UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~[X]~~☒

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

For the quarterly period ended September 30, ~~2017~~2021

~~[ ]~~☐

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.~~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)	~~(IRS Employer~~	Identification No.)

7970 S. Kyrene Rd. Tempe, AZ		85284

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

~~(480) 968-1488~~

(Registrant’s telephone number, including area ~~code)~~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		N/A		N/A

Indicate by check mark whether the ~~registrant:~~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 ~~[X]~~☐

Indicate by a check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive ~~Date~~Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ~~[X]~~ ☒ No ~~[ ]~~☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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	~~[X]~~☒
~~(Do not check if a smaller reporting company)~~		Emerging growth company	~~[X]~~☒

If an emerging growth company, indicate by ~~checkmark~~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 ~~Exchange~~ Act). Yes ~~[ ]~~ ☐ No ~~[X]~~ ☒

As of ~~March 30, 2018,~~November 12, 2021, the registrant had ~~7,904,307~~10,807,130 shares of common stock outstanding.

VIRTRA, ~~Inc.~~INC.

FORM 10-Q

TABLE OF CONTENTS

			PAGE NO.
PART I	FINANCIAL INFORMATION

	Item 1.	Financial ~~Statements:~~Statements (Unaudited)	F-1
		~~Condensed~~ Balance Sheets as of September 30, ~~2017~~2021 and December 31, ~~2016 (unaudited)~~2020	F-1
		~~Condensed~~ Statements of Operations for the Three and Nine ~~Months~~months ended September 30, 2021 and 2020	F-2
		Statements of Changes in Stockholders’ Equity for the Three and Nine months Ended September 30, ~~2017~~2021 and ~~2016 (unaudited)~~2020	~~F-2~~F-3
		~~Condensed Statements of Stockholders’ Equity~~	~~F-3~~
		~~Condensed~~ Statements of Cash Flows for the Nine ~~Months~~months Ended September 30, ~~2017~~2021 and ~~2016 (unaudited)~~2020	F-4
		Notes to the Unaudited ~~Condensed~~ Financial Statements	F-5

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

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	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	910

	SIGNATURES		10 11

~~Part~~

PART I: FINANCIAL INFORMATION

~~Item~~ITEM 1. ~~Financial Statements~~FINANCIAL STATEMENTS

VIRTRA, INC.

~~CONDENSED~~ BALANCE SHEETS

~~(Unaudited)~~

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

Current assets:
Cash and cash equivalents	$	21,545,843	$	6,841,984
Accounts receivable, net		4,890,424		1,378,270
Inventory, net		5,933,586		3,515,997
Unbilled revenue		4,346,282		5,408,598
Prepaid expenses and other current assets		624,767		382,445

Total current assets		37,340,902		17,527,294

Long-term assets:
Property and equipment, net		12,438,061		1,381,744
Operating lease right-of-use asset, net		863,227		1,094,527
Intangible assets, net		882,604		271,048
Security deposits, long-term		19,712		86,500
Other assets, long-term		533,264		500,114
Deferred tax asset, net		1,482,107		1,892,000

Total long-term assets		16,218,975		5,225,933

Total assets	$	53,559,877	$	22,753,227

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	1,087,736	$	345,573
Accrued compensation and related costs		1,287,063		843,101
Accrued expenses and other current liabilities		493,643		772,884
Note payable, current		233,047		266,037
Operating lease liability, short-term		341,124		321,727
Deferred revenue, short-term		8,058,613		4,708,575

Total current liabilities		11,501,226		7,257,897

Long-term liabilities:
Deferred revenue, long-term		1,958,110		1,920,346
Note payable, long-term		8,336,991		1,063,243
Operating lease liability, long-term		594,499		853,155
Other long term liabilities		5,435		-

Total long-term liabilities		10,895,035		3,836,744

Total liabilities		22,396,261		11,094,641

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
Class A common stock $0.0001 par value; 2,500,000 shares authorized; 0 shares issued or outstanding		-		-
Class B common stock $0.0001 par value; 7,500,000 shares authorized; 0 shares issued or outstanding		-		-
Common stock		1,081		778
Additional paid-in capital		30,870,893		13,893,660
Retained earnings (Accumulated deficit)		291,642		(2,235,852	)

Total stockholders’ equity		31,163,616		11,658,586

Total liabilities and stockholders’ equity	$	53,559,877	$	22,753,227

September 30, 2017 December 31, 2016

ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,106,205 $ 3,703,579
Accounts receivable, net 3,011,610 3,244,852
Inventory, net 1,689,149 1,319,944
Unbilled revenue 1,724,642 107,297
Prepaid expenses and other current assets 660,288 250,066

Total current assets 12,191,894 8,625,738

Property and equipment, net 693,206 814,323
Investment in MREC 1,988,174 471,928

TOTAL ASSETS $ 14,873,274 $ 9,911,989

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable $ 730,302 $ 467,679
Accrued compensation and related costs 1,109,734 617,582
Accrued expenses and other current liabilities 227,688 194,668
Notes payable, current 11,250 11,250
Deferred revenue 2,753,337 2,065,905

Total current liabilities 4,832,311 3,357,084

Long-term liabilities:
Deferred rent liability 87,861 122,126
Notes payable, long-term 11,250 22,500

Total long-term liabilities 99,111 144,626

Total liabilities 4,931,422 3,501,710

Commitments and contingencies

STOCKHOLDERS’ EQUITY
Preferred stock $0.0001 par value; 2,500,000 authorized; no shares issued or outstanding - -
Common stock $0.0001 par value; 50,000,000 shares authorized; 7,927,774 shares issued and 7,906,835 shares outstanding as of September 30, 2017 and 7,927,774 issued and outstanding as of December 31, 2016. 793 793
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 - -
Treasury stock at cost; 20,939 shares and no shares outstanding as of September 30, 2017 and December 31, 2016, respectively (96,633 ) -
Additional paid-in capital 14,964,939
14,128,837

Accumulated deficit (4,927,247 ) (7,719,351 )

Total stockholders’ equity 9,941,852 6,410,279

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 14,873,274 $ 9,911,989

See accompanying notes to unaudited ~~condensed~~ financial statements.

F-1

VIRTRA, INC.

~~CONDENSED~~ STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			Three Months Ended						Nine Months Ended
REVENUES
													September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020

Revenues:
Net sales	$	4,645,593		$	2,993,872		$	13,902,215		$	12,602,134		$	6,093,263		$	6,395,356		$	15,790,364		$	12,472,106
Royalties/licensing fees		40,852			47,829			245,082			47,829
That’s Eatertainment royalties/licensing fees, former related party														-			16,005			-			45,247
Other royalties/licensing fees														-			2,360			-			4,310
Total revenue		4,686,445			3,041,701			14,147,297			12,649,963			6,093,263			6,413,721			15,790,364			12,521,663

Cost of sales		1,573,384			1,345,180			4,853,796			4,856,906			3,217,911			2,446,455			7,211,807			5,381,403

Gross profit		3,113,061			1,696,521			9,293,501			7,793,057			2,875,352			3,967,266			8,578,557			7,140,260

OPERATING EXPENSES
Operating expenses:
General and administrative		2,050,395			1,401,547			5,515,455			4,632,048			1,958,038			2,250,348			5,670,883			6,050,798
Research and development		310,848			299,288			931,954			731,630			651,734			497,645			1,257,271			1,204,011

Net operating expense		2,361,243			1,700,835			6,447,409			5,363,678			2,609,772			2,747,993			6,928,154			7,254,809

Income/(loss) from operations		751,818			(4,314	)		2,846,092			2,429,379
Income (loss) from operations														265,580			1,219,273			1,650,403			(114,549	)

OTHER INCOME (EXPENSE)
Other income (expense):
Other income		14,813			5,626			52,410			8,406			(11,981	)		7,067			38,777			45,359
Other expense		(221	)		(2,981	)		(4,113	)		(2,981	)
Gain on forgiveness of note payable														1,320,714			-			1,320,714			-
Other (expense) income														21,948			(3,315	)		(13,094	)		(12,929	)

Net other income/(loss)		14,592			2,645			48,297			5,425
Net other income (expense)														1,330,681			3,752			1,346,397			32,430

Income/(loss) before income taxes		766,410			(1,669	)		2,894,389			2,434,804
Income (Loss) before provision for income taxes														1,596,261			1,223,025			2,996,800			(82,119	)

Provision for income taxes		24,285			8,414			102,285			73,618
Provision (Benefit) for income taxes														253,289			354,941			469,306			40,467

NET INCOME/(LOSS)	$	742,125		$	(10,083	)	$	2,792,104		$	2,361,186
Net income (loss)													$	1,342,972		$	868,084		$	2,527,494		$	(122,586	)

Earnings per common share
Net income (loss) per common share:
Basic	$	0.09		$	(0.00	)	$	0.35		$	0.30		$	0.12		$	0.11		$	0.26		$	(0.02	)
Diluted	$	0.09		$	(0.00	)	$	0.33		$	0.28		$	0.12		$	0.11		$	0.25		$	(0.02	)

Weighted average shares outstanding
Weighted average shares outstanding:
Basic		7,918,114			7,916,730			7,924,475			7,914,093			10,792,520			7,760,799			9,745,091			7,753,034
Diluted		8,337,377			7,916,730			8,418,275			8,552,275			11,031,922			7,842,475			10,111,458			7,753,034

See accompanying notes to unaudited ~~condensed~~ financial statements.

F-2

VIRTRA, INC.

~~CONDENSED STATEMENT~~STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Preferred stock Common stock Additional
paid-in Treasury Accumulated
Shares Amount Shares Amount capital Stock Deficit Total

Balance at December 31, 2016 - $ - 7,927,774 $ 793 $
14,128,837
$ - $ (7,719,351 ) $ 6,410,279

Stock based compensation - - - - 160,351 - - 160,351

Stock options repurchased - - - - (67,000 ) - - (67,000 )

Stock warrants vested-MREC Investment - - - - 1,516,246 - - 1,516,246

Stock warrants repurchased-MREC Inv. - - - - (773,495 ) - - (773,495 )

Treasury stock - - - - - (96,633 ) - (96,633 )

Net income - - - - - - 2,792,104 2,792,104

Balance at September 30, 2017 - $ - 7,927,774 $ 793 $
14,964,939
$ (96,633 ) $ (4,927,247 ) $ 9,941,852


	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 Nine 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 December 31, 2020		-	$	-		7,775,030	$	778	$	13,893,660	$	-	$	(2,235,852	)	$	11,658,586
Stock options exercised		-		-		7,500		-		11,320		-		-			11,320
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
Net income		-		-		-		-		-		-		2,527,494			2,527,494
Balance at September 30, 2021		-	$	-		10,807,130	$	1,081	$	30,870,893	$	-	$	291,642		$	31,163,616

	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 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

See accompanying notes to unaudited ~~condensed~~ financial statements.

F-3

VIRTRA, INC.

~~CONDENSED~~ STATEMENTS OF CASH FLOWS

(Unaudited)

Nine Months Ended
September 30, 2017 September 30, 2016

Cash flows from operating activities:
Net income $ 2,792,104 $ 2,361,186
Adjustments to reconcile net income to net cash provided (used) in operating activities
Depreciation and amortization 204,527 160,768
Stock compensation 160,351 93,990
Cash settlement of stock options 115,550 315,224
Changes in operating assets and liabilities:
Accounts receivable 233,241 (670,444 )
Inventory (369,206 ) (142,313 )
Unbilled revenue (1,617,346 ) -
Prepaid expenses and other current assets (410,221 ) (192,024 )
Accounts payable and other accrued expenses 787,795 33,776
Deferred revenue and deferred rent 653,168 609,473

Net cash provided by operating activities 2,549,964 2,569,636

Cash flows from investing activities:
Purchase of property and equipment (83,410 ) (468,115 )

Net cash used in investing activities (83,410 ) (468,115 )

Cash flows from financing activities:

Repayment of debt (11,250 ) (11,250 )
Common stock issued for option exercise - 16,350
Purchase of treasury stock (96,633 ) 2,981
Repurchase of stock options (182,550 ) (505,224 )
Repurchase of stock warrants (773,495 ) -

Net cash used in financing activities (1,063,928 ) (497,143 )

Net increase in cash 1,402,626 1,604,378
Cash, beginning of period 3,703,579 3,317,020

Cash, end of period $ 5,106,205 $ 4,921,398

Supplemental disclosure of cash flow information:
Cash paid:
Taxes $ 78,000 $ 142,930

Supplemental disclosure of non-cash investing and financing activities:
Investment in MREC $ 1,516,246 $ -


	Nine Months Ended September 30,
	2021			2020

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:
Depreciation and amortization		367,253			274,866
Right of use amortization		231,300			220,997
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			-
Changes in operating assets and liabilities:
Accounts receivable, net		(3,512,154	)		(215,159	)
That’s Eatertainment note receivable, net, related party		-			(10,916	)
Interest receivable		-			7,340
Inventory, net		(2,417,589	)		(1,492,350	)
Unbilled revenue		1,062,316			(109,500	)
Prepaid expenses and other current assets		(242,322	)		(107,637	)
Other assets		(33,150	)		18,246
Security deposits, long-term		66,788			-
Accounts payable and other accrued expenses		912,318			635,765
Payments on operating lease liability		(239,259	)		(221,028	)
Deferred revenue		3,387,802			452,324

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

Cash flows from investing activities:

Redemption of certificates of deposit		-			1,915,000
Purchase of intangible assets		(627,765	)		(55,580	)
Purchase of property and equipment		(11,407,278	)		(329,386	)

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

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

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

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

See accompanying notes to unaudited ~~condensed~~ financial statements.

F-4

VIRTRA, INC.

~~Notes To CONDENSED Financial Statements~~NOTES TO FINANCIAL STATEMENTS

(~~Unaudited~~)(Unaudited)

~~NOTE~~Note 1.~~ORGANIZATION AND BUSINESS OPERATIONS~~Organization and Significant Accounting Policies

Organization and Business Operations

VirTra, Inc. (the ~~“Company”~~“Company,” “VirTra,” “we,” “us” or ~~“VirTra”~~“our”), located in Tempe, Arizona, is ~~engaged in the sale and development~~a global provider of judgmental use of force training simulators, ~~and~~ firearms training simulators and driving simulators for the law enforcement, military, educational and commercial ~~uses.~~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 ~~simulators and related~~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, ~~Systems, Inc., a Texas corporation.~~

Effective as of October 1, 2016 (the “Effective Date”), the Company completed a conversion from a Texas corporation to a Nevada corporation pursuant to a Redomestication Plan of Conversion (the “Plan of Conversion”) that was approved by the Company’s Board of Directors on June 23, 2016 and its shareholders on September 16, 2016. On the Effective Date, 7,927,688 shares of common stock of VirTra Systems, Inc., a Texas corporation, were converted into 7,927,688 shares of common stock of VirTra, Inc., a Nevada corporation. ~~No shareholders exercised appraisal rights~~

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 ~~dissenters’ rights~~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 ~~such shares~~public-company recipients of a PPP loan under the CARES Act. The stock repurchase suspension remained in ~~accordance~~effect for the duration of the outstanding PPP loan. See Note 7 for information about the PPP Loan.

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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the ~~Texas Business Organization Code.~~

~~As part of the Plan of Conversion, the Company filed Articles of Incorporation~~SEC on March 29, 2021. Certain information and footnote disclosures normally included in Nevada whereby it changed its name from VirTra Systems, Inc. to VirTra, Inc. and revised its capitalization. The Company’s Articles of Incorporation filed in Nevada authorized the Company to issue 62,500,000 shares, of which (1) 60,000,000 shares shall be common stock, par value $0.0001 per share (the “common stock”), of which (a) 50,000,000 shares shall be common stock, par value $0.0001, (b) 2,500,000 shares shall be Class A common stock, par value $0.0001 per share (the “Class A common stock”), and (c) 7,500,000 shares shall be Class B common stock, par value $0.0001 per share (the “Class B common stock”) and (2) 2,500,000 shares shall be Preferred Stock, par value $0.0001 per share, which may, at the sole discretion of the Board of Directors be issued in one or more series (the “Preferred Stock”). The Company also adopted new bylaws as part of the Plan of Conversion.

Effective October 20, 2016, the Company effected a 1 for 10 reverse stock split of its issued and outstanding Common Stock and effective February 12, the Company effected a 1 for 2 reverse stock split of its issued and outstanding Common Stock (together the “Reverse Stock Splits”). All references to shares of the Company’s common stock in this report refer to the number of shares of common stock after giving effect to the Reverse Stock Splits.

~~The Company’s corporate office is located in Tempe, Arizona. All transactions in the~~ financial statements ~~and accompanying notes are presented in US Dollars.~~

~~Basis of Presentation~~

~~The accompanying unaudited condensed financial statements have been~~ prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) ~~for interim financial information. Certain information and note disclosures normally included in complete annual financial statements prepared in accordance with GAAP~~ have been condensed or ~~omitted. However,~~omitted as permitted by the ~~Company believes that~~SEC, although we believe the disclosures ~~included in these unaudited condensed financial statements~~that are made are adequate to make the information presented herein not misleading. ~~In the opinion of management, the~~

The accompanying unaudited ~~condensed~~ financial statements reflect, in our opinion, all ~~adjustments, which include~~ normal recurring adjustments ~~considered~~ necessary ~~for a fair presentation~~to present fairly our financial position at September 30, 2021 and the results of ~~such interim results. The results~~our operations and cash flows for the ~~three~~periods presented. We derived the December 31, 2020 balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP.

Interim results are subject to seasonal variations, and the results of operations for the nine months ended September 30, ~~2017~~2021 are not necessarily indicative of the results ~~for any subsequent period. These unaudited condensed financial statements should~~to be ~~read in conjunction with the audited financial statements and notes~~expected for the year ended December 31, 2016 included in the Company’s Post-Qualification Offering Circular Amendment No. 1 to Form 1-A filed with the Securities and Exchange Commission (the “SEC”) on February 21, 2018.full year.

~~Certain prior period amounts have been reclassified to conform with current period presentation. These reclassifications have no impact on net income/(loss).~~

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 atas 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

~~Recent Accounting Pronouncements~~

~~Between May 2014 and December 2016,~~

Revenue Recognition

The Company adopted the Financial Accounting Standards ~~Board~~Board’s (the “FASB”) ~~issued several~~ Accounting ~~Standard Updates~~Standards Codification (“~~ASUs”~~ASC”) on606, Revenue from Contracts with ~~Customers~~Customer (Topic 606)~~. These updates will supersede nearly all existing revenue recognition guidance under current GAAP. The core principle is~~ (“ASC 606”) on January 1, 2018 and the Company elected to ~~recognize revenues when promised goods or services are transferred to customers in an amount that reflects~~use the ~~consideration to~~modified retrospective transition method which an entity expects to be entitled for those goods or services. A five-step process has been defined to achieve this core principle, and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standards are effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting therequires application of ~~the standards in each prior reporting period with the option~~ASC 606 to ~~elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting the standards recognized~~uncompleted contracts at the date of ~~adoption (which includes additional footnote disclosures).~~adoption. The ~~Company is currently evaluating the impact of its pending~~ adoption of these standards on its financial statements and expects to adopt the modified retrospective approach. However, the adoption of these new standards will not have a material impact on its revenue recognition as it pertains to current revenue streams, the Company’s financial position or results of operations

In February 2016, the FASB issued ASU No. 2016-02 – “Leases (Topic 842)”, which requires leases to put most leases on their balance sheets by recognizing lease assets and lease liabilities for those leases classified as operating leases under previous guidance. This ASU will be effective for the Company on January 1, 2019, with early adoption permitted. The Company is currently in the process of assessing the impact of this ASU on its financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. As the Company wrote-down its Investment in Modern Round to fair value in 2017, the Company believes that the adoption of ASU 2016-01 will not have a material impact on its financial statements, however, the Company will change from the cost method of accounting.

In July 2015, the FASB issued ASU No. 2015-11 – “Inventory (Topic 330): Simplifying the Measurement of Inventory”. The amendment’s purpose is to simplify the measurement, reduce costs and increase comparability for inventory measured using first-in, first-out (FIFO) or average cost methods. An entity should measure inventory within the scope of this ASU at the lower of cost and net realizable value, which is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This accounting guidance is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. This standard was adopted on January 1, 2017 and its adoption did not to have a material significant impact on the Company’s financial statement position and results of operations.

In November 2015, the FASB issued ASU No. 2015-17 – “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes”. The ASU’s purpose is to require deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position (Balance Sheet). This accounting guidance will become effective beginning in the first quarter of 2017. Early application is permitted. The Company adopted this pronouncement and such adoptionASC 606 did not have a material impact on the ~~Company’s~~ financial ~~statements and related disclosures.~~statements.

In February 2016, the FASB issued ASU No. 2016-02 – “Leases (Topic 842)”, which requires leases to put most leases on their balance sheets by recognizing lease assets and lease liabilities for those leases classified as operating leases under previous guidance. This ASU will be effective forUnder ASC 606, the Company ~~on January 1, 2019,~~must identify the contract with ~~early adoption permitted. The Company is currently~~a customer, identify the performance obligations in the ~~process of assessing~~contract, determine the ~~impact of this ASU on its financial statements.~~

~~In November 2016,~~transaction price, allocate the ~~FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of~~transaction price to the ~~FASB Emerging Issues Task Force), to provide guidance on the presentation of restricted cash or restricted cash equivalents~~performance obligations in the ~~statement~~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 ~~cash flow.~~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 ~~amendments should be applied using a retrospective transition method, and~~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 effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this statement is not expected to have an impact on the Company’s financial position or results of operations.

In January 2017, the FASB issued ASU No. 2017-03, Accounting Changes and Error Corrections (Topic 250). The ASU adds SEC disclosure requirements for both the quantitative and qualitative impacts that certain recently issued accounting standards will have onincluded 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 ~~registrant when~~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, ~~standards are adopted in a future~~the warranty service is performed continuously over the warranty period. ~~Specially, these disclosure requirements apply~~

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 ~~adoption~~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 ~~ASU No. 2014- 09,~~ Revenue from Contracts with Customers (Topic 606); ASU No. 2016-02, Leases (Topic 842); and ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As indicated below, the Company does not believe that the adoption of ASU No. 2014-09 will have a material impact on its

Under ASC 606, disaggregated revenue ~~recognition as it pertains to current revenue streams.~~

~~In February 2017, the FASB issued ASU No. 2017-05, Other Income—Gains and Losses~~ from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with ~~noncustomers. The amendments are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, which is~~customers depicts the ~~same time as the amendments in ASU No. 2014-09,~~nature, amount, timing, and ~~early adoption is permitted.~~uncertainty of revenue and cash flows affected by economic factors. The Company ~~does not expect this amendment to have a material impact on its financial statements.~~has evaluated revenues recognized and the following table illustrates the disaggregation disclosure by customer’s location and performance obligation.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting, to provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Accounting Standards Codification (“ASC”) 718. The amendments are effective for fiscal years beginning after December 15, 2017, and should be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted, including adoption in an interim period. The Company does not expect this amendment to have a material impact on its financial statements.

F-6

Disaggregation of Revenue

Schedule Of Disaggregation Of Revenues

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

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

For the three months ended September 30, 2021, governmental customers comprised $3,783,109, or 62%, of total net revenue, commercial customers comprised $1,449,730 or 24%, of total net revenue, and international customers comprised $860,424, or 14%, of total net revenue. By comparison, for the three months ended September 30, 2020, governmental customers comprised $6,152,044, 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, 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.

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 $6,440,194 and $2,517,175 at September 30, 2021 and December 31, 2020, respectively. Changes in deferred revenue amounts related to customer deposits will fluctuate from year to year based upon the mix of customers required to prepay deposits under the Company’s credit policy.

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 $1,618,419 and $2,191,400 as of September 30, 2021 and December 31, 2020, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $1,958,110 and $1,920,346 as of September 30, 2021 and December 31, 2020, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $304,000 and $352,000 as of September 30, 2021 and December 31, 2020, respectively. During the three months ended September 30, 2021 and 2020, the Company recognized revenue of $713,960 and $641,018, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance at the beginning of each period. During the nine months ended September 30, 2021 and 2020, the Company recognized revenue of $2,155,150 and $1,937,650, respectively. Changes in deferred revenue amounts related to extended service-type warranties will fluctuate from year to year based upon the average remaining life of the warranties at the beginning of the period and new extended service-type warranties sold during the period.

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 and $6,338,896 as of September 30, 2021, and December 31, 2020, respectively.

F-7

~~In July 2017,~~

Most sales are to governments that are typically made on credit and the ~~FASB issued ASU No. 2017-11 – “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives~~Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition and ~~Hedging (Topic 815)” I. Accounting~~maintains an allowance for ~~Certain Financial Instruments with Down Round Features and II. Replacement~~estimated losses. Historically, the Company has experienced minimal charges relative to doubtful accounts.

Management performs ongoing evaluations of the ~~Indefinite Deferral~~collectability of its notes receivable and maintains an allowance for ~~Mandatorily Redeemable Financial Instruments~~estimated losses.

Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended September 30, 2021, one commercial agency comprised 20% of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companiestotal net sales. By comparison, for the ~~annual reporting periods beginning after~~three months ended September 30, 2020, one federal agency comprised 22% of total net sales and another federal agency comprised20% 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 30, 2021, no single customer had a significant percentage of total accounts receivable. By comparison, as of December ~~15, 2018,~~31, 2020, one federal agency comprised 8.5% and ~~interim periods within those annual periods. Early adoption is permitted. The Company does not expect this amendment to have a material impact on its financial statements.~~one state agency comprised 31% of total accounts receivable.

~~NOTE~~Note 2. ~~INVENTORY~~Inventory

Inventory consisted of the following as of:

Schedule Of Inventory

	September 30, 2017			December 31, 2016			September 30, 2021			December 31, 2020

Raw materials	$	1,718,367		$	1,085,519
Finished goods		-			251,707
Raw materials and work in process							$	6,616,616		$	3,636,649
Reserve		(29,218	)		(17,282	)		(683,030	)		(120,652	)

Total inventory	$	1,689,149		$	1,319,944		$	5,933,586		$	3,515,997

~~F-7~~

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

~~NOTE~~Note 3.Property and Equipment

Property and equipment consisted of the following as of:

Schedule of Property and Equipment, Net

	September 30, 2017			December 31, 2016			September 30, 2021			December 31, 2020

Land							$	1,778,987		$	-
Building & Building Improvements								8,606,224			-
Computer equipment	$	818,155		$	753,987			1,162,369			1,115,326
Furniture and office equipment		196,216			182,969			256,425			223,925
Machinery and equipment		925,495			925,495			1,743,487			1,096,898
STEP equipment								1,502,694			1,206,757
Leasehold improvements		324,313			318,318			334,933			334,934

Total property and equipment		2,264,178			2,180,768			15,385,119			3,977,840
Less: Accumulated depreciation		(1,570,972	)		(1,366,445	)
Less: Accumulated depreciation and amortization								(2,947,058	)		(2,596,096	)

Property and equipment, net	$	693,206		$	814,323		$	12,438,061		$	1,381,744

Depreciation expense, including STEP depreciation, was ~~$65,570~~$350,963 and ~~$64,591~~$268,200 for the nine months ended September 30, 2021, and 2020, respectively. Depreciation expense, including STEP depreciation, was $154,252 and $93,037 for the three months ended September 30, ~~2017~~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 ~~respectively. Depreciation~~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 Of Intangible Asset

	September 30, 2021			December 31, 2020

Patents	$	160,000		$	160,000
Capitalized media content		301,329			128,085
Acquired lease intangible assets		454,521			-

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

Intangible asset, net	$	882,604		$	271,048

Amortization expense was ~~$204,527~~$16,209 and ~~$160,768~~$6,667 for the nine months ended September 30, ~~2017~~2021, and ~~2016,~~2020, respectively. Amortization expense was $11,765 and $2,222 for the three months ended September 30, 2021, and 2020, 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 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-8~~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 was as follows:

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

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


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

Total lease payments		1,268,871
Less: imputed interest		(93,989	)
Operating lease liability	$	1,174,882

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

F-10

~~NOTE 4.~~Note 6. Accrued Expenses

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

Schedule Of Accrued Compensation And Related Costs

	September 30, 2017		December 31, 2016		September 30, 2021		December 31, 2020

Salaries and wages payable	$	431,741	$	93,832	$	580,610	$	278,331
401(k) contributions payable		16,971		25,729
Accrued paid time off		254,211		190,518
Employee benefits payable						32,288		634
Accrued paid time off (PTO)						449,165		366,827
Profit sharing payable		406,811		307,503		225,000		197,309

Total accrued compensation and related costs	$	1,109,734	$	617,582	$	1,287,063	$	843,101

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

Schedule Of Accrued Expenses And Other Current Liabilities

	September 30, 2021		December 31, 2020

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

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

F-11

September 30, 2017 December 31, 2016

Manufacturer’s warranties $ 135,000 $ 122,000
Taxes payable 61,045 32,668
Other 31,643 40,000

Total accrued expenses and other current liabilities $ 227,688 $ 194,668

Note 7. Note Payable

~~Profit Sharing~~

AsOn 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 ~~benefit package maintained by the Company, the Profit Sharing program pays a percentage of Company annual profits as a cash bonus~~Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to ~~active and eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata~~qualifying businesses for amounts up to ~~employees in April and October~~2.5 times of the following year. For the nine months ending September 30, 2017 and 2016, the percentage of annual net profit used for estimating the calculations was 15%. Profit sharing expense was $113,976 and $(3,379) for the three months ended September 30, 2017 and 2016, respectively. Profit sharing expense was $403,709 and $325,678 for the nine months ended September 30, 2017 and 2016, respectively.

~~NOTE 5.Collaboration Agreement~~

On January 16, 2015, the Company entered into a Co-Venture Agreement (the “Co-Venture Agreement”) with Modern Round, LLC (“Modern Round”), a wholly owned subsidiary of Modern Round Entertainment Corporation (“MREC”), a related party. MREC is a restaurant and entertainment concept centered on its indoor virtual reality shooting experience. The Co-Venture Agreement provides Modern Round access to certain software and equipment relating to the Company’s products in exchange for royalties.

~~The Company received 1,365,789 units, representing a 5% ownership interest in Modern Round on the date~~average monthly payroll expenses of the ~~Co-Venture Agreement. The Company recorded the investment at the estimated fair value of the units and which were valued at $0.10 per unit based on Modern Round’s other membership unit sales.The Co-Venture Agreement also provides the Company with conditional warrants to purchase an additional 5% of Modern Round as of the date of that agreement, at an exercise price of $0.25.~~

On April 14, 2015, Modern Round issued the Company an option to purchase 125,000 units of Modern Round. The option fully vested and became exercisable on the date of grant at an exercise price equal to $0.50 per unit and terminates on the tenth anniversary of the date of grant, if not earlier pursuant toqualifying business. Under the terms of the ~~option.~~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 ~~December 31, 2015, Modern Round merged with a subsidiary of MREC pursuant to a Plan of Merger (the “Merger Agreement”) andeach unit of Modern Round issued and outstanding as~~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 ~~effective time~~PPP Loan. The forgiveness of the ~~merger automatically converted into~~PPP Loan is recognized in Other Income in the ~~right to receive approximately 1.2277 shares~~accompanying statement of ~~MREC common stock. As a result of the Merger Agreement,~~income.

On August 25, 2021, the Company ~~held 1,676,748 shares~~completed the purchase of ~~MREC common stock, options to purchase 153,459 shares of MREC common stock at an exercise price of $0.41 per share,~~real property located in Chandler, Arizona (the “Property”) for $10,800,000, paid with cash and ~~conditional warrants to purchase 1,676,747 shares of MREC common stock at an exercise price of $0.20 per share.~~

~~F-9~~

~~On October 25, 2016, the Company exercised the conditional warrant and purchased 1,676,747 shares of MREC common stock for $335,349, resulting~~proceeds from a mortgage loan from Arizona Bank & Trust in ~~the Company’s aggregate holdings of MREC increasing to3,353,495 common shares representing approximately 8.9% of the issued and outstanding common shares of MREC. The MREC equity securities have been recorded as a cost method investment as the Company does not have the ability to exercise significant influence over MREC.~~

As part of the Co-Venture Agreement, the Company granted 459,691 conditional warrants to affiliates of MREC to purchase 5% of the Company’s capital stock on a fully diluted basis as of the date of the Co-Venture Agreement. The conditional warrants are exercisable commencing at the earlier of the first anniversary of MREC opening its first range facility utilizing VirTra technology or after MREC opening its first range facility utilizing VirTra technology and the payment to the Company of all required US/Canada minimum royalty payments during the first 12-month period. MREC opened its first location on June 1, 2016.

The Company also granted 459,691 of additional conditional warrants to affiliates of MREC to purchase another 5% of the Company’s capital stock on a fully diluted basis as of the Agreement date. These conditional warrants are exercisable any time subsequent to MREC’s payment of $2.0 million in cumulative license fees (royalty). Both conditional warrant issuances are for a period of five years with an exercise price of $2.72.

These conditional warrants were considered contingent consideration for the equity investment as they did not meet the definition of a derivative under ASC 815. Thus, the contingent consideration was not included in the cost of the equity investment until the contingency was resolved and the warrant became exercisable.

On June 1, 2017, the warrants related to the opening of the facility vested and became exercisable at an exercise price equal to $2.72 per unit and terminate on the fifth anniversary of the date of vesting, if not earlier pursuant to the terms of the option. On June 1, 2017, these warrants were recorded at the Black-Scholes Merton fair value using annual volatility of 91.5%, an annual risk free rate of 1.76%, expected term of five years and a fair value of $4.28 a share for a fair value of $1,516,246 as an additional investment in MREC.

The Co-Venture Agreement grants MREC an exclusive non-transferrable license to use the Company’s technology solely for use at locations to operate the concept, as defined in the Co-Venture Agreement. The license would become non-exclusive if the first U.S. location is not opened within 24 months of the effective date and at least one location is opened outside the U.S. and Canada within five years of the Co-Venture Agreement date, the respective milestone dates. Throughout the duration of the Co-Venture Agreement, MREC will pay the Company a royalty based on gross revenue, as defined and subject to certain minimum royalties commencing with the first twelve-month period subsequent to the respective milestone date of June 1, 2017. If the total royalty payments for locations in the United States and Canada together do not total at least the minimum royalty amoun~~t specified in the agreement, MREC may pay to VirTra the difference between~~ the amount of ~~total royalty~~$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 ~~minimum specified~~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 ~~agreement to maintain exclusivity.~~ property acquired.

The ~~Company recognized $245,082 and $47,829 for license fees (royalties) for~~note payable amounts consist of the ~~nine months ended September 30, 2017 and 2016, respectively.~~following:

Schedule Of Notes Payable

~~F-10~~

	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

Note 6. 8. Related Party Transactions

During the three months ended September 30, 2017 and 2016, the Company issued 13,750 and 11,250 stock options to the CEO, COO and members of the Board of Directors to purchase shares of common stock at a weighted average purchase price of $3.76 and $4.20, respectively. During the nine months ended September 30, 2017 and 2016, the Company issued 41,250 and 33,750 stock options to the CEO, COO and members of the Board of Directors to purchase shares of common stock at a weighted average purchase price of $4.42 and $3.08, respectively. All options are exercisable within seven years of grant date.

~~During the three and nine months ended September 30, 2017 and 2016,~~2021, the Company redeemed 26,250 previously awarded stock options nearing expiration from ~~the CEO and COO that had previously been awarded. As a result, the Company recorded additional compensation expense as follows:~~

Three Months Ending September 30, Nine Months Ending September 30,
2017 2016 2017 2016
Number of stock options redeemed 30,000 12,500 55,000 237,500
Redemption value $ 97,300 $ 37,500 $ 182,550 $ 505,224
Amount previously expensed (2010 and 2009) (32,000 ) (12,500 ) (67,000 ) (190,000 )

Additional compensation expense $ 65,300 $ 25,000 $ 115,550 $ 315,224

~~Mr. Mitch Saltz, a member~~related parties consisting of the Company’s ~~Board~~CEO and COO. The redemption eliminated the stock options and resulted in a total of ~~Directors, is also Chairman of the Board of Directors and a majority stockholder of MREC. The Company entered into the Co-Venture Agreement with MREC as disclosed~~$116,718 in Note 5. Through the terms of that agreement, the Company owns 3,353,495 shares of MREC common stock representing approximately 9.3% of the issued and outstanding shares of MREC common stock. In addition, the Company recognized license fees (royalties) from MREC of $40,852 and $47,829 for the three months ended September 30, 2017 and 2016, respectively, and $245,082 and $47,829 foradditional compensation expense. During the nine months ended September 30, ~~2017~~2021, the Company issued 7,500 shares of common stock, $0.0001 par value per share (the “Common Stock”) to one member of the Board of Directors, upon exercise of a previously awarded stock option in exchange for payment of an exercise price of $11,320.

During the nine months ended September 30, 2020, the Company redeemed 11,250 previously awarded stock options nearing expiration from the Company’s COO. The redemption eliminated the stock options and ~~2016, respectively, pursuant~~resulted in a total of $8,857 in additional compensation expense. During the nine months ended September 30, 2020, the Company issued 22,500 shares of Common Stock to the ~~terms~~CEO and one board member upon exercise of previously awarded stock options in exchange for payment of the ~~Co-Venture Agreement.~~exercise price of $19,965.

F-12

Note 7. 9. Commitments and Contingencies

The Company’s operating lease obligations relate to the leasing of the Company’s corporate office space located at 7970 South Kyrene Road, Tempe, Arizona 85284, which expires in April 2019, unless renewed and the leasing of the machine shop building located at 2169 East Fifth St., Tempe, Arizona 85284, which expires in March 2018, unless renewed.

~~Future minimum lease payments under non-cancelable operating leases are as follows:~~

Building Lease Schedule

2017 $ 87,651
2018 324,353
2019 105,542

Total $ 517,546

The Company has a deferred rent liability of $87,861 and $122,126 as of September 30, 2017 and December 31, 2016, respectively, relative to the increasing future minimum lease payments. Rent expense was $92,910 and $86,578 for the three months ended September 30, 2017 and 2016, respectively. Rent expense was $229,198 and $146,564 for the nine months ended September 30, 2017 and 2016, respectively.

General or Threatened Litigation

From time to time, the Company is notified of threatened litigation or that a claim is being made against it. 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

On April 2, 2012, 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 of 224,133 and 168,090 performance-based restricted stock units pursuant to the Company’s 2017 Equity Incentive Plan (the “Plan”) to the Company’s CEO and COO, respectively, with fair value on the grant date of August 26, 2021, of $1,559,966 and $1,169,906, respectively; (2) approved grants of 14,057 and 10,543 restricted shares with a fair value of $97,837 and $73,379, respectively, to the CEO and COO, respectively, based on the Company’s performance for the twelve months ended June 30, 2021; and (3) increased the annual base salaries effective August 15, 2021 to $349,860 and $251,140 for the CEO and COO, respectively. While their salaries have been annually increased with Company-wide cost-of-living adjustments, this was the first comprehensive review and adjustment undertaken since 2012.

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

It is the Company’s policy is to ~~not disclose~~estimate the ~~specifics~~fair value of ~~any claim or threatened lawsuit until such complaint is actually served~~the RSU’s on the ~~Company.On October 20, 2016,~~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 former employee filed a lawsuit in the U.S. District Court, District of Arizona alleging the Company’s failure and/or refusal to pay overtime in violation of 29 U.S.C. Sec. 201, et. seq. and a claim for wrongfully withheld wages under A.R.S. Sec. 23-350 et. seq. The complaint seeks certification of class action status, declaratory relief, damages, interest, attorneys’ fees and such other relief the Court deems just and proper. Additionally, two former and one current employee opted-in to the class action.

~~On September 18, 2017, VirTra entered into a Settlement Agreement and Release of Claims with two parties and on November 30, 2017, VirTra entered into a Settlement Agreement and Release of Claims with~~straight-line basis over the remaining ~~two parties in~~time period. The Company determined based on the outstanding lawsuit agreeing to payments totaling $100,300 in full dismissal of all outstanding complaints against VirTra. The agreement does not constitute an admission that VirTra violated any local, state or federal regulations or engaged in any improper or unlawful conduct or wrongdoing. The US District Court of Arizona, District of Arizona approved Joint Motion Requesting Approval of Settlements on September 25, 2017 and December 7, 2017, respectively, for each settlement agreement. All required settlement payments were completed in accordance with the Settlement Agreements on September 29, 2017 and December 13, 2017. Management believesvesting terms described above that the ~~ultimate outcome~~net profit (net income under GAAP) for the twelve months ending June 30, 2022, of ~~this matter did not have~~$2,500,000 is probable, the expense for the period ending September 30, 2021, is considered to be nominal.

Profit Sharing

VirTra provides a ~~material effect on its earnings,~~discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash ~~flows, or~~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 months ended September 30, 2021, $225,000 was accrued for profit sharing. For the nine months ended September 30, 2020, $56,057 was accrued for profit sharing. The 2021 profit sharing estimate is revised quarterly and will be finalized after the year-end financial ~~position.~~audit.

~~F-11~~

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

~~Note 8. Stockholders’ Equity~~

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 ~~$1,000,000~~$1 million of its ~~common stock through December 31, 2017.~~Common Stock under Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Purchases made pursuant to this authorization ~~were to~~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 of the SEC.~~10b-18. The timing, manner, price and amount of any repurchases ~~were to~~will be determined by the Company atin its discretion and ~~were to~~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.

Treasury Stock

During the nine months ended September 30, ~~2017,~~2021 and 2020, the Company ~~repurchased 20,939 shares at a cost~~purchased no additional treasury shares. As of ~~$96,633.~~

~~For the three month period ending~~ September 30, ~~2017, VirTra repurchased 17,489~~2021, all treasury shares ~~of stock~~previously purchased had been cancelled and returned to ~~hold in treasury at a total cost basis of $82,834, and for the nine month period ending September 30, 2017 VirTra repurchased 20,939~~ shares of stock to hold in treasury at a total cost basis of $96,634 pursuant to its Repurchase Program. On October 18, 2017, VirTra suspended its Repurchase Program indefinitely due to its pending Regulation A Offering. The repurchased shares will remain in treasury for future sale.authorized.

Non-qualified Stock Options

The Company has periodically ~~issues~~issued non-qualified ~~incentive~~ stock options to key employees, officers and directors under a ~~Stock Option Compensation~~stock option compensation plan approved by the Board of Directors in 2009. Terms of ~~the~~ option grants are at the discretion of the Board of Directors ~~but historically have been~~and are generally seven years. ~~During~~Upon the exercise of these options, the Company expects to issue new authorized shares of its Common Stock. The following table summarizes all non-qualified stock options as of:

Schedule Of Non-qualified Stock Options

	September 30, 2021					September 30, 2020
	Number of Stock			Weighted Exercise		Number of Stock			Weighted Exercise
	Options			Price		Options			Price
Options outstanding, beginning of year		164,167		$	3.13		234,167		$	2.47
Granted		-			-		-			-
Redeemed		(26,250	)		1.51		(36,250	)		0.83
Exercised		(7,500	)		1.51		(22,500	)		0.89
Expired / terminated		-			-		-			-
Options outstanding, end of period		130,417		$	3.55		175,417		$	3.01
Options exercisable, end of period		130,417		$	3.55		175,417		$	3.01

The Company did not have any non-vested stock options outstanding as of September 30, 2021 and December 31, 2020. The weighted average contractual term for options outstanding and exercisable at September 30, 2021 and 2020 was 7 years. The aggregate intrinsic value of the options outstanding and exercisable at September 30, 2021 and 2020 was $859,675 and $204,037, respectively. The total intrinsic value of options exercised and redeemed during the nine months ended September 30, 2021, was $117,647, and the total intrinsic value of options exercised during the nine months ended September 30, 2020, was $50,362. For the three months ended September 30, ~~2017~~2021, and ~~2016,~~2020, the Company ~~issued 13,750~~ received payments related to the exercise of options in the amount of $5,250and ~~11,250 stock options, with a weighted average exercise price of $3.76 and $4.20 per share,~~$6,750, respectively. ~~During~~For the nine months ended September 30, ~~2017~~2021, and ~~2016,~~2020, the Company ~~issued 41,250~~ received payments related to the exercise of options in the amount of $11,320and ~~33,750 stock options, with a weighted average~~$19,965, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of ~~$4.42~~the underlying options and ~~$3.08 per share, respectively.~~

~~On July 1, 2017,~~ the ~~Company granted to members of its Board of Directors options to purchase 13,750 shares~~fair value of the Company’s ~~common~~Common Stock for those stock atoptions that have an exercise price lower than the fair value of ~~$3.76 and a term~~the Company’s Common Stock. Options with an exercise price above the fair value of ~~seven years.~~the Company’s Common Stock are considered to have no intrinsic value.

On July 1, 2017, the Company redeemed from the CEO and COO 12,500 previously awarded expiring stock options for cash totaling $34,000, of which $12,500 had been previously expensed in 2010 with the balance of $21,500 being recognized as additional compensation cost in July 2017. On September 30, 2017, the Company redeemed from the CEO and COO 12,500 previously awarded expiring stock options for cash totaling $50,000, of which $12,500 had been previously expensed in 2010 with the balance of $37,500 being recognized as additional compensation cost in September 2017.

2017 Equity Incentive Plan

On August 23, 2017, our board approved, subject to ~~shareholder~~stockholder approval at the annual meeting of ~~shareholders~~stockholders on October 6, 2017, the 2017 Equity Incentive Plan (the “Equity Plan”). The Equity Plan is intended to make available incentives that will assist us to attract, retain and motivate employees, including officers, consultants and directors. We may provide these incentives through the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units and other cash-based or stock-based awards.

F-14

A total of 1,187,500 shares of our ~~common stock will be~~Common Stock was initially authorized and reserved for issuance under the Equity Plan. This reserve ~~will~~ automatically ~~increase~~increased on January 1, ~~2018~~2020, and will increase each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3%3% of the number of shares of ~~common stock~~Common Stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board.

Awards may be granted under the Equity Plan to our employees, including officers, directors or consultants or those of any present or future parent or subsidiary corporation or other affiliated entity. All awards will be evidenced by a written agreement between us and the holder of the award and may include any of the following: stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and performance units and cash-based awards and other stock-based awards.

~~The assumptions used~~Through September 30, 2021, 224,133 and 168,090 awards have been granted under the Equity Plan to the Company’s CEO and COO, respectively (see Note 9).

Common stock activity

On August 26, 2021, the Compensation Committee of the Board of Directors approved grants of 14,057 and 10,543 restricted shares to the CEO and COO, respectively, based on the Company’s performance for the ~~periods ended September 30, 2017 and 2016, and the resulting estimates of weighted-average fair value per share of options granted during those periods, are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

Volatility 96% to 98% 103% to 105% 96% to 101% 103% to 107%
Risk-free interest rate 1-2% 1-2% 1-2% 1-2%
Expected term 7 years 7 years 7 years 7 years

~~F-12~~

~~The following table summarizes all compensation plan stock options as of September 30:~~

September 30, 2017 September 30, 2016
Number of Weighted Number of Weighted
Stock Options Exercise Price Stock Options Exercise Price
Options outstanding, beginning of year 557,917 $ 1.60 833,967 $ 1.20
Granted 41,250 4.42 33,750 3.08
Redeemed (55,000 ) (1.28 ) (237,500 ) (0.82 )
Exercised - - (15,000 ) (1.10 )
Expired / terminated - - (57,717 ) (1.08 )
Options outstanding, end of period 544,167 $ 2.10 557,500 $ 2.46
Options exercisable, end of period 524,167 $ 2.08 537,500 $ 2.44

~~Stock compensation expense was $42,376 and $30,000 for the three~~twelve months ended ~~September~~June 30, 2017 and 2016, respectively. Stock compensation expense was $160,351 and $93,990 for the nine months ended September 30, 2017 and 2016, respectively. There are 20,000 non-vested stock options as of September 30, 2017. Of that amount, 10,000 options will vest equally in Octo ~~ber 2017 and October 2018.~~2021 (see Note 9).

~~Warrants~~

~~As part of the Co-Venture Agreement,~~On March 31, 2021, the Company ~~granted 459,691 conditional warrants~~entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional investors (the “Purchasers”), pursuant to ~~affiliates~~which the Company agreed to sell to the Purchasers an aggregate of ~~MREC, a related party, to purchase 5%~~3,000,000 shares (the “RDO Shares”) of the Company’s capital stock on a fully diluted basis. The conditional warrants are exercisable commencing at the earlier of the first anniversary of MREC opening its first range facility utilizing the Company’s technology and the payment of all required minimum royalty/licensing fee payments during the first 12- month period. The Company also granted 459,691 conditional warrants to affiliates of MREC to purchase 5% of the Company’s capital stock on a fully diluted basis, which are exercisable any time subsequent to MREC’s payment of $2.0 million in royalty fees. The conditional warrants have a contractual term of five years and an exercise price of $2.72. On June 1, 2017, the one-year anniversary of MREC opening its first range facility occurred, and the associated warrants were vested. See Note 5.

~~Warrant Redemptions and Co-Venture Agreement Amendment~~

On July 28, 2017, the Company received Notices of Exercise for all 459,691 warrants currently exercisable (the “Tranche 1 Warrants”) from all the MREC affiliate holders electing to purchase warrants pursuant to the terms of the net exercise provision set forth in the Warrant Agreement. Mr. Saltz, a director of the Company and a substantial shareholder of MREC, held 778,243 of the Tranche 1 Warrants prior to the assignment of the warrants to MREC on August 11, 2017. Under the net exercise provision, in lieu of exercising the warrant for cash, the holder may elect to receive shares equal to the value of the warrant (or the portion thereof being exercised) by surrender of the warrant and the Company issuing to holder the number of computed shares. Using the July 28, 2017 OTCQX closing price at $4.36 as fair value and the $2.72 warrant exercise price, upon conversion the 459,691 warrants entitle the holders to receive 172,912 shares of the Company’s common stock without payment of any additional consideration pursuant to the net exercise terms of the Tranche 1 Warrants that are currently exercisable.

Effective August 16, 2017, the Company and the MREC affiliate holders entered into an agreement (the “Warrant Buyout Agreement”) whereby the Company acknowledged the assignment of the Tranche 1 Warrants to MREC and agreed to repurchase themCommon Stock at a price of ~~$3.924~~$6.00 per share ~~of common stock issuable~~in a registered direct offering (the “Offering”). The RDO Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-238624), which was filed by the ~~net exercise~~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 ~~Warrants for a total of $678,505.~~

In addition, the Company agreed to repurchase from MREC an additional 459,691 warrants held by MREC that are not currently exercisable (the “Tranche 2 Warrants”). Mr. Saltz held 728,243 of the Tranche 2 Warrants prior to their assignment to MREC on August 11, 2017. The Warrant Buyout Agreement amends the Tranche 2 Warrants to provide for the immediate exercise on a net exercise basis of 48,415 shares of the Company’s common stock. The purchase price for the Tranche 2 Warrants of a total of $94,990 is based on a price of $3.924 per share of common stock issuable on a net exercise basis based on 24,208 shares of the Company’s common stock. The aggregate purchase price of the Tranche 1 Warrants and the Tranche 2 WarrantsOffering, dated March 31, 2021, was ~~$773,495.~~

~~F-13~~

MREC agreed that proceeds of the warrant redemption, net of applicable taxes, would be used to fund the development of a second stand-alone Modern Round location. In addition, MREC agreed that the minimum royalty due to us during the first 12-month royalty period in order to maintain exclusivity is $118,427. Further, MREC acknowledged that the second 12-month minimum royalty calculation period provided for in the Co-Venture Agreement began on June 1, 2017 and ends on May 31, 2018. Total minimum royalty payments due during this period required to maintain MREC’s exclusive rights under the Co-Venture Agreement are $560,000 including any shortfalls for prior periods being due no later than June 30, 2018. By fully funding the Minimum Royalty Payment, MREC will retain its exclusive license to use the Company’s shooting scenario content and other intellectual property in MREC’s facilities for a future 12-month period in accordance with the Co-Venture Agreement.

In addition, on August 16, 2017, we entered into an amendment to the Co-Venture Agreement to permit MREC to sublicense the VirTra Technology to third party operators of stand-alone location-based entertainment companies. MREC agreed to pay us royalties for any such sublicenses in an amount equal to 10% of the revenue paid to MREC in cases where MREC pays for the cost of the equipment for such location or 14% of the revenue paid to MREC in cases where it does not pay for the cost of the equipment.

On August 17, 2017, VirTra paid the aggregate purchase price of Tranche 1 Warrants and Tranche 2 Warrants of $773,495 reduced by the minimum royalty payment of $118,427 for net cash payment to MREC totaling $655,068.

~~Note 9. Subsequent Events~~

~~Other~~

On September 18, 2017, VirTra entered into a Settlement Agreement and Release of Claims with two parties and on November 30, 2017, VirTra entered into a Settlement Agreement and Release of Claims with the remaining two parties in the outstanding lawsuit agreeing to payments totaling $106,030 in full dismissal of all outstanding complaints against VirTra. The agreement does not constitute an admission that VirTra violated any local, state or federal regulations or engaged in any improper or unlawful conduct or wrongdoing. The US District Court of Arizona, District of Arizona approved Joint Motion Requesting Approval of Settlements on September 25, 2017 and December 7, 2017, respectively, for each settlement agreement. All required settlement payments were completed in accordance with the Settlement Agreements on September 29, 2017 and December 13, 2017. Management believes that the ultimate outcome of this matter did not have a material effect on its earnings, cash flows, or financial position. (See Note 7. Commitments and Contingencies – General or Threatened Litigation)

On October 6, 2017, VirTra held its Annual General Meeting and the shareholders approved, in line with the Board of Directors’ recommendations, all proposals presented at the meeting. Shareholders voted to elect all five of the director nominees: Robert D. Ferris, Matthew D. Burlend, Mitchell A. Saltz, Jeffrey D. Brown and Jim Richardson. Additionally, the shareholders approved the VirTra 2017 Equity Incentive Plan.

On October 9, 2017, VirTra’s Board of Directors appointed Robert D. Ferris, CEO to continue to serve as the Chairman of the Board of Directors. Additionally, the Board of Directors elected the following officers of the Company: Robert D. Ferris as Chief Executive Officer and President; Matthew D. Burlend as Chief Operating Officer and Vice President; and Judy A. Henry as Chief Financial Officer, Secretary and Treasurer.

On October 10, 2017, VirTra applied to list its common stock on the Nasdaq Capital Market upon qualification by the SEC of its planned Regulation A+ offering of common stock with a minimum of $5,000,000 and a maximum of $10,000,000 pursuant to an Offering Statement filed with the SEC on ~~September 11, 2017, as amended.~~April 2, 2021.

On ~~December 1, 2017,~~April 5, 2021, the Company ~~redeemed from~~closed the CEO and COO 12,500 previously awarded expiring stock options for cash totaling $62,000, of which $17,500 had been previously expensed in 2011 with the balance of $44,500 being recognized as additional compensation cost in December 2017.

~~On February 12, 2018, VirTra’s Board of Directors unanimously approved a 1-for-2 reverse stock split~~Offering. The total gross proceeds of the ~~Company’s common stock, par value $0.0001 per share with resulting fractional shares to be rounded up to~~Offering were $18.0 million, before deducting the ~~next higher whole number of shares. The record date for shareholders entitled to participate in the Reverse Split shall be the market effective date as established by FINRA,~~placement agents’ fees and other estimated Offering expenses which was effectuated on March 2, 2018. Except as otherwise indicated, all references to common stock, share data, per share data and related information depict the 1-for-2 Reverse Stock Split as if it was effective and as if it had occurred at the beginning of the earliest period presented.totaled $1,205,000.

On March 29, 2018, pursuant to an Offering Circular on Form 1-A, as amended, pursuant to Regulation A, we offered on a “best efforts” basis a minimum of 714,286 shares of common stock and a maximum of 1,428,571 shares of common stock (the “Offered Shares”), par value of $0.0001 per share (the “Common Stock”), at a price per share of Common Stock of $7.00. The minimum offering amount (“Minimum Offering Amount”) was $5,000,000 and the maximum offering amount (“Maximum Offering Amount”) was $10,000,000. We terminated the offering on March 29, 2018. No shares were sold pursuant to the offering.

~~On March 29, 2018, our shares of Common Stock began trading on the Nasdaq Capital Market under the symbol, “VTSI.”~~

~~F-14~~F-15

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS~~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, ~~2016~~2020 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s ~~Post-Qualification Offering Circular Amendment No. 1 to~~Annual Report on Form ~~1-A~~10-K for the year ended December 31, 2020, filed with the Securities and Exchange Commission (the ~~“SEC”~~“SEC”) on ~~February 21, 2018.~~March 29, 2021.

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.

~~OVERVIEW~~

Business Overview

~~We develop, sell~~

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and ~~support~~“our”) is a global provider of judgmental use of force training ~~and marksmanship~~simulators, firearms training ~~systems~~simulators and ~~accessories~~driving simulators for the law enforcement, military, ~~or civilian use. Our simulators use~~educational and commercial markets. The Company’s patented technologies, drop-in recoil kits, software, ~~hardware~~scenarios, and ~~content~~accessories provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to ~~create uniquely effective~~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 ~~that does not require live ammunition~~to take place on a daily basis without the need for a shooting range, protective equipment, role players, safety officers, or ~~less-than-lethal munitions, which can both save money and provide certain~~a scenario-based training ~~capabilities unavailable to live fire exercises.~~site. We have developed a higher standard in simulation training including capabilities such as: multi-screen, ~~video based~~video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented ~~Threat-Fire™~~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 main business is selling to law enforcement (includes colleges and police academies) and the military. These markets 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 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.

We also are engaged in licensing our technology to Modern Round Entertainment Corporation (“MREC”), a developer and operator of a combined dining and entertainment concept centered on an indoor shooting experience.

~~Simulator~~ Product Offerings

Our simulator products include the following:

●

~~V-300™~~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.

	●○	~~V-180™~~ The realism of the V-300® shows how quickly judgment decisions have to be made, and if they are not made immediately and quickly, it can lead to the possible loss of lives. This feature, among others, supports our value proposition to our customers that you cannot put a dollar value on being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters.

●

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™~~ V-100®Simulator & V-100® MIL – a single-screen based simulator ~~system~~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™~~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.

	●○	~~V-ST™ Simulator –~~The V-ST PRO® a highly-realistic single screen ~~simulated~~firearms shooting ~~range~~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.

	●	~~Top Subject Matter Expert Content – content supplied with~~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 is approved by top firearms training experts~~simulators.

	●	~~V-Author™~~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.

	●	~~Simulated~~Drop-In Recoil –Kits - a wide range of ~~highly~~powerfully realistic and reliable simulated recoil ~~kits/weapons~~kits that can fit into a live fire weapon and provide similar form, fit and function to a real firearm while avoiding the cost and dangers of blank fire rounds.

	●	Return Fire Device – the patented ~~Threat-Fire™~~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.

~~RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER~~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, ~~2017~~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 in effect until July 20, 2021, when the PPP loan was forgiven (see Note 7).

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

Revenues.Revenues were ~~$4,686,445~~$6,093,263 for the three months ended September 30, ~~2017~~2021, compared to ~~$3,041,701~~$6,413,721 for the same period in ~~2016 and $14,147,297~~2020, a decrease of $302,093, or 5%. Revenues were $15,790,364 for the nine months ended September 30, ~~2017~~2021, compared to ~~$12,649,963~~$12,521,663 for the same period in ~~2016.~~2020, an increase of $3,318,258, or 27%. The increase ~~was primarily due to additional sales~~in revenues for the nine months ended September 30, 2021 resulted from an increase in the number of simulators and accessories ~~warranties~~completed, delivered and ~~other services, with a portion of~~revenue recognized compared to the ~~increase as a result of increased royalty revenue.~~same period in 2020.

Cost of Sales.Cost of sales ~~was $1,573,384~~were $3,217,911 for the three months ended September 30, ~~2017~~2021, compared to ~~$1,345,181~~$2,446,455 for the same period in ~~2016 and $4,853,796~~2020, an increase of $771,456, or 32%. Cost of sales were $7,211,807 for the nine months ended September 30, ~~2017~~2021, compared to ~~$4,856,906~~$5,381,403 for the same period in ~~2016.~~2020, an increase of $1,830,404, or 34%. The increase was due to additional sales volume partially offset by a reduction in the cost of manufacturing system and product components in our recently acquired machine shop, an increase in sales of mix of higher margin products including training, service and warranty sales, and a reduction in 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. The cost of sales on a dollar basis varies from quarter-to-quarter as a result of sales volume ~~purchases~~ and ~~more favorable pricing of raw materials and systems components in 2017 compared to the same period in 2016.~~product mix.

Gross Profit.Gross profit was ~~$3,113,061~~$2,875,352 for the three months ended September 30, ~~2017~~2021, compared to ~~$1,696,521~~$3,967,266 for the same period in ~~2016 with~~2020, a decrease of $1,091,914, or 28%. Gross profit was $8,578,557 for the nine months ended September 30, 2021, compared to $7,140,260 for the same period in 2020, an increase of $1,438,297, or 20%. The gross profit margin ~~of 66%~~ for the three months ended September 30, ~~2017 compared to 56% for the same period in 2016. Gross~~2021, and 2020 was 47% and 62%, respectively. The gross profit margin was ~~$9,293,503~~54% for the nine months ended September 30, ~~2017 compared to $7,793,057~~2021, and 57% for the same period in ~~2016, with a~~2020. The decrease in gross profit ~~margin~~was due to a one-time impact from an increase in reserve for inventory as our operations scale.

Operating Expenses. Net operating expense was $2,609,772 for the three months ended September 30, 2021, compared to $2,747,993 for the same period in 2020, a decrease of ~~66%~~$138,221, or 5%. Net operating expense was $6,928,154 for the nine months ended September 30, ~~2017~~2021, compared to ~~62%~~$7,254,809 for the same period in ~~2016.~~2020, a decrease of $326,655, or 5%. The ~~gross profit improvement~~decrease was a result of a reduction in the cost of manufacturing system and product components in our recently acquired machine shop, an increase in sales of mix of higher margin products including training, service and warranty sales and a reduction in material costsprimarily due to ~~higher volume purchases~~the impairment write down in 2020 offset by the transition to a Company-wide ERP system which included software fees, consulting, and ~~more favorable pricing of raw materials and systems components~~time invested by Company staff in ~~2017 compared to the same period in 2016.~~2021.

Operating ~~Expenses.~~Income (Loss). ~~Net operating expense~~Income from operations was ~~$2,361,243~~$265,580 for the three months ended September 30, ~~2017~~2021, compared to ~~$1,700,835~~$1,219,273 for the same period in ~~2016. Net operating expense~~2020, a decrease of $953,693 or 78%. Operating income was ~~$6,447,409~~$1,650,403 for the nine months ended September 30, ~~2017~~2021, compared to ~~$5,363,678~~an operating loss of $114,549 for the same period in 2016. The three month and nine month year over year increases were due to expanding staffing levels, annual increases in payroll and benefits for current staff, sales and marketing expansion, new research and development work, and IT infrastructure upgrades.2020, an increase of $1,764,952, or 1541%.

~~Net~~Other Income.~~Net~~Other income net of other expense was ~~$742,125~~$1,330,681 for the three months ended September 30, ~~2017~~2021, compared to aother income net ~~loss~~ of ~~$10,083~~other expense of $3,752 for the same period in ~~2016. Net~~2020, an increase of $1,326,929, or 35366%, primarily resulting from the forgiveness of the PPP Loan (see Note 1). Other income net of other expense was ~~$2,792,104~~$1,346,397 for the nine months ended September 30, ~~2017~~2021, compared to ~~$2,361,186~~$32,430 for the same period in ~~2016.~~2020, an increase of $1,313,967, or 4052%.

Provision for Income Tax Expense. Income tax expense was $253,289 for the three months ended September 30, 2021, compared to $354,941 for the same period in 2020, a decrease of $101,652, or 29%. Income tax expense was $469,306 for the nine months ended September 30, 2021, compared to $40,467 for the same period in 2020, an increase of $428,839, or 1060%. Provision for income tax is estimated quarterly applying both federal and state tax rates.

Net Income (Loss). Net income was $1,342,972 for the three months ended September 30, 2021, compared to $868,084 for the same period in 2020, an increase of $474,888, or 55%. Net income was $2,527,494 for the nine months ended September 30, 2021, compared to a net loss of $122,586 for the same period in 2020, an increase of $2,650,080, or 2162%. The ~~increase~~fluctuations in net income ~~resulted from increases in revenue and gross profit partially offset by an increase in operating expenses as noted~~(loss) relates to each respective section discussed above.

Adjusted Earnings Before Interest, Taxes, Depreciation and ~~Amortization (AEBITDA)~~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 ~~GAAP.~~accounting principles generally accepted in the United States of America (“GAAP”). Adjusted EBITDA should not be considered as an alternative for net income (loss) ~~income,~~, cash flows from operating activities and other ~~consolidated~~ income or cash ~~flows~~flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. A reconciliation of net ~~income~~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	%

~~RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA~~

Three Months Ended Nine Months Ended
September 30, September 30, Increase % September 30, September 30, Increase %
2017 2016 (Decrease) Change 2017 2016 (Decrease) Change

Net Income/(Loss) $ 742,125 $ (10,083 ) $ 752,208 -7460.2 % $ 2,792,104 $ 2,361,186 $ 430,918 18.3 %
Adjustments:
Depreciation and amortization 65,570 64,591 979 1.5 % 204,527 160,768 43,759 27.2 %
Non-cash stock option expense 42,376 30,000 12,376 41.3 % 160,351 93,990 66,361 70.6 %
Provision for income taxes 24,285 8,414 15,871 188.6 % 102,285 73,618 28,667 38.9 %

Adjusted EBITDA $ 874,356 $ 92,922 $ 781,434 841.0 % $ 3,259,267 $ 2,689,562 $ 569,705 21.2 %

Liquidity and Capital ~~Resources~~

Resources. Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had ~~$5,106,205~~$21,545,843 and ~~$3,703,579 in~~$6,841,984 of cash and cash equivalents as of September 30, ~~2017~~2021, and December 31, ~~2016,~~2020, respectively. ~~The working~~Working capital was ~~$7,359,583~~$25,839,676 and ~~$5,268,654 for the periods ended~~$10,269,397 as of September 30, ~~2017~~2021, and December 31, ~~2016,~~2020, respectively.

Net cash provided by operating activities was ~~$2,549,964 and $2,569,636~~$1,362,626 for the nine months ended September 30, ~~2017~~2021, and ~~2016, respectively, resulting~~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 ~~an increase~~decreases in ~~net income~~accounts receivable, inventory, and ~~significant~~prepaid expenses, offset by increases in trade accounts payable, accrued compensation, unbilled revenues, and deferred revenues, as well as other changes in ~~accounts receivables, unbilled revenue, inventory, prepaid expense~~operating assets and ~~other current assets, accounts payable and other accrued expenses.~~liabilities.

Net cash used in investing activities was ~~$83,410 and $468,115~~$12,035,043 for the nine months ended September 30, ~~2017~~2021, and ~~2016, respectively, resulting from a reduction in purchases of property and equipment.~~

~~Net~~net cash ~~used in financing~~provided by investing activities was ~~$1,063,928 and $497,143~~$1,530,034 for the nine months ended September 30, ~~2017~~2020. Investing activities in 2021 consisted of purchases of intangible assets, manufacturing equipment, and ~~2016, respectively, resulting~~property (see Note 3) compared to investing activities in 2020 that consisted of redemptions of certificates of deposits, purchases of intangible assets and purchases of property and equipment.

Net cash provided by financing activities was $25,376,276 and $1,319,259 for the nine months ended September 30, 2021, and 2020, respectively. 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 ~~purchase~~forgiveness of ~~treasury stock, repurchase~~the PPP loan (see Note 1), compared to financing activities in 2020 which consisted of stock ~~warrants which~~options exercised and redeemed, and PPP loan proceeds.

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 million for the three months ended September 30, 2021, and $24.4 million for the nine months ended September 30, 2021. The Company defines backlog as the accumulation of bookings that have not started or are uncompleted performance objectives and cannot be recognized as revenue until delivered in a future quarter. Backlog also includes extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of September 30, 2021, the Company’s backlog was ~~offset by a reduction~~$21.7 million. Management estimates the majority of the new bookings received in ~~repurchase~~the first nine months of ~~stock options.~~2021 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 ~~our~~the company and maintaining our current business strategy for more than 12 ~~months.~~months from the filing of this Quarterly Report. We are, however, ~~seeking~~open to ~~raise~~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 ~~expanded marketing and sales efforts.~~growth.

~~CRITICAL ACCOUNTING POLICIES~~

We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

~~Basis of Presentation~~Critical Accounting Policies and ~~Use of~~ 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, unless otherwise noted.~~GAAP. The preparation of our unaudited financial statements ~~in conformity with GAAP~~ requires ~~management~~us to make estimates and ~~assumptions~~judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and ~~liabilities and~~related disclosure of contingent assets and ~~liabilities as~~liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of ~~the date~~judgment or are otherwise subject to an inherent degree of ~~the financial statements and the reported amounts of revenues and expenses during the reporting period.~~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, ~~and~~ the carrying value of cost basis ~~investments.~~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 ~~results~~amounts could differ significantly from ~~those estimates.~~

~~Fair Value~~amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial ~~Instruments~~

~~The fair value~~Condition and Results of ~~financial instruments approximates their carrying values at September 30, 2017 and~~Operations” in our Annual Report on Form 10-K for the year ended December 31, ~~2016 due to their short maturities. These financial instruments consist of cash and cash equivalents, accounts receivable, investment in MREC, accounts payable, and accrued liabilities.~~

~~Cash and Cash Equivalents~~

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

~~Accounts Receivable and Allowance for Doubtful Accounts~~

We recognize an allowance for losses on accounts receivable based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. Accounts receivable are charged off after all reasonable collection efforts2020. Management believes that there have been ~~taken. As of September 30, 2017 and December 31, 2016, we maintained an allowance for doubtful accounts of $12,008 and $20,000, respectively.~~

~~Inventories~~

~~Inventories are stated at~~no changes in our critical accounting policies during the lower of cost or market with cost being determined on the average cost method. Work in progress and finished goods inventory includes an allocation for capitalized labor and overhead. The Company routinely evaluates the carrying value of inventory and provides reserves when appropriate to reduce inventory to the lower of cost or market to reflect estimated net realizable value. As of September 30, 2017, and December 31, 2016, the Company maintained reserves of $29,218 and $17,282, respectively

~~Investments in Other Companies~~

Minority investments in other companies are accounted for under the cost method of accounting because we do not have the ability to exercise significant influence over the companies’ operations. Under the cost method of accounting, investments in private companies are carried at cost and are only adjusted for other-than-temporary declines in fair value and distribution of earnings.~~Management regularly evaluates the recoverability of its investment. During the periods~~three months ended September 30, ~~2017 and December 31, 2016 , the Company did not recognize any losses due to other-than-temporary declines of the value of the investments.~~2021.

~~Property and Equipment~~

Property and equipment are carried at cost, net of depreciation. Gains or losses related to retirements or disposition of fixed assets are recognized in operations in the period incurred. Costs of normal repairs and maintenance are charged to expense as incurred, while betterments or renewals are capitalized. Depreciation commences at the time the assets are placed in service. Depreciation is provided using the straight-line method over the estimated economic lives of the assets or for leasehold improvements, over the shorter of the estimated useful life or the remaining lease term, which are summarized as follows:

~~Computer equipment~~	~~3-5 years~~
~~Furniture and office equipment~~	~~5-7 years~~
~~Leasehold improvements~~	~~7 years~~

~~Revenue Recognition and Deferred Revenue~~

~~Net revenues include sales of products and services and are net of discounts. Product sales consist of simulators, upgrade components, scenarios, scenario software, recoil kits, Threat-Fire~~^® and other accessories. Services include installation, training, limited warranties, service agreements and related support. Certain components of our sales include multiple elements comprising of both products and services. Our revenue recognition falls under ASC 605-25,~~Multiple Element Arrangements~~~~, with the delivery of the simulator and installation being two separate deliverables. Our delivery of the simulator and the installation has been assessed to qualify as separate units of accounting:~~

	1.	~~The simulator unit upon shipment or delivery and customer acceptance, depending on the shipping terms.~~

	2.	~~The installation upon completion and customer sign-off.~~

Additionally, we recognize revenue for these products and services when it is realized or realizable and earned. Revenue is considered realized and earned when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and/or services have been rendered; (iii) the price is fixed and determinable; and (iv) collection of the resulting receivable is reasonably assured. Shipping fees charged to customers are recorded as a component of net revenues. All sales and sales contracts, including international sales, have been denominated in US dollars.

~~Products~~

Revenue from the sale of products is recognized when title and risk of loss passes to the customer. Delivery is considered complete when products have been shipped to the customer and title and risk of loss has transferred to the customer. For customers other than United States governmental agencies, the Company generally requires advance deposits prior to shipment. Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheet and totaled $376,967 and $51,334 as of September 30, 2017 and December 31, 2016, respectively.

~~Services~~

Services include installation of product, separately priced extended limited warranties on parts and labor and technical support. Revenue is recognized for service contracts as earned which is generally upon completion of installation or, if extended warranties, on a straight-line basis over the term of the contract. The Company offers a standard warranty on its products from manufacturing defects on a limited basis for a period of one year after purchase and also offers separately priced extended warranties for periods of up to four years beginning after the expiration of the standard one-year warranty. After the standard warranty expires but during the term of the extended warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will repair or replace the defective product at no additional charge. The Company records a gross to net revenue adjustment for the one-year standard warranty and accrues annually the estimated cost of complying with the warranty agreements for all extended warranty years. Deferred revenue for separately priced extended warranties longer than one year totaled $2,376,371 and $2,014,571 as of September 30, 2017 and December 31, 2016, respectively.

~~Income Taxes~~

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all the benefits of deferred tax assets will not be realized. The Company currently maintains a full valuation allowance on all of its net deferred tax assets.

~~Stock Based Compensation~~

The Company calculates the cost of awards of equity instruments based on the grant date fair value of the awards using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected term and risk-free interest rates.

The expected term of the options is the estimated period of time until exercise and is based on historical experience of similar awards giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on historical volatility of the Company’s stock. The risk-free interest rate is based on the implied yield available on United States Treasury zero-coupon issues with an equivalent remaining term. The estimated fair value of stock-based compensation awards and other options is amortized on a straight-line basis over the relevant vesting period. Share-based compensation expense is recognized based on awards ultimately expected to vest. Forfeitures are recorded in subsequent periods when they occur.

Recent Accounting Pronouncements

~~In May 2014, the~~See Note 1 to our financial statements, included in Part I, Item 1., Financial Accounting Standards Board (“FASB”) issued guidance for revenue recognition for contracts, superseding the previous revenue recognition requirements, along with most existing industry-specific guidance. The guidance requires an entity to review contracts in five steps: 1) identify the contract, 2) identify performance obligations, 3) determine the transaction price, 4) allocate the transaction price, and 5) recognize revenue. The new standard will result in enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue arising from contracts with customers. In August 2015, the FASB issued guidance approving a one-year deferral, making the standard effective for reporting periods beginning after December 15, 2017, with early adoption permitted only for reporting periods beginning after December 15, 2016. The Company is evaluating the impact of the standard and has not yet determined the effect on its financial position or results of operations.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. As the Company wrote-down its Investment in Modern Round to fair value in 2017, the Company believes that the adoption of ASU 2016-01 will not have a material impact on its financial statements and will change from the cost method of accounting.Off-Balance Sheet Arrangements

~~We implemented all new accounting standards that are in effect and that may impact our financial statements~~

~~OFF-BALANCE SHEET ARRANGEMENTS~~

As of September 30, ~~2017,~~2021, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET ~~RISK~~RISK.

Not required for smaller reporting companies.

ITEM 4. CONTROLS AND ~~PROCEDURES~~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~~controls and ~~Procedures~~

~~We have not yet~~procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2021, our disclosure controls and procedures ~~due to a transition period established by the rules~~were not effective. The ineffectiveness of ~~the SEC for newly public companies.~~

~~Internal Control over Financial Reporting~~

~~We have not yet evaluated~~ 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 ~~transition period established by the rules of~~year ended December 31, 2020, filed with the SEC ~~for newly public companies.~~on March 29, 2021.

Change in ~~Internal Control~~internal control over ~~Financial Reporting~~financial reporting

There ~~was~~has been no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, ~~2017~~2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

PART IIII: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~We are not a party~~See Note 9 to ~~any other material litigation, nor, to the knowledge of management, is any litigation threatened against us that may materially affect us. From time to time we are involved~~our unaudited financial statements, included in ~~legal proceedings occurring in the ordinary course of business.~~

On September 18, 2017, VirTra entered into a Settlement Agreement and Release of Claims with two parties and on November 30, 2017, VirTra entered into a Settlement Agreement and Release of Claims with the remaining two parties in the outstanding lawsuit agreeing to payments totaling $100,300 in full dismissal of all outstanding complaints against VirTra. The agreement does not constitute an admission that VirTra violated any local, state or federal regulations or engaged in any improper or unlawful conduct or wrongdoing. The US District Court of Arizona, District of Arizona approved Joint Motion Requesting Approval of Settlements on September 25, 2017 and December 7, 2017, respectively, for each settlement agreement. All required settlement payments were completed in accordance with the Settlement Agreements on September 29, 2017 and December 13, 2017. Management believes that the ultimate outcomePart I, Item 1., Financial Information of this ~~matter did not have a material effect~~Quarterly Report on ~~its earnings, cash flows, or financial position.~~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.~~ 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.

~~(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 during the quarter ended September 30, 2017.~~

ITEM 6. EXHIBITS

Exhibit No.	Exhibit ~~No.~~	Description

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

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

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

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

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

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

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

31.1	Certification of ~~the~~ Principal Executive Officer pursuant to Section ~~302~~906 of the Sarbanes-Oxley Act of 2002.

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

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

101.INS	Inline XBRL Instance Document

101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation ~~Linkbase~~ Document

~~101.LAB~~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)

910

SIGNATURES

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

	VIRTRA, INC.

~~Dated: March 30, 2018~~Date: November 15, 2021	By:	/s/ Robert D. Ferris
		Robert D. Ferris
		Chief Executive Officer and President
		(principal executive officer)

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

1011

	Three Months Ending September 30,						Nine Months Ending September 30,
	2017			2016			2017			2016
Number of stock options redeemed		30,000			12,500			55,000			237,500
Redemption value	$	97,300		$	37,500		$	182,550		$	505,224
Amount previously expensed (2010 and 2009)		(32,000	)		(12,500	)		(67,000	)		(190,000	)

Additional compensation expense	$	65,300		$	25,000		$	115,550		$	315,224

Building Lease Schedule

2017	$	87,651
2018		324,353
2019		105,542

Total	$	517,546

	September 30, 2017						September 30, 2016
	Number of			Weighted			Number of			Weighted
	Stock Options			Exercise Price			Stock Options			Exercise Price
Options outstanding, beginning of year		557,917		$	1.60			833,967		$	1.20
Granted		41,250			4.42			33,750			3.08
Redeemed		(55,000	)		(1.28	)		(237,500	)		(0.82	)
Exercised		-			-			(15,000	)		(1.10	)
Expired / terminated		-			-			(57,717	)		(1.08	)
Options outstanding, end of period		544,167		$	2.10			557,500		$	2.46
Options exercisable, end of period		524,167		$	2.08			537,500		$	2.44