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What changed in VirTra, Inc's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of VirTra, Inc's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+102 added−104 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-31)

Top changes in VirTra, Inc's 2023 10-K

102 paragraphs added · 104 removed · 88 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe are also subject to export laws and regulations. These laws include, among others, the U.S. Export Administration Regulations, administered by the U.S. Department of Commerce, Bureau of Industry and Security, the International Traffic in Arms Regulations (the “ITAR”), administered by the U.S.
Biggest changeWe deal with numerous U.S. government agencies and entities, including, but not limited to, branches of the U.S. military and the Department of Homeland Security. Similar government authorities exist in our international markets. We are also subject to export laws and regulations. These laws include, among others, the U.S. Export Administration Regulations, administered by the U.S.
This feature, among others, supports our value proposition to our customers is that best practice is being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters. 4 ● V-180™ Simulator – a 180° screen with video capability is for smaller spaces or smaller budgets ○ The V-180™ is the higher standard for decision-making simulation and tactical firearms training.
This feature, among others, supports our value proposition to our customers is that best practice is being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters. ● V-180™ Simulator – a 180° screen with video capability is for smaller spaces or smaller budgets ○ The V-180™ is the higher standard for decision-making simulation and tactical firearms training.
In 2022, we submitted patent applications that will remain confidential until awarded or will remain confidential if not awarded or abandoned. 6 We own the trademarks for “VirTra,” “VirTra Systems”, “Threat-Fire”, “ArmorGen” and many other branding trademarks. These trademarks are registered in the United States. We consider the protection of our trademarks to be important to our business.
In 2022, we submitted patent applications that will remain confidential until awarded or will remain confidential if not awarded or abandoned. We own the trademarks for “VirTra,” “VirTra Systems”, “Threat-Fire”, “ArmorGen” and many other branding trademarks. These trademarks are registered in the United States. We consider the protection of our trademarks to be important to our business.
All references to shares of our Common Stock in this Annual Report on Form 10-K refer to the number of shares of Common Stock after giving effect to the Reverse Stock Split and are presented as if the Reverse Stock Split had occurred at the beginning of the earliest period presented. 3 Business Overview VirTra, Inc.
All references to shares of our Common Stock in this Annual Report on Form 10-K refer to the number of shares of Common Stock after giving effect to the Reverse Stock Split and are presented as if the Reverse Stock Split had occurred at the beginning of the earliest period presented. Business Overview VirTra, Inc.
“Risk Factors – Risks Related to Our Business.” Environmental We are subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes.
“Risk Factors – Risks Related to Our Business.” 8 Environmental We are subject to various federal, state, local and non-U.S. laws and regulations relating to environmental protection, including the discharge, treatment, storage, disposal and remediation of hazardous substances and wastes.
Military Engagement Skills mode supplies realistic scenario training taken from real world events. ○ The V-ST PRO™ a highly realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments.
Military Engagement Skills mode supplies realistic scenario training taken from real world events. 5 ○ The V-ST PRO™ a highly realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments.
We plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we increase our marketing and sales activities. ● Increase Total Addressable Market . We plan to increase the size of our total addressable market.
We plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we increase our marketing and sales activities. 4 ● Increase Total Addressable Market . We plan to increase the size of our total addressable market.
When our products are introduced into an international market, it is either pursuant to a contract directly with a customer located in the foreign country, or pursuant to a contract between our company and a U.S. government agency (such as the U.S. Department of State). In the latter instance, our customer is the relevant U.S. government agency.
When our products are introduced into an international market, it is either pursuant to a contract directly with a vetted customer located in the foreign country, a vetted foreign distributor, a foreign government agency, or pursuant to a contract between our company and a U.S. government agency (such as the U.S. Department of State).
Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. Research and Development During the years ended December 31, 2022, and 2021, our research and product development expenses were $2,606,840 and $1,865,880, respectively.
Although we intend to protect our rights vigorously, there can be no assurance that these measures will be successful. Research and Development During the years ended December 31, 2023, and 2022, our research and product development expenses were $2,794,314 and $2,606,840, respectively.
Sources and Availability of Raw Materials/Manufacturing and Assembly We obtain the key components of our products from a variety of sources that we purchase on a purchase order basis from local suppliers at market prices based on our production requirements. We believe alternative sources generally exist for the components used in our products.
Sources and Availability of Raw Materials/Manufacturing and Assembly We obtain the key components of our products from a variety of sources that we purchase on a purchase order basis from local suppliers at market prices based on our production requirements.
We believe that our products and services are superior to those offered by our competitors based on our association with industry experts, the strength in developing a more effective training solution ecosystem, our patented products and our extensive library of training content that would require time and a substantial investment by a competitor to offer a comparable product.
We believe that our products and services are superior to those offered by our competitors based on our association with industry experts, the strength in developing a more effective training solution ecosystem, our patented products and our extensive library of training content that would require time and a substantial investment by a competitor to offer a comparable product. 6 VirTra buys and tests new headsets on a regular basis and has made some software and content preparations to add a headset-based product to our offerings.
Department of State, Directorate of Defense Trade Controls, and trade sanctions, regulations and embargoes administered by the U.S. Department of Treasury, Office of Foreign Assets Control.
Department of Commerce, Bureau of Industry and Security, the International Traffic in Arms Regulations (the “ITAR”), administered by the U.S. Department of State, Directorate of Defense Trade Controls, and trade sanctions, regulations and embargoes administered by the U.S. Department of Treasury, Office of Foreign Assets Control.
Any restrictions on the export of our products could have a material adverse effect on our competitive position, results of operations, cash flows, or financial condition.
The length of time required by the licensing processes can vary, potentially delaying the shipment of products and the recognition of the corresponding revenue. Any restrictions on the export of our products could have a material adverse effect on our competitive position, results of operations, cash flows, or financial condition.
Volumetric video realism far exceeds that of computer-generated avatars which likely gives VirTra a strategic advantage for highly desired de-escalation training, especially when simulating human interaction is required. ● TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training. 5 Operations and Suppliers We produce some of our own products.
Volumetric video realism far exceeds that of computer-generated avatars which likely gives VirTra a strategic advantage for highly desired de-escalation training, especially when simulating human interaction is required.
Among its many provisions, the ITAR requires a license application for the export of firearms and congressional approval for any application with a total value of $1 million or higher. 7 Any failures to comply with these laws and regulations could result in civil or criminal penalties, fines, investigations, adverse publicity and restrictions on our ability to export our products and repeat failures could carry more significant penalties.
Any failures to comply with these laws and regulations could result in civil or criminal penalties, fines, investigations, adverse publicity and restrictions on our ability to export our products and repeat failures could carry more significant penalties. Any changes in export regulations may further restrict the export of our products.
This Annual Report on Form 10-K may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners.
In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products. This Annual Report on Form 10-K may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners.
In 2022 we opened a facility in Orlando Fl to support east coast operations. We do not currently have any employees internationally; however, our U.S.-based sales force works to secure contracts to supply our products in U.S. and foreign markets.
We do not currently have any employees internationally; however, our U.S.-based sales force works to secure contracts to supply our products in U.S. and foreign markets. As of December 31, 2023, we have performed sales contracts and warranty service obligations in the U.S. and various foreign countries.
Competition and Competitive Landscape We compete against a number of established companies that provide similar products and services, some of which have financial, technical, marketing, sales, manufacturing, distribution and other resources significantly greater than ours. There are also companies whose products do not compete directly but are sometimes closely related to the products we offer.
Management is uncertain whether we might encounter future delays with suppliers that would have a material impact on us. Competition and Competitive Landscape We compete against a number of established companies that provide similar products and services, some of which have financial, technical, marketing, sales, manufacturing, distribution and other resources significantly greater than ours.
Intellectual Property We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect the content of our products and the formulations for such products.
VirTra recoil kits, return fire devices and other accessories would likely also work with a headset-based product. Intellectual Property We own or have rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names.
The government agency may then distribute our products to third parties within the particular country. Regulatory Matters Our business is regulated in most of our markets. We deal with numerous U.S. government agencies and entities, including, but not limited to, branches of the U.S. military and the Department of Homeland Security. Similar government authorities exist in our international markets.
In the latter instance, our customer is the relevant U.S. government agency. The government agency may then distribute our products to third parties within the particular country. Regulatory Matters Our business is regulated in most of our markets.
Axon, Laser Shot, Inc., InVeris, MILO, and Ti Training Corp are our main competitors in some or all our markets.
There are also companies whose products do not compete directly but are sometimes closely related to the products we offer. Axon, Laser Shot, Inc., InVeris, MILO, Conflict Kinetics, and Ti Training Corp are our main competitors in some or all our markets.
Our manufacturing, assembly, warehouse and shipping facilities are located in Chandler, Arizona. See “—Business – Property.” Employees As of March 10, 2023, we employed 121 full-time employees. We maintain a satisfactory working relationship with our employees Operations Our operations are conducted from our principal executive office in Chandler, Arizona.
We maintain a satisfactory working relationship with our employees Operations Our operations are conducted from our principal executive office in Chandler, Arizona. In 2022 we opened a facility in Orlando, Florida to support east coast operations.
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We also rely on a variety of suppliers. Management is uncertain whether we might encounter future delays with suppliers that would have a material impact on us.
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By using this studio, along with outside filming, we are able to offer customers the ability to purchase custom scenarios to meet their specific needs. ● TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training. Operations and Suppliers We produce some of our own products. We also rely on a variety of suppliers.
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VirTra buys and tests new headsets on a regular basis and has made some software and content preparations to add a headset-based product to our offerings. VirTra recoil kits, return fire devices and other accessories would likely also work with a headset-based product.
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We believe alternative sources generally exist for the components used in our products. 7 Our manufacturing, assembly, warehouse and shipping facilities are in Chandler, Arizona. See Item 2 – Properties. Employees As of March, 22, 2024, we employed 112 full-time employees.
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As of December 31, 2022, we have performed sales contracts and warranty service obligations in the U.S. and various foreign countries.
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Among its many provisions, the ITAR requires a license application for the export of firearms and congressional approval for any application with a total value of $1 million or higher.
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Any changes in export regulations may further restrict the export of our products. The length of time required by the licensing processes can vary, potentially delaying the shipment of products and the recognition of the corresponding revenue.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a result of the concentration of business with governmental agencies, we are vulnerable to adverse changes in our revenues, income and cash flows if a significant number of our government contracts, subcontracts or prospects are delayed or canceled for budgetary or other reasons. 8 The factors that could cause us to lose these contracts and could decrease our backlog or otherwise materially harm our business, prospects, financial condition or results of operations include: ● budget constraints affecting government spending generally, or specific departments or agencies such as U.S. or foreign defense and transit agencies and regional transit agencies, and changes in fiscal policies or a reduction of available funding; ● re-allocation of government resources as the result of actual or threatened terrorism or hostile activities or for other reasons; ● disruptions in our customers’ ability to access funding from capital markets; ● curtailment of governments’ use of outsourced service providers and governments’ in-sourcing of certain services; ● the adoption of new laws or regulations pertaining to government procurement; ● government appropriations delays or blanket reductions in departmental budgets; ● suspension or prohibition from contracting with the government or any significant agency with which we conduct business; ● increased use of shorter duration awards, which increases the frequency we may need to recompete for work; ● impairment of our reputation or relationships with any significant government agency with which we conduct business; ● decreased use of small business set asides or changes to the definition of small business by government agencies; ● increased use of lowest-priced, technically acceptable contract award criteria by government agencies; ● increased aggressiveness by the government in seeking rights in technical data, computer software, and computer software documentation that we deliver under a contract, which may result in “leveling the playing field” for competitors on follow-on procurements; ● impairment of our ability to provide third-party guarantees and letters of credit; ● delays in the payment of our invoices by government payment offices; and ● national or international health emergencies, such as the COVID-19 public health pandemic.
Biggest changeThe factors that could cause us to lose these contracts and could decrease our backlog or otherwise materially harm our business, prospects, financial condition or results of operations include: ● budget constraints affecting government spending generally, or specific departments or agencies such as U.S. or foreign defense and transit agencies and regional transit agencies, and changes in fiscal policies or a reduction of available funding; ● re-allocation of government resources as the result of actual or threatened terrorism or hostile activities or for other reasons; ● increasing customers’ demands for broad uncapped indemnifications provisions with no termination date and unwillingness to agree to request to remove such clauses when possible or negotiate caps and a defined end point to our obligations; ● disruptions in our customers’ ability to access funding from capital markets; ● curtailment of governments’ use of outsourced service providers and governments’ in-sourcing of certain services; ● the adoption of new laws or regulations pertaining to government procurement; ● government appropriations delays or blanket reductions in departmental budgets; 9 ● suspension or prohibition from contracting with the government or any significant agency with which we conduct business; ● increased use of shorter duration awards, which increases the frequency we may need to recompete for work; ● impairment of our reputation or relationships with any significant government agency with which we conduct business; ● decreased use of small business set asides or changes to the definition of small business by government agencies; ● increased use of lowest-priced, technically acceptable contract award criteria by government agencies; ● increased aggressiveness by the government in seeking rights in technical data, computer software, and computer software documentation that we deliver under a contract, which may result in “leveling the playing field” for competitors on follow-on procurements; ● impairment of our ability to provide third-party guarantees and letters of credit; ● delays in the payment of our invoices by government payment offices; and ● national or international health emergencies, such as the COVID-19 public health pandemic.
For so long as we are an emerging growth company, we will not be required to: ● have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; ● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); ● submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and ● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
For so long as we are an emerging growth company, we will not be required to: ● have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; 14 ● comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); ● submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and ● disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.
Other factors that could cause such volatility may include, among other things: ● actual or anticipated fluctuations in our operating results, including the loss of a large or key customer or vendor; ● the absence of securities analysts covering us and distributing research and recommendations about us; ● we may have a low trading volume for a few reasons, including that a large portion of our stock is closely held; ● overall stock market fluctuations; ● announcements concerning our business or those of our competitors; ● actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; ● conditions or trends in the industry; ● litigation; ● changes in market valuations of other similar companies; ● future sales of Common Stock; ● departure of key personnel or failure to hire key personnel; and ● general market conditions.
Other factors that could cause such volatility may include, among other things: ● actual or anticipated fluctuations in our operating results, including the loss of a large or key customer or vendor; ● the absence of securities analysts covering us and distributing research and recommendations about us; ● we may have a low trading volume for a few reasons, including that a large portion of our stock is closely held; ● overall stock market fluctuations; ● announcements concerning our business or those of our competitors; ● actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; 16 ● conditions or trends in the industry; ● litigation; ● changes in market valuations of other similar companies; ● future sales of Common Stock; ● departure of key personnel or failure to hire key personnel; and ● general market conditions.
Our Co-Chief Executive Officer, John Givens, has unique expertise and long-standing relationships in the military simulation market that could have a material impact on our company’s future. If they were to leave us or become incapacitated, we might suffer in our planning and execution of business strategy and operations, impacting our financial results.
Our Chief Executive Officer, John Givens, has unique expertise and long-standing relationships in the military simulation market that could have a material impact on our company’s future. If they were to leave us or become incapacitated, we might suffer in our planning and execution of business strategy and operations, impacting our financial results.
In addition, we do not carry broadly applicable patent liability insurance and any lawsuits regarding patent rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel. 12 Our business is dependent on proprietary rights that may be difficult to protect and could affect our ability to compete effectively.
In addition, we do not carry broadly applicable patent liability insurance and any lawsuits regarding patent rights, regardless of their success, could be expensive to resolve and would divert the time and attention of our management and technical personnel. Our business is dependent on proprietary rights that may be difficult to protect and could affect our ability to compete effectively.
We also do not maintain any key man life insurance policies for any of our employees. 13 If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock may decline.
We also do not maintain any key man life insurance policies for any of our employees. If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Common Stock may decline.
Our Board of Directors may, without stockholder approval, issue additional series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our Common Stock. 17 We have never paid dividends on our Common Stock and have no plans to do so in the future.
Our Board of Directors may, without stockholder approval, issue additional series of preferred stock with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our Common Stock. We have never paid dividends on our Common Stock and have no plans to do so in the future.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. We may face competition from providers of comparable products.
If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations. 11 We may face competition from providers of comparable products.
We cannot predict or estimate the amount of additional costs we will incur to meet our additional disclosure obligations under the Exchange Act or the timing of such costs. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.
We cannot predict or estimate the amount of additional costs we will incur to meet our additional disclosure obligations under the Exchange Act or the timing of such costs. 15 The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures.
These broad market fluctuations may adversely affect the trading price of our Common Stock, regardless of our actual operating performance. 16 Because our officers and Board of Directors will make all management decisions, you should only invest in our securities if you are comfortable entrusting our directors to make all decisions.
These broad market fluctuations may adversely affect the trading price of our Common Stock, regardless of our actual operating performance. Because our officers and Board of Directors will make all management decisions, you should only invest in our securities if you are comfortable entrusting our directors to make all decisions.
No holders of any shares of our Common Stock have the right to require us to file registration statements for the public resale of such shares. The provisions of our Articles of Incorporation and Bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
No holders of any shares of our Common Stock have the right to require us to file registration statements for the public resale of such shares. 17 The provisions of our Articles of Incorporation and Bylaws may delay or prevent a takeover which may not be in the best interests of our stockholders.
To the extent any of our products are covered by third-party patents, we could need to acquire a license under such patents to develop and market our products. Despite our efforts to safeguard and maintain our proprietary rights, we may not be successful in doing so.
To the extent any of our products are covered by third-party patents, we could need to acquire a license under such patents to develop and market our products. 13 Despite our efforts to safeguard and maintain our proprietary rights, we may not be successful in doing so.
This, in turn, could have an adverse impact on trading prices for our Common Stock, and could adversely affect our ability to access the capital markets. 15 Risks Relating to Our Stock NASDAQ may delist our Common Stock from trading on its exchange, which could limit stockholders’ ability to trade our Common Stock.
This, in turn, could have an adverse impact on trading prices for our Common Stock, and could adversely affect our ability to access the capital markets. Risks Relating to Our Stock NASDAQ may delist our Common Stock from trading on its exchange, which could limit stockholders’ ability to trade our Common Stock.
Provisions of our Articles of Incorporation and our Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt.
The provisions of our Articles of Incorporation and our Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may be called, and may delay, defer or prevent a takeover attempt.
This could have a material adverse effect on our business, results of operations and financial condition. 10 Our failure to comply with export control rules could have a material adverse effect on our business.
This could have a material adverse effect on our business, results of operations and financial condition. Our failure to comply with export control rules could have a material adverse effect on our business.
Our revenues from contracts, directly or indirectly, with foreign and U.S. Federal, state, regional and local governmental agencies represented substantially all of our total revenues in fiscal year 2022. Although these various government agencies are subject to common budgetary pressures and other factors, many of our various government customers exercise independent purchasing decisions.
Our revenues from contracts, directly or indirectly, with foreign and U.S. Federal, state, regional and local governmental agencies represented substantially all of our total revenues in fiscal year 2023. Although these various government agencies are subject to common budgetary pressures and other factors, many of our various government customers exercise independent purchasing decisions.
A significant decline in our sales of these products, without offsetting sales gains, would have a material adverse effect on our operating results, financial position and cash flows.
A significant decline in our sales of these products, without offsetting sales gains, would have a material adverse effect on our operating results, financial position and cash flow.
We rely upon the accumulated knowledge, skills and experience of our executive officers and significant employees. Our Co-Chief Executive Officer, President and Chairman of the Board, Robert Ferris, built our business from inception and, along with other members of the management team, are responsible for many of the products and clients that we have today.
We rely upon the accumulated knowledge, skills and experience of our executive officers and significant employees. Our Executive Chairman of the Board, Robert Ferris, built our business from inception and, along with other members of the management team, are responsible for many of the products and clients that we have today.
As a result, these competitors may be better equipped than we are to influence customer preferences or otherwise increase their market share by: ● quickly adapting to changes in customer requirements; ● readily taking advantage of acquisition and other opportunities; ● discounting excess inventory that has been written down or written off; ● devoting resources to the marketing and sale of their products, including significant advertising, media placement and product endorsement; ● adopting aggressive pricing policies; and ● engaging in lengthy and costly intellectual property and other disputes. 11 Disruptions could negatively impact revenue and results of operation.
As a result, these competitors may be better equipped than we are to influence customer preferences or otherwise increase their market share by: ● quickly adapting to changes in customer requirements; ● readily taking advantage of acquisition and other opportunities; ● discounting excess inventory that has been written down or written off; ● devoting resources to the marketing and sale of their products, including significant advertising, media placement and product endorsement; ● adopting aggressive pricing policies; and ● engaging in lengthy and costly intellectual property and other disputes.
We qualify as an “emerging growth company” under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
We qualify as an “emerging growth company” under the JOBS Act through December 31, 2023. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect that we will need to continue to improve the existing, and implement new operational and financial systems, procedures and controls to manage our business effectively.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate financial statements. We expect to continue improving the existing and implementing new operational and financial systems, procedures and controls to manage our business effectively.
We intend to retain future earnings, if any, to provide funds for the operations of our business. Therefore, any return investors in our Common Stock may have will be in the form of appreciation, if any, in the market value of their shares of Common Stock. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.
We intend to retain future earnings, if any, to provide funds for the operations of our business. Therefore, any return investors in our Common Stock may have will be in the form of appreciation, if any, in the market value of their shares of Common Stock.
Some of the components of our products pose potential safety risks which could create potential liability exposure for us. Some of the components of our products contain elements that may pose potential safety risks. In addition to these risks, there can be no assurance that accidents in the facilities that use our products will not occur.
Some of the components of our products contain elements that may pose potential safety risks. In addition to these risks, there can be no assurance that accidents in the facilities that use our products will not occur.
Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, contract manufacturers, logistics service providers or independent distributors.
Disruptions could negatively impact revenue and results of operation. Our ability to manufacture and/or sell our products may be impaired by damage or disruption to our manufacturing, warehousing or distribution capabilities, or to the capabilities of our suppliers, contract manufacturers, logistics service providers or independent distributors.
While we do not expect that the virus will have a material adverse effect on our business or financial results at this time, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities.
While we do not expect that the virus will have a material adverse effect on our business or financial results at this time, we are unable to accurately predict the impact that the coronavirus will have due to various uncertainties, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities. 12 Some of the components of our products pose potential safety risks which could create potential liability exposure for us.
Decline in federal, state, or local government spending would likely negatively affect our product revenues and earnings. The success of each of the products we plan to sell depends substantially on the amount of funds budgeted by federal, state and local government agencies that make up our current and potential customers.
The success of each of the products we plan to sell depends substantially on the amount of funds budgeted by federal, state and local government agencies that make up our current and potential customers.
Of the approximately 10,924,724 shares of our Common Stock outstanding as of March 30, 2023, 7,500 shares are restricted subject to Rule 144 with the remaining shares tradable without restriction.
Of the approximately 11,109,730 shares of our Common Stock outstanding as of March 29, 2024, 7,500 shares are restricted subject to Rule 144 with the remaining shares tradable without restriction.
If these government entities must cut their budgets, it is possible that we will lose this source of revenue, which could materially adversely affect our business, prospects, financial condition or results of operations.
If these government entities must cut their budgets, it is possible that we will lose this source of revenue, which could materially adversely affect our business, prospects, financial condition or results of operations. We are working on diversifying our business so that we are not as dependent, but there is no assurance that we will be successful at doing so.
Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards. As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.
Accordingly, our revenues and operating results may be adversely affected if we are unable to identify or acquire rights to new products that satisfy customer preferences. In addition, any new products that we market may not generate sufficient revenues to recoup their identification, development, acquisition, marketing, selling and other costs.
Accordingly, our revenues and operating results may be adversely affected if we are unable to identify or acquire rights to new products that satisfy customer preferences.
We compete against a number of established companies that provide similar products and services, some of which have financial, technical, marketing, sales, manufacturing, distribution and other resources significantly greater than ours.
Intense competition could negatively impact on our sales and operating results. Our products are sold in highly competitive markets with limited barriers to entry. We compete against established companies that provide similar products and services, some of which have financial, technical, marketing, sales, manufacturing, distribution and other resources significantly greater than ours.
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We are working on diversifying our business so that we are not as dependent, but there is no assurance that we will be successful at doing so. 9 Intense competition could negatively impact on our sales and operating results. Our products are sold in highly competitive markets with limited barriers to entry.
Added
As a result of the concentration of business with governmental agencies, we are vulnerable to adverse changes in our revenues, income and cash flows if a significant number of our government contracts, subcontracts or prospects are delayed or canceled for budgetary or other reasons.
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We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Added
In addition, any new products that we market may not generate sufficient revenues to recoup their identification, development, acquisition, marketing, selling and other costs. 10 Decline in federal, state, or local government spending would likely negatively affect our product revenues and earnings.
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Until such a time, however, we cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions.
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If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and the price of our securities may be more volatile. 14 As an emerging growth company, our auditor is not required to attest to the effectiveness of our internal controls.
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We may need to raise additional capital. If we are unable to raise the necessary additional capital, our business may fail, or our operating results and our stock price may be materially adversely affected. As an emerging growth company, we may need to secure adequate funding for opportunities we may encounter.
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Such opportunities may include acquiring complementary businesses, securing new marketing and sales opportunities, giving bonuses to employees to reward them for past service and incentivize them for future successes. Selling additional stock, either privately or publicly, would dilute the equity interests of our stockholders.
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If we borrow more money, we will have to pay interest and may also have to agree to restrictions that limit our operating flexibility. If we are unable to obtain adequate financing, if needed, we may have to curtail our operations and our business could fail.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeUltimately, we expect this purchase to result in spending less per month on facilities while having access to a larger and centralized facility to enhance efficiency. On June 1, 2022, we moved into a newly leased space in Orlando, Florida, that is approximately 9,350 square feet.
Biggest changeUltimately, we expect this purchase to result in spending less per month on facilities while having access to a larger and centralized facility to enhance efficiency. In addition to the centralization we were also able to convert the additional space to a dedicated training and demo space.
In addition, we lease approximately 5,131 rentable square feet of office and industrial space within the same business complex as our main office from an unaffiliated third party for our machine shop at 7910 South Kyrene Road, Tempe, Arizona 85223. Both properties are under the same lease agreement which expires in April 2024.
In addition, we lease approximately 5,131 rentable square feet of office and industrial space within the same business complex as our main office from an unaffiliated third party for our machine shop at 7910 South Kyrene Road, Tempe, Arizona 85223. Both properties are under the same lease agreement which expires on April 30, 2024.
Approximately 15,000 square feet of the new building housed two pre-existing tenants with multi-year rent agreements, and we canceled the leases of both tenants and took ownership of 11,775 square feet on October 1, 2022. We have given notice to the second tenant, and we will take over the additional 5,207 square feet as of May 1, 2023.
Approximately 15,000 square feet of the new building housed two pre-existing tenants with multi-year rent agreements, and we canceled the leases of both tenants and took ownership of 11,775 square feet on October 1, 2022. We gave notice to the second tenant, and we took over the additional 5,207 square feet in May 2023.
In 2022, the Company moved all the operations from 7970 South Kyrene into the newly purchased building on 295 East Corporate Place. The plan will be to move the rest of the operations from 7910 Kyrene into the 295 East Corporate Place location by May of 2023.
In 2022, the Company moved all the operations from 7970 South Kyrene into the newly purchased building on 295 East Corporate Place. We moved the rest of the operations from 7910 Kyrene into the 295 East Corporate Place location in 2023.
Added
Beginning in April of 2023 we subleased this location for the duration of the contract with the lease term ending in 2024 along with our lease expiration.
Added
This will allow us to offer onsite training in the use of our systems and allow us to do remote demos of our systems to our harder to reach departments. On June 1, 2022, we moved into a newly leased space in Orlando, Florida, that is approximately 9,350 square feet.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS. There is no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we are a party or of which any of our property is the subject. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 18 PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS. There is no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we are a party or of which any of our property is the subject. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 19 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our Common Stock is traded on The NASDAQ Capital Market under the stock symbol, “VTSI.” Holders of Common Stock As of March 30, 2023, 10,924,724 shares of our Common Stock were outstanding and held by approximately 36 holders of record.
Biggest changeITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our Common Stock is traded on The NASDAQ Capital Market under the stock symbol, “VTSI.” Holders of Common Stock As of March 29, 2024, 11,109,730 shares of our Common Stock were outstanding and held by approximately 39 holders of record.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeA reconciliation of net income to adjusted EBITDA is provided in the following table: For the Years Ended December 31, December 31, Increase % 2022 2021 (Decrease) Change Net Income (Loss) $ 1,955,898 $ 2,540,089 $ (584,191 ) -23 % Adjustments: (Provision) Benefit for income taxes 571,642 246,050 325,592 132 % Depreciation and amortization 887,118 589,059 298,059 51 % Interest (net) 190,772 35,673 155,099 435 % EBITDA $ 3,605,430 $ 3,410,871 $ 194,559 6 % Impairment loss on That’s Eatertainment, former related party - - - Right of use amortization - Reserve for note receivable - - - Gain on forgiveness of note - (1,320,714 ) 1,320,714 -100 % Adjusted EBITDA $ 3,605,430 $ 2,090,157 $ 1,515,273 72 % 22 Liquidity and Capital Resources.
Biggest changeA reconciliation of net income to adjusted EBITDA is provided in the following table: For the Years Ended December 31, December 31, Increase % 2023 2022 (Decrease) Change Net Income $ 8,402,858 $ 1,955,898 $ 6,446,960 330 % Adjustments: Provision for income taxes 1,818,812 571,642 1,247,170 218 % Depreciation and amortization 928,545 887,118 41,427 5 % Interest (net) (20,440 ) 190,772 (211,212 ) (111 )% EBITDA $ 11,129,775 $ 3,605,430 $ 7,524,345 209 % Right of use amortization 496,127 412,335 83,792 20 % Adjusted EBITDA $ 11,625,902 $ 4,017,765 $ 7,608,137 189 % 23 Liquidity and Capital Resources.
The V-ST PRO™ is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics. 20 ● Virtual Interactive Coursework Training Academy (V-VICTA)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators. ● Subscription Training Equipment Partnership (STEP)™ is a program that allows agencies to utilize VirTra’s simulator products, accessories, and V-VICTA interactive coursework on a subscription basis. ● V-Author™ Software allows users to create, edit, and train with content specific to agency’s objectives and environments.
The V-ST PRO™ is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics. ● Virtual Interactive Coursework Training Academy (V-VICTA)™ enables law enforcement agencies, to effectively teach, train, test and sustain departmental training requirements through nationally accredited coursework and training scenarios using our simulators. ● Subscription Training Equipment Partnership (STEP)™ is a program that allows agencies to utilize VirTra’s simulator products, accessories, and V-VICTA interactive coursework on a subscription basis. ● V-Author™ Software allows users to create, edit, and train with content specific to agency’s objectives and environments.
If we are not able to obtain the additional financing on a timely basis, when it is needed, we will be forced to scale down our plans for expanded marketing and sales efforts. Critical Accounting Policies We have identified the following policies below as critical to our business and results of operations.
If we are not able to obtain the additional financing on a timely basis, when it is needed, we will be forced to scale down our plans for expanded marketing and sales efforts. 24 Critical Accounting Policies We have identified the following policies below as critical to our business and results of operations.
Military Engagement Skills mode supplies realistic scenario training taken from real world events. ○ The V-ST PRO™ a highly realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments.
Military Engagement Skills mode supplies realistic scenario training taken from real world events. 21 ○ The V-ST PRO™ a highly realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments.
The following discussion provides supplemental information regarding the significant estimates, judgments and assumptions made in implementing the Company’s critical accounting policies. 23 Basis of Presentation and Use of Estimates Our financial statements have been prepared in accordance with GAAP.
The following discussion provides supplemental information regarding the significant estimates, judgments and assumptions made in implementing the Company’s critical accounting policies. Basis of Presentation and Use of Estimates Our financial statements have been prepared in accordance with GAAP.
Volumetric video realism far exceeds that of computer-generated avatars which likely gives VirTra a strategic advantage for highly desired de-escalation training, especially when simulating human interaction is required. ● TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training. Results of operations for the years ended December 31, 2022, and December 31, 2021 Revenues.
Volumetric video realism far exceeds that of computer-generated avatars which likely gives VirTra a strategic advantage for highly desired de-escalation training, especially when simulating human interaction is required. ● TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training. Results of operations for the years ended December 31, 2023, and December 31, 2022 Revenues.
Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. 24 Revenue Recognition We account for revenue recognition in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018, using the modified retrospective transition method.
Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. 25 Revenue Recognition We account for revenue recognition in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018, using the modified retrospective transition method.
Off-Balance Sheet Arrangements As of December 31, 2022, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Off-Balance Sheet Arrangements As of December 31, 2023, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
We plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we increase our marketing and sales activities. 19 ● Increase Total Addressable Market . We plan to increase the size of our total addressable market.
We plan to add staff to our experienced management team as needed to meet the expected increase in demand for our products and services as we increase our marketing and sales activities. 20 ● Increase Total Addressable Market . We plan to increase the size of our total addressable market.
Forfeitures are recorded in subsequent periods when they occur. 25 Income Taxes We use significant judgment in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets.
Forfeitures are recorded in subsequent periods when they occur. 26 Income Taxes We use significant judgment in determining the provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against net deferred tax assets.
Revenues include sales of products and services and are in net of discounts. Product sales consist of simulators, upgrade components, scenarios, scenario software, recoil kits, Threat-Fire ® and other accessories. Services include installation, training, limited assurance-type warranties, extended service-type warranty agreements and related support.
Revenues include sales of products and services and are in net of discounts. Product sales consist of simulators, upgrade components, scenarios, scenario software, recoil kits, Threat-Fire ® and other accessories. Services include installation, training, limited assurance-type warranties, extended service-type warranty agreements, related support, customer content and design work.
The Company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not started, or are uncompleted performance objectives, and cannot be recognized as revenue until delivered in a future quarter.
The Company defines backlog as the accumulation of bookings from signed contracts and purchase orders that are not started, or are uncompleted performance objectives, and cannot be recognized as revenue until delivered in a future quarter. The Company splits the backlog into three categories.
Backlog The Company defines bookings as the total number of newly signed contracts and purchase orders received in a defined period. The Company received bookings totaling $6.4 million for the three months ended December 31, 2022.
Backlog The Company defines bookings as the total number of newly signed contracts and purchase orders received in a defined period. The Company received bookings totaling $13.5 million for the three months ended December 31, 2023. This brings the total booking for the year ended 2023 to $33.6 million.
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had $13,483,597 and $19,708,565 cash and cash equivalents as of December 31, 2022, and 2021, respectively. Working capital was $24,339,089 and $25,944,717 as of December 31, 2022 and 2021, respectively.
Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had $18,849,842 and $13,483,597 of cash and cash equivalents as of December 31, 2023, and 2022, respectively. Working capital was $33,240,516 and $24,339,089 as of December 31, 2023, and 2022, respectively.
Net cash used in operating activities was $2,693,351 for the year ended December 31, 2022, as compared to $125,743 of cash used in operating activities for the year ended December 31, 2021.
Net cash provided by operating activities was $6,682,616 for the year ended December 31, 2023, as compared to $2,693,351 of cash used in operating activities for the year ended December 31, 2022.
Income from operations was $2,593,705 for the year ended December 31, 2022, compared to $1,454,037 for the same period in 2021, representing an increase of $1,139,668, or 78%, resulting from an increase in revenue, and a decrease in cost of goods despite an increase in operating expenses Other Income (Expense).
Income from operations was $9,635,588 for the year ended December 31, 2023, compared to $2,593,705 for the same period in 2022, representing an increase of $7,041,883, or 271%, resulting from an increase in revenue, and a decrease in cost of goods despite an increase in operating expenses. Other Income.
The increase in gross profit was primarily due to the increase in simulator system sales and recurring STEP revenue that helped to increase revenue while decreasing COGS. Operating Expenses.
The gross profit increase was mainly due to the increase in simulator system sales and recurring STEP revenue that helped increase revenue while decreasing the cost of goods sold.
Revenues were $28,302,244 for the year ended December 31, 2022, compared to $24,434,056 for the same period in 2021, representing an increase of $3,868,188 or 16%. The increase was the result of increases in sales of simulators, STEP sales, accessories, curriculum and training, and recurring extended warranty revenue in 2022. Cost of Sales.
Revenues were $38,043,360 for the year ended December 31, 2023, compared to $28,302,244 for the same period in 2022, representing an increase of $9,741,116 or 34%. The increase was the result of increases in sales of simulators, STEP sales, accessories, custom content, custom design work, curriculum, and training, and recurring extended warranty revenue in 2023. Cost of Sales.
Income tax expense was $571,642 for the year ended December 31, 2022, compared to an expense of $246,050 for the same period in 2021, representing an increase in expense of $325,592 or 132%. Net Income.
Income tax expense was $1,818,812 for the year ended December 31, 2023, compared to an expense of $571,642 for the same period in 2022, representing an increase in expense of $1,247,170 or 218%. Net Income.
Net cash used in financing activities was $190,419 for the year ended December 31, 2022, as compared to $16,728,108 provided by financing activities for the year ended December 31, 2021. Financing activities in 2022 consisted mainly of debt repayments. Financing in 2021 consisted of the issuance of additional common stock for cash and stock options exercised, offset by debt repayment.
Net cash used in financing activities was $188,184 for the year ended December 31, 2023, as compared to $190,419 used in financing activities for the year ended December 31, 2022. Financing activities in 2023 consisted mainly of debt repayment offset by proceeds from the exercise of stock options. Financing activities in 2022 consisted mainly of debt repayments.
Cost of sales were $12,047,366 for the year ended December 31, 2022, compared to $13,028,844 for the same period in 2021, representing a decrease of $981,478, or 7.5%.
Cost of sales were $11,378,264 for the year ended December 31, 2023, compared to $12,047,366 for the same period in 2022, representing a decrease of $669,102 or 6%.
Gross profit was $16,254,878 for the year ended December 31, 2022, compared to $11,405,212 for the same period in 2021, representing an increase of $4,849,666 or 43%. The gross profit margin was 57% for the year ended December 31, 2022, and 47% for the same period in 2021.
Gross profit was $26,665,096 for the year ended December 31, 2023, compared to $16,254,878 for the same period in 2022, representing an increase of $10,410,218 or 64%. The gross profit margin was 70% for the year ended December 31, 2023, and 57% for the same period in 2022.
The assessment of a customer’s creditworthiness is reliant on management’s judgment regarding such factors as previous payment history, credit rating, credit references and market reputation. If any sales are made that ultimately become uncollectible, the Company charges the uncollected amount against a reserve for uncollectible accounts.
The assessment of a customer’s creditworthiness is reliant on management’s judgment regarding such factors as previous payment history, credit rating, credit references and market reputation.
The year-over-year decrease was due to a significant increase in capitalized labor as multiple projects are set to complete in 2023 as well as an increase in recurring STEP revenue that has no associated cost of sales for future years. Gross Profit.
The year-over-year decrease was due to a significant increase in capitalized labor as multiple projects are set to complete in 2024 as well as our ability to decease our cost of items going into our production builds and an increase in STEP contract renewals that have minimal costs associated in future years. Gross Profit.
Net operating expense was $13,661,173 for the year ended December 31, 2022, compared to $9,951,175 for the same period in 2021, representing an increase of $3,709,998, or 37%, with general and administrative expenses increasing by $2,969,038 or 37% and research and development expenses increasing by $740,960 or 40%.
Net operating expense was $17,029,508 for the year ended December 31, 2023, compared to $13,661,173 for the same period in 2022, representing an increase of $3,368,335, or 25%, with general and administrative expenses increasing by $3,180,861 or 29% and research and development expenses increasing by $187,474 or 7%.
Net income was $1,955,898 for the year ended December 31, 2022, compared to $2,540,089 for the same period in 2021, representing a decrease of $584,191 or 23%, This variance is mostly driven by the difference in no PPP loan forgiveness and an increase in income tax expense.
Net income was $8,402,858 for the year ended December 31, 2023, compared to $1,955,898 for the same period in 2022, representing an increase of $6,446,960 or 330%.
This reserve is established and adjusted from time to time based on management’s assessment of each outstanding receivable and the likelihood of it being collected. Inventory Valuation Inventory is stated at the lower of cost or net realizable value with cost being determined on the average cost method.
The company has decide to take a more conservative approach to the bad debt reverse by calculating a percentage of all outstanding AR and updating the reverse quarterly base-on AR buckets Inventory Valuation Inventory is stated at the lower of cost or net realizable value with cost being determined on the average cost method.
Other expense net of other income was $66,165 for the year ended December 31, 2022, compared to net other income $1,332,102 for the same period in 2021, representing a decrease of $1,398,267. For the year ended December 31, 2021, we recognized gain resulting from the one-time event of the forgiveness a PPP loan of $1,320,714. Income Tax Expense.
Other income was $586,082 for the year ended December 31, 2023, compared to other expense of $66,165 for the same period in 2022, representing a positive change of $652,247. This increase is due to subleasing one of the Kyrene buildings along with making cash moves to increase our interest earnings Income Tax Expense.
Backlog also includes extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement. As of December 31, 2022, the Company’s backlog was $27.7 million. Management estimates the majority of the new bookings received in the fourth quarter of 2022, will be converted to revenue in 2023.
The first is capital which includes sales of all the simulators, corresponding accessories, installs, training custom content and custom design work. The second and third are extended warranty agreements and STEP agreements that are deferred revenue recognized on a straight-line basis over the life of each respective agreement.
Removed
The increase in general and administrative expenses was driven by an increase in marketing expenses as the tradeshows begin to open back up in 2022 as well as costs related to the moving of facilities and opening the new facility in Orlando. 21 Income from Operations.
Added
Also contributing to this increase was an unusual event of signed contract for custom work that included a large $3 million kickoff milestone payment for which no significant costs are associated Operating Expenses.
Removed
Without the PPP forgiveness in 2021 the net income would have been $1,219,375, representing an increase of $736,523 or 60% in 2022 over 2021. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (AEBITDA).
Added
The increase in general and administrative expenses was driven by an increase in labor costs, cost associated with the final move into the Chandler building, the costs associated with the relaunch of the ERP system, a full year of costs from the Orlando office and additional travel expenses for tradeshows and international sales. 22 Income from Operations.
Removed
Net cash used in operating activities for the year ended December 31, 2022, resulted primarily from increases in inventory, accounts payable and accrued compensation and unbilled revenue, offset by decreases in accounts receivable and prepaids well as other changes in operating assets and liabilities.
Added
All the factors above played a role in the final numbers finished, including our attention to improving COGS dollars and increasing our revenue by having better production to turn bookings directly into sales and managing our larger contracts in a way to maximize profits Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (AEBITDA).
Removed
Net cash used in operating activities for the year ended December 31, 2021 resulted primarily from increases in accounts receivable, inventory, accounts payable and accrued compensation, offset by decreases in unbilled revenue and deferred revenue as well as other changes in operating assets and liabilities.
Added
The net cash increase is driven by our changes in terms and condition where we are collecting more money upfront and at a quicker speed than in years past which is allowing us to decrease our unbilled and increase our while also increasing our deferred revenue Net cash used in investing activities was $1,128,187 for the year ended December 31, 2023, and net cash used by investing activities was $3,341,198 for the year ended December 31, 2022.
Removed
Net cash used in investing activities was $3,341,198 for the year ended December 31, 2022, and net cash used by investing activities was $3,735,784 for the year ended December 31, 2021. Investing activities in 2022 and 2021 primarily consist of purchases of property and equipment.
Added
Investing activities in 2023 consisted of the increasing our plant, property and equipment by finishing the remodel of the Chandler office including opening a training center. In 2022, this amount was higher as the bulk of the remodeling work was completed during this period.
Added
As of December 31, 2023, the Company’s backlog was $10.5 million in Capital, $6.3 million in Service and $2.6 million in STEP for a total of $19.4 million.
Added
In addition to the signed STEP contracts, there are $6.9 million in renewable STEP contract options in which it has been calculated that we only have a 5% of option years that do not renew. Management estimates the majority of the new bookings received in the fourth quarter of 2023 will be converted to revenue in 2024.

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