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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

As of August ~~13, 2019,~~11, 2020, the registrant had ~~7,745,030~~7,760,030 shares of common stock outstanding.

	June 30, 2019				December 31, 2018			June 30, 2020			December 31, 2019
	(Unaudited)							(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	1,393,701			$	2,500,381		$	3,779,820		$	1,415,091
Certificates of deposit		1,880,000				3,490,000			240,000			1,915,000
Accounts receivable, net		2,066,428				1,302,010			2,741,191			2,307,972
Interest receivable		24,295				21,385			3,406			7,340
That’s Eatertainment note receivable, net, related party		-				292,138
Trade note receivable, net		-				96,282
Inventory, net		2,513,878				1,612,002			2,928,803			1,949,414
Unbilled revenue		1,044,691				689,153			2,098,120			3,579,942
Prepaid expenses and other current assets		592,358				377,520			434,186			353,975

Total current assets		9,515,351				10,380,871			12,225,526			11,528,734

Long-term assets:
Property and equipment, net		844,027				678,245			1,157,774			1,028,198
Operating lease right-of-use asset		1,534,225				-
Operating lease right-of-use asset, net									1,244,374			1,390,873
Intangible assets, net		156,296				-			256,725			217,930
That’s Eatertainment note receivable, long-term, related party		292,138				-
Trade note receivable, long term		-				6,843
That’s Eatertainment note receivable, long-term, net, related party									291,110			291,110
Security deposits, long-term		19,712				339,756			21,283			19,712
Other assets, long-term		372,566				292,298			350,728			351,236
Deferred tax asset, net		2,729,000				2,400,000			2,062,000			1,792,000
Investment in That’s Eatertainment, related party		1,120,000				1,120,000			700,000			840,000

Total long-term assets		7,067,964				4,837,142			6,083,994			5,931,059

Total assets	$	16,583,315		��	$	15,218,013		$	18,309,520		$	17,459,793

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	814,518			$	429,949		$	742,753		$	621,127
Accrued compensation and related costs		544,249				613,691			608,114			611,487
Accrued expenses and other current liabilities		399,122				632,606			462,813			334,751
Note payable, current		11,250				11,250			433,656			-
Operating lease liability, short-term		278,628				-			309,294			297,244
Deferred revenue, short-term		2,687,110				1,924,307			2,808,142			2,490,845

Total current liabilities		4,734,877				3,611,803			5,364,772			4,355,454

Long-term liabilities:
Deferred revenue, long-term		1,188,196				962,356			1,840,705			1,748,257
Deferred rent liability		-				46,523
Note payable, long-term									888,975			-
Operating lease liability, long-term		1,326,464				-			1,017,169			1,174,882

Total long-term liabilities		2,514,660				1,008,879			3,746,849			2,923,139

Total liabilities		7,249,537				4,620,682			9,111,621			7,278,593

Commitments and contingencies (See Note 10)
Commitments and contingencies (See Note 11)

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; 7,739,255 shares issued and outstanding as of June 30, 2019 and 7,827,651 issued and 7,816,944 shares outstanding as of December 31, 2018		774				783
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; nil shares outstanding as of June 30, 2019 and 10,707 shares outstanding as of December 31, 2018		-				(37,308	)
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; 7,760,030 shares issued and outstanding as of June 30, 2020 and 7,745,030 shares issued and outstanding as of December 31, 2019, respectively									777			775
Class A common stock, $0.0001 par value; 2,500,000 shares authorized; no shares issued or outstanding									-			-
Class B common stock, $0.0001 par value; 7,500,000 shares authorized; no shares issued or outstanding									-			-
Additional paid-in capital		13,918,615				14,272,834			13,902,047			13,894,680
Accumulated deficit		(4,585,611	)			(3,638,978	)		(4,704,925	)		(3,714,255	)

Total stockholders’ equity		9,333,778				10,597,331			9,197,899			10,181,200

Total liabilities and stockholders’ equity	$	16,583,315			$	15,218,013		$	18,309,520		$	17,459,793

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

~~Effective~~During March ~~2, 2018,~~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, currently in effect until May 15, 2020 and then entered Arizona’s Phase I of reopening. The Company ~~effected a 1-for-2 reverse stock split~~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 ~~issued~~staff begin working remotely in mid-March, with only essential personnel continue working at the manufacturing and ~~outstanding common stock (the “Reverse Stock Split”). All references~~production facilities and currently remains in Arizona’s Phase I of reopening. This situation is rapidly changing and additional impacts to ~~shares~~the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time. To date, the COVID-19 restrictions have resulted in reduced customer shipments and customer system installations. These recent developments are expected to result in lower recognized revenue and possibly lower gross margin when they occur. To date, there have been no order cancellations; rather, there have only been delays in when orders ship or installations occur and all delayed orders remain in backlog. Although not a material component of our company, a significant adverse change in the business climate could continue to affect the value of the Company’s ~~common~~long-term investment in TEC, including the long-term note receivable from TEC. Any future impact cannot be reasonably estimated at this time. The Company is no longer investing in Certificates of Deposits as a precautionary measure to increase its liquid cash position and preserve financial flexibility considering uncertainty in the U.S. and global markets resulting from COVID-19. Additionally, the Company’s stock ~~in this report refer to~~repurchase program was suspended as a result of interim rulings for public-company recipients of a PPP loan under the ~~number of shares of common stock after giving effect to the Reverse Stock Split.~~CARES Act.

The condensed 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, ~~2018.~~2019 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the SEC on March 23, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted as permitted by the SEC, although we believe the disclosures that are made are adequate to make the information presented herein not misleading.

The accompanying condensed financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position at June 30, ~~2019~~2020 and the results of our operations and cash flows for the periods presented. We derived the December 31, ~~2018~~2019 condensed balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP.

Interim results are subject to seasonal variations, and the results of operations for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the results to be expected for the full year.

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

Certain reclassifications have been made to the ~~2018~~2019 financial statements to conform to the ~~2019~~2020 financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.

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

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

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

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

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

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

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

For the six months ended June 30, 2020, governmental customers comprised $5,346,222, or 87%, of total net sales, commercial customers comprised $360,668, or 6%, of total net sales, and international customers comprised $401,052, or 7%, of total net sales. By comparison, for the six months ended June 30, 2019, governmental customers comprised $5,341,640, or 87%, of total net sales, commercial customer comprised $222,588, or 4%, of total net sales, and international customers comprised $541,423, or 9% of total net sales.

Customer deposits are recorded as a current liability under deferred revenue on the accompanying balance sheets and totaled ~~$827,475~~$1,235,552 and ~~$186,450~~$651,073 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Changes in deferred revenue amounts related to customer deposits will fluctuate from year to year based upon the mix of customers required to prepay deposits under the Company’s credit policy. Customer deposits are considered a deferred liability until completion of the customer’s contract performance obligations. When revenue is recognized, the deposit is applied to the customer’s receivable balance.

The Company warranties its products from manufacturing defects on a limited basis for a period of one year after purchase, but also sells separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty. During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will fix or replace the defective product. Deferred revenue for separately priced extended warranties one year or less totaled ~~$1,726,415~~$1,561,869 and ~~$1,604,637~~$1,829,052 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled ~~$1,188,196~~$1,840,706 and ~~$962,356~~$1,748,257 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The accrual for the one-year manufacturer’s warranty liability totaled ~~$185,017~~$330,176 and ~~$200,505~~$331,176 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. During the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized revenue of ~~$548,631~~$647,513 and ~~$534,151,~~$548,631, respectively, related to the extended service-type warranties that was amortized from the deferred revenue balance. During the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized revenue of ~~$1,059,104~~$1,296,632 and ~~$1,023,221,~~$1,059,104, respectively, related to the extended service-type warranties that was amortized from the deferred revenue ~~balance.~~balance at the beginning of each period. Changes in deferred revenue amounts related to extended service-type warranties will fluctuate from year to year based upon the average remaining life of the warranties at the beginning of the period and new extended service-type warranties sold during the period.

Customer retainage is recorded as a current liability under deferred revenue on the accompanying balance ~~sheet~~sheets and totaled ~~$133,220~~$10,720 as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Changes in deferred revenue amounts related to customer retainage will fluctuate from year to year based upon the customer’s contract completion date allowing the Company to invoice and be paid the retainage.

As discussed further in Note 8.9. Collaboration Agreement with Related Party, the Company licenses intellectual property to Modern Round, LLC (“MR”), a ~~wholly-owned~~wholly owned subsidiary of That’s Eatertainment Corp. (“TEC”), a related party, in exchange for sales-based royalties. Revenues from this agreement are recognized in accordance with the terms of the contract as the sales occur. The Company receives additional immaterial sales-based royalties from strategic partners.

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

In ~~February~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ASU 2016-02, “Leases (Topic 842)” and subsequent amendments to the initial guidance: ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, “Topic 842”). Topic 842 requires an entity to recognize a right-of-use asset (“ROU”) and lease liability for all leases and provide enhanced disclosures. Recognition, measurement, and presentation of expenses depends on classification as a finance lease or an operating lease. On January 1, 2019, the Company adopted Topic 842 using the modified retrospective approach. Results for reporting periods after January 1, 2019 are presented under Topic 842, while prior periods have not been adjusted. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. Refer to Note 6 - Leases.

~~In July 2017,~~ the FASB issued ASU No. ~~2017-11~~2016-13, Financial Instruments – ~~“Earnings Per Share~~Credit Losses (Topic ~~260); Distinguishing Liabilities from Equity (Topic 480); Derivatives~~326), which together with subsequent amendments provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and ~~Hedging (Topic 815)” Part I~~requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 and related amendments are effective for us on January 1, 2020, the adoption of ASU No. 2017-11 applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down round features. Part II simply replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. This ASU is effective for public companies for the annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. ASU No. 2017-112016-13 did not have a material impact on the Company’s financial statements.

In ~~June~~November 2018, the FASB issued ASU No. ~~2018-07, “Compensation–Stock Compensation~~2018-18, Collaborative Arrangements (Topic ~~718)~~808): ~~Improvements to Nonemployee Share-Based Payment Accounting” to simplify~~Clarifying the ~~accounting for nonemployee share-based payment~~Interaction between Topic 808 and Topic 606, which clarifies that certain transactions resulting from expanding the scope of Topic 718, to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards grantedbetween participants in ~~conjunction with selling goods or services to customers as part of~~ a ~~contract~~collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic ~~606, Revenue~~808 precludes an entity from ~~Contract~~presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with ~~Customers. The amendments are~~customers if the counterparty is not a customer for that transaction. This guidance will be effective for ~~public business entities for fiscal years~~the Company beginning ~~after December 15, 2018, including interim periods within that fiscal year, with early~~January 1, 2020, the adoption ~~permitted. ASU No. 2018-07~~ did not have a material impact on the Company’s financial statements.

ASC Topic 820,Fair Value Measurements, defines fair value as the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Topic 820 also specifies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value as follows:

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3: Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect our own estimate of assumptions that market participants would use in pricing the asset or liability.

The Company’s financial instruments consist of cash and cash equivalents, certificates of deposit, accounts receivable, notes and interest receivables, accounts payable, and accrued liabilities. The fair value of financial instruments, except for long-term notes receivable, approximates their carrying values, using level 3 inputs, at June 30, ~~2019~~2020 and December 31, ~~2018~~2019 due to their short maturities. The fair value of the ~~long-term notes~~note receivable approximates ~~its~~its’ carrying value, using level 3 inputs, at June 30, ~~2019~~2020 and December 31, ~~2018 based on borrowing rates currently available for loans with similar terms and maturities.~~2019.

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

The Company invests its excess cash in certificates of deposit and money market mutual funds issued by financial institutions with high credit ratings. The certificates of deposit generally have average maturities of approximately six months and are subject to penalties for early withdrawal. The money market mutual funds are open ended and can be withdrawn at any time without penalty.

The Company recognizes an allowance for losses on accounts receivable based on an analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. Accounts receivable do not bear interest and are charged off after all reasonable collection efforts have been taken. ~~As of June 30, 2019 and December 31, 2018, the~~The Company maintained an allowance for doubtful accounts of ~~$25,413~~$33,855 and ~~$23,044,~~$34,177 at June 30, 2020 and December 31, 2019, respectively.

Notes receivable are carried at their estimated collectible amounts. Interest income on notes receivable is recognized using the effective interest method. Notes receivable are periodically evaluated for collectability based on the credit history and the current financial condition of the counter party, and the known and inherent risks in the notes. Notes receivable are placed on nonaccrual status when they become 90 days past due and the customer has not made a payment in over 60 days. Upon suspension of the accrual of interest, interest income is subsequently recognized to the extent cash payments are received. Accrual of interest is resumed when notes are removed from non-accrual status. Notes receivable are charged against the allowance for credit losses when they are deemed to be uncollectible. ~~As of June 30, 2019 and December 31, 2018, the~~The allowance for uncollectible notes receivable was ~~$369,286~~$12,979 and ~~$266,813,~~$5,701 at June 30, 2020 and December 31, 2019, respectively.

Inventory is stated at the lower of cost or net realizable value with cost being determined on the average cost method. Work in progress and finished goods inventory includes an allocation for capitalized labor and overhead. The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, inventory reserves were ~~$105,031.~~$120,652.

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

~~Minority investments in other companies are accounted~~The Company accounts for under the cost method of accounting because the Company does not have the ability to exercise significant influence over the other 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. For investments in public companies that have readily determinable fair values, the Company classifies its investments as available-for-sale, and accordingly records these investments at their fair values with unrealized gains and losses included as a separate component of stockholders’ equity and in total comprehensive income (loss). Upon sale or liquidation, realized gains and losses are included in the statements of operations.

~~The adoption of ASU 2016-01 requires~~ investments in other companies that do not have readily determinable fair value ~~be accounted for~~ 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. ~~This standard was adopted on January 1, 2018, including all interim reporting periods within the fiscal year.~~ The ~~adoption of ASU 2016-01 did not have a material impact on the financial statements. Upon adoption, the~~ Company has elected to utilize the cost minus impairment approach because the investment in TEC does not have a readily determinable fair value as of the reporting date. See Note 8.9. Collaboration Agreement with Related Party.

Management regularly evaluates the recoverability of its investment based on the investee company’s performance and financial position. During the three and six months ended June 30, 2020 and 2019, the Company ~~did not~~ recognize ~~any impairment loss. During the three and six months ended June 30, 2018, the Company recognized an~~ impairment loss of ~~$134,140.~~$140,000 and $0, respectively. Management regularly assesses the classification of its investments.

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

Intangible assets at June 30, 2020 and December 31, 2019 are comprised of various ~~patents.~~patents and capitalized media content costs. We compute amortization expense on the intangible assets using the straight-line method over the estimate remaining useful ~~lives of 18 years.~~lives.

Cost of products sold represents manufacturing costs, consisting of materials, labor and overhead related to finished goods and components. Cost of products sold ~~does not include~~includes depreciation of STEP contract fixed assets. Shipping costs incurred related to product delivery are included in cost of products sold.

Costs associated with advertising are expensed as incurred. Advertising expense was ~~$150,977~~$125,196 and ~~$160,643~~$150,977 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Advertising expense was ~~$270,380~~$263,432 and ~~$300,025~~$270,380 for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. These costs include domestic and international tradeshows, website, and sales promotional materials.

Research and development costs are expensed as incurred. Research and development costs primarily include expenses, including labor, directly related to research and development support. Research and development costs were ~~$353,665~~$376,611 and ~~$305,738~~$353,665 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Research and development costs were ~~$709,306~~$706,366 and ~~$673,282~~$709,306 for the six months ended June 30, 2020 and 2019, ~~and 2018, respectively~~respectively.

Legal costs relating to loss contingencies are expensed as incurred. See Note ~~10.~~11. Commitments and Contingencies.

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

The Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of ~~$1,119,590~~$3,278,180 and ~~$2,014,987~~$1,069,887 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Sales are typically made on credit and the Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition and maintains an allowance for estimated losses. Historically, the Company has experienced minimal charges relative to doubtful accounts.

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

Historically, the Company primarily sells its products to United States federal and state agencies. For the three months ended June 30, 2020, one federal agency comprised 14% of total net sales and a second federal agency comprised 16% of total net sales. By comparison, for the three months ended June 30, 2019, ~~two~~one federal ~~agencies~~agency comprised ~~32%~~14% of total net sales, a second federal agency comprised 18% of total net sales and one tribal government comprised 10% of total net sales. ~~By comparison, for the three months ended June 30, 2018, one federal agency comprised 53% of total net sales.~~ For the six months ended June 30, ~~2019, two~~2020, one federal ~~agencies~~agency comprised ~~25%~~16% of total net sales and one state agency comprised 11% of total net sales. By comparison, for the six months ended June 30, ~~2018,~~2019, one federal agency comprised ~~39%~~13% of total net sales and ~~one commercial customer~~a second federal agency comprised ~~11%~~12% of total net sales.

As of June 30, ~~2019, three~~2020, one federal ~~agencies~~agency comprised ~~55% of total accounts receivables and~~13%, one state agency comprised ~~11%~~41% and one international customer comprised 14% of total accounts ~~receivables.~~receivable. By comparison, as of December 31, ~~2018,~~2019, one federal agency comprised ~~26% of total accounts receivables~~30% and one ~~state agency~~international customer comprised of 20% of total accounts ~~receivables.~~receivable.

Deferred tax assets and liabilities are recorded based on the difference between the financial statement and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company calculates a provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized by identifying the temporary differences arising from the different treatment of items for tax and accounting purposes. In determining the future tax consequences of events that have been recognized in the financial statements or tax returns, judgment and interpretation of statutes are required.

In assessing realizable deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. The Company adjusts the valuation allowance in the period management determines it is more likely than not that net deferred tax assets will or will not be realized. After review of the deferred tax asset and valuation allowance in accordance with ASC 740, management determined that it is more likely than not that the Company will fully realize all of its deferred tax asset and no valuation allowance was ~~needed~~recorded as of June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~As of June 30, 2019 and December 31, 2018, the~~The Company did not recognize any assets or liabilities relative to uncertain tax ~~positions.~~positions at June 30, 2020 and December 31, 2019. Interest or penalties, if any, will be recognized in income tax expense. Since there are no significant unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. Tax positions are positions taken in a previously filed tax return or positions expected to be taken in a future tax return that are reflected in measuring current or deferred income tax assets and liabilities reported in the financial statements.

The Company reflects tax benefits, only if it is more likely than not that the Company will be able to sustain the tax return position, based on its technical merits. If a tax benefit meets this criterion, it is measured and recognized based on the largest amount of benefit that is cumulatively greater than 50% likely to be realized. Management does not believe that there are any uncertain tax positions at June 30, ~~2019~~2020 and December 31, ~~2018.~~2019.

The Company is potentially subject to tax audits for its United States federal and various state income and excise tax returns for tax years between ~~2014~~2015 and ~~2019;~~2020; however, earlier years may be subject to audit under certain circumstances. Tax audits by their very nature are often complex and can require several years to complete.

~~Long lived~~Long-lived assets, such as equipment, and intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on discounted cash flows or appraised values, depending on the nature of the asset. At June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company concluded that there has been no indication of impairment to the carrying value of its long-lived assets. As such, no impairment has been recorded.

The Company measures the cost of awards of equity instruments based on the grant date fair value of the awards. The Company calculates the fair value of stock-based awards using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including volatility, expected term and risk-free interest rates. There were no grants of stock-based awards during the three and six months ended June 30, ~~2019~~2020 and ~~2018.~~2019.

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

In ~~June 2016,~~December 2019, the FASB issued ASU No. ~~2016-13, Financial Instruments – Credit Losses~~2019-12, Income Taxes (Topic ~~326), and also issued subsequent amendments~~740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the ~~initial guidance under~~general principles in Topic 740. ASU ~~2018-19,~~2019-12 also simplifies aspects of accounting for franchise taxes and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-04 and ASU 2019-05 which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss2019-12 is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 and the subsequent amendments are effective for ~~us on January 1,~~annual and interim financial statement periods beginning after December 15, 2020, with early adoption ~~permitted on January 1, 2019. The Company is assessing what effect the provisions of 2016-13 and the subsequent amendments will have on the financial statements.~~

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020.permitted. The Company is currently evaluating the impact of the adoption of ~~2018-18~~ASU 2019-12 on its financial statements.

An unsecured promissory note was executed on March 23, 2018 by a customer converting its past-due trade receivable from the sale of goods and services in the amount of $400,906. This unsecured promissory note is due in full on or before February 2020. The note bears interest at the rate of ten percent (10%) per annum and requires installment payments of $20,000 principal and interest. Payments are due monthly and include late fees. The principal and accrued interest due as of June 30, 2019 and December 31, 2018 was $369,286 and $374,034, respectively. The note is currently in default, repayment has been demanded and the Company is pursuing legal remedy, see Note 10. Based on collection history, interest accrual has been suspended as of the last payment received in February 2019. At June 30, 2019 and December 31, 2018, the Company recorded an allowance against the note receivable balance in the amount of $369,286 and $266,813, respectively.

The Company accepted an unsecured convertible promissory note (the “Convertible Note”) from TEC, a related party (see Note 9), in the amount of $292,138 for a portion of their minimum royalty payment due as of May 31, 2018. The note bears interest at the rate of ~~five percent (5%)~~5% per annum and contains a provision requiring remittance of not less than 20% of the net proceeds of any private or public offering of its securities in reduction of the Convertible Note. The note has a conversion right, at the sole discretion of the Company, to convert the outstanding balance of principal and accrued interest at any time for shares of common stock of TEC. Prior to the due date, the Company may elect to convert the Convertible Note for shares of common stock in TEC at a ~~twenty-five percent (25%)~~25% discount to the price of shares sold to the public in a public offering in connection with a go-public transaction. The issuance of common stock upon conversion shall be made without charge to the Company. No fractional shares shall be issued upon conversion and in lieu of fractional shares, TEC will pay the Company the amount of any obligation that is not converted. Any unpaid balance of principal and accrued interest becomes due and collectible on the earlier of (i) August 1, 2019 (maturity date), or (ii) if declared due and payable in the event of Default. In July 2019, the Convertible Note’s maturity date was extended to August 2020, all other promissory note terms remain unchanged. In July 2020, due to the impacts of Coronavirus COVID-19, the Note’s maturity date was further extended to August 2023, all other note terms remain unchanged. Under the terms of the Convertible Note, TEC remitted a payment of $16,000, of which $14,972 was applied to accrued interest and $1,028 to principal. The ~~note~~Convertible Note’s principal and accrued interest due as of June 30, ~~2019~~2020 and December 31, ~~2018 was $305,528~~2019 were $304,089 and ~~$298,224,~~$296,811, respectively. NoBecause the Convertible Note is from a related party and has a history of being extended, the asset may not be converted to cash within one year and is therefore classified as long-term asset. Additionally, a reserve for collectability has been recorded as of June 30, ~~2019~~2020 and December 31, ~~2018. The notes maturity date was extended in July~~ 2019 ~~all other terms remain unchanged, see~~totaling $12,979 and $5,701, respectively. See Note ~~8 and Note 12.~~9-Collaboration Agreement with Related Party.

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Raw materials and work in process	$	2,618,909		$	1,717,033		$	3,049,455		$	2,070,066
Reserve		(105,031	)		(105,031	)		(120,652	)		(120,652	)

Total inventory, net	$	2,513,878		$	1,612,002		$	2,928,803		$	1,949,414

~~During 2018, the~~The Company ~~evaluated~~regularly evaluates the useful life of its spare parts ~~inventory. As~~inventory and as a result, ~~of this evaluation,~~ the Company classified ~~$372,566~~$350,728 and ~~$292,298~~$351,236 of spare parts as Other Assets, long-term on the Balance Sheet at June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

	June 30, 2019			December 31, 2018			June 30, 2020			December 31, 2019
Computer equipment	$	1,116,553		$	1,054,004		$	1,115,326		$	1,115,326
Furniture and office equipment		219,399			207,921			223,925			223,925
Machinery and equipment		1,091,228			1,021,188			1,096,898			1,096,898
STEP equipment		161,695			-			786,685			481,946
Leasehold improvements		324,313			324,313			334,934			334,934

Total property and equipment		2,913,188			2,607,426			3,557,768			3,253,029
Less: Accumulated depreciation		(2,069,161	)		(1,929,181	)		(2,399,994	)		(2,224,831	)

Property and equipment, net	$	844,027		$	678,245		$	1,157,774		$	1,028,198

Depreciation expense, including STEP depreciation, was ~~$71,197~~$87,708 and ~~$74,587~~$71,197 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Depreciation expense was ~~$141,509~~$175,162 and ~~$143,206~~$141,509 for the six months ended June 30, 2020 and 2019, ~~and 2018,~~ respectively.

	June 30, 2019			December 31, 2018		June 30, 2020			December 31, 2019
Patents	$	160,000		$	-	$	160,000		$	160,000
Capitalized media content							109,318			66,078

Total intangible asset		160,000			-		269,318			226,078
Less: Accumulated amortization		(3,704	)		-		(12,593	)		(8,148	)

Intangible asset, net	$	156,296		$	-	$	256,725		$	217,930

Amortization expense was ~~$2,223~~$2,222 and $0$2,223 for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Amortization expense was ~~$3,704~~$4,445 and $0$3,704 for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The Company leases approximately 37,729 rentable square feet of office and warehouse space from an unaffiliated third party for our corporate office, manufacturing, assembly, warehouse and shipping facility located at 7970 South Kyrene Road, Tempe, Arizona 85284. From 2016 through March 2019, the Company leased approximately 4,529 rentable square feet of office and industrial space from an unaffiliated third party for our machine shop at 2169 East 5th St., Tempe, Arizona 85284. In April 2019, the Company relocated the machine shop from the Fifth St. location to 7910 South Kyrene Road, located within the same business complex as our main office. The Company executed a lease amendment to add an additional 5,131 rentable square feet for the machine shop and extended 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 ~~leases do~~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 are 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.

The balance sheet classification of lease assets and liabilities was as follows:

Balance Sheet Classification	June 30, 2019			June 30, 2020
Assets
Operating lease right-of-use assets, January 1, 2019	$	1,674,857
Amortization for the six months ended June 30, 2019		(140,632	)
Total operating lease right-of-use asset, June 30, 2019	$	1,534,225
Operating lease right-of-use assets, January 1, 2020				$	1,390,873
Amortization for the six months ended June 30, 2020					(146,499	)
Total operating lease right-of-use asset, June 30, 2020				$	1,244,374
Liabilities
Current
Operating lease liability, short term	$	278,628
Operating lease liability, short-term				$	309,294
Non-current
Operating lease liability, long term		1,326,464
Operating lease liability, long-term					1,017,169
Total lease liabilities	$	1,605,092		$	1,326,463

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

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

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

2019	$	167,891
2020		357,452		$	357,452
2021		368,060			368,060
2022		379,097			379,097
2023		390,562			390,562
Thereafter		131,152
2024					131,152
Total lease payments		1,794,214			1,626,323
Less: imputed interest		(189,122	)		(154,197	)
Operating lease liability	$	1,605,092		$	1,472,126

~~The Company had a deferred rent liability of $0 and $46,523 as of June 30, 2019 and December 31, 2018, respectively, relative to the increasing future minimum lease payments.~~ Rent expense for the three months ended June 30, 2020 and 2019 was $135,079 and ~~2018 was~~ $76,967, ~~and $125,491,~~ respectively. Rent expense for the six months ended June 30, 2020 and 2019 was $268,080 and ~~2018 was~~ $165,934, ~~and $125,491,~~ respectively.

	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019

Salaries and wages payable	$	146,787	$	147,677	$	222,804	$	192,161
401(k) contributions payable		3		8,232
Employee benefits payable						3,012		11,259
Accrued paid time off		291,453		265,962		330,096		287,846
Profit sharing payable		106,006		191,820		52,202		120,221

Total accrued compensation and related costs	$	544,249	$	613,691	$	608,114	$	611,487

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

	June 30, 2019		December 31, 2018		June 30, 2020		December 31, 2019

Manufacturer’s warranties	$	185,017	$	200,505	$	316,000	$	257,000
Warranties-other		189,983		189,983		14,176		74,176
Loss contingencies		-		40,000
Miscellaneous payable						760		1,193
Taxes payable		24,122		202,118		131,877		2,382

Total accrued expenses and other current liabilities	$	399,122	$	632,606	$	462,813	$	334,751

On May 8, 2020, VirTra received a Promissory Note (the “PPP Note”) in the amount of $1,320,714 under the Paycheck Protection Program (“PPP”) from Wells Fargo Bank, N.A (the “Lender”). The Paycheck Protection Program (“PPP”), established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. Under the terms of the PPP loan, up to the entire amount of principal and accrued interest may be forgiven to the extent PPP loan proceeds are used for qualifying expenses as described in the CARES Act and applicable implementing guidance issued by the U.S. Small Business Administration for the PPP loan. The Company intends to use its entire PPP Note amount for designated qualifying expenses and to apply for forgiveness in accordance with the PPP loan terms. No assurance can be given that the Company will obtain forgiveness of the PPP Note in whole or in part. With respect to any portion of the PPP Note that is not forgiven, the PPP Note will be subject to customary provisions for a loan of this type, including customary events of default relating to, among other things, payment defaults, breaches of the provisions of the PPP Note and cross-defaults on any other loan with the Lender or other creditors.

Under this approach, the Company will initially account for the PPP Note as a debt instrument and apply the interest method considering the six-month payment deferral allowed for the loan. The PPP Note is payable over two years at a fixed interest rate of 1%. The payments due and payable monthly are in the amount of $55,604 commencing November 6, 2020 and continuing on the 8th day of each month thereafter until maturity on May 8, 2022. Under conventional terms at loan maturity the total repayment could total $1,320,714 principal and $18,720 of interest over the two-year period, for a combined repayment of $1,339,434. Any portion not forgiven, can be prepaid at any time prior to maturity with no prepayment penalties.

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

On January 16, 2015, the Company entered into a Co-Venture Agreement (the “Co-Venture Agreement”) with MR, a ~~wholly-owned~~wholly owned subsidiary of TEC, a related party. The Co-Venture Agreement grants TEC an exclusive non-transferrable license to use the Company’s technology and certain equipment solely for use at locations to operate the concept, as defined in the Co-Venture Agreement. Additionally, under the terms of the Co-Venture Agreement, equity representing 5% of MR’s ownership interest, on a fully-diluted basis, was issued to the Company. Throughout the duration of the Co-Venture Agreement, TEC will pay the Company a royalty based on gross revenue, as defined and subject to certain minimum royalties commencing with the first ~~twelve-month~~12-month period subsequent to the respective milestone date of June 1, 2017. Under the terms of the original agreement, if the total royalty payments for locations in the United States and Canada together do not total at least the minimum royalty amount specified in the agreement, TEC may pay to VirTra the difference between the amount of total royalty payments and the minimum specified in the agreement to maintain exclusivity.

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

On July 23, 2018, the Company entered into the second amendment to the Co-Venture Agreement with TEC to (i) confirm the minimum royalty deficiency benefit due for the royalty period ended May 31, 2018; (ii) establish payment terms for the minimum royalty deficiency benefit due, to include both cash and promissory note payment; (iii) clarify the exclusivity provisions of the Co-Venture Agreement; and (iv) amend the minimum royalty calculations to only TEC branded facilities. ~~For~~

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

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

In April 2018, MR effected a 1-for-12,000 reverse stock split, followed by a 2,000-for-1 forward stock split completed in November 2018. As a result, the Company holds, as of June 30, 2020 and December 31, 2019, 560,000 shares of TEC common stock representing approximately 4.8% of the issued and ~~2018, respectively,~~outstanding common shares of TEC. The Company has elected to utilize the cost minus impairment approach to record the investment in TEC because the investment does not have a readily determinable fair value as of the reporting date. Management regularly assesses the financial statements and other key financial factors related to the classification of its investment in TEC, such as the recent impact of COVID-19. The Company ~~recognized license fee income (royalties) from TEC~~recorded its investment at cost minus impairment as of ~~$32,795~~June 30, 2020 and ~~$35,580.~~December 31, 2019, at $700,000 and $840,000, respectively.

In addition, as of June 30, ~~2019,~~2020, the Company holds a warrant to purchase 25,577 shares of TEC common stock, adjusted for the 1-for-12,000 reverse stock split and the 2,000-for-1 forward stock split, at an exercise price of $2.4436 per share, as adjusted. This warrant became exercisable on the date of grant of April 14, 2015 and expires on the tenth anniversary of the date of grant, if not earlier pursuant to the terms of the option.

During the three months ended June 30, 2020 and 2019, the Company redeemed 3,750 and 3,750 previously awarded options reaching expiration from the Company’s COO. The redemption eliminated the stock options and resulted in a total of $10,466 and $4,933 in additional compensation expense in for the three months ended June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020 and 2019, the Company redeemed 7,500 and 3,750 previously awarded options reaching expiration from the Company’s COO. The redemption eliminated the stock options and resulted in a total of $12,864 and $4,933 in additional compensation expense for the six months ended June 30, 2020 and 2019, respectively.

During the three months ended June 30, 2020 and 2019, the Company issued 7,500 and 5,000 shares of common stock to related parties consisting of the CEO and one member of the Board of Directors, to exercise previously awarded stock options for $6,915 and $5,650 cash paid at an exercise price of $0.922 and $1.13 per share, respectively. During the six months ended June 30, 2020 and 2019, the Company issued 15,000 and 5,000 shares of common stock to related parties consisting of the CEO and one member of the Board of Directors, to exercise previously awarded stock options for $13,215 and $5,650 cash paid at an weighted average exercise price of $0.881 and $1.13 per share, respectively.

Mr. Saltz, who is a member of our Board of Directors, is also Chairman of the Board of Directors of TEC, as well as a majority stockholder of TEC. The Company has entered into a Co-Venture Agreement with TEC ~~as disclosed in~~(See Note ~~8. In addition, the~~9. Collaboration Agreement with Related Party.) The Company owns 560,000 shares of TEC common stock representing approximately ~~5.8%~~4.8% of the issued and outstanding shares of TEC common stock. The Company recognized ~~$32,795~~$12,502 and ~~$427,433~~$32,795 for license fees (royalties) for the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, pursuant to the terms of the Co-Venture Agreement. The Company recognized ~~$72,432~~$29,242 and ~~$473,401~~$72,432 for license fees (royalties) for the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, respectively, pursuant to the terms of the Co-Venture Agreement. As of June 30, ~~2019~~2020 and December 31, ~~2018, TEC~~2019, the Company had accounts receivable balances outstanding from TEC of ~~$22,464~~$21,228 and ~~$16,743,~~$14,323, respectively.

Mr. Richardson, who is a member of our Board of Directors, is also acting CEO of Natural Point, Inc. (“Natural Point”), a vendor of the Company. For the three months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company purchased specialized equipment from Natural Point in the amount of ~~$17,733~~$47,416 and ~~$34,865,~~$17,733, respectively. For the six months ended June 30, ~~2019~~2020 and ~~2018,~~2019, the Company purchased specialized equipment from Natural Point in the amount of ~~$56,084~~$47,416 and ~~$87193,~~$56,084, respectively. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~a prepaid~~$13,946 and $34,865 accounts payable balance outstanding, ~~with Natural Point of $1,020.~~respectively.

From time to time, the Company is notified of threatened litigation or that a claim is being made against it. The Company evaluates contingencies on an on-going basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. In June 2018, the Company initiated a declaratory judgment action in the Superior Court of the State of Arizona. A former customer had raised allegations of breach of contract and breach of warranty and the Company seeks relief and clarification from the Superior Court regarding the allegations and the Company’s obligations under the contract with the former customer. In May 2019, the Company entered into settlement agreement of $76,250. The agreement does not constitute an admission of any unlawful conduct or wrongdoing. The Company had established a probable and estimated loss contingency of $40,000 as of December 31, 2018 and had accrued the full loss contingency of $76,250 as of March 31, 2019. The full amount of the settlement has been paidThere is no threatened litigation at ~~June 30, 2019.~~

The Company evaluated its collection history related to its trade note receivable and determined the note was in default and in accordance with the terms of the note, accelerated its payment demand. The Company filed a verified complaint in the Superior Court of Arizona for the outstanding principal balance plus accrued interest, late fees and reasonable attorneys’ fees.this time.

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

VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to ~~active and~~ eligible employees. The cash payment is typically split into two equal payments and distributed pro-rata ~~to employees~~ in April and October of the following year ~~after the completion of the annual financial audit.~~to only active employees. For the three and six months ended June 30, 2020 and 2019, ~~the~~there was no amount ~~charged~~credited to operations ~~was $0~~for profit sharing due to net loss in both ~~periods. For the three and six months ended June 30, 2018, the amount charged to operations was $447,821 and $447,821,~~periods, respectively. The 2020 profit-sharing estimate ~~was~~is revised ~~in subsequent quarters during 2018~~quarterly and ~~was not paid until 2019.~~will be finalized after year-end financial audit.

Authorized Shares. The Company is authorized to issue 60,000,000 shares of 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,~~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,~~common stock, par value $0.0001 per share (the “Class B Common Stock”). No Class A Common Stock or Class B Common Stock has been issued.

Rights and Preferences. Voting Rights. Except as otherwise required by the Nevada Revised Statues or as provided by or pursuant to the provisions of the Articles of Incorporation:

(i) Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held of record by such holder. The holders of shares of Common Stock shall not have cumulative voting rights.

(ii) Each holder of Class A Common Stock shall be entitled to ten (10) votes for each share of Class A Common Stock held of record by such holder. The holders of shares of Class A Common Stock shall not have cumulative voting rights.

(iii) The holders of Common Stock and Class A Common Stock shall vote together as a single class on all matters on which stockholders are generally entitled to vote.

(iv) The holders of Class B Common Stock shall not be entitled to vote on any matter, except that the holders of Class B Common Stock shall be entitled to vote separately as a class with respect to amendments to the Articles of Incorporation that increase or decrease the aggregate number of authorized shares of such class, increase or decrease the par value of the shares of such class, or alter or change the powers, preferences, or special rights of the shares of such class so as to affect them adversely.

Authorized Shares. The Company is authorized to issue 2,500,000 shares of preferred stock, par value $0.0001 per share (the “Preferred Stock”).

Rights and Preferences. The Board of Directors is authorized at any time, and from time to time, to provide for the issuance of shares of Preferred Stock in one or more series, and to determine the designations, preferences, limitations and relative or other rights of the Preferred Stock or any series thereof.

On October 25, 2016, the Company’s Board of Directors authorized the repurchase of up to ~~$1,000,000~~$1 million of its common stock under Rule 10b-18 promulgated under the Securities Exchange Act of 1934, as amended. Purchases made pursuant to this authorization will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with the Rule 10b-18. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. On January 9, 2019, VirTra’s Board of Directors authorized an additional $1 million be allocated for the repurchase of VirTra’s stock under the existing 10b-18 plan. On May 11, 2020, the Company suspended its stock repurchase program in accordance with the interim rulings and FAQ guidance provided by the U.S. Small Business Administration for public company PPP loan recipients. The stock repurchase suspension will remain in effect for the duration of the outstanding PPP loan.

During the three months ended June 30, 2020 and 2019, the Company purchased nil and 14,450 additional treasury shares at an average cost of nil and $3.97 per share. During the six months ended June 30, 2020 and 2019, the Company ~~had~~ purchased nil and 82,689 treasury shares at an average cost of nil and $3.85 ~~per share. As of December 31, 2018, the Company held 10,707 treasury shares at an average cost of $3.48~~ per share. As of June 30, 2020 and 2019, all treasury shares ~~outstanding~~purchased had been cancelled and returned to shares authorized.

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

	June 30, 2019					June 30, 2018					June 30, 2020					June 30, 2019
	Number of			Weighted		Number of			Weighted		Number of			Weighted		Number of			Weighted
	Stock Options			Exercise Price		Stock Options			Exercise Price		Stock Options			Exercise Price		Stock Options			Exercise Price
Options outstanding, beginning of year		279,167		$	2.34		531,667		$	1.80		234,167		$	2.47		279,167		$	2.34
Granted		-			-		-			-		-			-		-			-
Redeemed		(3,750	)		1.40		(22,500	)		1.70		(7,500	)		0.88		(3,750	)		1.40
Exercised		(5,000	)		1.13		(7,500	)		1.40		(15,000	)		0.88		(5,000	)		1.13
Expired / terminated		-			-		(5,000	)		1.40		-			-		-			-
Options outstanding, end of quarter		270,417		$	2.38		496,667		$	1.82		211,667		$	2.64		270,417		$	2.38
Options exercisable, end of quarter		270,417		$	2.38		493,489		$	1.82		211,667		$	2.64		270,417		$	2.38

For the three months ended June 30, 2020 and 2019, the Company received cash payments related to the exercise of options in the amount of $6,915 and $5,651, respectively. For the six months ended June 30, 2020 and 2019, the Company received cash payments related to the exercise of options in the amount of $13,215 and $5,651, respectively.

The Company did not have any non-vested stock options outstanding as of June 30, 2020 and December 31, 2019. ~~There were 3,178 non-vested stock options as of June 30, 2018 that vested in October 2018.~~ The weighted average contractual term for options outstanding and exercisable at June 30, ~~2019~~2020 and ~~2018~~2019 was 7 years. The aggregate intrinsic value of the options outstanding and exercisable at June 30, 2020 and 2019 was $300,162 and ~~2018 was~~ $183,700, ~~and $1,240,094,~~ respectively. The total intrinsic value of options exercised during the ~~three and~~ six months ended June 30, 2020 and 2019 was $30,087 and ~~2018 was~~ $6,050, ~~and $30,750, respectively. For the three and six months ended June 30, 2019 and 2018, the Company received payments related to the exercise of options in the amount of $5,650 and $10,500,~~ respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the Company’s common stock for those stock options that have an exercise price lower than the fair value of the Company’s common stock. Options with an exercise price above the fair value of the Company’s common stock are considered to have no intrinsic value.

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

A total of 1,187,500 shares of our common stock was initially authorized and reserved for issuance under the Equity Plan. This reserve automatically increased on January 1, ~~2019,~~2020, and will increase each subsequent anniversary through 2027, by an amount equal to the smaller of (a) 3% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board.

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

~~As of~~At June 30, ~~2019~~2020 and ~~December 31, 2018,~~2019, there were no options issued under the Equity Plan.

InOn July ~~2019,~~28, 2020, the Company ~~redeemed 3,750 previously awarded expiring stock options from a related party for cash totaling $6,413, of which $3,766 had previously been expensed in 2012, with~~signed the ~~balance of $2,647 being recognized as additional compensation costs in July 2019. See Note 8 and Note 9.~~

In July 2019, the Company redeemed 9,225 previously awarded expiring stock options from an employee for cash totaling $13,930, of which $7,976 had previously been expensed in 2012, with the balance of $5,954 being recognized as additional compensation costs in July 2019. Additionally, in July, the employee exercised 5,775 expiring stock options at an exercise price of $1.00 per share.

In July 2019, the Company announced its annual meeting of stockholders to be held on Friday, September 6, 2019. Stockholders of record at the close of business on July 18, 2019 will be entitled to vote at and attend the meeting.

~~On July 31, 2019, the Company executed the First~~Second Amendment to Convertible Promissory Note with TEC, to extend the ~~note’s~~ maturity date ~~for one additional year~~from August 1, 2020 to August 1, ~~2020~~2023 and ~~to reaffirm TEC will remit a~~reconfirm the payment ofprovision that 20% of ~~its~~ net proceeds ~~from its recent~~of any private placement or public offering ~~within ten (10) days~~of TEC’s securities during the note’s term shall be paid to VirTra in reduction of the note’s ~~amendment date. All other terms~~principal and ~~conditions of the Note remain unchanged.~~accrued interest until paid in full.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, ~~2018~~2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the Securities and Exchange Commission (the “SEC”) on ~~April 1, 2019.~~March 23, 2020.

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~~risks and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

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

The VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place on a daily basis without the need for a shooting range, protective equipment, role players, safety officers, or a scenario-based training site. We have developed a higher standard in simulation training including capabilities such as: multi-screen, video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented ~~Threat-Fire™~~Threat-Fire® shoot-back system, powerful gas-powered simulated 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~~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~~Simulator™ provides an extensive and realistic range of training environments that allow for initial driver familiarization and orientation to advanced concepts, high-risk pursuits and defensive driving drills.

We also are engaged in licensing our technology to That’s Eatertainment Corp. (“TEC”), a related party and a developer and operator of a combined dining and entertainment concept centered on an indoor shooting experience.

We have four main customer groups, namely, law enforcement, military, educational (includes colleges and police academies) and civilian. These are very different markets and require different sales and marketing programs as well as personnel. Our focus is to expand the market share and scope of our training simulators sales to these identified customer groups by pursuing the following key growth strategies:

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

Results of operations for the three and six months ended June 30, ~~2019~~2020 and June 30, ~~2018~~2019

Revenues.Revenues were ~~$3,054,313~~$2,769,779 for the three months ended June 30, ~~2019~~2020 compared to ~~$8,708,192~~$3,054,313 for the same period in ~~2018,~~2019, a decrease of ~~$5,653,879,~~$284,534, or ~~65%~~9%. For the six months ended June 30, ~~2019,~~2020, revenues were ~~$6,105,651,~~$6,107,942, compared to ~~$11,996,983~~$6,105,651 for the same period in ~~2018, a decrease~~2019, an increase of ~~$5,891,332,~~$2,291, or ~~49%~~0%. The decrease in revenues for the ~~three-~~three-months ended June 30, 2020 were a result of reduced equipment installations due to COVID-19 travel restrictions and the increase in the six-months ended June 30, ~~2019~~2020 resulted from ~~a reduction in~~ the number of simulators and accessories completed, delivered and revenue recognized ~~compared to the same period in 2018. The three- and six-months ended June 30, 2018 revenues includes~~as a result of a large ~~federal 49-simulator~~increase in sales orders and ~~accessories order that was recognized for $4.2 million, in addition~~some customers agreeing to ~~other customer revenues.~~receive equipment despite COVID-19.

Cost of Sales.Cost of sales were ~~$1,539,267~~$1,192,012 for the three months ended June 30, ~~2019~~2020 compared to ~~$2,964,997~~$1,539,267 for the same period in ~~2018,~~2019, a decrease of ~~$1,425,730,~~$347,255, or ~~48%~~23%. For the six months ended June 30, ~~2019,~~2020, cost of sales was ~~$2,790,136,~~$2,934,948, compared to ~~$3,991,152~~$2,790,136 for the same period in ~~2018, a decrease~~2019, an increase of ~~$1,201,016,~~$144,812, or ~~30%~~5%. In ~~each period,~~the three months ended June 30, 2020, the decrease was primarily due to reduced direct material costs directly related to the type and quantity of simulator systems and accessories sold. ~~The~~In the six months ended June 30, 2020, the cost of sales on a dollar basis varies from quarter-to-quarter primarily due to sales volume and product mix but tends to remain consistent as a percentage of total revenue, when compared annually. The increase was primarily due to increased direct material, direct labor, direct travel and production supply costs related to the type and quantity of simulator systems and accessories sold.

Gross Profit.Gross profit was ~~$1,515,046~~$1,577,767 for the three months ended June 30, ~~2019~~2020 compared to ~~$5,743,195~~$1,515,046 for the same period in ~~2018, a decrease~~2019, an increase of ~~$4,228,149,~~$62,721, or ~~74%~~4%. Gross profit was ~~$3,315,515~~$3,172,994 for the six months ended June 30, ~~2019,~~2020, compared to ~~$8,005,831~~$3,315,515 for the same period in ~~2018,~~2019, a decrease of ~~$4,690,316,~~$142,521, or ~~59%~~4%. The gross profit margin was ~~49.6%~~57.0% for the three months ended June 30, ~~2019~~2020 and ~~66.0%~~49.6% for the same period in ~~2018.~~2019. The gross profit margin was ~~54.3%~~51.9% for the six months ended June 30, ~~2019~~2020 and ~~66.7%~~54.3% for the same period in ~~2018. In both periods,~~2019. For the three months ended June 30, 2020, the increase in gross profit was primarily due to reduced warranty costs. For the six months ended June 30, 2020, the decrease in gross profit was primarily due to differences in the product mix and the quantity of systems, accessories and services sold.

Operating Expenses.~~Net operating~~Operating expense was ~~$2,398,525~~$2,399,685 for the three months ended June 30, ~~2019~~2020 compared to ~~$2,786,589~~$2,398,525 for the same period in ~~2018, a decrease~~2019, an increase of ~~$388,064,~~$1,160, or ~~14%~~0%. Operating expense was ~~$4,656,097~~$4,506,816 for the six months ended June 30, ~~2019,~~2020, compared to ~~$5,207,438~~$4,656,097 for the same period in ~~2018,~~2019, a decrease of ~~$551,341,~~$149,281, or ~~11%~~3%. In ~~each~~the six-month period ended June 30, 2020, the decrease was mainly due to reduced selling, general and administrative costs for ~~labor, benefits,~~travel, tradeshows, and professional services ~~and public company expense.~~as a result of COVID-19 restrictions.

Operating ~~(Loss) Income.~~Loss. Operating loss was ~~$883,479~~$821,918 for the three months ended June 30, ~~2019~~2020 compared to an operating ~~income~~loss of ~~$2,956,606~~$883,479 for the same period in ~~2018,~~2019, a decrease of ~~$3,840,085,~~$61,561, or ~~130%~~7%. Operating loss was ~~$1,340,582~~$1,333,822 for the six months ended June 30, ~~2019~~2020 compared to operating ~~income~~loss of ~~$2,798,393~~$1,340,582 for the same period in ~~2018,~~2019, a decrease of ~~$4,138,975,~~$6,760, or ~~148%~~1%.

~~Provision for Income Tax.~~Other Income. ~~Provision for~~Other income ~~tax benefit~~net of other expense was ~~$217,248~~$9,184 for the three months ended June 30, ~~2019~~2020 compared to ~~an income tax expense of $864,941~~$32,500 for the same period in ~~2018,~~2019, a decrease of ~~$1,082,189,~~$23,316, or ~~125%~~72%. ~~Provision~~For the six months ended June 30, 2020, other income net of other expense was $28,678 compared to $69,701 for the same period in 2019, and a decrease of $41,023, or 59%. In each period, the decrease resulted primarily from a reduction of interest income due to maintaining higher levels of cash during the COVID-19 pandemic.

Benefit for Income Taxes. Benefit for income ~~tax~~taxes was $211,474 for the three months ended June 30, 2020 compared to benefit for income taxes of $217,248 for the same period in 2019, a decrease of $5,774, or 3%. Benefit for income taxes was ~~$324,248~~$314,474 for the six months ended June 30, ~~2019~~2020 compared to anbenefit for income ~~tax expense~~taxes of ~~$835,747~~$324,248 for the same period in ~~2018,~~2019, a decrease of ~~$1,159,995,~~$9,774, or ~~139%~~3%. In each period, the decrease resulted from the federal tax rate being applied to the net operating loss, ~~resulting in additional~~adjusted for deferred tax ~~asset.~~assets and liabilities. Provision and/or (benefit) for income taxes are estimated quarterly applying both federal and state tax rates.

~~Other Income.~~Net Loss. ~~Other income net of other expense~~Net loss was ~~$32,500~~$601,260 for the three months ended June 30, ~~2019 as~~2020 compared to ~~$21,272~~net loss of $633,731 for the same period in ~~2018, an increase of $11,228, or 53%. For the six months ending June 30,~~ 2019, other income net of other expense was $69,701 compared to $64,504 for the same period in 2018, and increase of $5,197, or 8%. In each period, the increase resulted from non-recurring miscellaneous income or interest income.

~~Net (Loss) Income.~~~~Net loss was $633,731 for the three months ended June 30, 2019 compared to net income of $2,112,937 for the same period in 2018,~~ a decrease of ~~$2,746,668,~~$32,471, or ~~130%~~5%. For the six months ended June 30, ~~2019,~~2020, net loss was ~~$946,633~~$990,670 compared to net ~~income~~loss of ~~$2,027,150~~$946,633 for the same period in ~~2018, a decrease~~2019, an increase of ~~$2,973,783,~~$44,037, or ~~147%~~5%. In each period, the fluctuations in net (loss) income relate to each respective section discussed above.

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

Earnings before interest, income taxes, depreciation and amortization and before other non-operating costs and income (“EBITDA”) and adjusted EBITDA are non-GAAP measures. Adjusted EBITDA also includes non-cash stock option expense. Other companies may calculate adjusted EBITDA differently. The Company calculates its adjusted EBITDA to eliminate the impact of certain items it does not consider to be indicative of its performance and its ongoing operations. Adjusted EBITDA is presented herein because management believes the presentation of adjusted EBITDA provides useful information to the Company’s investors regarding the Company’s financial condition and results of operations and because adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry, several of which present EBITDA and a form of adjusted EBITDA when reporting their results. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under ~~U.S. 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), cash flows from operating activities and other income or cash flow statement data prepared in accordance with ~~U.S.~~ GAAP or as a measure of profitability or liquidity. A reconciliation of net ~~income (loss)~~loss to adjusted EBITDA is provided in the following table:

	Three Months Ended											Six Months Ended											Three Months Ended												Six Months Ended
	June 30,			June 30,		Increase			%			June 30,			June 30,		Increase			%			June 30,			June 30,			Increase			%			June 30,			June 30,			Increase			%
	2019			2018		(Decrease)			Change			2019			2018		(Decrease)			Change			2020			2019			(Decrease)			Change			2020			2019			(Decrease)			Change

Net (Loss) Income	$	(633,731	)	$	2,112,937	$	(2,746,668	)		-130	%	$	(946,633	)	$	2,027,150	$	(2,973,783	)		-147	%
Net Loss																							$	(601,260	)	$	(633,731	)	$	32,471			-5	%	$	(990,670	)	$	(946,633	)	$	(44,037	)		5	%

Adjustments:
Provision for income taxes																								(211,474	)		(217,248	)		5,774			-3	%		(314,474	)		(324,248	)		9,774			-3	%
Depreciation and amortization		144,061			74,587		69,474			93	%		285,844			143,206		142,638			100	%		89,930			73,419			16,511			22	%		179,607			143,684			35,923			25	%
Non-cash stock option expense		-			4,860		(4,860	)		-100	%		-			4,860		(4,860	)		-100	%
Impairment loss on That’s Eatertainment		-			134,140		(134,140	)		-100	%		-			134,140		(134,140	)		-100	%
EBITDA																							$	(722,804	)	$	(777,560	)	$	54,756			-7	%	$	(1,125,537	)	$	(1,127,197	)	$	1,660			0	%
Impairment loss on That’s Eatertainment, related party																								140,000			-			140,000			100	%		140,000			-			140,000			100	%
Reserve for note receivable		102,473			-		102,473			100	%		102,473			-		102,473			100	%		3,639			102,473			(98,834	)		-96	%		7,278			102,473			(95,195	)		-93	%
(Benefit) provision for income taxes		(217,248	)		864,941		(1,082,189	)		-125	%		(324,248	)		835,747		(1,159,995	)		-139	%

Adjusted EBITDA	$	(604,445	)	$	3,191,465	$	(3,795,910	)		-119	%	$	(882,564	)	$	3,145,103	$	(4,027,667	)		-128	%	$	(579,165	)	$	(675,087	)	$	95,922			-14	%	$	(978,259	)	$	(1,024,724	)	$	46,465			-5	%

Liquidity and Capital Resources.Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had ~~$1,393,701~~$3,779,820 and ~~$2,500,381~~$1,415,091 of cash and cash equivalents as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company also held certificates of deposits with maturities of less than ~~six months,~~12-months, which are recorded as short-term investments, totaling ~~$1,880,000~~$240,000 and ~~$3,490,000~~$1,915,000 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Working capital was ~~$4,780,474~~$6,860,754 and ~~$6,769,068~~$7,173,280 as of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Net cash used byin operating activities was $290,375 for the six months ended June 30, 2020 and net cash used in operating activities was $1,932,470 for the six months ended June 30, ~~2019 and net~~2019. Net cash ~~provided by~~used in operating activities ~~was $127,916 for the six months ended June 30, 2018. Cash used~~ resulted primarily from ~~the net loss,~~increased inventory ~~purchases~~ and increased accounts ~~receivables, partially offset by~~receivable, as well as other changes in ~~other~~ operating assets and liabilities.

Net cash provided by investing activities was ~~1,142,710~~$1,327,021 for the six months ended June 30, ~~2019~~2020 and net cash ~~used in~~provided by investing activities was ~~$287,773~~$1,142,710 for the six months ended June 30, ~~2018.~~2019. Investing activities in 2020 consisted of redemptions of certificates of deposits, purchase of intangible assets, purchases of property and equipment, compared to investing activities in 2019 that consisted of purchases and redemptions of certificates of deposits, ~~purchase~~purchases of intangible ~~asset, purchases~~assets and ~~sales of property and equipment, compared to investing activities in 2018 consisted entirely of~~ purchases of property and equipment.

Net cash ~~used in~~provided by financing activities was ~~$316,920 and $21,500~~$1,328,083 for the six months ended June 30, ~~2019~~2020 and ~~2018, respectively.~~net cash used in financing activities was $316,920 for the six months ended June 30, 2019. Financing activities in 2020 consisted primarily of the PPP Promissory Note. Financing activities in 2019 consisted entirely of ~~repurchases~~purchase of treasury ~~stock and repurchase of stock options offset by stock options exercised. Financing activities in 2018 consisted of repurchases of stock options offset by stock options exercised.~~stock.

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 ~~$4.1~~$5.9 million for the three months ended June 30, ~~2019.~~ 2020.

The Company defines backlog as the accumulation of bookings ~~from signed contracts and purchase orders~~ that ~~are~~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 June 30, ~~2019,~~2020, the Company’s backlog was ~~$10.1~~$14.3 million.

Management estimates the majority of the new bookings received in the second quarter of ~~2019~~2020 will be converted to revenue in ~~2019. Management’s~~2020. Management estimates ~~for~~ the conversion of backlog is based on current contract delivery ~~dates,~~dates; however, contract terms and dates are subject to modification and are routinely changed at the request of the customer.

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

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

Our discussion and analysis of our financial condition and results of operations are based on our unaudited condensed financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019. Management believes that there have been no changes in our critical accounting policies during the six months ended June 30, ~~2019.~~2020.

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

As of June 30, ~~2019,~~2020, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of June 30, ~~2019,~~2020, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified in our report on internal control over financial reporting contained in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on ~~April 1, 2019.~~March 23, 2020.

There has been no change in our internal control over financial reporting that occurred during the quarterly period ended June 30, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

See Note 1011 to our unaudited condensed financial statements, included in Part I, Item 1., Financial Information of this ~~quarterly report~~Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

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

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

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

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

			PAGE NO.
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements (Unaudited)	F-1
		Condensed Balance Sheets as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019	F-1
		Condensed Statements of Operations for the Three and Six Months ended June 30, ~~2019~~2020 and ~~2018~~2019	F-2
		Condensed ~~Statement~~Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	F-3
		Condensed Statements of Cash Flows for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019	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	89

	Item 4.	Controls and Procedures	89

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	910

	Item 1A.	Risk Factors	910

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	910

	Item 3.	Defaults Upon Senior Securities	910

	Item 4.	Mine Safety Disclosures	910

	Item 5.	Other Information	910

	Item 6.	Exhibits	1011

	SIGNATURES		1112

	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
Revenues:
Net sales	$	3,002,381		$	8,278,579		$	6,014,082		$	11,521,402
That’s Eatertainment royalties/licensing fees, related party		32,795			427,433			72,432			473,401
Other royalties/licensing fees		19,137			2,180			19,137			2,180
Total revenue		3,054,313			8,708,192			6,105,651			11,996,983

Cost of sales		1,539,267			2,964,997			2,790,136			3,991,152

Gross profit		1,515,046			5,743,195			3,315,515			8,005,831

Operating expenses:
General and administrative		2,044,860			2,480,851			3,946,791			4,534,156
Research and development		353,665			305,738			709,306			673,282

Net operating expense		2,398,525			2,786,589			4,656,097			5,207,438

(Loss) income from operations		(883,479	)		2,956,606			(1,340,582	)		2,798,393

Other income (expense)
Other income		33,449			22,177			75,732			65,475
Other expense		(949	)		(905	)		(6,031	)		(971	)

Net other income		32,500			21,272			69,701			64,504

(Loss) income before provision for income taxes		(850,979	)		2,977,878			(1,270,881	)		2,862,897

(Benefit) provision for income taxes		(217,248	)		864,941			(324,248	)		835,747

Net (loss) income	$	(633,731	)	$	2,112,937		$	(946,633	)	$	2,027,150

Net (loss) income per common share:
Basic	$	(0.08	)	$	0.27		$	(0.12	)	$	0.26
Diluted	$	(0.08	)	$	0.26		$	(0.12	)	$	0.25

Weighted average shares outstanding:
Basic		7,735,303			7,907,390			7,750,370			7,905,849
Diluted		7,735,303			8,255,299			7,750,370			8,251,640

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

	For the Three Months Ended June 30, 2019
	Preferred Stock				Common Stock						Additional
	Shares		Amount		Shares			Amount			Paid-In Capital			Treasury Stock			Accumulated Deficit			Total

Balance at March 31, 2019		-	$	-		7,748,705		$	775		$	13,974,692		$	-		$	(3,951,880	)	$	10,023,587
Treasury stock		-		-		-			-			-			(57,362	)		-			(57,362	)
Treasury stock cancelled		-		-		(14,450	)		(2	)		(57,360	)		57,362			-			-
Stock options exercised		-		-		5,000			1			5,650			-			-			5,651
Stock options repurchased		-		-		-			-			(4,367	)		-			-			(4,367	)
Net loss		-		-		-			-			-			-			(633,731	)		(633,731	)
Balance at June 30, 2019		-	$	-		7,739,255		$	774		$	13,918,615		$	-		$	(4,585,611	)	$	9,333,778

	For the Six Months Ended June 30, 2019
	Preferred Stock				Common Stock						Additional
	Shares		Amount		Shares			Amount			Paid-In Capital			Treasury Stock			Accumulated Deficit			Total

Balance at December 31, 2018		-	$	-		7,827,651		$	783		$	14,272,834		$	(37,308	)	$	(3,638,978	)	$	10,597,331
Treasury stock		-		-		-			-			-			(318,204	)		-			(318,204	)
Treasury stock cancelled		-		-		(93,396	)		(10	)		(355,502	)		355,512			-			-
Stock options exercised		-		-		5,000			1			5,650			-			-			5,651
Stock options repurchased		-		-		-			-			(4,367	)		-			-			(4,367	)
Net loss		-		-		-			-			-			-			(946,633	)		(946,633	)
Balance at June 30, 2019		-	$	-		7,739,255		$	774		$	13,918,615		$	-		$	(4,585,611	)	$	9,333,778

	For the Three Months Ended June 30, 2018
	Preferred Stock				Common Stock				Additional
	Shares		Amount		Shares		Amount		Paid-In Capital			Treasury Stock			Accumulated Deficit			Total

Balance at March 31, 2018		-	$	-		7,927,774	$	793	$	14,954,563		$	(112,109	)	$	(4,542,857	)	$	10,300,390
Stock options exercised		-		-		7,500		1		10,499			-			-			10,500
Stock options repurchased		-		-		-		-		(32,000	)		-			-			(32,000	)
Stock based compensation		-		-		-		-		4,860			-			-			4,860
Net income		-		-		-		-		-			-			2,112,937			2,112,937
Balance at June 30, 2018		-	$	-		7,935,274	$	794	$	14,937,922		$	(112,109	)	$	(2,429,920	)	$	12,396,687

	For the Six Months Ended June 30, 2018
	Preferred Stock				Common Stock				Additional
	Shares		Amount		Shares		Amount		Paid-In Capital			Treasury Stock			Accumulated Deficit			Total

Balance at December 31, 2017		-	$	-		7,927,774	$	793	$	14,954,563		$	(112,109	)	$	(4,457,070	)	$	10,386,177
Stock options exercised		-		-		7,500		1		10,499			-			-			10,500
Stock options repurchased		-		-		-		-		(32,000	)		-			-			(32,000	)
Stock based compensation		-		-		-		-		4,860			-			-			4,860
Net income		-		-		-		-		-			-			2,027,150			2,027,150
Balance at June 30, 2018		-	$	-		7,935,274	$	794	$	14,937,922		$	(112,109	)	$	(2,429,920	)	$	12,396,687

	For the Six Months Ended June 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		-		-		15,000		2		13,213			-		-			13,215
Stock options repurchased		-		-		-		-		(5,846	)		-		-			(5,846	)
Net loss		-		-		-		-		-			-		(990,670	)		(990,670	)
Balance at June 30, 2020		-	$	-		7,760,030	$	777	$	13,902,047		$	-	$	(4,704,925	)	$	9,197,899

Performance Obligation		Method of Recognition

Simulator and accessories		Upon transfer of control

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

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

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

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

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

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

2020	$	180,011
2021		368,060
2022		379,097
2023		390,562
2024		131,152
Total lease payments		1,448,882
Less: imputed interest		(122,419	)
Operating lease liability	$	1,326,463

	June 30, 2020		December 31, 2019
Short-term liabilities:
Note payable, principal	$	431,738	$	-
Accrued interest on note		1,918		-

Note payable, short-term	$	433,656	$	-

Long-term liabilities:

Note payable, long term	$	888,975	$	-

	Three Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	1,550,317	$	132,098	$	1,682,415	$	6,950,268	$	399,473	$	7,349,741
Extended service-type warranties		498,194		50,437		548,631		481,451		52,700		534,151
Customized software & content		484,421		-		484,421		274,497		-		274,497
Installation and training		276,414		10,500		286,914		87,894		32,296		120,190
Licensing and royalties		51,932		-		51,932		429,613		-		429,613
Total Revenue	$	2,861,278	$	193,035	$	3,054,313	$	8,223,723	$	484,469	$	8,708,192

	Six Months Ended
	June 30, 2019						June 30, 2018
	Domestic		International		Total		Domestic		International		Total
Simulators and accessories	$	3,477,642	$	450,536	$	3,928,178	$	7,922,271	$	1,952,207	$	9,874,478
Extended service-type warranties		978,717		80,387		1,059,104		908,136		115,085		1,023,221
Customized software & content		660,484		-		660,484		388,444		11,940		400,384
Installation and training		355,816		10,500		366,316		140,804		82,515		223,319
Licensing and royalties		91,569		-		91,569		475,581		-		475,581
Total Revenue	$	5,564,228	$	541,423	$	6,105,651	$	9,835,236	$	2,161,747	$	11,996,983

	Three Months Ended
	June 30, 2020								June 30, 2019
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	251,584	$	1,352,196	$	12,383	$	1,616,163	$	72,025	$	1,494,915	$	132,098	$	1,699,038
Extended service-type warranties		16,917		589,048	$	41,548		647,513		5,049		493,145		50,437		548,631
Customized software and customized content scenarios		-		424,605	$	-		424,605		-		487,275		-		487,275
Installation and training		6,775		61,681	$	-		68,456		7,445		249,492		10,500		267,437
Licensing and royalties		13,042		-		-		13,042		51,932		-		-		51,932
Total Revenue	$	288,318	$	2,427,530	$	53,931	$	2,769,779	$	136,451	$	2,724,827	$	193,035	$	3,054,313

	Six Months Ended
	June 30, 2020								June 30, 2019
	Commercial		Government		International		Total		Commercial		Government		International		Total
Simulators and accessories	$	266,710	$	3,333,343	$	291,940	$	3,891,993	$	105,408	$	3,393,623	$	450,536	$	3,949,567
Extended service-type warranties		35,358		1,157,126	$	104,148		1,296,632		8,415		970,302		80,387		1,059,104
Customized software and customized content scenarios		17,957		650,369	$	-		668,326		-		662,168		-		662,168
Installation and training		9,451		205,384	$	4,964		219,799		17,196		315,547		10,500		343,243
Licensing and royalties		31,192		-		-		31,192		91,569		-		-		91,569
Total Revenue	$	360,668	$	5,346,222	$	401,052	$	6,107,942	$	222,588	$	5,341,640	$	541,423	$	6,105,651

	●	*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 ~~increase our marketing and sales activities.~~invest in potential growth.

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

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

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

	○	The ~~V-300™~~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 ~~lanes of~~ individual firing lanes.

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


	○	The ~~V-100™~~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™~~V-100® MIL is the higher standard among single-screen small arms training simulators. Military Engagement Skills mode supplies realistic scenario training taken from real world events.


	○	The V-ST ~~PRO™~~PRO® a highly-realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments. The system’s flexibility supports a combination of marksmanship and use of force training on up to 5 screens from a single operator station. The V-ST ~~PRO™~~PRO® is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics.

	●	~~Virtra Driving Sim~~VirTra Driver Training Simulator™ is a vehicle-based simulator, complete with next-generation graphics, motion and a variety of other features. The system is designed to provide safe, reliable environment for efficient skill transfer for all law enforcement driver training.

	●	Virtual Interactive Coursework Training Academy ~~(V-VICTA)™~~(V-VICTA®) enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators.

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


	●	~~V-Author™~~V-Author® Software allows users to create, edit, and train with content specific to agency’s objectives and environments. ~~V-Author™~~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 Recoil Kits - a wide range of highly realistic and reliable simulated recoil kits/weapons

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

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

	(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 ~~quarterly report~~Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2019.~~March 31, 2020.

Exhibit No.		Exhibit Description

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

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	VIRTRA, INC.

Date: August ~~13, 2019~~11, 2020	By:	/s/ Robert D. Ferris
		Robert D. Ferris
		Chief Executive Officer and President
		(principal executive officer)

	By:	/s/ Judy A. Henry
		Judy A. Henry,
		Chief Financial Officer
		(principal financial and principal accounting officer)