# VirTra, Inc: Form 10-Q for the period ended Sep 30, 2022

- Company: [VirTra, Inc](/companies/vtsi.md) (CIK 1085243)
- Form: 10-Q
- Filed: 2022-11-14
- Accepted by EDGAR: Nov 14, 2022, 16:08 ET
- Period: 2022-09-30
- Accession: 0001493152-22-032026
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1085243/000149315222032026/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1085243/000149315222032026/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-07-01 to 2022-09-30 | $4.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-01-01 to 2022-09-30 | $19.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-07-01 to 2022-09-30 | $2.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-01-01 to 2022-09-30 | $8.7m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-07-01 to 2022-09-30 | $2.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-01-01 to 2022-09-30 | $10.9m | us-gaap:GrossProfit |
| Research and development | 3 months, 2022-07-01 to 2022-09-30 | $687.9k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2022-01-01 to 2022-09-30 | $2.0m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2022-07-01 to 2022-09-30 | −$1.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-01-01 to 2022-09-30 | $681.0k | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2022-07-01 to 2022-09-30 | −$222.7k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-01-01 to 2022-09-30 | $148.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-07-01 to 2022-09-30 | −$802.9k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-01-01 to 2022-09-30 | $561.6k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.07 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-07-01 to 2022-09-30 | −$0.07 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-01-01 to 2022-09-30 | $0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-07-01 to 2022-09-30 | 10,867,745 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-01-01 to 2022-09-30 | 10,870,842 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-01-01 to 2022-09-30 | −$1.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-01-01 to 2022-09-30 | $2.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2022-09-30 | $15.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2022-09-30 | $32.6m | us-gaap:AssetsCurrent |
| Total assets | at 2022-09-30 | $51.1m | us-gaap:Assets |
| Current liabilities | at 2022-09-30 | $6.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2022-09-30 | $18.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2022-09-30 | $32.3m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 25,063 characters.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on August 2, 2022.

### Forward-Looking Statements

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

### Business Overview

VirTra, Inc. (the “Company,” “VirTra,” “we,” “us” and “our”) is a global provider of judgmental use of force training simulators, firearms training simulators and driving simulators for the law enforcement, military, educational and commercial markets. The Company’s patented technologies, software, and scenarios provide intense training for de-escalation, judgmental use-of-force, marksmanship and related training that mimics real-world situations. VirTra’s mission is to save and improve lives worldwide through practical and highly-effective virtual reality and simulator technology.

The VirTra firearms training simulator allows marksmanship and realistic scenario-based training to take place on a daily basis without the need for a shooting range, protective equipment, role players, safety officers, or a scenario-based training site. We have developed a higher standard in simulation training including capabilities such as: multi-screen, video-based scenarios, unique scenario authoring ability, superior training scenarios, the patented Threat-Fire® shoot-back system, powerful gas-powered simulated recoil weapons, and more. The simulator also allows students to receive immediate feedback from the instructor without the potential for sustaining injuries by the instructor or the students. The instructor is able to teach and re-mediate critical issues, while placing realistic stress on the students due to the realism and safe training environment created by the VirTra simulator.

### Business Strategy

We have two main customer groups, namely, law enforcement and military. These are very different markets and require different sales and marketing programs as well as personnel. Our focus is to expand the market share and scope of our training simulators sales to these identified customer groups by pursuing the following key growth strategies:

- ***Build Our Core Business***. Our goal is to profitably grow our market share by continuing to develop, produce and market the most effective simulators possible. Through disciplined growth in our business, we have achieved a solid balance sheet by increasing our working capital and limiting our bank debt. 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. This effort will focus on new marketing and new product and/or service offerings for the purpose of widening the number of types of customers who might consider our products or services uniquely compelling.
- ***Broaden Product Offerings.*** Since formation in 1993, our company has had a proud tradition of innovation in the field of simulation and virtual reality. We plan to release revolutionary new products and services as well as continue incremental improvements to existing product lines. In some cases, the company may enter a new market segment via the introduction of a new type of product or service.
- ***Partners and Acquisitions.*** We try to spend our time and funds wisely and not tackle tasks that can be done more efficiently with partners. For example, international distribution is often best accomplished through a local distributor or agent. We are also open to the potential of acquiring additional businesses or of being acquired ourselves, based on what is expected to be optimal for our long-term future and our stockholders.

4

### Product Offerings

Our simulator products include the following:

- V-300® Simulator – a 300° wrap-around screen with video capability is the higher standard for simulation training
- The V-300® is the higher standard for decision-making simulation and tactical firearms training. Five screens and a 300-degree immersive training environment ensures that time in the simulator translates into real world survival skills. The system reconfigures to support 15 individual firing lanes.
- A key feature of the V-300®shows how quickly judgment decisions have to be made, and if they are not made immediately and quickly, it can lead to the possible loss of lives. This feature, among others, supports our value proposition to our customers that you cannot put a dollar value on being prepared enough for the surprises that could be around every corner and the ability to safely neutralize any life-threatening encounters.
- V-180®Simulator – a 180° screen with video capability is for smaller spaces or smaller budgets
- The V-180®is the higher standard for decision-making simulation and tactical firearms training. Three screens and a 180-degree immersive training environment ensures that time in the simulator translates into real world survival skills.
- V-100®Simulator & V-100® MIL – a single-screen based simulator systems
- The V-100® is the higher standard among single-screen firearms training simulators. Firearms training mode supports up to four (4) individual firing lanes at one time. The optional Threat-Fire® device safely simulates enemy return fire with an electric impulse (or vibration version), reinforcing performance under pressure. We offer the industry’s only upgrade path, so a V-100® firearms training and force options simulator can affordably grow into an advanced multi-screen trainer in upgraded products that we offer customers for future purchase.
- The V-100® MIL is sold to various military commands throughout the world and can support any local language. The system is extremely compact and can even share space with a standard classroom or squeeze into almost any existing facility. If a portable firearms simulator is needed, this model offers the most compact single-screen simulator on the market today – everything organized into one standard case. The V-100® MIL is the higher standard among single-screen small arms training simulators. Military Engagement Skills mode supplies realistic scenario training taken from real world events.
- The V-ST PRO® a highly-realistic single screen firearms shooting and skills training simulator with the ability to scale to multiple screens creating superior training environments. The system’s flexibility supports a combination of marksmanship and use of force training on up to 5 screens from a single operator station. The V-ST PRO® is also capable of displaying 1 to 30 lanes of marksmanship featuring real world, accurate ballistics.
- 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. V-Author® is an easy to use application capable of almost unlimited custom scenarios, skill drills, targeting exercises and firearms course-ware proven to be highly effective for users of VirTra simulation products.
- Simulated Recoil Kits - a wide range of highly realistic and reliable simulated recoil kits/weapons. These drop-in conversion kits fit into real weapons but safely simulate the most powerful recoil on the market and even lock-back when out-of-ammunition or simulating a dud.
- Return Fire Device – the patented Threat-Fire® device which applies real-world stress on the trainees during simulation training.
- TASER©, OC spray and low-light training devices that interact with VirTra’s simulators for training.

5

### Results of operations for the three and nine months ended September 30, 2022 and September 30, 2021

***Revenues.*** Net sales were $4,903,397 for the three months ended September 30, 2022 compared to $6,093,263 for the same period in 2021, a decrease of $1,189,866, or 19.5%. Net sales were $19,654,008 for the nine months ended September 30, 2022 compared to $15,790,364 for the same period in 2021, an increase of $3,863,644, or 24.5%. The decrease in revenues for the three months ended September 30, 2022 as compared to the same period in the prior year is due to unbilled sales not yet being recognized. The increase in sales for the nine months ended September 30, 2022 resulted from an increase in the number of simulators and accessories completed, delivered and revenue recognized compared to the same periods in 2021. It should be noted that there were unbilled revenue of $4,105,351 on the balance sheets as of September 30, 2022 that the Company expects to recognize as revenue in the coming quarters.

***Cost of Sales.*** Cost of sales were $2,387,307 for the three months ended September 30, 2022 compared to $3,217,911 for the same period in 2021, a decrease of $830,604, or 25.8%. Cost of sales were $8,707,096 for the nine months ended September 30, 2022 compared to $7,211,807 for the same period in 2021, an increase of $1,495,289, or 20.7%. The increase was due to additional material costs due to higher quantities of simulator systems and accessories sold. The cost of sales on a dollar basis varies from quarter-to-quarter as a result of sales volume and product mix.

***Gross Profit.*** Gross profit was $2,516,090 for the three months ended September 30, 2022 compared to $2,875,352 for the same period in 2021, a decrease of $359,262, or 12.5%. Gross profit was $10,946,912 for the nine months ended September 30, 2022 compared to $8,578,557 for the same period in 2021, an increase of $2,368,355, or 27.6%. The gross profit margin for the three months ended September 30, 2022 and 2021 was 51% and 47%, respectively. The gross profit margin was 56% for the nine months ended September 30, 2022 and 54% for the same period in 2021. The increase in gross profit was due to the product mix of systems, accessories and services sold.

***Operating Expenses.*** Net operating expense was $3,587,990 for the three months ended September 30, 2022 compared to $2,609,772 for the same period in 2021, an increase of $978,218, or 37.5%. Net operating expense was $10,265,886 for the nine months ended September 30, 2022 compared to $6,928,154 for the same period in 2021, an increase of $3,337,732, or 48.2%. The increase was primarily due to expenses related to the move into the new building, Orlando location, and increased payroll costs.

***Operating Income (Loss).*** Loss from operations was $1,071,900 for the three months ended September 30, 2022 compared to income of $265,580 for the same period in 2021, a decrease of $1,337,480 or 503.6%. Operating income was $681,026 for the nine months ended September 30, 2022 compared to $1,650,403 for the same period in 2021, a decrease of $969,377, or 58.7%.

***Other Income (Expense).*** Other income net of other expense was $46,336 for the three months ended September 30, 2022 compared to other income net of other expense of $1,330,681 for the same period in 2021, a decrease of $1,284,345, or 96.5%, primarily from the forgiveness of the PPP Loan of $1,320,714. Other income net of other expense was $28,542 for the nine months ended September 30, 2022 compared to other income net of other expense of $1,346,397 for the same period in 2021, a decrease of $1,317,855, or 97.9%.

***Provision (Benefit) for Income Tax.*** Income tax benefit was $222,683 for the three months ended September 30, 2022 compared to an income tax expense of $253,289 for the same period in 2021, a decrease of $475,972, or 187.9%. Income tax expense was $148,001 for the nine months ended September 30, 2022 compared to an income tax expense of $469,306 for the same period in 2021, a decrease of $321,305, or 68.5%. Provision (benefit) for income tax is estimated quarterly applying both federal and state tax rates.

***Net Income (Loss).*** Net loss was $802,881 for the three months ended September 30, 2022, compared to net income of $1,342,972 for the same period in 2021, a decrease of $2,145,852, or 159.8%. Net income was $561,567 for the nine months ended September 30, 2022 compared to $2,527,494 for the same period in 2021, a decrease of $1,965,927, or 77.8%. The fluctuations in net income (loss) relate to each respective section discussed above.

***Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization.*** Explanation and Use of Non-GAAP Financial Measures:

Earnings before interest, income taxes, depreciation and amortization and before other non-operating costs and income (“EBITDA”) and adjusted EBITDA are non-GAAP measures. Adjusted EBITDA also includes non-cash stock option expense. Other companies may calculate adjusted EBITDA differently. The Company calculates its adjusted EBITDA to eliminate the impact of certain items it does not consider to be indicative of its performance and its ongoing operations. Adjusted EBITDA is presented herein because management believes the presentation of adjusted EBITDA provides useful information to the Company’s investors regarding the Company’s financial condition and results of operations and because adjusted EBITDA is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in the Company’s industry, several of which present EBITDA and a form of adjusted EBITDA when reporting their results. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under accounting principles generally accepted in the United States of America (“GAAP”). Adjusted EBITDA should not be considered as an alternative for net income (loss), cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. A reconciliation of net loss to adjusted EBITDA is provided in the following table:

|  | For the Three Months Ended September 30, 2022 | September 30, 2021 | Increase% (Decrease) | Change | For the Nine Months Ended September 30, 2022 | September 30, 2021 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Net Income (Loss) | $(802,881) | $1,342,972 | $(2,145,853) | -160% | $561,567 | $2,527,494 | $(1,965,927) | 78% |
| Adjustments: |  |  |  |  |  |  |  |  |
| Provision for income taxes | (222,683) | 253,289 | (475,972) | -188% | 148,001 | 469,306 | (321,305) | -68% |
| Depreciation and amortization | 423,069 | 166,098 | 256,971 | 155% | 659,775 | 367,253 | 292,522 | 80% |
| EBITDA | $(602,495) | $1,762,359 | $(2,364,854) | -134% | $1,369,343 | $3,364,053 | $(1,994,710) | -59% |
| Right of use amortization | 131,221 | 78,001 | 53,220 | 68% | 291,879 | 231,300 | 60,579 | 26% |
| Gain on forgiveness of note | - | (1,320,714) | 1,320,714 | -100% | - | (1,320,714) | 1,320,714 | -100% |
| Adjusted EBITDA | $(471,274) | $519,646 | $(990,920) | -191% | $1,661,222 | $2,274,639 | $(613,147) | -27% |

***Liquidity and Capital Resources.*** Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. The Company had $15,673,154 and $19,708,565 of cash and cash equivalents as of September 30, 2022 and December 31, 2021, respectively. Working capital was $25,726,256 and $25,944,717 as of September 30, 2022 and December 31, 2021, respectively.

Net cash used in operating activities was $1,452,599 for the nine months ended September 30, 2022 and net cash provided by operating activities was $1,362,626 for the nine months ended September 30, 2021. Net cash used in operating activities resulted primarily from an increase in inventory, offset by a decrease in accounts receivable, as well as other changes in operating assets and liabilities.

Net cash used in investing activities was $2,444,074 for the nine months ended September 30, 2022, compared to net cash used in investing activities of $12,035,043 for the nine months ended September 30, 2021. Investing activities in 2022 and 2021 consisted of purchases of intangible assets, manufacturing equipment, and purchases of property and equipment (see Note 3).

Net cash used in financing activities was $138,738 for the nine months ended September 30, 2022, compared to net cash provided by financing activities of $25,376,276 for the nine months ended September 30, 2021. In 2022, cash was used primarily for principal payments of debt, offset by proceeds from the exercise of stock options, compared to financing activities in 2021 which consisted of stock options exercised, stock issued for service, and proceeds from long-term debt, offset by the forgiveness of the PPP loan, and principal payments on note payable.

### Bookings and Backlog

The Company defines bookings as the total of newly signed contracts and purchase orders received in a defined time period. The Company received bookings totaling $26,631,879 for the nine months ended September 30, 2022. The Company defines backlog as the accumulation of bookings that have not started or are uncompleted performance objectives and cannot be recognized as revenue until delivered in a future quarter. 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 September 30, 2022, the Company’s backlog was $28,300,000. Management estimates the majority of the new bookings received in the first nine months of 2022 will be converted to revenue in 2022 and early 2023. Management estimates the conversion of backlog based on current contract delivery dates; however, contract terms and dates are subject to modification and are routinely changed at the request of the customer. Additionally, due to the impact of COVID-19, management’s estimates will change in accordance with federal and state guidelines. To date, the COVID-19 restrictions and/or supply chain/staffing challenges have resulted in reduced customer shipments and customer system installations. These developments are expected to result in lower recognized revenue, possible order cancellations and possibly lower gross margin when they occur. To date, there have been minimal order cancellations and some delays. Delayed orders remain in backlog.

### Cash Requirements

Our management believes that our current capital resources will be adequate to continue operating the company and maintaining our current business strategy for more than 12 months from the filing of this Quarterly Report. We are, however, open to raising additional funds from the capital markets, at a fair valuation, to expand our product and services offered, to enhance our sales and marketing efforts and effectiveness, and to aggressively take advantage of market opportunities. There can be no assurance, however, that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down our plans for expanded marketing and sales efforts.

### Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Significant accounting estimates in these financial statements include valuation assumptions for share-based payments, allowance for doubtful accounts and notes receivable, inventory reserves, accrual for warranty reserves, the carrying value of long-lived assets, income tax valuation allowances, the carrying value of cost basis investments, and the allocation of the transaction price to the performance obligations in our contracts with customers. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021. Management believes that there have been no changes in our critical accounting policies during the nine months ended September 30, 2022.

### Recent Accounting Pronouncements

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

### Off-Balance Sheet Arrangements

As of September 30, 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. The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have any obligation arising under a guarantee contract, derivative instrument or variable interest or a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.

## Controls and procedures

As filed, 2,221 characters.

### Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Exchange Act. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of September 30, 2022, our disclosure controls and procedures were not effective. The ineffectiveness of our disclosure controls and procedures was due to material weaknesses, which we identified in our report on internal control over financial reporting contained in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on August 2, 2022.

### Change in internal control over financial reporting

There has been no change in our internal control over financial reporting that occurred during the quarterly period ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Subsequent to September 30, 2022, we are implementing more formal review and documentation of workflow processes, and increased our ERP training for our staff. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.

Filed Nov 14, 2022.
Source: SEC EDGAR, the filing index for accession 0001493152-22-032026. Last ingested by Listed: Oct 24, 2026, 15:02 ET. No prices; not investment advice.