VirTra, Inc

Previous wording

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 numerous 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 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 people acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Current wording

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 harbour” 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 numerous 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 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 people acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Previous wording

Results of operations for the three and six months ended June 30, 2025 and June 30, 2024

Current wording

Results of operations for the three and nine months ended September 30, 2025 and September 30, 2024

Previous wording

***Cost of Sales.***Cost of sales were $2,166,461 for the three months ended June 30, 2025, compared to $550,424 for the same period in 2024, an increase of $1,616,037 or 294%. Cost of sales were $4,129,828 for the six months ended June 30, 2025, compared to $3,182,682 for the same period in 2024 or an increase of 947,146 or 30%. The dollar increase from 2024 to 2025 correlates to a reclassification of COGS labor related to our development projects in 2024 that as an outlier lowered the COGS, whereas in 2025 we had normal COGS expense associated with such revenue.

Current wording

***Cost of Sales.***Cost of sales were $1,831,969 for the three months ended September 30, 2025, compared to $1,986,296 for the same period in 2024, a decrease of $154,327 or 8%. Cost of sales were $5,961,795 for the nine months ended September 30, 2025, compared to $5,168,978 for the same period in 2024 or an increase of $792,817 or 15%. The dollar increase from 2024 to 2025 correlates to the closing of multiple R&D projects in the quarter that resulted in an expense being recorded, but not related to revenue.

Previous wording

***Gross Profit.***Gross profit was $4,812,477 for the three months ended June 30, 2025, compared to $5,524,616 for the same period in 2024, a decrease of $712,139, or 13%. Gross profit was $10,009,357 for the six months ended June 30, 2025, compared to $10,238,779 for the same period in 2024, a decrease of $229,422, or 2%. The gross profit margin for the three months ended June 30, 2025 and 2024 was 69% and 91%, respectively. The gross profit margin for the six months ended June 30, 2025 and 2024 was 71% and 76%, respectively. This decline is solely driven by the increase in Cost of Sales as stated above.

Current wording

***Gross Profit.***Gross profit was $3,518,024 for the three months ended September 30, 2025, compared to $5,497,973 for the same period in 2024, a decrease of $1,979,949, or 36%. Gross profit was $13,527,383 for the nine months ended September 30, 2025, compared to $15,736,752 for the same period in 2024, a decrease of $2,209,369, or 14%. The gross profit margin for the three months ended September 30, 2025 and 2024 was 66% and 73%, respectively. The gross profit margin for the nine months ended September 30, 2025 and 2024 was 69% and 75%, respectively. This decline is driven by the increase in Cost of Sales for the year along with the closing of projects without supporting revenue as stated above.

Previous wording

Operating Expenses. Net operating expense was $3,898,111 for the three months ended June 30, 2025, compared to $4,393,195 for the same period in 2024, a decrease of $495,084, or 11%. Net operating expense was $7,727,188 for the six months ended June 30, 2025, compared to $8,456,997 for the same period in 2024, a decrease of $729,809, or 9%. This decrease comes from the Company’s efforts to lower overhead and operating costs as we navigate an increasingly difficult funding environment for our government customers.

Current wording

Operating Expenses. Net operating expense was $3,968,184 for the three months ended September 30, 2025, compared to $4,742,341 for the same period in 2024, a decrease of $774,157, or 16%. Net operating expense was $11,695,373 for the nine months ended September 30, 2025, compared to $13,199,337 for the same period in 2024, a decrease of $1,503,964, or 11%. This decrease comes from the Company’s efforts to lower overhead and operating costs as we navigate an increasingly difficult funding environment for our government customers.

Previous wording

***Other Expense.***Other income net of other expense was $(748,052) for the three months ended June 30, 2025, compared to net other income of $156,870 for the same period in 2024, a decrease of $904,922, or 577%, primarily from gain/loss on foreign exchange due to large Canadian orders paying invoices. Other expense was $(749,794) for the six months ended June 30, 2025, compared to net other income of $486,141 for the same period in 2024, a decrease of $1,235,935, or 254%, primarily from gain/loss on foreign exchange.

Current wording

***Other Income/Expense.***Other income net of other expense was $89,683 for the three months ended September 30, 2025, compared to net other income of $35,469 for the same period in 2024, an increase of $54,214, or 153%, primarily from interest income. Other expense was $660,112 for the nine months ended September 30, 2025, compared to net other income of $521,610 for the same period in 2024, a decrease of $1,181,722, or 227%, primarily from gain/loss on foreign exchange.

Previous wording

***Provision (Benefit) for Income Tax.***Provision for income tax was $9,000 for the three months ended June 30, 2025, compared to $87,564 for the same period in 2024, a decrease of $96,564, or 110%. Provision for income tax was $93,000 for the six months ended June 30, 2025, compared to $599,000 for the same period in 2024, a decrease of $506,000, or 84%. The provision for income tax is estimated quarterly applying both federal and state tax rates.

Current wording

***Provision (Benefit) for Income Tax.***Provision for income tax was $28,090 for the three months ended September 30, 2025, compared to $208,000 for the same period in 2024, a decrease of $179,910, or 86%. Provision for income tax was $121,091 for the nine months ended September 30, 2025, compared to $807,000 for the same period in 2024, a decrease of $685,909, or 85%. The provision for income tax is estimated quarterly applying both federal and state tax rates.

Previous wording

***Net Income.***Net income was $175,314 for the three months ended June 30, 2025, compared to $1,200,727 for the same period in 2024, a decrease of $1,025,413 or 85%. Net income was $1,439,375 for the six months ended June 30, 2025, compared to $1,668,923 for the same period in 2024, a decrease of $229,548 or 14%. The fluctuations in net income relate to each respective section discussed above.

Current wording

***Net Income/Loss.***Net loss was $388,567 for the three months ended September 30, 2025, compared to $583,101 net income for the same period in 2024, a decrease of $971,668 or 167%. Net income was $1,050,807 for the nine months ended September 30, 2025, compared to $2,252,025 for the same period in 2024, a decrease of $1,201,218 or 53%. The fluctuations in net income relate to each respective section discussed above.

Previous wording

Liquidity is an enterprise’s ability to generate enough cash to meet its needs for cash requirements. The Company had $20,697,354 and $18,040,827 of cash and cash equivalents as of June 30, 2025 and December 31, 2024, respectively. Working capital was $34,120,441 and $34,826,680 as of June 30, 2025 and December 31, 2024, respectively.

Current wording

Liquidity is an enterprise’s ability to generate enough cash to meet its needs for cash requirements. The Company had $20,767,105 and $18,040,827 of cash and cash equivalents as of September 30, 2025 and December 31, 2024, respectively. Working capital was $32,912,552 and $34,826,680 as of September 30, 2025 and December 31, 2024, respectively.

Previous wording

Net cash provided by operating activities was $6,044,492 and $1,268,224 for the six months ended June 30, 2025 and 2024, respectively. Net cash provided by operating activities resulted primarily from the net income for both periods and the decrease in accounts receivable as we have improved collection efforts.

Current wording

Net cash provided by operating activities was $6,083,776 and $2,165,918 for the nine months ended September 30, 2025 and 2024, respectively. Net cash provided by operating activities resulted primarily from the decrease in accounts receivable and inventory.

Previous wording

Net cash used in investing activities was $3,261,941 for the six months ended June 30, 2025, compared to net cash used in investing activities of $1,608,798 for the comparable 2024 period. Investing activities in 2025 and 2024 consisted of converting the V-XR software development to an intangible asset valued at approximately $2.2 million.

Current wording

Net cash used in investing activities was $3,164,442 for the nine months ended September 30, 2025, compared to net cash used in investing activities of $1,692,249 for the comparable 2024 period. Investing activities in 2025 and 2024 consisted of converting the V-XR software development to an intangible asset valued at approximately $2.2 million.

Previous wording

Net cash used in financing activities was $126,024 for the six months ended June 30, 2025, compared to $97,634 used for the six months ended June 30, 2024. In both periods, cash was used primarily for principal payment of debt. In 2024, this was also offset by the proceeds from the issuance of stock options, which we no longer have in 2025.

Current wording

Net cash used in financing activities was $193,056 for the nine months ended September 30, 2025, compared to $344,944 provided for the nine months ended September 30, 2024. In both periods, cash was used primarily for principal payment of debt. In 2024, this was also offset by the proceeds from the issuance of stock options, which we no longer have in 2025.

Previous wording

The Company defines bookings as the total of newly signed contracts, awarded RFP’s and purchase orders received in a defined time period. The Company received bookings totaling $4.6 million for the three months ended and $11 million for the six month ending June 30, 2025. The Company has made one change to the booking qualifications in the fourth quarter of 2024. We have strengthened the language in the STEP contract Terms and Conditions to guarantee the agreement for the full three-year term. This change secures future revenue and lowers our risk of unsigned or cancelled contracts. Since the change was only made in the fourth quarter of 2024, we still estimate that there are approximately $4 million in renewable STEP contract options still outstanding. Based on current renewal rates, the Company believes 95% of those options will be exercised.

Current wording

The Company defines bookings as the total of newly signed contracts, awarded RFP’s and purchase orders received in a defined time period. The Company received bookings totaling $8.4 million for the three months ended and $19.4 million for the nine months ending September 30, 2025. The Company has made one change to the booking qualifications in the fourth quarter of 2024. We have strengthened the language in the STEP contract Terms and Conditions to guarantee the agreement for the full three-year term. This change secures future revenue and lowers our risk of unsigned or cancelled contracts. Since the change was only made in the fourth quarter of 2024, we still estimate that there are approximately $3.2 million in renewable STEP contract options still outstanding. Based on current renewal rates, the Company believes 95% of those options will be exercised.

Previous wording

The Company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not started, or have uncompleted performance objectives, and cannot be recognized as revenue until delivered in a future quarter. The Company splits the backlog into three categories. The first is capital which includes sales of all the simulators, corresponding accessories, installs, training custom content and custom design work. The second and third are 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, 2025, the Company’s backlog was $18.8 million, consisting of $7.1 million in Capital, $5.7 million in Service and $6 million in STEP.

Current wording

The Company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not started, or have uncompleted performance objectives, and cannot be recognized as revenue until delivered in a future quarter. The Company splits the backlog into three categories. The first is capital which includes sales of all the simulators, corresponding accessories, installs, training custom content and custom design work. The second and third are extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of September 30, 2025, the Company’s backlog was $21.9 million, consisting of $10.2 million in Capital, $5.3 million in Service and $6.4 million in STEP.

Previous wording

Management estimates that most new capital bookings received in the second quarter of 2025 will be converted to revenue in 2025. Management recognizes that there are a percentage of capital contracts that will extend into 2026 by request of the customers. Management’s estimate for the conversion of backlog is based on current contract delivery dates; however, contract terms and install dates are subject to modification and are routinely changed at the request of the customer or due to factors outside the Company’s control.

Current wording

A portion of new capital bookings received in the third quarter of 2025 was converted to revenue in the third quarter, and management recognizes that a portion of capital contracts will extend into 2026 by request of the customers. Management’s estimate for the conversion of backlog is based on current contract delivery dates; however, contract terms and install dates are subject to modification and are routinely changed at the request of the customer or due to factors outside the Company’s control.

Previous wording

With a new federal administration in place at the beginning of 2025, it is unknown what impact that will have on our bookings for the remainder of 2025. Budget cuts have been discussed and we have seen some grants and other federal funding frozen for most of the first and second quarter, but nothing definitive has occurred as of the date of this report.

Current wording

With a new federal administration in place at the beginning of 2025, it is unknown what impact that will have on our bookings for the remainder of 2025. Additionally we note that although the Government shutdown began at the start of the fourth quarter and does not impact this third quarter report, it will make an impact on the Company in the fourth quarter as all federal funding is currently shut down. We are continuing to monitor the status and timing with all agencies as this shutdown can delay new contract bookings as well as cause delay in receipts of current deliverables that are not known at this time.