UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
For the quarterly period ended September 30, 2025
For the transition period from _____________ to ______________
Commission file number: 001-38420
VIRTRA, INC.
(Exact name of registrant as specified in its charter)
Registrant’s telephone number, including area code: (480) 968-1488
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large, accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of November 5, 2025, the registrant had 11,300,607 shares of common stock outstanding.
TABLE OF CONTENTS
CONDENSED BALANCE SHEETS
(UNAUDITED)
See accompanying notes to unaudited condensed financial statements.
CONDENSED STATEMENTS OF OPERATIONS
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
CONDENSED STATEMENTS OF CASH FLOWS
See Note 4. for additional details concerning intangible asset classification and see accompanying notes to unaudited condensed financial statements.
NOTES TO FINANCIAL STATEMENTS
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 and ultimately became 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, 2024 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the SEC on March 27, 2025. 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 September 30, 2025, and the results of our operations and cash flows for the periods presented. We derived the December 31, 2024, balance sheet data from audited financial statements; however, we did not include all disclosures required by GAAP.
Interim results are subject to seasonal variations, and the results of operations for the three and nine months ended September 30, 2025, are not necessarily indicative of the results to be expected for the full year.
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 doubtful accounts, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets and intangible assets, income tax valuation allowances, 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.
Restatement of Year over Year Revenue Numbers for 2024
During the audit of the 2024 financial statements, it was discovered that due to issues in the implementation of new accounting software, a revenue line was missing in 2023. This occurred when a deposit from a 2021 customer was not accurately entered into the 2021 initial launch of the new accounting system. $747,977 of revenue was recorded in the first quarter of 2024 instead of in 2023, resulting in an overstatement of revenues for the quarter ending March 31, 2024, of $747,977. This adjustment was made in the audited financials of year ending 2024; however, this means that comparatives from 2024 to 2025 will continue to show the decrease of $747,977.
Sources of Revenues
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 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.
Schedule of Disaggregation of Revenue
Nine Months Ended September 30
(RESTATED)
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 September 30, 2025, governmental customers comprised $4,075,201or 76% of total net sales, commercial customers comprised $98,326or 2% of total net sales and international customers comprised $1,176,466or 22% of total net sales. By comparison, for the three months ended September 30, 2024, governmental customers comprised $6,855,425or 92% of total net sales, commercial customers comprised $204,800or 3% of total net sales and international customers comprised $424,045or 6% of total net sales. For the nine months ended September 30, 2025, governmental customers comprised $14,674,745or 75% of total net sales, commercial customers comprised $318,194or 2% of total net sales and international customers comprised $4,496,239or 23% of total net sales. By comparison, for the nine months ended September 30, 2024, governmental customers comprised $18,840,601or 87% of total net sales, commercial customers comprised $493,348or 2% of total net sales and international customers comprised $2,319,758or 11% of total net sales. For the nine months ended September 30, 2025, and 2024, the Company recorded $3,062,713and $2,867,023, respectively, in STEP revenue, or 16% and 14%, respectively, of total net sales.
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:
Schedule of Segment
See Note 3. for additional details about segment asset expenditures
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 both current and long-term liabilities under deferred revenue on the accompanying balance sheet. As of September 30, 2025, there was $3,878,940 in current and $26,960 in long-term. On December 31, 2024, there was only a current liability totaling $3,755,187. 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 $2,791,412 and $2,600,129 as of September 30, 2025, and December 31, 2024, respectively. Deferred revenue for separately priced extended warranties longer than one year totaled $2,148,850 and $2,207,950 as of September 30, 2025, and December 31, 2024, respectively. The accrual for the one-year manufacturer’s warranty liability totaled $194,000 and $212,000 as of September 30, 2025, and December 31, 2024, respectively. During the nine months ending September 30, 2025, and 2024, the Company recognized revenue of $2,921,939 and $2,439,199, 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 period 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 60 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. 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. Management notes with the 4-year history of providing this service and additional revenue stream, the Company has only had cancellation of a total of 9 STEP agreements before the 5-year end date of the contract, which equates to less than 5% of all agreements.
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 $20,267,105 and $17,540,827 as of September 30, 2025, and December 31, 2024, 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.
Historically, the Company primarily sells its products to U.S. federal, state, and municipal agencies.
As of September 30, 2025, the Company had one customer that accounted for 40% of total accounts receivable. As of December 31, 2024, the Company had two customers that accounted for 28% and 13% of total accounts receivable.
As of September 30, 2025, the Company had two suppliers that accounted for 15% and 14% of the total accounts payable.
For the three months ended September 30, 2025, the Company had one customer that accounted for 12% of total revenue and for three months ended September 30, 2024, one customer exceeded 10% of total revenues.
For the nine months ended September 30, 2025, the Company had no customers that accounted for more than 10% of total revenue and for nine months ended September 30, 2024, no single customer exceeded 10% of 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:
Schedule of Earnings Per Share
Note 2. Inventory
Inventory consisted of the following as of:
Schedule of Inventory
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. Property and Equipment
Property and equipment consisted of the following as of:
Schedule of Property and Equipment
Depreciation expenses, including STEP depreciation, were $1,101,013and $827,828 for the nine months ended September 30, 2025, and 2024, respectively. In the third quarter of 2025, the Company disposed of approximately $344,000 worth of outdated IT equipment that has been fully depreciated and no longer had value.
Note 4. Intangible Assets
Intangible asset consisted of the following as of:
Schedule of Intangible Assets
Amortization expenses were $196,196 and $6,667 for the nine months ended September 30, 2025, and 2024, respectively.
In the second quarter of 2025, the Company reclassified capitalized software development costs associated with V-XR from work in progress to an intangible asset upon the sale and delivery of the initial unit. The asset is being amortized over five years, reflecting its estimated useful life as determined through comprehensive evaluation.
Note 5. Leases
From 2016 through March 2019, the Company leased approximately 4,529rentable square feet of office and industrial space from an unaffiliated third party for its machine shop at 2169 East 5th St., Tempe, Arizona 85284. In April 2019, the Company relocated the machine shop from the 5th St. location to 7910 South Kyrene Road, located within the same business complex as its head office. The Company executed a lease amendment to add an additional 5,131rentable square feet for the machine shop and extended its existing office lease through April 30, 2024. Based on the requirements to move and leave the building in compliance with the company’s lease term, VirTra chose to use the holdover option in the lease agreement for the period of one additional month. The cost of this was split with the subtenant, this extended the lease through May 31, 2024, at which time VirTra entirely vacated the property.
On June 1, 2022, we entered into a new lease of approximately 9,350square feet located at 12301 Challenger Parkway, Orlando, Florida, from an unaffiliate third party through May 2027. Effective June 1, 2022, the Company obtained a right-of-use asset in exchange for a new operating lease liability 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 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 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 judgement is required when determining the Company’s incremental borrowing rate. The Company uses the implicit rate when readily determinable. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The balance sheet classification of lease assets and liabilities as of September 30, 2025, are as follows:
Schedule of Balance Sheet Classification of Lease Assets and Liabilities
September 30,
2025
December 31,
2024
Future minimum lease payments as of September 30, 2025, under non-cancellable operating leases are as follows:
Schedule of Future Minimum Lease Payments
Rent expenses for the nine months ended September 30, 2025, and 2024 were $145,588 and $382,162, respectively.
Note 6. Accrued Expenses
Accrued compensation and related costs consist of the following as of:
Schedule of Accrued Compensation and Related Costs
Accrued expenses and other current liabilities consisted of the following as of:
Schedule of Accrued Expenses and Other Current Liabilities
Note 7. Note 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:
Schedule of Notes Payable
$
Note 8. Related Party Transactions
None.
Note 9. Commitments and Contingencies
Litigation
From time to time, the Company is notified of litigation or that a claim is being made against it. The Company evaluates contingencies on an on-going basis and has established loss provisions for matters in which losses are probable and the amount of loss can be reasonably estimated. There is no known pending or threatened litigation at this time.
Restricted Stock Unit Grants
During the three months ended September 30, 2025, an employee was granted 6,624 shares of common stock pursuant to the vesting of a Restricted Stock Unit grant, and the Company’s Chief Executive Officer was granted 14,895 shares of common stock (after deducting 10,105 shares for the estimated tax liability) pursuant to a discretionary grant under his Restricted Stock Unit Agreement.
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 nine months ended September 30, 2025, and 2024, $(240,253) was credited to the operations to account for a true up to actual net income and $500,000 was expensed to operations for profit sharing, respectively.
Note 10. Stockholders’ Equity
Common stock activity
During the nine months ended September 30, 2025, the Company settled restricted stock units as follows:
Note 11. Subsequent Events
A total of 17,500 shares of common stock were granted to the Company’s four directors in consideration for their services as directors.
In October of 2025, the Company’s board of directors authorized sending a letter of intent to the landlord of our Orlando office for VirTra to purchase the building on Challenger Parkway by April 1st , 2026.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2024 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, 2024, filed with the Securities and Exchange Commission (the “SEC”) on March 27, 2025.
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 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.
Business Overview
VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and “our”) is a global provider of judgmental use of force training simulator 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, law enforcement and military, with a plan to expand our product into the complementary markets of hospitals and private security. 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:
Product Offerings
Our simulator products include the following:
Results of operations for the three and nine months ended September 30, 2025 and September 30, 2024
Revenues.Net sales were $5,349,993 for the three months ended September 30, 2025, compared to $7,484,269 for the same period in 2024, a decrease of $2,134,276 or 29%. Net sales were $19,489,178 for the nine months ended September 30, 2025, compared to $20,905,730 for the same period in 2024, a decrease of $1,416,552 or 7%. The decrease in revenue can be attributed to slower bookings in the second quarter and at the beginning of the third quarter, so we were unable to convert many bookings into revenue.
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.
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.
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.
Operating Income/Loss. Operating loss was $450,160 for the three months ended September 30, 2025, compared to $755,632 operating income for the same period in 2024, a decrease of $1,205,792 or 160%. Operating income was $1,832,010 for the nine months ended September 30, 2025, compared to $3,285,392 for the same period in 2024, a decrease of $1,453,382 or 44%.
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.
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.
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.
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:
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Liquidity and Capital Resources
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.
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.
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.
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.
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 $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.
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.
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.
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.
Cash Requirements
Our management believes that our current capital resources will be adequate to continue operating the company and maintaining our current business strategy for more than 12 months from the filing of this Quarterly Report. We are, however, open to raising additional funds from the capital markets, at a fair valuation, to expand our product and services offered, to enhance our sales and marketing efforts and effectiveness, and to aggressively take advantage of market opportunities. There can be no assurance, however, that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down our plans for expanded marketing and sales efforts.
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, 2024. Management believes there have been no changes in our critical accounting policies during the three months ended September 30, 2025.
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 September 30, 2025, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not required for smaller reporting companies.
ITEM 4. CONTROLS AND PROCEDURES.
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 September 30, 2025, 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, 2024, filed with the SEC on March 27, 2025. 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 the 10-K report, 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 and this process is currently underway.
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 September 30, 2025, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, during the quarter ended September 30, 2025, and continuing into 2025, 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.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we are a party or of which any of our property is the subject.
ITEM 1A. RISK FACTORS
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.