VirTra, Inc

Note1. Organization and Significant Accounting Policies

Organization and Business Operations

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” or “our”), located in Chandler, Arizona, is a global provider of judgmental use of force training simulators and firearms training simulators for the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to save and improve lives worldwide through practical and highly effective virtual reality and simulator technology. The Company sells its products worldwide through a direct sales force and international distribution partners. The original business started in1993 as Ferris Productions, Inc. In* September 2001,*Ferris Productions, Inc. merged with GameCom, Inc. to ultimately become VirTra, Inc., a Nevada corporation.

Basis of Presentation

The unaudited financial statements included herein have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with our audited financial statements for the year ended* December 31, 2025* included in the Company’s Annual Report on Form10-K for the fiscal year ended* December 31, 2025* filed with the SEC on* March 26,*2026. 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 hereinnot misleading.

The accompanying unaudited financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position on* June 30, 2026*, and the results of our operations and cash flows for the periods presented. We derived the* December 31, 2025* balance sheet data from audited financial statements; however, we didnot include all disclosures required by GAAP.

Interim results are subject to seasonal variations, and the results of operations for thethree andsix months ended* June 30, 2026*, arenot necessarily indicative of the results to be expected for the full year.

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Revision of Previously Issued Financial Statements

In the prior year, the Company identified an immaterial error in the2023 financial statements related to the functional currency designation of a Canadian sales transaction, which resulted in a $498,000 adjustment to retained earnings. The error was previously evaluated and determinednot to be material to the Company’s financial statements.

After giving effect to this correction and other prior-year revisions, the only permanent impact to retained earnings is the $498,000 adjustment related to the functional currency designation error.No other periods were materially affected. This disclosure is included in the current interim period because the effects of the prior-year correction continue to be reflected in stockholders’ equity as of* December 31, 2024and donot* represent a new error or restatement.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for credit losses 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.

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Revenue Recognition

The Company adopted the Financial Accounting Standards Board’s (the “FASB”) Accounting Standards Codification (“ASC”)606, Revenue from Contracts with Customer (Topic606) (“ASC606”) on* January 1, 2018,and the Company elected to use the modified retrospective transition method which requires application of ASC606* to uncompleted contracts at the date of adoption. The adoption of ASC606 didnot have a material impact on the financial statements.

Under ASC606, 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, the sale of customized content scenarios, 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 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:

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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 donot include variable consideration, significant financing components or non-cash consideration. The Company has elected to exclude sales and similar taxes from the measurement of the transaction price. The contract’s transaction price is allocated to the performance obligations based upon their stand-alone selling prices. Discounts on the stand-alone selling prices, if any, are allocated proportionately to each performance obligation.

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Disaggregation of Revenue

Under ASC606, 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.

Commercial customers include selling through prime contractors for military or law enforcement contracts, domestically. Government customers are defined as directly selling to government agencies. For thethree months ended* June 30, 2026*, governmental customers comprised $3,478,904, or 60% of total net sales, commercial customers comprised $116,718 or 2% of total net sales and international customers comprised $2,167,736 or 38% of total net sales. By comparison, for thethree months ended* June 30, 2025*, governmental customers comprised $5,444,143, or 78% of total net sales, commercial customers comprised $153,423 or 2% of total net sales and international customers comprised $1,381,372, or 20% of total net sales. For thethree months ended* June 30, 2026*, and2025, the Company recorded $973,818 and $1,033,836, respectively, in STEP revenue, or 17% and 15%, respectively, of total net sales. For thesix months ended* June 30, 2026*, governmental customers comprised $6,163,000, or 67% of total net sales, commercial customers comprised $200,998 or 2% of total net sales and international customers comprised $2,873,506 or 31% of total net sales. By comparison, for thesix months ended* June 30, 2025*, governmental customers comprised $10,599,544, or 75% of total net sales, commercial customers comprised $219,868 or 2% of total net sales and international customers comprised $3,319,773, or 23% of total net sales. For thesix months ended* June 30, 2026*, and2025, the Company recorded $1,960,222 and $1,974,429, respectively, in STEP revenue, or 21% and 14%, respectively, of total net sales.

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Segment Information

Information related to the Company’s reportable operating business segments is shown below. The Company’s reportable segments are reported in a manner consistent with the way management evaluates the businesses. The results of operations are regularly reviewed by the Company’s chief operating decision maker (“CODM”), the Chief Executive Officer. The Company identifies its reportable business segments based on differences in products and services. The accounting policies of the business segments are the same as those described in the summary of significant accounting policies. To evaluate each reportable segment’s performance, the CODM uses income from operations as a measure of profit and loss. The CODM compares operational performance against management expectations when making decisions regarding allocation of operating and capital resources to each segment.

The Company has identified the following business segments

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Customer Deposits

Customer deposits consist of prepaid deposits received for equipment purchase orders and for Subscription Training Equipment Partnership (“STEP”) operating agreements that expire annually. Customer deposits are considered a deferred liability until the completion of the customer’s contract performance obligation. When revenue is recognized, the deposit is applied to the customer’s receivable balance. Customer deposits are recorded as a current liability, and for the items that will be delivered or converted into revenue later thanone year, deposits are recorded to a long-term liability under deferred revenue on the balance sheet. As of* June 30, 2026*, there was $4,456,523 in current and $98,785 in long-term liabilities. As of* December 31, 2025*, there was $4,523,690 and $128,790 recorded as short-term and long-term liabilities, respectively. Changes in deferred revenue amounts related to customer deposits will fluctuate from year to year based upon the mix of customers required to prepay deposits under the Company’s credit policy.

Warranty

The Company warranties its products from manufacturing defects on a limited basis for a period ofone year after purchase but also sells separately priced extended service-type warranties for periods of up tofour years after the expiration of the standardone-year warranty. During the term of the initialone-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 warrantiesone year or less totaled $2,450,582 and $2,838,048 on* June 30, 2026* and* December 31, 2025*, respectively. Deferred revenue for separately priced extended warranties longer thanone year totaled $1,058,870 and $1,784,603 on* June 30, 2026* and* December 31, 2025*, respectively. The accrual for theone-year manufacturer’s warranty liability totaled $145,000 and $189,000 on* June 30, 2026* and* December 31, 2025*, respectively. During thesix months ended* June 30, 2026and2025*, the Company recognized revenue of $1,775,260 and $2,044,417, respectively, related to the extended service-type warranties that were amortized from the deferred revenue balance at the beginning of each period. Changes in deferred revenue amounts related to extended service-type warranties will fluctuate from year to year based upon the average remaining life of the warranties at the beginning of the period and new extended service-type warranties sold during the period.

STEP Revenue

The Company’s STEP operations consist principally of leasing its simulator products under operating agreements expiring inone year. At the commencement of a STEP agreement, any lease payments received are deferred andno 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 of12 months and can be renewed for an additional12-month period up totwo additional12-month periods maximum of36 months for the entire agreement. This is a change from prior years which allowed for renewals up to48 months for a total of60 months. Agreements* maybe terminated by either party upon written notice of termination at leastsixty* days prior to the end of the12-month period. The payments are generally fixed for thefirst year of the agreement, with increases in payments in subsequent years to be mutually agreed upon. The agreements donot include variable lease payments or free rent periods. In addition, the agreements donot provide for the underlying assets to be purchased at their fair market values at interim periods or at maturity, the assets are owned by VirTra and are required to be returned upon lease termination. 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 donot include a residual value guarantee.

Concentration of Credit Risk and Major Customers and Suppliers

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

The Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of $13,812,743 and $18,094,598 as of* June 30, 2026*, and* December 31, 2025*, respectively.

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Sales are typically made on credit, and the Company generally doesnot 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.

As of* June 30, 2026*, the Company hadtwo customers that accounted for 36% and 18% respectively, of total accounts receivable. As of* December 31, 2025*, the Company hadtwo customers that accounted for 31% and 14% of total accounts receivable.

For thethree months ended* June 30, 2026*, the Company hadone customer accounting for 29% of total revenues and forthree months ended* June 30, 2025*, the Company had customers accounting for 13% and 10% of the total revenues.

Net Income per Common Share

The net income per common share is computed by dividing net income by the weighted average of common shares outstanding. Diluted net income per share reflects the potential dilution, using the treasury stock method, that would occur if outstanding stock options and warrants were exercised. Earnings per share computations are as follows:

Note2. Inventory

Inventory consisted of the following as of:

The Company regularly evaluates the useful life of its spare parts inventory but didnot have any cause to reclassify any this quarter.

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Note3. Deferred Contract Costs

Deferred contract costs consisted of the following as of:

During the year ended* December 31, 2025,the Company entered into a customer agreement that includes development services and athree*-year step-priced arrangement. The consideration under the agreement is structured to recover development and other fulfillment costs over the full contract term. In accordance with ASC340-40, the Company capitalized costs incurred that (i) relate directly to the contract, (ii) generate or enhance resources that will be used in satisfying performance obligations in future periods, and (iii) are expected to be recovered through the transaction price. Capitalized costs primarily include internal andthird-party development labor and materials.

Deferred contract costs are amortized on a systematic basis consistent with the pattern of transfer of the related services, which the Company currently estimates to be over thethree-year contractual term. The Company evaluates deferred contract costs for impairment each reporting period.

At* June 30, 2026and2025*, deferred contract costs totaled $675,883 and $0, respectively, of which $374,375 and $0 were classified as current. Amortization expense recognized in cost of revenues was $187,187 and $0 for thesix-month ended* June 30, 2026and2025*, respectively. No impairment losses were recognized during the periods presented.

Note4. Property and Equipment

Property and equipment consisted of the following as of:

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Depreciation expenses, including STEP depreciation, were $754,255 and $749,879 for thesix months ended* June 30, 2026and2025*, respectively.

Note5. Intangible Assets

Intangible asset consisted of the following as of:

In connection with the acquisition of the Orlando property, VirTra assumedtwo existing long-term lease agreements for thesecond building. The acquisition resulted in the recognition of lease-related intangible assets totaling $256,990. These assets are being amortized over the remaining lease terms, with expiration dates in2028 and2033, respectively. Amortization expense was $236,140 and $80,453 for thesix months ended* June 30, 2026and2025*, respectively. The increase in2026 over2025 was the capitalized software amortization starting in thesecond quarter of2025 for the V-XR development.

Note6. Leases

On* June 1, 2022,we entered into a new lease of approximately 9,350 square feet located at12301* Challenger Parkway, Orlando, Florida, from an unaffiliatedthird party through* May 2027.*

The Company’s lease agreements donot contain any residual value guarantees, restrictive covenants, or variable lease payments. The Company hasnot 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 doesnot include an option to renew.

The Company determines if an arrangement is a lease at inception. Operating leases are recorded in operating lease right of use assets, net, operating lease liability – short-term, and operating lease liability – long-term on its balance sheets.

Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease doesnot 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 judgment is required when determining the Company’s incremental borrowing rate. The Company uses the implicit rate when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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Effective* June 1, 2022,the Company obtained a right-of-use asset in exchange for a new operating lease liability in the amount of $840,855. Effective January 1, 2019,*the Company obtained a right-of-use asset in exchange for a new operating lease liability in the amount of $1,721,380 and derecognized $46,523 deferred rent for an adjusted operating lease right-of-use asset in the net amount of $1,674,857.

VirTra completed the purchase of the Orlando property on* May 22, 2026.As a result, the related right-of-use (ROU) asset and lease liability associated with the property were derecognized and removed from the balance sheet. Accordingly, these lease-related balances have been fully written off andno* longer appear in the Company's financial position as of the purchase date. As on* June 30, 2026*the company wrote off the 196,099 lease asset and 209,372 in combined short and long term lease liabilities along with the security deposit which resulted in a 2,706 loss on disposal.

The balance sheet classification of lease assets and liabilities as of* June 30, 2026* are as follows:

There areno future minimum lease payments as of* June 30, 2026*

Rent expenses for thesix months ended* June 30, 2026and2025* were $76,675 and $93,624, respectively.

Note7. Accrued Expenses

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

Salaries and Wages payable is up significantly from* Decemberdue to the timing of payroll dates and the number of days accrued at the end of thesecond* quarter versus the days accrued at the end of the year.

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

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Note8. Notes Payable

On* May 22, 2026,the Company completed the purchase of real property located in Orlando, Florida (the “Orlando Property”) for $5,000,000 paid with $1,000,000 cash and proceeds from a mortgage loan from UMB (formerly Arizona Bank & Trust) in the amount of $4,000,000. The loan terms include interest to be accrued at a variable rate until our future swap,84 monthly payments of approximately $21,330, andone* irregular balloon payment of $3,427,889 due on the maturity date of* May 15, 2033.The Company began making monthly payments on June 15, 2026.*The payment and performance of the loan is secured by a security interest in the Orlando Property.

On* August 25, 2021,the Company completed the purchase of real property located in Chandler, Arizona (the “Chandler Property”) for $10,800,000 paid with cash and proceeds from a mortgage loan from Arizona Bank & Trust in the amount of $8,600,000. The loan terms include interest to be accrued at a fixed rate of 3% per year,119 regular monthly payments of $40,978, andone* irregular payment of $5,956,538 due on the maturity date of* August 23, 2031.The Company began making monthly payments on September 23, 2021.*The payment and performance of the loan is secured by a security interest in the Chandler Property.

Notes payable amounts consist of the following:

Note9. Related Party Transactions

In thefirst two quarters of2026, the Company paid Vialytix, LLC, a company owned by the CEO (John Givens) and his wife, $187,500 for software licenses.

In thefourth quarter of2025, the Company paid Vialytix, LLC $62,525 for licenses to a software product developed by Vialytix. The software product, which collects, evaluates, and analyzes simulation data, is modified and integrated by the Company with its product offerings in a format that allows users to increase training and manage budgets. The Company believes that integration of the software with its product offerings provides a customer-desired enhancement and improves the Company’s position against its competitors. Mr. Givens had commenced development of the software product prior to joining the Company as an officer in* May 2022,and Vialytix and the Company entered into a cooperative agreement in November 2023.*

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Note10. Commitments and Contingencies

Litigation

There isno pending litigation at this time.

Restricted Stock Unit Grants

There were awards of 15,739 shares of Restricted Stock units issued during thethree months ending* June 30, 2026*.

Profit Sharing

VirTra provides a discretionary profit-sharing program that pays out a percentage of Company profits each year as a cash bonus to eligible employees. The cash payment is typically split intotwo equal payments and distributed pro-rata in* Apriland Octoberof the following year to only active employees. For thesix* months ended* June 30, 2026and2025*, $0 and $107,549 was expensed to operations for profit sharing.

Note11. Stockholders’** Equity**

Common stock activity

There were 15,739 shares of common stock issued for RSU payments to the board of directors

Note12. Subsequent Events

None

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