AITX 10-K & 10-Q changes, risk factors and insider trading

Forward-Looking Statement Categories

The following categories of statements in this Report are forward-looking, and each is subject to material risks and uncertainties that could cause actual results to differ materially from those described or implied:

1. Revenue and Financial Projections.

Statements that RAD-I’s recurring revenue and gross margin could, on a standalone basis, support positive cash flow operations and management’s characterization that RAD-I has “achieved a point” at which it could support positive cash flow operations today; that RAD-M will surpass RAD-I’s monthly recurring revenue contribution at some future point; that subscription gross margin will exceed 75% and outright-sale gross margin will exceed 50% based on average bill of materials costs and pricing that the market “has appeared to accept,” each of which is a forward-looking characterization dependent on assumptions about continued pricing acceptance, stable input costs, and manufacturing scale that may not be realized; that RAD-G will generate substantial revenue from SARA platform licensing; that RAD-M represents a higher revenue ceiling than stationary solutions; and that penetration of any covered industry would produce sufficient revenue to support profitability.

2. Product Development and Commercialization.

Statements regarding the planned introduction of additional stationary solutions during fiscal year 2027; the establishment of RAD Europe during fiscal 2027 and the anticipated benefits thereof; all statements regarding ROAMEO’s commercial viability, autonomous operation without on-site human pilots, production ramp, and revenue trajectory following commencement of commercial billing in May 2026; statements regarding planned RAD-I product introductions, including their timing, features, and market acceptance; and statements regarding expansion of the authorized dealer network and anticipated contributions from the dealer channel.

3. Market and Industry Characterizations.

All characterizations of the physical security industry as undergoing a structural transition analogous to Industry 4.0; assertions that the human-guard labor model is experiencing unsustainable cost pressures; characterizations of the total addressable market for AI-driven and autonomous security solutions; any implication that competitive dynamics will favor the Company; and the “RAD Town” concept in its entirety, which is a conceptual design target and strategic roadmap, not a contracted project, existing deployment, or assured business outcome.

4. SARA Platform and Agentic AI.

All characterizations of SARA as an agentic AI platform enabling autonomous real-time action without continuous human intervention, including the Item 1 description that SARA enables devices to “perceive, decide, communicate, and act autonomously in real time, without continuous human intervention,” which states this as a present operational characteristic rather than design intent and should be read in light of the actual performance qualifications in this Item 1A; statements regarding SARA licensing and commercialization with third-party hardware manufacturers and monitoring platforms (including the Immix integration); anticipated expansion of the dealer network and platform ecosystem; statements regarding SARA’s performance in detection, escalation, and response workflows; the characterization in Item 1 that the firearm detection analytic “identifies visible handguns and long guns in real time,” which omits the design-intent and environmental-conditions qualifications that investors should consider when evaluating this statement; and all characterizations of RAD-G’s sales funnel as “substantial” or of management’s expectations for RAD-G revenue as “high.” Industry award recognitions do not constitute validation of product safety, efficacy, or commercial viability.

5. Management Estimates and Unaudited Financial Characterizations.

The approximate $20 million cumulative ROAMEO development figure is a management estimate not audited or reviewed by the Company’s independent registered public accounting firm. Segment-level profitability and cash flow characterizations for RAD-I—including management’s characterization in Item 1 that RAD-I “has achieved a point” at which its recurring revenue and gross margin could support positive cash flow operations today—are based on internal analysis for which no separately audited financial statements are published. This characterization excludes all expenses not directly attributable to the stationary solutions business, including shared corporate overhead, interest expense, and investment in RAD-M and RAD-G, and does not indicate that the Company as a whole operates at or near positive cash flow. No financial characterization of any individual subsidiary should be treated as audited data. Characterizations of gross margin expectations are based on average bill of materials costs and market pricing over limited historical periods, as well as pricing that the market “has appeared to accept,” and may not be representative of future results.

6. International Expansion.

Statements regarding the anticipated establishment of RAD Europe during fiscal 2027; expected benefits of RAD Lanka’s Port City Colombo status, including cost efficiency and tax benefits; and anticipated GDPR-compliant service capabilities to be provided through RAD Europe. All such forward-looking statements are subject to regulatory, legal, and operational risks inherent in international expansion.

ADDITIONAL MATERIAL RISK FACTORS

In addition to the forward-looking statement categories described above, investors should carefully consider the following material risk factors. Each could cause actual results, financial condition, or business performance to differ materially from those described or implied in this Report. These risk factors reflect the Company’s business as described in Item 1 of this Annual Report and the disclosures made in prior AITX periodic and current filings with the Securities and Exchange Commission. This list is not exhaustive, and additional risks not currently anticipated by management may emerge.

I. FINANCIAL AND GOING CONCERN RISKS

Substantial Doubt About the Company’s Ability to Continue as a Going Concern.

The Company’s independent registered public accounting firm has included an explanatory paragraph in its audit reports expressing substantial doubt about the Company’s ability to continue as a going concern. The Company has incurred recurring net losses, has a history of negative operating cash flows, and carries an accumulated deficit that, as of recent reporting periods, has exceeded $171 million. The Company’s total liabilities substantially exceed its total assets, and it maintains negative stockholders’ equity. These conditions raise material uncertainty as to whether the Company will be able to meet its obligations as they come due. The Company’s financial statements do not include any adjustments to reflect the possible effects on the classification or carrying value of assets and liabilities that might result from the outcome of this uncertainty. There can be no assurance that the Company will be able to generate sufficient revenue, raise adequate capital, or otherwise secure the resources necessary to continue operations beyond the near term.

The Company Requires Continued External Financing and May Be Unable to Obtain It on Acceptable Terms or at All.

The Company’s operations are not yet self-funding. The Company has relied, and expects to continue to rely, on external debt and equity financing to fund operations, capital expenditures, product development, and the planned production ramp of ROAMEO and other new products. A significant portion of the Company’s debt has historically been owed to entities controlled by a single individual, creating concentrated lender risk and potential conflicts of interest. The Company has also utilized equity financing arrangements, including agreements providing for the issuance of common shares at variable prices, to access capital. If the Company is unable to obtain financing on acceptable terms—or if existing financing arrangements are not renewed or are terminated—the Company may be required to curtail or cease operations, defer planned capital expenditures (including the ROAMEO production ramp and RAD Europe establishment), reduce headcount, or otherwise alter its operating plans in ways that could materially harm its business and prospects.

The Company’s Common Stock Is Subject to Substantial Dilution Risk.

The Company has issued, and may continue to issue, substantial numbers of shares of common stock in connection with financing transactions, employee and director compensation, debt conversions, and other purposes. As of February 28, 2026, total common shares outstanding exceeded 267 million (post-reverse-split). In March 2026, FINRA processed a 100-for-1 reverse stock split; however, the authorized share count remains at approximately 12 billion shares, preserving the structural capacity for future dilutive issuances. Variable-price equity financing arrangements and debt conversion rights may result in issuances at prices below the then-current market price of the Company’s common stock, causing material dilution to existing shareholders. The reverse stock split does not alter the underlying financial condition of the Company or reduce the potential for future dilutive issuances. The Company does not provide assurance that future equity issuances will not substantially reduce the proportionate ownership or economic interest of existing stockholders.

The Company Has a History of Net Losses and Cannot Assure Future Profitability.

The Company has not achieved profitability in any fiscal year. Net loss for the fiscal year ended February 28, 2026 were approximately $14.5 million. Operating expenses—including research and development, sales and marketing, and general and administrative costs—have consistently exceeded gross profit, and interest expense on the Company’s debt obligations represents an additional recurring charge. While gross margin on deployed subscription units has improved and the Company’s Solutions-as-a-Service model is designed to produce improving margins at scale, the Company’s operating cost structure, investment in ROAMEO commercialization, RAD-G platform development, and debt service obligations may prevent it from achieving profitability even as revenues increase. No assurance can be given as to whether or when the Company will achieve or sustain profitability.

Gross Margin Expectations May Not Be Achieved.

Item 1 of this Report states that subscription gross margin “will exceed” 75% and outright-sale gross margin “will exceed” 50% over deployment lifecycles, based on average bill of materials costs and pricing that the market “has appeared to accept”—language that reflects observed pricing acceptance rather than contracted or assured revenue, and that is itself a forward-looking characterization. These expectations assume continued pricing acceptance, no material input cost increases, manufacturing cost improvements associated with scale, and the absence of significant warranty, maintenance, or retrieval costs on churned units. To date, hardware gross margins have been achieved under small-batch production conditions. None of these assumptions are guaranteed, and actual gross margins may differ materially, particularly during the ROAMEO production ramp period when per-unit manufacturing costs may be higher than at scale.

II. OPERATIONAL AND PRODUCT RISKS

ROAMEO Commercial Deployment and Production Ramp Involve Significant Execution Risk.

The Company commenced commercial billing on ROAMEO units in May 2026 following what management estimates to be approximately $20 million in cumulative development investment. ROAMEO is a fully autonomous, outdoor mobile security vehicle operating without on-site human pilots, and its commercial viability depends on the continued reliable performance of its autonomous navigation stack, on-board sensor systems, cellular and 5G connectivity, and full integration with the SARA agentic AI platform in real-world field conditions. Initial commercial deployments are at a limited number of enterprise customer sites. Scaling ROAMEO to meet broader commercial demand will require significant expansion of the Company’s production capacity and manufacturing operations, neither of which has been demonstrated at commercial scale. Mechanical failures, software defects, connectivity disruptions, navigation errors, environmental limitations, or other operational issues experienced by deployed ROAMEO units could damage the Company’s reputation, result in contract terminations, expose the Company to liability, and materially impair the Company’s ability to achieve the revenue projections attributed to the RAD-M business. Management’s statements that RAD-M will surpass RAD-I’s revenue contribution are forward-looking and dependent on successful execution of each of these steps.

The Company’s Revenue Is Highly Concentrated and Dependent on Subscription Renewals.

Substantially all of the Company’s revenue is derived from recurring monthly subscription contracts, typically with initial terms of twelve months. Customer retention and subscription renewal are critical to the Company’s revenue stability and growth. A single customer has at times represented a disproportionate share of the Company’s revenue—one customer has previously accounted for approximately 47% of six-month revenue. The loss of one or more significant customers, a material reduction in subscription renewal rates, a failure to maintain service quality levels that support renewals, or disruption to services provided to the Fortune Top 10 enterprise customer or any large enterprise account could materially and adversely affect the Company’s revenue, cash flow, and operating results. The Company retains ownership of hardware deployed under subscription contracts; accordingly, subscriber churn results not only in revenue loss but also in costs associated with device retrieval, redeployment, or write-down.

The Company’s Hardware Manufacturing Operations Are Subject to Supply Chain, Capacity, and Quality Risks.

The Company performs final assembly, system integration, software loading, and quality assurance at its facility in Ferndale, Michigan, and sources sub-components—including machined metal and plastic components, printed circuit boards, and selected sub-assemblies—from domestic and international suppliers. The Company’s hardware gross margins to date have been produced under small-batch production conditions, and the ability to achieve projected margin improvements depends on production volume increases that have not yet been demonstrated. A disruption affecting one or more key suppliers, an inability to secure critical components at acceptable prices, quality defects, or a failure to scale manufacturing capacity to meet demand could delay product deployments, increase costs, reduce gross margins, and impair the Company’s ability to fulfill customer commitments. International supply chain disruptions, tariff changes, or export control regulations affecting components sourced from outside the United States could have a material adverse effect on component availability and cost. These risks are heightened during the ROAMEO production ramp, when any manufacturing bottleneck would directly constrain the Company’s ability to generate revenue from its highest-anticipated growth segment.

The RAD-R Residential Business Has Underperformed and Presents Ongoing Uncertainty.

The Company’s RAD-R subsidiary, which operates the RADCam residential security product, generated an immaterial amount of consolidated revenue during fiscal 2026, substantially below the Company’s expectations. The Company attributes this underperformance primarily to the structural differences between its B2B-oriented sales model and the consumer marketing investment required to compete in the B2C residential channel. The Company has no immediate plans to discontinue the RADCam product but has not committed to the additional consumer marketing spend management believes would be required to compete effectively. Although the Company has modified the residential software for deployment into small-and-medium business and enterprise markets through RAD-I, there can be no assurance that this repositioning will generate material revenue. The RAD-R segment may continue to generate losses, and the Company’s assessment of the segment’s strategic value may change in ways that result in impairment charges, operational restructuring, or reallocation of capital.

New Product Introductions and RAD Europe Establishment Are Subject to Execution Risk.

The Company has stated its intention to introduce additional stationary solutions during fiscal year 2027 and to establish RAD Europe during the same period. Both initiatives involve engineering, regulatory, operational, and commercial risks that could delay or prevent their realization. New product introductions may be delayed by supply chain constraints, manufacturing challenges, software development setbacks, or unfavorable customer reception. The establishment of RAD Europe will require legal entity formation, regulatory compliance infrastructure, staffing, and local market development in a new geography. There can be no assurance that either initiative will proceed on the stated timeline or will produce the anticipated revenue contribution.

III. TECHNOLOGY AND INTELLECTUAL PROPERTY RISKS

The Company’s AI and Autonomous Technology May Not Perform as Described or Expected.

The SARA platform and the Company’s suite of AI-driven security products rely on large language model architecture, machine learning models, computer vision analytics, autonomous decision-making systems, and voice interaction capabilities. AI systems of this nature are subject to known limitations, including errors in detection or classification, failure to perform reliably across varied environmental conditions, susceptibility to adversarial inputs, and performance degradation as the threat landscape or deployment environment changes. Item 1 of this Report states that SARA enables devices to “perceive, decide, communicate, and act autonomously in real time, without continuous human intervention” — describing this as a present operational characteristic. Investors should understand that this characterization reflects design intent under supported field conditions; deployed systems may require more human oversight than described in certain situations and may not consistently deliver the autonomous escalation, voice intervention, and first-responder coordination described in this Report. Item 1 also states that the Company’s firearm detection analytic “identifies visible handguns and long guns in real time”—an unqualified performance claim. Actual detection accuracy and response performance are subject to environmental conditions, image quality, and system configuration; the Company does not represent that the analytic will detect all firearms in all conditions, and the ASTORS award recognition does not constitute independent validation of detection accuracy rates or performance specifications. Failures of the Company’s AI systems to detect threats, correctly identify individuals or vehicles, or appropriately escalate or de-escalate situations could result in harm to persons or property, exposure to liability, and damage to the Company’s reputation and customer relationships. Industry award recognitions referenced in this Report do not constitute validation of the safety, accuracy, or commercial efficacy of any product.

The Company Relies on Trade Secrets and Confidentiality Protections Rather Than Patents and May Be Unable to Adequately Protect Its Intellectual Property.

The Company does not currently rely materially on patent protection for its hardware designs, software, firmware, AI models, the SARA platform, autonomous navigation stack, or related technology. Instead, the Company relies on trade secret protection, confidentiality and invention-assignment agreements with employees and contractors, copyrights, and trademark registrations. These protections may be insufficient to prevent misappropriation, reverse engineering, or independent development of competing technologies by third parties. Confidentiality agreements may be breached; trade secret protections may prove difficult to enforce, particularly across international jurisdictions; and employees or contractors with access to the Company’s proprietary systems, code, or AI models may depart and join competitors or establish competing businesses. The Company’s Sri Lanka operations at RAD Lanka introduce additional jurisdictional complexity with respect to IP enforcement. If the Company’s intellectual property is misappropriated or independently replicated, the Company may lose the technological differentiation that underpins its competitive positioning.

Cybersecurity Incidents Could Compromise the Company’s Products, Customer Data, and Operations.

The Company’s products are connected to the internet and to customer networks, and the SARA platform and related cloud services process and transmit data from deployed devices—including video, audio, and access-control information—across an expanding footprint of connected devices. Although the Company has achieved and maintained SOC 2 Type 2 status since February 2025, cybersecurity certifications do not guarantee the absence of vulnerabilities or the prevention of successful attacks. A breach of the Company’s systems, a compromise of deployed customer devices, or a successful attack on the SARA platform could result in unauthorized access to sensitive data, disruption of device functionality at customer sites, customer contract terminations, regulatory scrutiny, litigation, and significant reputational damage. The Company’s cybersecurity posture will require ongoing investment as threats evolve, as ROAMEO deployments expand the number of connected autonomous vehicles in the field, and as RAD Europe operations increase the Company’s exposure to GDPR and other international data protection regimes.

The SARA Platform May Not Achieve the Commercial Adoption Anticipated by RAD-G.

RAD-G’s business model depends substantially on expanding the SARA ecosystem through licensing and integration arrangements with third-party hardware manufacturers, monitoring platforms (including central station platforms such as Immix), dealers, and enterprise end users. The commercial success of RAD-G depends on third parties choosing to integrate SARA into their products, platforms, and workflows—decisions that are outside the Company’s control and that may not materialize on the timeline or at the scale management anticipates. The RAD-G sales funnel, characterized by management as substantial for an early-stage AI platform business, has not yet produced revenue commensurate with management’s expectations. Competition from large, well-funded AI technology companies with greater distribution and integration resources could impair RAD-G’s ability to establish SARA as a platform-of-choice in the physical security ecosystem.

IV. MARKET, COMPETITIVE, AND REGULATORY RISKS

The Company Operates in a Competitive Market and Faces Competition from Larger, Better-Capitalized Companies.

The Company competes across three distinct but related markets: traditional guard services and manned monitoring; legacy passive security hardware (cameras, access control devices, alarm systems); and an emerging set of AI-driven and autonomous security technology companies. Many of the Company’s actual and potential competitors have substantially greater financial resources, brand recognition, established distribution networks, and installed customer bases than the Company. Large security integrators and major technology companies may develop, license, or acquire AI and autonomous security capabilities that compete directly with the Company’s products and platform. The market characterizations in this Report—including statements that incumbent competitors are “structurally disadvantaged” or that legacy vendors “typically lack” agentic AI capability—reflect management’s view and are not statements of established fact. Competitive dynamics may develop in ways unfavorable to the Company, including through technological advances by competitors, price compression across the autonomous security category, or the market entry of well-capitalized technology companies.

Deployment of Autonomous Security Devices Is Subject to Evolving Legal, Regulatory, and Privacy Constraints.

The Company’s products deploy autonomous devices—including outdoor mobile robotic vehicles (ROAMEO), vehicle access management systems (AVA), visitor management systems (TOM), and AI-enabled cameras (ROSA, RIO, RAM, RADCam)—that collect audio, video, biometric, and identification data in commercial, residential, industrial, and potentially public-access environments. The legal framework governing the collection and processing of such data is complex, rapidly evolving, and varies significantly across jurisdictions. Applicable regulations include state biometric privacy statutes (such as the Illinois Biometric Information Privacy Act), the California Consumer Privacy Act, GDPR as applicable to the Company’s anticipated European operations through RAD Europe, and various other federal, state, and local privacy and data protection laws. Autonomous vehicles and robotic platforms operating in public or semi-public spaces may be subject to licensing, permitting, insurance, or operational requirements that vary by municipality, state, or country. The Company’s anticipated establishment of RAD Europe during fiscal 2027 will directly increase its exposure to GDPR compliance obligations. Failure to comply with applicable laws and regulations could result in regulatory enforcement actions, fines, litigation, mandatory product modifications, or constraints on the Company’s ability to operate or deploy products in affected markets.

Market Adoption of AI-Driven and Autonomous Security Solutions May Be Slower Than Management Anticipates.

The Company’s business plan assumes that customers in the physical security market will adopt AI-driven and autonomous solutions at a pace and scale consistent with management’s view of the industry’s structural transition. This assumption may not prove correct. Customers may be slower than expected to replace human guard labor or legacy surveillance systems with automated alternatives, whether due to risk aversion, labor union obligations, insurance requirements, regulatory constraints, concerns about AI reliability, or other factors. The “RAD Town” concept—in which the Company’s portfolio of stationary and mobile products operates as an integrated autonomous-security fabric across a campus or jurisdiction—is a long-term design target, not an existing deployment or contracted commercial arrangement. The analogies drawn in this Report to Industry 4.0 transitions in other sectors are management’s narrative framework and may not accurately predict the pace or trajectory of adoption in the physical security industry. Slower-than-anticipated adoption would adversely affect the Company’s ability to achieve its revenue projections and extend the period during which the Company requires external financing.

Government and Municipal Markets Present Additional Regulatory and Procurement Risks.

The Company’s end-user base includes government entities, and the Company has identified government as a target vertical market. Government procurement cycles are typically longer and more complex than commercial sales cycles, are subject to appropriations risk and political change, and may require certifications, clearances, or compliance with specific regulatory frameworks (including federal cybersecurity standards) that the Company may not currently hold or may be unable to obtain. Autonomous security devices deployed in public or government-managed spaces may attract heightened public and regulatory scrutiny regarding civil liberties, facial recognition, and autonomous decision-making in law enforcement-adjacent contexts. There can be no assurance that the Company will be able to successfully compete for or retain government contracts.

V. MANAGEMENT, PERSONNEL, AND KEY PERSON RISKS

The Company Is Dependent on Key Personnel, Particularly Its Chief Executive Officer and Chief Technology Officer.

The Company’s success is substantially dependent on the continued services of Steven Reinharz, who serves as both Chief Executive Officer and Chief Technology Officer and is the founder of RAD and its principal architect. Steven Reinharz is also the Company’s single largest equity holder and plays a central role in product strategy, customer relationships, investor relations, and industry positioning, including through his service on the Board of the Security Industry Association and chairmanship of its Autonomous Working Group. Item 1 of this Report states that Steven Reinharz has “written and spoken extensively” about the physical security industry’s structural transformation since the Company’s inception and is a “regular speaker” at events hosted by SIA and ASIS, the two leading industry organizations. This public profile, while reflecting genuine industry standing, further concentrates the Company’s market credibility and industry positioning in a single individual; any reputational, health, or availability issue affecting Steven Reinharz could have an outsized adverse effect on the Company’s relationships with customers, partners, dealers, and investors beyond the direct operational impact of his absence. The combined CEO and CTO role concentrates both business leadership and technical architecture in a single individual. The loss of Steven Reinharz, or any material reduction in his involvement in the Company’s business, could have a severe and potentially irreversible adverse effect on the Company. The Company does not currently represent that it has key-person insurance sufficient to compensate for this risk, and the ability to recruit a suitable replacement would be highly uncertain given the specialized combination of technical, operational, and strategic capabilities involved.

The Company’s Ability to Attract and Retain Qualified Technical, Sales, and Operational Personnel Is Critical.

Following is a summary of account decreases:

These decreases are partially offset by the following increases:

Total revenue for the three-month period ended May 31, 2026 was $1,831,202which represented a decrease of $23,635 or 1% compared to total revenue of 1,854,837 for the three months ended May 31, 2025. The decrease in revenue was attributable to a significant drop in the sales for one major customer due to their internal cost cutting initiatives. This major customer previously represented about 48% of the Company’s revenues for the three months ended May 31, 2025 represented 21% of the Company’s revenues for the three months ended May 31, 2026. The Company managed to mitigate this reduction by gaining new customers and diversifying its customer base. For the three months ended May 31, 2026, two customers accounted for 36% of total revenue and for the three months ended May 31, 2025, two customers accounted for 65% of total revenue. The Company expects to see sales growth through new mobile products and software starting in the second quarter of this fiscal year. The mobile products will see a slow steady rollout over the fiscal year due to the capital intensive nature of these products.

Other expense during the three months ended May 31, 2026 and May 31, 2025, was $3,006,474 and $1,415,349, respectively. The $1,591,125 increase in other expense was primarily attributable to a $885,525 increase in interest expense due to an approximately $338,000 increase in debt discount amortization expense, an approximately $204,000 increase in interest on DVPO balance with the balance due to the switch to some notes (see Note 11) to compounding interest and interest on approximately $2.7 million increase in loans payable. The $707,600 loss on settlement was on the exchange of loans payable and accrued interest for the three months ended May 31, 2026

Summary of Cash Flows