VirTra, Inc

Note 1. Organization and Significant Accounting Policies

Organization and Business Operations

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” or “our”), located in Chandler, Arizona, is a global provider of judgmental use of force training simulators and firearms training simulators for the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to save and improve lives worldwide through practical and highly effective virtual reality and simulator technology. The Company sells its products worldwide through a direct sales force and international distribution partners. The original business started in 1993 as Ferris Productions, Inc. 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 Form 10-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 herein not misleading.

The accompanying unaudited financial statements reflect, in our opinion, all normal recurring adjustments necessary to present fairly our financial position on March 31, 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 did not include all disclosures required by GAAP.

Interim results are subject to seasonal variations, and the results of operations for the three months ended March 31, 2026, are not necessarily indicative of the results to be expected for the full year.

Revision of Previously Issued Financial Statements

In the prior year, the Company identified an immaterial error in the 2023 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 determined not 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, 2024 and do not 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.

Revenue Recognition

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

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

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:

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 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.

***Disaggregation of Revenue ***

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

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 the three months ended March 31, 2026, governmental customers comprised $2,684,096, or 77% of total net sales, commercial customers comprised $84,279 or 3% of total net sales and international customers comprised $705,771 or 20% of total net sales. By comparison, for the three months ended March 31, 2025, governmental customers comprised $5,155,402, or 72% of total net sales, commercial customers comprised $66,444 or 1% of total net sales and international customers comprised $1,938,401, or 27% of total net sales. For the three months ended March 31, 2026, and 2025, the Company recorded $986,405 and $940,592, respectively, in STEP revenue, or 28% and 13%, respectively, of total net sales.

Segment Information

Information related to the Company’sreportable 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

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 than one year, deposits are recorded to a long-term liability under deferred revenue on the balance sheet. As of March 31, 2026, there was $4,108,248 in current and $140,804 in long-term. 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 of one year after purchase but also sells separately priced extended service-type warranties for periods of up to four years after the expiration of the standard one-year warranty. During the term of the initial one-year warranty, if the device fails to operate properly from defects in materials and workmanship, the Company will fix or replace the defective product. Deferred revenue for separately priced extended warranties one year or less totaled $2,704,938 and $2,838,048 on March 31, 2026 and December 31, 2025, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $1,418,887 and $1,784,603 on March 31, 2026 and December 31, 2025, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $158,000 and $189,000 on March 31, 2026 and December 31, 2025, respectively. During the three months ended March 31, 2026 and 2025, the Company recognized revenue of $874,935 and $970,111, 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 in one year. At the commencement of a STEP agreement, any lease 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 an additional 12-month period up to two additional 12-month periods maximum of 36 months for the entire agreement. This is a change from prior years which allowed for renewals up to 48 months for a total of 60 months. Agreements may be terminated by either party upon written notice of termination at least sixty days prior to the end of the 12-month period. The payments are generally fixed for the first year of the agreement, with increases in payments in subsequent years to be mutually agreed upon. The agreements do not include variable lease payments or free rent periods. In addition, the agreements do not provide for the underlying assets to be purchased at 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 do not include a residual value guarantee.

Concentration of Credit Risk and Major Customers and Suppliers

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

The Company’s cash, cash equivalents and certificates of deposit are maintained with financial institutions with high credit standings and are FDIC insured deposits. The FDIC insures deposits according to the ownership category in which the funds are insured and how the accounts are titled. The standard deposit insurance coverage limit is $250,000 per depositor, per FDIC-insured bank, per ownership category. The Company had uninsured cash and cash equivalents of $17,350,178 and $18,094,598 as of March 31, 2026, and December 31, 2025, 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.

As of March 31, 2026, the Company had two customers that accounted for 33% and 16% respectively, of total accounts receivable. As of December 31, 2025, the Company had two customers that accounted for 31% and 14% of total accounts receivable.

For the three months ended March 31, 2026, the Company has no single customer accounting for more than 10% and for March 31, 2025, the Company had one customer accounting for 14% of the total revenue and another accounting for 10%

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:

**Note 2. Inventory **

Inventory consisted of the following as of:

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

**Note 3. 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 a three-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 ASC 340-40, 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 and third-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 the three-year contractual term. The Company evaluates deferred contract costs for impairment each reporting period.

At March 31, 2026 and 2025, deferred contract costs totaled $769,477 and $0, respectively, of which $374,375 and $0 were classified as current. Amortization expense recognized in cost of revenues was $93,594 and $0 for the years ended March 31, 2026 and 2025, respectively. No impairment losses were recognized during the periods presented.

Note 4. Property and Equipment

Property and equipment consisted of the following as of:

Depreciation expenses, including STEP depreciation, were $354,530 and $314,418 for the three months ended March 31, 2026 and 2025, respectively.

Note 5. Intangible Assets

Intangible asset consisted of the following as of:

Amortization expense was $115,497 and $2,222 for the three months ended March 31, 2026 and 2025, respectively. The increase is due to the addition of capitalized software amortization from the 2025 capitalization of the V-XR development.

Note 6. Leases

On June 1, 2022, we entered into a new lease of approximately 9,350 square feet located at 12301 Challenger Parkway, Orlando, Florida, from an unaffiliate third party through May 2027.

The Company’s lease agreements do not contain any residual value guarantees, restrictive covenants, or variable lease payments. The Company has not entered into any financing leases.

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 balance sheets.

Operating lease assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the Company’s lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate used at adoption was 4.5%. Significant 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.

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.

The balance sheet classification of lease assets and liabilities as of March 31, 2026 are as follows:

Future minimum lease payments as of March 31, 2026, under non-cancellable operating leases are as follows:

Rent expenses for the three months ended March 31, 2026 and 2025 were $48,614 and $47,205, respectively.

**Note 7. Accrued Expenses **

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

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

Note 8. Notes Payable

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

Note payable amounts consist of the following:

Note 9. Related Party Transactions

In the first quarter of 2026, the company paid Vialytix, LLC $125,000 for the software licenses (see Vialytix, LLC ownership information below

In the fourth quarter of 2025, the Company paid Vialytix, LLC, a company owned by the CEO, John Givens and his wife Michelle Givens, $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.

Note 10. Commitments and Contingencies

Litigation

There is no pending litigation at this time.

Restricted Stock Unit Grants

There were no awards of Restricted Stock units during the three months ending March 31, 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 into two equal payments and distributed pro-rata in April and October of the following year to only active employees. For the three months ended March 31, 2026 and 2025, $0 and $107,549 was expensed to operations for profit sharing.

Note 11. Stockholders’ Equity

Common stock activity

There was no common stock activity

Note 12. Subsequent Events

VirTra expects to close on the purchase of the Orlando property in May 2026. The acquisition will be funded through a combination of cash on hand and a mortgage secured by the property. In addition to the primary facility, the property includes a second building that is currently leased to two long-term tenants. Rental income from these tenants is expected to substantially offset the Company’s cash outflows related to the mortgage.