cash Flows for the ~~Nine months~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021	F-4
		Notes to the Unaudited Financial Statements	F-5

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	8

	Item 4.	Controls and Procedures	8

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	9

	Item 1A.	Risk Factors	9

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9

	Item 3.	Defaults Upon Senior Securities	9

	Item 4.	Mine Safety Disclosures	9

	Item 5.	Other Information	9

	Item 6.	Exhibits	109

	SIGNATURES		1110

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRTRA, INC.

BALANCE SHEETS


	September 30, 2021		December 31, 2020			June 30, 2022		December 31, 2021
	(Unaudited)					(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	21,545,843	$	6,841,984		$	15,016,233	$	19,708,565
Accounts receivable, net		4,890,424		1,378,270			6,388,087		3,896,739
Inventory, net		5,933,586		3,515,997			8,831,786		5,014,924
Unbilled revenue		4,346,282		5,408,598			4,820,051		3,946,446
Prepaid expenses and other current assets		624,767		382,445			848,759		940,887

Total current assets		37,340,902		17,527,294			35,904,916		33,507,561

Long-term assets:
Property and equipment, net		12,438,061		1,381,744			14,185,424		12,864,766
Operating lease right-of-use asset, net		863,227		1,094,527			623,648		784,306
Intangible assets, net		882,604		271,048			579,963		535,079
Security deposits, long-term		19,712		86,500			35,691		19,712
Other assets, long-term		533,264		500,114			376,461		189,734
Deferred tax asset, net		1,482,107		1,892,000			1,418,723		1,674,234

Total long-term assets		16,218,975		5,225,933			17,219,910		16,067,831

Total assets	$	53,559,877	$	22,753,227		$	53,124,826	$	49,575,392

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,087,736	$	345,573		$	1,458,968	$	789,394
Accrued compensation and related costs		1,287,063		843,101			1,229,404		1,062,078
Accrued expenses and other current liabilities		493,643		772,884			1,270,086		991,744
Note payable, current		233,047		266,037			233,673		236,291
Operating lease liability, short-term		341,124		321,727			361,403		347,772
Deferred revenue, short-term		8,058,613		4,708,575			4,373,173		4,135,565

Total current liabilities		11,501,226		7,257,897			8,926,707		7,562,844

Long-term liabilities:
Deferred revenue, long-term		1,958,110		1,920,346			2,679,248		1,992,625
Note payable, long-term		8,336,991		1,063,243			8,165,838		8,280,395
Operating lease liability, long-term		594,499		853,155			321,217		505,383
Other long term liabilities		5,435		-

Other long-term liabilities							5,436		5,436
Total long-term liabilities		10,895,035		3,836,744			11,171,739		10,783,839

Total liabilities		22,396,261		11,094,641			20,098,446		18,346,683

Commitments and contingencies (See Note 9)							-

Stockholders’ equity:
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

Common stock $0.0001 par value; 50,000,000 shares authorized; 10,876,945 shares issued and outstanding as of June 30, 2022 and 10,807,130 shares issued and outstanding as of December 31, 2021							1,087		1,081
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
Common stock, value							1,087		1,081
Additional paid-in capital		30,870,893		13,893,660			31,356,608		30,923,391
Retained earnings (Accumulated deficit)		291,642		(2,235,852	)
Retained earnings							1,668,685		304,237

Total stockholders’ equity		31,163,616		11,658,586			33,026,380		31,228,709

Total liabilities and stockholders’ equity	$	53,559,877	$	22,753,227		$	53,124,826	$	49,575,392

See accompanying notes to unaudited financial statements.

F-1

VIRTRA, INC.

STATEMENTS OF OPERATIONS

(Unaudited)


	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020			June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021

Revenues:
Net sales	$	6,093,263		$	6,395,356		$	15,790,364		$	12,472,106		$	7,997,383		$	5,255,192		$	14,750,611		$	9,697,101
That’s Eatertainment royalties/licensing fees, former related party		-			16,005			-			45,247
Other royalties/licensing fees		-			2,360			-			4,310
Total revenue		6,093,263			6,413,721			15,790,364			12,521,663			7,997,383			5,255,192			14,750,611			9,697,101

Cost of sales		3,217,911			2,446,455			7,211,807			5,381,403			3,253,651			2,120,492			6,319,789			3,993,896

Gross profit		2,875,352			3,967,266			8,578,557			7,140,260			4,743,732			3,134,700			8,430,822			5,703,205

Operating expenses:
General and administrative		1,958,038			2,250,348			5,670,883			6,050,798			3,085,051			2,002,612			5,381,443			3,712,845
Research and development		651,734			497,645			1,257,271			1,204,011			617,058			311,320			1,296,453			605,537

Net operating expense		2,609,772			2,747,993			6,928,154			7,254,809			3,702,109			2,313,932			6,677,896			4,318,382

Income (loss) from operations		265,580			1,219,273			1,650,403			(114,549	)
Income from operations														1,041,623			820,768			1,752,926			1,384,823

Other income (expense):
Other income		(11,981	)		7,067			38,777			45,359			57,056			34,379			111,379			50,758
Gain on forgiveness of note payable		1,320,714			-			1,320,714			-
Other (expense) income		21,948			(3,315	)		(13,094	)		(12,929	)
Other expense														(64,621	)		(32,608	)		(129,173	)		(35,042	)

Net other income (expense)		1,330,681			3,752			1,346,397			32,430			(7,565	)		1,771			(17,794	)		15,716

Income (Loss) before provision for income taxes		1,596,261			1,223,025			2,996,800			(82,119	)
Income before provision for income taxes														1,034,058			822,539			1,735,132			1,400,539

Provision (Benefit) for income taxes		253,289			354,941			469,306			40,467
Provision for income taxes														246,684			293,180			370,684			216,017

Net income (loss)	$	1,342,972		$	868,084		$	2,527,494		$	(122,586	)
Net income													$	787,374		$	529,359		$	1,364,448		$	1,184,522

Net income (loss) per common share:
Net income per common share:
Basic	$	0.12		$	0.11		$	0.26		$	(0.02	)	$	0.07		$	0.05		$	0.13		$	0.13
Diluted	$	0.12		$	0.11		$	0.25		$	(0.02	)	$	0.07		$	0.05		$	0.13		$	0.13

Weighted average shares outstanding:
Basic		10,792,520			7,760,799			9,745,091			7,753,034			10,866,775			10,644,363			10,837,186			9,209,808
Diluted		11,031,922			7,842,475			10,111,458			7,753,034			10,892,302			10,693,238			10,867,667			9,209,509

See accompanying notes to unaudited financial statements.

F-2

VIRTRA, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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

For the Three Months Ended June 30, 2022
Preferred Stock Common Stock Additional Paid-In Treasury Accumulated
Shares Amount Shares Amount Capital Stock Earnings Total

Balance at March 31, 2022 - $         - 10,809,630 $ 1,081 $ 30,957,616 $         - $ 881,311 $ 31,840,008
Stock options exercised - - 2,500 - 4,750 - - 4,750
Stock issued for services - - 64,815 6 349,995 - - 350,001
Stock reserved for future services - - - - 44,247 - - 44,247
Net income - - - - - - 787,374 787,374
Balance at June 30, 2022 - $ - 10,876,945 $ 1,087 $ 31,356,608 $ - $ 1,668,685 $ 33,026,380

For the Nine Months Ended September 30, 2021 For the Six Months Ended June 30, 2022
Preferred Stock Common Stock
Additional
Paid-In
Treasury
Accumulated
Earnings Preferred Stock Common Stock Additional Paid-In Treasury Accumulated
Shares Amount Shares Amount Capital Stock (deficit) Total Shares Amount Shares Amount Capital Stock Earnings Total

Balance at December 31, 2020 - $ - 7,775,030 $ 778 $ 13,893,660 $ - $ (2,235,852 ) $ 11,658,586
Balance at December 31, 2021 - $       - 10,807,130 $ 1,081 $ 30,923,391 $          - $ 304,237 $ 31,228,709
Stock options exercised - - 7,500 - 11,320 - - 11,320 - - 5,000 - 12,725 - - 12,725
Stock issued for cash in offering, net - - 3,000,000 300 16,794,700 - - 16,795,000
Stock issued for services - - 24,600 3 171,213 - - 171,216 - - 64,815 6 349,995 - - 350,001
Stock reserved for future services - - - - 70,497 - - 70,497
Net income - - - - - - 2,527,494 2,527,494 - - - - - - 1,364,448 1,364,448
Balance at September 30, 2021 - $ - 10,807,130 $ 1,081 $ 30,870,893 $ - $ 291,642 $ 31,163,616
Balance at June 30, 2022 - $ - 10,876,945 $ 1,087 $ 31,356,608 $ - $ 1,668,685 $ 33,026,380

For the Three Months Ended September 30, 2020
Preferred Stock Common Stock
Additional
Paid-In Treasury Accumulated
Shares Amount Shares Amount Capital Stock Deficit Total

Balance at June 30, 2020 - $ - 7,760,030 $ 777 $ 13,902,047 $ - $ (4,704,925 ) $ 9,197,899
Stock options exercised - - 7,500 1 6,749 - - 6,750
Stock options repurchased - - - - (20,821 ) - - (20,821 )
Net income - - - - - - 868,084 868,084
Balance at September 30, 2020 - $ - 7,767,530 $ 778 $ 13,887,975 $ - $ (3,836,841 ) $ 10,051,912
For the Three Months Ended June 30, 2021
Preferred Stock Common Stock Additional Paid-In Treasury Accumulated
Shares Amount Shares Amount Capital Stock Deficit Total

Balance at March 31, 2021 - $       - 7,777,530 $ 778 $ 13,897,280 $       - $ (1,580,689 ) $ 12,317,369
Stock options exercised - - 2,500 - 2,450 - - 2,450
Stock issued for cash in offering, net - - 3,000,000 300 16,794,700 - - 16,795,000
Net income - - - - - - 529,359 529,359
Balance at June 30, 2021 - $ - 10,780,030 $ 1,078 $ 30,694,430 $ - $ (1,051,330 ) $ 29,644,178

For the Nine Months Ended September 30, 2020
Preferred Stock Common Stock
Additional
Paid-In
Treasury Accumulated
Shares Amount Shares Amount Capital Stock Deficit Total

Balance at December 31, 2019 - $ - 7,745,030 $ 775 $ 13,894,680 $ - $ (3,714,255 ) $ 10,181,200
Stock options exercised - - 22,500 3 19,962 - - 19,965
Stock options repurchased - - - - (26,667 ) - - (26,667 )
Net loss - - - - - - (122,586 ) (122,586 )
Net loss (income) - - - - - - (122,586 ) (122,586 )
Balance at September 30, 2020 - $ - 7,767,530 $ 778 $ 13,887,975 $ - $ (3,836,841 ) $ 10,051,912
For the Six Months Ended June 30, 2021
Preferred Stock Common Stock Additional Paid-In Treasury Accumulated
Shares Amount Shares Amount Capital Stock Deficit Total

Balance at December 31, 2020 - $        - 7,775,030 $ 778 $ 13,893,660 $       - $ (2,235,852 ) $ 11,658,586
Stock options exercised - - 5,000 - 6,070 - - 6,070
Stock issued for cash in offering, net - - 3,000,000 300 16,794,700 - - 16,795,000
Net loss - - - - - - 1,184,522 1,184,522
Net income (loss) - - - - - - 1,184,522 1,184,522
Balance at June 30, 2021 - $ - 10,780,030 $ 1,078 $ 30,694,430 $ - $ (1,051,330 ) $ 29,644,178

See accompanying notes to unaudited financial statements.

F-3

VIRTRA, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30, Six Months Ended June 30,
2021 2020 2022 2021

Cash flows from 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:
Net income $ 1,364,448 $ 1,184,522
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization 367,253 274,866 446,688 201,156
Right of use amortization 231,300 220,997 160,658 153,299
Reserve for note receivable - 16,738
Deferred taxes 409,893 80,000
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 -
70,497 -
Stock issued for service
350,001

-

Changes in operating assets and liabilities:
Accounts receivable, net (3,512,154 ) (215,159 ) (2,491,348 ) (4,136,335 )
That’s Eatertainment note receivable, net, related party - (10,916 )
Interest receivable - 7,340
Inventory, net (2,417,589 ) (1,492,350 ) (3,816,862 ) (1,693,598 )
Deferred taxes
255,511

294,113

Unbilled revenue 1,062,316 (109,500 ) (873,605 ) 1,374,667
Prepaid expenses and other current assets (242,322 ) (107,637 ) 92,128 (353,765 )
Other assets (33,150 ) 18,246 (186,727 ) 21,148
Security deposits, long-term 66,788 - (15,979 ) 66,788
Accounts payable and other accrued expenses 912,318 635,765 1,115,242 933,840
Payments on operating lease liability (239,259 ) (221,028 ) (170,535 ) (157,713 )
Deferred revenue 3,387,802 452,324 921,613 3,049,784

Net cash provided by (used in) operating activities 1,362,626 (166,900 ) (2,778,270 ) 937,906

Cash flows from investing activities:

Redemption of certificates of deposit - 1,915,000
Purchase of intangible assets (627,765 ) (55,580 ) (86,012 ) (92,886 )
Purchase of property and equipment (11,407,278 ) (329,386 ) (1,725,726 ) (602,009 )

Net cash provided by (used in) investing activities (12,035,043 ) 1,530,034
Net cash used in investing activities (1,811,738 ) (694,895 )

Cash flows from financing activities:
Repurchase of stock options - (26,667 )
Principal payments of debt (20,195 ) - (115,049 ) -
Net proceeds from long term debt 8,590,151 -
Stock issued for cash in offering, net 16,795,000 - - 16,795,000
Stock options exercised 11,320 19,965 12,725 6,070
Note payable-PPP Loan - 1,325,961
Net cash provided by (used in) financing activities 25,376,276 1,319,259 (102,324 ) 16,801,070

Net increase (decrease) in cash and restricted cash 14,703,859 2,682,393 (4,692,332 ) 17,044,081
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
Cash and cash equivalents, beginning of period 19,708,565 6,841,984
Cash and cash equivalents, end of period $ 15,016,233 $ 23,886,065

Supplemental disclosure of cash flow information:
Cash (refunded) paid:
Taxes refunded $ 78,096 $ (39,533 )
Income taxes paid (refunded) $ 99,035 $ (78,096 )
Interest paid 20,783 5,247 128,507 5,763

Supplemental disclosure of non-cash investing and financing activities:
Conversion of inventory to property and equipment $ 294,016 $ -

See accompanying notes to unaudited financial statements.

F-4

VIRTRA, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)

Note 1. Organization and Significant Accounting Policies

Organization and Business Operations

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” or “our”), located in ~~Tempe,~~Chandler, Arizona, is a global provider of judgmental use of force training simulators, firearms training simulators and driving simulators for the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to save and improve lives worldwide through practical and highly-effective virtual reality and simulator technology. The Company sells its products worldwide through a direct sales force and international distribution partners. The original business started in 1993 as Ferris Productions, Inc. In September 2001, Ferris Productions, Inc. merged with GameCom, Inc. to ultimately become VirTra, Inc., a Nevada corporation.

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. 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 for the duration of the outstanding PPP ~~loan. See Note 7 for information about~~loan and continues to remain in effect even though the PPP ~~Loan.~~loan has been forgiven and is no longer outstanding.

The Russian-Ukraine conflict is a global concern. The Company does not have any significant direct exposure to Russia or Ukraine through its operations, employee base, investments, or sanctions. We have no basis to evaluate the possible risks of this conflict.
Basis of Presentation

The 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, ~~2020~~2021 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020~~2021 filed with the SEC on ~~March 29, 2021.~~August 2, 2022. 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 unaudited financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at ~~September~~June 30, ~~2021~~2022 and the results of our operations and cash flows for the periods presented. We derived the December 31, ~~2020~~2021 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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results to be expected for the full year.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts, ~~and notes receivable,~~ inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets, income tax valuation allowances, ~~the carrying value of cost basis investments,~~ and the allocation of the transaction price to the performance obligations in our contracts with customers.

F-5

Revenue Recognition

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:

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.

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

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

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

Disaggregation of Revenue

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

~~F-6~~
Disaggregation of Revenue
Schedule Ofof Disaggregation Ofof Revenues
Three Months Ended Three Months ended June 30,
September 30, 2021 September 30, 2020 2022 2021
Commercial Government International Total Commercial Government International Total 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 $ 3,521,100 $ 1,422,233 $ 1,737,301 $ 6,680,634 $ 543,890 $ 3,503,592 $ 106,933 $ 4,154,415
Extended service-type warranties 31,910 656,870 25,180 713,960 18,037 611,087 11,894 641,018 30,546 747,878 27,646 806,070 25,547 673,970 28,965 728,482
Customized software and content - 290,829 52,273 343,102 - 738,291 - 738,291 - 60,392 126,000 186,392 - 146,543 21,170 167,713
Installation and training 42,952 190,098 59,500 292,550 1,351 167,104 - 168,455 35,343 249,847 39,097 324,287 15,043 186,909 - 201,952
Licensing and royalties 4,402 - - 4,402 18,365 - - 18,365 - - - - 2,630 - - 2,630

Total Revenue $ 1,449,730 $ 3,783,109 $ 860,424 $ 6,093,263 $ 249,783 $ 6,152,044 $ 11,894 $ 6,413,721 $ 3,586,989 $ 2,480,350 $ 1,930,044 $ 7,997,383 $ 587,110 $ 4,511,014 $ 157,068 $ 5,255,192

F-6
Six Months ended June 30,
2022 2021
Commercial Government International Total Commercial Government International Total
Simulators and accessories $ 5,101,292 $ 4,646,791 $ 2,643,938 $ 12,392,021 $ 815,528 $ 5,181,515 $ 1,184,118 $ 7,181,161
Extended service-type warranties 62,033 1,478,238 45,308 1,585,579 47,621 1,344,554 49,015 1,441,190
Customized software and content - 2,106 209,000 211,106 - 613,956 73,443 687,399
Installation and training 47,208 407,400 107,297 561,905 49,864 306,707 26,350 382,921
Licensing and royalties - - - - 4,430 - - 4,430
Total Revenue $ 5,210,533 $ 6,534,535 $ 3,005,543 $ 14,750,611 $ 917,443 $ 7,446,732 $ 1,332,926 $ 9,697,101
For the ~~three~~six months ended ~~September~~June 30, 2022, governmental customers comprised $6,534,535, or 44% of total net sales, commercial customers comprised $5,210,533, or 35% of total net sales, and international customers comprised $3,005,543, or 20% of total net sales. By comparison, for the six months ended June 30, 2021, governmental customers comprised $~~3,783,109~~7,446,732, or 6277%, of total net ~~revenue,~~sales, commercial customers comprised $~~1,449,730~~917,443, or 249%, of total net ~~revenue,~~sales, 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, or~~ 96~~%, of total net revenue, commercial customers comprised $249,783, or~~ 4~~%, of total net revenue, and international customers comprised $11,894, or less than~~ 1~~% of total net revenue. For the three months ended September 30, 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 $11,231,381, or~~ 71~~% of total net revenue, commercial customers comprised $2,365,633, or~~ 15~~% of total net revenue, and international customers comprised $2,193,350~~1,332,926, or 14% of total net ~~revenue. By comparison, for the nine months ended September 30, 2020, governmental customers comprised $11,499,962, or~~ 92~~% of total net revenue, commercial customers comprised $608,756, or~~ 5~~% of total net revenue, and international customers comprised $412,945, or~~ 3~~% of total net revenue. For the nine months ended September 30, 2021, and 2020, the Company recorded $1,349,677~~ ~~and $558,462, respectively, in STEP revenue, or~~ ~~8.5% and~~ ~~4.4%, respectively of total net revenue.~~sales.

Customer Deposits

Customer deposits consist of prepaid deposits received for equipment purchase orders and for Subscription Training Equipment Partnership (“STEP”) operating agreements that expire annually. Customer deposits are considered a deferred liability until the completion of 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 sheet and ~~totaled~~totalled $~~6,440,194~~3,212,846 and $~~2,517,175~~2,371,531 at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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.

Warranty

The Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, but also sells separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty. During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will fix or replace the defective product. Deferred revenue for separately priced extended warranties one year or less ~~totaled~~totalled $~~1,618,419~~1,160,327 and $~~2,191,400~~1,764,034 as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. Deferred revenue for separately priced extended warranties longer than one year ~~totaled~~totalled $~~1,958,110~~2,311,052 and $~~1,920,346~~1,815,871 as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. The accrual for the one-year manufacturer’s warranty liability ~~totaled~~totalled $~~304,000~~434,000 and $~~352,000~~384,000 as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. During the ~~three~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, the Company recognized revenue of $~~713,960~~ 916,069and $~~641,018~~682,842, 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.

~~STEP Revenue~~
The Company’s 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 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 amounts that the Company expects to derive from the STEP equipment following the end of the agreement term is dependent upon the number of agreement terms renewed. The agreements do not include a residual value guarantee.
Concentration of Credit Risk and Major Customers and Suppliers

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, certificates of deposit, accounts receivable and notes receivable.

The Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of $~~21,043,538~~14,515,248 and $~~6,338,896~~ 19,207,786as of ~~September~~June 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, respectively.

F-7

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.~~
Historically, the Company primarily sells its products to United States federal and state agencies. For the ~~three~~six months ended ~~September~~June 30, ~~2021, one commercial agency~~2022, no single customer comprised more than 2010% of total net sales. By comparison, for the ~~three~~six months ended ~~September~~June 30, ~~2020,~~2021, one federal agency comprised 22~~% of total net sales and another federal agency comprised~~2010% of total net sales. ~~For the nine months ended September 30, 2021,~~ 0 ~~single customer had a significant percentage of total revenue. By comparison, for the nine months ended September 30, 2020, one federal agency comprised~~ 19~~% and another federal agency comprised~~ 14~~% of total net revenue.~~

As of ~~September~~June 30, ~~2021,~~2022, one commercial customer comprised no 13.7~~single customer had a significant percentage~~% of total accounts receivable. By comparison, as of December 31, ~~2020, one federal agency comprised~~2021, the Company did not have any customer that accounted for more than ~~8.5% and one state agency comprised~~ 3110% of total accounts receivable.
Net Income per Common Share
The net income per common share is computed by dividing net income by the weighted average of common shares outstanding. Diluted net income per share reflects the potential dilution, using the treasury stock method, that would occur if outstanding stock options and warrants were exercised. Earnings per share computations are as follows:
Schedule of Earnings Per Share

Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021

Net Income $ 787,374 $ 529,359 $ 1,364,448 $ 1,184,522
Weighted average common stock outstanding 10,866,775 10,644,363 10,837,186 9,209,808
Incremental shares from stock options 25,527 48,875 30,481 (299 )
Weighted average common stock outstanding diluted 10,892,302 10,693,238 10,867,667 9,209,509
Net income per common share and common equivalent shares
Basic $ 0.07 $ 0.05 $ 0.13 $ 0.13
Diluted $ 0.07 $ 0.05 $ 0.13 $ 0.13

Note 2. Inventory

Inventory consisted of the following as of:
Schedule Ofof Inventory
September 30, 2021 December 31, 2020 June 30, 2022 December 31, 2021

Raw materials and work in process $ 6,616,616 $ 3,636,649 $ 9,134,217 $ 5,229,636
Reserve (683,030 ) (120,652 ) (302,431 ) (214,712 )

Total inventory $ 5,933,586 $ 3,515,997 $ 8,831,786 $ 5,014,924

The Company regularly evaluates the useful life of its spare parts inventory and as a result, the Company classified $~~479,771~~322,968 and $~~500,114~~136,241 of spare parts as Other Assets, long-term on the Balance Sheet at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

Note 3. Property and Equipment

Property and equipment consisted of the following as of:
Schedule of Property and Equipment ~~Net~~
September 30, 2021 December 31, 2020 June 30, 2022 December 31, 2021

Land $ 1,778,987 $ - $ 1,778,987 $ 1,778,987
Building & Building Improvements 8,606,224 - 9,097,454 9,005,205
Computer equipment 1,162,369 1,115,326 1,204,720 1,171,319
Furniture and office equipment 256,425 223,925 272,806 262,814
Machinery and equipment 1,743,487 1,096,898 2,739,881 1,970,007
STEP equipment 1,502,694 1,206,757 1,790,268 1,496,252
Leasehold improvements 334,933 334,934 334,934 334,934
Construction in Progress 533,194 7,000

Total property and equipment 15,385,119 3,977,840 17,752,244 16,026,518
Less: Accumulated depreciation and amortization (2,947,058 ) (2,596,096 ) (3,566,820 ) (3,161,752 )

Property and equipment, net $ 12,438,061 $ 1,381,744 $ 14,185,424 $ 12,864,766

Depreciation expense, including STEP depreciation, was $~~350,963~~405,162 and $~~268,200~~196,711 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 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 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 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 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 first~~ 3 ~~years.~~
~~The following table presents purchase price allocation for the assets acquired:~~
~~Schedule Of Purchase Price Allocation~~
September 30, 2021

Land $ 1,778,987
Building and building improvements $ 8,566,492
Acquired Lease Intangible Assets $ 454,521

Total Purchase Price $ 10,800,000
F-8

Note 4. Intangible Asset

Intangible asset consisted of the following as of:
Schedule Ofof Intangible Asset
September 30, 2021 December 31, 2020
June 30, 2022 December 31, 2021
Patents $ 160,000 $ 160,000 $ 160,000 $ 160,000
Capitalized media content 301,329 128,085 417,240 331,228
Acquired lease intangible assets 454,521 - 83,963 83,963
Total intangible assets 661,203 575,191
Less accumulated amortization (81,240 ) (40,112 )

Total intangible asset 915,850 288,085
Less Accumulated amortization (33,246 ) (17,037 )

Intangible asset, net $ 882,604 $ 271,048
Intangible assets, net $ 579,963 $ 535,079

Amortization expense was $~~16,209~~41,128 and $~~6,667~~4,445 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 and ~~2020, respectively. Amortization expense was $11,765~~ ~~and $2,222~~ ~~for the three months ended September 30,~~ 2021, ~~and 2020,~~ respectively.
F-9

Note 5. Leases
~~The Company leases approximately~~ ~~37,729~~ rentable square feet of office and warehouse space from an unaffiliated third party for our corporate office, manufacturing, assembly, warehouse and shipping facility located at 7970 South Kyrene Road, Tempe, Arizona 85284. In addition, the Company leases approximately ~~5,131~~ rentable square feet of space for our machine shop located at 7910 South Kyrene Road, within the same business complex as our main office. The Company executed a lease amendment extending its existing office lease through ~~April 2024. The Company’s lease agreements do not contain any residual value guarantees, restrictive covenants or variable lease payments. The Company has not entered into any financing leases.~~
In addition to base rent, the Company’s lease generally provides for additional payments for other charges, such as rental tax. The lease includes fixed rent escalations. The Company’s lease does not include an option to renew.
The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease right of use assets, net, operating lease liability – short term, and operating lease liability – long-term on its condensed balance sheet.
Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s 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~~%. 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 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~~ ~~and derecognized $46,523~~ ~~deferred rent for an adjusted operating lease right-of-use asset in the net amount of $1,674,857~~.
~~F-9~~
~~The balance sheet classification of lease assets and liabilities as of September 30, 2021 was as follows:~~
~~Schedule Of Balance Sheet Classification of Lease Assets and Liabilities~~
Balance Sheet Classification September 30, 2021
Assets
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 $ 341,124
Non-current
Operating lease liability, long-term 594,499
Total lease liabilities $ 935,623
~~Future minimum lease payments as of September 30, 2021 under non-cancelable operating leases are as follows:~~
~~Schedule Of Future Minimum Lease Payments~~

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

Total lease payments 993,496
Less: imputed interest (57,873 )
Operating lease liability $ 935,623

The balance sheet classification of lease assets and liabilities as of ~~December 31, 2020~~June 30, 202 was as follows:
Schedule of Balance Sheet Classification of Lease Assets and Liabilities

Balance Sheet Classification June 30, 2022
Assets
Operating lease right-of-use assets, December 31, 2021 $ 784,306
Amortization for the six months ended June 30, 2022 (160,658 )
Total operating lease right-of-use asset, June 30, 2022 $ 623,648
Liabilities
Current
Operating lease liability, short-term $ 361,403
Non-current
Operating lease liability, long-term 321,217
Total lease liabilities $ 682,620

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 June 30, 2022 under non-cancellable operating leases are as follows:
Schedule of Future Minimum Lease Payments

2022 $ 190,941
2023 390,562
2024 131,152

Total lease payments 712,655
Less: imputed interest (30,035 )
Operating lease liability $ 682,620

The balance sheet classification of lease assets and liabilities as of December 31, 2021 was as follows:

Balance Sheet Classification December 31, 2021
Assets
Operating lease right-of-use assets, December 31, 2020 $ 1,094,527
Operating lease right-of-use assets, beginning $ 1,094,527
Amortization for the year ended December 31, 2021 (310,221 )
Amortization (310,221 )
Total operating lease right-of-use asset, December 31, 2021 $ 784,306
Total operating lease right-of-use asset, ending $ 784,306
Liabilities
Current
Operating lease liability, short-term $ 347,772
Non-current
Operating lease liability, long-term 505,383
Total lease liabilities $ 853,155
Future minimum lease payments as of December 31, ~~2020~~2021 under ~~non-cancelable~~non-cancellable operating leases are as follows:

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

Total lease payments 1,268,871 900,811
Less: imputed interest (93,989 ) (47,656 )
Operating lease liability $ 1,174,882 $ 853,155

Rent expense for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was $~~146,497~~195,201 and $~~139,933~~115,140, respectively. Rent expense for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was $~~436,750~~404,453 and $~~412,315~~258,897, respectively.

F-10

Note 6. Accrued Expenses

Accrued compensation and related costs consisted of the following as of:
Schedule Ofof Accrued Compensation ~~And~~and Related Costs
September 30, 2021 December 31, 2020 June 30, 2022 December 31, 2021

Salaries and wages payable $ 580,610 $ 278,331 $ 365,537 $ 422,562
Employee benefits payable 32,288 634 - 16,523
Accrued paid time off (PTO) 449,165 366,827 574,185 483,311
Profit sharing payable 225,000 197,309 289,682 139,682

Total accrued compensation and related costs $ 1,287,063 $ 843,101 $ 1,229,404 $ 1,062,078

Accrued expenses and other current liabilities consisted of the following as of:
Schedule Ofof Accrued Expenses ~~And~~and Other Current Liabilities
September 30, 2021 December 31, 2020 June 30, 2022 December 31, 2021

Manufacturer’s warranties $ 304,000 $ 352,000 $ 434,000 $ 384,000
Taxes payable 90,171 316,076 222,466 113,921
Miscellaneous payable 99,472 104,808 613,620 493,823

Total accrued expenses and other current liabilities $ 493,643 $ 772,884 $ 1,270,086 $ 991,744
F-11
Note 7. Note Payable
~~On May 8, 2020, VirTra received a loan (the “PPP Loan”) in the amount of $1,320,714~~ ~~under the Paycheck Protection Program (“PPP”) from Wells Fargo Bank, N.A. (the “Lender”). The 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, up to the entire amount of principal and accrued interest may be forgiven to the extent PPP 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. The Company used its entire PPP Loan amount for designated qualifying expenses and on June 16, 2021, applied for forgiveness in accordance with the PPP Loan terms.
On July 20, 2021, the Company received notification from the Lender that the SBA had approved the Company’s PPP Loan forgiveness application for the entire amount of the PPP Loan. The forgiveness of the PPP Loan is recognized in Other Income in the accompanying statement of income.

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 proceeds from a mortgage loan from Arizona Bank & Trust in the amount of $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 one irregular payment of $5,956,538 due on the maturity date of August 23, 2031,. The Company began making monthly payments on September 23, 2021. The payment and performance of the loan is secured by a security interest in the property acquired.

The note payable amounts consist of the following:
Schedule Ofof Notes Payable
September 30, 2021 December 31, 2020
Short-term liabilities:
Note payable, principal $ 233,047 $ 257,471
Accrued interest on note - 8,566

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

Long-term liabilities: 8,336,991

Note payable, long term $ 8,336,991 $ 1,063,243
~~The future minimum note payments are as follows:~~
~~Schedule Of Minimum Note Payments~~

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

Total $ 8,570,038

June 30, 2022 December 31, 2021

Short-term liabilities:
Note payable, principal $ 229,560 $ 231,871
Accrued interest on note 4,113 4,420

Note payable, short-term $ 233,673 $ 236,291

Long-term liabilities:
Note payable, principal $ 8,165,838 $ 8,280,395

Note payable, long term $ 8,165,838 $ 8,280,395
Note 8. Related Party Transactions

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company redeemed ~~26,250~~17,500 previously awarded stock options nearing expiration from related parties consisting of the Company’s ~~CEO~~Co-CEO and COO. The redemption eliminated the stock options and resulted in a total of $~~116,718~~47,800 in additional compensation expense. During the ~~nine~~six months ended ~~September~~June 30, ~~2021, the Company issued~~2022, one Board member purchased ~~7,500~~5,000 shares of common stock, $0.0001 par value per share ~~(the “Common Stock”)~~which was then issued to ~~one member of the Board of Directors, upon exercise of a~~him for previously awarded stock ~~option in exchange for payment of~~options at an exercise price of $~~11,320~~12,725. cash paid.

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, the Company redeemed ~~11,250~~17,500 previously awarded stock options nearing expiration from related parties consisting of the Company’s Co-CEO and COO. The redemption eliminated the stock options and resulted in a total of $~~8,857~~116,717 in additional compensation expense. During the ~~nine~~six months ended ~~September~~June 30, ~~2020, the Company issued~~2021, one Board member purchased ~~22,500~~5,000 shares of Common Stock, which was then issued to ~~the CEO and one board member upon exercise of~~him for previously awarded stock options ~~in exchange for payment of the~~at an exercise price of $~~19,965~~6,070. cash paid.

F-12

Note 9. Commitments and Contingencies

General or Threatened Litigation

From time to time, the Company is notified of threatened litigation or that a claim is being made against it. The Company evaluates contingencies on an on-going basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. There is no threatened litigation at this time.

~~Employment Agreements~~Restricted Stock Unit Grants

~~On April 2, 2012, the~~The Company ~~entered into three-year Employment Agreements with its Chief Executive Officer and Chief Operating Officer that provide for annual base salaries of $195,000~~ ~~and $175,000~~, respectively, subject to cost-of-living adjustments, and contain automatic one-year extension provisions. These contracts have been renewed annually and have been adjusted based on the same percentage increase approved for Company-wide cost-of-living adjustments.
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 ofgranted 224,133 and 168,090   performance-based restricted stock units ~~pursuant to the Company’s 2017 Equity Incentive Plan (the “Plan”~~(“RSUs”) ~~to the Company’s CEO and COO, respectively, with fair value on the grant date of~~in 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 $one of its Co-Chief Executive Officers and Chief Operating Officer, respectively. The Company granted ~~349,860~~288,889 ~~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~~performance-based RSUs in April 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~~.
its other Co-Chief Executive Officer. 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~~of the RSU grants that ~~the~~achieving net profit (net income under GAAP) for the twelve months ending June 30, 2022, of $2,500,000 is probable, ~~the~~and recorded expense for the ~~period~~three months and six months ending ~~September~~June 30, ~~2021, is considered to be nominal.~~2022, of $26,250 and $70,497, respectively.
Profit Sharing

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 ~~nine~~six months ended ~~September~~June 30, 2022 and 2021, $~~225,000~~150,000 and $150,000 was ~~accrued~~expensed to operations for profit sharing. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2022, $~~56,057~~75,000 was ~~accrued~~expensed to operations for profit sharing. ~~The~~For the three months ended March 31, 2021, ~~profit sharing estimate is revised quarterly and will be finalized after the year-end financial audit.~~0 amount was expenses to operations due to uncertainty related to on-going COVID restrictions.
F-13

Note 10. Stockholders’ Equity
~~Authorized Capital~~
~~Common Stock~~
~~Authorized Shares~~~~. The Company is authorized to issue~~ ~~60,000,000~~ ~~shares of common stock, of which (a)~~ ~~50,000,000~~ ~~shares is Common Stock, (b)~~ ~~2,500,000~~ ~~shares is Class A common stock, par value $0.0001~~ ~~per share (the “Class A Common Stock”), and (c)~~ ~~7,500,000~~ ~~shares is Class B common stock, par value $0.0001~~ ~~per share (the “Class B Common Stock”). To 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 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 do not have cumulative voting rights.~~
~~(ii)~~ Each holder of Class A Common Stock 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 do not have cumulative voting rights.
~~(iii) The holders of Common Stock and Class A Common Stock 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 are not be entitled to vote on any matter, except that the holders of Class B Common Stock 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.
~~F-13~~
~~Preferred Stock~~
~~Authorized Shares~~~~. The Company is authorized to issue~~ ~~2,500,000~~ ~~shares of preferred stock, par value $0.0001~~ ~~per share (the “Preferred Stock”).~~
~~Rights and Preferences~~. The Board of Directors is authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, and to determine the designations, preferences, limitations and relative or other rights of the Preferred Stock or any series thereof.

Stock Repurchase

On October 25, 2016, the Company’s Board of Directors authorized the repurchase of up to $1 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 million be allocated for the repurchase of VirTra’s stock under the existing 10b-18 plan. The stock repurchase program was suspended as a result of interim rulings for public-company recipients of a PPP loan under the CARES Act. ~~See Note 1.~~The stock repurchase suspension remained in effect until the PPP loan was forgiven on July 20, 2021, and has continued to remain in effect.

Treasury Stock

During the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020,~~2022, the Company purchased no additional treasury shares. ~~As of September 30, 2021, all treasury shares previously purchased had been cancelled and returned to shares authorized.~~

Non-qualified Stock Options

The Company has periodically issued non-qualified stock options to key employees, officers and directors under a stock option compensation plan approved by the Board of Directors in 2009. Terms of option grants are at the discretion of the Board of Directors and are generally seven years. Upon the exercise of these options, the Company expects to issue new authorized shares of its ~~Common Stock.~~common stock. The following table summarizes all non-qualified stock options as of:
Schedule Ofof Non-qualified Stock Options
September 30, 2021 September 30, 2020 June 30, 2022 June 30, 2021
Number of Stock Weighted Exercise Number of Stock Weighted Exercise
Number of
Stock

Weighted
Exercise

Number of
Stock

Weighted
Exercise

Options Price Options Price
Options
Price Options Price
Options outstanding, beginning of year 164,167 $ 3.13 234,167 $ 2.47 112,500 $ 3.51 164,167 $ 3.13
Granted - - - - - - - -
Redeemed (26,250 ) 1.51 (36,250 ) 0.83 (17,500 ) 2.55 (17,500 ) 1.21
Exercised (7,500 ) 1.51 (22,500 ) 0.89 (5,000 ) 2.55 (5,000 ) 1.21
Expired / terminated - - - - - - - -
Options outstanding, end of period 130,417 $ 3.55 175,417 $ 3.01 90,000 $ 3.76 141,667 $ 3.43
Options exercisable, end of period 130,417 $ 3.55 175,417 $ 3.01 90,000 $ 3.76 141,667 $ 3.43

The Company did not have any non-vested stock options outstanding as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The weighted average contractual term for options outstanding and exercisable at ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was 7years. The aggregate intrinsic value of the options outstanding and exercisable at ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 was $~~859,675~~ 56,700and $~~204,037~~557,707, respectively. The total intrinsic value of options exercised and redeemed during the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 was $~~117,647~~141,272 and $27,315, ~~and the total intrinsic value of options exercised during the nine months ended September 30, 2020, was $50,362~~.respectively. For the three months ended ~~September~~June 30, ~~2021,~~2022 and ~~2020,~~2021, the Company received payments related to the exercise of options in the amount of $~~5,250~~4,750 and $~~6,750~~2,450~~, 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.
F-14

2017 Equity Incentive Plan

On August 23, 2017, our board approved, subject to stockholder approval at the annual meeting of stockholders on October 6, 2017, the 2017 Equity Incentive Plan (the “Equity Plan”). The Equity Plan is intended to make available incentives that will assist us to attract, retainThrough June 30, 2022, 224,133, 288,889, and ~~motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights,~~ 168,090 restricted stock ~~restricted stock units, performance shares and units and other cash-based or stock-based awards.~~
~~F-14~~
~~A total of~~ ~~1,187,500~~ shares of our Common Stock was initially authorized and reserved for issuance under the Equity Plan. This reserve automatically increased on January 1, 2020, and will increase each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3~~% of the number of shares of Common Stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board.~~
Awards may be granted under the Equity Plan to our employees, including officers, directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder of the award and may include any of the following: stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units and cash-based awards and ~~other stock-based awards.~~14,057
~~Through September 30, 2021,~~ ~~224,133~~and ~~168,090~~10,543 ~~awards~~restricted shares have been granted under the Equity Plan to the Company’s ~~CEO~~Co-CEO’s and COO, ~~respectively (see Note 9).~~respectively.
Common stock activity

On ~~August 26, 2021,~~April 11, 2022, the ~~Compensation Committee of the Board of Directors approved grants~~Company issued Mr. Givens a signing bonus of ~~14,057~~64,815 ~~and~~ shares of common stock, valued at $~~10,543~~5.40 per share for a total value of $350,001, which are restricted ~~shares~~from transfer until the earlier of: i) 12 months of employment having lapsed or ii) the Company terminating employment with Mr. Givens without cause.
Mr. Givens was also granted 288,889 performance-based restricted stock units pursuant to VirTra’s 2017 Equity Incentive Plan. Beginning on the ~~CEO and COO, respectively,~~last business day of August 2022, a tranche of restricted stock units, having an approximate value of $40,000, based on current grant day prices, may vest if the ~~Company’s performance~~Company has achieved net profit for the twelve months ~~ended~~ending June 30, ~~2021 (see Note 9).~~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 profit 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 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. This vesting arrangement continues with the last business day of August 2024, with the minimum net profit threshold being $3,500,000 and the maximum net profit being $11,000,000.
The vesting schedule notwithstanding, the Compensation Committee shall have the discretion to declare the vesting of any number of restricted stock units should the Company experience unusual results of operations, such as falling below the net profit threshold one year and exceeding the maximum net profit the following year, so long as the total number of restricted stock units declared to be vested does not exceed the amount awarded. Additionally, while a maximum net profit per year has been set for allocation of the available shares at this time, it is very possible that the Company will exceed these levels during the next 3 years and if such performance occurs, the Compensation Committee will meet to determine if additional compensation is in the best interests of the Company at that time.

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~~common stock, $0.0001 par value per share, at a price of $6.00 per share in a registered ~~direct~~director 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~~totalled $1,205,000.

Note 11. Subsequent Events
None.
F-15

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, ~~2020~~2021 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, ~~2020,~~2021, filed with the Securities and Exchange Commission (the ~~“SEC~~”“SEC”) on ~~March 29, 2021.~~August 2, 2022.

Forward-Looking Statements

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

3
Business Overview

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

The VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place on a daily basis without the need for a shooting range, protective equipment, role players, safety officers, or a scenario-based training site. We have developed a higher standard in simulation training including capabilities such as: multi-screen, video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented Threat-Fire® shoot-back system, powerful gas-powered simulated ~~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.
Business Strategy

~~Our~~We have two main ~~business is selling to~~customer groups, namely, law enforcement ~~(includes colleges~~ and ~~police academies) and 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:

● 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 our marketing and sales activities.

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

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

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

4
Product Offerings

Our simulator products include the following:

● V-300® Simulator – a 300° wrap-around screen with video capability is the higher standard for simulation training

○ 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.

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

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

○ The V-180®is the higher standard for decision-making simulation and tactical firearms training. Three screens and a 180-degree immersive training environment ensures that time in the simulator translates into real world survival skills.

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

○ The V-100® is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to four (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)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators.

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

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

● ~~Drop-In~~Simulated Recoil Kits - a wide range of ~~powerfully~~highly realistic and reliable simulated recoil kits/weapons. These drop-in conversion kits ~~that can~~ fit into real weapons but safely simulate the most powerful recoil on the market and even lock-back when out-of-ammunition or simulating 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.~~dud.

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

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

5
Recent Developments

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, in effect until May 15, 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. 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 only 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 affect the value of the Company’s long-term investment in TEC, 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~~has continued in effect, ~~until July 20, 2021, when~~even though the PPP loan ~~was~~has been forgiven ~~(see Note 7).~~and is no longer outstanding.

Results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020~~2021

Revenues. Revenues were ~~$6,093,263~~$7,997,383 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$6,413,721~~$5,255,192 for the same period in ~~2020, a decrease~~2021, an increase of ~~$302,093,~~$2,742,191, or 5%52%. Revenues were ~~$15,790,364~~$14,750,611 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$12,521,663~~$9,697,101 for the same period in ~~2020,~~2021, an increase of ~~$3,318,258,~~$5,053,510, or ~~27%~~52%. The increase in revenues for the ~~nine~~three and six months ended ~~September~~June 30, ~~2021~~2022 resulted from an increase in the number of simulators and accessories completed, delivered and revenue recognized compared to the same ~~period~~periods in ~~2020.~~2021.

Cost of Sales. Cost of sales were ~~$3,217,911~~$3,253,651 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$2,446,455~~$2,120,492 for the same period in ~~2020,~~2021, an increase of ~~$771,456,~~$1,133,159, or ~~32%~~53%. Cost of sales were ~~$7,211,807~~$6,319,789 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$5,381,403~~$3,993,896 for the same period in ~~2020,~~2021, an increase of ~~$1,830,404,~~$2,325,893, or ~~34%~~58%. The increase was due to additional material costs due to higher quantities of simulator systems and accessories ~~sold, and an increase in reserve for inventory due to increased scale of operations.~~sold. The cost of sales on a dollar basis varies from quarter-to-quarter as a result of sales volume and product mix.

Gross Profit. Gross profit was ~~$2,875,352~~$4,743,732 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$3,967,266~~$3,134,700 for the same period in ~~2020, a decrease~~2021, an increase of ~~$1,091,914,~~$1,609,032, or ~~28%~~51%. Gross profit was ~~$8,578,557~~$8,430,822 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$7,140,260~~$5,703,205 for the same period in ~~2020,~~2021, an increase of ~~$1,438,297,~~$2,727,617, or ~~20%~~48%. The gross profit margin for the three months ended ~~September~~June 30, 2022 and 2021 was 59% and ~~2020 was 47% and 62%~~60%, respectively. The gross profit margin was ~~54%~~57% for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 and ~~57%~~59% for the same period in ~~2020.~~2021. The decrease in gross profit margin percentage was due to ~~a one-time impact from an increase in reserve for inventory as our operations scale.~~increased costs, and the product mix of systems, accessories and services sold.

Operating Expenses. Net operating expense was ~~$2,609,772~~$3,702,109 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$2,747,993~~$2,313,932 for the same period in ~~2020, a decrease~~2021, an increase of ~~$138,221,~~$1,388,177, or 5%60%. Net operating expense was ~~$6,928,154~~$6,677,896 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$7,254,809~~$4,318,382 for the same period in ~~2020, a decrease~~2021, an increase of ~~$326,655,~~$2,359,514, or 5%55%. The ~~decrease~~increase was primarily due to expenses related to the ~~impairment write down in 2020 offset by~~move into the ~~transition to a Company-wide ERP system which included software fees, consulting,~~new building and ~~time invested by Company staff in 2021.~~increased payroll costs.

Operating ~~Income (Loss).~~Income. Income from operations was ~~$265,580~~$1,041,623 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$1,219,273~~$820,768 for the same period in ~~2020, a decrease~~2021, an increase of ~~$953,693~~$220,855 or ~~78%~~27%. Operating income was ~~$1,650,403~~$1,752,926 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~an operating loss of $114,549~~$1,384,823 for the same period in ~~2020,~~2021, an increase of ~~$1,764,952,~~$368,103, or ~~1541%~~27%.

Other ~~Income.~~Income (Expense). Other ~~income~~expense net of other ~~expense~~income was ~~$1,330,681~~$7,565 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to other income net of other expense of ~~$3,752~~$1,771 for the same period in ~~2020, an increase~~2021, a decrease of ~~$1,326,929,~~$9,336, or ~~35366%~~527%, primarily ~~resulting~~ from increased interest expense on note payable. Other expense net of other income was $17,794 for the ~~forgiveness of the PPP Loan (see Note 1). Other~~six months ended June 30, 2022 compared to other income net of other expense ~~was $1,346,397 for the nine months ended September 30, 2021, compared to $32,430~~of $15,716 for the same period in ~~2020, an increase~~2021, a decrease of ~~$1,313,967,~~$33,510, or ~~4052%~~213%.

Provision for Income Tax ~~Expense.~~Benefit. Income tax expense was ~~$253,289~~$246,684 for the three months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$354,941~~an income tax expense of $293,180 for the same period in ~~2020,~~2021, a decrease of ~~$101,652,~~$46,496, or ~~29%~~16%. Income tax expense was ~~$469,306~~$370,684 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~$40,467~~an income tax expense of $216,017 for the same period in ~~2020,~~2021, an increase of ~~$428,839,~~$154,667, or ~~1060%~~72%. Provision (benefit) for income tax is estimated quarterly applying both federal and state tax rates.

Net Income (Loss). Net income was ~~$1,342,972~~$787,374 for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$868,084~~$529,359 for the same period in ~~2020,~~2021, an increase of ~~$474,888,~~$258,015, or ~~55%~~49%. Net income was ~~$2,527,494~~$1,364,448 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022 compared to ~~a net loss of $122,586~~$1,184,522 for the same period in ~~2020,~~2021, an increase of ~~$2,650,080,~~$179,926, or ~~2162%~~15%. The fluctuations in net income (loss) relates to each respective section discussed above.

6
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:

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

Net Income (Loss) $ 1,342,972 $ 868,084 $ 474,888 55 % $ 2,527,494 $ (122,586 ) $ 2,650,080 2162 %
Adjustments:
Provision for income taxes 253,289 354,941 (101,652 ) -29 % 469,306 40,467 428,839 1060 %
Depreciation and amortization 166,098 95,259 70,839 74 % 367,253 274,866 92,387 34 %
EBITDA $ 1,762,359 $ 1,318,284 $ 444,075 34 % $ 3,364,053 $ 192,747 $ 3,171,306 1645 %
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 (16,738 ) -100 %
Gain on forgiveness of note (1,320,714 ) - (1,320,714 ) 100 % (1,320,714 ) - (1,320,714 ) 100 %

Adjusted EBITDA $ 519,646 $ 1,593,745 $ (1,074,099 ) -67 % $ 2,274,639 $ 615,485 $ 1,659,154 232 %
For the Three Months Ended For the Six Months Ended
June 30, June 30, Increase % June 30, June 30, Increase %
2022 2021 (Decrease) Change 2022 2021 (Decrease) Change

Net Income $ 787,374 $ 529,359 $ 258,015 49 % $ 1,364,448 $ 1,184,522 $ 179,926 15 %
Adjustments:
Provision for income taxes 246,684 293,180 (46,496 ) -16 % 370,684 216,017 154,667 72 %
Depreciation and amortization 230,942 103,865 127,077 122 % 446,688 201,155 245,533 122 %
EBITDA $ 1,265,000 $ 926,404 $ 338,596 37 % $ 2,181,820 $ 1,601,694 $ 580,126 36 %
Right of use amortization 80,805 77,090 3,715 5 % 160,658 153,299 -

Adjusted EBITDA $ 1,345,805 $ 1,003,494 $ 342,311 34 % $ 2,342,478 $ 1,754,993 $ 580,126 33 %

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 ~~$21,545,843~~$15,016,233 and ~~$6,841,984~~$19,708,565 of cash and cash equivalents as of ~~September~~June 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, respectively. Working capital was ~~$25,839,676~~$26,978,209 and ~~$10,269,397~~$25,944,717 as of ~~September~~June 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, respectively.

Net cash used in operating activities was $2,778,270 for the six months ended June 30, 2022 and net cash provided by operating activities was ~~$1,362,626~~$937,906 for the ~~nine~~six months ended ~~September~~June 30, ~~2021, and net~~2021. Net cash used in operating activities ~~was $166,900 for the nine months ended September 30, 2020. Net cash provided by operating activities~~ resulted primarily from ~~decreases~~increases in accounts receivable, inventory, and prepaid expenses, offset by increases in trade accounts 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~~$1,811,738 for the ~~nine~~six months ended ~~September~~June 30, ~~2021, and~~2022, compared to net cash ~~provided by~~used in investing activities ~~was $1,530,034~~of $694,895 for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. Investing activities in in 2022 and 2021 consisted of ~~purchases of intangible assets, manufacturing equipment, and property (see Note 3) compared to investing activities in 2020 that consisted of redemptions of certificates of deposits, purchases~~purchase of intangible assets, and ~~purchases of property and~~manufacturing equipment.

Net cash used in financing activities was $102,234 for the six months ended June 30, 2022, compared to net cash provided by financing activities ~~was $25,376,276 and $1,319,259~~of $16,801,070 for the ~~nine~~six months ended ~~September~~June 30, ~~2021, and 2020, respectively.~~2021. Financing activities in 2021 consisted of the issuance of additional common stock for cash and stock options exercised and redeemed, ~~and proceeds from long debt, offset by the forgiveness of the PPP loan (see Note 1),~~ compared to financing activities in ~~2020~~2022 which consisted of stock options exercised and ~~redeemed, and PPP loan proceeds.~~principal payments on note payable.

Bookings and Backlog

The Company defines bookings as the total of newly signed contracts and purchase orders received in a defined time period. The Company received bookings ~~totaling $11.0~~totalling $9.9 million for the ~~three~~six months ended ~~September~~June 30, ~~2021, and $24.4 million for the nine months ended September 30, 2021.~~2022. 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~~June 30, ~~2021,~~2022, the Company’s backlog was ~~$21.7~~$16.5 million. Management estimates the majority of the new bookings received in the first ~~nine~~six months of ~~2021~~2022 will be converted to revenue in ~~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.

Cash Requirements

Our management believes that our current capital resources will be adequate to continue operating the company and maintaining our current business strategy for more than 12 months from the filing of this Quarterly Report. We are, however, open to raising additional funds from the capital markets, at a fair valuation, to expand our product and services offered, to enhance our sales and marketing efforts and effectiveness, and to aggressively take advantage of market opportunities. There can be no assurance, however, that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down our plans for ~~growth.~~expanded marketing and sales efforts.

7
Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. Management believes that there have been no changes in our critical accounting policies during the ~~three~~six months ended ~~September~~June 30, ~~2021.~~2022.

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2021,~~2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of ~~September~~June 30, 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, ~~2020,~~2021, filed with the SEC on ~~March 29, 2021.~~August 2, 2022.

Change in internal control over financial reporting

There has been no change in our internal control over financial reporting that occurred during the quarterly period ended ~~September~~June 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Subsequent to June 30, 2022, we have implemented more formal review and documentation of workflow processes, and increased our ERP training for our staff. 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.

8
PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 9 to our unaudited financial statements, included in Part I, Item 1., Financial Information of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

(a) None

(b) There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the filing with the SEC of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.
9
ITEM 6. EXHIBITS

Exhibit
No.
Exhibit Description

10.1 ~~Form of Securities Purchase Agreement~~John F. Givens II (incorporated by reference to Exhibit ~~10.1~~10.14 to the registrant’s ~~Current Report~~annual report on Form ~~8-K~~10-K (File No. 001-38420) 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).~~2, 2022)

31.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

31.2
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of the Principal Executive ~~Officer~~Officers 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)

10 9

SIGNATURES

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

Date: ~~November 15, 2021~~August 19, 2022 By: /s/ Robert D. Ferris
Robert D. Ferris
~~Chief~~Co-Chief Executive Officer and President
(principal executive officer)
By: /s/ John F. Givens II
John F. Givens II
Co-Chief Executive Officer
(principal executive officer)

By: /s/ Marsha J. Foxx
Marsha J. Foxx,
Chief Accounting Officer
(principal financial and principal accounting officer)

11 10


	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


	For the Three Months Ended June 30, 2022
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total

Balance at March 31, 2022		-	$	-		10,809,630	$	1,081	$	30,957,616	$	-	$	881,311	$	31,840,008
Stock options exercised		-		-		2,500		-		4,750		-		-		4,750
Stock issued for services		-		-		64,815		6		349,995		-		-		350,001
Stock reserved for future services		-		-		-		-		44,247		-		-		44,247
Net income		-		-		-		-		-		-		787,374		787,374
Balance at June 30, 2022		-	$	-		10,876,945	$	1,087	$	31,356,608	$	-	$	1,668,685	$	33,026,380

	For the Nine Months Ended September 30, 2021																	For the Six Months Ended June 30, 2022
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated Earnings					Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		(deficit)			Total		Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total

Balance at December 31, 2020		-	$	-		7,775,030	$	778	$	13,893,660	$	-	$	(2,235,852	)	$	11,658,586
Balance at December 31, 2021																			-	$	-		10,807,130	$	1,081	$	30,923,391	$	-	$	304,237	$	31,228,709
Stock options exercised		-		-		7,500		-		11,320		-		-			11,320		-		-		5,000		-		12,725		-		-		12,725
Stock issued for cash in offering, net		-		-		3,000,000		300		16,794,700		-		-			16,795,000
Stock issued for services		-		-		24,600		3		171,213		-		-			171,216		-		-		64,815		6		349,995		-		-		350,001
Stock reserved for future services																			-		-		-		-		70,497		-		-		70,497
Net income		-		-		-		-		-		-		2,527,494			2,527,494		-		-		-		-		-		-		1,364,448		1,364,448
Balance at September 30, 2021		-	$	-		10,807,130	$	1,081	$	30,870,893	$	-	$	291,642		$	31,163,616
Balance at June 30, 2022																			-	$	-		10,876,945	$	1,087	$	31,356,608	$	-	$	1,668,685	$	33,026,380

	For the Three Months Ended June 30, 2021
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Deficit			Total

Balance at March 31, 2021		-	$	-		7,777,530	$	778	$	13,897,280	$	-	$	(1,580,689	)	$	12,317,369
Stock options exercised		-		-		2,500		-		2,450		-		-			2,450
Stock issued for cash in offering, net		-		-		3,000,000		300		16,794,700		-		-			16,795,000
Net income		-		-		-		-		-		-		529,359			529,359
Balance at June 30, 2021		-	$	-		10,780,030	$	1,078	$	30,694,430	$	-	$	(1,051,330	)	$	29,644,178

	For the Six Months Ended June 30, 2021
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Deficit			Total

Balance at December 31, 2020		-	$	-		7,775,030	$	778	$	13,893,660	$	-	$	(2,235,852	)	$	11,658,586
Stock options exercised		-		-		5,000		-		6,070		-		-			6,070
Stock issued for cash in offering, net		-		-		3,000,000		300		16,794,700		-		-			16,795,000
Net loss		-		-		-		-		-		-		1,184,522			1,184,522
Net income (loss)		-		-		-		-		-		-		1,184,522			1,184,522
Balance at June 30, 2021		-	$	-		10,780,030	$	1,078	$	30,694,430	$	-	$	(1,051,330	)	$	29,644,178


	Nine Months Ended September 30,						Six Months Ended June 30,
	2021			2020			2022			2021

Cash flows from 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:
Net income							$	1,364,448		$	1,184,522
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		367,253			274,866			446,688			201,156
Right of use amortization		231,300			220,997			160,658			153,299
Reserve for note receivable		-			16,738
Deferred taxes		409,893			80,000
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			-			70,497			-
Stock issued for service								350,001			-
Changes in operating assets and liabilities:
Accounts receivable, net		(3,512,154	)		(215,159	)		(2,491,348	)		(4,136,335	)
That’s Eatertainment note receivable, net, related party		-			(10,916	)
Interest receivable		-			7,340
Inventory, net		(2,417,589	)		(1,492,350	)		(3,816,862	)		(1,693,598	)
Deferred taxes								255,511			294,113
Unbilled revenue		1,062,316			(109,500	)		(873,605	)		1,374,667
Prepaid expenses and other current assets		(242,322	)		(107,637	)		92,128			(353,765	)
Other assets		(33,150	)		18,246			(186,727	)		21,148
Security deposits, long-term		66,788			-			(15,979	)		66,788
Accounts payable and other accrued expenses		912,318			635,765			1,115,242			933,840
Payments on operating lease liability		(239,259	)		(221,028	)		(170,535	)		(157,713	)
Deferred revenue		3,387,802			452,324			921,613			3,049,784

Net cash provided by (used in) operating activities		1,362,626			(166,900	)		(2,778,270	)		937,906

Cash flows from investing activities:

Redemption of certificates of deposit		-			1,915,000
Purchase of intangible assets		(627,765	)		(55,580	)		(86,012	)		(92,886	)
Purchase of property and equipment		(11,407,278	)		(329,386	)		(1,725,726	)		(602,009	)

Net cash provided by (used in) investing activities		(12,035,043	)		1,530,034
Net cash used in investing activities								(1,811,738	)		(694,895	)

Cash flows from financing activities:
Repurchase of stock options		-			(26,667	)
Principal payments of debt		(20,195	)		-			(115,049	)		-
Net proceeds from long term debt		8,590,151			-
Stock issued for cash in offering, net		16,795,000			-			-			16,795,000
Stock options exercised		11,320			19,965			12,725			6,070
Note payable-PPP Loan		-			1,325,961
Net cash provided by (used in) financing activities		25,376,276			1,319,259			(102,324	)		16,801,070

Net increase (decrease) in cash and restricted cash		14,703,859			2,682,393			(4,692,332	)		17,044,081
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
Cash and cash equivalents, beginning of period								19,708,565			6,841,984
Cash and cash equivalents, end of period							$	15,016,233		$	23,886,065

Supplemental disclosure of cash flow information:
Cash (refunded) paid:
Taxes refunded	$	78,096		$	(39,533	)
Income taxes paid (refunded)							$	99,035		$	(78,096	)
Interest paid		20,783			5,247			128,507			5,763

Supplemental disclosure of non-cash investing and financing activities:
Conversion of inventory to property and equipment							$	294,016		$	-

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.

	Three Months Ended																Three Months ended June 30,
	September 30, 2021								September 30, 2020								2022								2021
	Commercial		Government		International		Total		Commercial		Government		International		Total		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	$	3,521,100	$	1,422,233	$	1,737,301	$	6,680,634	$	543,890	$	3,503,592	$	106,933	$	4,154,415
Extended service-type warranties		31,910		656,870		25,180		713,960		18,037		611,087		11,894		641,018		30,546		747,878		27,646		806,070		25,547		673,970		28,965		728,482
Customized software and content		-		290,829		52,273		343,102		-		738,291		-		738,291		-		60,392		126,000		186,392		-		146,543		21,170		167,713
Installation and training		42,952		190,098		59,500		292,550		1,351		167,104		-		168,455		35,343		249,847		39,097		324,287		15,043		186,909		-		201,952
Licensing and royalties		4,402		-		-		4,402		18,365		-		-		18,365		-		-		-		-		2,630		-		-		2,630

Total Revenue	$	1,449,730	$	3,783,109	$	860,424	$	6,093,263	$	249,783	$	6,152,044	$	11,894	$	6,413,721	$	3,586,989	$	2,480,350	$	1,930,044	$	7,997,383	$	587,110	$	4,511,014	$	157,068	$	5,255,192

	September 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021

Raw materials and work in process	$	6,616,616		$	3,636,649		$	9,134,217		$	5,229,636
Reserve		(683,030	)		(120,652	)		(302,431	)		(214,712	)

Total inventory	$	5,933,586		$	3,515,997		$	8,831,786		$	5,014,924

	September 30, 2021

Land	$	1,778,987
Building and building improvements	$	8,566,492
Acquired Lease Intangible Assets	$	454,521

Total Purchase Price	$	10,800,000

Balance Sheet Classification	September 30, 2021
Assets
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	$	341,124
Non-current
Operating lease liability, long-term		594,499
Total lease liabilities	$	935,623


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

Total lease payments		993,496
Less: imputed interest		(57,873	)
Operating lease liability	$	935,623


2022	$	190,941
2023		390,562
2024		131,152

Total lease payments		712,655
Less: imputed interest		(30,035	)
Operating lease liability	$	682,620


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

Total lease payments		1,268,871			900,811
Less: imputed interest		(93,989	)		(47,656	)
Operating lease liability	$	1,174,882		$	853,155

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

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

Long-term liabilities:		8,336,991

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


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 our marketing and sales activities.

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

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

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

	○	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.

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

	○	The V-100® is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to four (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)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators.

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

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

	●	~~Drop-In~~Simulated Recoil Kits - a wide range of ~~powerfully~~highly realistic and reliable simulated recoil kits/weapons. These drop-in conversion kits ~~that can~~ fit into real weapons but safely simulate the most powerful recoil on the market and even lock-back when out-of-ammunition or simulating 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.~~dud.

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

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

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

Net Income (Loss)	$	1,342,972		$	868,084	$	474,888			55	%	$	2,527,494		$	(122,586	)	$	2,650,080			2162	%
Adjustments:
Provision for income taxes		253,289			354,941		(101,652	)		-29	%		469,306			40,467			428,839			1060	%
Depreciation and amortization		166,098			95,259		70,839			74	%		367,253			274,866			92,387			34	%
EBITDA	$	1,762,359		$	1,318,284	$	444,075			34	%	$	3,364,053		$	192,747		$	3,171,306			1645	%
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			(16,738	)		-100	%
Gain on forgiveness of note		(1,320,714	)		-		(1,320,714	)		100	%		(1,320,714	)		-			(1,320,714	)		100	%

Adjusted EBITDA	$	519,646		$	1,593,745	$	(1,074,099	)		-67	%	$	2,274,639		$	615,485		$	1,659,154			232	%

	For the Three Months Ended										For the Six Months Ended
	June 30,		June 30,		Increase			%			June 30,		June 30,		Increase		%
	2022		2021		(Decrease)			Change			2022		2021		(Decrease)		Change

Net Income	$	787,374	$	529,359	$	258,015			49	%	$	1,364,448	$	1,184,522	$	179,926		15	%
Adjustments:
Provision for income taxes		246,684		293,180		(46,496	)		-16	%		370,684		216,017		154,667		72	%
Depreciation and amortization		230,942		103,865		127,077			122	%		446,688		201,155		245,533		122	%
EBITDA	$	1,265,000	$	926,404	$	338,596			37	%	$	2,181,820	$	1,601,694	$	580,126		36	%
Right of use amortization		80,805		77,090		3,715			5	%		160,658		153,299		-

Adjusted EBITDA	$	1,345,805	$	1,003,494	$	342,311			34	%	$	2,342,478	$	1,754,993	$	580,126		33	%

	(a)	None

	(b)	There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors since the filing with the SEC of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Exhibit No.		Exhibit Description

10.1		~~Form of Securities Purchase Agreement~~John F. Givens II (incorporated by reference to Exhibit ~~10.1~~10.14 to the registrant’s ~~Current Report~~annual report on Form ~~8-K~~10-K (File No. 001-38420) 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).~~2, 2022)

31.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
31.3		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of the Principal Executive ~~Officer~~Officers 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 15, 2021~~August 19, 2022	By:	/s/ Robert D. Ferris
		Robert D. Ferris
		~~Chief~~Co-Chief Executive Officer and President
		(principal executive officer)

	By:	/s/ John F. Givens II
		John F. Givens II
		Co-Chief Executive Officer
		(principal executive officer)

	By:	/s/ Marsha J. Foxx
		Marsha J. Foxx,
		Chief Accounting Officer
		(principal financial and principal accounting officer)