That countries are upping their defence capabilities in light of growing volatility on military grounds is no longer hearsay. And at the forefront of these upgrades are tech companies like xReality Group (ASX: XRG), specialising in augmented reality, artificial intelligence and such. After all, winning a fight is no longer about who is the strongest but more equipped with the latest tech. To wage a war, you now need more than a passionate general, perhaps an AI headset.

In Q4 FY23, xReality sold a system licence to the Australian Defence Force—its subsidiary Operator XR’s first defence contract. This licence allows them to use the OP-1 Tactical Training software for their deployed troops. The OP-1 training software allows frontline personnel to embark on virtual missions outfitted with their familiar weapons and equipment.

The system will be utilised by the Australian Army and initially provided to deployed units to maintain military skills. The purchase of this system is part of a concept evaluation process.

The total contract value (TCV) for Operator XR has increased by 34% since the second quarter, amounting to $1.4 million in the first year. Cash receipts for xReality Group in Q4 FY23 totalled $2,343,295, with year-to-date amounting to over $11.3 million. But cash equivalents stood at about $1.3 million.

The net cash outflow from operating activities for the period was $78.4k, while the year-to-date net cash from operating activities amounted to $1.2 million. xReality Group made investments of $892k in non-current assets, which included $85,480 for capital improvements in its Entertainment portfolio and $802.5k for ongoing investment in Defence and Consumer XR product development and hardware. Plus, it repaid $75k towards its debt facilities.

The contract value from its enterprise arm also proved beneficial, bringing in $1.4 million. At the same time, the Company established its United States Law Enforcement and Military sales team.

Operator XR LLC was established in Virginia, USA in March 2023. As a fully owned subsidiary, its responsibility is to oversee direct sales for its American customers, with a particular emphasis on Law Enforcement Agencies and the U.S. Department of Defense. In April, the Company initiated its campaign targeting SWAT teams during the TacOps North conference, which took place in upstate New York. Operator XR successfully presented and displayed its products to a gathering of over 800 sworn officers attending the event.

During May, xReality took a strategic approach by assembling a sales team in the United States. This team is currently engaged in pursuing numerous opportunities with different law enforcement agencies and military units across the country. Currently, the Company is actively overseeing more than 40 potential clients in early-stage discussions, spanning various locations in the United States. Moreover, xReality has successfully conducted several in-person demonstrations and provided five quotations as part of their sales efforts.

As for its entertainment portfolio, FREAK Entertainment has faced difficulties in the shopping centre retail sector, primarily due to economic factors that are not directly related to the Company’s operations. Despite these challenges, the sales, marketing, and management teams have managed to keep up performance. iFLY Downunder in Sydney and iFLY Gold Coast have maintained a positive operating cash flow throughout the quarter by using online marketing strategies, organising events, and engaging in professional bulk buying sales.

In a bid to expand, the Company is working on building partnerships and setting up distribution networks across multiple regions like Europe, the Middle East, and the ASEAN territories.