VirTra, Inc: Form 10-Q for the period ended Jun 30, 2026

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, 2025 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, 2025, filed with the Securities and Exchange Commission (the “SEC”) on March 26, 2026.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. The words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “would” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Quarterly Report on Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider 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 risk and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or people acting on our behalf are expressly qualified in their entirety by this cautionary statement.

Business Overview

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and “our”) 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 VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place daily 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® 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 can 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.

Business Strategy

We have two main customer groups, namely, law enforcement and military. 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:

• Build Our Core Business. Our goal is to profitably grow our market share by continuing to develop, produce, and market highly effective simulators and critical in-house integration components. We focus on delivering integrated solutions that enhance performance, reliability, and scalability for our customers. Through disciplined execution, we have strengthened our financial position by increasing working capital and limiting bank debt. We plan to selectively expand our management and technical teams as needed to support anticipated demand and increased marketing and sales activities
• 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 its 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 certain cases, the Company may enter new market segments through the introduction of new types of products or services. We also intend to leverage advancements in artificial intelligence and large language models to enhance realism, improve user interaction and client relatability, and reduce development time and costs across our product portfolio.
• 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.

Product Offerings

Our simulator products include the following:

• V-300™ Simulator – a 300° wrap-around screen with video capability is the higher standard for simulation training
• The V-300™ is the higher standard for decision-making simulation and tactical firearms training. Five screens and a 300-degree immersive training environment ensures that time in the simulator translates into real world survival skills. The system reconfigures to support 15 individual firing lanes.
• A key feature of the V-300™ shows how quickly judgment decisions must be made, and, sometimes, if they are not made immediately and accurately, it can lead to the possible loss of lives. This feature, among others, supports our value proposition to our customers is that best practices is being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters.
• V-180™ Simulator – a 180° screen with video capability is for smaller spaces or smaller budgets
• The V-180™ is the higher standard for decision-making simulation and tactical firearms training. Three screens and a 180-degree immersive training environment ensure that time in the simulator translates into real world survival skills.
• V-100™ Simulator & V-100™ MIL – a single-screen based simulator systems
• The V-100™ is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to 4 individual firing lanes at one time. The optional Threat-Fire™ device safely simulates enemy return fire with an electric impulse (or vibration version), reinforcing performance under pressure. We offer an upgrade path, so a V-100™ firearms training and force options simulator can affordably grow into an advanced multi-screen trainer in upgraded products that we offer customers for future purchase.
• The V-100™ 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 fits into almost any existing facility. If a portable firearms simulator is needed, this model offers the most compact single-screen simulator on the market today – everything organized into one standard case. The V-100™ MIL is the higher standard among single-screen small arms training simulators. Military Engagement Skills mode supplies realistic scenario training taken from real world events.
• The V-ST 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™ is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics.
• The V-100 NG-Next generation is a portable high fidelity simulation system that combines advanced simulation capabilities in a compact, self contained system designed for rapid setup, flexible deployment and instructor-led training across a wide range of operational scenarios for verbal use of force training and marksmanship skill development
• Virtual Interactive Coursework Training Academy (V-VICTA)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators.
• VirTra’s Red Dot Optic Training, a 4-hour nationally-certified course developed with Victory First and Aimpoint, equips law enforcement officers with the skills to transition from iron sights to pistol-mounted red dot sights through 21 practical drills. Part of the V-VICTA program, it enhances accuracy and target acquisition while addressing optic failures, offered free to VirTra customers with an annual service agreement
• Subscription Training Equipment Partnership (STEP)™ is a program that allows agencies to utilize VirTra’s simulator products, accessories, and V-VICTA interactive coursework on a subscription basis.
• V-Author® proprietary software allows users to create, edit, and train with content specific to the agency’s objectives and environments. V-Author is an easy-to-use application capable of almost unlimited custom scenarios, skill drills, targeting exercises, and firearms courses of fire. It also allows panoramic photos of any local location so users can train in their actual reality.
• Simulated Recoil Kits - a wide range of highly realistic and reliable simulated recoil kits/weapons made in the USA. VirTra’s True-Fire® recoil kits do not allow for faulty extra shots. Recoil kits use either CO2 or HPA greatly reducing the need for costly ammunition.
• Return Fire Device – the patented Threat-Fire® device applies real-world stress on the trainees during simulation training. Stress inoculation is a key component of training exercises. VirTra holds a patent for electronic simulation in simulation making the pairing of the device and the simulators a sourced item.
• VirTra has installed a volumetric video capture studio in order to create training scenarios that are used in either screen-based simulators or headset-based simulators. Volumetric video realism far exceeds that of computer-generated avatars which likely gives VirTra a strategic advantage for highly desired de-escalation training, especially when simulating human interaction is required. By using this studio, along with outside filming, we are able to offer customers the ability to purchase custom scenarios to meet their specific needs.
• TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training.
• V-XR is an extended reality headset-based training solution. It comes ready to use out of the box with two headsets, a trainer tablet, charging stations, a router, a casting device, and cables in a portable hard case, with a 3-year manufacturer’s warranty.
• APEX is a revolutionary, web-based platform that helps organizations collect, evaluate, analyze and report their training data through secure and consistent processes, these processes operate in real -time, ensuing workflow and training sessions are maximized for effectiveness. This platform through a partnership with Vialytics comes with the base subscription on every VirTra system with an Apex pro-option available as an upgrade

6

Results of operations for the three and six months ended June 30, 2026, and June 30, 2025

Revenues. Net sales for the three months ended June 30, 2026 were $5,763,358, compared to $6,978,938 for the same period in 2025, representing a decrease of $1,215,580, or 17%. Net sales for the six months ended June 30, 2026 were $9,237,504 compared to $14,139,185 for the same period in 2025, representing a decrease of $4,901,681, or 35%. The decrease was primarily the result of delayed revenue recognition related to temporary customer delivery deferrals. Importantly, backlog remains strong, supporting future revenue conversion as deliveries resume. Additionally, a larger portion of bookings came in at the end of the quarter, which resulted in revenue conversion of these bookings in the third quarter at the earliest. Revenue continues to be affected by our concentration in government-funded customers, including international customers whose purchases are funded through U.S. federal programs. The end of the second quarter was the first time the Company began to see funding start to open up, with a few large orders coming in from our long-term customers that finally had funds released.

Cost of Sales. Cost of sales increased to $2,347,656 for the three months ended June 30, 2026, from $2,166,461 for the same period in 2025, an increased of $181,195, or 8%, primarily due to a few content projects closing out which is charged to cost of goods as they finish and are sent to all customers. Cost of sales decreased to $3,687,998 for the six months ended June 30, 2026, from $4,129,828 for the same period in 2025, a decrease of $441,830, or 11%, primarily due to lower sales volumes. Cost of sales decreased on a year-over-year basis; however, the corresponding reduction was less significant than the decline in revenue, resulting in an increase in cost of sales as a percentage of revenue. This was driven primarily by development and content creation costs that are not directly variable with revenue levels.

Gross Profit. Gross profit was $3,415,702 for the three months ended June 30, 2026, compared to $4,812,477 for the same period in 2025, a decrease of $1,396,775, or 29%. Gross profit was $5,549,506 for the six months ended June 30, 2026, compared to $10,009,357 for the same period in 2025, a decrease of $4,459,851, or 45%. The gross profit margin for the three months ended June 30, 2026 and 2025 was 59% and 69%, respectively. The gross profit margin for the six months ended June 30, 2026 and 2025 was 60% and 71%, respectively. This decrease in margin is driven by the Company continuing to work on new scenarios for all our customers and improve our integrations with other software, including VBS and Vialytics, which will help drive revenue.

Operating Expenses. Net operating expense was $3,603,166 for the three months ended June 30, 2026, compared to $3,898,111 for the same period in 2025, a decrease of $294,945, or 8%. Net operating expense was $7,065,011 for the six months ended June 30, 2026, compared to $7,727,189 for the same period in 2025, a decrease of $662,178, or 9%. Operating expenses decreased during the period as a result of management's continued focus on cost-control measures and overhead optimization in anticipation of lower revenue levels.

Operating Income. Operating loss was ($187,464) for the three months ended June 30, 2026, compared to operating income of $914,366 for the same period in 2025, a decrease of $1,101,830 or 121%. Operating loss was ($1,515,505) for the six months ended June 30, 2026, compared to operating income of $2,282,168 for the same period in 2025, a decrease of $3,797,673 or 166%. The year-over-year decline was driven principally by lower revenues and higher cost of sales, while operating expenses decreased only marginally during the period.

Net Other Income. Other income net of other expense was $14,645 for the three months ended June 30, 2026, compared to net other expense of $748,052 for the same period in 2025, an improvement of $762,697, or 102%. Other income net of other expense was $68,053 for the six months ended June 30, 2026, compared to net other expense of $749,794 for the same period in 2025, an improvement of $817,847 or 109%. The change from expense to income is primarily attributable to a significant foreign exchange (FX) loss recognized in the second quarter of 2025, compared with minimal FX expense and higher interest income in 2026.

Provision (Benefit) for Income Tax. Provision for income tax was $88,439 for the three months ended June 30, 2026, compared to ($9,000) benefit for the same period in 2025, a decrease of $97,439, or 1083%. Provision for income tax was $142,438 for the six months ended June 30, 2026, compared to $93,000 for the same period in 2025, an increase of $49,438, or 53%. Provision for income tax is estimated quarterly applying both federal and state tax rates.

Net Income. Net loss was ($261,258) for the three months ended June 30, 2026, compared to net income of $175,314 for the same period in 2025, a decrease of $436,572 or 249%. Net loss was ($1,589,890) for the six months ended June 30, 2026, compared to net income of $1,439,374 for the same period in 2025, a decrease of $3,029,264 or 210%. The fluctuation in net income relates to each respective revenue 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 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 GAAP or as a measure of profitability or liquidity. A reconciliation of net loss to adjusted EBITDA is provided in the following table:

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 $14,312,743 and $ 18,594,598 of cash and cash equivalents as of June 30, 2026, and December 31, 2025, respectively. Working capital was $28,373,949 and $30,793,890 as of June 30, 2026, and December 31, 2025 respectively.

Net cash used in operating activities was $2,720,870 and net cash provided by operating activities was $6,047,430 for the six months ended June 30, 2026 and 2025, respectively. Net cash used in operating activities resulted primarily from the net loss for the period and increases in inventory to support future growth and $1,000,000 used for the Orlando building purchase deposit.

Net cash used in investing activities was $1,442,859 for the six months ended June 30, 2026, compared to net cash used in investing activities of 3,261,941 for the six months ended June 30, 2025. Investing activities in 2026 and 2025 consisted of purchases of property and equipment.

Net cash used in financing activities was $122,116 for the six months ended June 30, 2026, compared to $128,962 used in the six months ended June 30, 2025. In both periods, cash was used primarily for principal payment of debt and in 2026 the creation of the new mortgage note for the purchase of the Orlando building.

Bookings and Backlog

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 $5.5 million for the three months ended June 30, 2026 and bookings totaling $9.3 million for the six months ended June 30, 2026. The Company has made one change to the booking qualifications. As previously disclosed, in 2024 we strengthened the language in the STEP contract Terms and Conditions to better ensure the agreement remains in effect for the full three-year term. This change was done to secure future revenue and lower our risk of unsigned or cancelled contracts. Therefore, with this change, we believe there are $1.7 million in renewable STEP contract options still outstanding, and based on current renewal rates, the Company believes 95% of those options will be exercised.

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, 2026, the Company’s backlog was $13.2 million in Capital, $3.8 million in Service and $7.9 million in STEP, for a total of $24.9 million. This is a decrease in backlog from December 31, 2025 which sat at $13.8 million in Capital, $5.1 million in Service and $6.7 million in STEP, for a total of $25.6 million

Management estimates that most new capital bookings received in the second quarter of 2026 will be converted to revenue in 2026. Management recognizes that there are a percentage of capital contracts that will extend into 2027 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.

Cash Requirements

Our management believes that our current capital resources will be adequate to continue operating our 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 purchase a business or assets, expand our production capacity, expand our product and services, to enhance our sales and marketing efforts and effectiveness, and to aggressively take advantage of emerging 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, when it is needed, we will be forced to scale down our plans for expanded marketing and sales efforts.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited 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 on Form 10-K for the year ended December 31, 2025. Management believes that there have been no changes in our critical accounting policies during the three months ended June 30, 2026.

Recent Accounting Pronouncements

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

Off-Balance Sheet Arrangements

As of June 30, 2026, 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 guaranteed 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.

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls 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 officers and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officers 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 officers and principal financial officer concluded that as of June 30, 2026, 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 on Form 10-K for the year ended December 31, 2025, filed with the SEC on March 26, 2026. These weaknesses were (i) lack of multiple levels of management review on complex business, accounting, and financial reporting issues and (ii) failure to implement adequate system and manual controls. As noted in 10-K, until such time as we expand our staff to include additional accounting and executive personnel and accounting systems and procedures, it is likely the first material weakness will continue. With respect to the second material weakness, our Board of Directors has directed management to implement more effective system and manual controls.

Change in internal control over financial reporting

There has been no change in our internal control over financial reporting that occurred during the quarterly period ended June 30, 2026, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, during the quarter ended June 30, 2026, and continuing through 2026, we are implementing more formal review and documentation of workflow processes and increasing our ERP training for our staff. 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.