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 generally offered as a recurring monthly subscription, typically with a minimum 12-month subscription contract. RAD also sells their units and the client that RAD has had longest opts to do this. RAD’s solutions are expected to earn over 75% gross margin over the life of each deployed asset when under subscription and over 50% gross margin when sold. 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. Steve Reinharz, founder of RAD and single largest equity owner of AITX, became CEO on March 2, 2021. Company Strategies We apply our Artificial Intelligence (AI) technology to solve enterprise problems categorized as expensive, repetitive, difficult to staff, and outside of the core competencies of our client or prospective client organizations. 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 - Table of Contents 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 core premise at inception was summarized in its paper titled ‘Autonomous Remote Services’. On May 15, 2024, AITX updated it’s mission statement to: “ At AITX, our mission is to shape the future of security and facility management through the deployment of Autonomous Intelligent Response (AIR™) technology. We harness the transformative power of AI and advanced computing to create intelligent, responsive devices and environments that enhance security, safety, and efficiency. “ On May 22, 2024, the Company released an update to Autonomous Remote Services paper called Autonomous Intelligent Response that details the development of relevant technology and the direction of the company. This can be downloaded here: Request AIR Manifesto - AITX - Artificial Intelligence Technology Solutions AITX Subsidiaries AITX owns and operates three (4) 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. This company’s primary website is radsecurity.com and is updated as developments occur. 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 completed a ‘soft-launch’ of it’s ‘RADPACK’ board in December 2022. This hardware is a RAD-designed circuit board designed to power all RAD devices. The company will be working to sell it to other manufacturers that want to create security devices but need a hardware/software solution and want to leverage the investments and network that RAD Inc has built over the years. The company has started to work with a commission-only sales person to start to share this solution in the electric vehicle charger industry. Additional sales materials are under development and company is working to find it’s first adopter. It is expected that this market niche could take several years to develop and as such the company will be looking for clients in the security space and related markets. The Company anticipates no revenues from RADG this fiscal year. This company’s website is radgroup.ai and is updated as developments occur. 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 security and facility management 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 artificial intelligence based autonomous driving, perception, and prediction. ROAMEO features technology from RAD I and RAD G to perform its functions. The company believes that it’s developing suite of mobile devices will bring the interactive outdoor, indoor, rugged, commercial security and facility robots to the market. These mobile solutions will complement the stationary systems. The three solutions are the RADDOG™ lineup of quadrupeds and ROAMEO as the outdoor long-running high visibility robot. Previously mentioned RAD M project referenced as ‘Mobile 3’ is on indefinite hold as the stated solutions are given all the development resources. ROAMEO is manufactured, implemented, and maintained by RAD I. Currently the focus on the RADDOG lineup pushes the completion of ROAMEO 4.0 into later calendar year 2024. RAD M will continue developing additional mobility solutions that RAD I will bring to market. The Company believes strongly that the next ROAMEO will have significant positive financial impact on the Company. The Company believes demand for this solution is strong based on continued requests for prospects despite no marketing or promotion. - 2 - Table of Contents 4. Robotic Assistance Devices Residential, Inc. (RAD R) is the AITX entity developed to bring AIR™ to residential products. The first announced product is called RADCAM™ and is scheduled to be on the market in 2024. RAD R uses technology from RAD Inc. At this moment it is not known if RAD R will be built into a long term entity of AITX or if it will be sold. Other AITX are not meant to be sold. AITX’ main website is aitx.ai. Company and investor information can be found at this site and it is updated regularly. 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. 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’ 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 - Table of Contents 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’ ROADMAP & Product Development RAD’s product line has continued to develop with both new solutions being added and older solutions being phased out. Specifically: — SCOT is discontinued although 2 units continue to operate and generate revenue for the Company. Although initial interest was high and several initial deployments continue to operate as intended the solution did not fulfill expected sales targets and as such it was decided not to upgrade it to the ‘3.x’ technology. It has been removed from the price list. A permanent impairment on the Scot has been recorded. — Wally & Tom – Wally has been replaced with TOM (‘The Office Manager’) which has many but not all Wally features yet features stronger processing and related technology. Wally’s are being removed and replaced with Toms throughout last calendar year although some Wally’s will continue to operate for a few more years. Notably, the first Wally installation from 2020 continues to operate, is expected to operate for more years and is not scheduled for replacement. — ROSA is has completed it’s final version 3.1 production at the time of this filing. Generation 4 has begun production at the time of this filing (May 2024). and features the ‘RADPack Millie Gen 3’ control board from RAD G. This board is expected to significantly reduce assembly time because it requires a significantly less sophisticated wiring harness. The board also allows for better fleet management functionality since the board is 100% designed, programmed by RAD and important features have been included by design. ROSA Gen4 has 65% less production time than 3.1. — ROSA has spawned two significant iterations: ○ RIO version. ‘RIO’ is a ROSA Independent Observatory, or in other terms, a solar powered trailer with 1 – 2 ROSA units on top. The current market leader in this space is a company called LiveView, Inc. The Company estimates this market at around 6,000 new trailer deployments per year and is looking to capture up to 10% - 20% of the market within 2 years. As of the time of this writing approximately 200 RIO have been deployed for a variety of clients. ○ ROSA P version: This version has 1 – 2 ROSA attached to a pre-existing pole and powered through that poles lighting power. However, since the lights are generally only powered at night ROSA P has the ability to power the ROSA(s) and a battery pack while the lighting circuit is receiving power. During daylight, when there is no lighting power, ROSA P provides battery power to the 1 – 2 ROSA. As the time of this filing several ROSA P are deployed across three different clients. At the time of this writing approximately 20 iterations are deployed. — AVA has evolved into it’s Generation 4 series. This series features more responsive and much brighter touchscreen and a significantly improved 2 way audio system. AVA deployments continue to be more ‘sticky’ than any other RAD deployment because it becomes an essential part of regular facility activity since it allows for vehicle ingress and in some cases egress. AVA has evolved into Generation 4with the completion of the RADPack Millie Gen 3. - 4 - Table of Contents RAD’s 4 th Generation – AIR Powered AITX’ AIR™ direction is the basis for the 4 th Generation of hardware and software from the AITX subsidiaries. Specifically this has launched RAD I’s 4 th Generation ROSA™, RIO™ and AVA ™ products. As of May 2024 the 2024 production has begun for ROSA and RIO. AVA 4 th Generation solutions are expected to be in production in June or July. RAD G core product, RADPack, features AIR support with version ‘RADPACK Millie Version C’. This version is built to carry NVIDIA Jetson processors which is a critical component for AIR. RAD M devices, specifically RADDOG and ROAMEO, will all feature AIR solutions. On the mobility side the Company has made significant progress. Specifically: — ROAMEO – version 2 units have been deployed across a number of clients and it was found that the motors are not satisfactory for 100% reliable use. Notably one client has had a ROAMEO for many months, it’s solved their security issue and has achieved important milestones such as 16 hours of perfect autonomous patrols and months of perfect autonomous recharging. However the Company has decided to shut the 2.x program in favor of the 3.x program (which is now being called Generation 4 because it has AIR) for these reasons: 1. The new motors built for 4.x will give much improved performance across the board and this is the type of performance the Company wants to use in a high volume product. Specifically the motors allow for minute operation as a stepper motor, allow for fast speeds, have an integrated safety brake and are suited for safety certifications (critical). 2. Production costs of ROAMEO 3.x are expected to be 50% of 2.0 which was considerably expensive and made it impossible to achieve required profit margins. 3. The sensor package and user payload on 3.0 is refined and focused for reliability. ROAMEO 3.x prototype 1 is 80% at the time of this filing although resources are primarily focused on RADDOG development. At this moment the Company has achieved sophisticated autonomous navigation for ROAMEO and other important technical milestones. Demand and requests for ROAMEO remain high despite not mentioning or promoting it. The Company continues work on it and advises that the first prototype should be complete prior to the end of the fiscal year. A permanent impairment on the version 2 units has been recorded. — RADDOG 2LE – This version launched June 6, 2023, and it’s ‘LE’ denotes that it is specifically designed for law enforcement applications. Additional information can be found at raddog.ai. The company has deployed 1 unit to a Michigan police force. Currently the company is developing it’s next version of the RADDOG with it’s manufacturing partner, Unitree. The Company expects to reveal this version around September 2024 and has committed to produce 100 versions. - 5 - Table of Contents 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 and RUPERT (‘RAD Utility, Performance, and Efficiency Reporting Tool’). 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. Towards the end of the prior fiscal year the company announced ‘ROSS’ which is the company’s video management system. This allows non-RAD cameras to be managed by RADSOC alongside RAD stationary and mobile devices. It further allows for RADSOC’s analytics and communication features to be accessible and applied to these non-RAD cameras. RAD launched it’s Fire Arm Detection (‘FAD’) analytic last fiscal year and closed it’s first ROSS/FAD/ROSA project with Rosenbaum Yeshiva in New Jersey. The company has built a modest sales funnel for similar opportunities. 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. The Company believes that the R&D work it has completed makes AITX’ vision for a single all encompassing security and property technology platform complete. With the addition of the stationary and mobile solutions, plus the ability to integrate existing cameras into the system, RAD can now provide solutions in almost every situation at a cost less than most others. RAD continues to develop and evolve software based on AIR, client requests, new features, scaling and other reasons. 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. 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 4 th generation solutions. - 6 - Table of Contents As of May 7 ,2024, the company has 97 full-time equivalent employees with 51 being outside the United States The Company is focused on sequential product development while sales grow in order to get close to positive cash flow. The Company has shared publicly that it expects to be operationally positive cash flow on a monthly basis towards the end of the 2025 fiscal year. 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. 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 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 chairs Security Industry Association’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. In March 2023 Steve Reinharz was elected to a Board seat for Security Industry Association, Inc (SIA). SIA is the foremost security group steering policy, lobbying various governments and promoting education within the security industry. 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 has been to focus on the creation and support of a strong dealer channel. RAD has successfully executed this strategy and has added over 60 qualified dealers to our dealer channel. The expectations were that this approach affords multiple benefits to RAD with few downsides and almost all dealers exclusively represent RAD solutions in the area of ai-enabled autonomous devices. However, over the past year it’s become clear that the dealer channel has exceptional benefits with a limited number of dealers. Forward-thinking dealers that invest the time and energy into RAD have the ability to be successful. Unfortunately many dealers are happy to sign up and continue their normal business operations without giving proper efforts to promote RAD solutions to their client bases. As such the company has about 20 active dealers with the rest being more opportunistic. As such the Company has been increasingly focusing on a limited number of dealers, including a strong and growing relationship with the world’s largest security company, Allied Universal Inc. (AUS). AUS and RAD are working on a large roll out to all integration offices as this report is filed. Furthermore the Company is devoting more time to direct sales, an area of effort that gives the Company more control over the sales process. It is expected that going forward the relationship with active dealers will strengthen while continuing to strengthen direct sales. Competition We may be subject to competition by competitors that have greater operating histories, cash and operational resources than we do. - 7 - Table of Contents Employees As of March 7, 2024, we have a headcount of 97 fully dedicated full-time equivalents, including 46 RAD Inc. employees, 28 overseas contractors, and 23 employees of a Canadian research and development company. None of our employees are represented by a union. We consider our employee relations to be excellent. AITX’ principle shareholder owns a minority interest in the Canadian research and develop company but has not received any compensation of any kind from that company to date. Accomplishments & Highlights AITX, and its subsidiaries RAD I, RAD M, RAD G, and RAD R 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: Cyber and data protection and compliance The Company continues it’s focus on delivery of safe and secure software and systems to its clients. As such, last year the Company achieved SOC 2 Report status. 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. The Company has subsequently maintained SOC 2 Type 2 status and has achieved a cyber certification from a Fortune Five company which was more difficult to obtain than either SOC certifications. Due to non-disclosure agreements with the Fortune Five company AITX can not disclose who it is from. Implementation of ERP (enterprise resource planning) System - Update The Company’s implementation of NetSuite ERP continued through the year with a successful transition to all accounting and human resources now fully functionality. Sales is using some of the CRM features of the ERP but still using a non-ERP platform for management of the sales funnel. Production’s use of the ERP significantly increased over the course of the year. There remain some challenges for full production implementation related to change management. Management expects full implementation of the ERP to complete this fiscal year. The will allow realization of efficiencies in purchasing, kitting and production. Authorized Dealers Added to Dealer Network At the end of FY 2023 RAD has more than 57 authorized dealers, up from 32 at the beginning of the fiscal year. These dealers are located 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 GardaWorld, which are respectively the largest and 3 rd largest guarding companies in the world. The ongoing addition of authorized dealers introduces and delivers RAD products to new markets. Discussion on Sales The sales funnel continues to grow in both quantity and quality. The sales team has matured and stabilized with a Senior Vice President of Sales with four full time direct sales reports. Additional sales drivers are RAD’s President as well as AITX’ CEO. Furthermore operations team members are instrumental in encouraging clients to expand existing systems. In the fiscal year ended February 28, 2024 RAD added hundreds sales opportunities to the sales funnel. Furthermore several end users expanded their RAD systems with commitments to continue expansion. RAD’s dealer network also grew although the Company will note that dealer performance has fallen short of expectations and is being addressed. 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. - 8 - Table of Contents Management has identified that conversion of accounts from opportunities to clients is improving and has identified some of the reasons for the low conversion rate as well as new tactics to break through these obstacles. Advanced new technology sales often involve multiple decision-makers and require a skilled and passionate internal champion. The security industry breeds risk-averse personnel. The Company is pressing several initiatives to change the industry to create an environment where trying new things in the norm as opposed to the exception. An example of these efforts are the Security Industry Association’s (SIA) upcoming Town Hall where three Fortune 500 security practitioners that have implemented new technologies will share their tips for successful internal selling. AITX will be putting more emphasis on these efforts this year. Between a maturing hardware and software line up, an increasing number of deployments/case studies/success stories, management is excited for the next year’s sales. Management feels that ironing out technical and production challenges are well in hand and clearing the way for a greater volume of deployments. Press Announcements During the fiscal year, the Company issued over 100 press releases, the vast majority of them being sales announcements and new authorized dealers being signed. Public events, conferences, awards and new product announcements were also publicized via press releases. All Company press releases can be found here: AITX News - AITX - Artificial Intelligence Technology Solutions Trade Shows and Conferences As in previous years, RAD attended several large security industry events including ISC West, GSX, plus dozens of regional conferences with the purpose of presenting the Company’s solutions to a buying audience and continually loading the sales pipeline with new opportunities. RAD often utilizes the events for speaking engagements or panel discussions to propel the Company’s ‘thought leadership’ regarding its AI-powered security and safety solutions. Additional Points of Interest This fiscal year was significant for stabilization of technology, better understanding of the sales process and related challenges, positioning as a true leader in the industry and the achievement of several high profile deployments. The Company continues its focus on sales, efficiencies with the goal of achieving positive cash flow within 18 months. Management, based on regular conversations with the Company’s largest debt holder, expects no issues regarding pushing out debt deadlines as it has done so in years past. Management confirms the support of this lender and notes the most recent non-convertible $ 4m loan facility. Management reiterates that the plan continues to be to grow revenues, achieve positive cash flow, reduce debt and prepare for an uplist to Nasdaq. Management estimates that with continued reasonable performance the company could obtain and maintain profitability while working to pay down in preparation for Nasdaq uplist targeted for 2026. Legal Proceedings See Item 3 - Legal Proceedings. - 9 - Table of Contents 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.