Artificial Intelligence Technology Solutions Inc. 10-K

ITEM 1. BUSINESS Business Overview Robotic Assistance Devices, LLC was incorporated in the State of Nevada on July 26, 2016, as an LLC and was founded by current President Steve Reinharz. Mr. Reinharz, has 25+ years in various leadership/ownership roles in the security industry and was part of a successful exit to a global multinational security company in 2004. Mr. Reinharz started his first security integration company in 1996, which he grew to 30+ employees before closing that company in 2003. In 2017, Robotic Assistance Devices LLC converted to a C Corporation, Robotic Assistance Devices, Inc. (“RAD”), through the issuance of 10,000 common shares to its sole shareholder. Artificial Intelligence Technology Solutions Inc. (formerly known as On the Move Systems Corp.) (“AITX” or the “Company”) was incorporated in Florida on March 25, 2010, and reincorporated in Nevada on February 17, 2015. On August 24, 2018, On the Move Systems Corp. changed its name to Artificial Intelligence Technology Solutions Inc. (“AITX”). In 2017, AITX acquired all the ownership and equity interests in RAD (the “Acquisition”). Before the Acquisition, AITX’s business focus had been transportation services, and AITX was exploring the on-demand logistics market by developing a network of logistics partnerships. After the Acquisition, AITX shifted its business focus to align with RAD’s mission. Since that time, AITX has been engaged in pursuing the delivery of artificial intelligence (AI) and robotic solutions for operational, security, and monitoring needs. More specifically, the Company is focused on applying advanced AI-driven technologies, paired with multi-use hardware and supported by custom software and cloud services, to intelligently automate and integrate a variety of high-frequency security, concierge, and operational tasks. Since substantially all of AITX’s operations were disposed of with the transaction’s consummation, the Acquisition was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes. AITX recorded no goodwill or other intangible assets as a result of the Acquisition. RAD is treated as the accounting acquirer as its stockholders control the Company after the Acquisition, even though AITX was the legal acquirer. Therefore, the assets, liabilities, and historical operations reflected in these financial statements are those of RAD as if RAD had always been the reporting company. RAD’s solutions are offered as a recurring monthly subscription, typically with a minimum 12-month subscription contract. RAD’s solutions are expected to earn over 75% gross margin over the life of each deployed asset when under subscription. RAD also sells units which generally limits gross margin to the 50% range. Specifically, RAD provides workflow automation solutions delivered through a system of hardware, software and cloud services. All elements of hardware and software design offered by RAD are 100% designed, developed and owned by RAD. Mission AITX’s mission is to apply Artificial Intelligence (AI) technology to solve enterprise problems categorized as expensive, repetitive, difficult to staff, and outside of the core competencies of the client organization. A short list of basic examples include: 1. Typical security guard-related functions such as monitoring a parking lot during and after hours and responding appropriately. This scenario applies to perimeters, interior yard areas, and related similar environments. 2. Integrated hardware/software with AI-driven responses, simulating and expanding on what legacy or manned solutions could perform. 3. Automation of common access control functions through technology utilizing facial recognition and machine vision, leapfrogging most legacy solutions in use today. RAD’s first industry focus is the more than $100 billion global security services market. 1 RAD’s current goal is to disrupt and capture a significant portion of both the human security guard market (over $30 billion) 2 and “physical security” (video surveillance, access control, visitor management, etc.) market (over $20 billion) through its innovative RAD solution ecosystem. __________ 1 https://www.statista.com/statistics/323113/distribution-of-the-security-services-market-worldwide/ 2 https://www.statista.com/statistics/294206/revenue-of-security-services-in-the-us/ - 1 - RAD solutions are unique because they: 1. Start with an AI-driven autonomous response utilizing cellular-optimized communications, while easily connecting to a human operator for a manned response, as needed. 2. Use unique hardware purpose-built by RAD for delivery of these solutions. Various form factors have been customized to deliver this new functionality. 3. Deliver services through RAD-developed software and cloud services, allowing enterprise IT groups to focus on core competencies instead of maintenance of complex video and security platforms. AITX Subsidiaries AITX owns and operates three (3) wholly-owned subsidiaries. 1. Robotic Assistance Devices, Inc. (RAD I) is the primary operating company of AITX. The company holds the dealer and end-user contracts, employs all US employees, operates the California and Michigan facilities, and is the primary industry-facing entity of AITX. RAD I owns all intellectual property related to RADSoC™, RAD Mobile SOC™, RADGuard™, and their core operating architecture. RAD I owns everything related to AITX’s line of stationary devices and their manufacturing. RAD I also implements and services the devices. 2. Robotic Assistance Devices Group, Inc. (RAD G) is RAD G is an AITX subsidiary, separate from RAD I and RAD M, created for the purposes of expected future sales through a channel that is incompatible and non-competitive with RAD I’s existing channel. RAD G is focused on the development of advanced software and electronics solutions and hopes to have a solution in the marketplace by the end of 2022. The Company expects that this first solution, which will be software-only, will be marketed through RAD I. Additional solutions under development are likely to have a direct go-to-market strategy that complements RAD I’s strategy. Development efforts for these entities are highly confidential and will remain so until marketable solutions are ready to launch. 3. Robotic Assistance Devices Mobile, Inc. (RAD M) is RAD M is an AITX subsidiary, separate from RAD I and RAD G, created for the purposes of future developments, partnerships, and marketing in which the Company may engage in the future. RAD M is focused on the development of autonomous mobile devices, both ground-based and airborne. RAD M’s first solution, the ROAMEO™ unmanned ground vehicle, incorporates RAD M technologies related to the development of custom chassis, drive train, power management, perception, and prediction. ROAMEO features technology from RAD I to perform its functions. The Company believes that ROAMEO will bring the first outdoor, rugged, commercial security and facility robot to market. This mobile solution will complement the stationary systems. ROAMEO is manufactured, implemented, and maintained by RAD I. ROAMEO began serial production in RAD’s Michigan facility in July 2021. RAD M will continue developing additional mobility solutions that RAD I will bring to market. Background - First Commercial Rugged Outdoor Security Robot Mr. Reinharz started RAD in the summer of 2016. RAD originally partnered with SMP Robotics Systems Corp. (SMP) and commercialized the SMP S5 Robot for the security market. RAD’s commercialization of the platform focused on integrating traditional security industry manufacturers’ solutions onto the robotics platform. After two paid proofs-of-concept for large utility companies (under NDA) and over 18 months of development and testing, RAD began deployments with various Fortune 500 customers. These deployments were scheduled to start in October 2017 but were delayed until December 2017 due to various supply chain challenges. By March 2018 it was apparent that S5 platform was not sustainable and RAD began to pull robots out of service. The robots were rejected by customers due to unsatisfactory reliability and some technical flaws that could not be solved, despite full efforts by SMP and RAD. RAD now considers this phase of the company ‘Phase 1’ into robotics. The Company attempted over 40 deployments during this period. RAD has had no contact with SMP Robotics since April 2018. Much of RAD’s existing convertible debt was acquired in support of the RAD/SMP robotics program. This convertible debt has largely been converted to long-term debt and warrants as shown in these financial filings. - 2 - ROAMEO will deliver on AITX’s goal of bringing the first outdoor, rugged, commercial security and facility robot to market. This mobile solution will complement the stationary systems AITX already has operating in physical security applications serving customers in a wide range of environments. Background – RAD’s 2 nd Generation Ecosystem RAD’s primary strategy has always been to use AI technology and modern systems to transform the security industry. Mobile robots, indoor and outdoor, are a part of that strategy. However, to ultimately realize the delivery of these solutions, a set of “stationary robots” required development. These stationary robots launched in April 2018 with the Security Control and Observation Tower (SCOT), development of which began in August 2017. SCOT performs many of the same functions as a stationary human security guard, plus many tasks that human guards cannot, and does so at approximately 15% of the cost. There is no known comparable solution available today that blends technology, usability, unique features, and price. SCOT received an enthusiastic response from the security market and industry accolades. SCOT’s positive reception reinvigorated RAD, which accelerated the development of the software and cloud services that support SCOT. SCOT runs on the RAD Software Suite™. This software suite is a cloud and mobile platform at the heart of all RAD security solutions. A beta version SCOT was first shown to potential customers at the end of February 2018 in an exposition held in Ohio that tested customer reception and elicited voice-of-the-customer input. SCOT and the preliminary RAD Software Suite received a favorable customer response. Customer feedback was incorporated into SCOT, and ideas on SCOT derivatives were added to the hardware development roadmap. In April 2018, at the ISC West, a large annual physical security event held in the United States, SCOT won three awards: (1) The Security Industry Association’s (SIA) New Product Award for Law Enforcement/Guarding 3 , (2) A 2018 Secure Campus Award from Campus Security and Life Safety Magazine, and (3) A ‘Govie’ award for government security solutions from Security Today Magazine. RAD has since won numerous awards for its solutions, including: RAD Light My Way ™ , Secure Campus 2022 Awards, in the categories of ‘Security & Personal Safety Devices’ & ‘Artificial Intelligence’ AVA ™ 3.0 with STAN ™ , Security Industry Association NPS Awards, in the category of ‘Access Control Software, Hardware, Devices and Peripherals’ ROSA ™ with RAD Light My Way, CBRE Innovation Challenge 2021, in the category of ‘Best Workplace Experience Solution Award’ ROSA 180 ™ , American Security Today 2021 ASTORS Awards, in the categories of ‘Best Robotic Perimeter Protection’ & ‘Best Motion Detection Solution’ RAD’s pivot to SCOT and its future derivatives is complete, and RAD’s current facilities can produce a mix of up to 100 units per month with moderate additional investment in equipment and manpower. Introduction of RAD’s 3 rd Generation Solutions On October 13, 2021, RAD presented it’s ‘3 rd Generation’ of solutions at an investor’s open house event. The event was held after market close, live streamed and made available to any interested party. RAD debuted: 1. ROSA 3.0 – RAD’s best selling device for a variety of intrusion detection, loitering, monitoring and response purposes. New design, better lighting, communication, audio, uses RAD-G’s hardware. 2. AVA 3.0 - RAD’s guard-gate replacement device. New design, better lighting, communication, audio, uses RAD-G’s hardware. Uses RADGuard 3.x. __________ 3 SIA’s New Product Showcase recognizes innovative products, services and solutions in electronic physical security, and SCOT™’s award comes in the Law Enforcement/Guarding Systems category. Technologies within the program are used in the protection of life and property in residential, commercial, and institutional settings, displaying SCOT™’s importance in long-range human detection and acting as a force multiplier for safety and defense against outside threats. - 3 - 3. SCOT 3.0 – Designs shown. Additional demand required for full production. Will continue with 2.x until shells in stock are sold out. 4. Wally 3.0 - Designs shown. Additional demand required for full production. Will continue with 2.x until shells in stock are sold out. 5. ‘Robotic Dogs’ – Partnership with Ghost Robotics shown. Additional details on RAD’s robotic dog solutions are expected to be presented in calendar year 2022. 6. RAD Light My Way – RAD’s award winning personal safety software solution that utilizes RAD’s hardware. Sales to begun March 1, 2022. 7. ROAMEO 2.1 – Newest version of ROAMEO, RAD’s rugged outdoor autonomous robot. Software Solutions RAD has created a variety of front-end and back-end software solutions to power its ecosystem. RADGUARD is customer-facing software (on the touchscreens of RAD’s field devices), and management solutions include RADSOC (Security Operations Center) and RADPMC (Property Management Center). RAD has developed a variety of utilities that allow automatic over-the-air updates, most of which are within a back-end application called SCOT Manager. RAD has developed Visitor Management, Access Control, and other applications itself instead of seeking to partner with legacy manufacturers. It is RAD’s opinion that the legacy paradigm in the physical space underserves the markets in terms of cost, functionality, and integration. RAD recently introduced its own Video Management System into RADSOC, delivering a fully integrated solution that facilitates robust security and property management capabilities. The Company believes that RAD’s ability to deliver easy-to-use, easy-to-obtain, and easy-to-support software, combined with custom workflow-automation applications, is key to the Company’s success. Manufacturing & Assembly RAD uses various domestic and overseas machine shops for raw material procurement and machining of the required plastic and metal pieces that build RAD devices. RAD’s sourcing has redundancy through use of multiple machine shops producing the same products for RAD. In addition, all pieces within any RAD device can be procured from a choice of suppliers. RAD’s margins are based on current small batch production and assembly. The Company expects that economies of scale will drive greater gross margin as quantities and efficiencies increase. Roadmap RAD expects to introduce new products and updates to several products during the remainder of 2022 and early 2023, including the following: 1) ROAMEO 3.0. This release will have an updated physical design inline with the general ‘RAD 3.0 look’ as well as feature several custom components that will significantly improve the robot’s long term autonomy. 2) RAD-dogs. Further details to be released throughout the fiscal year. 3) ‘ROI’, RAD’s entry into an existing market that we value between $ 250 million and $ 500million per year. The unit is in stealth mode and will be debuted at our before the GSX trade show in Atlanta in September 2022. RAD’s hardware and software have benefited from continuous significant improvements and to date has over 1,500,000 paid operating hours. - 4 - Team and Culture AITX has built a strong start-up culture based on performance, sacrifice, and rewards. Attracting employees who can thrive in this environment requires a different approach to corporate growth and development. RAD’s governing philosophy centers around the principles of “Emotional Intelligence. Self-awareness, composure, internal motivation, empathy, and social skills are prerequisites for joining the RAD team, and each candidate interview begins with a review of the foundational elements that comprise RAD culture. Team members are open to multitasking and wearing multiple hats, as situations demand. This allows management to focus on larger goals and long-term strategies. We try to ensure that our entire staff shares the same core beliefs and values as the Company, allowing us to adapt and adjust quickly to changes that might grind other companies to a halt. Members have been no stranger to the difficulties that face a startup, including unexpected setbacks, delays in funding, or a cash crunch, but they have persevered with dedication and enthusiasm for our greater mission. They have met incredibly tight deadlines, volunteered to make financial sacrifices, and assisted wherever and however they can. We believe that RAD’s high-EQ work culture creates productive, motivated employees that has allowed the Company to weather the difficult period of robot deployments and our transition to 2 nd generation solutions. Market Environment RAD believes that its experience has shown that the security market is ripe for disruption. It has captured the interest of many Fortune 500 companies. The Company believes that no other company operating in the physical security space has the solutions, distribution channel, reputation, sales or support model to rival RAD in the near term. In addition, the Company expects that the launch of RAD’s mobile solutions will significantly increase the gap between it and would-be competitors. RAD will be a one-stop-shop for proven and comprehensive mobile and stationary workflow improvement devices and systems. RAD’s technology model includes a “new paradigm” for the security industry: Security in a Box. Every RAD solution features connection to the RAD Software Suite, a platform for AI processing, usage analytics, cloud-sided video, communications interface, audit logs, and much more. Positive market reception for RAD solutions is due to the following conditions: 1. The security guard industry is characterized by poor customer satisfaction and industry consolidation. It’s self-described to be a “race to the bottom” to provide the lowest cost to end-users who require at least some level of security services for crime deterrence and insurance purposes. There are 1.1 million security guards in the United States and the security guard industry represents over $20 billion in annual sales. The average security guard hourly rate is $20 per hour. 2. Enterprise organizations’ security divisions/groups are continuously challenged to reduce cost. For example, Universal Parcel Service (UPS) spends over $120 million per year in security guard services, Lockheed Martin over $60 million per year, and NBC Universal over $25 million per/year. The security guard industry has not had any significant disruption or innovation since its inception. 3. Guard companies struggle to offer quality service at a reasonable price. Security organizations are eagerly receptive to solutions that improve performance and reduce cost. Guard companies are facing a worker shortage, to the point that they are turning away customers. There is a glut of low-wage jobs available, and compared to opportunities in the retail and service sector, guard positions are undesirable. The work is lonely and boring, and there is little or no room for career growth. Security companies have two alternatives; drastically increase hourly pay to attract more candidates, or automate their processes to require fewer workers who perform more interesting jobs. The former option is expected to increase the cost of services to the end-user; the latter option is expected to reduce the price while delivering security services that may equal or exceed the quality of services performed by individual guards. RAD is uniquely positioned to facilitate this second model, thereby helping to eliminate the staffing crisis for guard companies who embrace RAD’s solutions. 4. RAD’s device rental model delivers significantly lower operating costs. With RAD’s current stationary solutions retailing from under $1/hour to $5/hour, customers immediately benefit from substantial savings and more comprehensive security. 5. RAD’s services options allow end-users to incorporate or fully replace their existing Security Operation Centers with RAD solutions. RAD’s “Solutions-As-A-Service” Rental Program offers customized options to help organizations achieve operational and security goals. - 5 - The above conditions speak to the historical lack of innovation in the guarding market. RAD upends this tradition by approaching security challenges through a truly revolutionary approach. The market is now positioned for major disruption with the application of AI-based solutions, as lead by RAD. As such, the interest in RAD solutions has been overwhelming. Major companies, including the largest U.S. guarding company, are aligning with RAD to offer these services to their customer base. Prospective ROAMEO Impact The Company’s release of ROAMEO positions it as a near-competitor to Knightscope, a Palo Alto based robotics company in business since 2012. RAD’s approach is different from Knightscope’s on many elements of technology. RAD expects that a small number of expected ROAMEO orders will make a substantial impact on RAD’s financial performance and create momentum for significant adoption of the entire RAD lineup. Customer Acceptance of RAD Solutions RAD end-users include one Fortune Top 10 company and a number of other Fortune 500 companies. RAD is currently deployed in logistics, commercial real estate, healthcare, amusement, manufacturing and retail industries. The Company believes that if RAD is ultimately deployed to only 5% of the facilities within any of these industries, the Company will be profitable. RAD’s batch production of SCOTs & WALLYs have all been committed prior to the completion of the production cycle, with an average delivery time of 45 days. RAD has set a goal, predicated on steady demand, to reduce delivery time to 15 days. RAD Industry Leadership Role Mr. Reinharz has earned a prominent role as a spokesperson for AI and change in the security industry. He has lectured and participated in several panels for some of the security industry’s largest events and organizations. Mr. Reinharz sits on the SIA’s Autonomous Working Group committee, which is dedicated to helping shape the industry and support progressive legislation. Most recently, Mr. Reinharz provided a lecture to NYC’s ASIS CPP group that qualified as a continuing education credit. It is expected that Mr. Reinharz will continue his promotion of the new paradigm for the next few years until adoption is widespread. Go To Market Strategy RAD’s strategy continues to focus on the creation and support of a strong dealer channel. This approach affords multiple benefits to RAD with few downsides. RAD has successfully integrated through the largest U.S. guarding company and recently signed another top-three guarding company as a RAD dealer. Furthermore, RAD has been signing up and developing mid-sized and smaller dealers. RAD is on track to establish a focused group of dealers, most of whom will exclusively represent RAD solutions. Supplemental to nurturing a solid dealer channel, RAD will, under certain circumstances, accept subscriptions directly from end-users. These situations are largely characterized by the end-user not having a guarding company, having a guarding company that RAD does not want as a dealer, or other extenuating circumstances. RAD has no desired ratio of dealer vs. direct subscriptions. Dealer subscriptions remain the primary focus. Competition RAD has no direct competition save for one immediate competitor and one potential competitor. RAD is considered part of the “drones” category of the security industry, although at RAD we consider ourselves to be in the workflow automation industry. RAD deliberately restricts information that is public for three main reasons: 1. Usually, activities are covered by mutual non-disclosure agreements and RAD generally will not ask for permission to publicize customer activities. 2. These are generally security applications, and most companies prefer not to advertise the details of their security systems. 3. Until RAD hits the “tipping point,” we prefer to keep our solutions somewhat stealth so as not to give our would-be competitors ideas to copy. - 6 - We anticipate that, eventually, some competition may enter the market. RAD seeks to maintain a 2+ year competitive advantage through a broad line of hardware solutions, the fastest and smoothest user interface, and the strongest feature set with the most mature back-end. Furthermore, RAD seeks to expand its sales staff and become the dominant incumbent in this new market that it has created. COVID-19 Impact The Company had little COVID-19 impact until the release of the 3.0 line. The little COVID-19 impact was due to early purchasing and inventory build up in anticipation of the supply chain disruptions. The 3.0 lineup uses a variety of new equipment that we could not accumulate. The Company is presently experiencing issues caused by the ongoing supply chain constraints on these new components and pieces of equipment. Furthermore, shipping delays have impacted the timeliness of parts deliveries. Additionally shipping and component costs have been increasing. These facts put negative pressure on our gross margins and add delays between the time an order is received and the time that order can be implemented and start generating revenue. The greatest impact of COVID-19 remains it’s affect on labor. Namely the reduction of available workers for both the security industry – which is spurring demand for RAD solutions – and the increasing costs and reduction in availability of RAD staff in the software development and assembly areas. As such, the pandemic’s long term impact will be generally positive as customers gravitate towards our solutions. Additionally the higher wages we are paying our team members help assure continuation of our high employee retention rate. Employees As of May 25, 2022, we have 83 employees, including full-time global contract employees. None of our employees are represented by a union. We consider our employee relations to be excellent. AITX is rolling out its approved (April 2021 8-K) ESOP to all employees during the summer of 2022. Accomplishments & Highlights AITX, and its subsidiaries RAD I, RAD M, and RAD G, list of accomplishments highlights successes in adding to the strength of its executive leadership team, expanding its sales and distribution channels, launching new products, while growing its presence, visibility and profile within its existing marketplaces. Milestones and accomplishments over the past 12 months include: SOC 2 Compliance The SOC 2 Report has become a benchmark standard, and now an often-specified requirement, in the software procurement process. Established by the American Institute of Certified Public Accountants (AICPA), criteria and reporting principles are outlined as a means for organizations to create a documented framework of policies and procedures to prove how they manage and secure data in the cloud and ensure protection of customer privacy and ensure internal communications are suitably handled. This achievement reflects the Company’s stated goals of best-in-class data protection and internal processes. ● Implementation of ERP (enterprise resource planning) System During the fiscal year the Company made a strategic investment in state-of-the-art ERP software to optimize its business process management, production capabilities and to better serve customers. The Company expects to have greater visibility on sales activities, trends, lead management and sales forecasting utilizing the new ERP. ● Announced Strategic Alliances and Partnerships The Company took steps to integrate its technology portfolio with other tech companies, working to bring solutions to market in a faster, more financially efficient manner. Announced alliances include: March 24, 2021 - RAD to Integrate EAGL Gunshot Detection Technology into All Security Devices https://radsecurity.com/robotic-assistance-devices-to-integrate-eagl-gunshot-detection-technology-into-all-security-devices/ August 19, 2021 - AITX Announces Details of Strategic Relationship with Ghost Robotics Corporation https://radsecurity.com/aitx-announces-details-of-strategic-relationship-with-ghost-robotics-corporation/ ● Authorized Dealers Added to Dealer Network - 7 - RAD has more than 40 authorized dealers across the United States, Canada, and the EU, with plans for continued expansion. Dealers include the largest security companies in the world, including Allied Universal and Securitas. The ongoing addition of authorized dealers introduces and delivers RAD products to new markets. Dealer announcement and highlights include: March 5, 2021 - RAD Announces Dealer Agreement with St. Moritz Security Services https://radsecurity.com/robotic-assistance-devices-announces-dealer-agreement-with-st-moritz-security-services/ March 11, 2021 - RAD Announces Dealer Agreement with DSI https://radsecurity.com/rad-announces-dealer-agreement-with-dsi/ May 24, 2021 - RAD Secures New Orders, Signs Two New Dealers, Pro Security Group and a Canadian Dealer https://radsecurity.com/robotic-assistance-devices-secures-new-orders-signs-two-new-dealers/ June 17, 2021 - RAD Signs L&P Global Security as a New Dealer with Initial Unit Commitment https://radsecurity.com/robotic-assistance-devices-signs-lp-global-security-as-a-new-dealer-with-initial-unit-commitment/ August 4, 2021 - RAD Announces Dealer Agreement with BSN Security, LLC https://radsecurity.com/rad-announces-dealer-agreement-with-bsn-security-llc/ December 2, 2021 - RAD Signs EPIC Security Works as New Dealer and Receives 4 Unit ROSA Order https://radsecurity.com/rad-signs-epic-security-works-as-new-dealer-and-receives-4-unit-rosa-order/ December 17, 2021 - RAD Receives Order for 10 ROSA Stationary Security Robots from Recently Signed Dealer Vista Security Group https://radsecurity.com/rad-receives-order-for-10-rosa-stationary-security-robots-from-recently-signed-dealer-vista-security-group/ February 1, 2022 - RAD Signs SekurCorp as New Dealer and Receives AVA Order https://radsecurity.com/rad-signs-sekurcorp-as-new-dealer-and-receives-ava-order/ February 18, 2022 - RAD Signs New Dealer and Receives ROSA Order with Additional Units Expected https://radsecurity.com/rad-signs-new-dealer-and-receives-rosa-order-with-additional-units-expected/ February 22, 2022 - RAD Receives 5 Unit ROSA Order from Recently Signed Dealer Cancom Security Services https://radsecurity.com/rad-receives-5-unit-rosa-order-from-recently-signed-dealer-cancom-security-services/ February 24, 2022 - RAD Signs Apex3 Systems as New Dealer and Receives ROSA Order with Additional Units Expected https://radsecurity.com/rad-signs-apex3-systems-as-new-dealer-and-receives-rosa-order-with-additional-units-expected/ ● Return to Industry Conferences and Trade Shows During the period, as COVID-19 concerns retreated, RAD returned to attending and exhibiting at several regional conferences and national trade shows. At these conferences, it is common for several from RAD’s sales team attend and conduct meeting with dealers, prospective clients and existing clients. RAD's participation during FY 2022 included: ● ISC West 2021, the security industry’s premier trade show and conference, Las Vegas, NV, July 2021 ● NCS⁴, The National Center for Spectator Sports Safety and Security, Phoenix, AZ, November 2021 ● IAAPA (International Association of Amusement Parks and Attractions) 2021, the amusement and attractions industry’s leading show, Orlando, FL, November 2021 RAD will continue to attend conferences in FY 2023 within the security industry as well as targeted vertical markets where RAD solutions are in demand. ● Discussion on Sales The sales funnel has grown significantly over the course of this fiscal year. During the second half of the year the sales group increased substantially to five full time sales people lead by a sr VP of sales. The first few months of any new employee are focused on training and results sometimes take 6 months from date of hire. - 8 - In the fiscal year RAD added 311 sales opportunities to the sales funnel. An opportunity is mostly defined as an account that is exhibiting a pain that can be solved by RAD, has a budget, and has reached the point in the sales process where they have a quote they can sign. Management has identified that conversion of accounts from opportunities to clients is low and has identified some of the reasons for the low conversion rate: ● Buyer fear of deploying new technology and the perceived risks associated with trying something new ● Compliance questionnaires can take up 18 months, slowing down final approvals ● Slow adoption of structural changes to Dealers sales processes and internal compensation programs Despite this the sales funnel continues to grow in size and quality. Management continues to ‘chip away’ at these change-related obstacles to sales by taking a high profile approach to existing client success, continuously improving the hardware and software to continue to increase the value of our solutions to end users. Management expects device count deployments may be between 250 and 1250 devices this fiscal year. As of May 2022 total devices deployed is approximately 250. Uniformly end users and dealers report significant problems with recruiting and retaining manned labor. This fact is the primary driver of clients’ and dealers interest in RAD solutions. Management feels that the labor problem is going to increase in severity as inflationary pressures continue to drive up employee wages (making guard services more expensive) and reduce economic activity (presumably forcing companies to search out lower cost solutions to existing problems). Management, based on daily conversations with clients, dealers and prospects, feels very strongly that there will be continued increasing demand for the Company’s solutions. ● Additional Points of Interest Management expects that as volume production grows, starting with ROSA, the company can achieve significant improvements in cost of goods sold. Part of these savings will be passed to the market in the form of reduced costs. Timing is dependent on parts costs reduction and timing of improvement of production efficiencies. Management has registered a portfolio of Trademarks. Management may, depending on budget and finance, seek to acquire utility patents for a few innovations that the Company feels desire patent protection and are easily defensible. Management suggests that revenue from device monitoring from RAD partners could, over time, become up to 15% of company revenues. There is little to no cost associated with this revenue stream. Legal Proceedings See Item 3 - Legal Proceedings. ITEM 1A. RISK FACTORS Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), we are not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1). ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable.