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 June 30, 2024

☐	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
incorporation or organization)		Identification No.)

295 E. Corporate Place, Chandler, AZ		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
Common Stock, $0.0001 par value		VTSI		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 August 7, 2024, the registrant had 11,168,273 shares of common stock outstanding.

TABLE OF CONTENTS

			PAGE NO.
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	F-1
		Condensed Balance Sheets as of June 30, 2024 and December 31, 2023	F-1
		Condensed Statements of Operations for the Three and Six Months ended June 30, 2024 and 2023	F-2
		Condensed Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023	F-3
		Condensed Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	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	9

	SIGNATURES		10

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

VIRTRA, INC.

CONDENSED BALANCE SHEETS

(unaudited)

	June 30, 2024		December 31, 2023

ASSETS
Current assets:
Cash and cash equivalents	$	18,411,634	$	18,849,842
Accounts receivable, net		9,124,425		15,724,147
Inventory, net		13,470,715		12,404,880
Unbilled revenue		1,389,658		1,109,616
Prepaid expenses and other current assets		1,953,015		906,803
Total current assets		44,349,447		48,995,288
Long-term assets:
Property and equipment, net		16,575,177		15,487,012
Operating lease right-of-use asset, net		519,375		716,687
Intangible assets, net		563,096		567,540
Security deposits, long-term		35,691		35,691
Other assets, long-term		201,670		201,670
Deferred tax asset, net		3,780,112		3,630,154
Total long-term assets		21,675,121		20,638,754
Total assets	$	66,024,568	$	69,634,042

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,013,483	$	2,282,427
Accrued compensation and related costs		1,920,367		2,221,416
Accrued expenses and other current liabilities		573,510		3,970,559
Note payable, current		230,457		226,355
Operating lease liability, short-term		189,098		317,840
Deferred revenue, short-term		5,619,406		6,736,175
Total current liabilities		9,546,321		15,754,772
Long-term liabilities:
Deferred revenue, long-term		3,022,676		3,012,206
Note payable, long-term		7,690,940		7,813,021
Operating lease liability, long-term		353,710		432,176
Total long-term liabilities		11,067,326		11,257,403
Total liabilities		20,613,647		27,012,175
Commitments and contingencies (See Note 9)		-		-
Stockholders’ equity:
Preferred stock $0.0001 par value; 2,500,000 shares authorized; no shares issued or outstanding		-		-
Common stock $0.0001 par value; 50,000,000 shares authorized; 11,112,230 shares and 11,107,230 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		1,110		1,109
Class A common stock $0.0001 par value; 2,500,000 shares authorized; no shares issued or outstanding		-		-
Class B common stock $0.0001 par value; 7,500,000 shares authorized; no shares issued or outstanding		-		-
Common stock value
Additional paid-in capital		32,329,917		31,957,765
Retained earnings		13,079,894		10,662,993
Total stockholders’ equity		45,410,921		42,621,867
Total liabilities and stockholders’ equity	$	66,024,568	$	69,634,042

See accompanying notes to unaudited condensed financial statements.

F-1

VIRTRA, INC.

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

	2024		2023			2024		2023
	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024		2023
Revenues:
Net sales	$	6,075,040	$	10,336,903		$	14,169,438	$	20,363,838
Total revenue		6,075,040		10,336,903			14,169,438		20,363,838

Cost of sales		550,424		4,416,202			3,182,681		7,494,199

Gross profit		5,524,616		5,920,701			10,986,757		12,869,639

Operating expenses:
General and administrative		3,537,910		3,280,344			6,908,332		5,991,681
Research and development		855,285		711,754			1,548,665		1,478,050

Net operating expense		4,393,195		3,992,098			8,456,997		7,469,731

Income (loss) from operations		1,131,421		1,928,603			2,529,760		5,399,908

Other income (expense):
Other income		156,870		208,599			486,141		392,240
Gain on forgiveness of note payable		-		(133,078	)		-		(200,305	)
Other (expense) income

Net other income (expense)		156,870		75,521			486,141		191,935

Income (Loss) before provision for income taxes		1,288,291		2,004,124			3,015,901		5,591,843

Provision (Benefit) for income taxes		87,564		977,489			599,000		1,618,834

Net income (loss)	$	1,200,727	$	1,026,635		$	2,416,901	$	3,973,009

Net income (loss) per common share:
Basic	$	0.11	$	0.09		$	0.22	$	0.36
Diluted	$	0.11	$	0.09		$	0.22	$	0.36

Weighted average shares outstanding:
Basic		11,063,366		10,924,714			10,885,965		10,921,033
Diluted		11,065,866		10,933,130			10,885,965		10,925,702

See accompanying notes to unaudited condensed financial statements.

F-2

VIRTRA, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total
	For the Three Months Ended June 30, 2024
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total

Balance at March 31, 2024		-	$	-		11,109,730		1,110		32,108,513		-		11,879,166		43,988,789
Stock options exercised		-		-		2,500		-		9,400		-		-		9,400
Stock reserved for future services		-		-		-		-		212,004		-		-		212,004
Net income		-		-		-		-		-		-		1,200,727		1,200,727
Balance at June 30, 2024		-	$	-		11,112,230		1,110		32,329,917		-		13,079,894		45,410,921

	For the Three Months Ended June 30, 2023
	Preferred Stock				Common Stock				Additional Paid-In			Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital			Stock		Earnings		Total

Balance at March 31, 2023		-	$	-		10,924,274		1,109		31,536,182			-		5,206,508		36,743,781
Stock options exercised		-		-		2,500		1		10,475			-		-		10,476
Stock options repurchased		-		-		-		-		(17,568	)		-		-		(17,568	)
Stock reserved for future services		-		-		-		-		175,412			-		-		175,412
Net income		-		-		-		-		-			-		1,026,635		1,026,635
Balance at June 30, 2023		-	$	-		10,926,774		1,092		31,704,501			-		6,233,144		37,938,737

For the Six Months Ended June 30, 2024
	Preferred Stock				Common Stock				Additional Paid-In		Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital		Stock		Earnings		Total

Balance at December 31, 2023		-	$	-		11,107,230		1,109		31,957,765		-		10,662,993		42,621,867
Stock options exercised		-		-		5,000		1		20,149		-		-		20,150
Stock reserved for future services		-		-		-		-		352,003		-		-		352,003
Net income		-		-		-		-		-		-		2,416,901		2,416,901
Balance at June 30, 2024		-	$	-		11,112,230		1,110		32,329,917		-		13,079,894		45,410,921

For the Six Months Ended June 30, 2023
	Preferred Stock				Common Stock				Additional Paid-In			Treasury		Accumulated
	Shares		Amount		Shares		Amount		Capital			Stock		Earnings		Total

Balance at December 31, 2022		-	$	-		10,900,759		1,089		31,420,395			-		2,260,135		33,681,619
Balance		-	$	-		10,900,759	$	1,089	$	31,420,395				$	2,260,135	$	33,681,619
Stock options exercised		-		-		10,000		2		27,200			-		-		27,202
Stock options repurchased		-		-		-		-		(17,568	)		-		-		(17,568	)
Stock reserved for future services										74,999			-		-		75,000
Stock reserved for future services		-		-		16,015		1		199,475			-		-		199,475
Net income		-	$	-		-		-		-			-		3,973,009		3,973,009
Balance at June 30, 2024		-	$	-		10,926,774		1,092		31,704,501			-		6,233,144		37,938,737
Balance		-	$	-		10,926,774	$	1,092	$	31,704,501				$	6,233,144	$	37,938,737

See accompanying notes to unaudited condensed financial statements.

F-3

VIRTRA, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	2024			2023
	Six Months Ended June 30
	2024			2023
Cash flows from operating activities:
Net income	$	2,416,901		$	3,973,009
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		525,077			479,889
Right of use amortization		197,312			244,580
Employee stock compensation		352,005			199,475
Stock issued for service		-			75,000
Changes in operating assets and liabilities:
Accounts receivable, net		6,599,722			(14,928,520	)
Inventory, net		(1,065,835	)		(375,211	)
Deferred taxes		(149,958	)		(3,122,905	)
Unbilled revenue		(280,044	)		5,063,881
Prepaid expenses and other current assets		(1,046,213	)		(15,281	)
Other assets		-			173,999
Accounts payable and other accrued expenses		(4,967,236	)		3,792,847
Operating lease right of use		(207,208	)		(257,677	)
Deferred revenue		(1,106,299	)		5,010,384
Net cash provided by operating activities		1,268,224			313,470

Cash flows from investing activities:
Purchase of property and equipment		(1,608,798	)		(345,640	)
Net cash (used in) investing activities		(1,608,798	)		(345,640	)

Cash flows from financing activities:
Principal payments of debt		(117,785	)		(118,087	)
Stock Options Exercised		20,151			9,634
Repurchase of Stock based options		-			-
Net cash (used in) financing activities		(97,634	)		(108,453	)

Net (decrease) in cash		(438,208	)		(140,623	)
Cash and restricted cash, beginning of period		18,849,842			13,483,597
Cash and restricted cash, end of period	$	18,411,634		$	13,342,974

Supplemental disclosure of cash flow information:
Interest paid	$	84,403		$	134,514
Income taxes paid (refunded)	$	5,314,387		$	-

See accompanying notes to unaudited condensed 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 Chandler, Arizona, is a global provider of judgmental use of force training simulators and firearms training 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 and ultimately became VirTra, Inc., a Nevada corporation.

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, 2023 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on April 1, 2024. 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 on June 30, 2024, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2023, balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP.

Interim results are subject to seasonal variations, and the results of operations for the three and six months ended June 30, 2024, 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, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets, income tax valuation allowances, and the allocation of the transaction price to the performance obligations in our contracts with customers.

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.

F-5

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 a 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

STEP Program		Deferred and recognized over the life of the contract

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)

Design and prototyping		Recognized at the completion of each agreed upon milestone

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 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 on the stand-alone selling prices, if any, are allocated proportionately to each performance obligation.

F-6

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

Schedule of Disaggregation of Revenue

	Commercial		Government		International		Total		Commercial		Government		International		Total
	Three Months Ended June 30
	2024								2023
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	136,571	$	1,927,438	$	477,837	$	2,541,846	$	73,099	$	7,365,343	$	355,630	$	7,794,072
Extended Service-type warranties		72,000		1,332,049		22,103		1,426,152		21,367		599,390		16,257		637,014
Customized software and content		-		17,127		82,500		99,627		4,800		277,555		82,855		365,210
Installation and training		4,196		157,691		6,650		168,537		19,702		154,280		208,141		382,123
Design & Prototyping		-		863,582		-		863,582		-		-		-		-
STEP		-		965,810		9,486		975,296		-		1,140,948		17,536		1,158,484
Total Revenue	$	212,767	$	5,263,697	$	598,576	$	6,075,040	$	118,968	$	9,537,516	$	680,419	$	10,336,903

	Commercial		Government		International		Total		Commercial		Government		International		Total
	Six Months Ended June 30
	2024								2023
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	212,351	$	5,738,695	$	1,756,095	$	7,707,141	$	562,908	$	12,114,712	$	3,507,795	$	16,185,415
Extended Service-type warranties		72,000		2,202,851		26,305		2,301,156		44,711		1,138,598		35,680		1,218,989
Customized software and content		-		282,533		82,500		365,033		24,300		284,751		65,994		375,045
Installation and training		4,196		394,030		11,814		410,040		40,264		403,834		261,829		705,927
Design & Prototyping		-		1,446,908		-		1,446,908		-		-		-		-
STEP		-		1,920,160		19,000		1,939,160		-		1,871,221		7,242		1,878,463
Total Revenue	$	288,547	$	11,985,177	$	1,895,714	$	14,169,438	$	672,183	$	15,813,115	$	3,878,540	$	20,363,838

Commercial customers include selling through prime contractors for military or law enforcement contracts domestically and until it becomes a larger portion of the revenue will include any healthcare sales. Government customers are defined as directly selling to government agencies. For the three months ended June 30, 2024, governmental customers comprised $5,263,697 or 87% of total net sales, commercial customers comprised $212,767 or 3% of total net sales and international customers comprised $598,576 or 10% of total net sales. By comparison, for the three months ended June 30, 2023, governmental customers comprised $9,537,516, or 92% of total net sales, commercial customers comprised $118,968 or 1% of total net sales and international customers comprised $680,419, or 7% of total net sales. For the six months ended June 30, 2024, governmental customers comprised $11,985,177 or 85% of total net sales, commercial customers comprised $288,547 or 2% of total net sales and international customers comprised $1,895,714 or 13% of total net sales. By comparison, for the six months ended June 30, 2023, governmental customers comprised $15,813,115 or 78% of total net sales, commercial customers comprised $672,183 or 3% of total net sales and international customers comprised $3,878,540, or 19% of total net sales. For the six months ended June 30, 2024, and 2023, the Company recorded $1,920,160 and $1,871,221 respectively, in STEP revenue, or 14% and 9%, respectively, of total net 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 the customer’s receivable balance. Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $1,466,632 and $4,047,269 on June 30, 2024, and December 31, 2023, 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. The decrease in deferred revenue from December was due to the Company converting the deposits into revenue as we delivered on our obligations.

F-7

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 $2,510,297 and $2,627,763 as of June 30, 2024, and December 31, 2023, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $2,930,779 and $2,974,710 as of June 30, 2024, and December 31, 2023, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $295,000 and $354,000 as of June 30, 2024, and December 31, 2023, respectively. We did not see any change in the amount of warranty repairs, due to new quality controls and equipment, so we maintained our warranty liability for another quarter. During the six months ended June 30, 2024, and 2023, the Company recognized revenue of $2,301,156 and $1,218,989, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance at the beginning of each period. 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.

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, and accounts 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 $17,911,634 and $18,349,842 as of June 30, 2024, and December 31, 2023, respectively.

Sales 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.

Historically, the Company primarily sells its products to U.S. federal, state and municipal agencies.

As of June 30, 2024, the Company had three customer that accounted for 24%, 11%, and 10% respectively, of total accounts receivable. As of December 31, 2023, the Company had customers that accounted for 28% and 14% of total accounts receivable.

As of June 30^th, 2024 the Company had two suppliers that each accounted for 13% of the total accounts payable

For the three months ended June 30, 2024, and 2023, the Company had 2 customer that accounted for 14% and 12% of total revenue.

F-8

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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

	2024		2023
	Three Months Ended June 30
	2024		2023
Net Income (Loss)	$	1,200,727	$	1,026,635
Weighted average common stock outstanding		11,063,366		10,924,714
Incremental shares from stock options		2,500		8,416
Weighted average common stock outstanding, diluted		11,065,866		10,933,130

Net Income (Loss) per common share and common equivalent share
Basic	$	0.11	$	0.09
Diluted	$	0.11	$	0.09

	2024		2023
	Six Months Ended June 30
	2024		2023
Net Income (Loss)	$	2,416,901	$	3,973,009
Weighted average common stock outstanding		10,885,965		10,921,033
Incremental shares from stock options				4,669
Weighted average common stock outstanding, diluted		10,885,965		10,925,702

Net Income (Loss) per common share and common equivalent share
Basic	$	0.22	$	0.36
Diluted	$	0.22	$	0.36

Note 2. Inventory

Inventory consisted of the following as of:

Schedule of Inventory

	June 30, 2024			December 31, 2023

Raw materials, WIP, finished goods and Materials being inspected	$	13,961,002		$	12,834,368
Reserve		(490,287	)		(429,488	)

Total Inventory	$	13,470,715		$	12,404,880

The Company regularly evaluates the useful life of its spare parts inventory but did not have any cause to reclassify any this quarter.

F-9

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 3. Property and Equipment

Property and equipment consisted of the following as of:

Schedule of Property and Equipment

	June 30, 2024			December 31, 2023
Land	$	1,778,987		$	1,778,987
Building & Building Improvements		9,146,555			9,146,556
Computer equipment		1,282,359			1,236,989
Furniture and office equipment		314,006			292,208
Machinery and equipment		4,366,452			2,865,014
STEP equipment		2,391,683			2,241,291
Leasehold improvements		358,584			358,584
Construction in Progress		2,346,058			2,456,259

Total property and equipment		21,984,684			20,375,888
Less: Accumulated depreciation and amortization		(5,409,507	)		(4,888,876	)

Property and equipment, net	$	16,575,177		$	15,487,012

Depreciation expenses, including STEP depreciation, were $520,633 and $463,605 for the six months ended June 30, 2024, and 2023, respectively.

Note 4. Intangible Assets

Intangible asset consisted of the following as of:

Schedule of Intangible Asset

	June 30, 2024			December 31, 2023
Patents	$	160,000		$	160,000
Capitalized media content		451,244			451,244
Acquired lease intangible assets		83,963			83,963

Total intangible assets		695,207			695,207
Less accumulated amortization		(132,111	)		(127,667	)

Intangible assets, net	$	563,096		$	567,540

Amortization expenses were $4,936 and $15,792 for the six months ended June 30, 2024, and 2023, respectively.

Note 5. Leases

The Company leases approximately 37,729 rentable square feet of office and warehouse space from an unaffiliated third party for our former corporate office, manufacturing, assembly, warehouse, and shipping facility located at 7970 South Kyrene Road, Tempe, Arizona 85284. From 2016 through March 2019, the Company leased approximately 4,529 rentable square feet of office and industrial space from an unaffiliated third party for our machine shop at 2169 East 5th Street, Tempe, Arizona 85284. In April 2019, the Company relocated the machine shop from the 5th Street location to 7910 South Kyrene Road, located within the same business complex as our main office. The Company executed a lease amendment to add an additional 5,131 rentable square feet for the machine shop and extended its existing office lease through April 2024. On June 1, 2022, we entered a new lease of approximately 9,350 square feet located at 12301 Challenger Parkway, Orlando, Florida, from an unaffiliate third party through May 2027.

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.

F-10

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

In addition to base rent, the Company’s lease 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 balance sheets.

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 June 1, 2022, the Company obtained a right-of-use asset in exchange for a new operating lease liability of $840,855. 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.

Based on the requirements to move and leave the building in compliance with the company’s lease term, VirTra chose to use the hold over option in the lease agreement for the period of one additional month. The cost of this was split with the subtenant, this extended the lease through May 31, 2024, at which time VirTra entirely vacated the property.

The balance sheet classification of lease assets and liabilities as of June 30, 2024 are as follows:

Balance Sheet Classification	June 30, 2024			December 31, 2023
Assets
Operating lease right-of-use assets, December 31, 2023	$	716,687		$	1,212,814
Amortization for the six months ended June 30		(197,312	)		(496,127	)
Total operating lease right-of-use asset, June 30, 2024	$	519,375		$	716,687
Liabilities
Current
Operating lease liability, short-term	$	189,098		$	317,840
Non-current
Operating lease liability, long-term		353,710			432,176
Total lease liabilities	$	542,808		$	750,016

NON-Cancelable operating leases


2024	$	94,388
2025		191,425
2026		196,311
2027		99,381

Total Lease Payments		581,505
Less: imputed interest		(38,697	)
Operating Lease Liability	$	542,808

Rent expenses for the six months ended June 30, 2024, and 2023, were $335,316 and $284,139, respectively.

F-11

VIRTRA, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

Note 6. Accrued Expenses

Accrued compensation and related costs consist of the following as of:

	June 30, 2024		December 31, 2023
Salaries and wages payable	$	428,823	$	457,565
Employee benefits payable		31,706		54,811