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<SEC-DOCUMENT>0001332489-07-000035.txt : 20071119
<SEC-HEADER>0001332489-07-000035.hdr.sgml : 20071119
<ACCEPTANCE-DATETIME>20071119152148
ACCESSION NUMBER:		0001332489-07-000035
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		3
CONFORMED PERIOD OF REPORT:	20070930
FILED AS OF DATE:		20071119
DATE AS OF CHANGE:		20071119

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:		071256186

	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>form10qsbq320071.htm
<TEXT>
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<P style="margin:0pt; font-family:Times New Roman" align=center>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</P>
<P style="margin:0pt; font-family:Times New Roman" align=center>Washington, D.C. 20549</P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR></P>
<P style="margin-top:0pt; margin-bottom:7pt; line-height:16pt; font-family:Times New Roman; font-size:14pt" align=center>FORM 10-QSB</P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman" align=center>(Mark One)</P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman">|X| &nbsp;QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 </P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman" align=center>For the quarterly period ended September 30, 2007 </P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman" align=center>or</P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman">|_| &nbsp;&nbsp;TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman" align=center>For the transition period from _____________ to _____________</P>
<P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman" align=center>Commission File Number 000-28381</P>
<P style="margin:0pt; line-height:18pt; font-family:Times New Roman; font-size:16pt" align=center>VIRTRA SYSTEMS, INC.</P>
<P style="margin:0pt; line-height:11pt; font-family:Times New Roman; font-size:9pt" align=center>(Exact name of Registrant as specified in its Charter)</P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR></P>
<TABLE style="font-size:10pt" cellspacing=0 align=center><TR><TD valign=top width=314.133><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=314.133><P style="margin:0pt; line-height:11pt; 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; line-height:11pt; font-family:Times New Roman; font-size:9pt" align=center>(IRS Employer Identification No.)</P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman; font-size:8.5pt"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=319.2><P style="margin:0pt; font-family:Times New Roman" align=center>2500 City West Blvd, Suite 300, Houston, TX</P>
</TD><TD valign=top width=319.2><P style="margin:0pt; font-family:Times New Roman" align=center>77042</P>
</TD></TR>
<TR><TD valign=top width=319.2><P style="margin:0pt; line-height:11pt; font-family:Times New Roman; font-size:9pt" align=center>(Address of principal executive offices)</P>
</TD><TD valign=top width=319.2><P style="margin:0pt; line-height:11pt; font-family:Times New Roman; font-size:9pt" align=center>(Zip Code)</P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>(832) 242-1100</P>
<P style="margin:0pt; line-height:11pt; font-family:Times New Roman; font-size:9pt" align=center>(Registrant's telephone number, including area code)</P>
<P style="margin:0pt; font-family:Times New Roman; font-size:9pt"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">&nbsp;|X| Yes |__| No</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">As of November 9, 2007, the Registrant had outstanding 118,472,487 shares of common stock, par value $.005 per share.</P>
<A NAME="_Toc183174649"></A><P style="margin:0pt; font-family:Times New Roman"><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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B>PART I &#150; FINANCIAL INFORMATION (UNAUDITED)</B></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<A NAME="_Toc183174650"></A><P style="margin:0pt; font-family:Times New Roman"><B>Item 1. Financial Statements</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>TABLE OF CONTENTS</B></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<P style="margin-top:0pt; margin-bottom:-12pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174649"><U>PART I &#150; FINANCIAL INFORMATION (UNAUDITED)</U></A></P>
<P style="margin:0pt; text-indent:462.5pt; font-family:Times New Roman"><A HREF="#_Toc183174649">2</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:10pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174650"><U>Item 1. Financial Statements</U></A></P>
<P style="margin:0pt; padding-left:10pt; text-indent:452.5pt; font-family:Times New Roman"><A HREF="#_Toc183174650">2</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:10pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174651"><U>Item 2 &#150; Management&#146;s Discussion and Analysis</U></A></P>
<P style="margin:0pt; padding-left:10pt; text-indent:447.5pt; font-family:Times New Roman"><A HREF="#_Toc183174651">12</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:10pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174652"><U>Item 3 &#150; Controls and Procedures</U></A></P>
<P style="margin:0pt; padding-left:10pt; text-indent:447.5pt; font-family:Times New Roman"><A HREF="#_Toc183174652">14</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174653"><U>PART II &#150; OTHER INFORMATION</U></A></P>
<P style="margin:0pt; text-indent:457.5pt; font-family:Times New Roman"><A HREF="#_Toc183174653">16</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:10pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174654"><U>Item 1 &#150; Legal Proceedings</U></A></P>
<P style="margin:0pt; padding-left:10pt; text-indent:447.5pt; font-family:Times New Roman"><A HREF="#_Toc183174654">16</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:10pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174655"><U>Item 2 &#150;Changes in Securities</U></A></P>
<P style="margin:0pt; padding-left:10pt; text-indent:447.5pt; font-family:Times New Roman"><A HREF="#_Toc183174655">16</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin-top:0pt; margin-bottom:-12pt; padding-left:10pt; font-family:Times New Roman; color:#0000FF"><U></U><A HREF="#_Toc183174658"><U>Item 6 &#150; Exhibits and Reports on Form 8-K</U></A></P>
<P style="margin:0pt; padding-left:10pt; text-indent:447.5pt; font-family:Times New Roman"><A HREF="#_Toc183174658">17</A><FONT COLOR=#0000FF><U></U></FONT></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>2</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS INC.</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Balance Sheets as of September 30, 2007 (Unaudited) and December 31, 2006</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B><BR></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=top width=96><P style="margin:0pt; font-family:Times New Roman" align=center><B>9/30/07</B></P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=84.4><P style="margin:0pt; font-family:Times New Roman" align=center><B>12/31/06</B></P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman"><B><U>ASSETS</U></B></P>
</TD><TD valign=top width=96>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Cash and cash equivalents</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;144,974 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;91,221 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Accounts receivable, net of allowances</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;77,754 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;406,784 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Costs and estimated earnings in excess of billings on uncompleted contracts</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;61,549 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Total current assets</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>284,277 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>498,005 </P>
</TD></TR>
<TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Property and equipment, net</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>77,963 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>141,386 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Capitalized development cost, net of amortization of $174,408 and $125,358, respectively</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>66,362 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>88,074 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Other assets</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>25,937 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Total non-current assets</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>170,262 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>229,460 </P>
</TD></TR>
<TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">TOTAL ASSETS</P>
</TD><TD style="border-top:0.75pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;454,539 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;&nbsp;&nbsp;727,465 </P>
</TD></TR>
<TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman"><B><U>LIABILITIES AND STOCKHOLDERS' DEFICIT</U></B></P>
</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman"><U>LIABILITIES</U></P>
</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Notes payable</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;55,000 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;133,145 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Obligations under product financing arrangements</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;378,636 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>454,980 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Convertible debentures, net of discount of $126,542 and $122,388</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>295,460 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>214,325 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Derivative liability</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;359,447 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>342,486 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Accounts payable</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>631,816 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;848,380 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Accrued liabilities</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>2,205,553 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>2,390,048 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Advanced held on deposit</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>126,993 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>39,625 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Other current liabilities</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>71,750 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Billings in excess of costs and estimated earnings on uncompleted contracts</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>24,946 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Payable to related party</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;87,007 &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;82,252 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Total current liabilities</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>4,139,912 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>4,601,937 </P>
</TD></TR>
<TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Redeemable common stock</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;1,859 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,859 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Total non-current liabilities</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>1,859 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>1,859 </P>
</TD></TR>
<TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Total liabilities</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>4,141,771</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>4,603,796 </P>
</TD></TR>
<TR><TD valign=bottom width=370>&nbsp;</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman"><U>STOCKHOLDERS' DEFICIT</U></P>
</TD><TD valign=bottom width=96>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4>&nbsp;</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Common stock, $.005 par value, 400,000,000 shares authorized, 118,472,487 and 96,732,599 shares issued and outstanding at September 30, 2007 and December 31, 2006, respectively</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>592,362 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>483,663 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Common stock committed</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>150,000 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Additional paid in capital</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>11,127,225</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>10,215,949 </P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Accumulated deficit</P>
</TD><TD valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>(15,406,819)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>(14,725,943)</P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">Total shareholders' deficit</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>(3,687,232)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;(3,876,331)</P>
</TD></TR>
<TR><TD valign=bottom width=370><P style="margin:0pt; font-family:Times New Roman">TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT</P>
</TD><TD style="border-top:0.75pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=96><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;454,539 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=84.4><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;727,465 </P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The accompanying notes are an integral part of these financial statements.</P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>3</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Statements of Operations for the Nine and Three Months Ended September 30, 2007 and 2006</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>(Unaudited)</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=246.067>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=199.8 colspan=3><P style="margin:0pt; font-family:Times New Roman" align=center><B>&nbsp;Nine Months Ended </B></P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=199.867 colspan=3><P style="margin:0pt; font-family:Times New Roman" align=center><B>&nbsp;Three Months Ended </B></P>
</TD></TR>
<TR><TD valign=top width=246.067>&nbsp;</TD><TD valign=bottom width=92 rowspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B>9/30/07</B></P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067 rowspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B>9/30/06</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>(Restated)</B></P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067 rowspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B>9/30/07</B></P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067 rowspan=2><P style="margin:0pt; font-family:Times New Roman" align=center><B>9/30/06</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>(Restated)</B></P>
</TD></TR>
<TR><TD valign=top width=246.067>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman"><U>REVENUE</U></P>
</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Custom applications:</P>
</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Training/simulation</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;1,780,670 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;809,187 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;1,188,309 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;27,533 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Advertising/promotion</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>45,772</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>448,043 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>32,935</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>438,518 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Other revenue</P>
</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>1,081 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(1,403)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>1,081 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(3,130)</P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Total Revenues</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>1,827,523 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>1,255,827 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>1,222,325 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>462,921 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067>&nbsp;</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Cost of sales and services</P>
</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>764,807 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>461,681 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>476,036 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>178,573 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Gross margin</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>1,062,716 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;794,146 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;746,289 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>284,348 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067>&nbsp;</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman"><U>OPERATING EXPENSES</U></P>
</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Gain on legal settlement</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>(273,607)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(273,607)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">General and administrative expenses</P>
</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>1,797,167 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>1,430,549 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>1,280,723 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>561,870 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Gain/(Loss) from operations</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>(460,844)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(636,403)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(260,827) </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(277,522)</P>
</TD></TR>
<TR><TD valign=bottom width=246.067>&nbsp;</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman"><U>OTHER INCOME AND (EXPENSE) ITEMS:</U></P>
</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Forgiveness of debt income</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>95,549 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>212,782 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>95,549 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>212,782 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Interest expense and finance charges</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>(301,432)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(645,720)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(138,179)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(326,232)</P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Gain/(loss) on derivative liability</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>(16,961)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>262,772 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(17,744)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;87,591 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Gain on sales of assets</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>2,813 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>519,073 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>2,813 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>519,073 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Other income and expense</P>
</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>600 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Total other income and expense items</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>(220,031)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>349,507 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>(57,561)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>493,214 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067>&nbsp;</TD><TD style="border-top:0.75pt solid #000000; border-bottom:0.5pt solid #000000" valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000; border-bottom:0.5pt solid #000000" valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:0.5pt solid #000000" valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000; border-bottom:0.5pt solid #000000" valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Net income/(loss)</P>
</TD><TD style="border-bottom:3pt double #000000" valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;(680,875)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:3pt double #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;(286,897)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:3pt double #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;&nbsp;(318,388)</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD style="border-bottom:3pt double #000000" valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;215,692 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067>&nbsp;</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Weighted average shares outstanding - basic and fully diluted</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;105,284,952 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>88,237,504 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>111,796,622 </P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>88,237,504 </P>
</TD></TR>
<TR><TD valign=bottom width=246.067>&nbsp;</TD><TD valign=bottom width=92>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067>&nbsp;</TD></TR>
<TR><TD valign=bottom width=246.067><P style="margin:0pt; font-family:Times New Roman">Net loss per share - basic and fully diluted</P>
</TD><TD valign=bottom width=92><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=92.067><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The accompanying notes are an integral part of these financial statements.</P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>4</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>(Unaudited)</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=379.533>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=236.6 colspan=3><P style="margin:0pt; font-family:Times New Roman"><B>&nbsp;Nine Months Ended September 30, </B></P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=center><B>&nbsp;2007 </B></P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=center><B>&nbsp;2006 </B></P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">CASH FLOWS FROM OPERATING ACTIVITIES</P>
</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Net loss</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>$ &nbsp;&nbsp;&nbsp;(680,875)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$ &nbsp;(286,897)</P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Adjustments to reconcile net loss to net cash provided by/(used in) operations:</P>
</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Depreciation and amortization</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>100,472</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;302,901 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Forgiveness of debt income</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(95,549)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(212,782)</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Gain on sale of assets</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(2,813)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(519,073)</P>
</TD></TR>
<TR><TD valign=bottom width=379.533><P style="margin:0pt; font-family:Times New Roman">Change in fair value of derivative</P>
</TD><TD valign=bottom width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>16,961</P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(262,772) &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Bad debt expense</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;31,805 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Common stock issued for services and compensation</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>368,219</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;30,216 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Grant of options and warrants to employees, officers and directors</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>413,445</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Gain on settlement of litigation</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(273,607)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Amortization of debt discount</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>129,250</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Changes in operating assets and liabilities:</P>
</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Accounts receivable</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>329,030</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(309,795)</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Cost in excess of billings/billings in excess of costs</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(86,495)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Accounts payable and accrued liabilities</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(168,507)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;513,545 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Other assets</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(25,937)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Related party payables</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>97,159</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Other current liabilities</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>(60,726)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>-</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Net cash provided by/(used in) operating activities</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;60,027 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(712,851)</P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">CASH FLOWS FROM INVESTING ACTIVITIES</P>
</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Capital expenditures</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(12,524)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11,906)</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Proceeds from the sale of assets</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;106,689 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Net cash provided by/(used in) investing activities</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(12,524)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;94,783 </P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">CASH FLOWS FROM FINANCING ACTIVITIES</P>
</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Proceeds from issuance of notes payable</P>
</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;108,298 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Principal payments on notes payable</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(75,000)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(70,128)</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Proceeds from issuances of common stock</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;81,250 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;599,784 </P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Net cash provided by financing activities</P>
</TD><TD style="border-top:0.75pt solid #000000" valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6,250 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-top:0.75pt solid #000000" valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;637,954 </P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=112.6>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Net change in cash and cash equivalents</P>
</TD><TD valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;53,753 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19,886 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Cash and cash equivalents, beginning of period</P>
</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;91,221 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.5pt solid #000000" valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;764 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Cash and cash equivalents, end of period</P>
</TD><TD style="border-bottom:2pt double #000000" valign=top width=112.6><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$ &nbsp;144,974 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:2pt double #000000" valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;$ &nbsp;&nbsp;&nbsp;20,650 </P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The accompanying notes are an integral part of these financial statements.</P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>5</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Statements of Cash Flows (Continued) for the Nine Months Ended September 30, 2007 and 2006</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>(Unaudited)</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=379.533>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=236.6 colspan=3><P style="margin:0pt; font-family:Times New Roman"><B>&nbsp;Nine Months Ended September 30, </B></P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=center><B>&nbsp;2007 </B></P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=center><B>&nbsp;2006 </B></P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION</P>
</TD><TD valign=top width=108.333>&nbsp;</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Cash paid for:</P>
</TD><TD valign=top width=108.333>&nbsp;</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Interest</P>
</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Income taxes</P>
</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD></TR>
<TR><TD valign=top width=379.533>&nbsp;</TD><TD valign=top width=108.333>&nbsp;</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Non-cash activities:</P>
</TD><TD valign=top width=108.333>&nbsp;</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Common stock issued for:</P>
</TD><TD valign=top width=108.333>&nbsp;</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267>&nbsp;</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Legal settlement</P>
</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;225,000.00 </P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Conversion of debentures</P>
</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;107,599 </P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;182,604 </P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Penalties</P>
</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;33,941 </P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD></TR>
<TR><TD valign=top width=379.533><P style="margin:0pt; font-family:Times New Roman">Debt reduction</P>
</TD><TD valign=top width=108.333><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;46,651 </P>
</TD><TD valign=top width=20>&nbsp;</TD><TD valign=top width=108.267><P style="margin:0pt; font-family:Times New Roman" align=right>&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;</P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The accompanying notes are an integral part of these financial statements.</P>
<P style="margin:0pt; font-family:Times New Roman" align=center><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>6</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman" align=center><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Statement of Stockholders&#146; Deficit For the Nine Months Ended September 30, 2007</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>(Unaudited)</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=217.6>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=172.2 colspan=5><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Common Stock</B></P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933>&nbsp;</TD></TR>
<TR><TD valign=top width=217.6>&nbsp;</TD><TD valign=bottom width=85.133 colspan=3><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Shares</B></P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Amount</B></P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=87.067 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Common Stock Committed</B></P>
</TD><TD valign=bottom width=87.133 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Additional Paid In Capital</B></P>
</TD><TD valign=bottom width=89.267><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Accum. Deficit</B></P>
</TD><TD valign=bottom width=15.733>&nbsp;</TD><TD valign=bottom width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center><B>Total</B></P>
</TD></TR>
<TR><TD valign=top width=236 colspan=3>&nbsp;</TD><TD valign=top width=66.733>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933>&nbsp;</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Balance at December 31, 2006 (restated)</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>&nbsp;&nbsp;&nbsp;&nbsp;96,732,599 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>$ &nbsp;&nbsp;&nbsp;&nbsp;483,663 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>$ &nbsp;&nbsp;150,000 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>$ 10,215,949 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>$ (14,725,943)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>$ &nbsp;&nbsp;(3,876,331)</P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2>&nbsp;</TD><TD valign=top width=78.733 colspan=2>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933>&nbsp;</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Common stock issued for services</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8,200,000 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;41,000 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;151,494 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;192,494 </P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Common stock issued for cash</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1,875,000 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9,375 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;71,875 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;81,250 </P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Debenture conversion</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3,996,500 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;19,982 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>62,067</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>82,049</P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Board remuneration</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5,168,388 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;25,842 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;149,883 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;175,725 </P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Settlement of lawsuit</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,500,000 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12,500 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(150,000)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;62,511 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(74,989)</P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Grant of options to employees, officers and directors</P>
</TD><TD width=78.733 colspan=2>&nbsp;</TD><TD width=15.733>&nbsp;</TD><TD width=71.333>&nbsp;</TD><TD width=15.733>&nbsp;</TD><TD width=71.333>&nbsp;</TD><TD width=15.733>&nbsp;</TD><TD width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>413,445</P>
</TD><TD width=15.733>&nbsp;</TD><TD width=89.267>&nbsp;</TD><TD width=15.733>&nbsp;</TD><TD width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>413,445</P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2>&nbsp;</TD><TD valign=top width=78.733 colspan=2>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Net loss, nine months ended September 30, 2007</P>
</TD><TD valign=top width=78.733 colspan=2>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>(680,875)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>(680,875)</P>
</TD></TR>
<TR><TD valign=top width=224 colspan=2>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=78.733 colspan=2>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=71.333>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=71.4>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=89.267>&nbsp;</TD><TD valign=top width=15.733>&nbsp;</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=81.933>&nbsp;</TD></TR>
<TR><TD valign=top width=224 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">Balance at September 30, 2007</P>
</TD><TD valign=top width=78.733 colspan=2><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>&nbsp;&nbsp;&nbsp;&nbsp;118,472,487 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">&nbsp;&nbsp;$ &nbsp;&nbsp;&nbsp;592,362 </P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.333><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>$ &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;- &nbsp;&nbsp;</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=71.4><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=right>$ 11,127,225</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=89.267><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>&nbsp;$ &nbsp;&nbsp;&nbsp;(15,406,819)</P>
</TD><TD valign=top width=15.733>&nbsp;</TD><TD valign=top width=81.933><P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt" align=center>&nbsp;$ &nbsp;&nbsp;(3,687,232)</P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
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<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; line-height:10pt; font-family:Times New Roman; font-size:8pt">The accompanying notes are an integral part of these financial statements.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>VIRTRA SYSTEMS, INC.</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center><B>Notes to Financial Statements</B></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>(Unaudited)</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 1. Basis of Presentation</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">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, 2006. 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, 2006 included in the Company&#146;s Form 10-KSB/A, as amended on August 20, 2007, 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 fin
ancial 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 2. Going Concern</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">As reflected in the accompanying financial statements, the Company has significant deficit working capital and recurring losses. &nbsp;Although the Company has engaged in fund raising efforts, there is no guarantee that either the fund raising efforts or cash flows from operations, if any, will generate sufficient working capital for the Company to remain as a going concern.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">If the Company is unable to raise sufficient capital and fails to achieve profitable operations with positive cash flows, it will be forced to liquidate its assets in an attempt to pay creditors at which time the assets on the accompanying balance sheet as of September 30, 2007 will be liquidated at amounts possibly substantially less than carried as of that date. &nbsp;It is therefore possible that, should the Company be forced to liquidate, there will be insufficient cash to pay all creditors and provide the Company&#146;s shareholders a return on their investment.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 3. Critical Accounting Policies</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Revenue Recognition</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; 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 the total estimated costs for each contract. Contract costs include all direct material, and those indirect costs related to contract performance, such as supplies, tools, and repairs costs. General and administrative costs, including all salaries and wages, are charged to expense as incurred.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. 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. 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>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Costs and estimated earnings in excess of billings on uncompleted contracts represent revenue recognized in excess of amounts billed. Billings in excess of costs and estimated earnings on uncompleted contracts represent amounts billed in excess of revenue recognized.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Embedded Derivatives and Beneficial Conversion Features of Financing Arrangements</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Certain of our debentures payable contain embedded derivatives and conversion features as defined in SFAS 133 &#150; <I>Accounting for Derivative Instruments and Hedging Activities. &nbsp;</I>Specifically, these financing arrangements contain </P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">beneficial conversion features which allow the debenture holder to convert the debenture into common stock at a rate which is variable depending on the market price. &nbsp;Moreover, since the number of shares to be issued upon such conversion, if any, is indeterminable and since it is possible that the number of shares to be issued under this arrangement could exceed the amount of authorized shares, we must provide for the possibility of having to settle such an obligation using means other than our own common stock (the &#147;Derivative Liability&#148;). &nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">We use the Black-Scholes method to value the beneficial conversion features and the derivative liability. &nbsp;The value of the beneficial conversion features are accounted for as a discount on the face amount of the debentures. &nbsp;This discount is amortized over the life of the debentures using the effective interest method.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The derivative liability was valued at inception of the debentures and is revalued at each reporting period with the resulting gain or loss reporting on the Statement of Operations under &#147;Gain/(loss) on derivative liability&#148;.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 4. Convertible Debentures</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">During February 2005 and August 2005 the Company issued $750,000 and $500,000, respectively, in convertible debentures. The debentures bear interest at 8% per year payable in cash or registered common stock at the Company&#146;s option. The debentures mature in February and August 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">In addition the Company issued to the holders of the convertible debentures warrants to purchase 750,000 and 500,000 shares of the Company&#146;s common stock (see Note 6). &nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Pursuant to SFAS 133, the Company bifurcated the conversion feature from the debentures because the conversion price is not fixed and the debentures are not convertible into a fixed number of shares. Accordingly, the embedded derivative must be bifurcated and accounted for separately.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">At and as of September 30, 2007, the following items relating to the convertible debentures, the discount on the convertible debentures relating to the beneficial conversion features, and the embedded derivative liability have been included in these financial statements:</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=bottom width=293.067>&nbsp;</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=center>9/30/07</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=center>12/31/06</P>
</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Balance Sheet Effect:</P>
</TD><TD valign=bottom width=66.667>&nbsp;</TD><TD valign=bottom width=66.667>&nbsp;</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Principal balance on debentures payable</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>422,002</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>470,117</P>
</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Unamortized discount</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>(126,542)</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>(255,792)</P>
</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Net debenture liability</P>
</TD><TD style="border-top:0.5pt solid #000000" valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>295,460</P>
</TD><TD style="border-top:0.5pt solid #000000" valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>214,325</P>
</TD></TR>
<TR><TD valign=bottom width=293.067>&nbsp;</TD><TD valign=bottom width=66.667>&nbsp;</TD><TD valign=bottom width=66.667>&nbsp;</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Accrued interest on debentures</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>545,725</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>496,239</P>
</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Total balance sheet effect of debentures payable</P>
</TD><TD style="border-top:0.5pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>841,185</P>
</TD><TD style="border-top:0.5pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>843,968</P>
</TD></TR>
<TR><TD valign=bottom width=293.067>&nbsp;</TD><TD valign=bottom width=66.667>&nbsp;</TD><TD valign=bottom width=66.667>&nbsp;</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Statement of Operations Effect:</P>
</TD><TD valign=bottom width=66.667>&nbsp;</TD><TD valign=bottom width=66.667>&nbsp;</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Interest expense</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>56,562</P>
</TD><TD valign=bottom width=66.667>&nbsp;</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Amortization of debenture discount</P>
</TD><TD valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>129,250</P>
</TD><TD valign=bottom width=66.667>&nbsp;</TD></TR>
<TR><TD valign=bottom width=293.067><P style="margin:0pt; font-family:Times New Roman">Total Statement of Operations Effect</P>
</TD><TD style="border-top:0.5pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=66.667><P style="margin:0pt; font-family:Times New Roman" align=right>185,812</P>
</TD><TD style="border-top:0.5pt solid #000000; border-bottom:3pt double #000000" valign=bottom width=66.667>&nbsp;</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman">&nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 5. Stock Options and Warrants</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">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 </P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>9</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">ability to attract and retain the services of qualified persons. &nbsp;Warrants are periodically issued in connection with financing arrangements. &nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On January 25, 2007, our board of directors granted 13,074,499 options to employees, officers and directors, to purchase our common stock pursuant to our employee stock option plan. &nbsp;The options are fully vested on the grant date and are exercisable for seven years with an exercise price of $0.04. &nbsp;We valued these options at $413,445 using the Black-Scholes method using a volatility rate of 144.06%, an exercise price of $0.04, and a discount rate of 4.79%. &nbsp;The value of these options is included in general and administrative expenses for the nine months ended September 30, 2007.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 6. Commitments and Contingencies</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">In October of 2005 the Company registered the sale by Duchess Private Equities Fund II, L.P. (&#147;Duchess&#148;) of an aggregate of 8,000,000 shares of its common stock issuable to that company upon conversion of convertible debentures and upon exercise of warrants issued to it. On July 1, 2006, a portion of the shares covered by that registration statement remained unsold and the financial statements included in that registration statement's prospectus exceeded the maximum age for financial statements permitted under the SEC's regulations. The Company did not inform Duchess, as it was required to do under its contract, that the prospectus could no longer be used. As a result, sales made by Duchess after July 1, 2006 by means of the outdated prospectus were regarded as unregistered for purposes of the Securities Act of 1933, giving purchasers of those shares a right to rescind their purchases at any time within one year after the date of purchase. During t
he period from July 6, 2006 through October 20, 2006, Duchess sold an aggregate of 5,434,138 shares using the updated prospectus, at prices ranging from $0.03 to $0.073. The aggregate sales price for all of those sales was $254,977. The Company is required under its agreement with Duchess to indemnify Duchess for any loss it might suffer as a result of any exercise of those rescission rights by purchasers. The Company is unable to predict whether any of those purchasers will seek rescission of their purchases. If they do, the Company will be obligated to indemnify Duchess for an amount equal to the difference between the sales prices of those shares and the value of the shares it receives back from the purchasers upon rescission. If all of the purchasers were to rescind their purchases and if all of the shares taken back by Duchess as a result or to become totally valueless, the Company would owe Duchess $254,977 as a result of the rescission. &nbsp;As of September 30, 2007, and through the date of this repo
rt we are unaware of any claims presented to Duchess under this provision of our agreement with them. &nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman">&nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 7. Common Stock Transactions</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><I><U>During the nine months ended September 30, 2007, we issued the following shares:</U></I></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On January 16, 2007, we issued 1,875,000 shares to three accredited investors for $81,250 in cash.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On January 26, 2007, we issued 3 million shares to our counsel representing us in our lawsuit with Jones and Cannon. We valued these shares at $75,000 based upon the closing price of the Company&#146;s common stock at the measurement date and the cost is included in general and administrative expense for the nine months ended September 30, 2007.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On June 28, 2007, we issued 5,168,388 shares to members and ex-members of our board of directors as compensation for services. &nbsp;These shares were valued at $175,725 in these financial statements and were recorded as a retirement of previously-accrued compensation for our board of directors.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Upon receipt of notice of conversion from Duchess Private Equities Fund II, L.P., &nbsp;we issued the following shares to convert our debenture balances into our common stock: &nbsp;969,725 shares on April 18; 323,275 shares on August 2; 350,000 shares on August 22; 351,000 shares on August 31; 402,500 shares on September 5; 450,000 shares on September 5; 550,000 shares on September 21 and 600,000 shares on September 25, for an aggregate total of 3,996,500 shares. &nbsp;In issuing these shares, we retired $75,266 of our interest and principal liability on these debentures.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>10</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On August 28, 2007, we issued 5,200,000 shares to a consultant for services provided throughout 2006 and 2007. &nbsp;We valued these shares at &nbsp;$130,000, the fair value at issuance, and retired existing debt to the consultant.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">We issued 2,500,000 shares in partial settlement of &nbsp;the judgment entered against us in the matter of <I>Jones and Cannon, LP Vs VirTra Systems, Inc</I>. &nbsp;We will carry the remaining liability on this matter of $167,526 until the matter is completely settled.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 8. Accrued Liabilities</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The following table summarizes the major items included in Accrued Liabilities at September 30, 2007 and December 31, 2006:</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=289.133><P style="margin:0pt; font-family:Times New Roman"><B>Description</B></P>
</TD><TD valign=top width=96.8><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>9/30/07</U></B></P>
</TD><TD valign=top width=75.667><P style="margin:0pt; font-family:Times New Roman" align=center><B><U>12/31/06</U></B></P>
</TD></TR>
<TR><TD valign=bottom width=289.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;Accrued payroll taxes</P>
</TD><TD valign=bottom width=96.8><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;891,823 </P>
</TD><TD valign=bottom width=75.667><P style="margin:0pt; font-family:Times New Roman" align=right>769,213</P>
</TD></TR>
<TR><TD valign=bottom width=289.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;Accrued interest payable </P>
</TD><TD valign=bottom width=96.8><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;545,725 </P>
</TD><TD valign=bottom width=75.667><P style="margin:0pt; font-family:Times New Roman" align=right>541,172</P>
</TD></TR>
<TR><TD valign=bottom width=289.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;Accrued lawsuit judgments and settlements </P>
</TD><TD valign=bottom width=96.8><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;405,979 </P>
</TD><TD valign=bottom width=75.667><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;620,802 </P>
</TD></TR>
<TR><TD valign=bottom width=289.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;Deferred revenue </P>
</TD><TD valign=bottom width=96.8><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;65,056 </P>
</TD><TD valign=bottom width=75.667><P style="margin:0pt; font-family:Times New Roman" align=right>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;58,511 </P>
</TD></TR>
<TR><TD valign=bottom width=289.133><P style="margin:0pt; font-family:Times New Roman">&nbsp;Other </P>
</TD><TD valign=bottom width=96.8><P style="margin:0pt; font-family:Times New Roman" align=right>296,970</P>
</TD><TD valign=bottom width=75.667><P style="margin:0pt; font-family:Times New Roman" align=right>400,350</P>
</TD></TR>
<TR><TD style="border-top:0.75pt solid #000000; border-bottom:1.5pt solid #000000" valign=bottom width=289.133><P style="margin:0pt; font-family:Times New Roman"><B>&nbsp;Total Accrued Liabilities </B></P>
</TD><TD style="border-top:0.75pt solid #000000; border-bottom:1.5pt solid #000000" valign=bottom width=96.8><P style="margin:0pt; font-family:Times New Roman" align=right><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2,205,553 </B></P>
</TD><TD style="border-top:0.75pt solid #000000; border-bottom:1.5pt solid #000000" valign=bottom width=75.667><P style="margin:0pt; font-family:Times New Roman" align=right><B>2,390,048 </B></P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 9. &nbsp;Cost and Estimated Earnings in Excess of Billings on Uncompleted Contracts</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; line-height:13pt; font-family:Calibri; font-size:11pt"><I>The following information represents our current projects at and for the nine month period ended September 30, 2007:</I></P>
<P style="margin:0pt; font-family:Calibri; font-size:11pt">&nbsp;</P>
<P style="margin:0pt; line-height:13pt; font-family:Calibri; font-size:11pt">We had several projects near the completion stage, our percentage of completion is based on total costs incurred to date compared to the estimated total cost of each contract.&nbsp; We have incurred total costs of $463,276 on contracts totaling $1,469,515 of total revenue. We estimate that we will incur approximately $75,000 of additional costs and do not expect to incur any losses on our uncompleted contracts. Our Cost in excess of billings was $61,549. </P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Note 9. Other Assets</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Other assets at September 30, 2007 is comprised of costs of internally developed software for our products of $240,770, less the accumulated amortization of $174,408. &nbsp;The balances at December 31, 2006 for the cost of internally developed software and the related accumulated amortization was $213,432 and $125,358, respectively.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<A NAME="_Toc183174651"></A><P style="margin:0pt; font-family:Times New Roman"><B>Item 2 &#150; Management&#146;s Discussion and Analysis</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">This form 10-QSB contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act, as amended and Section 21E of the Securities Exchange Act of 1934. &nbsp;The words expect, anticipate, believe, goal, plan, intend, estimate, and similar expressions and variations thereof, if used, are intended to specifically identify forward-looking statements. &nbsp;Those statements appear in a number of places in this Form 10-QSB and in other places, particularly, Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations, and include statements regarding our intent, belief or current expectations of our Company, our directors or officers with respect to, among other things: &nbsp;(i) our liquidity and capital resources; &nbsp;(ii) our financing opportunities and plans and &nbsp;(iii) our future performance and operating results. &nbsp;Investors and prospective investors are cautioned t
hat any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. &nbsp;The factors that might cause such differences include, among others, the following: &nbsp;(i) any material inability of us to successfully internally develop our products; &nbsp;(ii) any adverse effect or limitations caused by governmental regulations; &nbsp;(iii) any adverse effect on our abilities to obtain acceptable </P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>11</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">financing; &nbsp;(iv) any increased competition in business; &nbsp;(v) any inability of us to successfully conduct our business in new markets; &nbsp;and (vi) other risks including those identified in our filing with the Securities and Exchange Commission. &nbsp;We undertake no obligation to publicly update or revise the forward-looking statements made in this Form 10-QSB to reflect events or circumstances after the date of this Form 10-QSB or to reflect the occurrence of unanticipated events.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Business Overview</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our principal business began in 1993 with the organization of Ferris Productions, Inc. Ferris designed, developed, distributed, and operated virtual reality products for the entertainment, simulation, promotion, and education markets. &#147;Virtual reality&#148; is a generic term associated with computer systems that create a real-time visual/audio/haptic (touch and feel) experience. Virtual reality immerses participants into a three-dimensional real-time synthetic environment generated or controlled by one (or several) computer(s). In September of 2001, Ferris 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. Our historic areas of application have included the entertainment/amusement, advertising/promotion, and training/simulation markets. We effectively left the entertainment/amusement market in the spring of 2003 in order to more fully f
ocus on the advertising/promotional and training/simulation markets.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our &#147;immersive virtual reality&#8482;&#8221; devices are computer-based, and allow participants to view and manipulate graphical representations of physical reality. Stimulating the senses of sight, sound, touch, and smell simultaneously, our virtual reality devices envelop the participant in dynamic filmed or computer-generated imagery, and allow the participant to interact with what he or she sees using simple controls and body motions. Virtual reality products have traditionally employed head-mounted displays that combine high-resolution miniature image source monitors, wide field-of-view optics, and tracking sensors in a unit small and light enough to be worn on the head. These products usually surround the participant with dynamic three-dimensional imagery, allowing the user to change perspective on the artificial scenes by simply moving his or her head. Virtual reality devices have in the past been used primarily in connection with electronic game
s, as, by surrounding the player with the sights, sounds, and smells he or she would experience in the real world, play is made far more realistic than it would be if merely presented in a two-dimensional flat screen display. Now, however, virtual reality is finding increasing applications in the advertising/promotion and training/simulation markets.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">We maintain our corporate office at 2500 City West Blvd., Suite 300, Houston, Texas 77042, and our telephone number is (832) 242-1100. We also maintain engineering, technical, and production offices, and a demonstration facility, at 1406 West 14th Street, Tempe, Arizona 85281, with a phone number of (480) 968-1488. </P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; 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>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><B><U>Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations</U></B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Three Months Ended September 30, 2007 Compared with Three Months Ended September 30, 2006</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">For the three months ended September 30, 2007, our revenues increased to $1,222,325, a 268% increase over the $462,921 we posted for the same period in 2006. This is principally due to the general increase in business volume we have enjoyed from the strong demand for our products. &nbsp;Our gross margins of $746,289 remain fairly constant at 62% of our net sales versus the same period in 2006, where we posted 61% gross margins, or $284,348. &nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our general and administrative costs for the three months ended September 30, 2007 of $1,280,723 were up significantly over the $561,870 we recorded over the same period in 2006. &nbsp;The majority of the increase is due to our recording of non-cash stock options, valued at $413,445, to our employees, officers and directors.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Nine Months Ended September 30, 2007 Compared with Nine Months Ended September 30, 2006</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>12</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our revenues of $1,827,523 for the nine months ended September 30, 2007 represented a significant increase over the $1,255,827 reported for the same period in 2006. Virtually all of the increase is due to the revenues we recorded in the third quarter.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our general and administrative expenses of $1,797,167, when adjusted downward for non-cash options of $413,445, are slightly lower than the $1,430,549 reported for the same period last year. </P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Liquidity and Plan of Operation</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">As of September 30, 2007, we remain extremely illiquid because of our short-term liabilities. Though current liabilities declined to $4,139,912 from the year-end 2006 total of $4,601,937, we have been unable to service our debt because of a lack of current assets and cash flows from operations.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Historically, VirTra Systems met 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 Duchess Private Equities Fund, L.P., and through our current convertible debenture with Duchess Private Equities Fund, L.P. and Duchess Private Equities Fund II, L.P. &nbsp;We are experiencing difficulty in raising additional capital and have funded our current operation almost exclusively from our operating cash flows for the nine months ended September 30, 2007. &nbsp;&nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">For the nine months ended September 30, 2007, our net loss is $680,875. &nbsp;After taking into account the non-cash items included in that loss, our operations generated a small positive cash flow of $60,027, &nbsp;although this does not take into consideration cash which we should have paid, but could not. </P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our focus in the short term is to maintain and increase our business volume and the resulting cash flows from operations, reduce our outstanding obligations and raise capital to refinance some of our more burdensome debt arrangements.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The opinion of our independent auditor for the year ended December 31, 2006 expressed substantial doubt as to our ability to continue as a going concern. Despite expense reductions that the Company has implemented, VirTra will need substantial additional capital or new lucrative custom application projects with deposits on account to become profitable. Management believes that a continuation of sales growth, purchase order financing to sustain the production and additional sales of common stock will carry the Company through the next twelve months. </P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<A NAME="_Toc183174652"></A><P style="margin:0pt; font-family:Times New Roman"><B>Item 3 &#150; Controls and Procedures</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Disclosure Controls and Procedures</U></P>
<P style="margin:0pt; font-family:Times New Roman">Based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13(a)-15(e) promulgated under the Securities Exchange Act of 1934 (the &#147;Exchange Act&#148;) as of the end of the period covered by this report, and because of the errors and corrections identified by our auditors with respect to the complex rules for accounting for embedded derivatives which caused our restatements of our financial statements filed on form 10-KSB for the years ended December 31, 2005 and 2006, our Chief Executive Officer has concluded that our disclosure controls and procedures were not effective as of September 30, 2007 to ensure that information required to be disclosed by us in reports that we file or submit in Securities and Exchange Commission rules and forms.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Additional effort is needed to fully remedy our identified deficiencies as discussed below and we are continuing our efforts to improve and strengthen our control procedures and processes. &nbsp;Our management intends to continue to work with our auditors and other outside advisors, as appropriate, to develop and then apply our controls and procedures with the goal of achieving adequate and effective disclosure controls. &nbsp;We believe that with a properly planned, designed and implemented system of internal controls over financial reporting, our disclosure controls and procedures are expected to become effective.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>13</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">There have been no significant changes in internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer completed his evaluation.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Material Weaknesses in Internal Control over Financial Reporting</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Our management made an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2007 and identified deficiencies related to expense recognition and disclosure control deficiencies related to embedded derivatives. &nbsp;The adjustment to expense and the footnote disclosure deficiencies were detected by our independent auditors during the review process and are appropriately corrected, recorded and disclosed in this quarterly report on form 10-QSB for the three and nine months ended September 30, 2007. &nbsp;Following a review of these deficiencies, management determined that we had not correctly accounted for the embedded derivatives related to the beneficial conversion feature and warrants associated with our Duchess Private Equities, LLP debenture. &nbsp;As a result, management concluded that our disclosure controls and procedures were not effective. &nbsp;Management concluded that the following two deficiencies w
ere present in our control process as of September 30, 2007:</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=21.067><P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman">*</P>
</TD><TD valign=top width=594.133><P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman">We did not have a systematic and documented program of internal controls and procedures over our accounting and financial reporting process to ensure that unusual or complex transactions are recorded, processed, summarized and reported on a timely basis.</P>
</TD></TR>
<TR><TD valign=top width=21.067><P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman">*</P>
</TD><TD valign=top width=594.133><P style="margin-top:0pt; margin-bottom:5pt; font-family:Times New Roman">We do not have adequate supervision and training of our accounting staff.</P>
</TD></TR>
</TABLE>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Corrective Action</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">None.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>14</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<A NAME="_Toc183174653"></A><P style="margin:0pt; font-family:Times New Roman"><B>PART II &#150; OTHER INFORMATION</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<A NAME="_Toc183174654"></A><P style="margin:0pt; font-family:Times New Roman"><B>Item 1 &#150; Legal Proceedings</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On May 13, 2004, a suit was filed against us in the federal district court of South Carolina, in cause number 04CP402455, styled Garland and Leota Slagle v. VirTra Systems, Inc., seeking payment of the principal sum of $90,000, plus accrued interest, in equipment leases allegedly entered into by the Slagles with the former Ferris Productions, Inc. in 2001. &nbsp;In May of 2006, judgment was awarded to the plaintiff in the amount of $116,005. &nbsp;As part of the agreement, the plaintiff agreed to wait one year for payment. The Company has not yet been able to pay, and in February, 2007 the Company received notice from the plaintiff&#146;s lawyer that the plaintiff intends to enforce the judgment. &nbsp;At present this liability remains unpaid and is accruing interest at the rate of 8% per annum. &nbsp;We have accrued $116,015 for this judgment and $7,815 in interest.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On December 30, 2004, suit was filed against us in the federal district court of North Carolina, in cause number 4:04-CV-199-H2, styled <I>Edward and Linda Strickland v. VirTra Systems, Inc.</I>, seeking payment in the principal sum of $72,000, plus accrued interest, in equipment leases allegedly entered into by Mr. Strickland with the former Ferris Productions, Inc. 2001. &nbsp;&nbsp;In February of 2006, we entered into an agreed judgment in the amount of $85,000, with a contractual provision in the judgment that there would be no collection activity on the judgment prior to February of 2007. &nbsp;On March 12, 2007 we received notice from counsel for the plaintiffs that &nbsp;they will within 30 days begin post-judgment discovery. No further action has occurred with this liability to date. &nbsp;We have accrued the $85,000 judgment and $42,464 in interest to provide for this liability.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">We have a contingent liability relating to our failure to file a timely registration statement for certain shares issued to Duchess Private Equities II, LLC. &nbsp;For more information see note 6.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<A NAME="_Toc183174655"></A><P style="margin:0pt; font-family:Times New Roman"><B>Item 2 &#150;Changes in Securities</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><U>Recent Sales of Unregistered Securities</U></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">During the nine months ended September 30, 2007, we issued the following shares:</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On January 16, 2007, we issued 1,875,000 shares to three accredited investors for $81,250 in cash.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On January 26, 2007, we issued 3,000,000 shares for services to our counsel representing us in our lawsuit with Jones and Cannon. The shares were valued at $75,000 based upon the closing price of our common stock on the measurement date.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">An April 18, 2007, we issued 969,725 shares in connection with the forced conversion of accrued penalties associated with a debenture holder. &nbsp;These shares were valued at $33,941 in our financial statements.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On June 28, 2007, we issued 5,168,388 shares to members and ex-members of our board of directors as compensation for services. &nbsp;These shares were valued at $175,725.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">Upon receipt of notice of conversion from Duchess Private Equities Fund II, L.P., &nbsp;we issued the following shares to convert our debenture balances into our common stock: &nbsp;323,275 shares on August 2; 350,000 shares on August 22; 351,000 shares on August 31; 402,500 shares on September 5; 450,000 shares on September 5; 550,000 shares on September 21 and 600,000 shares on September 25, for an aggregate total of 3,996,500 shares. &nbsp;In issuing these shares, we retired $48,114 of our liability to Duchess.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">On August 28, 2007, we issued 5,200,000 shares to a consultant for services provided throughout 2006 and 2007. &nbsp;We valued these shares at &nbsp;$130,000, the fair value at issuance.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR>
<BR></P>
<P style="margin:0pt; font-family:Times New Roman" align=center>15</P>
<P style="margin:0pt; 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:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">We issued 2,500,000 shares in partial settlement of &nbsp;the judgment entered against us in the matter of <I>Jones and Cannon, LP Vs VirTra Systems, Inc</I>. &nbsp;We valued these shares at $75,011, based upon the closing price of our common stock on the measurement date.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">All of the shares identified above were issued in reliance upon the private offering exemption contained in Section 4(2) of the Act and the accredited investor exemption contained in section 4(6) of the Act.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<A NAME="_Toc183174658"></A><P style="margin:0pt; font-family:Times New Roman"><B>Item 6 &#150; Exhibits and Reports on Form 8-K</B></P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<P style="margin:0pt; font-family:Times New Roman">The Company has filed no forms 8-K subsequent to September 30, 2007.</P>
<P style="margin:0pt; font-family:Times New Roman"><BR></P>
<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=66><P style="margin:0pt; font-family:Times New Roman">Exhibits</P>
</TD><TD valign=top width=312>&nbsp;</TD></TR>
<TR><TD valign=top width=66>&nbsp;</TD><TD valign=top width=312>&nbsp;</TD></TR>
<TR><TD valign=bottom width=66><P style="margin:0pt; font-family:Times New Roman" align=center>No.</P>
</TD><TD valign=bottom width=312><P style="margin:0pt; font-family:Times New Roman" align=center>Name of Exhibit</P>
</TD></TR>
<TR><TD style="border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000" valign=top width=66><P style="margin:0pt; font-family:Times New Roman">31</P>
</TD><TD style="border-top:0.75pt solid #000000; border-bottom:0.75pt solid #000000" valign=top width=312><P style="margin:0pt; font-family:Times New Roman">Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-15(e) &nbsp;</P>
</TD></TR>
<TR><TD style="border-bottom:0.75pt solid #000000" valign=top width=66><P style="margin:0pt; font-family:Times New Roman">32</P>
</TD><TD style="border-bottom:0.75pt solid #000000" valign=top width=312><P style="margin:0pt; font-family:Times New Roman">Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</P>
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<P style="margin:0pt; font-family:Times New Roman" align=center><B>SIGNATURES</B></P>
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<P style="margin:0pt; font-family:Times New Roman">Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. </P>
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</TD><TD valign=top width=314><P style="margin:0pt; font-family:Times New Roman"><B>VIRTRA SYSTEMS, INC. </B></P>
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<TR><TD valign=top width=311><P style="margin:0pt; font-family:Times New Roman">Date: November 19, 2007</P>
</TD><TD valign=top width=314><P style="margin:0pt; font-family:Times New Roman">By:<U> &nbsp;/s/ Perry V. Dalby&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>
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</TD><TD valign=top width=314><P style="margin:0pt; font-family:Times New Roman">Perry V. Dalby</P>
</TD></TR>
<TR><TD valign=top width=311><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 and Chief Financial Officer</P>
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<TYPE>EX-31
<SEQUENCE>2
<FILENAME>exhibit31.htm
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<TITLE>Exhibit 31</TITLE>
<META NAME="author" CONTENT="dthomas">
<META NAME="date" CONTENT="11/16/2007">
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<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt" align=right><B>Exhibit 31</B></P>
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<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt" align=center><B>Chief &nbsp;Executive Officer and Chief Financial Officer - Rule 13a-15(e) &nbsp;Certification</B></P>
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<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">I, Perry V. Dalby, certify that:</P>
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<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">1. &nbsp;I have reviewed this Quarterly Report on Form 10-QSB of VirTra Systems, Inc.;</P>
<P style="margin:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">2. &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:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">3. &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:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">4. &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>
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<P style="margin:0pt; text-indent:29.7pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">a) &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>
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<P style="margin:0pt; text-indent:29.7pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">b) &nbsp;&nbsp;&nbsp;[Omitted pursuant to SEC Release Nos. 33-8238 and 34-47986];</P>
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<P style="margin:0pt; text-indent:29.7pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">c) &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>
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<P style="margin:0pt; text-indent:29.7pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">d) &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:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">5. &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>
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<P style="margin-top:0pt; margin-bottom:-14pt; padding-left:36pt; text-indent:-18pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">a)</P>
<P style="margin:0pt; padding-left:36pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">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:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin-top:0pt; margin-bottom:-14pt; padding-left:36pt; text-indent:-18pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">b)</P>
<P style="margin:0pt; padding-left:36pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">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>
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<TABLE style="font-size:10pt" cellspacing=0><TR><TD valign=top width=354.333><P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">Date: November 19, 2007</P>
</TD><TD valign=top width=357.733><P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt"><U>&nbsp;/s/ Perry V. Dalby&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=354.333><P style="margin:0pt; font-family:Times New Roman; font-size:12pt">&nbsp;</P>
</TD><TD valign=top width=357.733><P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">Perry V. Dalby</P>
</TD></TR>
<TR><TD valign=top width=354.333><P style="margin:0pt; font-family:Times New Roman; font-size:12pt">&nbsp;</P>
</TD><TD valign=top width=357.733><P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">Chief Executive Officer and Chief Financial Officer</P>
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<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><BR></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">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.</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="dthomas">
<META NAME="date" CONTENT="11/16/2007">
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<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt" align=right><B>Exhibit 32</B></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt" align=center><B>CERTIFICATE</B></P>
<P style="margin:0pt; font-family:Times New Roman; font-size:12pt"><B>&nbsp;</B></P>
<P style="margin:0pt; text-indent:29.7pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">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>
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<P style="margin-top:0pt; margin-bottom:-14pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">&nbsp;(1)</P>
<P style="margin:0pt; text-indent:36pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">The Quarterly Report of VirTra Systems, Inc. for the quarter ending September 30, 2007, 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:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin-top:0pt; margin-bottom:-14pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">&nbsp;(2)</P>
<P style="margin:0pt; text-indent:36pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">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:0pt; font-family:Times New Roman; font-size:12pt">&nbsp;</P>
<P style="margin:0pt; font-family:Times New Roman; font-size:8pt"><BR></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt"><U>/s/Perry V. Dalby</U></P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">Perry V. Dalby</P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">Chief Executive Officer and Chief Financial Officer</P>
<P style="margin:0pt; line-height:14pt; font-family:Times New Roman; font-size:12pt">November 19, 2007</P>
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