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<SEC-DOCUMENT>0001332489-05-000007.txt : 20050815
<SEC-HEADER>0001332489-05-000007.hdr.sgml : 20050815
<ACCEPTANCE-DATETIME>20050815163041
ACCESSION NUMBER:		0001332489-05-000007
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20050630
FILED AS OF DATE:		20050815
DATE AS OF CHANGE:		20050815

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VIRTRA SYSTEMS INC
		CENTRAL INDEX KEY:			0001085243
		STANDARD INDUSTRIAL CLASSIFICATION:	SERVICES-AMUSEMENT & RECREATION SERVICES [7900]
		IRS NUMBER:				931207631
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-28381
		FILM NUMBER:		051027097

	BUSINESS ADDRESS:	
		STREET 1:		440 NORTH CENTER
		CITY:			ARLINGTON
		STATE:			TX
		ZIP:			76011
		BUSINESS PHONE:		8172650440

	MAIL ADDRESS:	
		STREET 1:		440 NORTH CENTER
		CITY:			ARLINGTON
		STATE:			TX
		ZIP:			76011

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	GAMECOM INC
		DATE OF NAME CHANGE:	19991103
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>final10q63005.htm
<TEXT>
<!doctype html public "-//IETF//DTD HTML//EN">
<HTML>
<HEAD>
<TITLE>UNITED STATES </TITLE>
<META NAME="author" CONTENT="kbiggs">
<META NAME="date" CONTENT="08/15/2005">
</HEAD>
<BODY style="font-size:10pt; color:#000000">
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman; font-size:14pt" align=center><B>UNITED STATES</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman; font-size:14pt" align=center><B>SECURITIES AND EXCHANGE COMMISSION</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>Washington, D.C. 20549</P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman; font-size:18pt" align=center><B>FORM 10-QSB</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>(Mark One) </P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><B>|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><B>EXCHANGE ACT OF 1934</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>For the quarterly period ended June 30, 2005</P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>or </P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><B>|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><B>EXCHANGE ACT OF 1934</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>For the transition period from ________________ to ______________________ </P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><I>Commission File Number 000-28381 </I></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman; font-size:18pt" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>&nbsp;(Exact name of registrant as specified in its charter) </P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><BR></P>
<TABLE style="margin-right:36pt; font-size:10pt" cellspacing=0 align=center><TR><TD valign=top width=342.667><P style="margin:0pt; font-family:Times New Roman" align=center>Texas</P>
</TD><TD valign=top width=315.133><P style="margin:0pt; font-family:Times New Roman" align=center>93-1207631</P>
</TD></TR>
<TR><TD valign=top width=342.667><P style="margin:0pt; font-family:Times New Roman; font-size:9pt" align=center>(State or other jurisdiction of incorporation or organization)</P>
</TD><TD valign=top width=315.133><P style="margin:0pt; font-family:Times New Roman; font-size:9pt" align=center>(IRS Employer Identification No.)</P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman; font-size:8.5pt"><BR></P>
<TABLE style="margin-right:36pt; font-size:10pt" cellspacing=0 align=center><TR><TD valign=top width=343.2><P style="margin:0pt; font-family:Times New Roman" align=center>440 North Center, Arlington, TX</P>
</TD><TD valign=top width=312><P style="margin:0pt; font-family:Times New Roman" align=center>76011</P>
</TD></TR>
<TR><TD valign=top width=343.2><P style="margin:0pt; font-family:Times New Roman; font-size:9pt" align=center>(Address of principal executive offices)</P>
</TD><TD valign=top width=312><P style="margin:0pt; font-family:Times New Roman; font-size:9pt" align=center>(Zip Code)</P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center>(817) 261-4269</P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman; font-size:9pt" align=center>(Registrant's telephone number, including area code)</P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman" align=center><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman">Check 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.</P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman">YES |X| NO |_| </P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman">As of August 1, 2005, the Registrant had outstanding 61,816,398 shares of common stock, par value $.005 per share.</P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR>
<BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<A NAME="fis_part_i"></A><P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; padding-right:36pt; width:540pt; font-family:Times New Roman" align=center><B>PART I. &nbsp;FINANCIAL INFORMATION</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><B><BR></B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><B><U>Item 1</U>. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Financial Statements</U>.</B></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<A NAME="fis_management_analysis"></A><P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR>
<BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:36pt; margin-bottom:0pt; width:576pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:36pt; margin-bottom:0pt; padding-right:36pt; width:540pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>BALANCE <A NAME="Balance_sheet"></A>SHEET</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>June 30, 2005 and December 31, 2004</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>__________</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>June 30,</B></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>December 31,</B></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>2005</B></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>2004</B></P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman"><B><U>ASSETS</U></B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>(Unaudited)</B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>(Note)</B></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Current assets:</P>
</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Cash and cash equivalents</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,750</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;160,566</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Accounts receivable</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>94,100</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>9,430</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Costs and estimated earnings in excess of billings on uncompleted contracts</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;167,764</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;51,830</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:27pt; font-family:Times New Roman">Total current assets</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>267,614</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>221,826</P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Property and equipment, net</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>959,870</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>1,034,917</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Other assets, net</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;191,650</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;196,223</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:45pt; font-family:Times New Roman">Total assets</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>$1,419,134</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>$1,452,966</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman"><B><U>LIABILITIES AND STOCKHOLDERS&#146; DEFICIT</U></B></P>
</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Current liabilities:</P>
</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Notes payable</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$1,196,857</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$1,349,700</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Obligations under product financing arrangements</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>841,780</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>819,900</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Notes payable-stockholders</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>294,500</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>294,500</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Convertible debentures</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>750,000</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Accounts payable</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>931,728</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>1,008,589</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Accrued liabilities</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>1,238,768</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>1,189,194</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Payable to related party</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;35,495</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30,281</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:27pt; font-family:Times New Roman">Total current liabilities</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;5,289,128</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;4,692,164</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Redeemable common stock, 406,458 shares at $.005 par value</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,859</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,032</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Commitments and contingencies</P>
</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; font-family:Times New Roman">Stockholders&#146; deficit:</P>
</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:27pt; text-indent:-13.5pt; font-family:Times New Roman">Common stock, $.005 par value, 100,000,000 shares authorized, </P>
<P style="margin:0pt; padding-left:27pt; text-indent:-13.5pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;60,947,790 shares issued and outstanding</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=right>304,739</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=right>302,191</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Additional paid-in capital</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>8,662,964</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>8,210,395</P>
</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:13.5pt; font-family:Times New Roman">Accumulated deficit</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>(12,839,556</U>)</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>(11,753,816</U>)</P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:27pt; font-family:Times New Roman">Total stockholders&#146; deficit</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(3,871,853</U>)</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(3,241,230)</U></P>
</TD></TR>
<TR><TD valign=top width=457.2>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=457.2><P style="margin:0pt; padding-left:45pt; font-family:Times New Roman">Total liabilities and stockholders&#146; deficit</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>$1,419,134</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right><U>$1,452,966</U></P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>See accompanying notes to financial statements.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B><BR>
<BR></B></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>STATEMENT<A NAME="Income_statement"></A> OF OPERATIONS</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>for the three months and six months ended June 30, 2005 and 2004</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>__________</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=279.333>&nbsp;</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=182.133 colspan=2><P style="margin:0pt; padding-left:-5.4pt; font-family:Times New Roman" align=center><B>Three&nbsp;Months&nbsp;Ended&nbsp;June&nbsp;30,</B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=176.933 colspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B>Six&nbsp;Months&nbsp;Ended&nbsp;June&nbsp;30,</B></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=center><B>2005</B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=center><B>2004</B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=center><B>2005</B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=center><B>2004</B></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Revenue:</P>
</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Custom&nbsp;applications:</P>
</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Training/simulation</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;105,541</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;234,952</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;232,409</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;384,254</P>
</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Advertising/promotion</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right>118,628</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right>128,041</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right>129,422</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right>264,492</P>
</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Warranty and other revenue</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30,910</U></P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11,125</U></P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;59,253</U></P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;22,250</U></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;Total&nbsp;revenue</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right>255,079</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right>374,118</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right>421,084</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right>670,996</P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Cost&nbsp;of&nbsp;sales&nbsp;and&nbsp;services</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;186,897</U></P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;252,602</U></P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;319,941</U></P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;413,202</U></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Gross&nbsp;margin</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right>68,182</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right>121,516</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right>101,143</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right>257,794</P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">General&nbsp;and&nbsp;administrative&nbsp;expenses</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;317,544</U></P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;413,104</U></P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;739,073</U></P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;796,817</U></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Loss&nbsp;from&nbsp;operations</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(249,362</U>)</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(291,588</U>)</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;(637,930</U>)</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(539,023</U>)</P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Other&nbsp;income&nbsp;(expenses):</P>
</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Interest income</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right>7</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right>16</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right>7</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Interest&nbsp;expense&nbsp;and&nbsp;finance&nbsp;charges</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right>(53,893)</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right>(243,335)</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right>(465,817)</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right>(519,849)</P>
</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Gain (loss)&nbsp;on&nbsp;sale&nbsp;of&nbsp;asset</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18,000</U></P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;18,000</U></P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;500</U></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;Total&nbsp;other&nbsp;income&nbsp;(expenses)</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;(35,886</U>)</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(243,319</U>)</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;(447,810</U>)</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(519,349</U>)</P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Net&nbsp;loss</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ (285,248</U>)</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ (534,907</U>)</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$(1,085,740</U>)</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>$(1,058,372</U>)</P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Weighted&nbsp;average&nbsp;shares&nbsp;outstanding</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>60,933,076</U></P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>50,997,552</U></P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>60,848,677</U></P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>50,211,971</U></P>
</TD></TR>
<TR><TD valign=top width=279.333>&nbsp;</TD><TD valign=top width=89.2>&nbsp;</TD><TD valign=top width=92.933>&nbsp;</TD><TD valign=top width=93.6>&nbsp;</TD><TD valign=top width=83.333>&nbsp;</TD></TR>
<TR><TD valign=top width=279.333><P style="margin:0pt; font-family:Times New Roman">Basic&nbsp;and&nbsp;diluted&nbsp;net&nbsp;loss&nbsp;per&nbsp;common&nbsp;share</P>
</TD><TD valign=top width=89.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.00</U>)</P>
</TD><TD valign=top width=92.933><P style="margin:0pt; font-family:Times New Roman" align=right><U>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.01</U>)</P>
</TD><TD valign=top width=93.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.02</U>)</P>
</TD><TD valign=top width=83.333><P style="margin:0pt; font-family:Times New Roman" align=right><U>$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(0.02</U>)</P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>See accompanying notes to financial statements.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><BR>
<BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>4</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>STATEMENT OF CA<A NAME="Cash_flow"></A>SH FLOWS</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>for the six months ended June 30, 2005 and 2004</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>__________</B></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=453.133>&nbsp;</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=185.267 colspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B>Six&nbsp;Months&nbsp;Ended&nbsp;June&nbsp;30,</B></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=center><B>2005</B></P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=center><B>2004</B></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Cash&nbsp;flows&nbsp;from&nbsp;operating&nbsp;activities:</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Net&nbsp;loss</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>$(1,085,740)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>$(1,058,372)</P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Adjustments&nbsp;to&nbsp;reconcile&nbsp;net&nbsp;loss&nbsp;to&nbsp;net&nbsp;cash&nbsp;used&nbsp;in&nbsp;operating&nbsp;activities:</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation&nbsp;and&nbsp;amortization</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>81,356</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>49,088</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain (loss)&nbsp;on&nbsp;sale&nbsp;of&nbsp;assets</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>(18,000)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>(500)</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization&nbsp;of&nbsp;debt&nbsp;issuance&nbsp;costs&nbsp;and&nbsp;increase&nbsp;in&nbsp;obligation&nbsp;under</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;product&nbsp;financing&nbsp;arrangements</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>380,753</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Effect of beneficial conversion feature</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>150,000</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock&nbsp;issued&nbsp;for&nbsp;interest&nbsp;and&nbsp;financing&nbsp;fees</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>139,225</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock&nbsp;issued&nbsp;as&nbsp;compensation&nbsp;for&nbsp;services</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>89,750</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>9,900</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Increase)&nbsp;decrease&nbsp;in&nbsp;operating&nbsp;assets</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>(200,604)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>41,003</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase&nbsp;(decrease)&nbsp;in&nbsp;accounts&nbsp;payable&nbsp;and&nbsp;accrued&nbsp;expenses</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(328</U>)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,095</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net&nbsp;cash&nbsp;used&nbsp;in&nbsp;operating&nbsp;activities</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;(844,341</U>)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;(577,033</U>)</P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Cash&nbsp;flows&nbsp;from&nbsp;investing&nbsp;activities:</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Proceeds&nbsp;from&nbsp;sale&nbsp;of&nbsp;assets</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>18,000</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>500</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Capital expenditures</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1,774</U>)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(52,380</U>)</P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net&nbsp;cash&nbsp;provided&nbsp;by&nbsp;investing&nbsp;activities</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16,226</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(51,880</U>)</P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Cash&nbsp;flows&nbsp;from&nbsp;financing&nbsp;activities:</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Proceeds&nbsp;from&nbsp;notes&nbsp;payable</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>20,640</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Payments&nbsp;on&nbsp;notes&nbsp;payable</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>(173,483)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>(76,321)</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Proceeds from convertible debentures</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>750,000</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Proceeds&nbsp;from&nbsp;issuance&nbsp;of&nbsp;common&nbsp;stock</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;76,142</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;651,689</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net&nbsp;cash&nbsp;provided&nbsp;by&nbsp;financing&nbsp;activities</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;673,299</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;575,368</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Net&nbsp;increase&nbsp;(decrease)&nbsp;in&nbsp;cash&nbsp;and&nbsp;cash&nbsp;equivalents</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right>(154,816)</P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right>(53,545)</P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Cash&nbsp;and&nbsp;cash&nbsp;equivalents&nbsp;at&nbsp;beginning&nbsp;of&nbsp;period</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;160,566</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;80,870</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Cash&nbsp;and&nbsp;cash&nbsp;equivalents&nbsp;at&nbsp;end&nbsp;of&nbsp;period</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,750</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;27,325</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Supplemental&nbsp;disclosure&nbsp;of&nbsp;cash&nbsp;flow&nbsp;information:</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Interest&nbsp;paid</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;25,561</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;29,529</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Income&nbsp;taxes&nbsp;paid</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">Non-cash&nbsp;investing&nbsp;and&nbsp;financing&nbsp;activities:</P>
</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Common&nbsp;stock&nbsp;issued&nbsp;upon&nbsp;conversion&nbsp;of&nbsp;debentures</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Receivable&nbsp;from&nbsp;the&nbsp;sale&nbsp;of&nbsp;assets</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD></TR>
<TR><TD valign=top width=453.133>&nbsp;</TD><TD valign=top width=93.533>&nbsp;</TD><TD valign=top width=91.733>&nbsp;</TD></TR>
<TR><TD valign=top width=453.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;Common stock issued as settlement of accounts payable</P>
</TD><TD valign=top width=93.533><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=91.733><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;48,256</U></P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:22.5pt; width:517.5pt; font-family:Times New Roman"><U><BR></U></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:22.5pt; width:517.5pt; font-family:Times New Roman"><U><BR></U></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:22.5pt; width:517.5pt; font-family:Times New Roman"><U><BR></U></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:22.5pt; width:517.5pt; font-family:Times New Roman"><U><BR></U></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>See accompanying notes to financial statements.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B><BR>
<BR></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>5</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>STATEMENTS OF ST<A NAME="Deficit"></A>OCKHOLDERS&#146; DEFICIT</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>for the six months ended June 30, 2005</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>__________</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=160 colspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B><BR></B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Common Stock</B></P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=center><B>Additional Paid-In </B></P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=center><B><BR></B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Accumulated </B></P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=center><B><U><BR></U></B></P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right><B><U>Shares</U></B></P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right><B><U>Amount</U></B></P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>Capital</U></B></P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>Deficit</U></B></P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>Total</U></B></P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; font-family:Times New Roman">Balance at December 31, 2004</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>60,438,152</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;302,191</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>$8,210,395</P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right>$(11,753,816)</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>$(3,241,230)</P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; font-family:Times New Roman">Common stock issued for cash</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>246,352</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>1,232</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>74,910</P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>76,142</P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; padding-left:14.4pt; text-indent:-14.4pt; font-family:Times New Roman">Common stock issued for services</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>263,286</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>1,316</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>88,434</P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>89,750</P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; padding-left:14.4pt; text-indent:-14.4pt; font-family:Times New Roman">Effect of beneficial conversion feature</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>150,000</P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>150,000</P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; font-family:Times New Roman">Stock warrants issued as financing costs</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>139,225</P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right>139,225</P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; font-family:Times New Roman">Net loss</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(1,085,740</U>)</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;(1,085,740</U>)</P>
</TD></TR>
<TR><TD valign=top width=229.2>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=80>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD><TD valign=top width=94>&nbsp;</TD><TD valign=top width=88>&nbsp;</TD></TR>
<TR><TD valign=top width=229.2><P style="margin:0pt; font-family:Times New Roman">Balance at June 30, 2005</P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right><U>60,947,790</U></P>
</TD><TD valign=top width=80><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;304,739</U></P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right><U>$8,662,964</U></P>
</TD><TD valign=top width=94><P style="margin:0pt; font-family:Times New Roman" align=right><U>$(12,839,556</U>)</P>
</TD><TD valign=top width=88><P style="margin:0pt; font-family:Times New Roman" align=right><U>$(3,871,853</U>)</P>
</TD></TR>
</TABLE>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>See accompanying notes to financial statements.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>6</P>
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<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>NOTES TO FINA<A NAME="Notes"></A>NCIAL STATEMENTS</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>__________</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><B><BR></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><B>1. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Basis of Presentation</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>The accompanying unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the U.S. Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2004. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the financial statements for the year ended December 31, 2004 included in the Company&#146;s Form 10-KSB and Form DEF 14A filed with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of normal 
recurring accruals) considered necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the respective full year.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; text-indent:-27pt; width:513pt; font-family:Times New Roman" align=justify><B>2. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Use of Estimates</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. &nbsp;Actual results could differ from those estimates.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><B>3. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Income Taxes</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman" align=justify>The difference between the 34% federal statutory income tax rate and amounts shown in the accompanying interim financial statements is primarily attributable to an increase in the valuation allowance applied against the tax benefit from the future utilization of net operating loss carryforwards.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><B>4. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Reclassification</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>Certain amounts reported in the prior period financial statements have been reclassified to the current period presentation.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><B>5. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Common Stock</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>In July 2002, the Company entered into an agreement for up to a maximum $5,000,000 sale of its common stock to Dutchess Private Equities Fund, LP (&#147;Dutchess&#148;). &nbsp;Under this investment agreement the Company has the right to issue a &#147;put notice&#148; to Dutchess to purchase the Company&#146;s common stock. &nbsp;Put notices cannot be issued more frequently than every seven days. &nbsp;The required purchase price is equal to 92% of the average of the four lowest closing bid prices of the common stock during the five-day period immediately following the issuance of the put notice. &nbsp;Each individual put notice is subject to a maximum amount equal to 175% of the daily average volume of the common stock for the 40 trading days before the issuance of the put notice multiplied by the average of the closing bid prices of the common stock for the three trading
 days immediately preceding the put notice date. &nbsp;Regardless of the amount stated in a put notice, the maximum amount that Dutchess is required to purchase is the lesser of the amount stated in the put notice or an amount equal to 20% of the aggregate trading volume of the common stock during the five days immediately following the date of the put notice times 92% of the average of the four lowest closing bid prices of the </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR>
<BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>7</P>
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<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>common stock during this five-day period. &nbsp;During the six months ended June 30, 2005 the Company sold 246,352 shares of its common stock for net proceeds of $76,142 under this agreement. &nbsp;During March 2005 this agreement expired.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>6. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Stock Options and Warrants</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman" align=justify>The Company periodically issues incentive stock options to key employees, officers, directors and outside consultants to provide additional incentives to promote the success of the Company&#146;s business and to enhance the ability to attract and retain the services of qualified persons. &nbsp;There were no stock &nbsp;options or warrants issued during the six months ended June 30, 2005.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman" align=justify>A summary of the Company&#146;s stock option activity and related information for the six months ended June 30, 2005 and the year ended December 31, 2004 follows:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=center><B>Number of Shares Under <U>Options</U></B></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>Weighted-Average <U>Exercise Price</U></B></P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Outstanding - December 31, 2003</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>4,173,000</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.12</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Granted</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>5,000,000</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.25</P>
</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Exercised</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Forfeited</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>(3,073,000</U>)</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.005</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Outstanding &#150; December 31, 2004</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;6,100,000</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.22</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Granted</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Exercised</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Forfeited</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Outstanding &#150; June 30, 2005</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>6,100,000</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.22</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Exercisable &#150; June 30, 2005</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>4,300,000</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.30</P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:36pt; width:504pt; font-family:Times New Roman">Following is a summary of outstanding stock options at June 30, 2005:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=121.2><P style="margin:0pt; font-family:Times New Roman" align=right><B>Number of </B></P>
<P style="margin:0pt; font-family:Times New Roman" align=right><B><U>Shares</U></B></P>
</TD><TD valign=top width=84><P style="margin:0pt; font-family:Times New Roman" align=right><B><U><BR></U></B></P>
<P style="margin:0pt; font-family:Times New Roman" align=right><B><U>Vested</U></B></P>
</TD><TD valign=top width=108><P style="margin:0pt; font-family:Times New Roman" align=right><B>Expiration</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=right><B>&nbsp;<U>Date</U></B></P>
</TD><TD valign=top width=138><P style="margin:0pt; font-family:Times New Roman" align=right><B>Weighted Average <U>Exercise Price</U></B></P>
</TD></TR>
<TR><TD valign=top width=121.2>&nbsp;</TD><TD valign=top width=84>&nbsp;</TD><TD valign=top width=108>&nbsp;</TD><TD valign=top width=138>&nbsp;</TD></TR>
<TR><TD valign=top width=121.2><P style="margin:0pt; font-family:Times New Roman" align=right>100,000</P>
</TD><TD valign=top width=84><P style="margin:0pt; font-family:Times New Roman" align=right>100,000</P>
</TD><TD valign=top width=108><P style="margin:0pt; font-family:Times New Roman" align=right>2012</P>
</TD><TD valign=top width=138><P style="margin:0pt; font-family:Times New Roman" align=right>$0.21</P>
</TD></TR>
<TR><TD valign=top width=121.2><P style="margin:0pt; font-family:Times New Roman" align=right>1,000,000</P>
</TD><TD valign=top width=84><P style="margin:0pt; font-family:Times New Roman" align=right>200,000</P>
</TD><TD valign=top width=108><P style="margin:0pt; font-family:Times New Roman" align=right>2009</P>
</TD><TD valign=top width=138><P style="margin:0pt; font-family:Times New Roman" align=right>$0.10</P>
</TD></TR>
<TR><TD valign=top width=121.2><P style="margin:0pt; font-family:Times New Roman" align=right>1,000,000</P>
</TD><TD valign=top width=84><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;-</P>
</TD><TD valign=top width=108><P style="margin:0pt; font-family:Times New Roman" align=right>2009</P>
</TD><TD valign=top width=138><P style="margin:0pt; font-family:Times New Roman" align=right>$0.005</P>
</TD></TR>
<TR><TD valign=top width=121.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;4,000,000</U></P>
</TD><TD valign=top width=84><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;4,000,000</U></P>
</TD><TD valign=top width=108><P style="margin:0pt; font-family:Times New Roman" align=right>2009</P>
</TD><TD valign=top width=138><P style="margin:0pt; font-family:Times New Roman" align=right>$0.31</P>
</TD></TR>
<TR><TD valign=top width=121.2>&nbsp;</TD><TD valign=top width=84>&nbsp;</TD><TD valign=top width=108>&nbsp;</TD><TD valign=top width=138>&nbsp;</TD></TR>
<TR><TD valign=top width=121.2><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;6,100,000</U></P>
</TD><TD valign=top width=84><P style="margin:0pt; font-family:Times New Roman" align=right><U>4,300,000</U></P>
</TD><TD valign=top width=108>&nbsp;</TD><TD valign=top width=138>&nbsp;</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>During February 2005 the Company issued $750,000 in convertible debentures, of which all was funded as of June 30, 2005. &nbsp;The debentures bear interest at 8% per year payable in cash or registered common stock at the Company&#146;s option. &nbsp;The debentures mature in February 2008 and are convertible, at the option of the holder, to shares of the company&#146;s common stock at a conversion price per share equal to the lower of (i) 80% of the lowest closing bid price for the common stock for the fifteen days prior to the conversion date; or (ii) 125% of the volume weighted average price on the closing date.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>In addition the Company issued to the holders of the convertible debentures warrants to purchase 750,000 shares of the Company&#146;s common stock with a strike price of $0.33 per share for 500,000 shares and the </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR>
<BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>8</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>lowest market price five days prior to funding for 250,000 shares and a conversion period of three years. &nbsp;Using the Black-Scholes option pricing model with the following assumptions: &nbsp;(i) volatility of 71%, and (ii) interest rate of 3.5%, the value of the warrants were estimated to be $139,225, which was recorded as interest expense and financing costs in the statement of operations for the six months ended June 30, 2005. &nbsp;Accordingly, the actual weighted average interest rate on these debentures, including the effect of the cost of the beneficial conversion feature of $150,000, is approximately 21%.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify>A summary of the Company&#146;s stock warrant activity is as follows:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=center><B><BR></B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Number of <U>Shares</U></B></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>Weighted-Average <U>Exercise Price</U></B></P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Outstanding &#150; December 31, 2003</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>996,703</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.38</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Granted</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Exercised</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Forfeited</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Outstanding &#150; December 31, 2004</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>996,703</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.38</P>
</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Granted</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>750,000</P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.28</P>
</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Exercised</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Forfeited</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-</U></P>
</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390>&nbsp;</TD><TD valign=top width=114>&nbsp;</TD><TD valign=top width=96>&nbsp;</TD></TR>
<TR><TD valign=top width=390><P style="margin:0pt; font-family:Times New Roman">Outstanding &#150; June 30, 2005</P>
</TD><TD valign=top width=114><P style="margin:0pt; font-family:Times New Roman" align=right><U>1,746,703</U></P>
</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=right>$0.34</P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:27pt; width:513pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><B>7. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Going Concern Considerations</U></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman">During the six months ended June 30, 2005 and 2004, the Company has defaulted on its notes payable and obligations under product financing arrangements, has continued to accumulate payables to its vendors and has experienced negative financial results as follows:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=429.333>&nbsp;</TD><TD valign=top width=113.467><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>2005</U></B></P>
</TD><TD valign=top width=95.6><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>2004</U></B></P>
</TD></TR>
<TR><TD valign=top width=429.333>&nbsp;</TD><TD valign=top width=113.467>&nbsp;</TD><TD valign=top width=95.6>&nbsp;</TD></TR>
<TR><TD valign=top width=429.333><P style="margin:0pt; padding-left:36pt; font-family:Times New Roman" align=justify>Net loss for the six months ended June 30</P>
</TD><TD valign=top width=113.467><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;(1,085,740</U>)</P>
</TD><TD valign=top width=95.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;(1,058,372)</U></P>
</TD></TR>
<TR><TD valign=top width=429.333>&nbsp;</TD><TD valign=top width=113.467>&nbsp;</TD><TD valign=top width=95.6>&nbsp;</TD></TR>
<TR><TD valign=top width=429.333><P style="margin:0pt; padding-left:36pt; font-family:Times New Roman" align=justify>Negative cash flows from operations</P>
</TD><TD valign=top width=113.467><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;(844,341</U>)</P>
</TD><TD valign=top width=95.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;&nbsp;&nbsp;&nbsp;(577,033</U>)</P>
</TD></TR>
<TR><TD valign=top width=429.333>&nbsp;</TD><TD valign=top width=113.467>&nbsp;</TD><TD valign=top width=95.6>&nbsp;</TD></TR>
<TR><TD valign=top width=429.333><P style="margin:0pt; padding-left:36pt; font-family:Times New Roman" align=justify>Negative working capital</P>
</TD><TD valign=top width=113.467><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;(5,021,514</U>)</P>
</TD><TD valign=top width=95.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;(9,543,932</U>)</P>
</TD></TR>
<TR><TD valign=top width=429.333>&nbsp;</TD><TD valign=top width=113.467>&nbsp;</TD><TD valign=top width=95.6>&nbsp;</TD></TR>
<TR><TD valign=top width=429.333><P style="margin:0pt; padding-left:36pt; font-family:Times New Roman" align=justify>Accumulated deficit</P>
</TD><TD valign=top width=113.467><P style="margin:0pt; font-family:Times New Roman" align=right><U>$(12,839,556</U>)</P>
</TD><TD valign=top width=95.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$(14,378,279</U>)</P>
</TD></TR>
<TR><TD valign=top width=429.333>&nbsp;</TD><TD valign=top width=113.467>&nbsp;</TD><TD valign=top width=95.6>&nbsp;</TD></TR>
<TR><TD valign=top width=429.333><P style="margin:0pt; padding-left:36pt; font-family:Times New Roman" align=justify>Stockholders&#146; deficit</P>
</TD><TD valign=top width=113.467><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;(3,871,853</U>)</P>
</TD><TD valign=top width=95.6><P style="margin:0pt; font-family:Times New Roman" align=right><U>$ &nbsp;(9,250,844</U>)</P>
</TD></TR>
</TABLE>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:24pt; width:516pt; font-family:Times New Roman">Management has developed specific current and long-term plans to address its viability as a going concern as follows:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:36pt; width:504pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify>The Company&#146;s anticipated entry into the training/simulation market was advanced by the aftermath of September 11, 2001. &nbsp;The Company is currently in advanced discussions with representatives of &nbsp;various government authorities regarding use of the Company&#146;s technology in detecting and mitigating the risk of similar problems in the future.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR>
<BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>9</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify>The Company is also attempting to raise funds through debt and/or equity offerings. &nbsp;If successful, these additional funds would be used to pay down debt and for working capital purposes. </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify>In the long-term, the Company believes that cash flows from continued growth in its operations will provide the resources for continued operations.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:36pt; width:504pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:36pt; width:504pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:30pt; width:510pt; font-family:Times New Roman" align=justify>There can be no assurance that the Company&#146;s debt reduction plans will be successful or that the Company will have the ability to implement its business plan and ultimately attain profitability. &nbsp;The Company&#146;s long-term viability as a going concern is dependent upon three key factors, as follows:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:36pt; width:504pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify>The Company&#146;s ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations in the near term.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify>The ability of the Company to control costs and expand revenues from existing or new businesses.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify>The ability of the Company to ultimately achieve adequate profitability and cash flows from operations to sustain its operations.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR>
<BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center>10</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<HR style="padding-top:7.2pt; padding-bottom:7.2pt" noshade size=1.333>
<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:48pt; width:492pt; font-family:Times New Roman" align=justify><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. </B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">The statements contained in this report that are not historical are forward-looking statements, including statements regarding our expectations, intentions, beliefs or strategies regarding the future. &nbsp;Forward-looking statements include our statements regarding liquidity, anticipated cash needs, and availability and anticipated expense levels. &nbsp;All forward-looking statements included in this report are based on information available to us on this date, and we assume no obligation to update any such forward-looking statement. &nbsp;It is important to note that our actual results could differ materially from those in such forward-looking statements. &nbsp;The following discussion and analysis should be read in conjunction with the financial statements and accompanying notes appearing elsewhere in this report. </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Business Overview</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B><BR></B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Our principal business began in 1993 with the organization of Ferris Productions, Inc. &nbsp;Ferris Productions designed, developed, distributed, and operated virtual reality products for the entertainment, simulation, promotion, and education markets. &nbsp;&#147;Virtual reality&#148; is a generic term associated with computer systems that create a real-time visual/audio/haptic (touch and feel) experience. &nbsp;Virtual reality immerses participants into a three-dimensional real-time synthetic environment generated or controlled by one (or several) computer(s). &nbsp;In September of 2001, Ferris Productions merged into GameCom, Inc., a publicly-held Texas company whose principal business at the time was the development and marketing of an Internet-enabled video game system. &nbsp;Our historic areas of application have included the entertainment/amusement, advertising/promotion, and training/simulation m
arkets.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">The entertainment/amusement market was the original market for our products.<B> </B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">We entered the advertising/promotion market, our second, with our 2000 &#8220;Drive With Confidence Tour&#8482;&#8221; for Buick, featuring a virtual reality &#8220;test-drive&#8221; of a Buick LeSabre with PGA professional Ben Crenshaw accompanying the participant. &nbsp;In May of 2004, we announced our Immersa-Dome&#8482; projection-based personal theater for this market. &nbsp;As of August 1, 2005, we had sold and installed 13 Immersa-Dome systems, for the United States Army, Buick, Red Baron Pizza, and Pfizer. </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">In March of 2004, we unveiled our IVR&#8482; line of projection-based training simulators for judgmental use-of-force, situational awareness, combat-readiness, and tactical judgment objectives. &nbsp;These product lines provide the law enforcement, military, and security markets with 360-degree immersive training environments. &nbsp;As of August 1, 2005, we had received orders for 31 systems, from the United States Air Force, the United States Army, a classified Department of Defense agency, domestic law enforcement agencies, and state police and security organizations in Mexico and India. &nbsp;As of August 1, 2005, we had delivered or installed seven IVR simulators, and another has been shipped overseas and is awaiting installation. </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">We maintain our corporate office at 440 North Center, Arlington, Texas 76011, and our telephone number is (817) 261-4269. &nbsp;We also maintain engineering, technical, and production offices, and a demonstration facility, at 5631 South 24<SUP>th</SUP> Street, Phoenix, Arizona 85040, with a phone number of (602) 470-1177. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">We face all the risks, expenses, and difficulties frequently encountered in connection with the expansion and development of a business, difficulties in maintaining delivery schedules if and when volume increases, the need to develop support arrangements for systems at widely dispersed physical locations, and the need to control operating and general and administrative expenses. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>CRITICAL ACCOUNTING POLICIES AND ESTIMATES </B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. &nbsp;The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. &nbsp;On an ongoing basis, we evaluate our estimates. &nbsp;We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. &nbsp;These estimates and </P>
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<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. &nbsp;Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B><U>Revenue Recognition</U></B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Revenue from custom application contracts are recognized on a percentage-of-completion basis, measured by the percentage of costs incurred to date to total estimated costs for each contract. &nbsp;Contract costs include all direct material and labor costs, and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs, and depreciation costs. &nbsp;General and administrative costs are charged to expense as incurred.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. &nbsp;Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, and are recognized in the period in which the revisions are determined. &nbsp;An amount equal to contract costs attributable to claims is included in revenue when realization is probable and the amount can be reliably estimated.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Costs and estimated earnings in excess of billings on uncompleted contracts represent revenue recognized in excess of amounts billed. &nbsp;Billings in excess of costs and estimated earnings on uncompleted contracts represent amounts billed in excess of revenue recognized.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B><U>Loss Per Share</U></B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Basic and diluted loss per share is computed on the basis of the weighted average number of shares of common stock outstanding during each period. &nbsp;Common equivalent shares from common stock options and warrants are excluded from the computation as their effect would dilute the loss per share for all periods presented.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B><U>Stock-Based Compensation</U></B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">We account for our stock compensation arrangements under the provisions of Accounting Principles Board (&#147;APB&#148;) No. 25 &#147;Accounting for Stock Issued to Employees.&#148; &nbsp;We provide disclosure in accordance with the disclosure-only provisions of Statement of Financial Accounting Standard (&#147;SFAS&#148;) No. 123 &#147;Accounting for Stock-Based Compensation.&#148;</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Results of Operations</B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004 </B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Three major factors affected our results of operations for the three months ended June 30, 2005, compared to the corresponding period of 2004. &nbsp;First, revenue declined. &nbsp;Second, general and administrative expenses declined. Finally, interest expense and finance costs decreased. &nbsp;&nbsp;&nbsp;&nbsp;</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Revenues from our virtual reality product lines are somewhat unpredictable. &nbsp;Our products are custom made to a particular client&#146;s needs and delivery schedules. &nbsp;Thus, our products tend to consist of a few large projects at any time, and the stage of completion of any particular project can significantly affect revenue recognition. &nbsp;We had total revenue of $255,079 for the three months ended June 30, 2005, compared to $374,118 for the corresponding three months of 2004. &nbsp;Our revenue is broken down in our statement of operations into our two markets, training/simulation and advertising/promotion. &nbsp;Revenue for the period consisted of a) $105,541 for the training/simulation market, primarily related to IVR HD-180 training simulators delivered to the Washington County, Utah Sheriff&#146;s Department and to the Little River Band of Ottawa Indians&#146; Public Safety Department, b
) $118,628 for the advertising/promotional market, primarily related to the Impact Unlimited/Pfizer Immersa-Dome project and to an upgrade for Buick&#146;s Immersa-Dome promotional system, and c) $30,910 for warranty and other </P>
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<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">revenue. &nbsp;Cost of sales and services decreased less than proportionally to our decreased revenue, primarily due to higher than expected costs caused by the implementation of our most recent technology into initial IVR simulator deliveries. &nbsp;&nbsp;</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">General and administrative expense decreased to $317,544 for the three months ended June 30, 2005, compared to $413,104 for the corresponding period of 2004, primarily due to a decrease in advertising and trade show expense, and a reduction in research and development expense. &nbsp;Interest expense and finance charges decreased to $53,893 for the three months ended June 30, 2005, compared to $243,335 for the corresponding period of 2004, primarily due to the reduction in debt related to the December 2004 debtholder conversion. &nbsp;&nbsp;</P>
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<A NAME="_Toc13820176"></A><A NAME="_Toc16336815"></A><P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Six months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004</B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">The major factor affecting our results of operations for the six months ended June 30, 2005, compared to the corresponding period of 2004, is that revenue decreased.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">We had revenue of $421,084 for the sixth months ended June 30, 2005, compared to $670,996 for the corresponding six months of 2004. &nbsp;Revenue consisted of a) $232,409 for the training/simulation market, primarily related to three &nbsp;IVR HD training simulators sold to the United States Air Force, the Department of Defense, and to Washington County, Utah, and for an upgrade to an IVR HD-300 training system for the United States Air Force, b) $129,422 for the advertising/promotional market, primarily related to the Impact Unlimited/Pfizer Immersa-Dome project and to an upgrade for Buick&#146;s Immersa-Dome promotional system., and c) $59,253 for warranty and other revenue. &nbsp;Cost of sales and services decreased less than proportionally to our decreased revenue primarily due to higher than expected costs caused by the implementation of our most recent technology into initial IVR simulator deliveri
es.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">General and administrative expense decreased to $739,073 for the six months ended June 30, 2005, compared to $796,817 for the six months ended June 30, 2004, primarily due to a decrease in advertising and trade show expense, and a decrease in research and development expense. &nbsp;Interest expense and finance charges decreased to $465,817 for the six months ended June 30, 2005, compared to $519,849 for the corresponding period of 2004, due primarily to the debtholders&#146; conversion in December 2004 offset by the additional finance charges and effect of the beneficial conversion feature related to the new convertible debentures in 2005.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Liquidity and Plan of Operations</B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">As of June 30, 2005, our liquidity position was extremely precarious. &nbsp;We had current liabilities of $5,289,128, including $841,780 in unconverted obligations under the lease financing for the old Ferris Productions virtual reality systems, $931,728 in accounts payable, and short-term notes payable of $1,491,357, some of which were either demand indebtedness or were payable at an earlier date and were in default. &nbsp;Of this amount, $1,196,857 is with a bank with whom we recently negotiated a renewal and a new amortization period. &nbsp;As of June 30, 2005, there was only $267,614 in current assets available to meet those liabilities. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">To date we have met our capital requirements by acquiring needed equipment under the Ferris non-cancelable leasing arrangements, through capital contributions, loans from principal shareholders and officers, certain private placement offerings, through our previous equity line financing with Dutchess Private Equities Fund, L.P., and through our current convertible debentures with Dutchess Private Equities Fund, L.P. and Dutchess Private Equities Fund II, L.P.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">For the six months ended June 30, 2005, our net loss was $1,085,740. &nbsp;After taking into account the non-cash items included in that loss, our cash requirements for operations were $844,341. &nbsp;In addition, we made capital expenditures of $1,774 and repaid notes in the amount of $173,483. &nbsp;To cover these cash requirements, we used existing cash, borrowed $750,000 on a convertible debenture, and issued 246,352 shares of our common stock under the old Dutchess equity line, for net cash proceeds of $76,142. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">The opinion of our independent auditor for the year ended December 31, 2004 expressed substantial doubt as to our ability to continue as a going concern. &nbsp;We will need substantial additional capital or new lucrative custom application projects to become profitable. &nbsp;In February of 2005, we entered into a financial contract with Dutchess </P>
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<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Private Equities Fund, L.P. and Dutchess Private Equities Fund II, L.P. &nbsp;Under this arrangement, the Dutchess funds were to purchase up to $6 million of our common stock over the next three years under an equity line. &nbsp;The number of shares we might have sold to the Dutchess funds was to be based upon the trading volume of our stock. &nbsp;Under the February, 2005 arrangement, the Dutchess funds also participated in a private placement of $750,000 in convertible debentures, which are presently being registered under our SB-2 filing, as amended on June 27, 2005. &nbsp;We recently terminated the new equity line agreement with the Dutchess funds. &nbsp;On August 1, 2005, we entered into a private placement of $500,000 in convertible debentures with Dutchess Private Equities Fund II, L.P., which will be registered in a forthcoming SB-2 filing. &nbsp;Based on non-binding pur
chase commitments, we project that purchase order financing and revenue from those anticipated sales will allow us to continue our operations for at least the next 12 months.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">On November 9, 2004, we attempted to forward to all the 151 holders of our old Ferris equipment leasing arrangements, the 16 holders of old Ferris debentures, and the 11 holders of our old GameCom promissory notes, an exchange offer, under which these leaseholders and noteholders could convert their leases and notes to shares of our common stock. &nbsp;The proposal was accepted by approximately 88 percent, in principal &nbsp;amount, of these leaseholders and noteholders, eliminating approximately $6,924,308 of liability from our balance sheet as of December 31, 2004, saving us approximately $225,000 in accrued interest per quarter. &nbsp;However, we were unable to contact approximately four percent of such leaseholders/noteholders, and approximately nine percent of those contacted initially did not accept our proposal. &nbsp;However, we have recently agreed to settlement terms that will eliminate a) appr
oximately $381,000 of the leaseholder debt upon terms substantially similar to the exchange offer, and b) $274,500 in shareholder notes payable. &nbsp;We expect these settlements to be completed in the near future. &nbsp;Our operations may require the continued forbearance of those leaseholders and noteholders who have not yet accepted our conversion proposal.</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Item 3. &nbsp;&nbsp;&nbsp;Controls and Procedures</B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures in accordance with Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the &quot;Exchange Act&quot;). &nbsp;Based on this evaluation, our chief executive officer and the chief financial &nbsp;officer concluded that our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information that we are required to disclose in the reports we file under the Exchange Act, within the time periods specified in the SEC's rules and forms. &nbsp;Our chief executive officer and the chief financial officer also concluded that our disclosure controls and procedures are effective in timely
 alerting them to material information relating to our company required to be included in our periodic SEC filings. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:10pt; width:540pt; font-family:Times New Roman">There have been no significant changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.</P>
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<A NAME="fis_part_ii"></A><P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>PART II - OTHER INFORMATION <A NAME="fis_legal_proceeding"></A></B></P>
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<A NAME="fis_exhibits_reports"></A><P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>Item 6. Exhibits and Reports on Form 8-K. </B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:36pt; width:504pt; font-family:Times New Roman">(a)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibits</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:108pt; text-indent:-36pt; width:432pt; font-family:Times New Roman">31 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief &nbsp;Executive Officer and Chief Financial Officer - Rule 13a-15(e) &nbsp;Certification</P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:108pt; text-indent:-36pt; width:432pt; font-family:Times New Roman">32 &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief &nbsp;Executive Officer and &nbsp;Chief Financial Officer - Sarbanes-Oxley Act Section &nbsp;906 Certification </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>SIGNATURES</B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report </P>
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<P style="page-break-before:always; margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">to be signed on its behalf by the undersigned, thereunto duly authorized. </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; padding-left:240pt; width:300pt; font-family:Times New Roman"><B>VIRTRA SYSTEMS, INC. </B></P>
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<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=319.2><P style="margin:0pt; font-family:Times New Roman">Date: August 15, 2005</P>
</TD><TD valign=top width=319.2><P style="margin:0pt; font-family:Times New Roman"><U>&nbsp;/s/ L. Kelly Jones&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></P>
</TD></TR>
<TR><TD valign=top width=319.2>&nbsp;</TD><TD valign=top width=319.2><P style="margin:0pt; font-family:Times New Roman">L. Kelly Jones</P>
</TD></TR>
<TR><TD valign=top width=319.2>&nbsp;</TD><TD valign=top width=319.2><P style="margin:0pt; font-family:Times New Roman">chief executive officer and chief financial 0fficer</P>
</TD></TR>
</TABLE>
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<TITLE>Exhibit 31</TITLE>
<META NAME="author" CONTENT="David C. Thomas">
<META NAME="date" CONTENT="05/13/2005">
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:2.8pt; padding-right:72pt; width:468pt; font-family:Arial Unicode MS; font-size:9pt" align=right><B>Exhibit 31</B></P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:3.15pt; width:540pt; font-family:Times New Roman" align=center><B>Chief &nbsp;Executive Officer - Rule 13a-15(e)</B> <B>&nbsp;Certification</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">I, L. Kelly Jones, certify that:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">1. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;I have reviewed this Quarterly Report on Form 10-QSB of VirTra Systems, Inc.;</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">2. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">3. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">4. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman">a) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman">b) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;[Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman">c) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;evaluated the effectiveness of the small business issuer's disclosure controls and procedures and&nbsp;presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman">d) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">5. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman">a) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; text-indent:36pt; width:540pt; font-family:Times New Roman">b) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<TABLE style="margin-right:72pt; font-size:10pt" cellspacing=0><TR><TD valign=top width=312><P style="margin:0pt; font-family:Times New Roman">Date: August 15, 2005</P>
</TD><TD valign=top width=314><P style="margin:0pt; font-family:Times New Roman"><U>&nbsp;/s/ L. Kelly Jones&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U></P>
</TD></TR>
<TR><TD valign=top width=312><P style="margin:0pt; font-family:Times New Roman">&nbsp;</P>
</TD><TD valign=top width=314><P style="margin:0pt; font-family:Times New Roman">L. Kelly Jones</P>
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<TR><TD valign=top width=312><P style="margin:0pt; font-family:Times New Roman">&nbsp;</P>
</TD><TD valign=top width=314><P style="margin:0pt; font-family:Times New Roman">chief executive officer </P>
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">In stating that the above matters are true &quot;based on his knowledge,&quot; the signer does not mean that he knows such matters to be true, but means that after reasonable inquiry he does not know of any facts which indicate to him that such matters are not true. There are no other certifying officers.</P>
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<TYPE>EX-32
<SEQUENCE>3
<FILENAME>exhibit32.htm
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<TITLE>Exhibit 32</TITLE>
<META NAME="author" CONTENT="David C. Thomas">
<META NAME="date" CONTENT="05/13/2005">
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<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=right><B>Exhibit 32</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman" align=center><B>CERTIFICATE</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><B>&nbsp;</B></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by 18 U.S.C. Section 1350, (as amended by Section 906 of the Sarbanes-Oxley act of 2002), I certify that:</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Quarterly Report of VirTra Systems, Inc. for the quarter ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information contained in that Report fairly presents, in all material respects, the financial condition and results of operations of the Company.</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">&nbsp;</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><BR></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman"><U>/s/ L. Kelly Jones &nbsp;&nbsp;&nbsp;&nbsp;</U></P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">L. Kelly Jones </P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:0pt; width:540pt; font-family:Times New Roman">chief executive officer and chief financial officer</P>
<P style="margin-top:0pt; margin-right:72pt; margin-bottom:5pt; width:540pt; font-family:Times New Roman">August 15, 2005 </P>
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